Nike 2003 Annual Report Download - page 52

NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate follows:
Year Ended May 31,
2003 2002 2001
Federal income tax rate ............................................ 35.0% 35.0% 35.0%
State taxes, net of federal benefit ..................................... 2.5 2.2 2.4
Foreign earnings .................................................. (2.7) (3.1) (1.8)
Other,net ....................................................... (0.7) 0.2 0.4
Effective income tax rate ........................................... 34.1% 34.3% 36.0%
The Company has indefinitely reinvested approximately $526.1 million of the cumulative undistributed
earnings of certain foreign subsidiaries, of which $165.0 million was earned during the year ended May 31, 2003.
Such earnings would be subject to U.S. taxation if repatriated to the U.S. The amount of unrecognized deferred
tax liability associated with the permanently reinvested cumulative undistributed earnings was approximately
$126.7 million.
Deferred tax assets at May 31, 2003 and 2002 were reduced by a valuation allowance relating to tax benefits
attributable to net operating losses of certain foreign subsidiaries where local tax laws limit the utilization of such
net operating losses.
A benefit was recognized for foreign loss carryforwards of $65.0 million at May 31, 2003. Such losses
expire as follows (millions):
Year Ended May 31, 2004 2005 2006 2007 2008 Indefinite
Expiration Amount ........................... 1.2 1.4 0.0 8.3 9.9 44.2
During the years ended May 31, 2003, 2002, and 2001 income tax benefits attributable to employee stock
option transactions of $12.5 million, $13.9 million, and $32.4 million, respectively, were allocated to
shareholders’ equity.
Note 9 — Redeemable Preferred Stock
NIAC is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is
redeemable at the option of NIAC or the Company at par value aggregating $0.3 million. A cumulative dividend
of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common
stock of the Company unless dividends on the Redeemable Preferred Stock have been declared and paid in full.
There have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2003. As the
holder of the Redeemable Preferred Stock, NIAC does not have general voting rights but does have the right to
vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on
merger, consolidation, liquidation or dissolution of the Company or on the sale or assignment of the NIKE
trademark for athletic footwear sold in the United States.
Note 10 — Common Stock
The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no
par value, are 110 million and 350 million, respectively. Each share of Class A Common Stock is convertible into
one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain
circumstances with respect to the election of directors.
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