Nike (NKE)

Other (Income) Expense, net

Fiscal 2009 Compared to Fiscal 2008

For fiscal 2009, other (income) expense, net was a gain of $88.5 million compared to a loss of $7.9 million in fiscal 2008. Other (income) expense, net is primarily comprised of foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities in non-functional currencies and results of foreign currency derivative instruments, as well as disposals of fixed assets and other unusual or non-recurring transactions that are outside the normal course of business. For fiscal 2009, other (income) expense, net was primarily comprised of $43.4 million of foreign currency conversion gains and the recognition of $24.0 million of licensing income related to our fiscal 2008 sale of the NIKE Bauer Hockey business. For fiscal 2008, other (income) expense, net was primarily comprised of a $32.0 million gain on the sale of NIKE Bauer Hockey and a $28.6 million gain on the sale of the Starter brand business, as well as foreign currency conversion losses of $76.6 million.

Foreign currency conversion gains and losses reported in other (income) expense, net, with the exception of gains and losses generated by the EMEA Region and Other businesses, are reflected in the Corporate line in our segment presentation of pre-tax income in the accompanying notes to the consolidated financial statements (Note 19 — Operating Segments and Related Information).

For fiscal 2009, we estimate that the combination of foreign currency conversion gains in other (income) expense, net and the modestly 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 $124 million.

Fiscal 2008 Compared to Fiscal 2007

For fiscal 2008, other (income) expense, net was a loss of $7.9 million compared to a gain of $0.9 million in fiscal 2007. In fiscal 2008, other (income) expense, net included foreign currency conversion losses that were partially offset by the $32.0 million gain on the sale of NIKE Bauer Hockey and the $28.6 million gain on the sale of the Starter brand business. Other (income) expense, net in fiscal 2007 is primarily comprised of the $14.7 million gain on the sale-leaseback of our Oregon footwear distribution center and the $14.2 million benefit from the settlement of the Converse arbitration, partially offset by foreign currency conversion losses.

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In fiscal 2008, we estimate that the combination of favorable translation of foreign currency-denominated profits from international businesses and the foreign currency conversion losses included in other (income) expense, net resulted in a year-over-year increase in consolidated income before income taxes of approximately $122 million.

Other (Income) Expense, net

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 third quarter and first nine months of fiscal 2009, other (income) expense, net was primarily comprised of foreign currency hedge gains and losses and recognition of the deferred gain on the sale of the NIKE Bauer Hockey business. For both the third quarter and first nine months of fiscal 2008, other (income) expense, net was primarily comprised of recognition of a $28.6 million gain on the sale of the Starter brand business and foreign currency hedge gains and losses.

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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 Note 11- Operating Segments in the notes to the unaudited condensed consolidated financial statements.

For the third quarter of fiscal 2009, we estimate that the combination of foreign currency hedge gains and losses in other (income) expense, net and the unfavorable 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. For the year-to-date period 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 $120 million.

Other (Income) Expense, net

Fiscal 2007 Compared to Fiscal 2006

Other (income) expense, net is comprised substantially 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 fiscal 2007, other (income) expense, net was primarily comprised of the $14.7 million gain on the sale-leaseback of our Oregon footwear distribution center and the $14.2 million benefit from the settlement of the Converse arbitration, offset by foreign currency hedge losses. The foreign currency hedge losses recognized in fiscal 2007 primarily reflect the strengthening of the euro since we entered into these hedge contracts.

The change in other (income) expense, net versus the prior year period was primarily the result of foreign currency hedge losses in fiscal 2007, which were more than offset by the Converse arbitration settlement and gain on the sale of our Oregon footwear distribution center discussed above, compared to foreign currency hedge gains in fiscal 2006, which were more than offset by the $51.9 million charge taken during the fourth quarter as a result of the Converse arbitration. Foreign currency hedge gains and losses reported in other (income) expense, net are reflected in the Corporate line, the gain on the sale of the Oregon footwear distribution center is reflected in the U.S. Region line, and the Converse arbitration settlement is reflected in the Other line in our segment presentation of pre-tax income in the Notes to Consolidated Financial Statements (Note 17 — Operating Segments and Related Information).

In fiscal 2007, the net foreign currency hedge losses discussed above were partially offset by favorable U.S. dollar translation of foreign currency denominated profits, most notably in the EMEA Region. We estimate that the combination of net foreign currency hedge losses in other (income) expense, net, and the favorable U.S. dollar translation of foreign currency denominated profits did not have a significant impact on consolidated income before income taxes for fiscal 2007 compared to the prior year.

Fiscal 2006 Compared to Fiscal 2005

The significant reduction in other (income) 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.

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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 (income) 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.