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The following is an excerpt from a 10-Q SEC Filing, filed by NIKE INC on 4/4/2008.
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NIKE, INC. - 10-Q - 20080404 - NOTES_TO_FINANCIAL_STATEMENT

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Summary of Significant Accounting Policies:

Basis of presentation:

The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim period. The year-end condensed consolidated balance sheet data as of May 31, 2007 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K. The results of operations for the nine months ended February 29, 2008 are not necessarily indicative of results to be expected for the entire year.

Recently Adopted Accounting Standards:

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." The Company adopted the provisions of FIN 48 on June 1, 2007. See Note 5 for further discussion.

In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force ("EITF") Issue No. 06-2, "Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43" ("EITF 06-2"). EITF 06-2 clarifies recognition guidance on the accrual of employees' rights to compensated absences under a sabbatical or other similar benefit arrangement. The adoption of EITF 06-2 on June 1, 2007 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Standards:

In September 2006, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 for financial assets and liabilities are effective for the fiscal year beginning June 1, 2008 and the provisions of FAS 157 for non financial assets and liabilities are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions for non financial assets and liabilities. The Company has evaluated the provisions of FAS 157 for financial assets and liabilities and does not expect that the adoption will have a material impact on the Company's consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities including an Amendment of FASB Statement No. 115" ("FAS 159"). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of FAS 159 are effective for the fiscal year beginning June 1, 2008. The Company has evaluated the impact of the provisions of FAS 159 and does not expect that the adoption will have a material impact on the Company's consolidated financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") and SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("FAS 160"). These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) and FAS 160 are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions of FAS 141(R) and FAS 160.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS 161"). FAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of FAS 161 are effective for the quarter ending February 28, 2009. The Company is currently evaluating the impact of the provisions of FAS 161.

NOTE 2 - Inventories:

Inventory balances of $2,390.9 million and $2,121.9 million at February 29, 2008 and May 31, 2007, respectively, were substantially all finished goods.

NOTE 3 - Identifiable Intangible Assets and Goodwill:

The following table summarizes the Company's identifiable intangible assets and goodwill balances as of February 29, 2008 and May 31, 2007:

                                   February 29, 2008                    May 31, 2007
                                  ______________________           ______________________

                              Gross                   Net       Gross                  Net
                             Carrying  Accumulated  Carrying  Carrying  Accumulated  Carrying
                              Amount   Amortization  Amount    Amount   Amortization  Amount
                             ________  ____________ ________  ________  ____________ ________

                                                    (in millions)

Amortized intangible assets:
     Patents                 $  48.9     $ (14.9)   $  34.0   $  44.1     $ (12.3)  $  31.8
     Trademarks                 14.1        (8.3)       5.8      49.8       (17.5)     32.3
     Other                      21.7       (18.6)       3.1      21.6       (17.3)      4.3
                             ________    ________   ________  ________    ________  ________
          Total              $  84.7     $ (41.8)   $  42.9   $ 115.5     $ (47.1)  $  68.4
                             ========    ========             ========    ========

Unamortized intangible assets - Trademarks          $ 341.5                         $ 341.5
                                                    ________                        ________
Identifiable intangible assets, net                 $ 384.4                         $ 409.9
                                                    ========                        ========
Goodwill                                            $ 130.8                         $ 130.8
                                                    ========                        ========

Amortization expense, which is included in selling and administrative expense, was $1.8 million and $2.5 million for the three-month periods ended February 29, 2008 and February 28, 2007, respectively, and $6.8 million and $7.4 million for the nine-month periods ended February 29, 2008 and February 28, 2007, respectively. The estimated amortization expense for intangible assets subject to amortization for each of the years ending May 31, 2008 through May 31, 2012 are as follows: 2008: $8.3 million; 2009: $6.0 million; 2010: $5.6 million; 2011: $5.1 million; 2012: $4.4 million.

NOTE 4 ? Accrued Liabilities:

Accrued liabilities include the following:

                                       February 29, 2008  May 31, 2007
                                        _______________   ____________

                                                 (in millions)

Compensation and benefits, excluding taxes  $443.0           $451.6
Fair value of derivatives                    242.0             90.5
Taxes other than income taxes                177.2            133.4
Endorser compensation                        163.5            139.9
Dividends payable                            113.3             92.9
Advertising and marketing                    110.1             70.6
Import and logistics costs                    76.4             81.4
Other1                                       304.7            243.1
                                          _________        _________

                                          $1,630.2         $1,303.4
                                          =========        =========

1  Other consists of various accrued expenses and no individual item accounted
for more than $50 million of the balance at February 29, 2008 and May 31,
2007.

