adidas AG

Company Profile
Publication Date: 2 Sep 2011

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TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 Business Description...........................................................................................5 History...................................................................................................................6 Key Employees.....................................................................................................9 Key Employee Biographies................................................................................10 Major Products and Services............................................................................14 Revenue Analysis...............................................................................................15 SWOT Analysis...................................................................................................17 Top Competitors.................................................................................................24 Company View.....................................................................................................25 Locations and Subsidiaries...............................................................................31

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Company Overview

COMPANY OVERVIEW
adidas AG (adidas or the company) produces sportswear and sports equipment. It offers its products through three brands, including adidas, TaylorMade-adidas Golf, and Reebok. The company operates in Europe, the Americas and Asia. It is headquartered in Herzogenaurach, Germany and employs about 42,541 people. The company recorded revenues of E11,990 million ($15,907.1 million) during the financial year ended December 2010 (FY2010), an increase of 15.5% over FY2009. The operating profit of the company was E894 million ($1,186.1 million) in FY2010, an increase of 76% over FY2009. The net profit was E567 million ($752.2 million) in FY2010, as compared to net profit of E245 million ($325 million) in FY2009.

KEY FACTS
Head Office adidas AG Adi-Dassler-Strasse 1 D 91074 Herzogenaurach DEU 49 9132 84 0 49 9132 84 2241 http://www.adidas-group.com

Phone Fax Web Address

Revenue / turnover 11,990.0 (EUR Mn) Financial Year End Employees Frankfurt Ticker December 42,541 ADS

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Business Description

BUSINESS DESCRIPTION
adidas AG (adidas or the company) is one of the largest companies in the sporting goods industry. The company offers its products through three main brands: adidas, Reebok and TaylorMade-adidas Golf. The company operates through more than 170 subsidiaries in Europe, the US and Asia, each focusing on a particular market or part of the manufacturing process. The company operates through three business segments: wholesale, retail and other businesses. The wholesale segment comprises all business activities relating to the distribution of adidas and Reebok products to retail customers. The retail segment comprises all business activities relating to the sale of adidas and Reebok products directly to end consumers through own retail. adidas and Reebok branded products include footwear, apparel and other goods, such as bags and balls. The other businesses include TaylorMade-adidas Golf, Rockport and Reebok-CCM Hockey, as well as other centrally managed brands. TaylorMade-adidas Golf includes the three brands TaylorMade, adidas Golf and Ashworth.TaylorMade designs, develops and assembles or manufactures high-performance golf clubs, balls and accessories. adidas Golf branded products include footwear, apparel and accessories. Ashworth designs and distributes men's and women's lifestyle sportswear. Rockport predominantly designs and markets leather footwear for men and women. Reebok-CCM Hockey designs, produces and markets hockey equipment such as sticks and skates as well as apparel under the brand names Reebok Hockey and CCM Hockey. The other centrally managed brands segment primarily includes the business activities of the Y-3 label, under which premium footwear and apparel are designed and distributed.

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History

HISTORY
adidas AG (adidas or the company) was promoted by Adolf and Rudi Dassler in 1949. adidas was named after its founders 'Adi' from Adolf and 'Das' from Dassler. It launched its first pair of football boots with removable studs in 1954. By 1960s, the company was manufacturing equipment across various sports, including equipment for fringe sports. In 1975, the company launched the one of the world's most popular soccer boot: the Copa Mundial. The company continued to grow and enter new markets during 1990s. adidas was also transformed into a marketing group, from a manufacturing and sales based group during the same period. adidas was listed on the Frankfurt and Paris Stock Exchanges in 1995. The company expanded its product line in 1997 with the acquisition of the Salomon Group. This acquisition gave it the brands like Salomon, TaylorMade, Mavic and Bonfire. Following the acquisition, the company changed its name to adidas-Salomon. During 2001, the company centralized its supply chain and expanded its Canadian operations with the purchase of Canadian outdoor specialist Arc'teryx Equipment. As a result of this transaction, the company extended its presence in new sports and outdoor sports. Further growth was achieved in 2003, when TaylorMade-adidas Golf, a division of the adidas-Salomon Group, acquired the Maxfli brand of golf balls and accessories. In the same year, adidas-Salomon formed a strategic alliance with Intersport International, which strengthened its products' sales and distribution. Also during the same year, adidas-Salomon signed a six-year agreement with the China Football Association to support Chinese Football until 2010. The company also opened its first adidas Originals Store in Seoul, South Korea in 2003. adidas-Salomon acquired Valley Apparel Company, a producer and distributor of collegiate and professional league apparel and accessories in 2004. The company announced its plans to acquire Reebok International (Reebok) for $59 per Reebok share, in 2005. The acquisition of Reebok was completed in 2006. The Australian Olympic Committee and adidas concluded a sponsorship agreement in 2005 to provide sports outfits to the Australian Olympic Team at the Summer Olympics in Beijing 2008 as well as the Olympic Games in 2012 and 2016. The company sold Salomon division to equipment maker Amer Sports, a unit of Amer Group, in 2005. This deal included the Arc'Teryx, Bonfire, Cliche, Mavic, and Salomon businesses. adidas and Porsche Design Group signed a long-term strategic partnership, including licensing agreement in the same year. In 2005, adidas was named the Official Sportswear Partner to the 2008 Olympics in Beijing. adidas secured a strong foothold in the US professional sports in 2006, when it signed an 11-year deal to be the official supplier of uniforms and other products to the National Basketball Association

