dmProduct (adidas)

adidas AG

Company Profile

Publication Date: 2 Sep 2011

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adidas AG

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


adidas AGTABLE OF CONTENTS

COMPANY OVERVIEW

adidas AG (adidas or ‘the company’) produces sportswear and sports equipment. It offers its productsthrough three brands, including adidas, TaylorMade-adidas Golf, and Reebok.The company operatesin Europe, the Americas and Asia. It is headquartered in Herzogenaurach, Germany and employsabout 42,541 people.

The company recorded revenues of E11,990 million ($15,907.1 million) during the financial yearended December 2010 (FY2010), an increase of 15.5% over FY2009. The operating profit of thecompany was E894 million ($1,186.1 million) in FY2010, an increase of 76% over FY2009. The netprofit was E567 million ($752.2 million) in FY2010, as compared to net profit of E245 million ($325million) in FY2009.

KEY FACTS

adidas AGHead OfficeAdi-Dassler-Strasse 1D 91074 HerzogenaurachDEU

49 9132 84 0Phone

49 9132 84 2241Fax

http://www.adidas-group.comWeb Address

11,990.0Revenue / turnover(EUR Mn)

DecemberFinancial Year End

42,541Employees

ADSFrankfurt Ticker


adidas AGCompany Overview

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-adidasGolf. The company operates through more than 170 subsidiaries in Europe, the US and Asia, eachfocusing 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 andReebok products to retail customers.

The retail segment comprises all business activities relating to the sale of adidas and Reebok productsdirectly 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 wellas other centrally managed brands.

TaylorMade-adidas Golf includes the three brands TaylorMade, adidas Golf and Ashworth.TaylorMadedesigns, develops and assembles or manufactures high-performance golf clubs, balls and accessories.adidas Golf branded products include footwear, apparel and accessories. Ashworth designs anddistributes men's and women's lifestyle sportswear. Rockport predominantly designs and marketsleather footwear for men and women. Reebok-CCM Hockey designs, produces and markets hockeyequipment such as sticks and skates as well as apparel under the brand names Reebok Hockeyand CCM Hockey. The other centrally managed brands segment primarily includes the businessactivities of the Y-3 label, under which premium footwear and apparel are designed and distributed.


adidas AGBusiness Description

HISTORY

adidas AG (adidas or ‘the company’) was promoted by Adolf and Rudi Dassler in 1949. adidas wasnamed after its founders 'Adi' from Adolf and 'Das' from Dassler. It launched its first pair of footballboots with removable studs in 1954. By 1960s, the company was manufacturing equipment acrossvarious sports, including equipment for fringe sports. In 1975, the company launched the one of theworld's most popular soccer boot: the Copa Mundial.

The company continued to grow and enter new markets during 1990s. adidas was also transformedinto 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 itsproduct line in 1997 with the acquisition of the Salomon Group. This acquisition gave it the brandslike Salomon, TaylorMade, Mavic and Bonfire. Following the acquisition, the company changed itsname to adidas-Salomon.

During 2001, the company centralized its supply chain and expanded its Canadian operations withthe purchase of Canadian outdoor specialist Arc'teryx Equipment. As a result of this transaction, thecompany extended its presence in new sports and outdoor sports.

Further growth was achieved in 2003, when TaylorMade-adidas Golf, a division of the adidas-SalomonGroup, acquired the Maxfli brand of golf balls and accessories. In the same year, adidas-Salomonformed a strategic alliance with Intersport International, which strengthened its products' sales anddistribution. Also during the same year, adidas-Salomon signed a six-year agreement with the ChinaFootball Association to support Chinese Football until 2010.The company also opened its first adidasOriginals Store in Seoul, South Korea in 2003.

adidas-Salomon acquired Valley Apparel Company, a producer and distributor of collegiate andprofessional league apparel and accessories in 2004. The company announced its plans to acquireReebok International (Reebok) for $59 per Reebok share, in 2005. The acquisition of Reebok wascompleted in 2006. The Australian Olympic Committee and adidas concluded a sponsorshipagreement in 2005 to provide sports outfits to the Australian Olympic Team at the Summer Olympicsin 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, in2005. This deal included the Arc'Teryx, Bonfire, Cliche, Mavic, and Salomon businesses. adidasand Porsche Design Group signed a long-term strategic partnership, including licensing agreementin the same year. In 2005, adidas was named the Official Sportswear Partner to the 2008 Olympicsin Beijing.

adidas secured a strong foothold in the US professional sports in 2006, when it signed an 11-yeardeal to be the official supplier of uniforms and other products to the National Basketball Association


adidas AGHistory

(NBA). This agreement also included the Women's National Basketball Association and the NBADevelopment 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 Associationuntil March 2015.

adidas signed an agreement with New Point Industrial in 2006, to gain control of the distribution andlicense rights for the Reebok brand in China.The company also entered into a long-term partnershipagreement with the Union of European Football Associations (UEFA), granting adidas the globalsponsorship rights for the UEFA Euro 2008 in Austria and Switzerland.

