Overview

In the second quarter of fiscal 2009, our revenues grew 6% to $4.6 billion, net income increased 9% to $391.0 million and we delivered diluted earnings per share of $0.80, a 13% increase compared to the second quarter of fiscal 2008.

Income before income taxes grew 1% for the second quarter, as a result of revenue growth and improved gross margins, offset by an increase in selling and administrative expenses driven by investments in company owned retail, rapidly growing emerging markets, non-NIKE branded businesses and normal wage inflation. A decrease in interest income earned on cash and short-term investments was also a factor in income before income taxes growing at a slower rate than revenues.

Net income and diluted earnings per share for the second quarter of fiscal 2009 were positively affected by a year-over-year decrease in our effective tax rate from 30.3% to 24.9%. The effective tax rate for the second quarter of fiscal 2009 reflects a reduction in the ongoing effective tax rate on operations outside of the U.S., the receipt of a foreign tax settlement and reinstatement of the U.S. research and development tax credit signed into law during the second quarter of fiscal 2009.

The deteriorating macroeconomic environment has caused significant volatility in global financial markets and has put significant pressure on discretionary consumer spending worldwide. While we believe that our Company is well positioned from a business and financial perspective, we are not immune to global economic conditions. These conditions could affect our business in a number of direct and indirect ways, including lower revenues from slowing consumer/customer demand for our products, reduced profit margins and /or increased costs, changes in interest and currency exchange rates, lack of credit availability and business disruptions due to difficulties experienced by suppliers and customers. We are taking steps we believe prudent and necessary to identify and manage potential exposures over the short and long term. These steps include reductions in planned selling and administrative expenses, including the implementation of a hiring freeze and reductions in planned spending for travel, meetings and demand creation, as well as tighter inventory purchasing and working capital management. We have also increased our focus on monitoring the financial health of suppliers and customers. Notwithstanding these efforts, our future performance is subject to the inherent uncertainty presented by the evolving macroeconomic conditions and our continued actions to respond to these conditions.

Results of Operations


                                              Three Months Ended                Six Months Ended
                                                 November 30,                    November 30,
                                            ___________________                 ___________________
                                                                  %                                   %
                                     2008             2007        Change     2008          2007       Change
                                        (dollars in millions, except per share data)

Revenues                        $         4,590.1   $ 4,339.5       6%   $    10,022.3   $ 8,994.6     11%
Cost of sales                             2,540.1     2,418.4       5%         5,410.2     4,986.5      8%
Gross margin                              2,050.0     1,921.1       7%         4,612.1     4,008.1     15%
Gross margin %                               44.7 %      44.3 %                   46.0 %      44.6 %
Selling and administrative                1,546.8     1,429.5      8%          3,403.2     2,864.2     19%
% of revenue                                 33.7 %      32.9 %                   34.0 %      31.8 %
Income before income taxes                  520.6       515.6       1%         1,234.8     1,185.9      4%
Net income                                  391.0       359.4       9%           901.5       929.1     (3)%
Diluted earnings per share                   0.80        0.71      13%            1.83        1.83       0%

Consolidated Operating Results

 Revenues

                    Three Months Ended                       Six Months Ended
                   November 30,                              November 30,
                   ___________________                       ___________________
                                             %                                       %
                 2008            2007        Change      2008            2007        Change
                   (dollars in millions)

   Revenues  $       4,590.1   $ 4,339.5       6%    $      10,022.3   $ 8,994.6       11%

Changes in foreign currency exchange rates increased revenues by 1 percentage point for the second quarter and 4 percentage points for the first six months of fiscal 2009. Excluding the effects of changes in currency exchange rates, all three of our international NIKE Brand regions delivered revenue growth in the second quarter, while our NIKE Brand U.S. region and our businesses classified as "Other" reported revenue declines. The NIKE Brand footwear and apparel businesses grew for the quarter while revenues for NIKE Brand equipment declined. For the NIKE Brand, all three product groups and all four geographic regions delivered revenue growth in the year-to-date-period. Our international regions contributed 5 and 6 percentage points of the consolidated revenue growth in the second quarter and year-to-date periods, respectively. Revenue in the U.S. Region decreased consolidated revenue growth by less than 1 percentage point in the second quarter, and the U.S. region contributed 1 percentage point of the consolidated revenue growth for the year-to-date period. Other businesses were comprised primarily of results from Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf and Umbro Ltd. in fiscal 2009 and Cole Haan, Converse Inc., Exeter Brands Group LLC (consisting primarily of 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 fiscal 2008.

