Good afternoon, everyone. Welcome to Nike's Fiscal 2011 Third Quarter Conference Call. For those who need to reference today's press release, you'll find it at www.nikebiz.com. Leading today's call is Kelley Hall, Senior Director of Investor Relations. Before I turn the call over to Ms. Hall, let me remind you that participants on 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, 10-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 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 a significant portion of NIKE Inc.'s business, including Equipment, Nike Golf, Cole Haan, Converse, Hurley and Umbro, are not included in these future numbers. Finally, participants may discuss non-GAAP financial measures, including references to total wholesale equivalent sales for NIKE Inc., businesses that have license sales, wholesale equivalent sales that include both reported revenue and estimations of sales by licensees based on the royalties paid. References to total wholesale equivalent sales are only intended to provide context as to the overall current market footprint for the brands owned by NIKE Inc. and should not be relied upon as a financial measure of actual results. Participants may also make references to other non-public financial and statistical information and non-GAAP financial measures. Discussion of non-public financial and statistical information and presentations of comparable GAAP measures and quantitative reconciliations can be found at Nike's website, www.nikebiz.com. Now I'd like to turn the call over to Kelley Hall, Senior Director of Investor Relations.

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss Nike's fiscal 2011 third quarter results. As the Operator indicated, participants on today's call may discuss non-GAAP financial measures. You'll find the appropriate reconciliations in our press release, which was issued about an hour ago, and at our website, www.nikebiz.com. Joining us on today's call will be NIKE Inc.'s CEO, Mark Parker, followed by Charlie Denson, President of the Nike Brand, and finally, you will hear from our Chief Financial Officer, Don Blair, who will give you an in-depth review of our financial results. Following their prepared remarks, we will take your questions. 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. Thanks for your cooperation on this. I will now turn the call over to NIKE Inc.'s President and CEO, Mark Parker.

Thanks, Kelley, and hello, everybody. Before we get into today's results, I think it's important to acknowledge the incredible challenges going on in Japan. Like many of you, I've good friends there and Nike has many teammates who are dealing with this devastating event. And if you knew nothing about the Japanese people before last week, they've certainly shown what the term grace under pressure really means. Thankfully, all of our employees are accounted for and safe, and we're working with relief agencies to assist however we can. But I know I speak for everyone on this end of the call when I say our thoughts and prayers are with Japanese people. Okay, coming back to the business at hand and the purpose of this call, I'll start by reminding you that everything we do at Nike is based on delivering long-term sustainable growth. At the same time, we're focused on delivering value to our shareholders in the near term. This is the balance you've come to expect from Nike, and it remains our commitment going forward. We strike this balance by leveraging our significant competitive advantages, and chief among them are our authentic emotional connections with consumers, innovative product and retail experiences that lead the industry and a strong NIKE Inc. portfolio that gives us tremendous opportunities for growth and significant levers to drive profitability. These strengths are behind the solid performance we delivered in Q3. NIKE Inc. revenue was up 7%. Gross margins, at 45.8%, were down, reflecting expected cost pressures. But despite the gross margin pressure, diluted EPS of $1.08 was the strongest performance of any Q3 in our history. I feel good about our Q3 results. And I know we have the potential to do even better. Specifically consumer demand for our products and brands is…

Thanks, Mark. Good afternoon, everybody. Well, Q3 demonstrates the strength and success of the Nike brand's growth strategy. Constant dollar revenues grew 9%, with growth in every geography except for Japan. We grew every one of our key categories, with five of those categories growing at double-digit rates. Our Direct-to-Consumer business delivered strong comp store growth in both factory and in-line stores and another quarter of double-digit growth online, and constant dollar futures are up 9%. As always, we're focused on managing the business for sustainable long-term profitability. For the Nike brand, that means staying laser-focused on innovation, first at the product and brand level to drive the top-line growth and also driving innovation and discipline into how we run the business. Let's start with product. We have a long history of delivering new and innovative product for the athlete. And the product in the marketplace today is some of the best we've ever created. There are two very powerful words in our business: Nike launch. And we had some good ones in Q3. I'll highlight a few. In basketball, we launched our second edition of the LeBron VIII. the Zoom Kobe VI, the Zoom KB III and the Air Jordan 2011. And by the way, The Black Mamba movie, featuring Kobe and Kanye West, has generated millions of YouTube views as one of the most talked-about digital shorts in the industry this year. Lots of energy around basketball. In football, we launched new kits for the French Football Federation at the France-Brazil Friendly in February. They're the lightest, fastest and most sustainable kits in that team's history. In men's and women's training, five incredible new Nike Free shoes, four of them Nike+ enabled, another great example of taking a category-specific technology and broadening its reach to new consumers. And…