During 2006, adidas assumed full ownership of its subsidiary in Korea, adidas Korea, by purchasingthe remaining 49% of shares from its joint venture partner. In the same year, the company boughtthe distribution rights for the Reebok brand in the Czech Republic and Slovakia from Reebok SportCzech Republic and Reebok Sport Slovakia, respectively. During 2006, adidas sold the Greg NormanCollection apparel business to the MacGregor Golf Company.

adidas acquired distribution rights for the Reebok brand in Turkey from Reebok Spor Urunleri, in2007. 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 sponsorshipdeal until the end of 2012. Further, during the same time, the company opened its adidas NBAConcept Shop in Europe, Istanbul, and Turkey. In the following year, adidas and A.C. Milan announcedthe extension of their sponsorship deal until the end of 2017. Also in 2008, Reebok, the company'ssubsidiary, formed a joint venture company with Vulcabras, to conduct the distribution of Reebokfootwear, apparel and accessories in Brazil and Paraguay.

In 2008, adidas and the Russian Football Union (RFU) entered into a long-term partnership until2018. Under the new agreement adidas would supply all RFU teams including the Olympic footballteam.Towards the end of 2008, TaylorMade-adidas Golf completed its tender offer for the outstandingshares of Ashworth.

Reebok and the entertainment company Cirque du Soleil, entered into a partnership agreement, in2009. Same year, adidas and UEFA extended their long-term partnership for UEFA EURO 2012and UEFA EURO 2016, along with all other national team competitions in the period from 2010 to2017 under UEFA's EUROTOP banner.

adidas and NBA extended their global partnership in March 2010, giving adidas exclusive rights toall apparel in Europe beginning with the 2010-11 NBA season. In August 2010, the company andthe Mexican Football Federation extended their partnership until 2018.


adidas AGHistory

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


adidas AGHistory

KEY EMPLOYEES

CompensationBoardJob TitleName

4833000 EURExecutive BoardChief Executive officerHerbert Hainer

1861000 EURExecutive BoardMember, Executive BoardGlenn Bennett

1961000 EURExecutive BoardMember, Executive BoardRobin J. Stalker

2839000 EURExecutive BoardMember, Executive BoardErich Stamminger

160000 EURNon Executive BoardChairman, Supervisory BoardIgor Landau

100000 EURNon Executive BoardDeputy Chairwoman, SupervisoryBoard

Sabine Bauer

100000 EURNon Executive BoardDeputy Chairman, SupervisoryBoard

Willi Schwerdtle

40000 EURNon Executive BoardMember, Supervisory BoardDieter Hauenstein

80000 EURNon Executive BoardMember, Supervisory BoardWolfgang Jager

80000 EURNon Executive BoardMember, Supervisory BoardStephen Jentzsch

100000 EURNon Executive BoardMember, Supervisory BoardHerbert Kauffmann

60000 EURNon Executive BoardMember, Supervisory BoardRoland Nosko

40000 EURNon Executive BoardMember, Supervisory BoardAlexander Popov

80000 EURNon Executive BoardMember, Supervisory BoardHans Ruprecht

40000 EURNon Executive BoardMember, Supervisory BoardHeidi Thaler-Veh

40000 EURNon Executive BoardMember, Supervisory BoardChristian Tourres


adidas AGKey Employees

KEY EMPLOYEE BIOGRAPHIES

Herbert Hainer

Board: Executive BoardJob Title: Chief Executive officerSince: 2001Age: 57

Mr. Hainer has been the Chief Executive Officer at adidas since 2001. He joined the company in1987, and has held numerous management positions within the company, including ManagingDirector Germany and Senior Vice President for Sales and Logistics in Europe, Africa and the MiddleEast. Prior to that, Mr. Hainer spent eight years with Procter & Gamble in various sales and marketingpositions. 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 BoardJob Title: Member, Executive BoardSince: 1997Age: 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 hisprofessional career with Reebok International in 1983, where he worked for 10 years in variousoperations and product functions.

