Nike 2006 Annual Report Download - page 34

Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. Currently,
we have several such agreements in place. However, based on our historical experience and the estimated
probability of future loss, we have determined that the fair value of such indemnifications is not material to our
financial position or results of operations.
Contractual Obligations
Our long-term contractual obligations as of May 31, 2006 are as follows:
Cash Payments Due During the Year Ended May 31,
Description of Commitment 2007 2008 2009 2010 2011 Thereafter Total
(In millions)
Operating Leases ................... $ 229.0 $190.6 $158.8 $129.9 $116.9 $ 599.3 $1,424.5
Long-term Debt .................... 255.9 31.0 6.0 30.9 6.0 341.8 671.6
Endorsement Contracts(1) ............. 476.5 349.6 241.2 160.8 108.0 306.0 1,642.1
Product Purchase Obligations(2) ........ 1,850.4 1.0 — — — — 1,851.4
Other(3) ........................... 196.3 53.0 39.5 12.6 10.6 1.3 313.3
Total ......................... $3,008.1 $625.2 $445.5 $334.2 $241.5 $1,248.4 $5,902.9
(1) The amounts listed for endorsement contracts represent approximate amounts of base compensation and
minimum guaranteed royalty fees we are obligated to pay athlete and sport team endorsers of our products.
Actual payments under some contracts may be higher than the amounts listed as these contracts provide for
bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in
future periods. Actual payments under some contracts may also be lower as these contracts include
provisions for reduced payments if athletic performance declines in future periods.
In addition to the cash payments, we are obligated to furnish the endorsers with NIKE products for their use.
It is not possible to determine how much we will spend on this product on an annual basis as the contracts
do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the
endorsers will depend on many factors including general playing conditions, the number of sporting events
in which they participate, and our own decisions regarding product and marketing initiatives. In addition,
the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a
period of time and are not necessarily tracked separately from similar costs incurred for products sold to
customers.
(2) We generally order product at least four to five months in advance of sale based primarily on advanced
futures orders received from customers. The amounts listed for product purchase obligations represent
agreements (including open purchase orders) to purchase products in the ordinary course of business, that
are enforceable and legally binding and that specify all significant terms. In some cases, prices are subject to
change throughout the production process. The reported amounts exclude product purchase liabilities
included in accounts payable on the Consolidated Balance Sheet as of May 31, 2006.
(3) Other amounts primarily include service and marketing commitments made in the ordinary course of
business. The amounts represent the minimum payments required by legally binding contracts and
agreements that specify all significant terms, including open purchase orders for non-product purchases. The
reported amounts exclude those liabilities included in accounts payable or accrued liabilities on the
Consolidated Balance Sheet as of May 31, 2006.
Excluded from the table above is a commitment to an outsourcing contractor that provides us with
information technology operations management services through fiscal 2008. The amount of the payments in
future years depends on our level of monthly use of the different elements of the contractor’s services. If we were
to terminate the entire contract as of May 31, 2006, we would be required to provide the contractor with four
months’ notice and pay a termination fee of $18.7 million. Our monthly payments to the contractor currently
approximate $6 million.
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