Nike 2012 Annual Report Download - page 22

PART II
Other expense (income), net is comprised of foreign currency conversion
gains and losses from the re-measurement of monetary assets and liabilities
denominated in non-functional currencies, the impact of certain foreign
currency derivative instruments, as well as unusual or non-operating
transactions that are outside the normal course of business.
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, other expense, net increased $87 million compared to the
prior year. This change was primarily driven by a $76 million change in foreign
currency net gains in the prior year to net losses in the current year. These
impacts, together with a $24 million charge recognized during the fourth
quarter of fiscal 2012 for the restructuring of NIKE Brand’s Western Europe
operations, were partially offset by certain net gains related to non-operating
items.
The combination of translation of foreign currency-denominated profits from
our international businesses and the year-over-year change in foreign
currency related gains and losses included in other expense (income), net did
not have a significant impact on our income before income taxes for fiscal
2012.
Fiscal 2011 Compared to Fiscal 2010
For fiscal 2011, other expense (income), net was primarily comprised of net
foreign currency gains.
For fiscal 2011, we estimated that the combination of translation of foreign
currency-denominated profits from our international businesses and the year-
over-year change in foreign currency related net gains included in other
expense (income), net had an unfavorable impact of approximately $33
million on our income before income taxes.
Income Taxes
Fiscal 2012 Fiscal 2011
FY12 vs. FY11
% Change Fiscal 2010
FY11 vs. FY10
% Change
Effective tax rate 25.5% 25.0% 50 bps 24.2% 80 bps
Fiscal 2012 Compared to Fiscal 2011
Our effective tax rate for fiscal 2012 was 50 basis points higher than the
effective tax rate for fiscal 2011 primarily due to changes in estimates of
uncertain tax position. This impact was partially offset by a reduction in the
effective tax rate on operations outside of the United States as a result of
changes in geographical mix of foreign earnings.
Fiscal 2011 Compared to Fiscal 2010
Our effective tax rate for fiscal 2011 was 80 basis points higher than the
effective tax rate for fiscal 2010 primarily due to the change in
geographic mix of earnings. A larger percentage of our earnings in fiscal
2011 were attributable to operations in the U.S., where the statutory tax
rate is generally higher than the tax rate on operations outside of the
U.S. This impact was partially offset by changes in estimates of
uncertain tax positions.
Operating Segments
The Company’s reportable operating segments are based on our internal
geographic organization. Each NIKE Brand geography operates
predominantly in one industry: the design, development, marketing and
selling of athletic footwear, apparel, and equipment. Our reportable operating
segments for the NIKE Brand are: North America, Western Europe, Central &
Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE
Brand Direct to Consumer operations are managed within each geographic
segment.
As part of our centrally managed foreign exchange risk management
program, standard foreign currency rates are assigned twice per year to each
NIKE Brand entity in our geographic operating segments and certain Other
Businesses. These rates are set approximately nine months in advance of the
future selling season based on average market spot rates in the calendar
month preceding the date they are established. Inventories and cost of sales
for geographic operating segments and certain Other Businesses reflect use
of these standard rates to record non-functional currency product purchases
into the entity’s functional currency. Differences between assigned standard
foreign currency rates and actual market rates are included in Corporate
together with foreign currency hedge gains and losses generated from our
centrally managed foreign exchange risk management program.
Certain prior year amounts have been reclassified to conform to fiscal 2012
presentation.
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