Robin J. Stalker

Board: Executive BoardJob Title: Member, Executive BoardSince: 2001Age: 53

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

Erich Stamminger


adidas AGKey Employee Biographies

Board: Executive BoardJob Title: Member, Executive BoardAge: 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 positionsbefore becoming Managing Director for Germany and later Europe and Asia/Pacific. In 1997, hewas 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 BoardJob Title: Chairman, Supervisory BoardAge: 67

Mr. Landau is the Chairman, Supervisory Board at adidas. He served as the Chief Executive Officerat Aventis. Mr. Landau is a Member of the Supervisory Board at Allianz, and also the Member ofthe Board of Directors at Sanofi-Aventis and HSBC France.

Sabine Bauer

Board: Non Executive BoardJob Title: Deputy Chairwoman, Supervisory BoardAge: 48

Ms. Bauer is the Deputy Chairwoman, Supervisory Board at adidas. She serves as the Chairwomanof the Central Works Council.

Willi Schwerdtle

Board: Non Executive BoardJob Title: Deputy Chairman, Supervisory BoardAge: 58

Mr. Schwerdtle is the Deputy Chairman, Supervisory Board at adidas. He also serves as the GeneralManager at Procter & Gamble.

Dieter Hauenstein

Board: Non Executive BoardJob Title: Member, Supervisory BoardAge: 54



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

Wolfgang Jager


Dr. Jager is a Member, Supervisory Board at adidas. He also serves as the Managing Director atHans-Bockler-Stiftung.

Stephen Jentzsch


Dr. Jentzsch is a Member, Supervisory Board at adidas. He also serves as a Partner at PerellaWeinberg Partners UK, London. Dr. Jentzsch is a Member of the Supervisory Board at SkyDeutschland, Germany.

Herbert Kauffmann


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 identitycontrol, Germany.

Roland Nosko


Mr. Nosko is a Member, Supervisory Board at adidas. He is a Trade Union Official of IG BCE TradeUnion. Mr. Nosko also serves as the Deputy Chairman of the Supervisory Board at CeramTec,Germany.

Alexander Popov




Mr. Popov is a Member, Supervisory Board at adidas. He also serves as the Chairman at RFSO‘Lokomotiv’, Moscow, Russia.

Hans Ruprecht


Mr. Ruprecht is a Member, Supervisory Board at adidas. He also serves as the Sales DirectorCustomer Service, Market Central.

Heidi Thaler-Veh


Ms. Thaler-Veh is a Member, Supervisory Board at adidas. She also serves as a Member of theCentral Works Council at the company.

Christian Tourres


Mr. Tourres is a Member, Supervisory Board at adidas. He also serves as a Member of the Boardof Directors at Beleta Worldwide, Guernsey, Channel Islands.



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:

FootwearSports apparelSports accessoriesGolf equipmentGolf ballHockey equipment and apparel

Brands:

adidasTaylorMade-adidas GolfReebok


adidas AGMajor Products and Services

REVENUE ANALYSIS

adidas AG (adidas or ‘the company’)

adidas recorded revenues of E11,990 million ($15,907.1 million) during FY2010, an increase of15.5% 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 totalrevenues 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), anincrease of 14.2% over FY2009.

The retail segment recorded revenues of E2,389 million ($3,169.5 million) in FY2010, an increaseof 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 inFY2010. Revenues from Western Europe reached E3,543 million ($4,700.5 million) in FY2010, anincrease of 8.6% over FY2009.

North America accounted for 23.4% of the total revenues in FY2010. Revenues from North Americareached 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 fromEuropean emerging markets reached E1,385 million ($1,837.5 million) in FY2010, an increase of23.4% over FY2009.

Latin America accounted for 10.7% of the total revenues in FY2010. Revenues from Latin Americareached 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 Chinareached E1,000 million ($1,326.7 million) in FY2010, an increase of 3.4% over FY2009.


adidas AGRevenue Analysis

Other Asian markets accounted for 16.4% of the total revenues in FY2010. Revenues from otherAsian markets reached E1,972 million ($2,616.3 million) in FY2010, an increase of 19.7% overFY2009.

**Percentages are rounded off


adidas AGRevenue Analysis

SWOT ANALYSIS

adidas AG (adidas or ‘the company’) produces sportswear and sports equipment. It offers its productsthrough three brands, including adidas, TaylorMade-adidas Golf, and Reebok. Strong brand portfoliowill only enhance the market position of the company but also boost its topline. However, widespreadcounterfeits not only deprive revenues for the company but also dilute its brand image.