NOTE 5 ? Income Taxes:

The effective tax rate for the nine months ended February 29, 2008 was 24.9%.? Over the last few years, several international entities generated losses for which the Company did not recognize offsetting tax benefits because the realization of those benefits was uncertain.? The necessary steps to realize these benefits have now been taken resulting in a one-time reduction of the effective tax rate for the nine months ended February 29, 2008 of 5.7 percentage points.? Also reflected in the effective tax rate for the nine months ended February 29, 2008 is a reduction in our on-going effective tax rate resulting from our operations outside of the United States; our tax rates on these operations are generally lower than the U.S. statutory rate.

The Company adopted FIN 48 effective June 1, 2007. Upon adoption, the Company recognized an additional long-term liability of $89.4 million for unrecognized tax benefits, $15.6 million of which was recorded as a reduction to the Company's beginning retained earnings, and the remaining $73.8 million was recorded as a reduction to the Company's noncurrent deferred tax liability. In addition, the Company reclassified $12.2 million of unrecognized tax benefits from income taxes payable to other long term liabilities in conjunction with the adoption of FIN 48.

At the adoption date of June 1, 2007, the Company had $122.5 million of gross unrecognized tax benefits, excluding related interest and penalties, $35.0 million of which would affect the Company's effective tax rate if recognized in future periods. Including related interest and penalties and net of federal benefit of interest and unrecognized state tax benefits, at June 1, 2007, the Company had $135.0 million of total unrecognized tax benefits, $52.0 million of which would affect the Company?s effective tax rate if recognized in future periods. During the nine months ended February 29, 2008, the gross unrecognized tax benefits increased $61.6 million, primarily related to tax positions taken during the current and prior fiscal years.? As of February 29, 2008 the gross unrecognized tax benefits were $184.1 million. The Company does not anticipate that total unrecognized tax benefits will change significantly within the next 12 months.

The Company is subject to taxation primarily in the United States, China and the Netherlands as well as various state and other foreign jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal year 2004. The Company is currently under audit by the Internal Revenue Service for the 2005 and 2006 tax years. The Company's major foreign jurisdictions, China and the Netherlands, have concluded substantially all income tax matters through calendar year 1996 and fiscal year 2001, respectively.

The Company recognizes interest and penalties related to income tax matters in income tax expense. Upon adoption at June 1, 2007, the Company had $32.0 million (excluding federal benefit) accrued for interest and penalties related to uncertain tax positions. The liability for payment of interest and penalties increased $22.9 million during the nine months ended February 29, 2008. As of February 29, 2008, accrued interest and penalties related to uncertain tax positions was $54.9 million (excluding federal benefit).

NOTE 6 - Comprehensive Income:

Comprehensive income, net of taxes, is as follows:

                                             Three Months Ended         Nine Months Ended
                                             February 29 and 28,       February 29 and 28,
                                            _____________________       __________________

                                              2008        2007           2008       2007
                                              ____        ____           ____       ____

                                                              (in millions)

Net income                                   $463.8      $350.8       $1,392.9   $1,053.6

Other comprehensive income:
  Change in cumulative translation
     adjustment and other                      26.9         3.0          164.6       42.0
  Changes due to cash flow hedging
      instruments:
    Net gain (loss) on hedge derivatives        3.3        (8.1)        (110.4)     (27.1)
    Reclassification to net income of
      previously deferred losses
      related to hedge derivative instruments  17.8         8.5           45.4        9.5
                                             _______     _______      _________  _________

  Other comprehensive income                   48.0         3.4           99.6       24.4
                                             _______     _______      _________  _________
Total comprehensive income                   $511.8      $354.2       $1,492.5   $1,078.0
                                             =======     =======      =========  =========

NOTE 7 - Stock-Based Compensation

A committee of the Board of Directors grants stock options and restricted stock under the NIKE, Inc. 1990 Stock Incentive Plan (the "1990 Plan"). The committee has granted substantially all stock options at 100% of the market price on the date of grant. Substantially all stock option grants outstanding under the 1990 Plan were granted in the first quarter of each fiscal year, vest ratably over four years, and expire 10 years from the date of grant. In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans ("ESPPs").

The Company accounts for stock-based compensation in accordance with SFAS No. 123R "Share-Based Payment" ("FAS 123R"). Under FAS 123R, the Company estimates the fair value of options granted under the 1990 Plan and employees' purchase rights under the ESPPs using the Black-Scholes option pricing model. The Company recognizes this fair value as selling and administrative expense over the vesting period using the straight-line method.

