Good afternoon, everyone. Welcome to Nike's fiscal 2006 third quarter conference call. Today's call is being recorded. For those of you who need to reference today's press release, you'll find it at www.nikebiz.com. Leading today's call will be Pamela Catlett, Vice President of Investor Relations. Before I turn it over to Ms. Catlett, let me remind you that participants of this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in the reports filed with the SEC, including Forms 8-K and 10-Q. Some forward-looking statements concern future orders that are not necessarily indicative of changes in total revenues for subsequent periods, due to the mix of futures and at-once orders, exchange rate fluctuations, order cancellations and discounts, which may vary significantly from quarter to quarter. In addition, it's important to remember that a significant portion of Nike Inc. business including equipment, most of Nike Retail, Nike Golf, Converse, Cole Haan, Nike Bauer Hockey, Hurley and Exeter Brands Group are not included in these futures numbers. Finally, participants may discuss non-GAAP financial measures. A presentation of comparative GAAP measures and quantitative reconciliations can also be found at Nike's website. This call might also include discussion of non-public financial and statistical information, which is also publicly available on that site, www.nikebiz.com. Now I'd like to turn the call over to Pam Catlett, Vice President of Investor Relations.

Thank you and good afternoon, everyone. Thanks very much for joining us today to discuss Nike's fiscal 2006 third quarter results. We issued our results about an hour ago, and for those of you who need to reference the press release, you can find it on our website at nikebiz.com. Most of you know that we've been evolving our conference calls to streamline our communication and appropriately address the topics that are most important to you. Toward that end, we have posted a supplemental presentation on our website, which contains highlights from our quarter. Joining us on today's call will be Nike, Inc. Chief Executive Officer, Mark Parker; followed by our Chief Financial Officer, Don Blair, who will give you in-depth review of our financial results. Finally, you'll hear from Charlie Denson, President of the Nike Brand. Following each of their prepared remarks, we'll then take your questions. As for questions, just a reminder that we would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial questions to two. In the event you have additional questions that are not covered by others, please feel free to requeue and we will do our best to come back to you. I appreciate your cooperation with this. Now, it is my pleasure to introduce Nike, Inc. CEO, Mark Parker.

Thanks, Pam, and good afternoon, everyone. We had some great wins in this past third quarter here; wins that kept the Nike brand top of line for consumers in key categories such as running, basketball, soccer and our emerging strength and presence in women's fitness and dance, to name a few. Our portfolio is also strong with Brand Jordan and Converse in particular, creating exceptional results. We're very pleased with the performance of the Nike brand in our Nike Inc. portfolio, both for the quarter and year to date. The strength of our product pipeline, brand portfolio and global reach is enabling us to balance continued challenges in markets such as Western Europe and Japan, with strong momentum in other key markets and regions. As a result, we're continuing to deliver profitable growth in line with our long-term targets. My focus is to keep sharpening our ability to innovate for growth and execute for profitability. Innovation continues to drive our performance. The Air Max 360, for example, has been a tremendous success this past quarter, driving momentum in our global footwear business. While real innovation helps us connect with consumers, focused execution delivers our profitability and return for shareholders. As CEO, I am strongly committed to delivering long-term value for Nike shareholders. To do so, we must invest in our business to create sustainable, profitable growth and drive productivity gains to fund those investments and deliver current profitability. Our performance so far this year has been an outstanding example of our commitment and ability to strike that balance. We continue to invest in sustainable profitable growth in emerging markets such as China, Russia, Brazil and India, and Nike brand drivers like World Cup, Air Max 360 in women's fitness and other parts of our brand portfolio, such as Brand Jordan…

Thanks, Mark. On our last conference call, I said that delivering consistent financial growth depends on our ability to make adjustments to our financial model as market conditions change. I described the challenging conditions in Western Europe and Japan, and the gross margin pressures we faced. I told you we were taking steps to invest behind those businesses that have strong momentum, to accelerate those businesses that have slowed, and to adjust our spending to fund those initiatives and deliver our financial goals for fiscal 2006. Our third quarter results reflect the success of those efforts. As expected, our revenue growth in Western Europe and Japan was weaker than we would like to see over the long term, and our consolidated gross margins fell year-over-year. However, our businesses in the USA, the emerging markets of Russia, China and Latin America, and our non-Nike branded businesses continue to grow very strongly. Our operating profit margins grew year-over-year, as we delivered 120 basis points of SG&A leverage for the quarter, more than offsetting the decline in gross margin. As a result, we posted another record quarter for revenues and profits. Our revenues for the quarter grew 9% to a record $3.6 billion. Excluding impact of the stronger dollar, our revenues would have grown 12% for the quarter, as each of our regions delivered revenue growth on a currency neutral basis. Revenue growth for the quarter was significantly higher than the futures growth we reported last quarter, as revenue from non-futures sources, particularly at-once footwear and apparel, Company-owned retail stores and our other businesses has grown faster than our futures businesses. In addition, for the third quarter, strong demand in the U.S., Asia and Americas regions pulled some revenues forward from the fourth quarter. Net income for the quarter was $326 million, up…