WeaknessesStrengths

Dependence on third party manufacturingLeveraging strong brand portfolio toestablish a robust retail footprint Unfunded postretirement obligations will

impact cash flows adverselyFocus on research and development hasfacilitated continuous development of newproductsStrong performance driven by the successof 2010 FIFA World CupWide geographical footprint with increasingfocus on emerging markets

ThreatsOpportunities

Increase in counterfeit products may hurtthe brand image

Reorganization aimed at improvingefficiency

Intense competition could hurt company'smargins

Sponsorship agreements of major sportsevents enhances the company's visibility

Exposure to foreign markets makes adidassusceptible to foreign currency fluctuations

Growth in global footwear market couldboost top line growth

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 ofathletic footwear, apparel and equipment by sales. The company's leading market position is builton its portfolio of strong brands like adidas, Reebok and TaylorMade. Its major brands adidas andReebok 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 industryin metalwood sales and is also the leading iron brand in the US. Also, Reebok-CCM Hockey is oneof the world’s largest designers, manufacturers and marketers of hockey equipment and apparelwith two of the world’s most recognised hockey brand names: Reebok Hockey and CCM Hockey.


adidas AGSWOT Analysis

The company is leveraging its brands to establish a strong retail presence and increase profit marginsby increasing retail sales as a percentage of total sales. The company's portion of own retail hasgrown substantially and currently adidas operates over 2,270 stores for the adidas and Reebokbrands worldwide.The company's own-retail business (including e-commerce, mono-branded storesrun by retail partners, shop-in-shops that it establish with its key accounts, joint ventures with retailpartners, and co-branded stores with sports organizations or other brands) provide it with a highlevel of brand control, as it either manage the stores itself or work closely with its partners to ensurethe appropriate product offering and presentation at the point-of-sale. In order to further enhance itsretail operations, adidas established a new leadership team for 'retail' mandated to create globalretail guidelines and a common framework to drive long-term profitability for the adidas and Reebokretail operations around the globe. At the same time adidas will also continue to selectively openand remodel retail stores to continue growing its retail footprint, with about 100 planned new storeopenings and around 220 store remodellings in 2011.

adidas’ strong brand portfolio and enhanced retail presence enables easier customer recall. Thecompany leverages its brand strength to drive topline growth and to attain competitive advantageover 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 significantresources and attention to product development, process technology and consumer insight researchto develop products with innovative and distinctive features. Even in difficult economic environmentthe company maintained its investment on R&D. adidas spent E102 million ($135.3 million) on R&Din FY2010, an increase of 18.6% over FY2009.

The adidas Innovation Team is responsible for the ongoing development of new technologies andconcepts in all key product categories.The team is divided into groups that focus on apparel, footwearand 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 energymanagement systems (cushioning technologies). In addition to its internal R&D efforts, adidas alsopurchases a limited amount of R&D expertise from well- established research partners.This strategyallows for greater flexibility and faster access to know-how that may otherwise require considerabletime and resources if built up within the company.

Such strong focus on R&D has enabled the company to launch various products. For instance, inFY2010, the company launched adiStar Salvation running shoe, adiZero F50 football boot andmiCoach training system under adidas brand. It launched ZigTech training shoe and RunTonerunning shoe under Reebok brand; and R9 SuperTri driver and Burner SuperFast driver and fairwaywoods under TaylorMade-adidas Golf brand. Other key products developed by the company wereTruWalk men’s and women’s 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 Runnerrunning shoe, adiPower Predator football boot, RealFlex footwear, EasyTone Plus footwear,ClassicLite footwear and apparel collection, R11 and R11 TP driver, Naomi women’s footwear



collection, and CCM U+ Crazy Light II stick. The company’s strong focus on R&D has allowed it touphold the technological leadership in most of its product segments. It has also enabled adidas todevelop 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 unparalleledpresence at the event with twelve teams including the host nation in the finals, combined with itsstatus as official sponsor, supplier and licensee. The event had a halo effect on the adidas brandoverall 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 June21, 2010 (a mere ten days after the competition began), the company achieved record-breakingsales, predicting sales of soccer-related merchandise at least E1.5 billion ($2.2 billion), surpassingthe E1.3 billion ($1.9 billion) obtained in football sales in 2008, the last time a record was set in thesoccer sales category.These record sales included the sale of 6.5 million replica jerseys (more thantwo times the 3 million sold at the 2006 World Cup) and 20 million soccer balls. The FIFA world cuphas not only brought great success and profit to adidas but also enhanced its brand image andmarket 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 establishedpresence in relatively high growth markets of North America and Europe and is also rapidly expandinginto emerging economies of Asia which provide a huge potential market compared to the developedregions. adidas' presence in several geographical regions will ensure diversified revenue streamand reduces the business risk. It also makes the company less vulnerable to the vagaries of a singleeconomy.

