Nike 2006 Annual Report Download - page 25

events primarily in the U.S., EMEA and Asia Pacific regions, higher advertising spending primarily in the
EMEA Region, and increased spending on retail marketing programs in the U.S., EMEA and Asia Pacific
regions. The addition of Converse and formation of Exeter Brands Group also contributed to the demand creation
increase for the year.
Changes in currency exchange rates contributed 3 percentage points of the increase to operating overhead
expense in fiscal 2005. Excluding the effects of foreign currency, operating overhead increases for fiscal 2005
were mainly attributable to higher personnel costs (both increased headcount and higher compensation),
investments in emerging markets (such as China, India and our Central Europe, Middle East and Africa unit) and
our Other businesses, increased costs due to sales and leadership events and higher spending associated with new
NIKE-owned retail stores.
Other Expense, net
Fiscal 2006 Fiscal 2005
FY06 vs.
FY05
% Change Fiscal 2004
FY05 vs.
FY04
% Change
(In millions)
Other Expense, net ............... $4.4 $29.1 (85)% $74.7 (61)%
Fiscal 2006 Compared to Fiscal 2005
The significant reduction in Other expense, net for fiscal 2006 as compared to fiscal 2005 was primarily
driven by foreign currency hedge gains in fiscal 2006 compared to foreign currency hedge losses in the prior
year, partially offset by the Converse arbitration charge. The fiscal 2006 hedge gains primarily reflected that the
euro had weakened since we entered into these hedge contracts and are reflected in the Corporate line in our
segment presentation of pre-tax income in the accompanying Notes to Consolidated Financial Statements (Note
17 — Operating Segments and Related Information).
In fiscal 2006, these net foreign currency hedge gains were partially offset by unfavorable U.S. dollar
translation of foreign currency denominated profits, most significantly in the EMEA Region. We estimate that
the combination of net foreign currency hedge gains in other expense, net, and the unfavorable U.S. dollar
translation of foreign currency denominated profits resulted in an increase to consolidated income before income
taxes of approximately $55 million for fiscal 2006 compared to the prior year.
Fiscal 2005 Compared to Fiscal 2004
The most significant component of other expense, net, of $29.1 million for fiscal 2005 was foreign currency
hedge losses. The hedge losses reflected that the euro had strengthened since we entered into these hedge
contracts. In fiscal 2004, foreign currency hedge losses were also the most significant component of other
expense, net, of $74.7 million. The year-over-year improvement in other expense, net, for fiscal 2005 was mainly
due to lower foreign currency hedge losses and lower net losses on asset disposals compared to those recorded in
fiscal 2004.
In fiscal 2005, these net foreign currency losses in other expense, net, were more than offset by favorable
U.S. dollar translation of foreign currency denominated profits, most significantly in the EMEA Region. We
estimate that the combination of net foreign currency hedge losses in other expense, net, and the favorable U.S.
dollar translation of foreign currency denominated profits resulted in an increase to consolidated income before
income taxes of approximately $95 million for fiscal 2005 compared to the prior year.
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