Nike 2011 Annual Report Download - page 52

52 NIKE,INC.-Form10-K
PARTII
Note14Accumulated Other Comprehensive Income
thesavings plans were $39million, $34million, and $38million for theyears
ended May31,2011,2010, and 2009, respectively, and are included in selling
and administrative expense.
The Company also has a Long-Term Incentive Plan (“LTIP”) that was adopted
by the Board of Directors and approved by shareholders in September1997
and later amended in fi scal 2007. The Company recognized $31million,
$24million, and $18million of selling and administrative expense related to
cash awards under the LTIP during theyears ended May31,2011,2010,
and 2009, respectively.
The Company has pension plans in various countries worldwide. The pension
plans are only available to local employees and are generally government
mandated. The liability related to the unfunded pension liabilities of the plans
was $93million and $113million at May31,2011 and 2010, respectively,
which was primarily classifi ed as long-term in other liabilities.
NOTE14 Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, are as follows:
(Inmillions)
May31,
2011 2010
Cumulative translation adjustment and other $ 168 $ (95)
Net deferred gain on net investment hedge derivatives 50 107
Net deferred (loss) gain on cash fl ow hedge derivatives (123) 203
$ 95 $ 215
NOTE15 Commitments and Contingencies
The Company leases space for certain of its offi ces, warehouses and
retail stores under leases expiring from 1 to 24years after May31,2011.
Rentexpense was $446million, $416million, and $397million for theyears
ended May31,2011,2010 and 2009, respectively. Amounts of minimum
future annual rental commitments under non-cancelable operating leases in
each of the fi veyears ending May31,2012 through 2016 are $374million,
$310million, $253million, $198million, $174million, respectively, and
$535million in lateryears.
As of May31,2011 and 2010, the Company had letters of credit outstanding
totaling $99million and $101million, respectively. These letters of credit were
generally issued for the purchase of inventory.
In connection with various contracts and agreements, the Company provides
routine indemnifi cations relating to the enforceability of intellectual property
rights, coverage for legal issues that arise and other items where the Company
is acting as the guarantor. Currently, the Company has several such agreements
in place. However, based on the Company’s historical experience and the
estimated probability of future loss, the Company has determined that the
fair value of such indemnifi cations is not material to the Company’s fi nancial
position or results of operations.
In the ordinary course of its business, the Company is involved in various legal
proceedings involving contractual and employment relationships, product
liability claims, trademark rights, and a variety of other matters. The Company
does not believe there are any pending legal proceedings that will have a
material impact on the Company’s fi nancial position or results of operations.
NOTE16 Restructuring Charges
During fi scal 2009, the Company took necessary steps to streamline its
management structure, enhance consumer focus, drive innovation more
quickly to market and establish a more scalable, long-term cost structure.
As a result, the Company reduced its global workforce by approximately 5%
and incurred pre-tax restructuring charges of $195million, primarily consisting
of severance costs related to the workforce reduction. As nearly all of the
restructuring activities were completed in fi scal 2009, the Company did not
recognize additional costs relating to these actions. The restructuring charge is
refl ected in the corporate expense line in the segment presentation of earnings
before interest and taxes in Note18—Operating Segments and Related
Information. The restructuring accrual included in accrued liabilities in the
consolidated balance sheet was $3million and $8million as of May31,2011
and 2010, respectively.
NOTE17 Risk Management and Derivatives
The Company is exposed to global market risks, including the effect of changes
in foreign currency exchange rates and interest rates, and uses derivatives
to manage fi nancial exposures that occur in the normal course of business.
TheCompany does not hold or issue derivatives for trading purposes.
The Company formally documents all relationships between formally designated
hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking hedge transactions. This process includes linking
all derivatives to either specifi c fi rm commitments or forecasted transactions.
The Company also enters into foreign exchange forwards to mitigate the change
in fair value of specifi c assets and liabilities on the balance sheet, which are
not designated as hedging instruments under the accounting standards for
derivatives and hedging. Accordingly, changes in the fair value of these non-
designated instruments of recorded balance sheet positions are recognized
immediately in other (income), net, on the income statement together with the
transaction gain or loss from the hedged balance sheet position. TheCompany
classifi es the cash fl ows at settlement from these undesignated instruments in
the same category as the cash fl ows from the related hedged items, generally
within the cash provided by operations component of the cash fl ow statement.
The majority of derivatives outstanding as of May31,2011 are designated as
cash fl ow, fair value or net investment hedges. All derivatives are recognized
on the balance sheet at their fair value and classifi ed based on the instrument’s
maturity date. The total notional amount of outstanding derivatives as of
May31,2011 was $7billion, which is primarily comprised of cash fl ow
hedges for Euro/U.S. Dollar, British Pound/Euro, and Japanese Yen/U.S.
Dollar currency pairs.