Nike 2003 Annual Report Download - page 41

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NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
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. 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. Provisions for sales discounts and returns 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 uniformly 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 and other current assets or other assets
depending on the length of the contract. Through cooperative advertising programs, we reimburse our retail
customers for certain of their costs of advertising our products. We record these costs in selling and
administrative expense at the point in time when we are obligated to our customers for the costs. This obligation
may arise prior to the related advertisement being run. Total advertising and promotion expenses were $1,168.6
million, $1,027.9 million and $998.2 million for the years ended May 31, 2003, 2002 and 2001, respectively.
Included in prepaid expenses and other current assets and other assets was $135.2 million and $113.2 million at
May 31, 2003 and 2002, respectively, relating to prepaid advertising and promotion expenses.
Cash and Equivalents
Cash and equivalents represent cash and short-term, highly liquid investments with original maturities of
three months or less. The carrying amounts reflected in the consolidated balance sheet for cash and cash
equivalents approximate fair value due to the short maturities.
Inventory Valuation
Inventories are stated at the lower of cost or market. Inventories are valued on a first-in, first-out (FIFO) or
moving-average cost basis.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are recorded at cost. Depreciation for financial reporting purposes is
determined on a straight-line basis for buildings and leasehold improvements over 2 to 40 years and principally
on a declining balance basis for machinery and equipment over 2 to 15 years. Computer software is depreciated
on a straight-line basis over 3 to 10 years.
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