By product group, our NIKE Brand footwear business reported revenue growth of 8% and contributed $168 million of incremental revenue for the second quarter of fiscal 2009. Our NIKE Brand apparel and equipment businesses grew 8% and 1%, respectively, during the second quarter of fiscal 2009, and combined added $108 million of incremental revenue. For the first six months of fiscal 2009, our NIKE Brand footwear business grew 14% and contributed $627 million of incremental revenue, while our NIKE Brand apparel and equipment businesses grew 13% and 8%, respectively, and combined added $383 million of incremental revenue.

   Gross Margin

                                        Three Months Ended                             Six Months Ended
                                       November 30,                                    November 30,
                                      ___________________                              ___________________
                                                                 %                                            %
                                2008                 2007        Change        2008              2007        Change
                                              (dollars in millions)

Gross margin               $         2,050.0     $ 1,921.1         7%     $       4,612.1    $  4,008.1        15%
Gross margin %                         44.7   %       44.3 %      40 bps             46.0%         44.6 %      140 bps

For the second quarter of fiscal 2009, the primary factors contributing to the increase in gross margins versus the prior year period were improved year-on-year hedge rates, most notably in the Europe, Middle East and Africa ("EMEA") region, partially offset by higher warehousing costs, increased discounts on in-line product, primarily apparel, and increased inventory obsolescence reserves. For the year-to-date period, the increase in gross margins was primarily the result of improved year-on-year hedge rates, primarily in the EMEA region, and an improved sales mix of higher margin footwear products, most notably in the EMEA region, partially offset by higher warehousing costs in the U.S.

   Selling and Administrative Expense

                                           Three Months Ended                             Six Months Ended
                                          November 30,                                     November 30,
                                         ___________________                             ___________________
                                                                    %                                              %
                                   2008                2007         Change        2008                2007         Change
                                               (dollars in millions)

Operating overhead expense    $           959.9    $    872.3        10%     $         2,002.2    $  1,753.9        14%
Demand creation expense1                  586.9         557.2         5%               1,401.0       1,110.3        26%
Selling and administrative
expense                       $         1,546.8    $  1,429.5         8%     $         3,403.2    $  2,864.2        19%
% of revenues                              33.7  %       32.9 %      80 bps              34.0   %       31.8 %     220 bps

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

Changes in foreign currency exchange rates had a minimal effect on selling and administrative expenses in the second quarter and increased selling and administrative expenses 3 percentage points for the first six months of fiscal 2009.

Excluding changes in exchange rates, operating overhead increased 10% and 12% during the second quarter and first six months of fiscal 2009, respectively, versus the comparable prior year periods. These increases were primarily attributable to investments in growth drivers such as NIKE-owned retail primarily in the U.S., EMEA and Asia Pacific regions, infrastructure for emerging markets in the EMEA and Asia Pacific regions and non-NIKE brand businesses. Normal wage inflation also contributed to the growth across all regions.

On a constant-currency basis, demand creation expense increased 4% and 22% during the second quarter and first six months of fiscal 2009, respectively, compared to the same periods in the prior year. The increase in the second quarter of fiscal 2009 was primarily attributable to an increase in investments in athlete and team endorsements. The increase in the first six months of fiscal 2009 was primarily attributable to strategic investments in demand creation, including first quarter spending around the 2008 Olympics in Beijing and the European Football Championships, and increased investments in athlete and team endorsements across all regions.