The following table summarizes the Company's total stock-based compensation expense:

                                         Three Months Ended       Nine Months Ended
                                         February 29 and 28,      February 29 and 28,
                                        ____________________      __________________

                                          2008        2007         2008        2007
                                          ____        ____         ____        ____

                                                        (in millions)

  Stock options1                         $21.8       $24.5       $105.0      $109.9
  ESPPs                                    1.8         1.5          5.6         5.0
  Restricted stock                         1.7         1.4          5.0         4.2
                                         ______      ______      _______     _______

Total stock-based compensation expense   $25.3       $27.4       $115.6      $119.1
                                         ======      ======      =======     =======

1  In accordance with FAS 123R, accelerated stock option expense is recorded
for employees eligible for accelerated stock option vesting upon retirement.
Accelerated stock option expense was $0.7 million and $0.4 million for the
three months ended February 29, 2008 and February 28, 2007, respectively, and
$39.9 million and $35.9 million for the nine months ended February 29, 2008
and February 28, 2007, respectively.  Because the Company usually grants the
majority of stock options in a single grant in the first three months of each
fiscal year, under FAS 123R, accelerated vesting will normally result in
higher expense in the first three months of the fiscal year.

As of February 29, 2008, the Company had $112.4 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.1 years.

The weighted average fair value per share of the options granted during the nine months ended February 29, 2008 and February 28, 2007 as computed using the Black-Scholes pricing model was $13.86 and $8.79, respectively. The weighted average assumptions used to estimate these fair values are as follows:

                                                Nine Months Ended
                                               February 29 and 28,
                                               ____________________

                                                 2008        2007
                                                 ____        ____

Dividend yield                                   1.4%        1.6%
Expected volatility                             20.5%       18.7%
Weighted-average expected life (in years)        5.0         5.0
Risk-free interest rate                          4.8%        5.0%

Expected volatility is estimated based on the implied volatility in market traded options on the Company's common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.

NOTE 8 - Earnings Per Common Share:

The following represents a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an additional 6.8 million and 9.2 million shares of common stock were outstanding for the three months ended February 29, 2008 and February 28, 2007, respectively, and 6.8 million and 10.2 million shares of common stock were outstanding for the nine months ended February 29, 2008 and February 28, 2007, respectively, but were not included in the computation of diluted earnings per share because the options were antidilutive.

                                    Three Months Ended             Nine Months Ended
                                    February 29 and 28,           February 29 and 28,
                                  _____________________            ___________________

                                    2008         2007               2008         2007
                                    ____         ____               ____         ____

                                         (in millions, except per share data)

Determination of shares:
   Weighted average common shares
     outstanding                    493.9        504.5              497.0        504.1
   Assumed conversion of
     dilutive stock options
     and awards                       8.6          6.3                8.4          5.5
                                   _______      _______            _______      _______

Diluted weighted average common
   shares outstanding               502.5        510.8              505.4        509.6
                                   =======      =======            =======      =======

Basic earnings per common share1   $ 0.94       $ 0.69             $ 2.80       $ 2.09
                                   =======      =======            =======      =======

Diluted earnings per common share1 $ 0.92       $ 0.68             $ 2.76       $ 2.07
                                   =======      =======            =======      =======

1  Basic and diluted earnings per common share for the three months ended February 28, 2007
do not recalculate due to rounding.

NOTE 9 - Operating Segments:

The Company's operating segments are evidence of the structure of the Company's internal organization. The major segments are defined by geographic regions for operations participating in NIKE brand sales activity excluding NIKE Golf and NIKE Bauer Hockey. Each NIKE brand geographic segment operates predominantly in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The "Other" category shown below represents activities of Cole Haan Holdings Incorporated, Converse Inc., Exeter Brands Group LLC (whose primary business was the Starter Brand business which was sold on December 17, 2007), Hurley International LLC, NIKE Bauer Hockey Inc., and NIKE Golf, which are considered immaterial for individual disclosure based on the aggregation criteria in SFAS No. 131 ?Disclosures about Segments of an Enterprise and Related Information.?

Where applicable, "Corporate" represents items necessary to reconcile to the consolidated financial statements, which generally include corporate activity and corporate eliminations.

Net revenues as shown below represent sales to external customers for each segment. Intercompany revenues have been eliminated and are immaterial for separate disclosure. The Company evaluates performance of individual operating segments based on pre-tax income. On a consolidated basis, this amount represents income before income taxes as shown in the Unaudited Condensed Consolidated Statements of Income. Reconciling items for pre-tax income represent corporate costs that are not allocated to the operating segments for management reporting including corporate activity, stock-based compensation expense, certain currency exchange rate gains and losses on transactions, the gain on the sale of the Starter brand business, which was sold in December 2007, and intercompany eliminations for specific income statement items in the Unaudited Condensed Consolidated Statements of Income.

