Wajiha Huma Uzma

Khan Khan Naseer

THE GROUP ..................................................................................... 8

INTRODUCTION TO ADIDAS BASICS.................................................. 9

Significance of AG ........................................................................................................... 10

Legal basis of the AG ....................................................................................................... 10

Structure of the AG ......................................................................................................... 10

Significance of p.l.c. ......................................................................................................... 10

ADIDAS – THE STORY OF A LOGO ...................................................12

Reebok ........................................................................................................................... 15

TaylorMade-Adidas Golf ................................................................................................. 16

HISTORY OF ADIDAS GROUP ...........................................................17

Early 1920's till the Late 1930s .......................................................................................... 18
Gebrüder Dassler Schuhfabrik ......................................................................................... 18
Company split .............................................................................................................. 18

The 1940s ....................................................................................................................... 19

The Foundation ............................................................................................................ 19

The 1950s ....................................................................................................................... 19

The 'Miracle of Bern' ..................................................................................................... 19

The 1960s ....................................................................................................................... 19

Higher ........................................................................................................................ 19

The 1970s ....................................................................................................................... 19

The adidas Team Wins ................................................................................................... 19

The 1980s ....................................................................................................................... 19

The Transition .............................................................................................................. 19
The Tapie affair ............................................................................................................ 19

The Early 1990s .............................................................................................................. 20

With a New Management ............................................................................................... 20
Post-Tapie era .............................................................................................................. 20

1995 ............................................................................................................................... 20
adidas Goes Public ........................................................................................................ 20

1996 ............................................................................................................................... 21
A Splendid Year ........................................................................................................... 21

From 1997 to 1998 ........................................................................................................... 21

adidas-Salomon AG ...................................................................................................... 21

2
1999 ............................................................................................................................... 21
The new brands ............................................................................................................ 21

The Early 2000s .............................................................................................................. 21

New management ......................................................................................................... 21

2005 ............................................................................................................................... 22

2006 ............................................................................................................................... 22
adidas-Salomon AG acquires Reebok ............................................................................... 22

S.W.O.T. ANALYSIS .........................................................................24

Strengths ........................................................................................................................ 25
Leading player in the sporting goods industry ..................................................................... 25
Steady increase in sales revenues. .................................................................................... 25
Successful new product innovations ................................................................................. 25
Lead time improvements ................................................................................................ 26
Marketing strength ........................................................................................................ 26

Weaknesses .................................................................................................................... 26
Unfocused strategy ........................................................................................................ 26
Over-dependence on Adidas brand segment ....................................................................... 26
High level of long-term borrowings .................................................................................. 27
Order cancellations........................................................................................................ 27

Opportunities.................................................................................................................. 27
Strategic acquisitions and agreements ............................................................................... 27
Supply-chain and manufacturing initiatives ........................................................................ 28
Sponsoring sporting events ............................................................................................. 28
Own retail stores ........................................................................................................... 28

Threats .......................................................................................................................... 29
Competition ................................................................................................................. 29
Foreign exchange fluctuations ......................................................................................... 29
Weak global economy.................................................................................................... 29
Impact of scandals in the US and Germany ........................................................................ 29

VALUES, STRATEGIES, AND GOALS ................................................30

Adi's Three Guiding Principles ......................................................................................... 31

adidas' Values ................................................................................................................. 31

adidas' Strategy .............................................................................................................. 31

Performance as core Group value ..................................................................................... 31
Leveraging opportunities across adidas' brand portfolio ........................................................ 32
Leading position in markets worldwide ............................................................................. 32
Leading through innovation and design ............................................................................. 33
Customizing distribution ................................................................................................ 33
Creating shareholder value.............................................................................................. 34

Adidas' Strategy for 2010 ................................................................................................. 34

BRANDS & PRODUCTS ....................................................................35

Brands ........................................................................................................................... 36

3
About adidas................................................................................................................... 36
Sport Performance ........................................................................................................ 36
Sport Style................................................................................................................... 36

About Reebok ................................................................................................................. 36

Reebok-CCM Hockey.................................................................................................... 36
Rockport ..................................................................................................................... 36

About TaylorMade-adidas Golf ........................................................................................ 36

adidas Golf .................................................................................................................. 37
Ashworth .................................................................................................................... 37

Products ......................................................................................................................... 37
Running ...................................................................................................................... 37
Association football....................................................................................................... 37
Tennis ........................................................................................................................ 38
Golf ........................................................................................................................... 38
Cricket ........................................................................................................................ 38
Basketball ................................................................................................................... 39
Lacrosse ...................................................................................................................... 39
Rugby......................................................................................................................... 39
Gymnastics .................................................................................................................. 39
Skateboarding .............................................................................................................. 39
Accessories.................................................................................................................. 39

MARKETING ....................................................................................40
Group Focus ................................................................................................................... 41

Slogan ............................................................................................................................ 41

Contender ...................................................................................................................... 41

CORPORATE INFORMATION ............................................................44

Articles of Association of adidas AG .................................................................................. 45
Corporate Name, Place of Registered Office and Financial Year ............................................ 45
Purpose of the Company ................................................................................................ 45
Publications and Transmission of Data .............................................................................. 45
Nominal Capital ........................................................................................................... 45
Corporate Bodies .......................................................................................................... 47
Executive Board ........................................................................................................... 48
Management of the Executive Board ................................................................................ 48
Representation of the Company ....................................................................................... 48
Composition of the Supervisory Board .............................................................................. 48
Duties and Rights of the Supervisory Board ....................................................................... 49
Declarations by the Supervisory Board .............................................................................. 49
The Chairman and his Deputies ....................................................................................... 49
Rules of Procedure and Committees ................................................................................. 50
Convocation ................................................................................................................ 50
Resolutions .................................................................................................................. 50
Minutes....................................................................................................................... 51
Secrecy ....................................................................................................................... 52
Compensation of the Supervisory Board ............................................................................ 52
Place and Convocation of the General Meeting ................................................................... 53
Participation in the General Meeting ................................................................................. 53
Voting Right ................................................................................................................ 54
Chairman of the General Meeting, Chairing the General Meeting ........................................... 54

4
 Management Report and Annual Financial Statements, Discharge of the Executive Board and the
Supervisory Board ........................................................................................................ 54
Capital Surplus ............................................................................................................. 55

Supervisory Board........................................................................................................... 55
Members of the Supervisory Board .................................................................................. 55
Committees of the Supervisory Board ............................................................................... 57
Steering Committee ................................................................................................... 57
General Committee ................................................................................................... 57
Audit Committee ...................................................................................................... 58
Mediation Committee pursuant to 27 section 3 Co-Determination Act (MitbestG) ................. 58
Nomination Committee .............................................................................................. 58

Executive Board .............................................................................................................. 58

Financial information ...................................................................................................... 59

Branches & Locations ...................................................................................................... 59

All Main Locations .......................................................................................................... 60

SUSTAINABILITY .............................................................................61
Overview ........................................................................................................................ 63

Challenges and Responses ................................................................................................ 63

Vision and Governance .................................................................................................... 64

Sustainability Statement................................................................................................... 64

Corporate Missions ......................................................................................................... 65

Social and Environmental Affairs ..................................................................................... 65
Human Resources ......................................................................................................... 65
Community Affairs ....................................................................................................... 65

Social and Environmental Affairs Team ............................................................................. 65

adidas' Stakeholders ........................................................................................................ 66

Partnerships and Ways We Engage ................................................................................... 66

Corporate responsibility ................................................................................................. 66
Supply chain conditions ................................................................................................. 66
Environment ................................................................................................................ 67

adidas’ Workplace Standards ........................................................................................... 67

General Principle .......................................................................................................... 67
Employment Standards .................................................................................................. 67
Forced Labor ........................................................................................................... 67
Child Labor ............................................................................................................. 68
Discrimination.......................................................................................................... 68
Wages & Benefits ..................................................................................................... 68
Working Hours ......................................................................................................... 68
Freedom of Association & Collective Bargaining ............................................................ 68
Disciplinary Practices ................................................................................................ 68
Health and Safety .......................................................................................................... 69
Environmental Requirements .......................................................................................... 69

How We Work With Suppliers .......................................................................................... 69

5
 Standards and Guidelines ............................................................................................... 69
Capacity Building and Outreach ...................................................................................... 69
Monitoring and Verification ............................................................................................ 69
Rating ......................................................................................................................... 70
Sourcing Decision ......................................................................................................... 70

Supporting Guidelines ..................................................................................................... 70

Environment ................................................................................................................... 70

Managing Impact ............................................................................................................ 71

Improving Materials ...................................................................................................... 71
Tackling Pollution ......................................................................................................... 71
Restricted Substances Standards ...................................................................................... 71

Employees ...................................................................................................................... 71

Performance Data ........................................................................................................... 72

Corporate Responsibility Strategy ..................................................................................... 72

Environmental Sustainability........................................................................................... 73
Products .................................................................................................................. 73
Production ............................................................................................................... 73
Own sites ................................................................................................................ 74
Supply Chain Management ............................................................................................. 74
Direct Sourcing ........................................................................................................ 74
Indirect Sourcing ...................................................................................................... 74
Business Entity Relationships ...................................................................................... 74
Impact of the Global Economic Crisis ........................................................................... 75
Stake Holder Engagement............................................................................................... 75
Our Employees ............................................................................................................. 75

INVESTER RELATIONS ....................................................................76

Reasons to invest ............................................................................................................. 77

Basic Data ...................................................................................................................... 77

Share Price .................................................................................................................. 78
Shareholder Structure .................................................................................................... 78

Corporate Governance ..................................................................................................... 78

Risk and Opportunity Report ........................................................................................... 79

Risk and Opportunity Management Principles .................................................................... 79
Risk and Opportunity Management System ........................................................................ 79
Risk and opportunity identification: .............................................................................. 80
Risk and opportunity assessment: ................................................................................. 80
Risk and opportunity treatment: ................................................................................... 80
Risk and opportunity monitoring and controlling: ............................................................ 81
Risk and opportunity aggregation and reporting: ............................................................. 81

REFERENCES ....................... FEHLER! TEXTMARKE NICHT DEFINIERT.

6
 The Group

Contributor:
Huma Khan

7
Introduction to adidas Basics

8
Adidas AG is a German-based sports apparel manufacturer and part of the Adidas
Group, which consists of Reebok sportswear company, TaylorMade-Adidas golf
company, and Rockport. Besides sports footwear, the company also produces other
products such as bags, shirts, watches, eyewear and other sports and clothing related
goods. The company is the largest sportswear manufacturer in Europe and the second
biggest sportswear manufacturer in the world, after its U.S. rival Nike.

Significance of AG
To better understand Adidas, it is convenient to understand the German terms & laws.

AG is an abbreviation for Aktiengesellschaft (a German term which is a compound

noun made up of two elements: Aktien meaning shares, and Gesellschaft meaning
society, or, in this context, company) refers to a corporation that is limited by shares,
i.e. owned by shareholders, and may be traded on a stock market. The term is used in
Germany, Austria, and Switzerland.

Legal basis of the AG

The legal basis of the AG is, in Germany and Austria, the respective Aktiengesetz -
translated as Share Law in English - (abbr. AktG), in Switzerland a part of the
Obligationenrecht (OR) - translated as the Obligatory Right. As the law requires all
corporations to specify their legal form (which gives the limitation of liability) in the
name, all German and Austrian stock corporations bear Aktiengesellschaft or AG as
part (usually suffix) of their name.

Structure of the AG
German AGs have a "two-tiered board" structure consisting of a supervisory board
(Aufsichtsrat) and a management board (Vorstand). The supervisory board is
generally controlled by shareholders, although employees may have seats depending
on the size of the company. The management board directly runs the company, but its
members may be removed by the supervisory board. The supervisory board also
determines the management board's compensation, although this is not always the
case. Some German AGs have management boards which determine their own
remuneration, although that situation is now relatively uncommon.

Now, there are many types of business entities defined in the legal systems of
various countries. These include corporations, cooperatives, partnerships, sole traders,
and other specialized types of organization.

Depending on which type of business entity you choose will also influence the legal
structure.

Significance of p.l.c.
A public limited company (legally abbreviated to plc with or without full stops) is a
type of limited liability company (in the United Kingdom and the Republic of Ireland

9
and other jurisdictions where companies law is derived from English law), which is
permitted to offer its shares to the public.

A public limited company must include the words "public limited company" or its
abbreviation "plc" at the end and as part of its legal company name. Certain public
limited companies (mostly nationalized concerns), incorporated under special
legislation, are exempted from bearing any of the identifying suffixes.

From the above facts, Adidas (being a German-based corporation) is AG

(Aktiengesellschaft): ≈ p.l.c. (UK) with a minimum capital of €50,000.

10
adidas – The Story of a Logo

11
The 3-Stripes mark is without doubt the quintessential Adidas symbol. It was created
by the Adidas company founder, Adi Dassler, and first used on footwear in 1949.
Dassler created a symbol that could be
immediately recognized when his footwear was
used in athletic competition and associated with
Adidas. He emphasized the association with the
slogan “The Brand with the 3 Stripes”. The 3-
Stripes were first used on apparel in 1967. The 3-
Stripes now enjoy worldwide recognition as an
Adidas symbol.

In the late 60s Adidas expanded into the leisure and apparel sector, and this prompted
Käthe and Adi Dassler to seek a new, additional identification mark for the Adidas
brand. In August 1971, the Trefoil ((from Latin
trifolium, "three-leaved plant") was born, out of
more than 100 ideas. Inspired by the 3-Stripes, it is
a geometric execution with a triple intersection,
symbolizing the diversity of the Adidas brand. This
symbol was first used on Adidas products in 1972,
and later became the company’s corporate symbol.
Today it plays the important role of representing the
Adidas Originals collection.

In 1997, Adidas decided to introduce an integrated corporate design, choosing as the

core element a new and yet familiar logo: the 3 bars. It was designed in 1990 by the
then Creative Director Peter Moore, and initially used on
the Equipment range of performance products. It is inspired
by the 3-Stripes as they appear on footwear. The shape
formed by the bars also represents a mountain, indicating
the challenge to be faced and the goals to be achieved.