Thanks, Charlie. On our last call, we outlined three key themes that are currently shaping our financial outlook. First, that our business strategies are working in the marketplace, laying a strong foundation for future revenue growth. Second, that we expect to face gross margin headwinds with the rest of our industry, but we're in the best position to mitigate their impact on profitability. And third, that we'll continue to invest in our business for the long term and deliver strong returns to our shareholders. Our results so far this year and our future expectations reinforce these themes. So let's take each one in turn. The first and most important is our confidence in our business strategies and our ability to execute them. Our year-to-date revenue growth, the continued strength of futures and the success being enjoyed by our retailers prove that our strategies are working. We continue to connect with our consumers, deliver industry-leading product innovation and create compelling retail concepts in-store and online. And that's true across the brands, categories, markets and products that make up the NIKE Inc. portfolio. Particularly, while world economies are in various stages of recovery and consumer confidence remains fragile, the ability to connect with consumers around the globe is an extraordinary, competitive advantage, and we've only begun to realize the potential of our portfolio. Our pipeline of product innovation remains robust. Our brands still have vast, untapped potential, and we've just started to extend new category retail concepts around the world. We're confident that as we execute these strategies more broadly and deeply, we'll generate strong revenue growth for years to come. The second theme shaping our financial outlook is cost inflation. As we expected, in Q3, we began to see the impact of rising input costs, such as oil, cotton and labor.…

[Operator Instructions] Our first question comes from the line of Kate McShane with Citi Investment Research.

If I could just focus on inventories for a second, I wondered if you could break down the inventory growth in units versus price and if there are any particular geographies where you're seeing the biggest inventory build?

Well, first of all, most of the growth is units, although there is some price increase in there as well. I don't actually have a split on that right now, but what I would say is when you look at this from a geographic standpoint, the two largest drivers of the growth are North America and China, which is what you would expect. Those are two pieces of geography where the brand and the business is very strong, and we've made some very specific decisions to position ourselves for growth in some very profitable categories. One other thing I'd point out is this really is a more normalized level of inventory. Last year was one of the lowest we've seen. And this year's inventory level is actually only the third-highest February in the last seven years. So this is really more of a normalized inventory level.

I'll add just a little bit more commentary on that. I think part of the footwear growth is driven by a pretty good increase on in-transit. That's just in preparation of trying to chase some of the demand that we've been talking about. And then in apparel, as Don talked about a little bit, North America really primarily is driving the apparel increase, which is where we have the strongest increase on a year-on-year basis in sales. So back to some of the commentary I had in the prepared remarks, I mean, we still feel pretty comfortable about where we are.

And of the capacity that is coming online over the next 12 months, at what point do you think that the capacity being added will start to, I guess, tip the scales in terms of offsetting some of the inflationary pressure?

Well, I think we're going to see air freight begin to ease in the very back half of FY '12. So we think for spring and summer, we're going to start to see a different balance in supply and demand, which will certainly take some of the pressure off gross margin.

Our next question is from the line of Robert Drbul of Barclays Capital.

The first question I always like to ask is when you look at the futures stream, was it consistent throughout the next order period? Or did you see a major deviation from the first half of the period to the second?

It's a little bit stronger in the back half, and that would make sense because the World Cup overlap is more in the front of that window.

Great. And then the second question I have is when you look closely at the North American business, the Footwear growth versus the Apparel growth. Is that -- is that impacting your gross margin, all the mix piece of it? And when we look at the growth of those two segments, should we expect Footwear to continue to grow at a slower rate than Apparel?

Yes, Bob. This is Charlie. I would say yes on both questions. I think the mix has a big effect on the North America gross margin, as Don pointed out in some of the prepared remarks. And right now, we've got a very robust growth curve going in Apparel that we feel pretty good about as a sustainable piece of the business. That being said, we still feel pretty good about our Footwear business as well.

And on the Footwear side of it, when you look at the competitive set, do you still feel comfortable with your market share position? Are you gaining or losing share in the North American footwear market based on these numbers?

I think we're still gaining a little bit. I think it's category by category. I think we still feel very good about our Running business. We still feel very, very good about our Basketball business. Men's and Women's Training is coming online, and Action Sports, still doing very well. So overall, I think you have to break it down category by category, but on an overall basis, I still feel confident that we have the ability to gain share.

Our next question is from the line of Chris Svezia of Susquehanna Financial Group.