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History

(NBA). This agreement also included the Women's National Basketball Association and the NBA Development League. The company changed its name from adidas-Salomon to adidas AG in 2006. In the same year, adidas purchased distribution rights for the Reebok brand in CIS (Russia, Ukraine, Kazakhstan, Belarus, Uzbekistan, Armenia, and Azerbaijan) from ZAO Reebok-Retail, Reebok's Russian distributor. Its subsidiary in Japan, adidas Japan, extended its partnership with the Japan Football Association until March 2015. adidas signed an agreement with New Point Industrial in 2006, to gain control of the distribution and license rights for the Reebok brand in China. The company also entered into a long-term partnership agreement with the Union of European Football Associations (UEFA), granting adidas the global sponsorship rights for the UEFA Euro 2008 in Austria and Switzerland. During 2006, adidas assumed full ownership of its subsidiary in Korea, adidas Korea, by purchasing the remaining 49% of shares from its joint venture partner. In the same year, the company bought the distribution rights for the Reebok brand in the Czech Republic and Slovakia from Reebok Sport Czech Republic and Reebok Sport Slovakia, respectively. During 2006, adidas sold the Greg Norman Collection apparel business to the MacGregor Golf Company. adidas acquired distribution rights for the Reebok brand in Turkey from Reebok Spor Urunleri, in 2007. In the same year, adidas and Intersport International, extended their strategic co-operation (entered in 2003) until 2012. In 2007, adidas and the Hellenic Football Federation announced the extension of their sponsorship deal until the end of 2012. Further, during the same time, the company opened its adidas NBA Concept Shop in Europe, Istanbul, and Turkey. In the following year, adidas and A.C. Milan announced the extension of their sponsorship deal until the end of 2017. Also in 2008, Reebok, the company's subsidiary, formed a joint venture company with Vulcabras, to conduct the distribution of Reebok footwear, apparel and accessories in Brazil and Paraguay. In 2008, adidas and the Russian Football Union (RFU) entered into a long-term partnership until 2018. Under the new agreement adidas would supply all RFU teams including the Olympic football team. Towards the end of 2008, TaylorMade-adidas Golf completed its tender offer for the outstanding shares of Ashworth. Reebok and the entertainment company Cirque du Soleil, entered into a partnership agreement, in 2009. Same year, adidas and UEFA extended their long-term partnership for UEFA EURO 2012 and UEFA EURO 2016, along with all other national team competitions in the period from 2010 to 2017 under UEFA's EUROTOP banner. adidas and NBA extended their global partnership in March 2010, giving adidas exclusive rights to all apparel in Europe beginning with the 2010-11 NBA season. In August 2010, the company and the Mexican Football Federation extended their partnership until 2018.

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History

In February 2011, adidas and the RFEF (Spanish Football Federation) extended their sponsorship agreement until 2018. Also, in April 2011, the company and FC Bayern Munich extended partnership until 2020. In June 2011, adidas announced its plan to open its biggest distribution center in Niedersachsenpark, Germany, in the first half of 2013. In the following month, adidas and Argentine Football Association extended their sponsorship agreement until 2022.

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Key Employees

KEY EMPLOYEES
Name
Herbert Hainer Glenn Bennett Robin J. Stalker Erich Stamminger Igor Landau Sabine Bauer Willi Schwerdtle Dieter Hauenstein Wolfgang Jager Stephen Jentzsch Herbert Kauffmann Roland Nosko Alexander Popov Hans Ruprecht Heidi Thaler-Veh Christian Tourres

Job Title
Chief Executive officer Member, Executive Board Member, Executive Board Member, Executive Board Chairman, Supervisory Board Deputy Chairwoman, Supervisory Board Deputy Chairman, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board Member, Supervisory Board

Board
Executive Board Executive Board Executive Board Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board

Compensation
4833000 EUR 1861000 EUR 1961000 EUR 2839000 EUR 160000 EUR 100000 EUR 100000 EUR 40000 EUR 80000 EUR 80000 EUR 100000 EUR 60000 EUR 40000 EUR 80000 EUR 40000 EUR 40000 EUR

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Key Employee Biographies

KEY EMPLOYEE BIOGRAPHIES

Herbert Hainer
Board: Executive Board Job Title: Chief Executive officer Since: 2001 Age: 57 Mr. Hainer has been the Chief Executive Officer at adidas since 2001. He joined the company in 1987, and has held numerous management positions within the company, including Managing Director Germany and Senior Vice President for Sales and Logistics in Europe, Africa and the Middle East. Prior to that, Mr. Hainer spent eight years with Procter & Gamble in various sales and marketing positions. He is also a Member of the Supervisory Board at Engelhorn, Mannheim, Germany. Mr. Hainer is the Deputy Chairman of the Supervisory Board at FC Bayern Munchen, Munich, Germany.

Glenn Bennett
Board: Executive Board Job Title: Member, Executive Board Since: 1997 Age: 48 Mr. Bennett has been a Member, Executive Board at adidas since 1997. He joined adidas in 1993, and began working as the Head of Worldwide Footwear Development. Mr. Bennett began his professional career with Reebok International in 1983, where he worked for 10 years in various operations and product functions.

Robin J. Stalker
Board: Executive Board Job Title: Member, Executive Board Since: 2001 Age: 53 Mr. Stalker has been a Member, Executive Board at adidas since 2001. He also serves as the Chief Financial Officer at the company. Mr. Stalker has been associated with the company since 1996 serving in various positions. Previously, he worked with various organizations including Arthur Young, presently Ernst & Young, United International Pictures and Warner Bros International.

Erich Stamminger

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Key Employee Biographies

Board: Executive Board Job Title: Member, Executive Board Age: 54 Mr. Stamminger is a Member, Executive Board at adidas. He is responsible for the Global Brands. Mr. Stamminger joined the company in 1983. Mr. Stamminger served in numerous marketing positions before becoming Managing Director for Germany and later Europe and Asia/Pacific. In 1997, he was appointed to the Executive Board and became Head of Global Marketing in 2000. In 1996, Mr. Stamminger became the Senior Vice President of Marketing for Europe at the company.

Igor Landau
Board: Non Executive Board Job Title: Chairman, Supervisory Board Age: 67 Mr. Landau is the Chairman, Supervisory Board at adidas. He served as the Chief Executive Officer at Aventis. Mr. Landau is a Member of the Supervisory Board at Allianz, and also the Member of the Board of Directors at Sanofi-Aventis and HSBC France.