In August 1998, following the merger of Adidas and Salomon, the then named
Adidas-Salomon AG introduced a new corporate logo. The logo unites the values of
the brands of the Group, incorporating the typical colours of the two previous groups:
blue for Adidas, red for Salomon. The logo shows three shapes coming together to
form a larger shape, namely a diamond. The space between the shapes forms another
shape, that of a person with arms
raised in victory and celebration.
This logo appeared on all corporate
documents of the then named
Adidas-Salomon AG, but not on
products.

In July 2002, Adidas-Salomon AG presented a revolutionary new business strategy

for the Adidas brand, aimed at expanding its customer base and driving top-line
growth. The new structure marked a fundamental shift from the traditional
“Footwear” and “Apparel” structure, introducing a new three-divisional approach
with the “Sport Performance”, “Sport Heritage” and “Sport Style” divisions.

12
The products in the Adidas Sport Performance division are developed for the sports
performance market but have design appeal, encouraging consumers to wear the
products both on and off the court or playing field.

The Adidas Sport Heritage division contains Adidas Originals products. Originals
products seek to extend the Adidas brand’s unique and authentic heritage to the
lifestyle market. Design and functionality are already strong aspects of the two
existing Adidas divisions and are continued with an even stronger focus in the new
Sport Style division.

Adidas Sport Style - the future in sportswear designed by Yohji Yamamoto is an

exclusive collection, consisting of men’s and women’s footwear, apparel and
accessories. It combines the mission of the sports brand with the vision of style to
develop an unexpected and radical appeal.

In 2007, the Sport Heritage and Sport Style divisions merged into a single Sport Style
division. The logos of the two divisions remain visible on the respective collections.

The corporate logo changed after the divestiture of Salomon in October 2005. The
new logo of the Adidas Group was launched in April 2006. The Adidas Group logo is
the umbrella under which all Group-owned brands stand. It brings Adidas back to its
roots by using the familiar Adidas word-mark as a visual identity to the business
community, strengthening image and impression.

From a design perspective, the new logo is simple, clear, confident, and shows
leadership. It will support future business growth and is flexible enough to anticipate
any unforeseen changes.

At the same time the Adidas brand received a new logo to incorporate the divisions
Sport Performance and Sport Style.

13
The following chart shows all the brands gathered under the roof of the Adidas
Group:

The other brands of the Adidas Group also have a long history of logos themselves
but we will limit ourselves to the basics as well as the design changes:

Reebok
Reebok officially joined the Adidas Group on January 31st, 2006. Chronologically,
following is the list of changes made to the Reebok logo:

To achieve a greater connection to the youth market, in 2001 Reebok introduced a

new tier of product – known as Rbk. The success of this branding
influenced Reebok to look at its overall branding scheme and
determine that the future of the brand would best be represented
by this new logo.

14
At the 50th anniversary of the brand name in 2008, Reebok returned its brand identity
from Rbk to Reebok. While Rbk captured a moment in time for the
brand, Reebok is timeless and reflects the company’s heritage. The
new design entails a new font that is modern, yet simple, and
incorporates the face of the brand.

TaylorMade-Adidas Golf
TaylorMade-Adidas Golf officially joined the Adidas Group in 1997.

Following is the list of changes made to the TaylorMade logo:

15
History of adidas Group

16
Early 1920's till the Late 1930s
Gebrüder Dassler Schuhfabrik

Adolf ("Adi") Dassler started to produce his own sports shoes in his mother's wash
kitchen in Herzogenaurach, Bavaria, after his return from World War I. In 1924, his
brother Rudolf (Rudi) Dassler joined the business which became Gebrüder Dassler
Schuhfabrik (Dassler Brothers Shoe Factory) and prospered. The pair started their
venture in their mother's laundry, but at the time, electricity supplies in the town were
unreliable, and the brothers sometimes had to use pedal power from a stationary
bicycle to run their equipment.

By the 1936 Summer Olympics, Adi Dassler drove from Bavaria on one of the
world's first motorways to the Olympic village with a suitcase full of spikes and
persuaded United States sprinter Jesse Owens to use them, the first sponsorship for an
African-American. After Owens won four gold medals, his success cemented the
good reputation of Dassler shoes among the world's most famous sportsmen. Letters
from around the world landed on the brothers' desks, and the trainers of other national
teams were all interested in their shoes. Business boomed and the Dasslers were
selling 200,000 pairs of shoes each year before World War II.

Late in World War II, the shoe factory shifted to production of the Panzerschreck
anti-tank weapon.

Company split

Both brothers joined the Nazi Party, but Rudolf was slightly closer to the party.
During the war, a growing rift between the pair reached a breaking point after an
Allied bomb attack in 1943 when Adi and his wife climbed into a bomb shelter that
Rudolf and his family were already in: "The dirty bastards are back again", Adi said,
apparently referring to the Allied war planes, but Rudolf was convinced his brother
meant him and his family. After Rudolf was later picked up by American soldiers and
accused of being a member of the Waffen SS, he was convinced that his brother had
turned him in.

The brothers split up in 1947, with

• Rudi forming a new firm that he called Ruda - from Rudolf Dassler, later
rebranded Puma,
• And Adi forming a company formally registered as Adidas AG on 18 August
1949. The acronym All Day I Dream About Sport, although sometimes considered the
origin of the Adidas name, was applied retroactively. The name is actually a
portmanteau word formed from "Adi" (a nickname for Adolf) and "Das" (from
"Dassler").

17
The 1940s
The Foundation

18 August, 1949 - adidas is registered as a company, named

after its founder, Adolf Dassler.

The 1950s
The 'Miracle of Bern'

1954 - The 'Miracle of Bern' Germany battle Hungary with a

competitive advantage. They are wearing adidas soccer boots
which for the first time feature removable studs.

The 1960s
Higher

Driven by a desire to help all athletes committed to performance,

adidas manufactures equipment for what some consider "fringe
sports". Unconventional high jumper Dick Fosbury launches
himself up and over in adidas footwear.

The 1970s
The adidas Team Wins

Crowning moment: Franz Beckenbauer, the "Kaiser", raising the

World Cup in victory salute. Germany had just beaten Holland 2-
1 in the 1974 final.

The 1980s
The Transition

After Adi Dassler's death, Adi's wife Käthe, his son Horst, and his daughters carry on
the business.

The Tapie affair

After a period of trouble following the death of Adolf Dassler's son Horst Dassler in
1987, the company was bought in 1989 by French industrialist Bernard Tapie, for 1.6
billion French francs (now €243.918 million), which Tapie borrowed. Tapie was at
the time a famous specialist of rescuing bankrupt companies, an expertise on which he
built his fortune.

18
Tapie decided to move production offshore to Asia. He also hired Madonna for
promotion. He sent, from Christchurch, New Zealand, a shoe sales representative, to
Germany and met Adolf Dassler's descendants (Amelia Randall Dassler and Bella
Beck Dassler) and was sent back with a few items to promote the company there.

The Early 1990s

In 1992, Tapie was unable to pay the interest from his loan. He mandated the Crédit
Lyonnais bank to sell Adidas, and the bank subsequently converted the outstanding
debt owed into equity of the enterprise, which was unusual as per the prevalent
French banking practice. Apparently, the state-owned bank had tried to get Tapie out
of dire financial straits as a personal favour to Tapie, reportedly because Tapie was
Minister of Urban Affairs (ministre de la Ville) in the French government at the time.

With a New Management

In February 1993, Crédit Lyonnais sold Adidas to Robert Louis-

Dreyfus, a friend of Bernard Tapie for a much higher amount of
money than what Tapie owed, 4.485 billion (€683.514 million)
francs rather than 2.85 billion (€434.479 million). Tapie later
sued the bank, because he felt "spoiled" by the indirect sale.

Robert Louis-Dreyfus became the new CEO of the company. He was also the
president of Olympique de Marseille, a team Tapie had owned until 1993.

Under the CEO Robert Louis-Dreyfus, adidas is moving from being a manufacturing
and sales based company to a marketing company.

Tapie filed for personal bankruptcy in 1994. He was the object of several lawsuits,
notably related to match fixing at the soccer club. During 1997, he served 6 months of
an 18 month prison sentence in La Santé prison in Paris.

In 2005, French courts awarded Tapie a €135 million compensation (about 886
million francs).

Post-Tapie era

In 1994, combined with FIFA Youth Group, SOS Children's Villages became the
main beneficiary.

1995
adidas Goes Public

Flotation of the company on the Frankfurt and Paris Stock Exchange.

19
1996
A Splendid Year

The "three-stripes company" equips 6,000 Olympic athletes from 33 countries. adidas
athletes win 220 medals, including 70 gold. Apparel sales increase 50%.

From 1997 to 1998

adidas-Salomon AG

adidas AG acquires the Salomon Group with the brands Salomon, TaylorMade,
Mavic and Bonfire in December 1997. The new company is named adidas-Salomon
AG.

In 1997, Adidas AG acquired the Salomon Group who specialized in ski wear, and its
official corporate name was changed to Adidas-Salomon AG because with this
acquisition Adidas also acquired the Taylormade Golf Company and Maxfli which
allowed them to compete with Nike Golf.

In 1998, Adidas sued the NCAA over their rules limiting the size and number of
commercial logos on team uniforms and apparel. Adidas withdrew the suit, and the
two groups established guidelines as to what three-stripe designs would be considered
uses of the Adidas trademark.

1999
The new brands

The integration of the new brands is gaining momentum. The new TaylorMade
FireSole clubs boost sales. Salomon in-line skates take off with high double-digit
growth during the first half of 1999.

The Early 2000s

New management

Following personnel changes, the new management initiates an

ambitious Growth and Efficiency Program. Major sports events
such as the European Soccer Championship EURO 2000™ and
the Olympic Summer Games, where swimmer Ian Thorpe takes
three gold medals, contribute to the company’s success.

In 2003, Adidas filed a lawsuit in a British court challenging Fitness World Trading's
use of a two-stripe motif similar to Adidas's three stripes. The court ruled that despite
the simplicity of the mark, Fitness World 's use was infringing because the public
could establish a link between that use and Adidas's mark.

20
 In September 2004, top English fashion designer Stella McCartney launched a joint-
venture line with Adidas, establishing a long-term partnership with the corporation.
This line is a sports performance collection for women called "Adidas by Stella
McCartney", and it has been critically acclaimed.

2005
Sale of Salomon
The Salomon Group (including Salomon, Mavic, Bonfire, Cliché and Arc’Teryx) is
being sold to Amer Sports in October 2005. The new adidas Group is focusing even
more on its core strength in the athletic footwear and apparel market as well as the
growing golf category. The legal name of the company will change to “adidas AG” in
May/June 2006.

Also in 2005, on 3 May, Adidas told the public that they sold their partner company
Salomon Group for €485m to Amer Sports of Finland.

In August 2005, Adidas declared its intention to buy British rival Reebok for $3.8
billion (US). This takeover was completed with partnership in January 2006 and
meant that the company will have business sales closer to those of Nike in North
America. The acquisition of Reebok will also allow Adidas to compete with Nike
worldwide as the number two athletic shoemaker in the world.

Adidas has corporate headquarters in Germany, and many other business locations
around the world such as Hong Kong, Toronto, Taiwan, England, Japan, Australia
and Spain. Mainly sold in the U.S., Adidas makes lots of assets from these countries
and is expanding to more oversea countries.

In 2005, Adidas introduced the Adidas 1, the first ever production shoe to utilize a
microprocessor. Dubbed by the company "The World's First Intelligent Shoe", it
features a microprocessor capable of performing 5 million calculations per second
that automatically adjusts the shoe's level of cushioning to suit its environment. The
shoe requires a small, user-replaceable battery that lasts for approximately 100 hours
of running. On 25 November 2005, Adidas released a new version of the Adidas 1
with an increased range of cushioning, allowing the shoe to become softer or firmer,
and a new motor with 153 percent more torque.

2006
adidas-Salomon AG acquires Reebok

The closing of the Reebok transaction on January 31, 2006 marks a new chapter in the
history of the adidas Group. By combining two of the most respected and well-known
brands in the worldwide sporting goods industry, the new Group will benefit from a
more competitive worldwide platform, well-defined and complementary brand
identities, a wider range of products, and a stronger presence across teams, athletes,
events and leagues.

21
On 11 April 2006, Adidas announced an 11-year deal to become the official NBA
apparel-provider. They will make NBA, NBDL, and WNBA jerseys and products as
well as team-coloured versions of the "Superstar" basketball shoe. This deal (worth
over $400 million) takes the place of the previous 10-year Reebok deal that was put in
place in 2001.

22
S.W.O.T. Analysis

23
Strengths
Leading player in the sporting goods industry
The company is amongst the top players in the sporting goods industry due to its
strong brands, market-leading products and commitment to sports for meeting
consumer expectations. The global sportswear market (E45 billion) is dominated by
Adidas-Salomon and Nike and, at a certain distance, Reebok, PUMA and New
Balance. Adidas-Salomon’s brands include Adidas, Salomon, TaylorMade and others,
which have very strong brand name recognition in markets served. The company’s
products serve many markets and include footwear, hardware, apparel, snowboard,
golf-related and other products. It has sponsored many sporting events including the
Winter Olympics, the FIFA World Cup of 2002 and most recently the Euro 2004
tournament and the Olympics in Athens 2004.

Steady increase in sales revenues.

Adidas-Salomon’s revenues from sales have been steadily increasing as reflected in

the last five years’ sales performance ending 2002. From E5.1 billion of sales in 1998
to E6.5 billion in 2002, the performance has improved by a CAGR of 7%. Though
sales declined by 3.9% in 2003 over 2002, it was mainly due to currency translations.
The company has been able to achieve this steady growth in revenues due to its strong
brand image, continuous commitment to product innovation that is consumer
focused.

