Overview

In the first quarter of fiscal 2009, our revenues grew 17% to $5.4 billion, net income decreased 10% to $510.5 million and we delivered diluted earnings per share of $1.03, an 8% decrease compared to the first quarter of fiscal 2008.

Net income and diluted earnings per share for the first quarter of fiscal 2009 as compared to the same period in the prior year was negatively affected by a year-over-year increase in our effective tax rate from 15.0% to 28.5%. The prior year rate reflected a $105.4 million one-time tax benefit associated with past foreign losses.

Income before income taxes grew 7% for the first quarter, driven by revenue growth and a 2.4 percentage point improvement in gross margins, partially offset by an increase in selling and administrative expenses driven by investments in marketing around the Beijing Olympics and the European Football Championship, athlete and team endorsements, company owned retail and rapidly growing emerging market and non-Nike branded businesses. Increases in the value of stock based compensation and normal wage inflation also contributed to the increase.

Results of Operations

                                      Three Months Ended
                                           August 31,
                                                                    %
                     2008                                 2007      change
                    (dollars in millions, except per share data)



             Revenues                     $ 5,432.2     $ 4,655.1        17 %
             Cost of sales                  2,870.1       2,568.1        12 %
             Gross margin                   2,562.1       2,087.0        23 %
             Gross margin %                    47.2 %        44.8 %
             Selling and administrative     1,856.4       1,434.7        29 %
             % of revenue                      34.2 %        30.8 %
             Income before income taxes       714.2         670.3         7 %
             Net income                       510.5         569.7       (10 )%
             Diluted earnings per share   $    1.03     $    1.12        (8 )%

Consolidated Operating Results

 Revenues

                                 Three Months Ended
                               August 31,
                                                               %
                       2008                          2007      change
                       (dollars in millions)



                       Revenues   $ 5,432.2     $ 4,655.1       17 %

During the first quarter of fiscal 2009, changes in foreign currency exchange rates contributed 7 percentage points of consolidated revenue growth. All three of our product groups, all four of our geographic regions, and our businesses reported in "Other" delivered revenue growth. Excluding the effects of changes in currency exchange rates, our international regions contributed over 6 percentage points and the U.S. Region contributed nearly 3 percentage points of the consolidated revenue growth for the quarter. Our Other businesses were comprised primarily of results from Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf and Umbro Ltd. in the first quarter of fiscal 2009 and Cole Haan, Converse Inc., Exeter Brands Group LLC (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley International LLC, Nike Bauer Hockey Corp. (which was sold on April 17, 2008) and NIKE Golf in the first quarter of fiscal 2008. These businesses contributed the balance of the revenue growth.

By product group, our worldwide footwear business reported revenue growth of 19% and contributed $460 million of incremental revenue for the first quarter of fiscal 2009. Our worldwide apparel and equipment businesses grew 18% and 14%, respectively, during the first quarter of fiscal 2009, and combined added $275 million of incremental revenue.

 Gross Margin

                      Three Months Ended
                    August 31,
                                                                            %
             2008                                                 2007      change
                                        (dollars in millions)



                     Gross margin   $ 2,562.1     $ 2,087.0       23 %

Gross margin % 47.2 % 44.8 % 240 bps

For the first quarter of fiscal 2009, the primary factors contributing to the increase in gross margins versus the prior year period were an improved sales mix of higher margin footwear products, most notably in the U.S. and the Europe, Middle East and Africa ("EMEA") regions, improved year-on-year hedge rates, sourcing cost initiatives and higher gross margins in our other businesses. These factors were partially offset by higher input costs due primarily to cost inflation in Asia, and lower apparel gross margins in the U.S. region due to higher mix of close-out product sales.

 Selling and Administrative Expense

                    Three Months Ended
                  August 31,
                                                                              %
          2008                                                      2007      change
                                        (dollars in millions)



          Operating overhead expense           $ 1,042.3     $   881.6       18 %
          Demand creation expense1                 814.1         553.1       47 %
          Selling and administrative expense   $ 1,856.4     $ 1,434.7       29 %

% of revenues 34.2 % 30.8 % 340 bps

1 Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts.