Sabine Bauer
Board: Non Executive Board Job Title: Deputy Chairwoman, Supervisory Board Age: 48 Ms. Bauer is the Deputy Chairwoman, Supervisory Board at adidas. She serves as the Chairwoman of the Central Works Council.

Willi Schwerdtle
Board: Non Executive Board Job Title: Deputy Chairman, Supervisory Board Age: 58 Mr. Schwerdtle is the Deputy Chairman, Supervisory Board at adidas. He also serves as the General Manager at Procter & Gamble.

Dieter Hauenstein
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 54

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Key Employee Biographies

Mr. Hauenstein is a Member, Supervisory Board at adidas. He also serves as the Chairman of the Works Council Herzogenaurach.

Wolfgang Jager
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 57 Dr. Jager is a Member, Supervisory Board at adidas. He also serves as the Managing Director at Hans-Bockler-Stiftung.

Stephen Jentzsch
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 51 Dr. Jentzsch is a Member, Supervisory Board at adidas. He also serves as a Partner at Perella Weinberg Partners UK, London. Dr. Jentzsch is a Member of the Supervisory Board at Sky Deutschland, Germany.

Herbert Kauffmann
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 60 Mr. Kauffmann is a Member, Supervisory Board at adidas. He is a Management Consultant. Mr. Kauffmann also serves as the Chairman of the Supervisory Board at Uniscon universal identity control, Germany.

Roland Nosko
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 53 Mr. Nosko is a Member, Supervisory Board at adidas. He is a Trade Union Official of IG BCE Trade Union. Mr. Nosko also serves as the Deputy Chairman of the Supervisory Board at CeramTec, Germany.

Alexander Popov

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Key Employee Biographies

Board: Non Executive Board Job Title: Member, Supervisory Board Age: 40 Mr. Popov is a Member, Supervisory Board at adidas. He also serves as the Chairman at RFSO Lokomotiv, Moscow, Russia.

Hans Ruprecht
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 57 Mr. Ruprecht is a Member, Supervisory Board at adidas. He also serves as the Sales Director Customer Service, Market Central.

Heidi Thaler-Veh
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 49 Ms. Thaler-Veh is a Member, Supervisory Board at adidas. She also serves as a Member of the Central Works Council at the company.

Christian Tourres
Board: Non Executive Board Job Title: Member, Supervisory Board Age: 73 Mr. Tourres is a Member, Supervisory Board at adidas. He also serves as a Member of the Board of Directors at Beleta Worldwide, Guernsey, Channel Islands.

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Major Products and Services

MAJOR PRODUCTS AND SERVICES

adidas AG (adidas or the company) produces sportswear and sports equipment. The key products and brands of the company include the following: Product: Footwear Sports apparel Sports accessories Golf equipment Golf ball Hockey equipment and apparel Brands: adidas TaylorMade-adidas Golf Reebok

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Revenue Analysis

REVENUE ANALYSIS
adidas AG (adidas or the company) adidas recorded revenues of E11,990 million ($15,907.1 million) during FY2010, an increase of 15.5% over FY2009. For FY2010, Western Europe, the company's largest geographic market, accounted for 29.5% of the total revenues. The company generates revenues through three business segments: wholesale (68.2% of the total revenues during FY2010), retail (19.9%), and other business (11.8%). Revenues by segment* In FY2010, the wholesale segment recorded revenues of E8,181 million ($10,853.7 million), an increase of 14.2% over FY2009. The retail segment recorded revenues of E2,389 million ($3,169.5 million) in FY2010, an increase of 25.3% over FY2009. The other businesses segment recorded revenues of E1,420 million ($1,883.9 million) in FY2010, an increase of 9.8% over FY2009. *Percentages are rounded off Revenues by geography** Western Europe, adidas' largest geographical market, accounted for 29.5% of the total revenues in FY2010. Revenues from Western Europe reached E3,543 million ($4,700.5 million) in FY2010, an increase of 8.6% over FY2009. North America accounted for 23.4% of the total revenues in FY2010. Revenues from North America reached E2,805 million ($3,721.4 million) in FY2010, an increase of 18.8% over FY2009. European emerging markets accounted for 11.6% of the total revenues in FY2010. Revenues from European emerging markets reached E1,385 million ($1,837.5 million) in FY2010, an increase of 23.4% over FY2009. Latin America accounted for 10.7% of the total revenues in FY2010. Revenues from Latin America reached E1,285 million ($1,704.8 million) in FY2010, an increase of 27.7% over FY2009. Greater China accounted for 8.3% of the total revenues in FY2010. Revenues from Greater China reached E1,000 million ($1,326.7 million) in FY2010, an increase of 3.4% over FY2009.

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Revenue Analysis

Other Asian markets accounted for 16.4% of the total revenues in FY2010. Revenues from other Asian markets reached E1,972 million ($2,616.3 million) in FY2010, an increase of 19.7% over FY2009. **Percentages are rounded off

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SWOT Analysis

SWOT ANALYSIS
adidas AG (adidas or the company) produces sportswear and sports equipment. It offers its products through three brands, including adidas, TaylorMade-adidas Golf, and Reebok. Strong brand portfolio will only enhance the market position of the company but also boost its topline. However, widespread counterfeits not only deprive revenues for the company but also dilute its brand image. Strengths Leveraging strong brand portfolio to establish a robust retail footprint Focus on research and development has facilitated continuous development of new products Strong performance driven by the success of 2010 FIFA World Cup Wide geographical footprint with increasing focus on emerging markets Opportunities Reorganization aimed at improving efficiency Sponsorship agreements of major sports events enhances the company's visibility Growth in global footwear market could boost top line growth Weaknesses Dependence on third party manufacturing Unfunded postretirement obligations will impact cash flows adversely

Threats Increase in counterfeit products may hurt the brand image Intense competition could hurt company's margins Exposure to foreign markets makes adidas susceptible to foreign currency fluctuations

Strengths

Leveraging strong brand portfolio to establish a robust retail footprint With revenues of E11,990 million ($15,907.1 million), adidas is one of the world's largest maker of athletic footwear, apparel and equipment by sales. The company's leading market position is built on its portfolio of strong brands like adidas, Reebok and TaylorMade. Its major brands adidas and Reebok cover the footwear and apparel categories, providing both performance and lifestyle products. The company's TaylorMade brand which designs and markets golf products leads the golf industry in metalwood sales and is also the leading iron brand in the US. Also, Reebok-CCM Hockey is one of the worlds largest designers, manufacturers and marketers of hockey equipment and apparel with two of the worlds most recognised hockey brand names: Reebok Hockey and CCM Hockey.

