Nike 2003 Annual Report Download - page 47

NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 4 — Identifiable Intangible Assets and Goodwill:
Adoption of FAS 142
The Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” (FAS 142) effective June 1, 2002. In accordance with FAS 142, goodwill and intangible
assets with indefinite lives will no longer be amortized but instead will be measured for impairment at least
annually, or when events indicate that an impairment exists. Intangible assets that are determined to have definite
lives will continue to be amortized over their useful lives.
As required by FAS 142, the Company performed impairment tests on goodwill and other intangible assets
with indefinite lives, which consisted only of certain trademarks, as of June 1, 2002. As a result of the
impairment tests, the Company recorded a $266.1 million cumulative effect of accounting change. Under
FAS 142, goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value.
The Company estimated the fair value of its reporting units by using a combination of discounted cash flow
analyses and comparisons with the market values of similar publicly-traded companies.
Included in the Company’s $266.1 million impairment charge was a $178.5 million charge related to the
impairment of the goodwill associated with the Bauer NIKE Hockey (“Bauer”) and Cole Haan reporting units.
These reporting units are reflected in the Company’s “Other” operating segment. Since the Company’s purchase
of Bauer in 1995, the hockey equipment and apparel markets have not grown as fast as expected and the in-line
skate market has contracted significantly. As a result, we determined that the goodwill acquired at Bauer had
been impaired. The goodwill impairment at Cole Haan reflected the significantly lower fair value calculated on
the basis of reduced operating income in the year following the September 11, 2001 terrorist attacks.
The remaining $87.6 million of the impairment charge relates to trademarks associated with Bauer. Under
FAS 142, impairment of an indefinite-lived asset exists if the net book value of the asset exceeds its fair value.
The Company estimated the fair value of trademarks using the relief-from-royalty approach, which is a standard
form of discounted cash flow analysis typically used for the valuation of trademarks. The impairment of the
Bauer trademarks reflects the same circumstances as described above related to the Bauer goodwill impairment.
The following table summarizes the Company’s identifiable intangible assets and goodwill balances as of
May 31, 2003 and May 31, 2002:
May 31, 2003 May 31, 2002
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(In millions)
Amortized intangible assets:
Patents ................................ $ 24.9 $(10.4) $ 23.1 $ (8.8)
Trademarks ............................ 12.9 (10.6) 12.0 (9.8)
Other ................................. 7.5 (1.1) 7.5 (0.2)
Total................................ $ 45.3 $(22.1) $ 42.6 $(18.8)
Unamortized intangible assets:
Goodwill .............................. $ 65.6 $232.7
Trademarks ............................ 95.0 182.2
Total................................ $160.6 $414.9
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