Sales in our Other businesses drove the remainder of the consolidated revenue growth for fiscal 2006.

Gross Margin



Fiscal 2007 Compared to Fiscal 2006

During fiscal 2007, the primary factors contributing to the 10 basis point decrease in gross margin percentage versus the prior year were as follows:

Lower footwear net pricing margins in the U.S. and Europe, Middle East and Africa (“EMEA”) Regions, primarily due to sales discounts, combined with a higher closeout mix; partially offset by

Favorable hedge results relative to the prior year, primarily in the Asia Pacific Region;

Better inventory management, most notably in our Asia Pacific Region; and

Improved gross margins in our Other businesses, driven primarily by the growth in Converse’s international licensing business, partially offset by the expected effects of the transition in Exeter’s business from a licensing model to a wholesale model.

Fiscal 2006 Compared to Fiscal 2005

During fiscal 2006, our consolidated gross margin percentage declined 50 basis points versus the prior year. The primary factors contributing to the reduced gross margin percentage for fiscal 2006 were as follows:

Lower footwear in-line net pricing margins in the U.S., EMEA and Asia Pacific Regions. The lower footwear in-line net pricing margins were due to higher product costs, primarily the result of higher oil prices; additional costs incurred to meet strong footwear unit demand in the U.S.; higher sales incentives in EMEA and Asia Pacific; strategies to improve consumer value in EMEA and Japan; and a shift in the mix of footwear models sold towards models with lower margins within EMEA and Japan.

A shift in the mix of revenues reported from our operating segments towards regions and subsidiaries with lower margins.

The factors driving a reduced gross margin percentage were partially offset by:

Year-over-year currency hedge rate improvements, primarily for the euro.

Improved gross margin percentages in our Other businesses driven by improvements at Converse, Hurley and NIKE Golf.

Selling and Administrative Expense



Fiscal 2007 Compared to Fiscal 2006

In fiscal 2007, selling and administrative expenses increased as a percentage of revenues by 90 basis points; however, excluding the $141.9 million pre-tax charge relating to the change in accounting for stock-based compensation, selling and administrative expense as a percentage of revenues was consistent with the prior year.

On a constant-currency basis, demand creation expense increased 7% versus the prior year. The year-overyear increase was primarily attributable to investments in the NIKE Air®, NIKE+, NIKE Pro, and Force Basketball campaigns. For fiscal year 2007, constant-currency growth in demand creation expense was consistent with our constant-currency revenue growth.

Excluding stock-based compensation expense and the effects of changes in exchange rates, operating overhead increased 7%, which was in line with our constant-currency revenue growth. The increase in operating overhead was attributable to investments in growth drivers such as NIKE-owned retail and non-NIKE brands, as well as normal wage inflation.

Fiscal 2006 Compared to