rates. Excluding the effects of changes in foreign currency, sales in each Americas product business unit grew in fiscal 2005. The revenue growth was driven primarily by higher sales in Central and South America, partially offset by lower sales in Canada.

The increase in fiscal 2005 pre-tax income for the Americas Region was attributable to higher revenues and an improved gross margin percentage, partially offset by higher selling and administrative costs as a percentage of revenues. The increased selling and administrative expenses were due to increases in both demand creation (due to increased spending on sports marketing endorsement contract and events, advertising and retail marketing programs) and operating overhead (driven by increased personnel costs).

Other Businesses



We are providing pre-tax income excluding the Converse arbitration charge to enhance the visibility of the underlying earnings trend excluding this identifiable expense.

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 34 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.

Fiscal 2005 Compared to Fiscal 2004

For fiscal 2005, the addition of Converse, acquired in the second quarter of fiscal 2004, and the formation of Exeter Brands Group, formed in the first quarter of fiscal 2005 to develop the Company’s business in retail channels serving value-conscious consumers and to operate the business obtained in the acquisition of Official Starter Properties LLC and Official Starter LLC (collectively “Official Starter”), together drove 12 percentage points of the Other business revenue increase of 22% over fiscal 2004. The remainder of the increase was driven by revenue growth at Cole Haan, Hurley and NIKE Golf.

The year-over-year improvement in fiscal 2005 pre-tax income from the Other businesses was driven by the addition of Converse, improved results from Cole Haan and NIKE Bauer Hockey and the formation of the Exeter Brands Group.

Liquidity and Capital Resources

Fiscal 2006 Cash Flow Activity

Cash provided by operations was $1.7 billion in fiscal 2006, compared to $1.6 billion in fiscal 2005. Our primary source of operating cash flow was net income of $1.4 billion. For fiscal 2006, our net investment in working capital increased $43.2 million as compared to an increase of $13.0 million in fiscal 2005. This increased investment in working capital was largely attributable to a larger