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Table of Contents NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
model if used on a stand−alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar
valuation. The fair value of Umbro’s indefinite−lived trademark was estimated using the relief from royalty method, which assumes that the trademark has
value to the extent that Umbro is relieved of the obligation to pay royalties for the benefits received from the trademark. The assessments of the Company
resulted in the recognition of impairment charges of $199.3 million and $181.3 million related to Umbro’s goodwill and trademark, respectively, for the
year ended May 31, 2009. A tax benefit of $54.5 million was recognized as a result of the trademark impairment charge. In addition to the above
impairment analysis, the Company determined an equity investment held by Umbro was impaired, and recognized a charge of $20.7 million related to the
impairment of this investment. These charges are included in the Company’s “Other” category for segment reporting purposes.
The discounted cash flow analysis calculated the fair value of Umbro using management’s business plans and projections as the basis for expected
cash flows for the next 12 years and a 3% residual growth rate thereafter. The Company used a weighted average discount rate of 14% in its analysis, which
was derived primarily from published sources as well as our adjustment for increased market risk given current market conditions. Other significant
estimates used in the discounted cash flow analysis include the rates of projected growth and profitability of Umbro’s business and working capital effects.
The market valuation approach indicates the fair value of Umbro based on a comparison of Umbro to publicly traded companies in similar lines of business.
Significant estimates in the market valuation approach include identifying similar companies with comparable business factors such as size, growth,
profitability, mix of revenue generated from licensed and direct distribution, and risk of return on investment.
Holding all other assumptions constant at the test date, a 100 basis point increase in the discount rate would reduce the adjusted carrying value of
Umbro’s net assets by an additional 12%.
Identified Intangible Assets and Goodwill
All goodwill balances are included in the Company’s “Other” category for segment reporting purposes. The following table summarizes the
Company’s goodwill balance as of May 31, 2010 and 2009 (in millions):
Goodwill Accumulated
Impairment Goodwill, net
May 31, 2008 $ 448.8 $ — $ 448.8
Purchase price adjustments 23.6 — 23.6
Impairment charge — (199.3) (199.3)
Other(1) (79.6) — (79.6)
May 31, 2009 392.8 (199.3) 193.5
Other(1) (5.9) — (5.9)
May 31, 2010 $ 386.9 $ (199.3) $ 187.6
(1) Other consists of foreign currency translation adjustments on Umbro goodwill.
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