Following the economic downturn, the emerging economies are set grow at a faster pace as comparedto the matured markets such as the US, Japan, and certain European countries. adidas' effectiveparticipation in high growth emerging markets has been its driver of growth in recent times. Forinstance, 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 thecompany to weather the downturn in its largest market.

Large geographical foot print in diverse markets will enable the company to expand its markets tohigh growth economies, derive the related synergies of expanded operations and also reduces thebusiness risk.

Weaknesses

Dependence on third party manufacturing



To minimize production costs, adidas outsource over 95% of production to independent third-partysuppliers, primarily located in Asia. Furthermore, 32% of all suppliers were located in China. Sincethe company procures its merchandise from foreign manufacturers, it has little control over theproduct quality. For instance, there have always been concerns over unsafe Chinese consumerproducts. The Consumer Product Safety Commission has issued alerts and announced voluntaryrecalls by US companies on numerous products made in China. Any failure on the part of vendorand manufacturer to achieve and maintain high manufacturing standards could result in manufacturingerrors resulting in product recalls or withdrawals, delays or interruptions of production, cost overrunsor other problems that could seriously harm the company's business. Over-reliance on third partyvendors 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 formost of their employees, either directly or by contributing to independently administered funds. InFY2010, the company’s pension benefit obligations stood at E74 million ($98.2 million) as comparedto 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. Unfundedpension obligations will force the company to make regular cash contributions to bridge the gapbetween 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 companymoved from a vertically integrated brand structure into a function-related structure for the adidasand Reebok brands, creating a Global Sales function responsible for the commercial activities anda Global Brands function responsible for the marketing activities of both brands. In addition, theGlobal Sales organization was split into Wholesale and Retail, to cater more appropriately to thedifferent needs of these two distinctive business models. To transition to the new structure, adidasinitiated several measures including: establishment of joint operating models for the adidas andReebok brands in most markets around the globe; elimination of regional headquarters, moving tomore direct interaction between local markets and global functions; and separation of the responsibilitybetween 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 theperiod up to 2015, the Global Sales function has defined three strategic priorities: increase the shareof controlled space to 45% of sales by 2015; implement an integrated distribution roadmap to ensure



further growth and maximise brand potential in key demographic locations; and support growthinitiatives in the company’s three key markets North America, Greater China and Russia/CIS.

These initiatives will positively influence the company's brands and enhance its flexibility andspeed-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 asponsorship agreement with the Japan Football Association until March 2015 and with the AustralianOlympic Committee until 2016. It also secured sponsorship rights to the 2014 FIFA World Cup. Inaddition, in 2009, adidas extended its partnership with UEFA for the UEFA EURO 2012 and UEFAEURO 2016 football championships, as well as for the UEFA Champions League. The companyhas also signed an 11-year global merchandising partnership agreement (beginning with the 2006–07season) with the National Basketball Association (NBA).This deal makes adidas the official uniformand apparel provider for the NBA, the Women's National Basketball Association and the NBADevelopment League.

Additionally, adidas is also the Official Sportswear Partner to 2012 Olympics in London. Further, inFebruary 2011, adidas and the RFEF (Spanish Football Federation) extended their sponsorshipagreement until 2018. Also, in July 2011, the company and Argentine Football Association extendedtheir sponsorship agreement until 2022. Sponsorship of major sports events would help the companyto 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, accountingfor 67.6% of the market's total value. The performance of the market is forecast to accelerate to thevalue 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 producessportswear and sports equipment. It offers athletic footwear to various customer segments. Thecompany offers its products through three brands, including adidas, TaylorMade-adidas Golf, andReebok. With significant operations in this products category, the company is well positioned tocapitalize on the growing global footwear market which will add to its topline growth.

Threats

Increase in counterfeit products may hurt the brand image



adidas faces a significant threat from counterfeits of its products. For instance, some retailers inChina and South East Asia are allegedly selling private label merchandise which bears a great dealof resemblance to the company's products. The abundance of counterfeit goods and accessoriesis adversely affecting the sales of branded products. With the advent of digital channels there hasbeen a surge in the sale of counterfeit products. Globally, the sales of counterfeit goods online fromillegitimate retailers reached $135 billion in 2010. According to industry estimates, the US economyis 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 theofferings of companies such as adidas from its competitors is exclusivity; widespread counterfeitsreduce this exclusivity. Although the company has invested resources in protecting its patentedtechnologies and aggressively countering the sale of fake products, counterfeits continues toproliferate, 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. adidascompetes internationally with a large number of athletic and leisure shoe companies, athletic andleisure apparel companies, sports equipment companies and companies with diversified lines ofathletic and leisure footwear and apparel and equipment.The company faces competition from Nikeand Puma in the international market. In the US market, the company also faces competition fromregional players like Callaway Golf and New Balance Athletic Shoe. Besides, in the US, the companyhas 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 productsand 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 significantportion of the company’s revenues are generated outside the euro currency region and theprocurement of production material and funding are also organized on a worldwide basis, the currencyrisk is an extremely important factor for adidas’ earnings. The effect of changes in demand andrefinancing conditions and fluctuations in exchange rates has a significant impact on the company’searnings. The unexpected and dramatic devaluations of currencies in developing or emergingmarkets, such as the recent devaluation of the Venezuelan Bolivar and Russian Rouble, couldnegatively affect the value of the company's earnings from, and of the assets located in, thosemarkets.