Thanks, Don. Good afternoon, everyone. Thanks for joining us. Pardon me for my voice while I'm struggling with my early season cold today. The Nike brand had another strong quarter, both in the way we connected with consumers and the results we delivered to shareholders. From global product launches in technology with the Air Max 360, to basketball, with LeBron Coby and Air Jordan 21 signature models being introduced, to our strong presence in Torino, we continue to connect consumers with the Nike brand. As Don said, we achieved revenue growth of 9% and delivered 23% pre-tax income growth. We feel pretty good about our ability to deliver results in an ever-changing environment. Several segments of the business are leading the way; again, demonstrating our ability to manage our portfolio and connect with consumers in a diverse, compelling way. Key product launches in the Winter Olympics were only some of the highlights. We're seeing great growth stories in areas like performance apparel, led by our Nike Pro product, where we saw the business double for the quarter in the U.S. and we've established ourselves as the market leader in Europe. Our women's fitness business is really starting to gain momentum, achieving a 19% growth for the quarter. The low profile Sports Culture footwear product is selling well in both Europe and the USA, and we are just getting ready to ship our World Cup product in both performance and Sports Culture to football-crazy kids the world over. This product will be the focal point of our Joga Benito campaign, our biggest global campaign ever. We're approaching $1.5 billion in revenue, and our statement level football boot category has seen 100% year-on-year increase. It's amazing to consider that when the U.S. hosted the World Cup in 1994, we were only doing…

(Operator Instructions) Our first question comes from Bob Drbul with Lehman Brothers.

Hi, good afternoon.

Hi, Bob.

Two questions, the first one's just a bigger picture question for Mark. Can you talk a little bit of any of the changes that you've put into place, since you were named the CEO?

Sure. Well, first of all, it's only been about a month-and-a-half, so there's not a lot of changes that have been put into place over the last five weeks or so. That being said, let me just go back to the comment I made before when I last got on the phone. That is, I don't see a significant or a radical change in our overall strategy as a Company. We have had a strategy in place for the past five years that has delivered consistent results, and many parts of that strategy will stay intact and we expect to continue to deliver consistent results that are inline with our long-term financial model. That being said, I think you've got a taste from some of the comments today that it's not business as usual. We are sharpening our focus on certain pieces of our business. I made some of the comments in my opening remarks about really getting better focused on some of the bigger opportunities we have in front of us, closing some of the gaps we have in the market geographies around the world and making sure that we have the best talent in this Company against the biggest opportunities. So you'll continue to see that happening, but maybe at a higher level than where we've been in the past. We also have demonstrated, I think year-to-date, our ability to manage between the top and the bottom line, and leverage expenses quite well, so I'm very proud of that, and that will continue, that focus. I also will say that we will be driving with more intensity at the top line. We really feel that revenue growth is important for our ongoing model, so you'll see more intense efforts against some of those biggest opportunities.

Can you discuss your ability to improve profitability in Europe and in Asia with some of the head winds and the challenges that you face with currency? Can you talk about the limitations to use currency and invest in product and the battle you have underway with market share, especially in Western Europe, but also in Japan?

Yes. Bob, this is Charlie. The head winds -- I mean, it's not like we didn't forecast it. We've done a lot of work to date on continuing to focus on some of the issues or opportunities we have in our supply chain operations, lean manufacturing, and things like that. So we're still focused on continuing to fight the head wind. That being said, I feel like that head wind is going to be out there for a while, and we're going to continue to deal with it, whether it's through gross margin work or looking at the SG&A and operational side of things to make sure that we deliver the profitability that we're looking for.

Don, just one final question. On the inventory levels, when you look out three more months, what level of inventory would you expect at the end of the fiscal year, given the levels that you had at the end of this quarter?

Bob, I really don't want to try to speculate on a specific number; but what I will tell you is that we feel we're taking the right steps to work through the inventory. As I said, a large portion of this is in transit inventory, so we think it is timing-related. Really this is about managing the pull market and we're going to continue to do that. So we're confident we're going to work through this without adverse consequences to our profitability as a Company.