Excluding changes in exchange rates, operating overhead increased 14% during the first quarter of fiscal 2009 versus the comparable prior year period. This increase was primarily attributable to investments in growth drivers such as NIKE-owned retail, infrastructure for emerging markets and non-NIKE brand businesses, and on the ground costs to support the Beijing Olympics and European Football Championship marketing. Increases in the value of stock based compensation and normal wage inflation also contributed to the growth.

On a constant-currency basis, demand creation expense increased 39% during the first quarter of fiscal 2009 compared to the same period in the prior year. The increase was primarily attributable to strategic investments in demand creation, including spending around the 2008 Olympics in Beijing, the European Football Championships and increased investments in athlete and team endorsements.

For the year, we believe selling and administrative expenses will grow at a faster rate than revenue growth as we continue to invest in demand creation to drive growth in our core product lines.

Other Expense, net

                                 Three Months Ended
                               August 31,
                                                                 %
                     2008                              2007      change
                        (dollars in millions)



                     Other expense, net   $ (1.6 )   $ (6.6 )     76 %

Other expense, net is comprised primarily of gains and losses associated with the conversion of non-functional currency receivables and payables, the re-measurement of foreign currency derivative instruments, disposals of fixed assets, as well as other unusual or non-recurring transactions that are outside the normal course of business. For both the first quarter of fiscal 2009 and fiscal 2008, Other expense, net was primarily comprised of foreign currency hedge losses.

Foreign currency hedge gains and losses reported in Other expense, net are reflected in the Corporate line in our segment presentation of pre-tax income in the Notes to Unaudited Condensed Consolidated Financial Statements (Note 10 - Operating Segments).

In the first quarter of fiscal 2009, we estimate that the combination of foreign currency hedge losses in Other expense, net and the favorable translation of foreign currency-denominated profits from our international businesses resulted in a year-over-year increase in consolidated income before income taxes of approximately $71 million.

Effective tax rate 28.5 % 15.0 % 1,350 bps

Our effective tax rate for the first quarter of fiscal 2009 was 13.5 percentage points higher than the prior year period, due primarily to a one-time tax benefit realized in the first quarter of fiscal 2008. In the years prior to fiscal 2008, several of our international entities generated losses for which we did not recognize the corresponding tax benefits, as the realization of those benefits was uncertain. In the first quarter of fiscal 2008, we took the steps necessary to realize these benefits, resulting in a one-time tax benefit of $105.4 million. We estimate that our ongoing effective tax rate for the remainder of fiscal year 2009 will be at or below 28.5%.

Futures Orders

Worldwide futures and advance orders for our footwear and apparel, scheduled for delivery from September 2008 through January 2009, were 10% higher than such orders reported for the comparable period of fiscal 2008. This futures growth rate is calculated based upon our forecasts of the actual exchange rates under which our revenues will be translated during this period, which approximate current spot rates. The net effect of changes in foreign currency exchange rates contributed approximately 1 percentage point to futures growth versus the same period in the prior year. Excluding this currency impact, unit sales volume increases for both footwear and apparel drove the growth in overall futures and advance orders. The reported futures and advance orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing, and because the mix of orders can shift between advance/futures and at-once orders. In addition, exchange rate fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between advance/futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and closeout sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf and retail sales across all brands.