Such a steady growth in the company’s revenue performance helps in maintaining a

very good image for the company and improves investor confidence. Additionally, the
company reported an outstanding operational and financial performance in the first
half of fiscal 2004. This underlined the company’s momentum, with quarter on
quarter sales improvements for all brands, and a record gross margin and earnings
growth of almost 40%, marking the strongest first half year performance in the
company’s history.

Successful new product innovations

The company has consistently launched new products and this has enabled it to widen
its portfolio and also enhance its competitive position. Each company brand targets a
specific market and new products are introduced based on their requirements. This
has helped the company achieve a greater degree of success. During 2002-2003, the
company launched ClimaCool and a3 in its running shoes category, which were big
successes. The company sold over 500,000 pairs in a3 and over one million in
ClimaCool.

Furthermore, in the basketball shoes division, the T-MAC and T-MAC were the
bestselling in the US market in 2002 which has led to the release of T-MAC 4 lace
less footwear for 2004. The company’s continuous commitment towards new product
innovations not only improves revenues but also helps in strengthening its
relationship with its customers and attracts new customers. In May 2004 the company

24
announced introduced what the company described as the first Intelligent Shoe -
called "1", the shoe provides intelligent cushioning by automatically and continuously
adjusting itself.

Lead time improvements

The company has considerably improved the lead-time required for footwear
manufacturing through lean manufacturing principles. Earlier in 2000, the company
used to take 120 days for producing footwear; by 2003, this had been reduced to
around 60 days. Such a reduction was made possible as a result of the company’s
efficient implementation of lean manufacturing principles which helped in removing
non-value-adding procedures and activities, improved labeling, special handling and
other such activities to reduce time taken. These process improvements have helped
the company in avoiding warehousing of its footwear products.

Marketing strength

The company has planned and implemented major advertising campaigns during
2004. The company’s immense size and strong position have afforded it the
opportunity to undertake global advertising campaigns with focus on TV, print media
and outdoor advertising as well as point of sale and PR activities. The campaign

"Impossible is Nothing", includes top athletes from different disciplines such as

Muhammad Ali and his daughter (brand image, boxing and lifestyle), Haile
Gebrselassi (brand image, running), David Beckham (brand image, football) and
Tracy McGrady (brand image, basketball). This mega campaign will not increase the
annual advertising budget in 2004 as it replaces the budgets of last year,
demonstrating the company’s consistency in brand advertising.

Weaknesses
Unfocused strategy

The strategy of Adidas-Salomon is lacking focus. This is because it has a very broad
product portfolio, including sport performance products for athletic sports, basketball,
golf, tennis, Nordic disciplines, cycling and fashion oriented products. Rival Puma
has demonstrated that focus can translate into a high profitability.

Over-dependence on Adidas brand segment

While the purchase of Salomon, the French maker of ski and golf gear, steered the
company into the equipment arena, the company generated 79% ($4.9 billion) of its
total revenues of E6.3 billion from the Adidas brand segment in 2003, while the other
two contributed to the balance. Despite a strong image for the TaylorMade and
Salomon brands, they generated only about 21% of the total revenues. The company’s
over-dependence on the Adidas brand segment, which mainly serves the athletes’
requirements, makes the company’s overall revenues susceptible to the market
conditions in this segment.

25
High level of long-term borrowings

Though the company reduced its borrowings by E181 million against 2002, the level
of borrowings is still very high. At the fiscal year end 2003 the company’s long-term
borrowings as a percentage of equity were very high at around 146%, which
amounted to E1, 574 million. Such high debt level affects investor confidence in the
company and makes low-cost funding of growth plans difficult. By half year fiscal
2004 strong cash flow had enabled more progress in debt reduction has been (net
borrowings at June 30, 2004 were E967 million, down 39% or E616 million versus

E1, 583 billion in the prior year) made but debt remained high.

Order cancellations

2003 revenue growth was substantially below the company’s first impression from
year-end 2002 order backlogs, which were up a strong 14%. As 2003 revenues growth
was only 5%, significant order cancellations in the course of the first half of 2003 are
evident. The company achieved revenues that totaled E6, 267 million ($7,570.4
million), a decrease of 3.9% against the previous years revenues that totaled E6, 523
million.

Opportunities
Strategic acquisitions and agreements

The company made a few strategic acquisitions during 2004. In September Adidas
and Stella McCartney announced a long-term partnership in New York, presenting the
Adidas by Stella McCartney sport performance collection. For the first time ever a
high-end fashion designer had created a functional sport performance range for
women. The first collection will be available in stores across the US, Japan and
Europe starting spring/summer 2005. It offers products for running, gym/workout and
swimming as well as cover-ups. The Adidas by Stella McCartney range shows the
company’s willingness to innovate in the women’s sportswear market.

Adidas-Salomon acquired Valley Apparel Company of Cedar Rapids, Iowa in June

2004, a producer and distributor of collegiate and professional league apparel and
accessories. It serves small- to mid-size retailers, such as sporting goods stores,
department stores, fan shops and college bookstores. It has a reputation of producing
and delivering large quantities of apparel and branded accessories within hours of a
team’s victory.

In early 2003, the company acquired the Maxfli brand of accessories and other golf
related products from Dunlop Slazenger Group through its TaylorMade-Adidas
division. This acquisition has helped the company in offering market leading products
in all the golf categories and has improved its global market share to 16% from less
than 1% prior to the acquisition. The company also entered into a strategic agreement
in June 2003 with the INTERSPORT International Corporation (IIC), a multi-sport
retailer, in order to strengthen its sales and distribution network. Specifically, the four

26
year agreement will - in time - strengthen the company’s sport performance, casual,
Salomon and other products’ sales.

Supply-chain and manufacturing initiatives

The company’s success in reducing footwear manufacturing time is likely to continue

in the future also. The company plans to reduce its production time further, which will
help the company achieve faster delivery of its products to the retailers, thereby
reducing inventory costs. On the supply-chain side, the industry faces a problem due
to longer time to market. The total time taken is about 15 to 18 months of which 12
months are spent in creation of the product, while the balance of the time in arranging
for the raw materials, production and delivery to the retail stores. The company plans
to implement a new model for its supply chain, which will considerably reduce the
time taken and improve cost efficiency, etc. This initiative will help the company in
serving its customers faster, thereby gaining a competitive edge over its peers.

Sponsoring sporting events

The company’s sponsorship of major sports events brings great recognition to its
products. Adidas supplied more than 1.4 million products to federations, volunteers,
officials and others during the 2004 Olympics. Following a successful marketing
campaign at the Euro 2004 Soccer Tournament in Portugal, the company once again
expected to achieve new record sales in football during 2004. During 2002, the
company sponsored FIFA World Cup Championship in Korea and Japan and was
acclaimed as the most visible among the brands advertised during the event and was
viewed by 44 billion cumulative spectators during the course of the event.
Furthermore, in the Winter Olympics of 2002, the company sponsored over 50% of
the participating athletes who won about 200 medals.

Adidas has a life-time agreement with Kevin Garnett (most valuable player of the
NBA 2003/2004). It also signed a six-year cooperative agreement with Chinese
Football in

June 2003. The company is preparing to sponsor the World Cup in 2006, which will
be held in Germany. Sponsorship of these events helps the company in building its
Sport Heritage, Sport Style and other such divisions. For instance, the Sport Heritage
division grew into an E900 million businesses and doubled its sales from 2001 to
2003.

Own retail stores

In 2003 Adidas generated 9% of group revenues in own retail outlets. A significant

number of new shops have not yet positively contributed to earnings because the cost
for new shops (of hiring of sales people and training costs etc.) exceeded early
revenues. This will begin to level out going forward and the company will continue to
open own retail shops. Management recently explained that own retail sell-through
was positive in the US in 2003 in contrast to external customers. The company is
therefore planning to open 15 new US shops in the coming two years and 40
worldwide. Management expects Sport Heritage to grow again from 2004 driven by

27
more own retail stores and no more cutting of external points of sales. The company
opens its second UK store in Manchester in 2004.

Threats
Competition

Adidas operates within a highly competitive market which in many cases overlaps
into other markets as sportswear retailers increasingly compete with fashion retailers.
The company’s traditional competitors like Reebok, Nike and Puma make
competitive levels intense, but the addition of casual footwear and apparel
manufacturers such as Tommy Hilfiger, adding a designer edge to the market, has
increased competitive levels.

Companies have come under increasing pressure recently from products designed for
the value conscious consumer. Adidas have long been one of the premium brands in
sportswear and have charged accordingly, though this strategy is coming under more
pressure as cheaper substitute products are bought by consumers adding to problems
in terms of customer retention.

Foreign exchange fluctuations

The company’s manufacturing activities are mostly concentrated in China and other
Southeast Asian countries. Since most of these countries transact in US Dollars, the
company incurred about 70% to 80% of its outsourcing expenditure in US Dollars,
whereas, the company’s revenue generation in US dollar and other non-Euro
currencies is comparatively lower. Hence, any adverse changes in the exchange rate
between US dollar and Euro will have a negative impact on its overall revenues.

Weak global economy

The GDP of European countries have grown at a negligible rate and are unlikely to
improve in the near future. Similarly, the Latin American markets such as Argentina
and Brazil continue to witness weak economic conditions, while the Southeast and
Middle-East regions continue to reel from political unrest. Thus, the company’s
revenues could be significantly affected in the near future due to these adverse
economic conditions.

Impact of scandals in the US and Germany

Accounting scandals across industries in Germany and the US have impacted upon
the company’s stock performance recently. The weak performance of many
companies in the sports goods industry adversely affected the investor confidence in
the industry. The company’s stock price has been as low as E80 during the last two
years. Thus, external factors can have an adverse impact on the company’s stock price
performance and might in turn affect its brand’s value.

28
Values, Strategies, and Goals

29
Adi's Three Guiding Principles
Adi Dassler followed three guiding principles in his development work, driven by his
passion for sports and shoemaking:

1. To produce the best shoe to serve the needs of the sport,

2. To protect the athlete from injury, and
3. To make the product durable.

adidas' Values
The adidas Group strives to be the global leader in the sporting goods industry with
sports brands built on a passion for sports and a sporting lifestyle.

adidas is consumer focused and therefore continuously improve the quality, look,
feel and image of their our products and their our organizational structures to match
and exceed consumer expectations and to provide them with the highest value.

They are innovation and design leaders who seek to help athletes of all skill levels
achieve peak performance with every product they bring to market.

They are a global organization that is socially and environmentally responsible,

creative and financially rewarding for their employees and shareholders.

They are committed to continuously strengthening their brands and products to

improve their competitive position.

They are dedicated to consistently delivering outstanding financial results.

adidas' Strategy
Adidas' goal as a Group is to lead the sporting goods industry with brands built on a
passion for sports and a sporting lifestyle. Adidas continuously strives to generate
consumer excitement and enhance brand profitability by executing a clear strategy. In
everything Adidas does, it is focused on strengthening and developing its brands to
maximize the Group’s operational and financial performance and create shareholder
value.

Performance as core Group value

Adidas Group’s mission and strategy are rooted in its desire to provide athletes with
the best possible equipment to optimize their performance. This philosophy originated
with the brands’ founders Adi Dassler, J. W. Foster and Gary Adams whose passion
for sport inspired them to develop innovative sports products and create new sports
categories. Adidas aims to consistently perform at a level where it not only meets but
exceeds the expectations of its stakeholders. It strives to be closer to consumers than
any of its competitors, and its unique understanding of consumers enables it to
enhance their athletic experience. In support of these efforts, Adidas continuously

30
optimizes its sales and distribution processes and improves its customer service
efforts for its retail partners. It makes every effort to align its employees’ personal
objectives with the Group and brand targets and reward its staff for high achievement.
Further, Adidas is particularly focused on ensuring best-practice social and
environmental standards. A commitment to constantly increase value for its share
holders is at the core of its activities. This commitment to top performance
differentiates it from other competitors and is a unifying principle across the multi-
brand organization.

Leveraging opportunities across adidas' brand portfolio

The strength of the brands is a key factor in the Group’s success. Within the brand
portfolio, adidas primarily pursues two strategic priorities: Market penetration –
gaining market share across all markets in which we compete, and Market
development – expanding into new markets and addressing new consumer segments.

adidas' multi-brand approach allows it to tackle opportunities from several

perspectives, as both a mass and a niche player, providing distinct and relevant
products to a broad spectrum of consumers. In this way, each brand is able to
concentrate on its core competencies. Across all brands, it focuses on increasing
awareness and visibility, providing clear and consistent messaging and supporting
product initiatives at the point-of-sale. In addition, adidas' commercial success also
depends on leveraging the scale of the organization and sharing best practice across
the Group. In particular, it continues to prioritize the development and further
integration of its supply chain across all brands, turning it into a long-term
competitive advantage for the Group.

Leading position in markets worldwide

As a global organization, adidas targets leading market positions in all regions where
it competes. In Europe, where the Group is the market leader in terms of sales, its
strategy is twofold. First, it continues to strengthen its position in the major Western
European markets and strive to grow its brands through well-coordinated efforts with
key account partners. Secondly, it is capitalizing on the strong growth opportunities in
the region’s emerging markets (i.e. Eastern Europe, the Middle East and Africa).

In North America, adidas sees significant upside potential. As a Group, adidas is

number two in terms of sales, but it believes it is currently under-represented in the
North American sporting goods market. Therefore, it targets market share expansion
via a strong, consumer-driven product offering, a diversified distribution strategy, and
visible and engaging communication initiatives.

In Asia, where the Group is the market leader in terms of sales with number one
positions in several markets, adidas' goal is to strengthen and extend its market
leadership position. adidas' key priority in the medium term is expanding its business
in the region’s two most important markets: China and Japan. In tandem, it will also
continue to capitalize on opportunities in other emerging markets in Asia such as
India.

31
Finally, in Latin America, adidas' Group’s fastest-growing region for the last several
years, it is focused on rapidly expanding its business in the four most important
markets: Brazil, Argentina, Mexico and Chile. adidas' target is to take over market
leadership in terms of sales by 2010.