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SWOT Analysis

The company is leveraging its brands to establish a strong retail presence and increase profit margins by increasing retail sales as a percentage of total sales. The company's portion of own retail has grown substantially and currently adidas operates over 2,270 stores for the adidas and Reebok brands worldwide. The company's own-retail business (including e-commerce, mono-branded stores run by retail partners, shop-in-shops that it establish with its key accounts, joint ventures with retail partners, and co-branded stores with sports organizations or other brands) provide it with a high level of brand control, as it either manage the stores itself or work closely with its partners to ensure the appropriate product offering and presentation at the point-of-sale. In order to further enhance its retail operations, adidas established a new leadership team for 'retail' mandated to create global retail guidelines and a common framework to drive long-term profitability for the adidas and Reebok retail operations around the globe. At the same time adidas will also continue to selectively open and remodel retail stores to continue growing its retail footprint, with about 100 planned new store openings and around 220 store remodellings in 2011. adidas strong brand portfolio and enhanced retail presence enables easier customer recall. The company leverages its brand strength to drive topline growth and to attain competitive advantage over its peers. Focus on research and development has facilitated continuous development of new products adidas has a strong focus on research and development (R&D). The company devotes significant resources and attention to product development, process technology and consumer insight research to develop products with innovative and distinctive features. Even in difficult economic environment the company maintained its investment on R&D. adidas spent E102 million ($135.3 million) on R&D in FY2010, an increase of 18.6% over FY2009. The adidas Innovation Team is responsible for the ongoing development of new technologies and concepts in all key product categories. The team is divided into groups that focus on apparel, footwear and hardware, within which there are individual product focus categories like basketball, football (soccer), American football or cross-category project areas such as intelligent products or energy management systems (cushioning technologies). In addition to its internal R&D efforts, adidas also purchases a limited amount of R&D expertise from well- established research partners. This strategy allows for greater flexibility and faster access to know-how that may otherwise require considerable time and resources if built up within the company. Such strong focus on R&D has enabled the company to launch various products. For instance, in FY2010, the company launched adiStar Salvation running shoe, adiZero F50 football boot and miCoach training system under adidas brand. It launched ZigTech training shoe and RunTone running shoe under Reebok brand; and R9 SuperTri driver and Burner SuperFast driver and fairway woods under TaylorMade-adidas Golf brand. Other key products developed by the company were TruWalk mens and womens footwear and Reebok 11K skate and CCM U+ Crazy Light skate. In addition, in FY2010, adidas plans to launch various new products, such as adiZero F50 Runner running shoe, adiPower Predator football boot, RealFlex footwear, EasyTone Plus footwear, ClassicLite footwear and apparel collection, R11 and R11 TP driver, Naomi womens footwear

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SWOT Analysis

collection, and CCM U+ Crazy Light II stick. The companys strong focus on R&D has allowed it to uphold the technological leadership in most of its product segments. It has also enabled adidas to develop innovative products, leading to strong sales. Strong performance driven by the success of 2010 FIFA World Cup The 2010 FIFA World Cup has been a rousing success for adidas. The company had an unparalleled presence at the event with twelve teams including the host nation in the finals, combined with its status as official sponsor, supplier and licensee. The event had a halo effect on the adidas brand overall due to its unprecedented scale of media coverage as the world's largest television event, broadcast to over 190 countries and an estimated cumulative audience of 26.3 billion. As of June 21, 2010 (a mere ten days after the competition began), the company achieved record-breaking sales, predicting sales of soccer-related merchandise at least E1.5 billion ($2.2 billion), surpassing the E1.3 billion ($1.9 billion) obtained in football sales in 2008, the last time a record was set in the soccer sales category. These record sales included the sale of 6.5 million replica jerseys (more than two times the 3 million sold at the 2006 World Cup) and 20 million soccer balls. The FIFA world cup has not only brought great success and profit to adidas but also enhanced its brand image and market position. Wide geographical footprint with increasing focus on emerging markets adidas sells its products in virtually every country around the world.The company has an established presence in relatively high growth markets of North America and Europe and is also rapidly expanding into emerging economies of Asia which provide a huge potential market compared to the developed regions. adidas' presence in several geographical regions will ensure diversified revenue stream and reduces the business risk. It also makes the company less vulnerable to the vagaries of a single economy. Following the economic downturn, the emerging economies are set grow at a faster pace as compared to the matured markets such as the US, Japan, and certain European countries. adidas' effective participation in high growth emerging markets has been its driver of growth in recent times. For instance, in FY2010, sales increased by 22.7% and 19.7% in Latin America and other Asian countries (excluding China). This indicates that the geographical positioning to a certain extent enabled the company to weather the downturn in its largest market. Large geographical foot print in diverse markets will enable the company to expand its markets to high growth economies, derive the related synergies of expanded operations and also reduces the business risk.