So just I guess first, my question is when you look at that capacity that's going to be coming on over the next nine months, I guess instead of thinking about the opportunity to reduce air freight, could you maybe just talk about what the, I guess, cost per unit or the cost structure of this new capacity as it comes on, what it means for you guys as you look at your overall business? Is it actually lower? Is that fair to say?

Well, first of all, we have a pretty strict set of standards around when we bring up a factory in terms of quality and consistency with our code of conduct and so on. So we would expect this factory capacity certainly to be cost-competitive. As we bring on new factories, in some cases, we do bring in some of our lean practices. Some of these factories, for example, are conversions from other brands. So I would say overall, competitive, not materially different from the existing sourcing base.

Let me add to this. This is Mark. Much of the increase in capacity is actually adding lines to existing factories as opposed to just opening new factories. And that's especially important in those factories creating the product that's in the highest demand. Lunar and Free and some of the other products, some of those items that are in specifically high demand. So there's a lot of additional lines being added to current factories.

And then just I'm just curious, as you guys think about the inventory piece, and I think, Don, you made a comment about as you look for the, I guess you're go into spring of fiscal year '12, you're not expecting that much at-once or at-once to be down. I'm just curious as to why that would be, given, I guess, the strength in the business and given the fact that you're air-freighting so much product. And if you had the inventory, why not more at-once? Just curious.

I think you might be referring to -- I think Don's comment was more on the closeout piece where our closeouts, as a percentage of total inventory, are down. I'm not sure. We have to go back and see exactly what he said.

Well, I think first of all, Charlie is right. The major driver here is going to be less off-price, which we think is a good thing. That was obviously a cleaner marketplace. The other thing is we are very committed to the futures model and believe that a pull marketplace is the right way to run the business for maximum margin and capital efficiency. So making sure that we continue to focus on strong futures and keep the at-once business focused on those quick-churning styles. That's the way we think the best way to run the business.

Our next question is from the line of Michelle Tan with Goldman Sachs.

I was wondering if you guys can help us understand the magnitude of the air freight pressure versus the product cost pressure that you are seeing within the gross margin now.

Yes, for the third quarter, we were down 110 basis points. It was about 100 basis points or so on the input costs. About 40, 50 basis points on air freight. So those of you doing the math, we obviously are offsetting some of that with a lot of the cost initiatives we've had in place for quite some time. We continue to drive that, and we've also had some benefit from Direct-to-Consumer. So more than all of the gross margin decline actually came from input costs and air freight.

And much of that is on the materials side. It's the largest percentage of that decrease, sort of the pressures is from higher input costs around materials.

And when you look at fourth quarter and the 300 basis points you're expecting, is the mix of the pressure roughly similar in those items? Or is one of them intensifying dramatically relative to the other?

Well, the input costs are definitely increasing in the fourth quarter. And one of the things we also spoke about is our China distribution center, which we'd just commissioned. We've got some commissioning costs, which we completely expected. But that also is one of the drivers in fourth quarter, but it's basically materials costs.

Understood. And then as far as the timing of the pricing increase, I know you're look at more broad-based ones for 2012. But I guess any sense as kind of how gradually or immediately you kind of step it up to mitigate those product cost piece of this gross margin pressure? Like is it kind of a step-up already in the first half that's meaningful? Or is it more as we move through fiscal '12?

Yes. I think -- this is Charlie. We have been increasing price, albeit strategically and market-to-market, style-by-style, even in fall and as we move into holiday. What we're referring to is more of an across-the-board increase in order to make sure we maintain price-value relationship across the entire product line as we move into 2012. And that's where you'll see that the more significant impact on the overall P&L.

And does that start in Q1, or is that more kind of a rolling impact in terms of the magnitude for the year?

The bigger magnitude comes in the second half of the fiscal year. First half of the calendar year as we move into the spring and summer seasons.

And our next question is from the line of Robert Ohmes with Bank of America.

A couple of quick follow-ups. I was hoping you could elaborate a little more on the timing and the benefits from the new China DC. Is it supportive to your gross margin as you get further out? Is it a way to accelerate your top line growth over there? Maybe more help on where the benefit is in sort of when we see it from that investment? And then just a follow-up question would just be if you look at the U.S. business and you see all this great momentum in running, is basketball momentum as strong as you would have thought? And just sort of your view on that would be great as well.

