Nike 2009 Annual Report Download - page 59

NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Description of Business
NIKE, Inc. is a worldwide leader in the design, marketing and distribution of athletic and sports-inspired
footwear, apparel, equipment and accessories. Wholly-owned Nike subsidiaries include Cole Haan, which
designs, markets and distributes dress and casual shoes, handbags, accessories and coats; Converse Inc., which
designs, markets and distributes athletic and causal footwear, apparel and accessories; Hurley International LLC,
which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and
Umbro Ltd., which designs, distributes and licenses athletic and casual footwear, apparel and equipment,
primarily for the sport of soccer.
Basis of Consolidation
The consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries
(the “Company”). All significant intercompany transactions and balances have been eliminated.
Recognition of Revenues
Wholesale revenues are recognized when the risks and rewards of ownership have passed to the customer,
based on the terms of sale. This occurs 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. Provisions
for sales discounts, returns and miscellaneous claims from customers are made at the time of sale.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of sales.
Advertising and Promotion
Advertising production costs are expensed the first time the advertisement is run. Media (TV and print)
placement costs are expensed in the month the advertising appears.
A significant amount of the Company’s promotional expenses result from payments under endorsement
contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally,
endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition
to periodic performance compliance provisions of the contracts. Prepayments made under contracts are included
in prepaid expenses or other assets depending on the period to which the prepayment applies.
Through cooperative advertising programs, the Company reimburses retail customers for certain costs of
advertising the Company’s products. The Company records these costs in selling and administrative expense at
the point in time when it is obligated to its customers for the costs, which is when the related revenues are
recognized. This obligation may arise prior to the related advertisement being run.
Total advertising and promotion expenses were $2,351.3 million, $2,308.3 million, and $1,912.4 million for
the years ended May 31, 2009, 2008 and 2007, respectively. Prepaid advertising and promotion expenses
recorded in prepaid expenses and other assets totaled $280.0 million and $266.7 million at May 31, 2009 and
2008, respectively.
57