Okay. Great. Good luck.

Thank you,.

Thank you.

We'll go next to Jeff Edelman with UBS Securities.

Thank you, good afternoon. Don, the first question is for you. If we look at your gross margins, sequentially you're up a little bit in the third quarter; it looks as if you'll be up a little more in the fourth quarter. Could we interpret this as you're starting to get the benefit of some of the new pricing on new products to offset some of the product costs that you're experiencing? Or is there something else that is playing into this?

Well, if I can interpret your question, I think what you're saying is on a currency-neutral basis, third quarter was a little better than the second. Is that where you're coming from?

Correct, on the gross margin side.

Right. Well, we have taken some strategic actions on pricing; I wouldn't categorize it as very broad scale or widespread. As I said earlier, it is very surgical in the sense that you've got to look at individual products and individual markets and make the decisions to maximize the overall profitability of the business. We've made a few price changes, particularly in the U.S., but I wouldn't call it very broad scale. The initiatives that we have in place around margin are really more in the area of product costing and supply chain as opposed to pricing. Generally, we're not of the belief that there's a lot of pricing flexibility out there. There is some in pockets; but generally what we're working is the cost side of the equation to make sure that we're producing compelling product at the most efficient prices we can and that we're keeping our supply chain tight and using that to drive the margins. I think as far as expectations are concerned, we're still going to have some head winds, but we're going to keep working against the levers we control that keep driving against improvement over time.

Right. Charlie, can you give us a sense of how much volume you're walking away from, from some of the accounts that you felt had a disruptive posture on pricing in Europe? Also, how important are fill-in orders for World Cup during the current quarter?

Yes, on the first one, Jeff, I'm not going to venture to give you any kind of a specific number around what we're walking away from. We continue to look at the marketplace as a whole, and the distribution strategy of the Western European distribution strategy. So right now we are feeling the effects of some of this to some degree, but I wouldn't categorize it as catastrophic, and we feel very confident in our ability to manage through it. If you look at our numbers right now compared to anybody else in that marketplace, we're performing in the relative same amount of space, so to speak. On the second part of your question, the fill-in orders for World Cup, there is certainly some opportunity. We traditionally do not take a, you know, a forward-looking position around that fill-in business in those key events; but I would say that there is some opportunity on both the apparel and equipment side.

Great. Thank you.

We'll go next to Omar Saad with Credit Suisse.

Thanks. Hoping that you could take a couple minutes and elaborate on some of the impressive profitability improvements in the other brands segment. How much of that was driven by the solid top line growth, leveraging expenses, and what are some of the factors in play there?

Well, it's all of the above. Certainly, as we've talked about before, a lot of these businesses are really much smaller scale than the Nike brand. So as they grow, there is profit improvement opportunity as we leverage overhead. We've also been making some pretty significant gains in gross margin in several of the businesses, as we've really worked the supply chain and continued to tighten how we buy product and how we flow product. If we look across those businesses, it's really a combination of growth and leverage, as well as some of the things that we're doing to improve margins.

Are there any of the brands within that group that stand out among the crowd?

Well, certainly from the standpoint of the size of contribution, I called out Converse and Nike Golf; both of those businesses are getting to be of pretty significant scale. We've got great brand momentum in both places, some terrific products coming out in both cases. We've really worked very hard on the supply chain and the profit improvement initiatives. On both of those businesses, great revenue growth, great brand momentum and improving gross margins.

Great, thanks. If I could just ask one more quick question. Mark, I think you mentioned some commentary about building and leveraging your own retail in conjunction with efforts to elevate the brand. I was wondering if you could just elaborate on that, especially the elevate the brand side of it. How are you thinking about that?

Well, we think there's always opportunity when we get out there to put our brand in the best light possible in terms of really drawing attention to some of the great product and concepts that we have. We're very committed to working with our existing retailers to make that happen. That being said, we also see an opportunity to expand a bit on our own in that respect. We have been through different models; China is one of the bigger examples of late in an emerging market. We think that our presentation at retail and how we present the brand or the brands is absolutely critical to our ongoing growth and brand management. So you'll see us continue to focus perhaps a bit more on that in the quarters and years ahead.

One point I'd also make there is that we've used a number of different models in terms of developing retail around the world. There are places we do it ourselves, particularly flagship locations, Champs d'Elysee in Paris is a great example of that. We've had great partnerships with franchise retailers in Europe. We have more informal Nike-branded relationships with retailers in Central Europe, China, Korea; so there is a lot of different models we've used, but I think one of the aspects that's consistent is elevation of retail presentation is a critical part of the strategy going forward.

