Good afternoon, everyone. Welcome to Nike's fiscal 2006 fourth quarter conference call. 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 reports filed with the SEC, including forms 8-K, 10-K, and 10-Q. Some forward-looking statements concern futures 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 is important to remember that a significant portion of Nike Inc.'s 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. Thank you for joining us today to discuss our full year and fourth quarter results for 2006. As the operator mentioned, we issued our results an hour ago, and if you need to reference them, you may find them on our website. You will also see that our results contain the reconciliations between GAAP and non-GAAP reported items, and the supplemental presentation that summarizes our financial results and contains highlights from our quarter, at the website again, nikebiz.com. Joining us on today's call will be Nike Inc. CEO, Mark Parker; followed by our Chief Financial Officer, Don Blair, who will give you an in-depth review of our financial results; and finally, you'll hear from Charlie Denson, President of the Nike Brand. Following each of their prepared remarks, we'll take your questions. As for questions, just a reminder that we'd like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate your 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 very best to come back to you. And thank you in advance for your help with that. Now, it is my pleasure to turn it over to Nike Inc. CEO, Mark Parker.

Thanks Pam, and good afternoon everybody, and thanks for joining us today here. I want to start by taking a moment to reflect on fiscal 2006. In the past 12 months, we added more than $1.2 billion in incremental revenue, and grew our earnings per share 18%, which is the third straight year we've exceeded our mid-teens growth target. While I'm really proud of what we delivered last year, I'm also proud of how we did it. We managed our portfolio of businesses to leverage our strengths and develop markets like the U.S., and invest in emerging markets like China, Russia, Brazil, and India. We extended our brand leadership through terrific execution of brand initiatives like Joga Bonito and Dance Fitness, and breakthrough product innovations like Air Max and Nike Plus. We expanded our profit margins in the face of significant gross margin cost pressures by leveraging our SG&A spending. We had stellar performances for the year by Brand Jordan, Nike Golf, and Converse. As a result, our brands and our Company have never been stronger, and we've never been more confident in our prospects for the future. Last week, we announced a tangible expression of that confidence: a new four-year, $3 billion share repurchase program. This program is twice the size of our previous four-year program, which will complete two years ahead of schedule. The board and I believe that consistent increases in cash returns to shareholders, both in the forms of dividends and share repurchases, are a critical element to creating value for shareholders. I know that our stock value does not reflect what we've done – it reflects what you believe we're going to do. So I want to spend a few minutes talking about Nike's future as I see it. To the core, Nike is a…

Thanks Don. Good afternoon, everybody. Well, the Nike brand had another record quarter, and record year both in our results, and in the way we connected with consumers. I also have to take this opportunity to congratulate my hometown, Oregon State Beavers, for winning their first ever College World Series, and the National Championship. What a night is was last night. Back to our results. We capped the year by exceeding the $13 billion mark for the Nike brand, and delivering our highest pre-tax profit ever. Behind these results are a number of victories, both big and small. We scored some big wins in the quarter with major initiatives like Nike Plus and Joga Bonito, our largest football campaign ever, more on that in a minute. First, let’s talk about today’s results. Our success for the year was fueled by solid revenue growth across the different dimensions of the business, as Don said. Each of our geographic regions and each of our product business units posted higher sales for the quarter and the year. In fiscal 2006, we also delivered more of each revenue dollar to the bottom line than in the prior year, offsetting gross margin pressures, and leveraging SG&A. Our goal is to manage our portfolio and our financial model to deliver sustainable profitable growth, and we did that very effectively in fiscal 2006. When we last spoke, which was my first call as President of the Nike brand, I touched on several priorities, two of which were: Continue to build brand strength on global scale, and improve our growth trajectory in Western Europe and Japan. I’d like to spend a few minutes today updating you on the progress we’re making, and how you should expect them to evolve as fiscal year ’07 unfolds. Let me first hit…

(Operator Instructions) Your first question comes from Bob Drbul - Lehman Brothers. Bob Drbul - Lehman Brothers: Hi, good afternoon. With a lot of initiatives that you talked about, can you talk more about the women's business? With Mindy's departure, can you just talk about the leadership there, the status of that and the success that you are having?

Sure, Bob, this is Charlie. Our women's business performed very well for the year, and is showing great signs of continued growth as we look toward the first half of fiscal year '07. I think from a leadership standpoint, there are lots of people involved in the women's business. The transition between Mindy and Roger has not really affected that group at all. In fact, we continue to see that business accelerate. Bob Drbul - Lehman Brothers: On the inventory side, when would you expect inventory growth to be a little bit closer to sales growth or revenue growth?

