Nike 2014 Annual Report Download - page 51

PART II
NOTE 1 — Summary of Significant Accounting Policies
Description of Business
NIKE, Inc. is a worldwide leader in the design, development and worldwide
marketing and selling of athletic footwear, apparel, equipment, accessories
and services. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc.,
which designs, markets and distributes casual sneakers, apparel and
accessories and Hurley International LLC, which designs, markets and
distributes action sports and youth lifestyle footwear, apparel and
accessories.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of NIKE, Inc.
and its subsidiaries (the “Company”). All significant intercompany transactions
and balances have been eliminated.
The Company completed the sale of Cole Haan during the third quarter
ended February 28, 2013 and completed the sale of Umbro during the
second quarter ended November 30, 2012. As a result, the Company reports
the operating results of Cole Haan and Umbro in the Net income (loss) from
discontinued operations line in the Consolidated Statements of Income for all
periods presented. In addition, the liabilities associated with these businesses
are reported as Liabilities of discontinued operations in the Consolidated
Balance Sheets (refer to Note 15 — Discontinued Operations). Unless
otherwise indicated, the disclosures accompanying the Consolidated
Financial Statements reflect the Company’s continuing operations.
On November 15, 2012, the Company announced a two-for-one split of both
NIKE Class A and Class B Common shares. The stock split was a 100
percent stock dividend payable on December 24, 2012 to shareholders of
record at the close of business December 10, 2012. Common stock began
trading at the split-adjusted price on December 26, 2012. All share numbers
and per share amounts presented reflect the stock split.
Reclassifications
Certain prior year amounts have been reclassified to conform to fiscal 2014
presentation.
Revisions
The Company has historically capitalized costs associated with internally
generated patents and trademarks, and amortized these assets over the legal
term of the patents and trademarks. During the fourth quarter of fiscal 2014,
management determined that these capitalized costs were not accurately
identified with specific patent or trademark assets, and therefore, concluded
that amounts previously capitalized should have been expensed as incurred.
Accordingly, the Consolidated Financial Statements have been revised to
correctly expense costs associated with internally developed patents and
trademarks in the period incurred and to reverse expenses for amortization of
previously capitalized costs. The revisions resulted in a decrease in Net
income from continuing operations of $13 million and $12 million for the years
ended May 31, 2013 and 2012, respectively. Identifiable intangible assets
decreased $93 million at May 31, 2013 and Retained earnings at May 31,
2013 decreased $75 million as a result of the cumulative adjustment for prior
periods. Cash provided by operations decreased $26 million and $23 million
for the years ended May 31, 2013 and 2012, respectively, while Cash used by
investing activities decreased $26 million for the year ended May 31, 2013
and Cash provided by investing activities increased by $23 million for the year
ended May 31, 2012.
Also, in the fourth quarter of fiscal 2014, the Company revised certain prior
year amounts in the Consolidated Statements of Cash Flows to eliminate
intercompany transfers of short-term investments, to correctly reflect the
purchases, sales and maturities of short-term investments related to the
Company’s hedging program involving U.S. Dollar denominated available-for-
sale securities, and to correctly classify certain investment holdings as Short-
term investments. For the year ended May 31, 2013, the revisions resulted in
a net increase in Purchases of short-term investments of $431 million, a net
increase in Maturities of short-term investments of $162 million, and a net
increase in Sales of short-term investments of $332 million, which caused a
net decrease of $63 million in Cash used by investing activities. For the year
ended May 31, 2012, the revisions resulted in a net increase in Purchases of
short-term investments of $540 million, a net increase in Maturities of short-
term investments of $78 million, and a net increase in Sales of short-term
investments of $477 million, which caused an increase of $15 million in Cash
provided by investing activities. For the year ended May 31, 2012, these
revisions also resulted in a decrease of $78 million in Cash and equivalents,
beginning of year and a $63 million decrease in Cash and equivalents, end of
year.
Certain prior year amounts have also been revised in the Consolidated
Balance Sheets to correctly recognize certain inventory amounts held by third
parties, which were identified during the third quarter of fiscal 2014 and
resulted in a $50 million increase to both Inventories and Accrued liabilities at
May 31, 2013. In addition, prior year amounts on the Consolidated
Statements of Cash Flows were revised to correctly reflect the related cash
flow impacts of $22 million and $10 million for the years ended May 31, 2013
and 2012, respectively. This revision had no impact on Cash provided by
operations or Net (decrease) increase in cash and equivalents, for any year.
The Company also revised certain prior period amounts in the Consolidated
Statements of Cash Flows to correctly reflect non-cash additions to property,
plant, and equipment, which were identified during the second quarter of
fiscal 2014. For the year ended May 31, 2013, this revision decreased Cash
provided by operations and decreased Cash used by investing activities,
each by $38 million. For the year ended May 31, 2012, this revision
decreased Cash provided by operations and increased Cash provided by
investing activities, each by $34 million.
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