For the third and fourth quarter of fiscal 2009, we will continue to take steps to reduce selling and administrative spending levels while shifting resources to fund initiatives that are critical to the achievement of our long-term growth goals. We expect our selling and administrative expenses will grow at a mid-single digit rate in the third quarter of fiscal 2009 as compared to the same period in the prior year, and decline by a double digit percentage in the fourth quarter of 2009 as compared to the same period in the prior year, reflecting lower demand creation and operating overhead spending. Our future selling and administrative expense levels may vary from our current expectations due to changes in the rapidly evolving macroeconomic environment and our reaction to those changes.

Other Income (Expense), net

                                           Three Months Ended                         Six Months Ended
                                         November 30,                                 November 30,
                                        ___________________                          ___________________
                                                                 %                                           %
                                  2008              2007         Change       2008              2007         Change
                                              (dollars in millions)

Other income (expense), net $ 12.4 $ 0.9 1278% $ 10.8 $ (5.7 ) 289%

Other income (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 second quarter and first six months of fiscal 2009, other income (expense), net was primarily comprised of recognition of the deferred gain on the sale of the NIKE Bauer Hockey business and foreign currency hedge gains and losses.

Foreign currency hedge gains and losses reported in other income (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).

For the second quarter and year-to-date periods of fiscal 2009, we estimate that the combination of foreign currency hedge gains and losses in other income (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 $25 million and $96 million, respectively.

 Income Taxes

                                    Three Months Ended                             Six Months Ended
                                   November 30,                                     November 30,
                                   ___________________                             ___________________
                                                             %                                              %
                             2008               2007         Change         2008              2007          Change

Effective tax rate 24.9 % 30.3 % (540 bps) 27.0 % 21.7 % 530 bps

Our effective tax rate for the second quarter of fiscal 2009 was 5.4 percentage points lower than the prior year period, due primarily to a reduction in the ongoing effective tax rate on operations outside of the U.S., the receipt of a foreign tax settlement and reinstatement of the U.S. research and development tax credit signed into law during the second quarter of fiscal year 2009. We estimate that our effective tax rate for fiscal year 2009 will be approximately 28%.

The effective tax rate for the first six months of fiscal 2009 was 5.3 percentage points higher than the effective tax rate for the comparable period in fiscal 2008, 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.

Worldwide futures and advance orders for NIKE Brand footwear and apparel, scheduled for delivery from December 2008 through April 2009, were 1% lower 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 7 percentage points to the futures decline versus the same period in the prior year. Excluding this currency impact, unit sales volume increases for footwear were the primary growth driver in overall futures and advance orders.

The reported futures and advance orders growth rate 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 Brand footwear and apparel, wholesale sales NIKE Brand of equipment, Cole Haan, Converse, Hurley, NIKE Golf, Umbro and retail sales across all brands.

Operating Segments

The breakdown of revenues is as follows:


                                       Three Months Ended                            Six Months Ended
                                      November 30,                                  November 30,
                                      ___________________                          ___________________
                                                                %                                          %
                                2008              2007         Change       2008              2007         Change
                                            (dollars in millions)

U.S. REGION                         1,513.4      1,529.6        (1)%            3,295.3      3,175.0        4%

EMEA REGION                         1,306.2      1,227.7         6%             3,084.9      2,708.9       14%

ASIA PACIFIC REGION                  821.4         675.6        22%             1,682.0      1,309.3       28%

AMERICAS REGION                      384.6         316.9        21%              740.3         598.9       24%

TOTAL NIKE BRAND REVENUES           4,025.6      3,749.8         7%             8,802.5      7,792.1       13%

OTHER                                564.5         589.7       (4)%             1,219.8      1,202.5        1%

TOTAL NIKE, INC. REVENUES  $       4,590.1    $  4,339.5        6%     $      10,022.3    $  8,994.6       11%

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

                                       Three Months Ended                              Six Months Ended
                                      November 30,                                     November 30,
                                     ___________________                              ___________________
                                                                 %                                            %
                                2008               2007          Change       2008               2007         Change
                                            (dollars in millions)