The value of the company’s equity investment in foreign countries may fluctuate based upon changesin foreign currency exchange rates.These fluctuations, which are recorded in a cumulative translationadjustment account, may result in losses in the event a foreign subsidiary is sold or closed at a timewhen the foreign currency is weaker than when the company initially invested in the country. Any



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



TOP COMPETITORS

The following companies are the major competitors of adidas AG

NIKE, Inc.Callaway Golf CompanyPUMA AG Rudolf Dassler SportNew Balance Athletic Shoe


adidas AGTop Competitors

COMPANY VIEW

adidas has not released a company statement for 2010. An interview of Herbert Hainer, the ChiefExecutive Officer at adidas is given below. The extract has been taken from the company's 2009annual 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 canreflect 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 percentagepoints, driven by less clearance sales and a larger share of higher- margin Retail sales. At the sametime, we reduced operating expenses as a percentage of sales, despite significant increases inmarketing investments. This led to a jump in operating margin to 7.5%. As a result, our net incomeincreased 131% to € 567 million and earnings per share were € 2.71, which was at the top end ofour November guidance. In terms of our balance sheet and cash flow, the development in 2010could not have been better. We shaved 3.5 percentage points from operating working capital as apercentage 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 forthe year. This allowed us to further reduce our net debt, which now stands at € 221 million, just onetenth of the level it was 24 months ago. Without question, this year’s financial performance is anoutstanding achievement. Not only did we meet all of our initial expectations for the year – we clearlybeat 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 ourRetail segment where sales climbed 18% currency-neutral, driven by an impressive 11% comparablestore sales increase. Particularly satisfying was the development of our concept stores, wherecomparable store sales growth was an even higher 14%. While this underscores the strength anddesirability of our 2010 product collections, even more so it emphasises that the strategic directionwe are taking to improve our proficiency as a retailer is already paying off.This segment’s performancecontributed more than half of the entire Group profitability improvement in 2010, as segmentaloperating margin increased 5.3 percentage points to 18.9%. The leverage we have in Retail isobvious. And this performance should give you confidence that our continued investment in thisspace 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 thinkit was money well spent?

Absolutely. Firstly, I am glad you haven’t forgotten that I consider marketing an investment and nota 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


adidas AGCompany View

our performance versus our own expectations and the competition. And the results, no matter whichbrand I look at, speak for themselves, as we seized the enormous potential I saw for our companyto leapfrog the competition out of the recession.

Let’s look at a few examples. At adidas, sales increased 9% currency-neutral to € 8.7 billion, withour performance in the football category standing out. In South Africa, we witnessed the mostsuccessful World Cup we’ve 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 withadidas long-term partner Spain winning the World Cup. The adiZero F50 was the top-scoring bootin the competition and one of the top-selling football boots in the industry. Another great exampleof marketing success in 2010 can be seen in our strong rebound in basketball. The Derrick Roseand Dwight Howard commercials, supporting our positioning as the fastest and lightest brand in thegame, have generated our highest sell-throughs in the category for years. And on the streets, boldcollaborations with the likes of Jeremy Scott and unexpected campaigns such as the highly successfulStar Wars Cantina spot, have catapulted sales of our adidas Sport Style sub-brands up 23% to arecord € 2.2 billion. adidas Originals alone now has over 7 million followers on Facebook, making itthe most popular lifestyle brand in our industry.

For Reebok, investments to promote our new initiatives have also been a home run. Reebok’s salesexpanded 12% currency-neutral to € 1.9 billion. EasyTone has been a magnificent hit with globalconsumers and customers. Supported by exciting campaigns and fitness testimonials such as thosewith 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 highlysuccessful 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 wasamong 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 moreso 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 inthese and your other geographies last year?

