Region was attributable to higher revenues, an improved gross margin percentage, lower selling and administrative expenses as a percentage of revenues and favorable currency translation. Selling and administrative expenses were higher than fiscal 2005, but represented a lower percentage of revenues for fiscal 2006. The increased selling and administrative expenses were due to increases in both demand creation (due to increased sports marketing endorsement contracts, and increased advertising spending and retail marketing programs primarily related to the World Cup campaign) and operating overhead (driven by increased personnel costs as a result of continued expansion of the business across the region).

Other Businesses



We are providing pre-tax income excluding the Converse arbitration to enhance the visibility of the underlying earnings trend excluding these non-recurring amounts.

Fiscal 2007 Compared to Fiscal 2006

The increase in Other business revenues for fiscal 2007 compared to the same period in the prior year was driven by double-digit revenue growth across nearly all businesses, led by Converse and NIKE Golf. In fiscal 2007, revenues at Converse increased more than 20% versus the prior year to over $550 million, driven by strong consumer demand in the United States and internationally, while NIKE Golf grew 12% to nearly $650 million.

During fiscal 2007, improved profitability at Converse, driven by increased wholesale revenues in the United States and growth in our international licensing business, combined with growth at NIKE Golf, contributed to the increase in pre-tax income versus fiscal 2006. As previously discussed, fiscal 2007 results include the benefit of the $14.2 million settlement of the arbitration ruling involving Converse and a former South American licensee, as discussed below.

Fiscal 2006 Compared to Fiscal 2005

Revenue increases for our Other businesses in fiscal 2006 as compared to fiscal 2005 were driven primarily by growth at Cole Haan, Converse, Hurley and NIKE Golf.

Pre-tax income from the Other businesses for fiscal 2006 was consistent with fiscal 2005 and included a $51.9 million charge related to the unfavorable arbitration ruling involving a licensing agreement contract dispute with our Converse subsidiary and a former South American licensee. This charge reduced reported pre-tax income for the Other businesses by 33 percentage points. Excluding the Converse arbitration charge, the pre-tax income improvement was driven by improved profitability at Converse, Hurley and NIKE Golf, partially offset by a loss at NIKE Bauer Hockey. The loss at NIKE Bauer Hockey was largely the result of costs incurred in connection with a re-branding initiative.

Liquidity and Capital Resources

Fiscal 2007 Cash Flow Activity

Cash provided by operations was $1.9 billion in fiscal 2007, compared to $1.7 billion in fiscal 2006. Our primary source of operating cash flow was net income of $1.5 billion, and non-cash depreciation and stock-based compensation, offset by investments in working capital and other assets and liabilities to support growth in the business. The increase in working capital during fiscal 2007 was