Nike 2012 Annual Report Download - page 33

PART II
Recently Issued Accounting Standards
In December 2011, the FASB issued guidance enhancing disclosure
requirements surrounding the nature of an entity’s right to offset and related
arrangements associated with its financial instruments and derivative
instruments. This new guidance requires companies to disclose both gross
and net information about instruments and transactions eligible for offset in
the statement of financial position and instruments and transactions subject
to master netting arrangements. This new guidance is effective for us
beginning June 1, 2013. As this guidance only requires expanded
disclosures, we do not anticipate the adoption will have an impact on our
consolidated financial position or results of operations.
In September 2011, the FASB issued updated guidance on the periodic
testing of goodwill for impairment. This guidance will allow companies to
assess qualitative factors to determine if it is more-likely-than-not that goodwill
might be impaired and whether it is necessary to perform the two-step
goodwill impairment test required under current accounting standards. This
new guidance is effective for us beginning June 1, 2012. We do not expect
the adoption will have a material effect on our consolidated financial position
or results of operations.
In June 2011, the FASB issued guidance on the presentation of
comprehensive income. This new guidance eliminates the current option to
report other comprehensive income and its components in the statement of
shareholders’ equity. Companies will now be required to present the
components of net income and other comprehensive income in either one
continuous statement, referred to as the statement of comprehensive
income, or in two separate, but consecutive statements. This guidance also
required companies to present reclassification adjustments out of
accumulated other comprehensive income by component in both the
statement in which net income is presented and the statement in which other
comprehensive income is presented. However, in December 2011, the FASB
issued guidance which indefinitely defers the requirement related to the
presentation of reclassification adjustments. Both issuances on the
presentation of comprehensive income are effective for us beginning June 1,
2012. As this guidance only amends the presentation of the components of
comprehensive income, we do not anticipate the adoption will have an impact
on our consolidated financial position or results of operations.
Critical Accounting Policies
Our previous discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial 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 financial 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 financial 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 financial statement date. Thus, these policies generally affect
only the timing of reported amounts across two to three fiscal 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 fluctuate in cases when our customers delay
accepting shipment of product for periods of 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, specific identification
of outstanding claims and outstanding returns not yet received from
customers, and estimated returns, discounts and claims expected but not yet
finalized with our 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 significantly
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.
Allowance for Uncollectible Accounts
Receivable
We make ongoing estimates relating to the ability to collect our accounts
receivable and maintain an allowance for estimated losses resulting from the
inability of our customers to make required payments. In determining the
amount of the allowance, we consider our historical level of credit losses and
make judgments about the creditworthiness of significant customers based
on ongoing credit evaluations. Since we cannot predict future changes in the
financial stability of our customers, actual future losses from uncollectible
accounts may differ from our estimates. If the financial condition of our
customers were to deteriorate, resulting in their inability to make payments, a
larger allowance might be required. In the event we determine that a smaller
or larger allowance is appropriate, we would record a credit or a charge to
selling and administrative expense in the period in which such a determination
is made.
Inventory Reserves
We also make ongoing estimates relating to the net realizable value of
inventories based upon our assumptions about future demand and market
conditions. If we estimate that the net realizable value of our inventory is less
than the cost of the inventory recorded on our books, we record a reserve
equal to the difference between the cost of the inventory and the estimated
net realizable value. This reserve is recorded as a charge to cost of sales. If
changes in market conditions result in reductions in the estimated net
realizable value of our inventory below our previous estimate, we would
increase our reserve in the period in which we made such a determination and
record a charge to cost of sales.
NIKE, INC. Š2012 Form 10-K 33