Nike 2013 Annual Report Download - page 36

PART II
Recently Adopted Accounting Standards
In July 2012, the Financial Accounting Standards Board (“FASB”) issued an
accounting standards update intended to simplify how an entity tests
indefinite-lived intangible assets other than goodwill for impairment by
providing entities with an option to perform a qualitative assessment to
determine whether further impairment testing is necessary. This accounting
standard update will be effective for us beginning June 1, 2013, and early
adoption is permitted. We early adopted this standard and the adoption did
not have a material 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 was effective for us beginning June 1, 2012. The adoption did
not 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 are now 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 requirement
was effective for us beginning June 1, 2012. As this guidance only amended
the presentation of the components of comprehensive income, the adoption
did not have an impact on our consolidated financial position or results of
operations. Further, this guidance 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. This
requirement will be effective for us beginning June 1, 2013. 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.
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.
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. Our post invoice sales discounts
consist of contractual programs with certain customers or discretionary
discounts that are expected to be granted to certain customers at a later date.
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
NIKE, INC. 2013 Annual Report and Notice of Annual Meeting 81
FORM 10-K