Bobby, with respect to China distribution center, this is really a short-term commissioning and start up type of impact. We do expect to see some improvement in the back half of the year. And then in the long run, what we experienced with our distribution center in Laakdal, it's both. It really is a competitive advantage to have the capability to deliver against launches and footwear, apparel and equipment together. And also it's one of the things that over a number of years, you continuously improve productivity of the facility and drive improved gross margin. So we do believe that will fairly quickly be a real asset financially and commercially.

And Rob, this is Charlie. Could you repeat the question regarding the running piece?

Yes, I was just curious if the running momentum, you called out a lot of the great new running styles that are doing, obviously, amazing right now in North America. And I was just curious if the tone of your Basketball business is as good as you thought it would've been? Because I forgot, but I recall you guys, I think, mentioning basketball maybe a little bit more in the call last quarter.

Actually, the momentum of basketball has been great, especially on the Nike side, where as you look at the Q3 numbers, Jordan only had one big launch. We mentioned the new Air Jordan. And so that number for the quarter was down -- it wasn't down, it was actually up but on a lower rate. But the Nike Basketball number was up solid double-digits. So we still feel very good about our basketball positioning and the excitement that is going on in that space right now.

Our next question is from the line of Eric Alexander with Stifel, Nicolaus.

In for Jim Duffy. I just had a question related around the capacity and inventory. To what extent do guys think that the restructuring over the past couple of years has influenced your ability to deliver to demand positively and any challenge you think you may have faced? And then as far as your state of inventories in the channel, do you guys feel pretty good about those in your major markets as far as a wholesale and DTC?

Well, with respect to the capacity consolidation, or the factory consolidations, that we did over last year or so, we absolutely believe that's one of the reasons why we are going to be able to support business going forward. That factories that we divested were factories that were less efficient and really weren't the ones that could produce the product that we're working to supply right now. So by consolidating our factory base, we consolidated with the most efficient, highest-quality producers that have the financial and operational capability to grow with us and produce the kind of product that we put in the marketplace.

I will add, too, that the broader restructuring that we went through around the category focus has actually really helped us drive a more robust top line. And we're really seeing that actually click into gear. Some of the demand that we're chasing right now, as I said, was more around a number of really key styles and concepts, where the demand greatly exceeded even our expectations. So we've been chasing those. But overall, we feel very good about where we've netted out on the restructuring.

And then the second part of the question, it was around channel inventory, was that it?

Yes, that's correct, in your major markets. How you guys feel about that. I know your inventories are up 18%. You guys feel like that's coming off a low base year-over-year, but how do guys feel about just really speaking more to the mitigation of air freight and trying to just kind of frame that out?

Well, I'll call out a couple specifics in the U.S., I mean across the different channels, in distribution we feel pretty good. As I mentioned, the two bigger drivers in the inventory numbers were in-transit, which again, is kind of coming into a strong summer-fall period, and then the Apparel, we're very robust here in the United States on our Apparel business. And that goes across all the channels, Sporting Goods, athletic, specialty, department store, et cetera. I made the comment in the prepared remarks. One of the things we watch very, very closely is the overall health of the marketplace. I think it's one of the things that helps us support both the futures program and the ongoing gross margin management that we look at on a quarter-to-quarter basis. So we continue to keep a very, very close eye on all of that around the world. And as we continue to invest in our systems, both at the partnership level and the DTC level, it's giving us more and more transparency into those inventories and our ability to manage them.

That's very helpful. And then last question before turn it over. I'll give it a shot. I know Summer Olympics, you guys had historically used that as a platform to launch new innovations. Is it too soon to discuss any of those that you guys kind of have in the pipeline or anything of that sort? Give it a shot, again.

Boy, that's the big tease. I'm tempted to dive in on that one, but it is a bit early. I will go out and just say I think some of the most exciting, new performance products we've seen in the history of Nike certainly is in the pipeline and getting ready for that massively important global event. And you're right. These are the events that we rally behind. There are sort of moments in time that we come together and show our best work. And I'm very close to the product engine here at Nike. And I can truly say that some of the most exciting product that we have ever had is currently in the works and getting ready to come out prime time for the Summer Olympics in London. So we'll be doing some fairly major events here in the coming 12 months to really highlight much of that. But it's a bit premature to really let some of those cats out of bag right now.

Our next question is from the line of Michael Binetti with UBS.

A quick question for you, and I have a quick follow-up after this, so it sounds like pricing is going to be the main approach to offsetting a lot of the gross margins. And with 300 basis points of pressure in the next quarter, I'm just curious, is there any reason not to get a little bit more aggressive on price early? Or even is there flexibility on it at this point that could be a way that we might be able to have, if we do see prices maybe rise in the retail channel, maybe we can get a little more optimistic on the May quarter, even from here?