Leading through innovation and design

adidas' is determined to address every consumer in a specific and unique way – with
product and communication initiatives that generate trade and consumer interest. As a
result, adidas believes that technological innovation and cutting-edge design are
essential to sustainable leadership in the industry.

Innovation plays a significant role in differentiating adidas' product offering in the

minds of consumers. By leveraging the extensive R&D expertise within its Group,
adidas continuously challenges the boundaries of functionality and performance. It is
adidas' objective to launch at least one major new technology or technological
evolution per year.

Through design partnerships and collaborations with Stella McCartney, Yohji

Yamamoto, Porsche Design and Jean-Michel Basquiat adidas is widening its design
reach and imbuing its products with the excitement consumers demand. By
continually expanding its capabilities in R&D and design, adidas is able to introduce
new products at premium price points, thus contributing to Group margin
improvement.

Customizing distribution

The Group will drive future success by engaging consumers with unique interactive
product approaches and rewarding point-of-sale experiences. Adidas' brands must be
competitive in this environment where consumers make their final purchase decisions
based on availability, convenience and breadth of product offering. As a result, it is
continuously refining its distribution proposition, concentrating on two areas:
expanding controlled space and improving retail relationships. Controlled space
includes: adidas' own-retail business including e-commerce; mono-branded stores run
by retail partners; shop-in-shops that it establishes with its key accounts; joint
ventures with retail partners; co-branded stores with sports organizations or other
brands.

These formats provide adidas with a high level of brand control, as it either manages
the stores itself (i.e. own retail) or it works closely with its partners (mono-branded
stores, shop-in-shops, joint ventures, co-branded stores) to ensure the appropriate
product offering and presentation at the point-of-sale. Brand control helps it drive
sales and profitability increases and expand its market position.

Going forward, we will also further differentiate and segment our product offering to
align our distribution more closely with a given retailer’s customer base. In addition,
we are partnering with retailers to increase the level and quality of sell-through
information we receive. This creates a mutually beneficial relationship that will help
us become a more valuable and reliable business partner to our retailers.

32
Creating shareholder value

Sustainable revenue and operating profit growth are critical to adidas' success.
Creating value for its shareholders through significant free cash flow generation
drives its overall decision-making process. For each of its brands, adidas pursues the
most value-enhancing avenues for growth, with particular emphasis on continuously
improving profitability.

Adidas' Strategy for 2010

The adidas Group’s social and environmental strategy 2008-2010 has been built on
the achievements and experiences from previous years. It responds to changes in
adidas' overall business development and to feedback that it has captured from
stakeholders. adidas' strategy defines primary areas which are core to its business and
where it dedicates its attention, efforts and resources. These areas are:

• Embedding environmental sustainability across our business – this recognizes

the urgent need to address questions of resource use, environmental degradation and
climate change, ‘the’ business drivers for the 21st Century.
• Effectively managing business risks and social compliance in its supply chain
– the supply chain is expanding, and becoming more complex with multiple
relationships and stretched lines of communication and control.
• Extending its engagement internally and externally – partnering with others to
embed new thinking and better ways of working within its business and along its
supply chain. The issues are so large and complex that adidas cannot solve them
alone.
• Creating the best and most productive workplace in the industry by becoming a
champion in talent and succession management, a world-class recruiter and a Top 10
employer in every key market in which it operates.

33
Brands & Products

34
Brands
adidas & Reebok work in footwear, apparel, and accessories whereas TaylorMade-
adidas Golf is the brand for golf equipment: metalwoods, irons putters, golf balls,
footwear, apparel, and accessories

About adidas
Sport Performance

The guiding principle of the adidas Sport Performance Division is to equip all athletes
to achieve their “impossible”. adidas Sport Performance brings its passion for great
products to athletes in all sports and mainly focuses on four key categories globally:
football, running, training and basketball.

Sport Style

The Sport Style Division is the home of Originals, defined as authentic sportswear,
the Fashion Group, which is the future of sportswear, and Style Essentials, the fresh
sport-inspired label made accessible for style-adopting youth. Together they offer
consumers products from street fashion to high fashion, all uniquely inspired and
linked to sport.

About Reebok
Inspired by its roots in sport and women’s fitness, Reebok is a global brand that is
committed to developing innovative products which will allow Reebok to own
Women’s Fitness, challenge the Men’s Sport category and revive its Classics heritage.

Reebok-CCM Hockey

Reebok-CCM Hockey is one of the world’s largest designers, manufacturers and

marketers of hockey equipment and apparel with two of the world’s most recognized
hockey brand names: Reebok Hockey and CCM Hockey.

Rockport

Building on nearly four decades of engineering expertise and a commitment to

innovation, Rockport designs and markets dress, casual and outdoor footwear as well
as apparel and accessories that fuse dynamic technology and modern style.

About TaylorMade-
adidas Golf
TaylorMade is a leader in the industry and the number one metalwood supplier. It
focuses on consumers who seek the most innovative, performance-enhancing golf

35
equipment available, including technologically superior drivers, fairway woods, irons,
putters and balls.

adidas Golf

adidas Golf targets active, serious, athletic-minded golfers who understand that the
right technologies can dramatically improve the performance of golf footwear and
apparel.

Ashworth

Ashworth is a leading designer of men’s and women’s golf-inspired lifestyle

sportswear distributed internationally in golf pro shops and resorts as well as upscale
department and specialty stores.

Products
Running

Adidas currently manufactures several running shoes, including the adiStar Control 5,
the adiStar Ride (the replacement for the adiStar Cushion 6), the Supernova Sequence
(the replacement for the Supernova Control 10), and the Supernova Cushion 7 (which
will soon be replaced by the Supernova Glide), among others. In addition, their
performance apparel is widely used by runners. Adidas also uses kangaroo leather to
make their more expensive shoes.

Association football

One of the main focuses of Adidas is football kit and associated equipment. Adidas
also provides apparel and equipment for all teams in Major League Soccer. Adidas
remain a major company in the supply of team kits for international football teams.
Current examples include Russia, France, Germany, Greece, Romania, Argentina,
Spain, Mexico, Japan and Nigeria. Adidas also makes referee kits that are used in
international competition and by many countries and leagues in the world. In the
United States, referees wear the Adidas kits in MLS matches even though the primary
referee supplier is Official Sports. The company has been an innovator in the area of
footwear for the sport with notable examples including development of the Copa
Mondial moulded boot used for matches on firm dry pitches for almost forty years.
The studded equivalent was named World Cup follow in celebration of the 1978
tournament won by Argentina, one of the nations it supplied at the time. Adidas
became renowned for advancing the "Predator" boot design developed by ex-
Liverpool and Australian international player Craig Johnston. This design featured a
ribbed rubber structure for the upper leather of the shoe, used to accent the movement
of the ball when struck; highly skilled players claimed they were able to curve the
flight of the ball more easily when wearing this new contoured design. The Predator
also features the Craig Johnston invented "Traxion" sole. As the development and
popularity of Football continued Adidas played a leading role in shaping the style of
the play itself. FIFA, the sports governing body, commissioned specially designed
footballs for use in its own World Cup tournaments to favour more attacking play.

36
The balls supplied for the 2006 Germany World Cup were particular noteworthy for
their ability to travel further than previous types when struck, leading to longer range
goal strikes that were intended to increase the number of goals scores and increase
spectator enjoyment. Goalkeepers were believed to be less comfortable with the
design claiming it would move significantly and unpredictably in flight.

Tennis

Adidas has sponsored tennis players and recently introduced a new line of tennis
racquets. While the Feather is made for the "regular player", and the Response for the
"club player", Adidas targets the "tournament player" with the 12.2 oz Barricade tour
model. Adidas sponsors the following professional players: Dinara Safina, Ana
Ivanović, Daniela Hantuchová, Fernando Verdasco, Novak Djokovic, Gilles Simon,
Marcos Baghdatis, Fernando González, Marat Safin, doubles team Bob and Mike
Bryan and upcoming players like Melanie Oudin, Sorana Cirstea and Grigor
Dimitrov. Adidas tennis apparel contains the ClimaCool technology found in other
athletic jerseys and shoes.

In Cincinnati, at the ATP Tennis Tournament in Mason, they have also sponsored the
ball-boy and ball-girl uniforms.

Golf

In 1997, Adidas purchased TaylorMade. The image and focus of TaylorMade was
redirected shortly after the acquisition to take over the driver market. The company
succeeded in achieving this goal in late 2004 when it officially became the No. 1
driver in golf. On 14 October 2008, Adidas, through its subsidiary TaylorMade,
acquired Ashworth for $72 million, assuming $46.3 million in debt.

Cricket

In the 1990s, Adidas signed the world No. 1 batsman Sachin Tendulkar and made
shoes for him. He is still wearing Adidas shoes when he plays matches. Adidas even
made action figures after Sachin Tendulkar.

In 2008, Adidas made their move into English cricket market by sponsoring English
batting star Kevin Pietersen after the cancellation of his lifetime deal with
Woodworm, when they ran into financial difficulties. The following year they signed
up fellow England player Ian Bell and Indian Player Ravindra Jadeja. Having made
cricket footwear for many years, the company finally entered the field of bat
manufacture in 2008 and their products are available in the Incurza, Pellara and Libro
ranges

Adidas also manufactures the uniforms worn by both the England cricket team and
the Australian cricket team.

In 2008 and 2009 in both the seasons of the Indian Premier League (IPL), it took up
the sponsorship of the Mumbai Indians and the Delhi Daredevils.

37
In 2009, Adidas signed Sachin Tendulkar and started sponsoring his bat. It created a
new bat 'Adidas ST' for him and 'Adidas KP' for Kevin Pietersen, the same year. Now
both of them use their personalized bats in cricket.

Basketball

Adidas has been a longtime basketball shoe manufacturer and is one of the leading
basketball brands in the world. They are most famous for their iconic Superstar and
Pro Model shoes, affectionately known as "shelltoes" for their stylized hard rubber toe
box. These were made very popular in the 1980s hip hop street-wear scene alongside
Adidas' stripe-sided polyester suits.

Adidas is also the current outfitter of all 30 franchises in the National Basketball
Association (replacing the Reebok brand after the merger) and sponsors numerous
players past and present like Kareem Abdul-Jabbar and Tracy McGrady, as well as
Dwight Howard, Chauncey Billups, Derrick Rose, Kevin Garnett, Tim Duncan,
Candace Parker, and Gilbert Arenas.

Lacrosse

In 2007, Adidas announced the future production of lacrosse equipment, and will
sponsor the Adidas National Lacrosse Classic in July 2008 for the top 600 high school
underclassmen lacrosse players in the United States.

Rugby

Adidas make rugby balls and other rugby gear. They are the current kit and ball
supplier to the New Zealand All Blacks, Irish Munster Rugby, and the Argentinean
Pumas, among others.

Gymnastics

Since 2000, Adidas has provided men's and women's gymnastics wear for Team USA,
through USA Gymnastics. In 2006, Adidas gymnastics leotards for women and
Adidas men's comp shirts, gymnastics pants and gymnastics shorts have been
available in the USA, with seasonal leotards offered for Spring, Summer, Fall and
Holidays. Starting in 2009, Adidas gymnastics wear has been available worldwide
through GK Elite Sportswear.

Skateboarding

Adidas SB (Skateboarding) are shoes made specifically for skateboarding. Many of

the shoes Adidas previously made were redesigned for skateboarding.

Accessories

Adidas also designs and makes watches, eyewear, bags, baseball caps, and socks. As
well, Adidas has a branded range of male and female deodorants, perfumes,
aftershave and lotions.

38
Marketing

39
Adidas, like other sports brands is believed to engender high
consumer brand loyalty. Brand loyalty towards Adidas, Nike
and several other sportswear brands was examined in a recent
study. The study found consumers did not exhibit unduly
high loyalty towards such brands.

Group Focus
During the mid to late 1990s, Adidas divided the brand into three main groups with
each a separate focus: Adidas Performance was designed to maintain their devotion
to the athlete; Adidas Originals was designed to focus on fashion and life-style; and
Style Essentials, with the main group within this one being Y-3.

Slogan
"Impossible is Nothing" is the current mainstream marketing slogan for Adidas. This
campaign was developed by 180/TBWA based in Amsterdam but also with
significant work being done by TBWA/Chiat/Day in San Francisco - particularly for
its basketball campaign "Believe In Five".

Contender
When adidas entered the marketplace some 50 years ago, its focus was to produce
shoes crafted specifically for soccer and running. Establishing the brand as the choice
for professional athletes eventually parlayed into preference in the mainstream.

In the 80's, Run DMC furthered adidas’s street cred with the rap “My adidas,” paying
homage to their favorite shell-toe. But by the early 90's, Nike and Reebok were out-
marketing adidas – even in Germany, its own turf. Kids weren’t interested in the
sneakers their parents wore, and adidas found itself forgotten in the back of the closet,
heading for the Goodwill

The new millennium has since brought about an adidas renaissance; the brand has
steadily regained market share over the past five years to become the world's number
two athletic shoe company (behind Nike). How did it go about repositioning to once
again be among the coolest of kicks?

Adidas claims that, "the brand values of the company – authenticity, inspiration,
honesty and commitment – are derived from sport." Historically, this sensibility was
demonstrated through early and continued involvement with Olympic athletes, as well
as active sponsorship of major global sporting events – like the World Cup. Today
these events provide an ample playing field for sportswear companies to duke it out
for representation and thus market share. Adidas’s rapid growth in Asia, where
revenue rose by 15 percent to US$ 878M last year, may be further propelled in Japan
and Korea when those two nations host the World Cup this year – an event which is
expected to garner 2.5M spectators and one billion TV viewers worldwide.