Weaknesses

Dependence on third party manufacturing

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SWOT Analysis

To minimize production costs, adidas outsource over 95% of production to independent third-party suppliers, primarily located in Asia. Furthermore, 32% of all suppliers were located in China. Since the company procures its merchandise from foreign manufacturers, it has little control over the product quality. For instance, there have always been concerns over unsafe Chinese consumer products. The Consumer Product Safety Commission has issued alerts and announced voluntary recalls by US companies on numerous products made in China. Any failure on the part of vendor and manufacturer to achieve and maintain high manufacturing standards could result in manufacturing errors resulting in product recalls or withdrawals, delays or interruptions of production, cost overruns or other problems that could seriously harm the company's business. Over-reliance on third party vendors and manufacturers makes the company prone to top-line risks from external parties. Unfunded postretirement obligations will impact cash flows adversely The company has significant unfunded pension obligations. adidas provides retirement benefits for most of their employees, either directly or by contributing to independently administered funds. In FY2010, the companys pension benefit obligations stood at E74 million ($98.2 million) as compared to the planned assets of E67 million ($88.9 million), resulting into an unfunded status of E7 million ($9.3 million). Volatility in financial markets (equity and debt) led to decline in pension fund asset values. Unfunded pension obligations will force the company to make regular cash contributions to bridge the gap between pension assets and liabilities, pressurizing the liquidity position of the company.

Opportunities

Reorganization aimed at improving efficiency adidas undertook a major reorganization initiative in order to enhance its efficiency. The company moved from a vertically integrated brand structure into a function-related structure for the adidas and Reebok brands, creating a Global Sales function responsible for the commercial activities and a Global Brands function responsible for the marketing activities of both brands. In addition, the Global Sales organization was split into Wholesale and Retail, to cater more appropriately to the different needs of these two distinctive business models. To transition to the new structure, adidas initiated several measures including: establishment of joint operating models for the adidas and Reebok brands in most markets around the globe; elimination of regional headquarters, moving to more direct interaction between local markets and global functions; and separation of the responsibility between Global Brands and Global Sales management on the Board level. The key priority of Global Sales is to design and implement state-of-the-art commercial strategies. As part of this strategic business plan (Route 2015), which defines strategies and objectives for the period up to 2015, the Global Sales function has defined three strategic priorities: increase the share of controlled space to 45% of sales by 2015; implement an integrated distribution roadmap to ensure

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SWOT Analysis

further growth and maximise brand potential in key demographic locations; and support growth initiatives in the companys three key markets North America, Greater China and Russia/CIS. These initiatives will positively influence the company's brands and enhance its flexibility and speed-to-market. Sponsorship agreements of major sports events enhances the company's visibility adidas has sponsorship agreements for major sports events across the globe. The company has a sponsorship agreement with the Japan Football Association until March 2015 and with the Australian Olympic Committee until 2016. It also secured sponsorship rights to the 2014 FIFA World Cup. In addition, in 2009, adidas extended its partnership with UEFA for the UEFA EURO 2012 and UEFA EURO 2016 football championships, as well as for the UEFA Champions League. The company has also signed an 11-year global merchandising partnership agreement (beginning with the 200607 season) with the National Basketball Association (NBA). This deal makes adidas the official uniform and apparel provider for the NBA, the Women's National Basketball Association and the NBA Development League. Additionally, adidas is also the Official Sportswear Partner to 2012 Olympics in London. Further, in February 2011, adidas and the RFEF (Spanish Football Federation) extended their sponsorship agreement until 2018. Also, in July 2011, the company and Argentine Football Association extended their sponsorship agreement until 2022. Sponsorship of major sports events would help the company to strengthen its profitability and enhance its brand recall among consumers. Growth in global footwear market could boost top line growth The global footwear market has shown positive growth in recent years. According to Datamonitor, the global footwear market grew by 2.6% in 2009 to reach a value of $196.3 billion. Clothing, footwear, sportswear and accessories constitute the largest segment of the global footwear market, accounting for 67.6% of the market's total value. The performance of the market is forecast to accelerate to the value of $230.8 billion by 2014, representing an increase of 17.6% over 2009. adidas is one of the largest companies in the sporting goods industry. The company produces sportswear and sports equipment. It offers athletic footwear to various customer segments. The company offers its products through three brands, including adidas, TaylorMade-adidas Golf, and Reebok. With significant operations in this products category, the company is well positioned to capitalize on the growing global footwear market which will add to its topline growth.

Threats

Increase in counterfeit products may hurt the brand image

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SWOT Analysis

adidas faces a significant threat from counterfeits of its products. For instance, some retailers in China and South East Asia are allegedly selling private label merchandise which bears a great deal of resemblance to the company's products. The abundance of counterfeit goods and accessories is adversely affecting the sales of branded products. With the advent of digital channels there has been a surge in the sale of counterfeit products. Globally, the sales of counterfeit goods online from illegitimate retailers reached $135 billion in 2010. According to industry estimates, the US economy is suffering an estimated loss of $200 billion in revenue due to sale of counterfeit goods. In Europe, the market for counterfeit products is estimated to be worth $8.2 billion. Besides revenue losses, counterfeits also affect the company's brand because of low product quality. Such counterfeits reduce consumer confidence in branded products. Also, what differentiates the offerings of companies such as adidas from its competitors is exclusivity; widespread counterfeits reduce this exclusivity. Although the company has invested resources in protecting its patented technologies and aggressively countering the sale of fake products, counterfeits continues to proliferate, posing a threat to adidas revenues and brand name. Intense competition could hurt company's margins The market for sporting goods is intensely competitive in the US and across geographies. adidas competes internationally with a large number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies and companies with diversified lines of athletic and leisure footwear and apparel and equipment. The company faces competition from Nike and Puma in the international market. In the US market, the company also faces competition from regional players like Callaway Golf and New Balance Athletic Shoe. Besides, in the US, the company has to face competition from the cheaper imported footwear from Asian countries like China. Thus, intense competition and availability of cheaper products could put pressure on the price of products and therefore adversely affect the company's margins. Exposure to foreign markets makes adidas susceptible to foreign currency fluctuations adidas sells its products in virtually every country around the world. As a result, it earns revenues, pay expenses, own assets and incur liabilities in countries using various currencies. Since a significant portion of the companys revenues are generated outside the euro currency region and the procurement of production material and funding are also organized on a worldwide basis, the currency risk is an extremely important factor for adidas earnings. The effect of changes in demand and refinancing conditions and fluctuations in exchange rates has a significant impact on the companys earnings. The unexpected and dramatic devaluations of currencies in developing or emerging markets, such as the recent devaluation of the Venezuelan Bolivar and Russian Rouble, could negatively affect the value of the company's earnings from, and of the assets located in, those markets. The value of the companys equity investment in foreign countries may fluctuate based upon changes in foreign currency exchange rates. These fluctuations, which are recorded in a cumulative translation adjustment account, may result in losses in the event a foreign subsidiary is sold or closed at a time when the foreign currency is weaker than when the company initially invested in the country. Any

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SWOT Analysis

unfavorable change in other currencies would have an adverse affect on the profitability of the company.

