Nike 2006 Annual Report Download - page 32

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The increase in fiscal 2006 pre-tax income for the Americas Region was attributable to higher revenues, an
improved gross margin percentage, lower selling and administrative expenses as a percentage of revenues and
favorable currency translation. Selling and administrative expenses were higher than fiscal 2005, but represented
a lower percentage of revenues for fiscal 2006. The increased selling and administrative expenses were due to
increases in both demand creation (due to increased sports marketing endorsement contracts, and increased
advertising spending and retail marketing programs primarily related to the World Cup campaign) and operating
overhead (driven by increased personnel costs as a result of continued expansion of the business across the
region).
Fiscal 2005 Compared to Fiscal 2004
In the Americas Region, 1 percentage point of the revenue growth for fiscal 2005 was due to changes in
currency exchange rates. Excluding the effects of changes in foreign currency, sales in each Americas product
business unit grew in fiscal 2005. The revenue growth was driven primarily by higher sales in Central and South
America, partially offset by lower sales in Canada.
The increase in fiscal 2005 pre-tax income for the Americas Region was attributable to higher revenues and
an improved gross margin percentage, partially offset by higher selling and administrative costs as a percentage
of revenues. The increased selling and administrative expenses were due to increases in both demand creation
(due to increased spending on sports marketing endorsement contract and events, advertising and retail marketing
programs) and operating overhead (driven by increased personnel costs).
Other Businesses
Fiscal 2006 Fiscal 2005
FY06 vs.
FY05
% Change Fiscal 2004
FY05 vs.
FY04
% Change
(In millions)
Revenues ....................... $1,947.1 $1,735.7 12% $1,428.3 22%
Pre-tax Income .................. $ 151.6 $ 151.4 —% $ 75.3 101%
Converse arbitration charge ........ 51.9 — —
Pre-tax Income, excluding the
Converse arbitration charge . . $ 203.5 $ 151.4 34% $ 75.3 101%
We are providing pre-tax income excluding the Converse arbitration charge to enhance the visibility of the
underlying earnings trend excluding this identifiable expense.
Fiscal 2006 Compared to Fiscal 2005
Revenue increases for our Other businesses in fiscal 2006 as compared to fiscal 2005 were driven primarily
by growth at Cole Haan, Converse, Hurley and NIKE Golf.
Pre-tax income from the Other businesses for fiscal 2006 was consistent with fiscal 2005 and included a
$51.9 million charge related to the unfavorable arbitration ruling involving a licensing agreement contract
dispute with our Converse subsidiary and a former South American licensee. This charge reduced reported
pre-tax income for the Other businesses by 34 percentage points. Excluding the Converse arbitration charge, the
pre-tax income improvement was driven by improved profitability at Converse, Hurley and NIKE Golf, partially
offset by a loss at NIKE Bauer Hockey. The loss at NIKE Bauer Hockey was largely the result of costs incurred
in connection with a re-branding initiative.
Fiscal 2005 Compared to Fiscal 2004
For fiscal 2005, the addition of Converse, acquired in the second quarter of fiscal 2004, and the formation of
Exeter Brands Group, formed in the first quarter of fiscal 2005 to develop the Company’s business in retail
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