40
However, the key to revitalized success seems to lie in the considerable endorsement
deals adidas has developed with world class athletes. Recent sports figures
representing adidas don’t only score high marks in their game – they also score high
in their celebrity quotient. British football star David Beckham’s relationship with
adidas has no doubt lent itself well to the brand’s visibility in the UK. Recently
dubbed "Captain of England," Beckham led his team to victory in the 2000 FIFA
World Cup. It doesn’t hurt that he’s married to a highly visible, ex-Spice girl and is
often seen in the tabloids sporting the adidas logo. With Europe as adidas’s largest
market, exposure like this reflects in the numbers; sales grew seven percent to US$
2.7 billion, last year.

Stateside, Kobe Bryant is another example of a winning adidas endorsee. The LA

Laker and youngest NBA all-star player is an athlete with substantial celebrity
leverage. This translates directly into sales, young men who idolize Bryant want to
play basketball like he does, and thus will want to wear what he wears. The equally
compelling Russian born, American-bred tennis star Anna Kournikova also meets
these criteria. She’s a young, brilliant professional athlete whose celebrity extends
well beyond the world of tennis – like Bryant and Beckham she’s captured the
public’s interest in mainstream newspapers, magazines and tabloids.

Reinvention was key, not only for the adidas’s

marketing strategy, but also for its product line. On
its website, adidas acknowledges that "The markets
and industry in which we compete are transforming
rapidly, paced by the evolution – or revolution – in
how 'sports' are defined. Team sports such as soccer
and basketball will always be a fundamental part of
sporting competition. Today, however, eclectic,
individual, 'no-rules' sports such as snowboarding,
inline skating and surfing have grown into
significant categories. Activities such as golf,
hiking and mountain biking, which used to be seen
as lifestyle and leisure activities, are now part of
mainstream sports." Increased product offerings in
these categories have undoubtedly contributed to a
better score for the brand.

To keep up with the competition, adidas generates close to 60 new foot-friendly

designs each year. The adidas credo is to regard shoes as feet, resulting in a product
with superior fit and performance capabilities. Tactics have been revised in getting
these products out for consumption. As a result, products have been repositioned in
higher-end and sports specialty stores. As their main competitor has sprinkled flagship
NikeTown stores throughout the US, Europe and Australia, adidas has also embarked
on a foray into retail. The first adidas-Solomon megastore launched in Paris last year
to capitalize on the brand awareness in that market; France scored victories in both the
1998 World Cup and 2000 European Cup football championships. Word on the street
is the brand hopes to eventually roll out this concept to more cities in Europe and
North America.

41
Adidas continues to prove itself as a brand built to last through a game plan of
reinvention. With the recent acquisition of a lifetime partnership with Orlando
Magic's Tracy McGrady (basketball) and its heavy involvement with 2002 World
Cup, it continues to strike savvy deals that capitalize on the star power of young
athletes and increase its visibility in the marketplace.

It appears that team adidas has honed its strategy to become a revitalized contender in
today’s competitive sporting goods market and is now duly recognized as the sneaker
of yesterday and today

42
Corporate information

43
Articles of Association of adidas AG
(Translated from German. In the event of any differences in interpretation, the
German text shall prevail.)

Corporate Name, Place of Registered Office and Financial Year

1. The name of the publicly-listed Company is adidas AG .

2. The registered office of the Company shall be located in Herzogenaurach.
3. The financial year of the Company shall be the calendar year.

Purpose of the Company

1. The purpose of the Company is the production and distribution of apparel,

footwear and equipment for sports and leisure as well as of products of adjoining
fields and, in addition, the commercialization of the registered adidas trademark.
2. The Company is entitled to all measures and business transactions which are
appropriate to promote the purpose of the Company. This also includes the
establishment of branches as well as the acquisition and establishment of other
enterprises as well as of an interest in such enterprises, in Germany and abroad.

Publications and Transmission of Data

1. Official announcements of the Company shall be published in the electronic

version of the German Federal Gazette (Elektronischer Bundesanzeiger).
2. The Company shall be authorized to transmit information by electronic means to
its shareholders subject to their approval.

Nominal Capital

1. The nominal capital of the Company shall be EUR 193,515,512 and be divided
into 193,515,512 no-par-value shares.
2. The Executive Board shall be entitled for a duration of five years, effective from
the entry of this authorization with the Commercial Register, to increase the
nominal capital, subject to Supervisory Board approval, by issuing new shares
against contributions in cash once or several times by up to a total of EUR
50,000,000 (Authorized Capital 2009/I). The new shares may also be offered to
one or several credit institutions with the obligation to offer them to the
shareholders for subscription (indirect subscription right). The Executive Board is
authorized, subject to Supervisory Board approval, to exclude residual amounts
from the shareholders’ subscription rights.
3. The Executive Board shall be entitled for a duration of three years, effective from
the entry of this authorization with the Commercial Register, to increase the
nominal capital, subject to Supervisory Board approval, by issuing new shares
against contributions in kind once or several times by up to a total of EUR
25,000,000 (Authorized Capital 2009/II). The Executive Board may, subject to
Supervisory Board approval, exclude the subscription rights of the shareholders.
The shareholders may also be granted the statutory subscription right by offering

44
 the new shares to one or several credit institutions with the obligation to offer
them to the shareholders for subscription (indirect subscription right).
4. The Executive Board shall be entitled for a duration of 5 years, effective from the
entry of this authorization with the Commercial Register, to increase the nominal
capital, subject to Supervisory Board approval, by issuing new shares against
contributions in cash once or several times by up to a total of EUR 20,000,000
(Authorized Capital 2006). The new shares may also be offered to one or several
credit institutions with the obligation to offer them to the shareholders for
subscription (indirect subscription right). The Executive Board may, subject to
Supervisory Board approval, exclude residual amounts from shareholders'
subscription rights. Additionally, the Executive Board may, subject to Supervisory
Board approval, exclude shareholders' subscription rights when issuing the new
shares at a value not essentially below the stock exchange value of shares with the
same features. The authorization to exclude subscription rights pursuant to the
previous sentence, may, however, only be used to the extent that the pro-rata
amount of the new shares in the nominal capital together with the pro-rata amount
in the nominal capital of other shares which have been issued by the Company
since May 11, 2006, subject to the exclusion of subscription rights pursuant to or
in accordance with § 186 section 3 sentence 4 of the German Stock Corporation
Act (Aktiengesetz - AktG) on the basis of an authorized capital or following a
repurchase or for which conversion or subscription rights have been granted after
May 11, 2006, through issuance of convertible bonds or bonds with warrants, with
subscription rights excluded pursuant to § 186 section 3 sentence 4 AktG, does not
exceed 10% of the nominal capital existing on the date of the entry of this
authorization with the Commercial Register or – if this amount is lower – as of the
respective date on which the authorization is used.
5. The Company's nominal capital shall be increased conditionally by up to EUR
1,294,748 through the issuance of not more than 1,294,748 no-par-value shares
(Contingent Capital 1999/I). The contingent capital increase shall serve
exclusively to grant up to 323,687 share options to members of the Executive
Board as well as to Managing Directors/Senior Vice Presidents of its affiliated
companies as well as further senior executives and executives of the Company and
its affiliated companies as more fully described in the provisions of the
authorization resolution adopted by the Annual General Meeting on May 20, 1999
in the version of the resolutions of the Annual General Meetings of May 8, 2002,
May 13, 2004 and May 11, 2006. It shall be implemented only to the extent these
share options are exercised. The new shares shall carry dividend rights from the
commencement of the financial year in which the shares are issued.
6. The nominal capital shall be conditionally increased by up to EUR 35,998,040
divided into not more than 35,998,040 bearer shares (Contingent Capital 2003/II).
The contingent capital increase will be implemented only to the extent that the
holders of the subscription or conversion rights or the persons obliged to exercise
the subscription or conversion duties based on the bonds with warrants or
convertible bonds, which are issued by the Company or a wholly-owned direct or
indirect subsidiary of the Company pursuant to the authorization of the Executive
Board by the resolution of the Annual General Meeting of May 8, 2003 in the
version of the resolution of the Annual General Meeting of May 11, 2006, make
use of their subscription or conversion right or, if they are obliged to exercise the
subscription or conversion rights, they discharge their obligations to exercise the
warrant or convert the bond. The new shares shall be issued at the respective

45
 subscription or conversion price to be established in accordance with the
aforementioned authorization resolution.

The new shares shall have profit participation rights beginning in the financial
year in which they were created as a result of the exercise of the subscription or
conversion rights or the discharge of the subscription or conversion obligations.
The Executive Board is authorized, subject to Supervisory Board approval, to
stipulate any additional details concerning the implementation of the contingent
capital increase.

7. The nominal capital shall be conditionally increased by up to EUR 20,000,000

divided into not more than 20,000,000 no-par-value bearer shares (Contingent
Capital 2006). The contingent capital increase will be implemented only to the
extent that the holders of the subscription or conversion rights or the persons
obliged to exercise the subscription or conversion duties based on the bonds with
warrants or convertible bonds, which are issued or guaranteed by the Company or
an affiliated company of the Company pursuant to the authorization of the
Executive Board by resolution of the Annual General Meeting of May 11, 2006,
make use of their subscription or conversion right or, if they are obliged to
exercise the subscription or conversion rights, they discharge their obligations to
exercise the warrant or convert the bond. The new shares shall be issued at the
respective subscription or the conversion price to be established in accordance
with the aforementioned authorization resolution.

The new shares shall have profit participation rights beginning in the financial
year in which they were created as a result of the exercise of the subscription or
conversion rights or the discharge of the subscription or conversion obligations.
The Executive Board is authorized, subject to Supervisory Board approval, to
stipulate any additional details concerning the implementation of the contingent
capital increase.

8. Upon issuance of new shares, the beginning of profit-participation may be fixed in

deviation from § 60 section 2 AktG.
9. The shares shall be no-par-value shares and bearer shares.
10. The Executive Board, in agreement with the Supervisory Board, shall decide upon
form and contents of the share certificates, profit share and renewal coupons. The
Company shall be entitled to document its total nominal capital by one or several
multiple share certificates. The shareholders' claim to the issuance of individual
share certificates shall be excluded unless such issuance is required in accordance
with the regulations valid at a stock exchange at which the shares are admitted.

Corporate Bodies

Corporate bodies are:

a) The Executive Board

b) The Supervisory Board
c) The General Meeting

46
Executive Board

The Executive Board shall consist of at least two persons. The exact number of
Executive Board members shall be determined by the Supervisory Board through the
respective appointment or cancellation of the appointment of Executive Board
members. The Supervisory Board may appoint a Chairman as well as a Deputy
Chairman of the Executive Board.

Management of the Executive Board

1. The members of the Executive Board shall do business in accordance with the
laws, the Articles of Association and the Rules of Procedure of the Executive
Board and of the Supervisory Board.
2. The resolutions of the Executive Board shall be passed with a simple majority of
the submitted votes. In the case of a draw, the Chairman of the Executive Board
shall have the casting vote. In case he should be prevented from performing this
duty, the Deputy Chairman shall have the casting vote, both if they plead so.

Representation of the Company

The Company shall be represented

a) By two members of the Executive Board or

b) By one member of the Executive Board jointly together with an authorised
representative (Prokurist).

Composition of the Supervisory Board

1. The Supervisory Board shall be composed of 12 members to be elected pursuant to

the provisions of the German Co-Determination Act (Mitbestimmungsgesetz -
MitbestG), that is of

 six members to be elected by the General Meeting, and

 six members to be elected by the employees.

2. The members of the Supervisory Board shall be appointed for the period until the
end of such Annual General Meeting which resolves on their discharge from
responsibility for the fourth financial year after the beginning of the term of office
unless the General Meeting, when electing its members for the Supervisory Board,
decides on shorter terms of individual members or of all members to be elected by it.
The financial year in which the term of office begins is not counted.

3. For members of the Supervisory Board representing the shareholders, substitute

members may be elected, who, in the order determined at the election, replace the
prematurely leaving members of the Supervisory Board representing the shareholders.

4. If a member of the Supervisory Board is elected as substitute for a leaving member,

his/her office shall continue for the remainder of the term of office of the leaving
member. If a substitute member is replacing the leaving member, his/her office shall

47
terminate at the end of the next General Meeting at which new elections take place, at
the latest with the expiration of the term of office of the leaving Supervisory Board
member.

5. The members and the substitute members of the Supervisory Board may resign
from their office by means of a written declaration addressed to the Chairman of the
Supervisory Board or to the Executive Board, observing a period of notice of four
weeks.

Duties and Rights of the Supervisory Board

1. The Supervisory Board shall have all duties and rights which are assigned to it by
law, the Articles of Association or otherwise. The Supervisory Board shall be entitled
to make amendments to the Articles of Association concerning only the wording.

2. The Executive Board shall report to the Supervisory Board or respectively to the
Chairman of the Supervisory Board on an individual case basis as well as on a regular
basis, at the latest at the end of each quarter of a calendar year, and to the extent
provided by law and the Rules of Procedure of the Executive Board and of the
Supervisory Board.

Furthermore, the Supervisory Board as well as any of its members may, at any time,
request a report to the Supervisory Board on matters of the Company, on its legal and
business relations to affiliated companies as well as on business transactions within
those companies which may materially affect the situation of the Company.

Declarations by the Supervisory Board

Declarations by the Supervisory Board shall be made by the Chairman on behalf of

the Supervisory Board or, in case he should be prevented from doing so, by a deputy.

The Chairman and his Deputies

1. The Supervisory Board shall elect from among itself, in accordance with § 27
sections 1 and 2 MitbestG, a Chairman and a deputy for the fixed term. It shall further
elect an additional deputy, the election of whom shall not be subject to § 27 MitbestG.
The election shall take place in a meeting not separately convened following the
General Meeting which has elected the members of the Supervisory Board
representing the shareholders. In case the Chairman or a deputy resigns from office
prior to the end of their term, the Supervisory Board shall hold a new election for the
remaining term in office of the leaving member pursuant to the 1st and 2nd sentence
above.

2. A deputy of the Chairman shall have the same rights as the Chairman in all cases in
which s/he, while the Chairman is prevented from performing his duties, acts in
substitution of the Chairman, however with the exception of the second vote granted
to the Chairman in accordance with MitbestG regulations.