Excellent. That's helpful. Thanks.

We'll go next to Virginia Genereux with Merrill Lynch.

Thank you, just a quick one, Don. Does your comment that you guys expect SG&A leverage in fiscal '07 include the $0.35 to $0.40 of options expense?

The comment I made referred to SG&A excluding the option expenses. Off the top of my head, I'm not quite sure how that math would work, but my comment related to SG&A excluding options.

Thank you, sir.

Yes.

We'll go next to Margaret Mager with Goldman Sachs.

Hi, another great quarter, so congrats on that and congrats to Mark and Charlie on your respective promotions.

Thank you, Margaret.

Thank you, Margaret.

All the best to you in the years ahead. I have a couple of questions, actually. The guidance for the fourth quarter and the first quarter, are you actually looking for EBIT to be down excluding ISO?

Well, Margaret, you know that I am very reluctant to give EPS guidance. In fact, I'm more than reluctant. I'm unwilling to give EPS guidance. Certainly what I did, though, is laid out where we expect to see some of the key line items of the P&L. I think the key for '07 is that we do expect to continue to generate strong profitability, and we're going to do that by growing the top line and growing our profit margins. I think if you look at our results, particularly the third quarter but year-to-date, I think we've demonstrated our ability to do that.

With regard to the outlook for SG&A for fiscal '07 and your expectation that you'll have some leverage, what is the view on the demand creation portion of that? Will that be a flat percent of revenue, or down, or what is the view there?

Our thinking for '07 is pretty much in line with our long-term articulation, which is that we believe that demand creation overall generally will grow in line with revenue. That doesn't mean that every year it's going to be exactly the same or that the numbers will be precisely the same. It might be a little higher, a little lower, but generally, our focus is on leverage is around operating overhead, not demand creation.

I understand that, I'm just wondering what you're thinking for the upcoming fiscal year. If we assume flat for demand creation versus '06, is that correct?

Well, without getting into a model building conversation, Margaret, '07 we see as pretty much in line with our long-term model.

Okay. One of the things in this quarter that was very striking was the differential between the orders at the end of last quarter and the actual revenue growth that you achieved this quarter, which is spectacular, particularly in the U.S. You did mention that at-once business is quite strong; can you elaborate on what is going on there and why that business is strong? Is that a trend that's likely to continue? Thanks.

Yes, if you look at the last three or four years, we've actually over-delivered against the futures number on the top line relatively consistently. What we've seen over time is that we have had growth in the at-once portions of footwear and apparel businesses. Particularly on the apparel side, Nike Pro is a product that has a large at-once component to it. We've put a number of styles on auto replenishment. We do have some of that in the footwear space as well. So those tend to drive revenue growth above futures. Our retail stores are also obviously not driven by futures; and then that other business category that we talked about has been growing double digits, and none of those groups are reporting futures. So the growth of the other businesses, the growth of retail, the growth of the at-once businesses, all of those over the last three or four years have shown a positive spread over the futures. Futures is always going to be a critical part of our business model; I think what you're going to find over time is that we're going to see some acceleration of those other pieces of the business.

Okay, well, good enough. Great. I look forward to further questions down the road. Thanks.

Thanks, Margaret.

Thanks, Margaret.

We'll go next to John Shanley with Susquehanna Financial.

Good afternoon, folks. Charlie, I wonder if you could kind of walk us through the U.S. forward order position. You've done so well in the U.S. marketplace in the last couple of quarters, but forward orders up 6%, and that's substantially less than it's been for the last seven consecutive quarters. Is there something changing in terms of the level of forward orders that you get of the retail that's coming in later that are causing forward orders not to be as robust as they had been in the previous quarters?

No, not really, John. We're very comfortable with those numbers at that level today. So I don't think it speaks to anything specific. We've had a great response to the Max 360 launch and the basketball programs that I alluded to up front. I think that it's going to be another good year for the U.S. market and for the Nike brand as we look out over the future. I'm comfortable with those numbers. I think right now, under the circumstances and the growth numbers that we've had and our ability to deliver on the back side of some of these at-once opportunities, we're in a pretty good shape.

It would seem that with all the strength that you had with the various marquee and limited availability product with the Nike Pro that you alluded to in terms of its strength that your forward orders would be a lot stronger, and particularly in lieu of some of the weakness that some of your major competitors have had in the marketplace. I'm just as to why it wouldn't be more robust than a 6% gain?

