Nike 2003 Annual Report Download - page 44

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NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If the Company had accounted for these stock options issued to employees in accordance with FAS 123, the
Company’s pro forma net income and pro forma earnings per share (EPS) would have been reported as follows:
Year Ended May 31,
2003 2002 2001
(In millions)
Net income as reported .......................................... $474.0 $663.3 $589.7
Add: Stock-based compensation expense included in reported net income,
netoftax................................................... — — 0.8
Deduct: Total stock-based employee compensation expense under fair
value based method for all awards, net of tax ...................... (42.2) (36.1) (30.7)
Proformanetincome ........................................... $431.8 $627.2 $559.8
Earnings per Share:
Basic — as reported .......................................... $ 1.79 $ 2.48 $ 2.18
Basic — pro forma ........................................... $ 1.63 $ 2.34 $ 2.07
Diluted — as reported ........................................ $ 1.77 $ 2.44 $ 2.16
Diluted—proforma ......................................... $ 1.62 $ 2.30 $ 2.05
The pro forma effects of applying FAS 123 may not be representative of the effects on reported net income
and earnings per share for future years since options vest over several years and additional awards are made each
year.
Income Taxes
United States income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries
expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to
invest indefinitely in its non-U.S. operations. The Company accounts for income taxes using the asset and
liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets
and liabilities. See Note 8 for further discussion.
Earnings Per Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of
common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting
weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards.
See Note 11 for further discussion.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates, including estimates relating to assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates.
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