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Top Competitors

TOP COMPETITORS

The following companies are the major competitors of adidas AG

NIKE, Inc. Callaway Golf Company PUMA AG Rudolf Dassler Sport New Balance Athletic Shoe

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Company View

COMPANY VIEW
adidas has not released a company statement for 2010. An interview of Herbert Hainer, the Chief Executive Officer at adidas is given below. The extract has been taken from the company's 2009 annual report. Herbert, how has the Group performed in 2010, and have you met your targets? After the financial crisis and economic difficulties of 2009, we rebounded strongly in 2010 and can reflect on an excellent year. The Group generated a record 12 billion in sales, growing 9% currency-neutral, clearly outpacing our major competitors. Group gross margin was up 2.4 percentage points, driven by less clearance sales and a larger share of higher- margin Retail sales. At the same time, we reduced operating expenses as a percentage of sales, despite significant increases in marketing investments. This led to a jump in operating margin to 7.5%. As a result, our net income increased 131% to 567 million and earnings per share were 2.71, which was at the top end of our November guidance. In terms of our balance sheet and cash flow, the development in 2010 could not have been better. We shaved 3.5 percentage points from operating working capital as a percentage of sales, reaching our lowest ever level of 20.8%. And our operating cash flow generation, the most important driver for the creation of shareholder value, was an exceptional 1.2 billion for the year. This allowed us to further reduce our net debt, which now stands at 221 million, just one tenth of the level it was 24 months ago. Without question, this years financial performance is an outstanding achievement. Not only did we meet all of our initial expectations for the year we clearly beat them. This is a credit to the commitment, focus and hard work of all our employees. Was there a segment that particularly drove this performance? All of our segments hit the mark in 2010. However, an obvious highlight was the performance of our Retail segment where sales climbed 18% currency-neutral, driven by an impressive 11% comparable store sales increase. Particularly satisfying was the development of our concept stores, where comparable store sales growth was an even higher 14%. While this underscores the strength and desirability of our 2010 product collections, even more so it emphasises that the strategic direction we are taking to improve our proficiency as a retailer is already paying off.This segments performance contributed more than half of the entire Group profitability improvement in 2010, as segmental operating margin increased 5.3 percentage points to 18.9%. The leverage we have in Retail is obvious. And this performance should give you confidence that our continued investment in this space will be a significant source of value for our company in the years to come. Speaking of investments, 2010 saw a significant increase in your marketing expenses. Do you think it was money well spent? Absolutely. Firstly, I am glad you havent forgotten that I consider marketing an investment and not a cost. We increased total marketing spend to 13.3% of sales in 2010, returning it to pre-crisis levels. As with any marketing investment we make, I always scrutinise the returns carefully, benchmarking

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Company View

our performance versus our own expectations and the competition. And the results, no matter which brand I look at, speak for themselves, as we seized the enormous potential I saw for our company to leapfrog the competition out of the recession. Lets look at a few examples. At adidas, sales increased 9% currency-neutral to 8.7 billion, with our performance in the football category standing out. In South Africa, we witnessed the most successful World Cup weve ever had, generating record football sales well in excess of 1.5 billion. Through our world- class partnership portfolio, adidas was front and centre on every podium with adidas long-term partner Spain winning the World Cup. The adiZero F50 was the top-scoring boot in the competition and one of the top-selling football boots in the industry. Another great example of marketing success in 2010 can be seen in our strong rebound in basketball. The Derrick Rose and Dwight Howard commercials, supporting our positioning as the fastest and lightest brand in the game, have generated our highest sell-throughs in the category for years. And on the streets, bold collaborations with the likes of Jeremy Scott and unexpected campaigns such as the highly successful Star Wars Cantina spot, have catapulted sales of our adidas Sport Style sub-brands up 23% to a record 2.2 billion. adidas Originals alone now has over 7 million followers on Facebook, making it the most popular lifestyle brand in our industry. For Reebok, investments to promote our new initiatives have also been a home run. Reeboks sales expanded 12% currency-neutral to 1.9 billion. EasyTone has been a magnificent hit with global consumers and customers. Supported by exciting campaigns and fitness testimonials such as those with Helena Christensen and Kelly Brook, we ended the year on the top spot in the toning category. Even more pleasing, however, is that we created a second engine for growth in 2010, with the highly successful launch of ZigTech. This was driven by our largest ever online viral pre-launch campaign. The commercial success has been phenomenal. Taking these initiatives together, Reebok was among the top three selling footwear brands during the Christmas period in the USA. We also made sure that our Other Businesses had the right support to reach their goals. No more so than TaylorMade-adidas Golf. Sales grew to 909 million in 2010. And in doing so, TaylorMade-adidas Golf became the global leader in the golf industry in 2010. North America and Greater China were key priorities for you in 2010. How did the Group fare in these and your other geographies last year? I am pleased to report that the growth and successes of 2010 were broad-based and robust in most of our key markets. For North America, we significantly exceeded our targets with notable upticks at adidas and Reebok of 14% and 22% currency-neutral, respectively. Key initiatives such as lightweight and Originals at adidas as well as toning and ZigTech at Reebok resonated right across the consumer spectrum. In addition, our mission to build a strong connection to the next generation athlete and to increase our prominence in the important mall channel is taking shape. In Greater China, although sales declined modestly for the full year, we returned to growth in the second half, with an increase of 10% for the six-month period. We dramatically attacked our inventory levels and rationalised our store base in 2010. And through the improvements we have implemented in our merchandising, product offering and operational processes, I am confident we are now in a position to sustain this growth trajectory, at a time when some of our competitors are starting to weaken.

