John Shanley (Susquehanna Financial Group): Could you comment on the promotional environment that is going on in the U.S.?

Charlie Denson: With respect to the promotional activity us versus the rest of the market place we are going to stay above the fray.

John Shanley (Susquehanna Financial Group): Where are you in terms of the number of stores specifically in the U.S. that you currently operate both outlet as well as in line regular stores?

Pam Catlett: Total NIKE Brand stores are not U.S. specific and we will have to break that down separately. 331 is the total number of stores. We did not add any net new factory stores in the quarter. We have added 14 factory stores in total since the end of last fiscal year.

Brian McGoth (Morgan Stanley): Can you keep your gross margins heading higher without having to flex on your balance sheet as you head into the next year or two?

Don Blair: It is always tempting in a difficult financial environment to use the balance sheet and let the receivables string out and let your payables head out. What we would prefer to do is make sure that our factory partners maintain profitability and our accounts maintain profitability the old fashioned way of running a tight supply chain and running product that sells through a slow margin. One of the things that we have resisted even at a time when money was cheap was letting the balance sheet grow. We are going to stay focused on keeping the supply chain tight, the inventories tight and making sure that the payment terms both with our suppliers and our customers stay in the line with our policies.

Brian McGoth (Morgan Stanley): Is there anything else you can do or are doing to help your partners over in Asia continue to stay profitable even at a time when they are continually being hit with increased labor costs and raw material increases?

Mark Parker: A lot of the things we do in terms of manufacturing practices and how we design and develop products and how we run our supply chain have benefits both for us and for them. The strategy is make the whole pie bigger and then everybody’s slice gets bigger; not redistribute the same pie. We are always trying to make sure the business itself is more efficient and that is how everybody is better off.

Omar Saad (Credit Suisse): What do you think the impact of cost inflation, commodity prices rising and wage inflation in the Far East will be from a longer term perspective?

Charlie Denson: As we have discussed before there are macro economic factors and ebb and flow and to some degree you can not control those. You can manage them. Oil and labor costs and so on fall into that category. I think over time we are going to see long term increases in labor costs in Asia and energy costs are going to go up and down but generally I do not think we would expect to see major reductions that last for long periods of time. The way we operate our model is we work the levers we can control. There are several broad areas. One is reducing product costs through things like lean manufacturing and raw material consolidation and style productivity. Those things help us drive the profitability of our products by making sure that we are buying raw materials in larger quantities which improve our leverage in negotiations, that we are amortizing tooling more effectively and that we are using less labor in the product through lean manufacturing techniques. That is one approach that we take. A second approach that we take is keeping the supply chain tight. That means we have less working capital tied up and the factory does as well and everybody sells products through a full margin and maximizes profitability. There is also managing mix and making sure that we are taking price increases at the right spot. We are going to work out levers. We are going to deal with the macro economics as they come and our goal is to keep moving the gross margin higher.

Virginia Genereux (Merrill Lynch): How do you think about the National soccer teams endorsements?

Charlie Denson: One of the cornerstones of this brand has always been our ability to show up on the field of play. What it does from a credibility standpoint, authenticity standpoint, and even in exposure and marketing standpoint has always been a pointed to base since Bill Knight gave his first pair of shoes away. We continue to believe in it. We continue to see the benefits of it. It does move the market place. Especially I think you are referring to our latest signing of the French National team. What it means to have one of the big five national teams down in the brand is a monumental defining moment in our ongoing pursuit and our ability to claim the number one position in the biggest global sport in the world. For us it is not just about looking at it in a specific focused way. It has multiple direct and indirect benefits to the brand. That being said we do not just go about it with a scorched earth approach. We do look at the benefits of the commercial opportunity in regards to the French situation I think I am excited with regards to that one because not only does it give us access to the French National team but it gives us access to the entire French amateur football academy and operation throughout the country which we do not have today. It has a big commercial upside with respect to that opportunity. Overall it is a big brand plan and is something we feel confident and comfortable with.

Mark Parker: We are being on the offense in terms of the key sports marketing assets that we are looking at. We are trying to be sure that we are dialed in on which ones we are looking at and more dialed in on how to best leverage those opportunities both on a brand and commercial sense. Our connection to the world’s top athletes and teams remains a fundamental platform that we lean on to grow our business and our brand.

Virginia Genereux (Merrill Lynch): You commented a couple of years ago that other overhead was going to grow past the rate of sales and there was a lean year in fiscal 2006. Currencies are o inflating things big but as you look forward how you do think about other overhead?

Don Blair: That was probably about seven years ago and the business was a different structure then. We are leveraging a lot of our wholesale overhead. One of the things is focusing resources. We have been focused on making sure we are investing in strategic initiatives and that is things like emerging markets and development of retail and those things have had a tangible impact on revenues and gross margins. What I would say to you is we still believe that it is important for us to make sure that we are driving productivity in overhead type functions so that we can invest in our strategic priorities and so we are going to continue to do that. As I called out in the script, we are seeing much slower growth than revenue in our core wholesale businesses but we are investing heavily in some other parts of the business.

Virginia Genereux (Merrill Lynch): Are the areas that require more SG&A investment direct to consumer?

Don Blair: Yes. It is emerging markets as well as the other businesses that we reported. We think that business still has tremendous growth opportunity and we are investing heavily in it. That is another example.

Brian McGoth (Morgan Stanley): The companies that are going to do best in a rising China cost environment are those that ultimately have a sales organization that is greater than a sourcing organization. China is less than 1/3 of sourcing for Nike overall. The industry is closer to 85%. China is growing for you at a rate of 3 or 4 times the rate of your sourcing organization. Is this the right way to look at it and as time goes by and as you see your local sales organization in China continue to ramp that spread will just continue to compress?

Mark Parker: There are a couple of pieces that are the best and accurate analogy. One of them is currency. The RMB strengthens that makes product more costly but it also means that sales in China are more valuable. There definitely is a benefit as we get a natural hedge. The second thing is the economic growth in China not only drives labor costs but also fuels the growth of our business. Yes, the bigger footprint we have in China that certainly helps offset the pressure that comes out of the sourcing side. At the same time we are going to continue to work a diversified sourcing base and work the gross margin levers.

Charlie Denson: When we talk about our business in China we usually talk about the NIKE brand. We have a significantly larger footprint there with Converse, and now Umbro added, in addition to NIKE Golf. The footprint we have in China is large so we can leverage that on both sides in both sourcing and the revenue potential.