I am pleased to report that the growth and successes of 2010 were broad-based and robust in mostof our key markets. For North America, we significantly exceeded our targets with notable upticksat adidas and Reebok of 14% and 22% currency-neutral, respectively. Key initiatives such aslightweight and Originals at adidas as well as toning and ZigTech at Reebok resonated right acrossthe consumer spectrum. In addition, our mission to build a strong connection to the next generationathlete and to increase our prominence in the important mall channel is taking shape. In GreaterChina, 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 andrationalised our store base in 2010. And through the improvements we have implemented in ourmerchandising, product offering and operational processes, I am confident we are now in a positionto sustain this growth trajectory, at a time when some of our competitors are starting to weaken.



Turning to other markets, in Europe we significantly increased market share in 2010, supported bya strong performance in the football category and our dominance in the region’s emerging markets.Revenues in Western Europe increased 7% on a currency-neutral basis, primarily as a result ofdouble-digit sales growth in the UK, Germany and Spain. In European Emerging Markets, Groupsales 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 weextended our commanding market share lead in Russia, with Reebok now the number two sportinggoods brand behind adidas. In Other Asian Markets and Latin America, sales increased 6% and14% respectively in 2010. Even in Japan, we grew against a difficult consumer market and, in doingso, extended our market leadership position, with an impressive 45% currency-neutral increase atReebok being a major highlight.

Looking at your financials, one thing that is striking is the reduction of net debt. How have youmanaged to achieve this and can you give us an update on your policies towards capital managementand dividends?

With the difficulties in the financial markets, we set clear targets over the last two years to significantlyreduce our financing obligations. And we have achieved this through our commitment to increasingoperating cash flow, which was an exceptional € 2.8 billion over the past 24 months. With net debtat 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 andcapital 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 intendto largely use excess cash to invest in our Route 2015 growth initiatives, and to further reduce netborrowings. In addition, we are fully committed to our dividend policy, which was expanded in 2010to a payout range of 20% to 40% of net income attributable to shareholders. This year, we intendto 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 betweeninvestment and shareholder returns, I am convinced we will provide significant value for ourshareholders over time.

In November, you revealed your strategic plan for the next five years called Route 2015. What isthe 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 competewith us – and it is with this attitude and rationale that we have established Route 2015. It is the mostcomprehensive and aligned strategic business plan this Group has ever created and is based onour long-term mission to be the global leader in the sporting goods industry.This strategy starts andends with the consumer.

Our key aspiration in the plan is to outperform total market growth, both GDP and sporting goodsmarket, as well as our major competitors. Because, it is only by sustaining quality growth that wewill be able to unleash the incredible value we all know our Group can create. We aim to achievehigh-single-digit currency-neutral sales growth annually over the five-year period, which representsa 45% to 50% revenue increase from 2010 levels. From a brand perspective, adidas and Reebok



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 deliver50% of the growth. In terms of earnings per share, which will be the litmus test of our ability to createvalue, we intend to achieve a compound annual growth rate of 15% over the five years. This will beachieved through balancing the investment required to secure top-line growth, and leveraging thisthrough to the bottom line. As part of this goal, we are committed to achieving an 11% operatingmargin sustainably at the latest by 2015.

There is absolutely no denying that the growth in sales and earnings which we are outlining will yieldunprecedented levels of cash flow for our Group over the next five years. And, I am sure you willagree 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. Let’s 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 stillrising sharply, up over 20% already in 2011. To mitigate these negative developments, our GlobalBrands 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.Theseefforts will provide us with some relief. However, with the extreme raw material price increasestowards 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 pricingpower, 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 renownedfor quality, innovation and service. We have those brands and those products. And, we have themarketing prowess to support them and to further increase their desirability. Ultimately, the consumerwill 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 theabove factors may end up being a negative, nevertheless, there are also other factors that will playin our favour in 2011. These include regional mix, as we expect to grow faster in the emergingmarkets, and also the increasing portion of higher-margin own-retail sales. As a result, we expectGroup gross margin to remain largely unchanged in 2011, in the range from 47.5% to 48.0% comparedto 47.8% in 2010. However, if input costs continue to rise at such a pace, then the challenge willundoubtedly 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 launchesfor 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 betweenthe quarters, there is actually very little difference, given how diverse the adidas brand is today. Lastyear is a great proof of that. Outside of football and adidas Sport Style, which we already talkedabout, we had outstanding growth in running and outdoor, where sales grew 8% and 21%,



respectively. In running, highlight collections such as adiZero, Supernova and Response all grewat double-digit rates.