Bob, you know how I love to make predictions. One of the things I will tell you is we feel very good about the way we are moving through the in-transits. We also believe that in places like Japan, where we have had a little bit of excess inventory, we are making progress. So at this point, we are optimistic we are going to move through it with no damaging implications for the marketplace, but I wouldn't want to make a prediction. Bob Drbul - Lehman Brothers: Great. Thank you very much.

Our next question comes from Jeff Edelman - UBS. Jeff Edelman - UBS : Thank you. Good afternoon. Don, you were going through some of the outlook for '07 pretty quickly. If we exclude stock option and the one-time charge, is it correct in assuming we should begin to see a tapering-off in demand creation, and we should see both of those relatively stable as a percentage for the full year?

Both of those -- the demand creation model we generally execute is that it grows broadly with revenue. Jeff Edelman - UBS : But I mean as a percentage of sales.

Right. The timing of that, however, will be fairly volatile in '07 if you look at a comparison to '06. In '06, as you know, we were light in the first part of the year and very heavy in the fourth quarter. You will see the reverse of that in '07. So you would expect to see fairly high growth in demand creation in the first quarter and that will taper off over the course of the year. Jeff Edelman - UBS : And the rest of the expense is pretty much the trend they have been running?

Jeff Edelman - UBS : Thank you. Charlie, you've mentioned a number of times in calls adding additional value in certain markets. Are we seeing a change in the business model, where you've got to redesign and operate with a lower gross margin to hit a certain price point? Or am I missing something here?

No, actually, Jeff, it's just the reverse. What we have done traditionally is taking targeted sections of the product line and design to gross margin expectations, as opposed to taking current models down. I think that's one of the things that we've been pretty good at over the last couple of years, where we have addressed specific weaknesses, either in our product line or at price points within the marketplace; approaching it more on a design to a price versus pricing a design.

One point we have also talked about a little bit is that when we launch new products, sometimes we may launch a little bit aggressively from a value standpoint and then move the margins over time. So that is one thing that we do fairly regularly. Jeff Edelman - UBS : Okay, thank you.

Our next question comes from Robby Ohmes - Banc of America Securities. Robby Ohmes - Banc of America Securities: Thanks. First, when you guys exclude options, is fiscal '07 a year that you expect will be below your bottom-line target of mid-teens earnings growth? I've got a couple of follow-up questions to that.

Well, you know, I guess I would have been disappointed if I hadn’t gotten that question at some point, Robby. As you know, we don't give specific guidance for any particular quarter or year. We do have a mid-teens earnings per share growth target over the long haul, that has not changed. I think we have delivered pretty well against that over the last five to six years. I think for fiscal '07, we're certainly going to execute the elements of our model. Where that comes out, at this point, we are going to create value for the shareholders and we are going to grow revenue and profits. Robby Ohmes - Banc of America Securities: If I may, let me ask it this way: it looks like your revenues and your futures orders are tracking for you to hit the top line, long-term aspect of that goal that you put forth. What is different about fiscal '07 ex-options that would prevent you from getting there, if you made the top line part of that long-term goal?

Well, when we talk about our long-term model, there is movement in various and sundry pieces, but one of the things we believe we can do over time is grow our gross margins. That may or may not be something that you will see in a shorter-term period. That is something that, as Charlie spoke to, we manage our financial model pulling all the levers. What we have at the moment is a somewhat more difficult gross margin environment, and that's why we have been pretty aggressive in managing our cost structure and leveraging our overhead. So it is really a combination of factors, but when the model is operating as it was two or three years ago, we were seeing some fairly significant expansion in gross margin. So it's a different model for every year that we play it. What we have to do is pull all the levers to make sure we deliver for the shareholders. Robby Ohmes - Banc of America Securities: Just a quick question for Mark. I might have missed it, but could you just catch us up on low profile and what you guys see coming in both the U.S. and Europe for back-to-school and into holiday?

Sure. Obviously we continue to see that as a big opportunity; meaning low profile, what we call sport culture, active lifestyle-based product. Obviously, that is big in Europe. We've had tremendous success over the past 12 months there. We also see that as a huge opportunity here in the United States. You will see increased focus on that opportunity in the U.S. region, and frankly, Asia-Pacific as well. It's really around the globe, across the regions. So expect to see more focus, more energy on that. We continue to see that as a big growth opportunity. In sport culture, though, we see opportunities not just in the low profile area, but also in areas such as urban footwear. I mentioned the 25th anniversary of the Air Force One. We're really excited about some of the product that we have in the works for that in footwear and apparel, for that matter. So we see lots of opportunity continuing for Nike around the world in the area of sport culture. We are actually evolving our organization to be even more focused on that opportunity across the functions of the Company. Robby Ohmes - Banc of America Securities: Thank you very much.