Operating Segments

The breakdown of revenues is as follows:

                                Three Months Ended
                                           August 31,
                                                                 %
                      2008                             2007      change
                    (dollars in millions)



               U.S. REGION
               FOOTWEAR                    $ 1,219.8     $ 1,119.9        9 %
               APPAREL                         464.4         428.0        9 %
               EQUIPMENT                        97.7          97.5        0 %
               TOTAL U.S.                    1,781.9       1,645.4        8 %

               EMEA REGION
               FOOTWEAR                        982.4         791.9       24 %
               APPAREL                         649.7         567.0       15 %
               EQUIPMENT                       146.6         122.3       20 %
               TOTAL EMEA                    1,778.7       1,481.2       20 %

               ASIA PACIFIC REGION
               FOOTWEAR                        454.0         332.1       37 %
               APPAREL                         332.7         240.5       38 %
               EQUIPMENT                        73.9          61.1       21 %
               TOTAL ASIA PACIFIC              860.6         633.7       36 %

               AMERICAS REGION
               FOOTWEAR                        245.8         198.4       24 %
               APPAREL                          79.4          58.3       36 %
               EQUIPMENT                        30.5          25.3       21 %
               TOTAL AMERICAS                  355.7         282.0       26 %

               TOTAL NIKE BRAND REVENUES     4,776.9       4,042.3       18 %

               OTHER                           655.3         612.8        7 %
               TOTAL NIKE, INC. REVENUES   $ 5,432.2     $ 4,655.1       17 %

The breakdown of income before income taxes ("pre-tax income") is as follows:

                                 Three Months Ended
                              August 31,
                                                               %
                        2008                         2007      change
                     (dollars in millions)


                 U.S. Region            $  351.9     $  348.2         1 %
                 EMEA Region               442.4        379.2        17 %
                 Asia Pacific Region       185.5        160.9        15 %
                 Americas Region            69.1         58.8        18 %
                 Other                      86.3         95.2        (9 )%
                 Corporate                (421.0 )     (372.0 )     (13 )%

                 Total pre-tax income   $  714.2     $  670.3         7 %

The following discussion includes disclosure of pre-tax income for our operating segments. We have reported pre-tax income for each of our operating segments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." As discussed in Note 10 - Operating Segments in the accompanying Notes to Unaudited Condensed Consolidated Financial Statements, certain corporate costs are not included in pre-tax income of our operating segments.

U.S. Region

                                Three Months Ended
                              August 31,
                                                              %
                        2008                        2007      change
                     (dollars in millions)


                     Revenues
                     Footwear         $ 1,219.8     $ 1,119.9       9 %
                     Apparel              464.4         428.0       9 %
                     Equipment             97.7          97.5       0 %
                     Total revenues   $ 1,781.9     $ 1,645.4       8 %

                     Pre-tax income   $   351.9     $   348.2       1 %

For the first quarter of fiscal 2009, the increase in U.S. footwear revenue was attributable to low-single digit percentage growth in unit sales and average selling price per pair. The growth in unit sales versus the comparable prior year period was driven by higher demand for our Brand Jordan and NIKE brand sportswear products. The increase in average selling price per pair compared to the prior year quarter was attributable to strategic price increases, increased sales mix of higher priced NIKE brand sportswear, running and Brand Jordan products, and improved pricing on close-out products.

The year-over-year increase in U.S. apparel revenues during the first quarter of fiscal 2009 reflected an increase in unit sales, partially offset by lower average selling prices. The increase in unit sales was driven by an increase in demand for our NIKE brand running and basketball performance products as well as higher close-out sales. Average selling prices decreased primarily as a result of a higher mix of close-out sales.

Pre-tax income for the U.S. Region grew at a slower rate than revenue in the first quarter of fiscal 2009 as result of higher demand creation and operating overhead expenses, partially offset by higher footwear gross margins. The increase in demand creation was driven by brand events, investments in retail presentation at our key wholesale customers and higher sports marketing expenses. The increase in operating overhead was primarily attributable to investments in NIKE-owned retail, normal wage inflation and performance based compensation.