I also wouldn’t say 2011 is eventless. The sporting calendar is packed, and with great regionaldiversity, which can only be good for a brand as global as adidas. Events such as the Cricket WorldCup in India, the Rugby World Cup in New Zealand, the Copa América in Argentina, the Women’sFootball World Cup in Germany and the IAAF World Championships in Korea are just a few we willleverage to our advantage this year. The Copa América will attract half a billion viewers alone inLatin America. And don’t forget towards the end of the year, we will start prepping for the highlyanticipated 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 toexcite 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 intodifferent sports, cultures and lifestyles – fusing the worlds of sport, music and fashion. We also havean incredible pipeline of products coming to market this year. Take running again. With productslike the adiZero F50 Runner and Clima CC Ride, I expect we will see growth accelerate in thiscornerstone Route 2015 category and grow at a double-digit rate. In football, the Predator has beencompletely redesigned to give maximum impact both technically and visually. It will also be fullyintegrated with adidas miCoach, and you will see it on the field of play with a new younger breed ofstars such as Nani who just recently joined the adidas family. We will also build on our credibility asthe lightest brand in the game of basketball with the launch of the adiZero Crazylight. And adidasSport Style has another string of intriguing collections, including the first year of our own OriginalsDenim 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 toningin the right way, taking our time, choosing selectively how and with whom we distribute, and matchingdemand carefully with supply. We have also remained committed to our endeavours, making surewe 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-basedand, indeed, more international. Our presence at retail is also getting bigger and bolder. And ourpartners are showing great confidence in the brand. I only have to look at our exposure at FinishLine in February, where we ReeZig’d all 680 Finish Line stores in the USA with ZigTech imagery forfour 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 asReebok’s toning and Zig platforms. In addition, we will also re-launch Reebok Classics. To supportthe 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 Classicspositioning to life. The reaction to RealFlex and Reebok Classics has been really encouraging,adding further momentum to an already energised brand.



Can you give us an update on your strategy for Other Businesses? What kind of contribution do youexpect 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 Group’s Other Businesses. As we announcedat 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 extendour market leadership in metalwoods, but intend to take further market share in irons, golf balls andfootwear. In 2011, TaylorMade is already painting the game a new colour with the launch of the R11driver. The striking white colour of the clubhead is taking the industry by storm, with accolades frommedia, Tour pros and retailers. It’s a great example of the initiatives coming out of TaylorMade-adidasGolf, and really epitomizes the energy and passion that we now have. In the same vein, at Rockportwe have developed a compelling strategy around walkability – creating a clear point of differentiationin the highly fragmented brown shoe market. This will be highly visible in the coming months, withnew lightweight technologies in our DresSport collection just one example. And at Reebok-CCMHockey, we will continue to bring together two important Group principles in a powerful and impactfulway – innovation and validation by professional athletes.

Taking everything we have discussed into account, how do you expect 2011 to shape up from afinancial 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 betterfinancial situation and is very well equipped to exploit the opportunities and master the challengesof the future, especially the rising input costs which we just spoke about. The feedback for ourproducts and campaigns that we received from our retail partners gives us great confidence that wecan continue to capture share in an improving consumer environment. We forecast our Group salesto increase at a mid- to high-single-digit rate on a currency-neutral basis and to reach new recordhighs in 2011. Group sales growth will be driven by all segments and brands, as well as by expansionin all of our regions. We will continue our commitment to our brands by investing in marketing andcontrolled space in order to secure brand awareness amongst our consumers and premium distributionpartners. Nevertheless, operating expenses as a percentage of sales will decline. Therefore weproject 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. Wehave every advantage a company could possibly desire – strong brands, premium products, superiormarketing assets, tremendous global reach and distribution and a very healthy balance sheet. I lookforward to 2011 as the first year of our Route 2015 plan. In every sense, we are fit for the future.



LOCATIONS AND SUBSIDIARIESHead Office

adidas AGAdi-Dassler-Strasse 1D 91074 HerzogenaurachDEUP:49 9132 84 0F:49 9132 84 2241http://www.adidas-group.com

Other Locations and Subsidiaries

adidas America, Inc.adidas International Marketing B.V.adidas VillageAtlas Complex, Africa Building5055 N Greeley AvenueHoogoorddreef 9aPortland1101 BA Amsterdam Z-OOregon 97217NLDUSA

Taylor Made Golf Company, Inc.Reebok International Limited5545 Fermi Court1895 J.W. Foster BoulevardCarlsbadCantonCalifornia 92008Massachusetts 02021USAUSA

adidas Latin America, S.A.adidas Sourcing LimitedBusiness Park10/F, 21-22/F, Suites 1407-1470Ave. Principal y Ave. La RotondaCityplaza FourTorre Sur - 4to Piso12 Taikoo Wan RoadCosta del EsteTaikoo Shing, Island EastPANHKG


adidas AGLocations and Subsidiaries

Documents

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