Nike 2014 Annual Report Download - page 40

PART II
entities may exceed our current expectations, or the actual cash needs of our
foreign entities may be less than our current expectations. This would result in
additional Income tax expense in the year we determined that amounts were
no longer indefinitely reinvested offshore. Conversely, our approach may also
result in a determination that accumulated foreign earnings (for which U.S.
income taxes have been provided) will be indefinitely reinvested offshore. In
this case, our Income tax expense would be reduced in the year of such
determination.
On an interim basis, we estimate what our effective tax rate will be for the full
fiscal year. This estimated annual effective tax rate is then applied to the year-
to-date Income before income taxes excluding infrequently occurring or
unusual items, to determine the year-to-date Income tax expense. The
income tax effects of infrequent or unusual items are recognized in the interim
period in which they occur. As the fiscal year progresses, we continually refine
our estimate based upon actual events and earnings by jurisdiction during the
year. This continual estimation process periodically results in a change to our
expected effective tax rate for the fiscal year. When this occurs, we adjust the
income tax provision during the quarter in which the change in estimate
occurs.
On a quarterly basis, we evaluate the probability that a tax position will be
effectively sustained and the appropriateness of the amount recognized for
uncertain tax positions based on factors including changes in facts or
circumstances, changes in tax law, settled audit issues, and new audit
activity. Changes in our assessment may result in the recognition of a tax
benefit or an additional charge to the tax provision in the period our
assessment changes. We recognize interest and penalties related to income
tax matters in Income tax expense.
Other Contingencies
In the ordinary course of business, we are involved in legal proceedings
regarding contractual and employment relationships, product liability claims,
trademark rights, and a variety of other matters. We record contingent
liabilities resulting from claims against us, including related legal costs, when a
loss is assessed to be probable and the amount of the loss is reasonably
estimable. Assessing probability of loss and estimating probable losses
requires analysis of multiple factors, including in some cases judgments about
the potential actions of third-party claimants and courts. Recorded contingent
liabilities are based on the best information available and actual losses in any
future period are inherently uncertain. If future adjustments to estimated
probable future losses or actual losses exceed our recorded liability for such
claims, we would record additional charges as Other expense (income), net
during the period in which the actual loss or change in estimate occurred. In
addition to contingent liabilities recorded for probable losses, we disclose
contingent liabilities when there is a reasonable possibility that the ultimate
loss will materially exceed the recorded liability. While we cannot predict the
outcome of pending legal matters with certainty, we do not believe any
currently identified claim, proceeding, or litigation, either individually or in
aggregate, will have a material impact on our results of operations, financial
position, or cash flows.
NIKE, INC. 2014 Annual Report and Notice of Annual Meeting 83
FORM 10-K