Germany and Northern Europe.

The increase in pre-tax income in the EMEA region in fiscal 2005 was driven by higher revenues and gross margin improvements, more than offsetting increased selling and administrative costs as a percentage of revenues. The improved gross margins were primarily the result of improved year-over-year hedge rates partially offset by reduced in-line net pricing margins (due to strategies to improve consumer value) and higher, less profitable closeout sales (the result of the liquidation of higher footwear and apparel closeout inventories). The increase in selling and administrative expenses was driven by increases in both demand creation and operating overhead. The increase in demand creation was primarily driven by increased advertising and higher spending on sports marketing endorsements and events. The increase in operating overhead spending was driven by increased spending on personnel costs to support the growth of our wholesale business and new NIKE-owned retail stores and higher costs related to sales and leadership events.

Asia Pacific Region



Fiscal 2006 Compared to Fiscal 2005

In the Asia Pacific Region, changes in currency exchange rates reduced revenue growth by 1 percentage point for fiscal 2006. Excluding the changes in currency exchange rates, revenues for each Asia Pacific product business unit were higher than fiscal 2005. Excluding changes in currency exchange rates, footwear revenues reflected increased unit sales (driven by increased unit sales across most countries and categories), partially offset by lower average selling prices (due to strategies to improve consumer value in Japan). The increase in apparel revenues was driven by increases across sport performance and sport culture categories. Increased revenue in China (driven by expansion of retail distribution and strong consumer demand) was the primary growth driver for fiscal 2006, partially offset by lower sales in Japan driven by lower average selling prices due to investments in consumer value and a challenging retail marketplace.

The increase in fiscal 2006 pre-tax income for the Asia Pacific Region was driven by higher revenues and lower selling and administrative expenses as a percentage of revenues, partially offset by a lower gross margin percentage. The lower gross margin percentage was primarily attributable to lower in-line net pricing margins due to higher footwear product costs, primarily the result of higher oil prices; strategies to improve consumer value for footwear in Japan; and a shift in the mix of footwear and apparel products sold in Japan toward products with lower margins. Selling and administrative expenses in fiscal 2006 were higher than fiscal 2005, but represented a lower percentage of revenues due to operating overhead leverage. The increased selling and administrative expenses were due to increases in demand creation, primarily driven by spending related to the World Cup campaign, and slightly higher operating overhead, primarily due to higher personnel costs to support growth in China.

Fiscal 2005 Compared to Fiscal 2004

In the Asia Pacific Region, 4 percentage points of reported revenue growth for