Nike 2010 Annual Report Download - page 63

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Table of Contents 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 title passes and 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. As of May 31,
2010 and 2009, the Company’s reserve balances for sales discounts, returns and miscellaneous claims were $370.6 million and $363.6 million, respectively.
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 $2,356.4 million, $2,351.3 million, and $2,308.3 million for the years ended May 31, 2010, 2009 and
2008, respectively. Prepaid advertising and promotion expenses recorded in prepaid expenses and other assets totaled $260.7 million and $280.0 million at
May 31, 2010 and 2009, respectively.
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