EMEA Region

                                 Three Months Ended
                               August 31,
                                                               %
                        2008                         2007      change
                    (dollars in millions)


                    Revenues
                    Footwear         $   982.4     $   791.9       24 %
                    Apparel              649.7         567.0       15 %
                    Equipment            146.6         122.3       20 %
                    Total revenues   $ 1,778.7     $ 1,481.2       20 %

                    Pre-tax income   $   442.4     $   379.2       17 %

For the EMEA Region, changes in currency exchange rates contributed 15 percentage points of the revenue growth during the first quarter of fiscal 2009. Excluding changes in currency exchange rates, most markets within the region increased revenues during the quarter. The U.K. grew 5% and the emerging markets in the region grew 39%, driven by strong results in Russia and Turkey, more than offsetting softer results in Italy, France and Spain.

Excluding changes in exchange rates, footwear revenues increased 8% during the first quarter of fiscal 2009 compared to the same period in the prior year. The increase in footwear revenue was attributable to double-digit percentage growth in unit sales, partially offset by a slight decrease in average selling price per pair. The increase in unit sales was primarily driven by higher demand for our NIKE brand sportswear and kids products. The slight decrease in average selling price per pair resulted from a shift in product mix from higher priced to lower priced models, most notably within kids and NIKE brand sportswear products.

Excluding changes in exchange rates, apparel revenue for the first quarter of fiscal 2009 was flat versus the prior year quarter.

In the first quarter of fiscal 2009, pre-tax income for EMEA grew at a slower rate than revenue as result of higher selling and administrative expenses, partially offset by higher footwear gross margins. The increase in selling and administrative expenses was primarily attributable to spending around the European Football Championship and the Beijing Olympics, as well as investments in NIKE-owned retail and normal wage inflation. The increase in footwear gross margins was primarily attributable to price increase initiatives and year-over-year improvement in hedge rates.

Asia Pacific Region

                                Three Months Ended
                              August 31,
                                                                %
                       2008                           2007      change
                   (dollars in millions)


                      Revenues
                      Footwear         $ 454.0     $ 332.1       37 %
                      Apparel            332.7       240.5       38 %
                      Equipment           73.9        61.1       21 %
                      Total revenues   $ 860.6     $ 633.7       36 %

                      Pre-tax income   $ 185.5     $ 160.9       15 %

In the Asia Pacific Region, changes in currency exchange rates contributed 10 percentage points of revenue growth for the first quarter of fiscal 2009. While all countries within the region reported revenue growth on a currency-neutral basis versus the prior year's first quarter, China continues to be the primary driver of growth, as revenues increased 53% on a currency-neutral basis. The revenue growth in China was primarily due to expansion in both the number of stores selling NIKE products and sales through existing retail stores. On a currency neutral basis, revenue in Japan was up 2% versus the first quarter of fiscal 2008.

Footwear and apparel revenue growth for the first quarter of fiscal 2009 were driven largely by increased unit sales, most notably in China.

The increase in Asia Pacific pre-tax income during the first quarter of fiscal 2009 was the result of revenue growth, expanding gross margins and favorable foreign currency translation, which more than offset higher selling and administrative expenses. The gross margin improvement for the quarter was primarily driven by favorable hedge results and reduced warehousing costs. The increase in selling and administrative expenses was primarily attributable to spending around the Beijing Olympics, retail expansion, normal wage inflation and performance based compensation.

Americas Region

                               Three Months Ended
                             August 31,
                                                               %
                       2008                          2007      change
                   (dollars in millions)


                      Revenues
                      Footwear         $ 245.8     $ 198.4       24 %
                      Apparel             79.4        58.3       36 %
                      Equipment           30.5        25.3       21 %
                      Total revenues   $ 355.7     $ 282.0       26 %

                      Pre-tax income   $  69.1     $  58.8       18 %

In the Americas Region, changes in currency exchange rates contributed 7 percentage points of revenue growth for the first quarter of fiscal 2009. Excluding the changes in foreign currency exchange rates, all markets in the region reported revenue growth, led by Argentina, Brazil and Mexico.

