Nike 2011 Annual Report Download - page 29

29NIKE,INC.-Form10-K
PARTII
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
Recently Adopted Accounting Standards
In January2010, the Financial Accounting Standards Board (“FASB”) issued
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires additional
disclosures about the different classes of assets and liabilities measured at
fair value, the valuation techniques and inputs used, the activity in Level 3 fair
value measurements, and the transfers between Levels 1, 2, and 3 of the fair
value measurement hierarchy. This guidance became effective for us beginning
March1,2010, except for disclosures relating to purchases, sales, issuances
and settlements of Level 3 assets and liabilities, which will be effective for us
beginning June1,2011. As this guidance only requires expanded disclosures,
the adoption did not and will not impact our consolidated fi nancial position
or results of operations.
In June2009, the FASB issued a new accounting standard that revised the
guidance for the consolidation of variable interest entities (“VIE”). This new
guidance requires a qualitative approach to identifying a controlling fi nancial
interest in a VIE, and requires an ongoing assessment of whether an entity is a
VIE and whether an interest in a VIE makes the holder the primary benefi ciary
of the VIE. This guidance became effective for us beginning June1,2010.
The adoption of this guidance did not have an impact on our consolidated
fi nancial position or results of operations.
Recently Issued Accounting Standards
In June2011, the FASB issued new guidance on the presentation of
comprehensive income. This new guidance requires the components of
net income and other comprehensive income to be either presented in
one continuous statement, referred to as the statement of comprehensive
income, or in two separate, but consecutive statements. This new guidance
eliminates the current option to report other comprehensive income and its
components in the statement of shareholders’ equity. While the new guidance
changes the presentation of comprehensive income, there are no changes to
the components that are recognized in net income or other comprehensive
income under current accounting guidance. This new guidance is effective for
us beginning June1,2012. As this guidance only amends the presentation
of the components of comprehensive income, the adoption will not have an
impact on our consolidated fi nancial positions or results of operations.
In April2011, the FASB issued new guidance to achieve common fair value
measurement and disclosure requirements between U.S. GAAP and International
Financial Reporting Standards. This new guidance, which is effective for us
beginning June1,2012, amends current U.S. GAAP fair value measurement
and disclosure guidance to include increased transparency around valuation
inputs and investment categorization. We do not expect the adoption will have
a material impact on our consolidated fi nancial position or results of operations.
In October2009, the FASB issued new standards that revised the guidance
for revenue recognition with multiple deliverables. These new standards
impact the determination of when the individual deliverables included in a
multiple-element arrangement may be treated as separate units of accounting.
Additionally, these new standards modify the manner in which the transaction
consideration is allocated across the separately identifi ed deliverables by no
longer permitting the residual method of allocating arrangement consideration.
These new standards are effective for us beginning June1,2011. We do not
expect the adoption will have a material impact on our consolidated fi nancial
position or results of operations.
Critical Accounting Policies
Our previous discussion and analysis of our fi nancial condition and results
of operations are based upon our consolidated fi nancial statements, which
have been prepared in accordance with accounting principles generally
accepted in the UnitedStates of America. The preparation of these fi nancial
statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the
accounting policies described below have the greatest potential impact on our
fi nancial statements, so we consider these to be our critical accounting policies.
Because of the uncertainty inherent in these matters, actual results could differ
from the estimates we use in applying the critical accounting policies. Certain
of these critical accounting policies affect working capital account balances,
including the policies for revenue recognition, the allowance for uncollectible
accounts receivable, inventory reserves, and contingent payments under
endorsement contracts. These policies require that we make estimates in the
preparation of our fi nancial statements as of a given date. However, since our
business cycle is relatively short, actual results related to these estimates are
generally known within the six-month period following the fi nancial statement
date. Thus, these policies generally affect only the timing of reported amounts
across two to three fi scal quarters.
Within the context of these critical accounting policies, we are not currently
aware of any reasonably likely events or circumstances that would result in
materially different amounts being reported.
Revenue Recognition
We record wholesale revenues when title passes and the risks and rewards
of ownership have passed to the customer, based on the terms of sale. Title
passes generally upon shipment or upon receipt by the customer depending
on the country of the sale and the agreement with the customer. Retail store
revenues are recorded at the time of sale.
In some instances, we ship product directly from our supplier to the customer
and recognize revenue when the product is delivered to and accepted by the
customer. Our revenues may fl uctuate in cases when our customers delay
accepting shipment of product for periods up to several weeks.
In certain countries outside of the U.S., precise information regarding the date
of receipt by the customer is not readily available. In these cases, we estimate
the date of receipt by the customer based upon historical delivery times by
geographic location. On the basis of our tests of actual transactions, we have
no indication that these estimates have been materially inaccurate historically.
As part of our revenue recognition policy, we record estimated sales returns,
discounts and miscellaneous claims from customers as reductions to revenues
at the time revenues are recorded. We base our estimates on historical rates of
product returns, discounts and claims, and specifi c identifi cation of outstanding
claims and outstanding returns not yet received from customers. Actual
returns, discounts and claims in any future period are inherently uncertain
and thus may differ from our estimates. If actual or expected future returns,
discounts and claims were signifi cantly greater or lower than the reserves we
had established, we would record a reduction or increase to net revenues in
the period in which we made such determination.