Our next question comes from Kate McShane - Citigroup.

Thank you very much. I was just wondering if you could comment on at-once orders and if you felt that it had any impact on futures orders globally, or in the U.S., like it may have last quarter?

We're not seeing any material changes as far as the weighting or the differences in the way the future orders versus at-once is applied. We continue to use the futures program to plan the business and drive the business specifically around footwear and apparel in the Nike brand. That being said, as we've stated many times before, some of the faster-growing elements of the Inc. portfolio do not participate in the futures program. That makes it a little bit more challenging to use futures as an absolute tool in computing what kind of a landing area we are going to hit on a quarterly basis. But it still represents probably the best indicator that we have out there.

Kate, we’re seeing growth in both futures and replenishment business as an example. So using the U.S. as an example, we are seeing very good growth, but those are different businesses and I don't think there is a trade out; it is really that we are growing the replenishment and the at-once pieces in the market for us. Kate McShane – Citigroup: Thank you.

Our next question comes from John Shanley - Susquehanna.

Thank you, and good afternoon, folks. Charlie, can you give us some further insights into the key international markets of Japan, Germany, UK and France that you highlighted for us? Were Nike's sales, forward orders and market share position in each of those key regions up, down or sideways in the fourth quarter?

I don't have all the country numbers right in front of me, John. I might be able to follow up with you on that. I think when you look at overall trend lines, I think that the UK is probably the one where we're still looking at the steepest hill to climb. France, I am starting to feel a little bit more confident about France and the direction that we're headed there. As I said in my prepared remarks, the Japan environment looks to be improving. I would have to say that right now, of those four, Germany is probably going to be the biggest growth market of those four for the next year. We are pretty excited about what is going on in Germany right now.

Is it fair to say then that forward orders in at least Germany and France and perhaps Japan are up?

Not yet. I wouldn't go that far yet, but we are starting to see signs of things pointing in that direction.

Okay, that's very encouraging. Don, I’m a little confused about forward orders. They are up 5%. But inventories, as you highlighted, were up 15%. I know you've got stuff in transit and so on, but it seems like there is an inventory build somewhere in the pipeline, since none of your major geographic regions have increases in forward orders anywhere approaching a 15% level. Can you highlight if there is any concern on the Company's part that you are seeing an inventory build that is out of balance with your sales expectations?

Well, as I said earlier, a lot of this is timing of shipments. The back-to-school orders came in relatively early. The great example of that, in the USA we had 9% futures growth and the inventory was actually up a little faster than that. As I said earlier, we really are not concerned about our inventory in the United States. It is very clean, both on our books and at retail, and we don't think there's an issue there. If you look around the world, closeouts are not up more than a couple of percentage points, so this is not a closeout thing. It's really a timing of in-line. There's a couple of places, as I've said on several calls, that we would like to see inventories a little lower. Japan is one example of that. We've also, as I have mentioned, had a little bit of a customs backup in Argentina. But generally, while we've got some pockets out there that we would like to see a little bit lower, over half the growth is in in-transit, and that's not an issue in our minds.

Europe, specifically forward orders up 1%; is there an inventory issue in that overall region, particularly in Western Europe?

I would say the footwear inventory in Europe is a little bit heavier than what we would like to see. But at this point, we feel pretty confident we can move through that.

Fair enough. Thanks a lot.

Our next question comes from Omar Saad - Credit Suisse.

Thanks, good afternoon. I wanted to ask a couple of questions about apparel. It looks like you had some pretty good numbers on the apparel businesses across the regions, it seems the consumer appetite for the higher-priced performance apparel keeps growing. Could you discuss your strategy to capitalize on this market? Are you using a different approach internationally than you have in the U.S.?

Maybe you have been sitting in some of our strategy meetings. One of the things that we feel very good about is pushing more of a premium position throughout the apparel business around the world. Specifically based off of some of the successes that we have had, I think you're going to see some executions over the next six to 12 months around a more premium product offering in areas that we feel pretty good about. That being said, I think we feel great about the performance apparel position that we have in the marketplace. The Nike Pro product has done extremely well and we have seen that business grow at a very accelerated rate. We have also had some great success around the women's performance apparel line. So it is one area where we are very excited about and we are pretty bullish on over the next, I would say 12 to 18 months.