48
3. In case both, the Chairman and his deputies, are prevented from fulfilling their
duties, these obligations shall be taken over by the oldest member of the Supervisory
Board for the period of prevention.

Rules of Procedure and Committees

1. The Supervisory Board shall adopt rules of procedure.

2. The Supervisory Board may, from among itself, form committees and determine
their duties and rights. Powers of decision may also be transferred to such committees
within the scope of mandatory provisions of law.

Immediately upon the election of the Chairman and his deputy elected in accordance
with § 27 MitbestG, the Supervisory Board shall form a committee to carry out the
duties stipulated in § 31 section 3, sentence 1 MitbestG, which shall consist of the
Chairman, his deputy elected in accordance with § 27 MitbestG as well as one
member to be elected by the employees' representatives and one member to be elected
by the shareholders' representatives with a majority of the submitted votes.

3. In case the Chairman of the Supervisory Board is a member of a committee which

consists of an equal number of members of the Supervisory Board representing the
shareholders and members representing the employees, and a voting of the committee
results in a draw, then the Chairman shall have two votes if another voting on the
same issue results in a draw again. § 108 section 3 AktG is also applicable to the
second vote.

Convocation

1. The meetings of the Supervisory Board shall be called by the Chairman or, in case
he should be prevented from performing this duty, by a deputy by written notice given
at least 14 days prior to the meeting. For computation of such period both the day of
posting the invitation and the day of the meeting are not counted. In urgent cases the
Chairman may shorten this period and call the meeting orally, by telephone or by any
other means of electronic telecommunication. The legal authorisation of other
corporate bodies or members of other corporate bodies to convene Supervisory Board
meetings shall remain unaffected.

2. The invitation shall include the agenda of the meeting.

Resolutions

1. The Chairman of the Supervisory Board or, in case he should be prevented from
performing this duty, a deputy shall be entitled to adjourn a convened meeting prior to
its opening.

2. A quorum of the Supervisory Board exists if all members were invited under their
last notified address and if at least one half of the members, of whom it shall consist,
take part in the passing of the resolution. A resolution on an item of the agenda which
was not included in the invitation is only admitted if no member of the Supervisory

49
Board objects thereto. Absent members of the Supervisory Board shall be given the
opportunity, within a reasonable period of time to be determined by the Chairman, to
oppose the resolution or to send a written vote. The resolution shall only be valid if
none of the absent Supervisory Board members oppose within the said period of time.
Members participating in the meeting via video conference shall be considered
present.

3. The Chairman of the Supervisory Board or, in case he should be prevented from
performing this duty, a deputy shall preside over the meeting. The Chairman, or, in
case he should be prevented from performing this duty, a deputy shall determine the
order in which the items of the agenda are discussed as well as the type and the order
of the voting. He may adjourn the resolution on individual or all items of the agenda
by four weeks at the longest, if not the same number of Supervisory Board members
elected by the shareholders and of Supervisory Board members elected by the
employees participates in the resolution or if any other significant reason for such
adjournment exists. He shall not be entitled to an additional adjournment.

4. Resolutions of the Supervisory Board shall be passed with a simple majority of the
votes unless the law determines otherwise. The same applies to elections. An
abstention shall not be considered as a submitted vote. In case of a draw, the
Chairman shall decide whether a new vote shall be taken on the respective item and
whether the new vote shall be taken during the same or during another meeting of the
Supervisory Board, unless the Supervisory Board decides on a different procedure. If
a new vote on the same item results in a draw again, the Chairman has two votes. This
second vote can also be submitted in written form pursuant to section 5.

5. An absent member of the Supervisory Board may submit his/her written vote or
vote transmitted by facsimile through another Supervisory Board member.

6. A Supervisory Board resolution may also be passed outside a meeting in writing,

by telephone, facsimile or by any other electronic means of telecommunication, if the
Chairman of the Supervisory Board or, in case he should be prevented from doing so,
a deputy directs so for special reasons, and provided that none of the members object
thereto. There shall be no right of objection if the resolutions are taken in such a
manner that the members of the Supervisory Board participating therein are connected
with one another by means of electronic telecommunication and are in a position to
discuss the subject of the resolution. Resolutions passed not in written form shall
subsequently be confirmed in writing. In all other respects the above provisions shall
apply mutatis mutandis. Subject to the above conditions, a resolution may also be
passed in combination of a meeting and resolutions passed outside the meeting.

Minutes

Minutes shall be taken on the resolutions and the meetings of the Supervisory Board
and its committees and shall be signed by the person presiding over the respective
meeting or, in case of § 15 section 6, by the Chairman of the Supervisory Board.

50
Secrecy

1. Members of the Supervisory Board shall observe secrecy on confidential data and
secrets of the Company, namely trade and business secrets which came to their
knowledge through their function. The Supervisory Board members shall be bound to
observe secrecy particularly with regard to confidential reports received and
confidential discussions. Persons who are present during meetings of the Supervisory
Board but are not members of the Supervisory Board shall be expressly bound to
observe secrecy.

2. Confidential data in the sense of section 1 shall be all data which the person giving
the data expressly declares as confidential and the disclosure of which, if seen from a
reasonable economic point of view, might possibly impair the interests of the
Company.

A secret in the sense of section 1 shall be all facts connected directly or indirectly
with the operational and entrepreneurial transactions which are known to a limited
circle of persons only and of which the maintenance of secrecy, if seen from a
reasonable economic point of view, is assumingly desired by the entrepreneur and
cannot be denied as being in the interest of the enterprise.

3. In case a member of the Supervisory Board intends to give any information to third
parties and it is doubtful whether such information is subject to secrecy, s/he shall
inform the Chairman of the Supervisory Board in advance, thereby stating the person
to whom s/he intends to give such information. Before such information is passed on,
the Supervisory Board shall have the opportunity to comment on whether or not the
passing on of such information is compatible with sections 1 and 2. The statement
shall be expressed by the Chairman.

Compensation of the Supervisory Board

1. Starting with the financial year 2008, each member of the Supervisory Board shall
receive a fixed annual compensation of EUR 40,000, payable at the end of each
financial year.

2. The compensation shall amount to three times the amount mentioned under section
1 above for the Chairman and twice the amount for each of his deputies.

3. Each member of a committee with exception of the committee formed pursuant to §

27 section 3 MitbestG, the Steering Committee, the Nomination Committee and the
Audit Committee shall receive a bonus amounting to 50% of the compensation
pursuant to section 1 above, the committee chairman shall receive a bonus amounting
to 100% of the same. Each member of the Audit Committee shall receive a bonus
amounting to 100% of the compensation pursuant to section 1 above; the Chairman of
the Audit Committee shall receive a bonus amounting to 150% of the same.

4. The compensation paid for a committee chairmanship shall also cover the
membership in such committee. If a member of the Supervisory Board is a member of
several Supervisory Board committees, s/he shall be compensated only for the tasks
performed in the committee with the highest payable bonus.

51
5. There is no additional compensation for membership in committees established ad
hoc.

6. Supervisory Board members which have been members of the Supervisory Board
or a Supervisory Board committee only during part of the financial year shall receive
a pro-rata amount of compensation in accordance with the duration of their
membership.

7. Moreover, the Supervisory Board members shall receive compensation for any
expenses incurred as well any VAT thereon.

Place and Convocation of the General Meeting

1. General Meetings shall be held at the registered office of the Company or in a city
within a distance of not more than 100 kilometres from the registered office or in any
other German city where a stock exchange is located.

2. The General Meeting shall be called by the Executive Board with at least thirty
days’ notice before the final registration date (§ 20 section 1). The legal right of other
persons to call the General Meeting shall remain unaffected.

3. The Annual General Meeting shall be convened within the first eight months of
each financial year. Extraordinary General Meetings may be convened as often as it is
deemed necessary for the interest of the Company.

4. The Company may allow the participation in the General Meeting by means of
electronic telecommunication as far as legally admissible.

Participation in the General Meeting

1. Shareholders wishing to participate in general meetings and exercise their voting

rights must register for the General Meeting and provide proof of their authorisation.
The registration and proof of authorisation must reach the Company at the address
specified in the invitation not later than the seventh day before the general meeting
(registration date).

2. The registration shall be made in text form and must be submitted in English or
German.

3. A separate record of the share ownership issued in text form in English or German
by the depository is necessary as proof of authorisation. Such record must refer to the
record date specified in AktG regulations.
If the correctness or authenticity of the proof of authorisation is in doubt, the
Company shall be entitled to demand further suitable evidence. If this is not submitted
at all or not in a suitable form, the Company may reject the shareholder.

4. The invitation to the General Meeting may provide for the participation in the
General Meeting, its transmission as well as the participation in votes or the exercise
of other participation rights of the shareholders by electronic or other means of
telecommunication as far as legally admissible.

52
Voting Right

1. Each share grants one vote.

2. Shareholders can act by proxy at the General Meeting. Statutory provisions are
applicable for issuing the power of representation. Insofar as the law does not
compulsorily require a stricter form, text form is sufficient; § 135 AktG remains
unaffected. If the Company appoints proxies, it is sufficient if the power of
representation is received by the last day prior to the General Meeting in writing, by
facsimile, by email or another text form at the address indicated in the invitation to the
General Meeting or that the power of representation is granted electronically by the
end of the general debate via the website indicated in the invitation to the General
Meeting, subject to technical availability, if the law does not stipulate a stricter form.

3. Resolutions of the General Meeting require a simple majority of the votes

submitted unless the Articles of Association or mandatory AktG provisions provide
otherwise. If, in addition thereto, AktG regulations prescribe for the passing of
resolutions a majority of the nominal capital represented when resolutions are passed,
then the simple majority of the represented nominal capital shall be sufficient to the
extent permitted by law. In case of a draw a motion shall be deemed dismissed.

Chairman of the General Meeting, Chairing the General Meeting

1. The General Meeting shall be presided over by the Chairman of the Supervisory
Board or one of the members of the Supervisory Board representing the shareholders,
who shall be appointed for this purpose by the Supervisory Board prior to the meeting
for one or several meetings.

2. The Chairperson presides over the meeting. S/he determines in particular the
sequence of the subject-matters to be discussed as well as the votes and the kind of the
vote. Furthermore, the Chairperson determines the sequence of the speakers. S/he can
limit the shareholder’s right to speak to an appropriate time limit. At the beginning of
the General Meeting or during its course, s/he is in particular authorised to set an
appropriate time frame for the entire course of the General Meeting, for individual
agenda items and for individual questions or statements.

Management Report and Annual Financial Statements, Discharge of

the Executive Board and the Supervisory Board

1. Within the first three months of each financial year, the Executive Board shall draw
up the management report and the annual financial statements for the preceding
financial year and submit those documents to the auditors. These documents shall be
presented to the Supervisory Board immediately after receipt of the report on the audit
of the financial statements together with this report and the proposal for the resolution
of the General Meeting on the appropriation of the retained earnings.

2. The annual financial statements, the management report, the report of the
Supervisory Board and the Executive Board's proposal for the resolution of the
General Meeting on the appropriation of the retained earnings shall be made available

53
for inspection by the shareholders on the premises of the Company as soon as the
General Meeting has been convened.

3. Within the first eight months of every financial year, after having received the
report to be made by the Supervisory Board in accordance with § 171 section 2 AktG,
the General Meeting shall resolve on the ratification of the actions of the Executive
Board and the Supervisory Board, on the appropriation of the retained earnings, on
the appointment of the auditor and on the determination of the annual financial
statements in the cases established by law.

5. Upon expiration of a financial year, the Executive Board may distribute to the
shareholders an interim dividend, subject to Supervisory Board approval and in
accordance with § 59 AktG.

Capital Surplus

1. When determining the annual financial statements, the Executive Board and the
Supervisory Board may decide to allocate up to 50% of the retained earnings to other
capital reserves. In addition thereto, they shall be entitled to allocate further amounts
up to 50% to other capital reserves, provided that the other capital reserves do not and
will not exceed half of the nominal capital before and after allocation of such surplus
to other capital reserves.

2. When computing the amounts to be allocated to other capital reserves pursuant to

section 1, any allocations to the legal reserves and any losses carried forward shall in
advance be deducted from the annual net income for the year.

Supervisory Board
The Supervisory Board of adidas AG - in accordance with the German Co-
Determination Act (Mitbestimmungsgesetz - MitBestG) is composed of twelve
members, of which six members are elected by the Annual General Meeting and six
members are elected by the employees.

Members of the Supervisory Board

Igor Landau (Chairman)

 Former Chief Executive Officer of Aventis S.A., Paris, France

 Member of the Supervisory Board, Allianz SE, Munich,
Germany
 Member of the Board of Directors, Sanofi-Aventis S.A., Paris,
France
 Member of the Board of Directors, HSBC France S.A., Paris,
France

54
Sabine Bauer* (Deputy Chairwoman)

 Senior Manager Quality Analysis & Reporting Global

Operations, adidas AG

Willi Schwerdtle (Deputy Chairman)

 General Manager, Procter &

Gamble GmbH, Schwalbach
am Taunus, Germany

Dieter Hauenstein*

 Chairman of the Works Council

Herzogenaurach, adidas AG

Dr. Wolfgang Jäger*

 Managing Director, Hans-

Böckler-Stiftung, Düsseldorf,
Germany

Dr. Stefan Jentzsch

 Partner, Perella Weinberg Partners UK LLP, London, United

Kingdom (since July 1, 2009)
 Member of the Supervisory Board, Sky Deutschland AG,
Unterföhring, Germany

Herbert Kauffmann

 Management Consultant, Stuttgart, Germany

(since July 1, 2009)

Roland Nosko*

 Trade Union Official, IG BCE Trade Union,

Headquarters Nuremberg, Nuremberg,
Germany
 Member of the Supervisory Board, CeramTec AG, Plochingen,
Germany

55
Alexander Popov

 Chairman, RFSO "Lokomotiv", Moscow, Russia

Hans Ruprecht*

 Sales Director Customer

Service, Area Central, adidas AG

Heidi Thaler-Veh*

 Member of the Central Works Council, adidas AG

Christian Tourres

 Former Member of the Executive Board of adidas AG

 Member of the Board of Directors, Beleta Worldwide Ltd.,
Guernsey, Channel Islands

Committees of the Supervisory Board

The following standing committees have been established by the Supervisory Board:

Steering Committee

- Igor Landau (Chairman)

- Sabine Bauer
- Willi Schwerdtle

General Committee

- Igor Landau (Chairman)

- Sabine Bauer
- Roland Nosko
- Willi Schwerdtle

56
Audit Committee

- Herbert Kauffmann (Chairman)

- Dr. Wolfgang Jäger
- Dr. Stefan Jentzsch
- Hans Ruprecht

Mediation Committee pursuant to 27 section 3 Co-Determination Act

(MitbestG)

- Igor Landau
- Sabine Bauer
- Willi Schwerdtle
- Heidi Thaler-Veh

Nomination Committee

- Igor Landau (Chairman)

- Willi Schwerdtle
- Christian Tourres

Executive Board
Our Executive Board is composed of four members who reflect the diversity and
internationality of the Group. Each member is responsible for a major business area
within the Group.