U.S. Region                           $253.3        $308.0         (18)%           $605.2        $656.2        (8)%
EMEA Region                            276.5         233.1          19%              718.9        612.3         17%
Asia Pacific Region                    216.0         173.1          25%             401.5         334.0         20%
Americas Region                         93.1          69.4          34%              162.2        128.2        27%
Other                                   20.5          70.8         (71)%             106.8        166.0       (36)%
Corporate                             (338.8 )      (338.8 )         0%             (759.8 )     (710.8 )      (7)%

Total pre-tax income                 $520.6         $515.6           1%           $1,234.8     $1,185.9         4%

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                           Six Months Ended
                                        November 30,                                  November 30,
                                       ___________________                           ___________________
                                                                 %                                           %
                                 2008               2007         Change       2008               2007        Change
                                             (dollars in millions)

Revenues
Footwear                    $          993.5    $    983.3         1%    $         2,213.3   $  2,103.2         5%
Apparel                                449.8         461.4       (3)%               914.2         889.4         3%
Equipment                               70.1          84.9      (17)%               167.8         182.4        (8)%

Total revenues              $         1,513.4   $  1,529.6        (1)%   $         3,295.3   $  3,175.0         4%

Pre-tax income              $          253.3    $    308.0       (18)%   $          605.2    $    656.2        (8)%

For the second quarter and the first six months of fiscal 2009, the increase in U.S. footwear revenue was primarily attributable to low-single digit percentage growth in average selling price per pair compared to the same periods in the prior year. The increase in average selling price per pair 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.

Pre-tax income for the U.S. Region declined in both the second quarter and first six months of fiscal 2009. In the second quarter of fiscal 2009, the decline was primarily the result of lower gross margins, principally for apparel, and higher operating overhead expenses, due largely to the expansion of NIKE-owned retail. In addition to these factors, profitability for the first six months of fiscal 2009 also reflected higher demand creation spending.

    EMEA Region

                                       Three Months Ended                          Six Months Ended
                                      November 30,                                  November 30,
                                     ___________________                           ___________________
                                                               %                                           %
                                2008              2007         Change       2008              2007         Change
                                             (dollars in millions)

Revenues
Footwear                   $         688.3    $    646.7          6%   $       1,670.7    $  1,438.6         16%
Apparel                              521.6         485.9          7%            1,171.3      1,052.9         11%
Equipment                             96.3          95.1          1%             242.9         217.4         12%

Total revenues             $        1,306.2   $  1,227.7          6%   $        3,084.9   $  2,708.9         14%

Pre-tax income             $          276.5   $    233.1        19%    $         718.9    $    612.3         17%

For the EMEA Region, changes in currency exchange rates contributed 2 and 10 percentage points of the revenue growth during the second quarter and first six months of fiscal 2009, respectively. Excluding changes in currency exchange rates, most markets within the region increased revenues during the quarter and year-to-date period. The U.K. grew 2% and 4% for the second quarter and year-to date period, respectively, while the emerging markets in the region grew 21% and 30% for the second quarter and year-to-date period respectively, driven by strong results in Russia. These results more than offset lower revenues in Southern Europe.

Excluding changes in exchange rates, footwear revenues increased 4% and 7% during the second quarter and first six months of fiscal 2009 compared to the same periods in the prior year. The increase in footwear revenue was attributable to high single-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 revenues increased 4% and 2% for the second quarter and first six months of fiscal 2009 compared to the same periods in the prior year due to double-digit increases in unit sales partially offset by lower average selling prices as a result of a higher mix of close-out sales.

In the second quarter and first six months of fiscal 2009, pre-tax income for EMEA grew at a faster rate than revenue, as favorable foreign currency translation and higher gross margins more than offset higher selling and administrative expenses.

Asia Pacific Region

                                        Three Months Ended                            Six Months Ended
                                       November 30,                                   November 30,
                                       ___________________                           ___________________
                                                                 %                                            %
                                 2008              2007          Change       2008               2007         Change
                                             (dollars in millions)

Revenues
Footwear                    $         400.1    $     334.1         20%   $           854.1   $    666.2         28%
Apparel                               356.9          289.2         23%               689.6        529.7         30%
Equipment                               64.4          52.3        23%                138.3        113.4         22%
. . .