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Company View

Turning to other markets, in Europe we significantly increased market share in 2010, supported by a strong performance in the football category and our dominance in the regions emerging markets. Revenues in Western Europe increased 7% on a currency-neutral basis, primarily as a result of double-digit sales growth in the UK, Germany and Spain. In European Emerging Markets, Group sales increased 16% on a currency-neutral basis. Russia/ CIS in particular was a major standout. In this market, which is predominantly own retail, comparable store sales increased 25%. And we extended our commanding market share lead in Russia, with Reebok now the number two sporting goods brand behind adidas. In Other Asian Markets and Latin America, sales increased 6% and 14% respectively in 2010. Even in Japan, we grew against a difficult consumer market and, in doing so, extended our market leadership position, with an impressive 45% currency-neutral increase at Reebok being a major highlight. Looking at your financials, one thing that is striking is the reduction of net debt. How have you managed to achieve this and can you give us an update on your policies towards capital management and dividends? With the difficulties in the financial markets, we set clear targets over the last two years to significantly reduce our financing obligations. And we have achieved this through our commitment to increasing operating cash flow, which was an exceptional 2.8 billion over the past 24 months. With net debt at year-end standing at 221 million, the ratio of net borrowings over EBITDA is now 0.2 times, comfortably within our long-term guideline of below two times. In terms of capital allocation and capital management, we will continue to maintain a conservative policy towards debt management, until we have seen a sustainable recovery in the macro-environment. In the short term, we intend to largely use excess cash to invest in our Route 2015 growth initiatives, and to further reduce net borrowings. In addition, we are fully committed to our dividend policy, which was expanded in 2010 to a payout range of 20% to 40% of net income attributable to shareholders. This year, we intend to pay out 167 million, up from 73 million a year ago. This equates to a dividend per share of 0.80, which is more than double the 0.35 we paid last year. By striking the balance between investment and shareholder returns, I am convinced we will provide significant value for our shareholders over time. In November, you revealed your strategic plan for the next five years called Route 2015. What is the rationale behind the plan, and can you share with us the key aspirations it contains? When we are focused, we are a formidable competitor to any brand that may choose to compete with us and it is with this attitude and rationale that we have established Route 2015. It is the most comprehensive and aligned strategic business plan this Group has ever created and is based on our long-term mission to be the global leader in the sporting goods industry. This strategy starts and ends with the consumer. Our key aspiration in the plan is to outperform total market growth, both GDP and sporting goods market, as well as our major competitors. Because, it is only by sustaining quality growth that we will be able to unleash the incredible value we all know our Group can create. We aim to achieve high-single-digit currency-neutral sales growth annually over the five-year period, which represents a 45% to 50% revenue increase from 2010 levels. From a brand perspective, adidas and Reebok

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Company View

will account for more than 90% of the increase, with the rest coming from our Other Businesses. Our three key attack markets North America, Greater China and Russia/CIS are targeted to deliver 50% of the growth. In terms of earnings per share, which will be the litmus test of our ability to create value, we intend to achieve a compound annual growth rate of 15% over the five years. This will be achieved through balancing the investment required to secure top-line growth, and leveraging this through to the bottom line. As part of this goal, we are committed to achieving an 11% operating margin sustainably at the latest by 2015. There is absolutely no denying that the growth in sales and earnings which we are outlining will yield unprecedented levels of cash flow for our Group over the next five years. And, I am sure you will agree that this is how value should be created. Rising input costs and price inflation are currently two widely discussed topics in the financial markets. Do you foresee major impacts on gross margin from these risks? These market forces are not just topical, but headwinds we, and indeed everyone in our industry, must face. Lets look at the facts. Raw material, labour and transportation costs have all gone up some quite excessively. Take cotton as an example. Prices almost doubled last year, and are still rising sharply, up over 20% already in 2011. To mitigate these negative developments, our Global Brands and Global Operations functions are working hard on optimising our product creation, manufacturing and distribution processes to bring our products to market more cost-efficiently. These efforts will provide us with some relief. However, with the extreme raw material price increases towards the end of last year, they will not be enough to fully offset the entirety of the cost pressures. Therefore, pricing and thus inflation in our industry is an economic reality. When it comes to pricing power, we can be very confident. Even in the midst of the worst global recession in living memory, we have seen that consumers will pay a premium for exciting, new products from brands renowned for quality, innovation and service. We have those brands and those products. And, we have the marketing prowess to support them and to further increase their desirability. Ultimately, the consumer will decide and we will watch carefully how price and volumes develop over the year. Obviously, for our financial results, the most impacted metric will be our gross margin. While the above factors may end up being a negative, nevertheless, there are also other factors that will play in our favour in 2011. These include regional mix, as we expect to grow faster in the emerging markets, and also the increasing portion of higher-margin own-retail sales. As a result, we expect Group gross margin to remain largely unchanged in 2011, in the range from 47.5% to 48.0% compared to 47.8% in 2010. However, if input costs continue to rise at such a pace, then the challenge will undoubtedly intensify and lead to further margin pressure for our industry beyond 2011. Will adidas grow in 2011 without any major sports events? What key initiatives and product launches for the brands should we watch out for in 2011? Too much is made out of event versus non-event years. Beyond the phasing of our business between the quarters, there is actually very little difference, given how diverse the adidas brand is today. Last year is a great proof of that. Outside of football and adidas Sport Style, which we already talked about, we had outstanding growth in running and outdoor, where sales grew 8% and 21%,