The increase in pre-tax income versus the first quarter of fiscal 2008 was primarily the result of higher revenues and operating overhead leverage combined with favorable foreign currency translation. These factors were partially offset by higher demand creation spending primarily attributable to spending around brand events.

Other Businesses

                                 Three Months Ended
                               August 31,
                                                               %
                        2008                         2007      change
                          (dollars in millions)


                      Revenues         $ 655.3     $ 612.8        7 %

                      Pre-tax income   $  86.3     $  95.2       (9 )%

In the first quarter of 2009, our Other businesses included Cole Haan, Converse, Hurley, NIKE Golf and Umbro (which was acquired on March 3, 2008). In the first quarter of fiscal 2008, our Other businesses were comprised of Cole Haan, Converse, Exeter (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey Corp. (which was sold on April 17, 2008) and NIKE Golf.

The year-over-year increase in Other business revenues for the first quarter of fiscal 2009 was driven primarily by revenue growth at Converse, Cole Haan and Hurley, which increased revenues 32%, 12% and 38%, respectively, and the addition of Umbro. These factors more than offset the year-over-year loss of revenue from NIKE Bauer Hockey and the Starter brand business.

The reduction in Other business pre-tax income for the first quarter of fiscal 2009 versus the comparable prior year period was primarily due to the loss of profits from NIKE Bauer Hockey.

Liquidity and Capital Resources

Cash Flow Activity

Cash provided by operations was $357.6 million for the first quarter of fiscal 2009, compared to $319.5 million for the first quarter of fiscal 2008. Our primary source of operating cash flow for the first quarter of 2009 was net income of $510.5 million offset by investments in working capital to support the growth in the business. Our investments in working capital increased during the first quarter of fiscal 2009 as compared to the same period in the prior year primarily due to an increase in accounts receivable as a result of higher sales revenue in the first quarter of fiscal 2009 and an increase in inventory receipts to support the continued growth of the business.

Cash used by investing activities was $428.1 million for the first quarter of fiscal 2009, compared to cash provided by investing activities of $88.7 million for the first quarter of fiscal 2008. The year-over-year decrease was primarily due to a net purchase of short-term investments of $321.9 million (purchases net of sales and maturities) in the first quarter of fiscal 2009, compared to net sales and maturities of $181.5 million in short-term investments during the first quarter of fiscal 2008. The net increase in short-term investments was the result of a strategic shift to instruments with higher returns than cash.

Cash used in financing activities was $433.9 million for the first quarter of fiscal 2009, compared to $287.6 million used in the first quarter of fiscal 2008. The increase over the fiscal 2009 amount was primarily due to increased share repurchases, as discussed below, and higher dividends paid.

In the first quarter of fiscal 2009, we purchased 7.1 million shares of NIKE's Class B common stock for $429.8 million. As of the end of the first quarter of fiscal 2009, we have now repurchased 45.7 million shares for $2.5 billion under the $3 billion program approved by our Board of Directors in June 2006. In September 2008, our Board of Directors approved a new $5 billion share repurchase program. The new program will commence upon completion of our current $3 billion share repurchase program. We expect to fund share repurchases from operating cash flow, excess cash, and/or debt. The timing and the amount of shares purchased will be dictated by our capital needs and stock market conditions.

Dividends declared per share of common stock for the first quarter of fiscal 2009 were $0.23, compared to $0.185 in the first quarter of fiscal 2008.

Contractual Obligations

There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K as of May 31, 2008 except as follows:

The total long-term liability for uncertain tax positions was $296.7 million, excluding related interest and penalties, at August 31, 2008. We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur.

Capital Resources

We have a shelf registration statement with the Securities and Exchange Commission for $1.0 billion. We have a medium-term note program under this shelf registration statement that allows us to issue $500.0 million in medium-term notes as our capital needs dictate. Since commencement of the program we have issued $240.0 million in medium-term notes. As of August 31, 2008, $215.0 million in medium-term notes remain outstanding.

. . .