Herbert Hainer – CEO

 since 03/1997 : adidas AG

Member of the Executive Board
 01/2000 - 03/2001 : adidas AG*
Deputy Chairman of the Executive Board
 since 03/2001 : adidas AG*
 Chief Executive Officer
 adidas-Salomon AG from 12/1997 until 05/2006

Glenn Bennett

• since 03/1997 : adidas AG*

Member of the Executive Board,
responsible for Global Operations
• adidas-Salomon AG from 12/1997 until 05/2006

57
Robin J. Stalker

• since 02/2001 : adidas AG**

Member of the Executive Board,
responsible for Finance
o now Ernst & Young
o ** adidas-Salomon AG from 12/1997 until 05/2006

Erich Stamminger

• 2006 – 2009 : adidas AG*

President and CEO of the adidas Brand
Member of the Executive Board of adidas AG

• since 01/2010 : adidas AG*

Member of the Executive Board
• Responsible for Global Brands

Financial information Financial data in millions of euros[27]

Year 2002 2003 2004 2005 2006
The company revenue for 2008 was
listed at €10.799 billion and the 2007 Sales 6.523 6.266 6.478 6.636 10.084
figure was listed at €10.299 billion, or EBITDA 532 627 725 818 1 098
about US$15.6 billion.
Net results 208 260 314 382 483
Net debt 1498 946 594 551 2231
Branches & Locations
Activities of the company and its more than 170 subsidiaries are directed from the
Group's headquarters in Herzogenaurach, Germany. It is also home to the adidas
brand. Reebok Headquarters are located in Canton, Massachusetts. TaylorMade-
adidas Golf is based in California. The company also operates creation centres and
development departments at other locations around the world, corresponding to the
related business activity.

adidas Sourcing Ltd., a fully-owned subsidiary headquartered in Hong Kong, is

responsible for worldwide sourcing.

Effective December 31, 2008, the adidas Group employed 38,982 people.

The adidas Group is a global player which is represented in markets all over the
world.

To find out more about our major locations, see the following list:

58
All Main Locations
• adidas Group Headquarters – Herzogenaurach, Germany
• adidas International Marketing – Amsterdam, The Netherlands
• Reebok Europe – Amsterdam, The Netherlands
• adidas North America
• adidas America, Inc. - Portland, OR, USA
• Reebok North America
• Reebok International Limited - Canton, MA, USA
• TaylorMade-adidas Golf - Carlsbad, CA, USA
• adidas Sourcing Limited - Taikoo Shing, Island East, Hong Kong
• adidas Latin America, S.A.

Panamá, Republic of Panamá

59
Sustainability

Contributor:
Wajiha Khan

60
61
First of all, what is a Sustainable Corporation’?

The concept of sustainability is a contentious one, to say the least. Debates have been
raging in various circles (e.g. academia, business, government, the UN, etc.) for a
number of years over exactly how to define sustainability, and more importantly over
what it should look like in practice. We do not have the pretence to know how to
resolve this dispute, let alone be able to produce an authoritative blue-print for
‘sustainable behavior’. What we do know is that social, environmental and
governance factors are increasingly relevant to financial performance, and that
companies which show superior management of these issues are fast gaining an edge
over their competitors – an edge which we believe will translate into outperformance
in the long haul. Therefore, companies are sustainable in the sense that they have
displayed a better ability than most of their industry peers to identify and effectively
manage material environmental, social and governance factors impacting the
opportunity and risk sides of their business.

Sustainability and corporate responsibility set the foundation for who we are and
what we do.

Overview
For more than 80 years, the adidas Group has been part of the world of sports on
every level, delivering state-of-the-art sports footwear, apparel and accessories.
Today, the adidas Group is a global leader in the sporting goods industry and offers a
broad portfolio of products which are available in virtually every country of the
world. Its strategy is simple: continuously strengthen its brands and products to
improve its competitive position and financial performance.

adidas has offices in more than 55 countries and 50 nationalities represented amongst
its staff at the Group’s Headquarters in Herzogenaurach, Germany. It has more than
150 subsidiaries and source products from a multi-tiered external supply chain in
more than 60 countries. Its brands are visible all over the world and sponsor global
sports events such as the Olympic Games.

So as a truly global business in the sporting goods industry, the adidas Group is
continually confronted with a variety of challenges that arise from our commitment to
striking the balance between shareholder interests and the needs and concerns of our
employees, the workers in our supply chain and the environment, or in short in our
aim to become a sustainable company.

Challenges and Responses

adidas aims to be the best sports company in the world and that means meeting the
challenges it faces head on and finding the appropriate responses to them. adidas'
challenges are:

 Being a global business

 Being competitive

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 Managing an external supply chain
 Building credibility and trust
 Managing change
 Being environmentally responsible
 Developing our people
 Supporting local communities

Vision and Governance

adidas' vision is clear: to enhance social and environmental performance in the
company and the supply chain, thereby improving the lives of the people making its
products.

adidas is striving to be the global leader in the sporting goods industry and this
demands that it return strong financial results. But leadership is not only about results,
it is also about how success is achieved. adidas is accountable for the way it does
business. In particular, it accepts responsibility for the way its products are
manufactured by its suppliers. By adidas' actions it can – and should – improve the
lives of workers who make its products.

adidas is committed to good governance, and uses its sustainability statement and its
corporate missions on Social and Environmental Affairs, Human Resources and
Community Affairs to achieve its vision.

Sustainability Statement
PERFORMANCE • PASSION • INTEGRITY • DIVERSITY

These are the adidas Group values.

They help adidas create brands that its customers believe in and they commit adidas to
playing by the rules that society expects of a responsible company.

Unlike sport, society's rules are not always written down. adidas discovers them by
engaging with the people that the business touches, learning above all that companies
are expected to be accountable for their actions. So adidas is committed to reporting
publicly on the steps it takes to have a more positive impact on society and the planet.

For the adidas Group, this means designing products that are environmentally sound,
and reducing the environmental impacts of our day-to-day operations and in its supply
chain.

It is about setting workplace standards for its suppliers to meet and helping them to
ensure fair, safe and healthy conditions in their factories.

Importantly, it also means looking after the wellbeing and careers of its employees -
the company's biggest asset - and making a positive contribution to the communities
where adidas operates.

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Adhering to all applicable laws, directives and guidelines is a business imperative.
But that is not enough. adidas continuously strives to improve its performance and its
standing in society. It sets itself targets that stretch it, regularly reviews its progress
and sets itself new goals. That is what the world's leading athletes do, and it is what
adidas must do as a global leader in the sporting goods industry.

Corporate Missions
Social and Environmental Affairs

adidas' vision is clear: to enhance social and environmental performance in the supply
chain, thereby improving the lives of the people making its products.

And its approach is simple: to increase accountability and transparency and make
suppliers’ compliance process self-governing.

Human Resources

The success of the Group is a direct result of the commitment and talents of people
who work for it. adidas is seeking to build the leading global team in the industry. Its
mission is to create the best and most productive workplace in the world by:

• Creating a working environment that stimulates team spirit and passion,

engagement and achievement
• Instilling a performance culture, based upon strong leadership, setting the ground
for winners
• Fostering an understanding of social and environmental responsibility for the
world in which we live; for the rights of all individuals and for the laws and customs
of the countries in which we operate
• Providing a secure working environment.

Community Affairs

It is our responsibility as a member of each community to act as a true corporate

citizen and we are committed to doing this through a range of programmes and
activities including corporate giving, volunteer work and community relations
programmes.

Social and Environmental Affairs Team

The Social and Environmental Affairs (SEA) Team is tasked with ensuring
compliance with adidas' Workplace Standards within the supply chain and manages
the Group’s environmental and community affairs programme.

It consists of a diverse group of 63 individuals – engineers, lawyers, HR managers

and former members of non-governmental organizations (NGOs) and is organized
into three regional teams covering Asia, the Americas and Europe, Middle East and
Africa (EMEA).

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adidas' Stakeholders
adidas' stakeholders are a diverse group and include the following:

 Employees of the adidas Group

 Authorizers - government, trade associations, shareholders, Board of Directors
 Business partners - unions, suppliers, service providers
 Workers in adidas' suppliers' factories
 Opinion-formers - journalists, community members, special interest groups
 Customers - professional sports people, distributors, retailers, consumers

Partnerships and Ways We Engage

adidas has always worked closely with its business stakeholders – including
customers, suppliers, shareholders and our own staff – in order to build trusting
relationships. Increasingly, adidas is working in partnerships with social enterprises
and NGOs so that together they can improve the way they conduct their business.
Following are listed adidas' noteworthy partnerships in three areas:

Corporate responsibility

• World Federation of the Sporting Goods Industry (WFGSI)

• World Business Council for Sustainable Development (WCSBD)

Supply chain conditions

• Fair Labor Association (FLA)

• Fair Factories Clearinghouse (FFC)
• Round Table on Codes of Conduct, Germany

65
Environment

• AFIRM Working Group

• Better Cotton Initiative (BCI)

In addition to formal partnerships, adidas engages with its stakeholders in a number of

other ways:

• Formal stakeholder consultation meetings (called ‘stakeholder dialogues’) with

workers, union representatives, NGOs, suppliers and others.
• Meetings with socially responsible investment (SRI) analysts
• With its employees through internal reporting and induction programmes
• Responding to enquiries from consumers and the media
• Collaborating with other brands in joint initiatives
• Outreach to graduates and the academic community.

adidas’ Workplace Standards

PERFORMANCE. PASSION. INTEGRITY. DIVERSITY. These are the core values
found in sport. Sport is the soul of the adidas Group. adidas' measures itself by these
values, and it measures its business partners in the same way.

Consistent with these values, adidas expects its partners – contractors, subcontractors,
suppliers, and others – to conduct themselves with the utmost fairness, honesty and
responsibility in all aspects of their business.

The adidas Group Workplace Standards are used as a tool to assist adidas in selecting
and retaining business partners who follow business practices consistent with its
policies and values. As a set of guiding principles, the Workplace Standards also help
identify potential problems so that adidas can work with its business partners to
address issues of concern as they arise. Business partners will develop and implement
action plans for continuous improvement in factory working conditions. Progress
against these plans will be monitored by the business partners themselves, adidas'
internal monitoring team and external independent monitors.

Specifically, adidas expects its business partners to operate work places where the
following standards and practices are implemented:

General Principle

Business partners must comply fully with all legal requirements relevant to the
conduct of their businesses.

Employment Standards

Forced Labor

Business partners must not use forced labor, whether in the form of prison labor,
indentured labor, bonded labor or otherwise. No employee may be compelled to work

66
through force or intimidation of any form, or as a means of political coercion or as
punishment for holding or expressing political views.

Child Labor

Business partners must not employ children who are less than 15 years old, or less
than the age for completing compulsory education in the country of manufacture
where such age is higher than 15.

Discrimination

Business partners must not discriminate in recruitment and employment practices.

Decisions about hiring, salary, benefits, training opportunities, work assignments,
advancement, discipline and termination must be based solely on ability to perform
the job, rather than on the basis of personal characteristics or beliefs, such as race,
national origin, gender, religion, age, disability, marital status, parental status,
association membership, sexual orientation or political opinion. Additionally,
business partners must implement effective measures to protect migrant employees
against any form of discrimination and to provide appropriate support services that
reflect their special status.

Wages & Benefits

Wages must equal or exceed the minimum wage required by law or the prevailing
industry wage, whichever is higher, and legally mandated benefits must be provided.
In addition to compensation for regular working hours, employees must be
compensated for overtime hours at the rate legally required in the country of
manufacture or, in those countries where such laws do not exist, at a rate exceeding
the regular hourly compensation rate.

Working Hours

Employees must not be required, except in extraordinary circumstances, to work more

than 60 hours per week including overtime or the local legal requirement, whichever
is less. Employees must be allowed at least 24 consecutive hours rest within every
seven-day period, and must receive paid annual leave.

Freedom of Association & Collective Bargaining

Business partners must recognize and respect the right of employees to join and
organize associations of their own choosing and to bargain collectively. Business
partners must develop and fully implement mechanisms for resolving industrial
disputes, including employee grievances, and ensure effective communication with
employees and their representatives.

Disciplinary Practices

Employees must be treated with respect and dignity. No employee may be subjected
to any physical, sexual, psychological or verbal harassment or abuse or to fines or

67
penalties as a disciplinary measure. Business partners must publicize and enforce a
non-retaliation policy that permits factory employees to express their concerns about
workplace conditions directly to factory management or to us without fear of
retribution or losing their jobs.

Health and Safety

A safe and hygienic working environment must be provided, and occupational health
and safety practices which prevent accidents and injury must be promoted. This
includes protection from fire, accidents and toxic substances. Lighting, heating and
ventilation systems must be adequate. Employees must have access at all times to
sanitary facilities which should be adequate and clean. Business partners must have
health and safety policies which are clearly communicated to employees. Where
residential facilities are provided to employees, the same standards apply.