I would just respond to that with there's maybe a little bit more opportunity out there.

Okay. Fair enough. Don, I have another question on the inventory. I know you've explained it pretty in-depth; but it seems that a 16% build in your inventory and a forward order up only 2.9% for the overall Company, is the in-transit merchandise that you have currently anticipated any different or significantly different than the in transit products at the end of the third quarter of '05?

The amounts are very different, John. As I said, half the growth in overall inventory came from in-transit. If you're talking about the composition, the composition of the product flow always changes.

Yes, I'm not worried about that. I'm talking about the dollar amount.

Oh, yes. Dramatically. Dramatically. The growth in in-transit is half of the growth in overall inventory. So the point I was making is that close-outs are flat. The increase in inventory is product that is on the water or in a consolidator in Asia and it's really earlier ordering and earlier deliveries against product, a lot of it launch product.

So that's different than what it was at the end of the same period of a year ago?

Absolutely. A lot of more of it is product that's still on the way here because it was earlier out of Asia.

Okay. All right. Fair enough. Thanks a lot. Appreciate it.

Okay.

We'll go next to Robbie Ohmes with Banc of America Securities.

I missed the revenue guidance for the fourth quarter. There was a comment I think you guys said about pulling revenues from the fourth quarter into the third quarter, if you could give us a little more clarification on that. Can you just review this lack of operating margin leverage in U.S. business on the 18% revenue gain? Can you give us a break-out again on the pressures there, gross margin versus SG&A, and what the drivers are in that lack of operating margin expansion? Thanks.

Well, the explanation for the product that was shipped a little bit earlier in the third quarter versus the fourth was in three of our regions there were products that normally we would have expected to be shipped in March or April, that ultimately ended up being shipped in February. So pretty simple rationale for that, but really reflecting some strength and demand for those particular markets, and particular products. I'm sorry, your second question again?

Just on the first question --

Lack of operating leverage in the United States, yes.

Just on the first question, did that add two points to the top line growth rate, or you know, can you give us a rough guidance?

No, I'm not able to give you a number on that, Robbie.

Okay, and then --

With respect to the U.S., it's really the gross margin erosion; and, as I said earlier, it was footwear driven and it's basically input costs. It's oil and labor costs in Asia. There's been some suggestion that there's been a higher discount in the United States; we haven't seen that.

When do you think you'll anniversary these input cost pressures?

Well, if you can tell me what the price of oil is going to be, I can probably answer that question. At this stage it takes a little while for product costs to come through, because we have product agreements with our factories that are seasonally based and it's really hard to say, because it's a fairly significant variable equation. The thing I would keep pointing to here is that we have a lot of levers that we manage in gross margin and we're going to stay focused on those.

Just a quick final question, 360 Degree Air, can you characterize that launch relative to your expectations and relative to the launch of Shocks a few years ago, how well it did? Thanks.

Yes, actually very, very pleased with the launch of 360, not only for that one model, but the effect it's had on the larger Air franchise. The sell-throughs started out incredibly strong and continue to be very strong, particularly here in the USA. You will see more attention being put on this whole initiative in the summer season here after World Cup in Europe, and we will start to see some effect outside of the United States even more so.

Okay. We have time for one more question.

Very well. Our last question will come from Kate McShane from Citigroup.

Hi, good afternoon.

Hello.

You had mentioned during the call that you had seen some traction in the Japanese market with some of the lower-priced products that were introduced there. Were there any new higher-priced products that were introduced such as Air Max 360, and did you see traction with those products?

Yes, this is Charlie. Yes, as a matter of fact, the 360 launch was executed in Japan as well, and we felt really good about that launch; more specifically, we did some things in the marketplace in Japan that really created a lot of excitement in that group, that really sets the tone going forward around the history of Air. Launching a shoe wall, that actually created quite a bit of stir in that community and that marketplace and it went through the history and an offering -- what was it, Mark, like 30 shoes, 36 shoes. That was incredibly exciting, and something that you will probably see a little bit more of as we go forward in that marketplace. We really like our position in Japan. We think the market has been tough. It has been promotional. I think that there's been a lot of discussion around who's winning the market share battle. You can cut market share numbers any different way to make them say whatever you want. We're still the number one footwear and apparel Company in Japan and we've got those numbers that we're looking at that say that. So we feel good about the future and what we're doing, both on a long-term basis, the way we're managing the brand and what's coming over the next 12 to 18 months.

Thank you very much.

Thank you, and thanks everyone for joining us. We appreciate your time and interest. We'll talk to you soon.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation once again, and you may disconnect at this time.