Great. On the more athletic-inspired fashion side, what is your main, primary vehicle there for a lot of those markets? It seems to be a pretty strong segment. Is Converse your primary vehicle for that market, given the technical performance positioning of Nike? Or, can you leverage the Nike brand there as well?

Actually, we have great opportunity on both the Converse brand side of the portfolio as well as the Nike brand. We see our performance positioning, to your point, in the Nike brand as being a great leverage point in the sport culture. You'll see some really strong indications of that over this next 12 months, both coming out of performance as well as the sport culture side of the Nike brand business. In Converse, of course, this past year we had a tremendous business with the Chuck Taylor business at Converse. We see that momentum carrying through this next year. A couple of other brands that didn't come up, but should, are Jordan; tremendous growth. I think we mentioned over 40% in this past year. There's a huge lifestyle aspect of the Jordan brand business that we think will continue to be very strong. Then of course Hurley. Hurley we didn't really mention, but Hurley had a good turnaround year and is moving into fiscal '07 with some really strong momentum with that brand and their more focused product line. So we see lots of opportunities throughout the portfolio.

You mentioned at the beginning of the call connecting with consumers, the importance of that. Could you give us a little more insight, maybe an example or two, of how you plan to do that? What the keys are for that?

Well, I think there are some great examples of what we have done in the last six, 12 months: we mentioned the Joga Bonito campaign around the World Cup, which I think takes consumer connectivity to a whole different level. Particularly when you look at the digital aspect of that and the connection, the dialogue that we're having with consumers around World Cup and the sport of soccer. So a tremendous example there. Then, of course, more recently too, is Nike Plus. I have to tell you, we are just scratching the surface on the opportunity of Nike Plus, not just from a product standpoint, but from a consumer interaction standpoint. There's a whole community aspect of Nike Plus that we think can be huge in terms of connecting consumers to the Nike brand, and frankly, to each other. So we tend to capitalize on that quite a bit. So a couple of examples.

Great. Thanks.

Our next question comes from Margaret Mager - Goldman Sachs.

Hi. Congratulations on a great year and all green boxes.

We like those.

A few years ago. A couple of questions. First of all, Don, could you connect your outlook for the first quarter gross margin to be down and the full year gross margin to be flat? I take it you are thinking somewhere along the way it is going to be up. Can you just outline what you see changing that will help lift the gross margin as you go through the fiscal year? To Mark, just as the CEO of the Company, how do you think about uses of capital and allocating capital? Specifically, I think it's great, your $3 billion share repurchase, I think your shareholders are probably loving that. How do you decide when to repurchase stock? How is the program set up? You moved so quickly on the last one. As part of that, just the whole idea of return on invested capital. What levers do you think you can pull on that front to move ROIC up from the current levels? Thanks.

Well, let me quickly hit gross margin. You're asking a good question, Margaret. If you look at this year's performance -- fiscal '06's performance or the past year's performance -- we actually saw an erosion of gross margin over the course of the year as oil prices started to flow into our product costs and as we also started to see some increases in labor. As we've talked about before, we lock our prices in some time in advance because we also are setting our wholesale prices. As a result, when you have a price increase for oil, as an example, or labor, it tends to move into our cost structure over a period of time. Our expectation is that we are going to start to anniversary some of those higher costs in the second half of the year and that some of our other initiatives are going to start to flow through. We also believe that with the growth of some of our fairly profitable businesses that haven't been affected as much by those factors, we are going to see some shift in mix. So those are some of the key elements here, basically because if you look at '06, we're going to start to anniversary some of those lower numbers and we will perform a little better in the back half.

Thank you.

Your question on return on invested capital, let me start there. I think as you know, there's really two major drivers of ROIC, operating margins and then operating assets turns. We think we have great opportunity to improve on both. On the margin side, we will continue to drive the top line and manage the middle of the P&L in order to deliver on our long-term earnings targets, so that is important. Then as it relates to the asset turns, we have we think significant opportunity to reduce our invested capital base. So in the core Nike brand, I think in EMEA, Asia and the Americas, they all lag in the U.S. as it relates to days inventory on hand. This should be helped quite a bit by the supply chain project, which we didn't mention on this call yet. It is fully implemented here in the next month for Nike. As far as the stock repurchase, our goal has really always been to at least offset the options dilution. With this $3 billion share repurchase program, we hope to continue our recent success in driving our share count lower. So we felt the $3 billion four-year number was appropriate and feel good about the pace that we have been on in terms of share repurchase.