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Company View

respectively. In running, highlight collections such as adiZero, Supernova and Response all grew at double-digit rates. I also wouldnt say 2011 is eventless. The sporting calendar is packed, and with great regional diversity, which can only be good for a brand as global as adidas. Events such as the Cricket World Cup in India, the Rugby World Cup in New Zealand, the Copa Amrica in Argentina, the Womens Football World Cup in Germany and the IAAF World Championships in Korea are just a few we will leverage to our advantage this year. The Copa Amrica will attract half a billion viewers alone in Latin America. And dont forget towards the end of the year, we will start prepping for the highly anticipated London 2012 Olympic Games and the UEFA European Championship 2012. At the end of the day, our success in any year is only as good as the initiatives we have in place to excite the consumer. And I am extremely enthusiastic about our campaigns and product launches, which will show up everywhere in a big way in 2011. In mid-March, we will kick off our all adidas global brand campaign. The campaign showcases adidas distinctive presence across and into different sports, cultures and lifestyles fusing the worlds of sport, music and fashion. We also have an incredible pipeline of products coming to market this year. Take running again. With products like the adiZero F50 Runner and Clima CC Ride, I expect we will see growth accelerate in this cornerstone Route 2015 category and grow at a double-digit rate. In football, the Predator has been completely redesigned to give maximum impact both technically and visually. It will also be fully integrated with adidas miCoach, and you will see it on the field of play with a new younger breed of stars such as Nani who just recently joined the adidas family. We will also build on our credibility as the lightest brand in the game of basketball with the launch of the adiZero Crazylight. And adidas Sport Style has another string of intriguing collections, including the first year of our own Originals Denim collection. We have seen a strong turnaround for Reebok in 2010. With signs that the toning market is slowing, can Reebok maintain its momentum in the near term? Yes, definitely. I can only reiterate what I said in November. We have built our presence in toning in the right way, taking our time, choosing selectively how and with whom we distribute, and matching demand carefully with supply. We have also remained committed to our endeavours, making sure we give our partners the right support to drive sales through to the consumer. More importantly, however, with every quarter the top-line drivers are becoming more broad-based and, indeed, more international. Our presence at retail is also getting bigger and bolder. And our partners are showing great confidence in the brand. I only have to look at our exposure at Finish Line in February, where we ReeZigd all 680 Finish Line stores in the USA with ZigTech imagery for four weeks. In 2011, we are also gearing up for our third key technology platform launch RealFlex. RealFlex promotes natural movement and is equally striking in terms of design and functionality as Reeboks toning and Zig platforms. In addition, we will also re-launch Reebok Classics. To support the Classics franchise, Reebok has recently announced a multi-faceted partnership with producer, artist and designer Swizz Beatz, who will work initially on creative content to bring our new Classics positioning to life. The reaction to RealFlex and Reebok Classics has been really encouraging, adding further momentum to an already energised brand.

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Company View

Can you give us an update on your strategy for Other Businesses? What kind of contribution do you expect from TaylorMade-adidas Golf, Rockport and Reebok-CCM Hockey over the mid term? I see good growth potential and a lot of value in the Groups Other Businesses. As we announced at our Investor Day, we expect to reach 1.8 billion in sales by 2015 from 1.4 billion today. TaylorMade-adidas Golf as the largest segment will be the key driver. Here, we will not only extend our market leadership in metalwoods, but intend to take further market share in irons, golf balls and footwear. In 2011, TaylorMade is already painting the game a new colour with the launch of the R11 driver. The striking white colour of the clubhead is taking the industry by storm, with accolades from media, Tour pros and retailers. Its a great example of the initiatives coming out of TaylorMade-adidas Golf, and really epitomizes the energy and passion that we now have. In the same vein, at Rockport we have developed a compelling strategy around walkability creating a clear point of differentiation in the highly fragmented brown shoe market. This will be highly visible in the coming months, with new lightweight technologies in our DresSport collection just one example. And at Reebok-CCM Hockey, we will continue to bring together two important Group principles in a powerful and impactful way innovation and validation by professional athletes. Taking everything we have discussed into account, how do you expect 2011 to shape up from a financial point of view? As we begin our journey in 2011, I think it is fair to say that the company has never been in a better financial situation and is very well equipped to exploit the opportunities and master the challenges of the future, especially the rising input costs which we just spoke about. The feedback for our products and campaigns that we received from our retail partners gives us great confidence that we can continue to capture share in an improving consumer environment. We forecast our Group sales to increase at a mid- to high-single-digit rate on a currency-neutral basis and to reach new record highs in 2011. Group sales growth will be driven by all segments and brands, as well as by expansion in all of our regions. We will continue our commitment to our brands by investing in marketing and controlled space in order to secure brand awareness amongst our consumers and premium distribution partners. Nevertheless, operating expenses as a percentage of sales will decline. Therefore we project the Group operating margin to increase to a level between 7.5% and 8.0%. As a result, earnings per share will improve at a rate of 10% to 15% to a level between 2.98 and 3.12. We have every advantage a company could possibly desire strong brands, premium products, superior marketing assets, tremendous global reach and distribution and a very healthy balance sheet. I look forward to 2011 as the first year of our Route 2015 plan. In every sense, we are fit for the future.

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Locations and Subsidiaries

LOCATIONS AND SUBSIDIARIES

Head Office
adidas AG Adi-Dassler-Strasse 1 D 91074 Herzogenaurach DEU P:49 9132 84 0 F:49 9132 84 2241 http://www.adidas-group.com

Other Locations and Subsidiaries

adidas International Marketing B.V. Atlas Complex, Africa Building Hoogoorddreef 9a 1101 BA Amsterdam Z-O NLD adidas America, Inc. adidas Village 5055 N Greeley Avenue Portland Oregon 97217 USA Taylor Made Golf Company, Inc. 5545 Fermi Court Carlsbad California 92008 USA adidas Latin America, S.A. Business Park Ave. Principal y Ave. La Rotonda Torre Sur - 4to Piso Costa del Este PAN

Reebok International Limited 1895 J.W. Foster Boulevard Canton Massachusetts 02021 USA adidas Sourcing Limited 10/F, 21-22/F, Suites 1407-1470 Cityplaza Four 12 Taikoo Wan Road Taikoo Shing, Island East HKG

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