Accounts receivable, net, inventories, and property, plant and equipment, net for operating segments are regularly reviewed and therefore provided below.

                                       Three Months Ended     Nine Months Ended
                                       February 29 and 28,   February 29 and 28,
                                       __________________      _________________

                                         2008        2007        2008       2007
                                        _____       _____       _____      _____

                                                     (in millions)

Net Revenue
  U.S.                                $1,556.5    $1,477.0   $ 4,708.3  $ 4,496.9
  EUROPE, MIDDLE EAST, AFRICA          1,384.3     1,124.8     4,086.2    3,431.9
  ASIA PACIFIC                           748.3       589.9     2,053.7    1,686.5
  AMERICAS                               254.4       212.5       847.5      717.5
  OTHER                                  600.9       522.7     1,843.3    1,609.9
                                      _________   _________  __________ __________
                                      $4,544.4    $3,926.9   $13,539.0  $11,942.7
                                      =========   =========  ========== ==========

Pre-tax Income
  U.S.                                $  347.3    $  296.4    $ 1,001.2  $  934.2
  EUROPE, MIDDLE EAST, AFRICA            334.3       255.7        940.0     734.0
  ASIA PACIFIC                           193.0       132.1        526.6     382.8
  AMERICAS                                51.9        42.1        178.5     152.9
  OTHER                                   77.5        67.0        243.5     208.5
  CORPORATE                             (335.3)     (275.3)    (1,035.2)   (871.3)
                                      _________   _________   _________  _________
                                      $  668.7    $  518.0    $ 1,854.6  $1,541.1
                                      =========   =========   =========  =========

                                       Feb. 29,    May 31,
                                         2008       2007
                                      _________   _________

                                          (in millions)

Accounts receivable, net
  U.S.                                $  857.6    $  806.8
  EUROPE, MIDDLE EAST, AFRICA            852.8       739.1
  ASIA PACIFIC                           379.0       296.6
  AMERICAS                               223.3       184.1
  OTHER                                  412.9       404.9
  CORPORATE                               49.9        63.2
                                      _________   _________
                                      $2,775.5    $2,494.7
                                      =========   =========

Inventories
  U.S.                                $  800.7    $  796.0
  EUROPE, MIDDLE EAST, AFRICA            632.3       554.5
  ASIA PACIFIC                           297.1       214.1
  AMERICAS                               160.7       132.0
  OTHER                                  455.0       378.7
  CORPORATE                               45.1        46.6
                                      _________   _________
                                      $2,390.9    $2,121.9
                                      =========   =========

Property, plant and equipment, net
  U.S.                                $  302.4    $  232.7
  EUROPE, MIDDLE EAST, AFRICA            351.6       325.4
  ASIA PACIFIC                           368.7       326.1
  AMERICAS                                19.7        16.9
  OTHER                                  114.6       103.6
  CORPORATE                              663.0       673.6
                                      _________   _________
                                      $1,820.0    $1,678.3
                                      =========   =========

NOTE 10 - Commitments and Contingencies:

At February 29, 2008, the Company had letters of credit outstanding totaling $194.9 million. These letters of credit were issued primarily for the purchase of inventory.

There have been no other significant subsequent developments relating to the commitments and contingencies reported on our latest Annual Report on Form 10-K.

NOTE 11 ? Acquisitions, Divestitures and Subsequent Events:

On October 23, 2007, the Company entered into an Implementation Agreement with Umbro Plc, a United Kingdom company, pursuant to which the Company agreed to acquire all of the outstanding shares of Umbro Plc for 1.9306 British pounds sterling per share in cash (the "Umbro Acquisition").

On December 21, 2007, the Company purchased 19.9% of the outstanding shares of Umbro Plc from Sports Direct International Plc ("Sports Direct") in a privately negotiated transaction. The Company paid Sports Direct 1.9306 British pounds sterling for each of the 29.1 million shares, for a total purchase price of 56.4 million pounds sterling (approximately $112.0 million), inclusive of transaction fees.

In March 2008 the Company completed the Umbro Acquisition by purchasing all remaining outstanding shares of Umbro Plc for 1.9306 British pounds sterling each, for a total of 226.8 million pounds sterling (approximately $449.5 million), inclusive of transaction fees.

On December 17, 2007, the Company completed the sale of the Starter brand business to Iconix Brand Group, Inc. for $60 million in cash. This transaction resulted in a gain of $28.6 million, which is reflected in Other income (expense), net and in the corporate line in the segment presentation of pre-tax income in Note 9.

On February 21, 2008, the Company entered into a definitive agreement to sell NIKE Bauer Hockey Corp. for $200 million in cash. The transaction is expected to be completed before the end of the fiscal year ending May 31, 2008.

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