Good luck in '07. I hope it is another great year for you.

Our next question comes from Liz Dunn - Prudential. Liz Dunn – Prudential: Could we possibly get an update on lean manufacturing and some more details on how that is proceeding, what sort of benefits you might expect to see and the timing of that? My second question is, what percentage is China now of your total business, if you could share that? What could it potentially grow to ultimately, in your mind, if you look out a few years? Thank you.

I will take the lean question first. Right now, I think in footwear we have close to 20% of our footwear volume that is produced through lean lines -- in this past quarter, that is. That is up from about 12% the last quarter. So we see that trend continuing, and we see a fairly significant impact moving forward on the FOB equation, in terms of the results that lean provides Nike. So we expect that lean will be a materially greater and greater proportion of our footwear to be manufactured in lean line. Then we haven't really gotten into gear yet on apparel, but that's a big priority for us as well moving into fiscal '07. You'll see a greater and greater percentage of our apparel production being created on lean manufacturing lines. So we are very bullish on the offset that we think we can get from a savings standpoint with lean manufacturing. We continue to be very, very committed to that program.

The math that we see on this one, Liz, we are seeing benefits come through, but there's so much other activity going on in margin you haven't necessarily seen that flow through yet. When we tear down the margins, we do see benefits there. As we get down the learning curve on lean manufacturing, we expect to see that benefit grow.

Liz, could you repeat your second question? Liz Dunn – Prudential: My second question was China: how big do you think it could be? If you can share -- or at least talk directionally -- what percentage is it of the mix currently and where do you think that could go?

Well, we are still very bullish on China. Our success to date -- I think Mark covered some of the numbers in his prepared remarks -- so I think you can figure out how big it is as part of the Asia-Pacific region and the overall mix. It is certainly of consequence that it is the fastest and biggest-growing market we have in the world. I think as you continue to see economic development flourish in China, we are going to keep pace with it. I feel great about the team there. We have continued to both develop internal people and bring some new folks in, and I feel really good about the brand and our presence in China. I think we have over 2,300 mono-brand doors that we have a high degree of influence over with respect to brand management and presentation. It's really an exciting marketplace for us and I think will continue to be, for at least the next three to five years. Liz Dunn – Prudential: Thank you very much.

We have time for one more question.

Our final question comes from Virginia Genereux - Merrill Lynch. Virginia Genereux - Merrill Lynch: Thank you. Don, coming into this quarter on the gross margins, you said they might be down around 100 bips, which is rare detail for you, sir. They came in a little lower than that. I'm just wondering, what happened intra-quarter? I know, a lot of things, but was it clearing some of this inventory in Europe and Japan? What are the vagaries that might have impacted gross margins for May, total company?

Virginia, there is a tremendous number of moving parts. As you know, we are in many, many currencies. We've got lots of different mixes and customer bases and different discount structures and so on. The year-over-year impact on the fourth quarter was input costs, as we have discussed. We talked about improving value in Europe and Japan, and that comes in the form of discounts, in some cases; more often in terms of product investment. We have also seen a change in the mix of products, both in terms of individual styles, as well as shifting growth to the U.S. and the Americas, which have slightly lower gross margin percentages. So it’s a lot of moving parts. I said it was my expectation that we would be over 100 points down in the first quarter. The precision level on this line item in the P&L, it is pretty tough to get that close. That's why we try to manage the P&L holistically and not just one line item. Virginia Genereux - Merrill Lynch: Understood. On Margaret's question, if you are down 100 and change in August, to get to flat for the year, you've got to have a couple of quarters that are up 50 to 100. I just want to be clear on --

It is not quite at that level. But the math, as Margaret said, is that we are going to have to have an offset to that. Yes, we will have to be up in some quarters, and our expectation at this stage is that we can see some margin growth for some of the quarters in the back half of the year. Obviously, that is something that we will continue to monitor, and if there is a significant change in that, we would obviously be talking to you about it. Virginia Genereux - Merrill Lynch: Understood. Lastly, if you bake all that into your outlook then, if your gross margins are flattish and you get a little SG&A leverage and revenues up high singles, and you're getting the cash help, then you are on your plan to do mid-teens earnings before options expense.

Well, as you know, I am reluctant to – Virginia Genereux - Merrill Lynch: I just want to make sure we're all… That's a good note to end on, Pamela. You all have a great night.

Happy new year, everyone. We will end here and look forward to speaking with you soon. Thank you.

Ladies and gentlemen, this does conclude today's conference call. At this time, I would like to thank you for your participation. You may now disconnect and have a great afternoon.