Yes, this is Charlie. I think I mean we, obviously, with the large piece of the business being done on the futures program and those prices are already locked in and guaranteed, we don't have a lot of flexibility there. We do have the opportunity, to some degree, to see some pricing in our own Direct-to-Consumer channels. It's still not as material enough to offset some of the pressures that we're seeing coming in. So we don't see a lot of -- a significant impact short term.

But I would say, to the earlier point, pricing's not the only lever we have. We certainly are continuing to work our supply chain, and that's something that we have seen benefits. Historically, we saw benefits in Q3, and we expect to see that in FY '12. And we also have pattern over the last several years of driving for leverage on our SG&A. So we're going to pull all the levers and as we always do, really aim at long-term profitability. And I think if you listen to what we talked about on the guidance, that's really an overall P&L model, not just on the pricing front.

Okay and then, I don't know, this is a question we usually get, the front half versus the back half in the futures window, and maybe if you can tell us what the ASPs look like in the 9% you reported today will be helpful.

The ASPs are up slightly in Footwear and down slightly in apparel is what we have right now in the five-month futures window. What I would remind you of, as Charlie said, that would reflect only the very surgical price increases and not the increases that we expect to see more towards the back half of the year.

And any reason apparel is going -- the ASPS are down slightly there?

I wouldn't take that as something that we see as a material trend. I mean, there's lots of moving parts in Apparel.

And then front half versus back half would be helpful.

More heavily weighted to the back half.

Some of the pricing on the apparel side is due to mix. It's a seasonal reflection of the mix.

Our next question is from the line of Paul Swinand with Morningstar Inc.

Question on the EBIT disclosure that was materially lower in the United States. If the largest influence on that was the gross margin and the product cost, was the shipping what made up the difference between the other geographies, or was there a different mix there as well?

Well, first of all, I think I'm interpreting your question. When you say a material or EBIT...

On the EBIT line, there was 5% for the U.S. but it was lower than the sales increase. And then in like, for example, in China, EBIT accelerated faster than sales.

Right. So as we called out in the script, there's really a couple of issues there. That is going to be the timing of demand creation will always affect the geography profitability. So that's one element. The other one is, you're absolutely right. The air freight cost is highest for North America. It's the geography where we have the fastest delivery windows against futures. And so therefore, when we have capacity shortfalls, it's the North America business that requires the more air freight to get the product on time.

But the input cost affecting the product that are shipped in the different geographies, is that mix about the same across geographies?

Roughly, yes. The products are going to be the same around the world. The only difference there would be just the mix of products. The one thing that is different, input costs are the same, but foreign exchange obviously has a huge impact. And if you looked at our reported numbers, the European geographies were most significantly affected by foreign exchange.

The next question is from the line of Sam Poser with Sterne Agee. Sam Poser - Sterne Agee & Leach Inc.: I just have a couple questions. The inventory levels, I mean it looks to me like, just based on your guidance and with the reduced gross margin, your weeks of supply look like they're in fairly good shape. But I guess my question is, of the in-transit part of that inventory, was that late shipments from the prior quarter, given the delays and the need to fly goods and move goods and so on?

Well, first of all, overall, you're right. Your premise that we feel as if inventory is in good shape, absolutely. We feel good overall about the inventory level. With respect to where we are yet, the factories are delivering later than what we ideally would like it. It's not that they're slow. It's just that the demand is big. So it is the later delivery out of the factory to get it here on time, and, therefore, it needs to be sent by air freight. Sam Poser - Sterne Agee & Leach Inc.: And then secondly, I was just looking ahead into 2012. You say that the gross margin pressures will continue to be there, at least in the first half, I gather. And when we think about the SG&A, the combination demand creation and the other parts of it, would we think about that the front half of the year, basically you're going to lever SG&A better than the back half given the roll-in to the Olympics and so on? And would we expect the same kind of investments in London the way we saw Beijing, given that you're a much more mature business already in the U.K. and so on?

Okay, so what I would say is that that's a plausible storyline, but you're way ahead of me here. We're not quite at that stage with our FY '12 plans to be giving quarterly guidance. But I do believe that, generally, that those thoughts are accurate in the sense that we will be investing in the European Championships and the London Olympics. Some of the London Olympics, of course, will fall into FY '13. So from a demand creation standpoint, you would expect to see some of that flow. With respect to gross margin, we are going to face input pressure all year, although we would expect to see more pricing offset in the second half.

Thank you, everybody. Operator, we're ready to end for the day.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.