Environmental Requirements

Business partners must make progressive improvement in environmental performance

in their own operations and require the same of their partners, suppliers and
subcontractors. This includes: integrating principles of sustainability into business
decisions; responsible use of natural resources; adoption of cleaner production and
pollution prevention measures; and designing and developing products, materials and
technologies according to the principles of sustainability.

How We Work With Suppliers

Over the past ten years, adidas has continuously refined its methods, tools and
techniques to promote compliance in its supply chain. The principal cornerstones of
adidas’ management approach are described below.

Standards and Guidelines

adidas has had a supplier code of conduct for more than ten years. Based on extensive
experience of applying the Standards, adidas has produced guidelines for its suppliers,
which help them to work together to find solutions to problems in the workplace.

Capacity Building and Outreach

adidas trains its suppliers so they understand the importance of establishing and
maintaining management systems and open lines of communication with those
concerned about how they operate, such as government officials, local communities
or the workers themselves.

Monitoring and Verification

adidas has a dedicated team of auditors, which monitors suppliers’ performance

against its Standards. adidas also values independent monitoring by third parties
because it helps it to improve how it works and adds credibility to its programme.

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Rating

adidas audits its suppliers against its Standards and rate them according to their
performance. It uses an innovative way to rate the supplier on its ability to deliver
fair, healthy and environmentally sound workplace conditions in an effective manner.

Sourcing Decision

Rating results are incorporated in the overall supplier rating that informs adidas’
decision of which suppliers to use.

Supporting Guidelines
The Workplace Standards are a set of rules that our suppliers must abide by, but to
illustrate how suppliers should implement adidas’ Standards, it has created a set of
guidelines for use in factory settings. These expand on its Workplace Standards,
giving detailed instructions and practical examples for implementation.

The guidelines are also used by our SEA team to:

• Determine whether a supplier is complying with adidas’ Standards

• Advise and train adidas’ suppliers in improving their performance.

adidas regularly creates new guidelines and revises existing ones. There are currently
seven guidelines and those seven are further complemented by specific supplementary
materials. The seven guidelines are:

• Guidelines on Health, Safety and Environment

• Guidelines on Employment Standards
• Guide to Best Environmental Practice
• Worker Cooperative Guidelines
• Enforcement Guidelines
• Guidelines on Sustainable Compliance
• Termination Guidelines.

Environment
As a global business operating in more than 55 countries, the adidas Group has a
responsibility to look after the natural environment, both for people today and in the
future. Environmental impacts occur in various forms at all stages of the lifecycle,
from product design to disposal.

The adidas Group adopts a systems-based approach to managing environmental

impacts in its own production facilities and in the supply chain. Production has been
largely outsourced, so the greatest environmental impacts occur at our suppliers' sites,
where more than 95% of adidas Group products are manufactured. Using the
environmental performance of its own production sites as examples of best practice,
the adidas Group develops appropriate guidelines and training programmes for its
suppliers to reduce their own environmental impacts.

69
Managing Impact
Within the lifecycle of its products there are two points in the design and development
process where a significant difference to the company's environmental footprint can
be made. The first is in improving the materials that go into the products, and the
second is in tackling pollution in factories.

Improving Materials

The company’s approach is to seek to design out polluting materials and processes
and increasingly to adopt sustainable materials instead. The adidas Group has various
initiatives in place that help to achieve its goal of improving materials.

These include avoiding raw materials from any endangered or threatened species,
eliminating PVC and seeking ways to include more recycled materials in its products.

Tackling Pollution

adidas has limited control over the direct environmental impacts of the manufacturing
process and how its suppliers act. The best way it can influence the environmental
impacts at its suppliers’ factories is to encourage the introduction of environmental
management systems. And it has made implementing an environmental management
system mandatory for all its core suppliers.

Restricted Substances Standards

The Group has a strict policy on controlling restricted substances, which are those that
cause harm, or are suspected to cause harm, to human health or the environment.
adidas’ policy is that suppliers must avoid using restricted substances to ensure that its
products are environmentally safe. adidas’ standards and policies on restricted
substances are the ‘A-01 Requirements’.

Employees
The company’s people are crucial to its success. Achieving its goal to be the global
leader in the sporting goods industry depends on the talents, enthusiasm and
engagement of adidas’ employees.

adidas aims to develop staff with opportunities for career progression, while striving
to create a climate that celebrates diversity. The way it rewards its staff has to be fair
and related to its, and their, achievements. Employees have a responsibility to adhere
to the Employee Code of Conduct; and as an employer adidas has the responsibility to
ensure their health and safety. And it looks after its employees by promoting global
mobility, helping staff achieve a healthy work-life balance, and offering access to a
wide range of company sports activities.

adidas’ people are critical to its continuing commercial success. With more than
38,000 employees working at more than 150 locations around the world, adidas needs

70
HR strategies that can be implemented globally. The first step is to identify the
common challenges it faces wherever it operates:

• Talent management: identifying, recruiting and retaining the best people and
developing career opportunities for them that meet company needs
• Employee-oriented leadership: strengthening the alignment of management and
employees by improving communication and enhancing employee feedback
systems
• Performance management: instilling a result-driven management culture that
supports two-way performance feedback for continuous learning and
improvement
• Motivation: providing reward and incentive schemes in a working environment
that promotes commitment, engagement and well-being
• Communication: increased transparency and efficiency in all our
communications.

Rising to these challenges can enhance the adidas Group's business success.

Performance Data
Reliable performance data is important. It allows adidas to review its progress and
plan its next steps. By publishing that data adidas invites its stakeholders to form their
own view about its performance.

The data included here covers its suppliers (e.g. size of supply chain or number of
audits and trainings), the environmental performance (e.g. water and energy
consumption at its own sites or VOC levels in athletic footwear factories) as well as
key statistics about its employees and community involvement.

Corporate Responsibility Strategy

As a leading company within the international sporting goods market, the adidas
Group is exposed to various business challenges and interests of stakeholders.
Aligning those interests requires strong commitment, strategic direction, efficient and
careful execution, and regular reflection of the achievements made.

Corporate responsibility (CR) has become a widely accepted concept in striking the
balance between business needs and societal and environmental demands. This is
what it is to be a ‘sustainable business’.

There is no ‘one size fits all’ solution to achieve this stage. Every company –
depending on the nature of its business – needs to develop its own approach for
responding to changes in the economy, society and the environment. So it is for the
adidas Group too.

adidas’ commitment in managing its business in a responsible way is rooted in the

Group’s values and principles. Its understanding of becoming a sustainable company
is outlined in the adidas Group Sustainability Statement.

71
That is what the world’s leading athletes do, and it is what adidas must do as a global
leader in the sporting goods industry.

Environmental Sustainability

To manage and further reduce the

environmental footprint of adidas’
business operations, the
environmental strategy has defined
core subjects which are products,
production and own sites.

Products

Improving the environmental impact

of adidas’ products requires tackling
the root cause. The major part of
environmental footprints of its
products is predetermined through
decisions made in the product
creation, design and development
stage. adidas’ goal is to further drive
and extend research, product
innovation and development to ensure
that it has made the right choice. By
this it means that adidas has created
and launched products that are
environmentally sustainable and high
performance.

Production

95% of direct environmental impacts are caused during the production of adidas’
products. Manufacturing operations are almost entirely managed by its external
supply chain. While it does not have direct accountability for and control over its
suppliers’ operations, adidas has a shared responsibility in supporting them to reduce
environmental pollution and resource use.

adidas’ long-term goal is to be a partner for change with its suppliers in improving
their manufacturing conditions.

adidas is looking for effective mechanisms that make environmental aspects an

embedded part of their management. It strives to achieve this by supporting suppliers
in awareness raising, capacity building programmes and in developing partnerships
with brand and scientific organizations that help them manage change.

72
Own sites

adidas has direct accountability for minimizing the environmental impact resulting
from its own sites and offices.

Supply Chain Management

Workers in adidas’ suppliers’ factories play a central role in its programme. It was
concern for their welfare and working conditions that led adidas to write its
Workplace Standards and to establish a compliance management system covering all
brands of the adidas Group.

Its supply chain is large, multi-tiered and varied. It has a detailed approach to
managing relationships with its suppliers and it continues to develop approaches for
engaging suppliers who are part of adidas’ direct and indirect supply chain.

Four primary areas are a critical part of our supply chain strategy:

• Our internal direct relationships with suppliers, which are managed by the adidas
Group sourcing organization. It accounts for around 75% of our sourcing business in
terms of sourced units
• Our external indirect sourcing relationships we hold with agents and licensees
• Management of those adidas Group entities which manage their own sourcing
arrangements
• Our immediate and mid-term efforts to support suppliers impacted by the global
financial crisis.

Below are summarized the goals for each of these work areas.

Direct Sourcing

For adidas’ direct sourcing relationships with suppliers it is looking for them to
achieve self-governance, to internalize and manage their social compliance and fulfill
the Workplace Standards. adidas expects them to achieve this through a committed
leadership team, who are driving change through qualified, capable managers and
effective management systems. We measure this through our Key Performance
Indicator (KPI).

Indirect Sourcing

For adidas’ indirect sourcing relationships it is looking to ensure that it is partnering

with agents and licensees and developing supporting resources through external and
independent monitors.

Business Entity Relationships

For those business entities, which manage their own sourcing arrangements outside
the adidas Group sourcing organization, adidas will further strengthen communication
and understanding of Group-wide systems, policies and procedures. Ultimately, the

73
accountability for the supply chain rests in their hands, but adidas needs to partner
with them to drive change, to reduce risk and to safeguard rights.

Impact of the Global Economic Crisis

With the prospect of a global recession, adidas is focused on transparently managing

two issues that may directly impact its supply chain:

• The sharp downturn in global consumption and the effect this may have on the
financial stability of its suppliers and long-term business continuity

• The future job security of workers who make adidas’ products

Stake Holder Engagement

adidas has to look inside and outside the Group if it is to effectively manage risks and
partner for change and accountability.

To drive improvement in the social and environmental performance of the adidas

Group as a business and adidas’ global supply chain it will partner for change,
accountability and transparency with external stakeholders. These stakeholders
include governments, civil society and investors. To address systematic or chronic
non-compliance, it will work with regulatory agencies and multi-stakeholder
organizations such as the Fair Labor Association (FLA) or partner with other industry
players.

Our Employees

adidas knows that its people are crucial to its success.

Becoming the global leader in the sporting goods industry depends on the
performance, potential, enthusiasm and dedication of its employees. adidas strives to
create a working environment that promotes team spirit, passion, engagement and
achievement. adidas promotes a performance culture based on strong leadership and
therefore link employee compensation to Group and individual achievements. It aims
to continuously develop its employees with opportunities for career progression,
while upholding a culture that celebrates diversity and encourages global mobility.
This is now doubly important given the challenges we are all facing in these tough
economic conditions.

adidas also knows how important it is to continue to attract and recruit new talents to
the adidas Group. In this so-called ‘war for talent’ it is important that it becomes a
world-class recruiter and this ambition has led it to launch innovative programmes to
raise its profile with potential employees.

adidas aims to create a stimulating and attractive work environment as it strives to be

a Top 10 employer of choice in the key markets in which it operates.

74
Invester Relations

Contributor:
Uzma Naseer

75
Here you will find all info about the Group's key figures, the share, strategy and
financial events.

Reasons to invest
adidas Group is one of the leaders in the sporting goods industry

• Clear market positioning: Performance-oriented brands target distinct consumer

segments
• Innovation leadership and cutting-edge design sustain ongoing brand momentum
• Strong medium-term sales and profitability outlook due to expanding leading
market positions around the world, exceptional growth potential in emerging
markets and own-retail opportunities
• Strong commitment to maximizing free cash flow by strict working capital
management and financial leverage optimization
• Clear shareholder value orientation

Basic Data
The adidas AG share is listed on the "Deutsche Börse" stock exchange in Frankfurt.
The stock is part of the DAX-30 index, which includes only the largest German
companies listed.

For your information, the DAX (Deutscher Aktien IndeX, formerly Deutscher Aktien-
Index) – translates to German stock index - is a blue chip stock market index
consisting of the 30 major German companies trading on the Frankfurt Stock
Exchange.

76
Share Price

Shareholder Structure

Based on the amount of invitations to adidas’ AGM (Assistant general manager) in

May 2008, it is estimated that adidas AG currently has around 70,000 shareholders. In
their latest ownership analysis conducted in December 2008, 72% of its shares were
identified as outstanding. Shareholdings in the North American market account for
30% of adidas’ total shares outstanding. Identified German institutional investors hold
10% of shares outstanding. The shareholdings in the rest of Europe excluding
Germany amount to 28%, while 1% of institutional shareholders were identified in
other regions of the world. adidas Group Management, which comprises current
members of the Executive and Supervisory Boards, holds 3% in total. Undisclosed
holdings, which also include private investors, account for the remaining 28%.

Corporate Governance
adidas AG is an international corporation with shareholders, customers, suppliers,
employees and Executive and Supervisory Board members from all over the world. In
light of this fact, adidas welcomes the German Corporate Governance Code and the
aim pursued thereby to achieve greater transparency for both national and
international investors and to strengthen confidence in the management of German
corporations.

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Risk and Opportunity Report
The adidas Group continuously explores and
develops opportunities to sustain and maximize
earnings and also to drive long-term increases in
shareholder value. In doing so, it acknowledges
that it is necessary to take certain risks to
maximize business opportunities. adidas’ risk
and opportunity management principles provide
the framework for its Group to conduct business
in a well-controlled environment.

Risk and Opportunity Management

Principles

The adidas Group is regularly confronted with

risks and opportunities which have the potential
to negatively or positively impact the Group’s
asset value, earnings, cash flow strength, or
intangible values such as brand image. The most
important of these risks and opportunities fall in
three main categories: External and Industry,
Strategic and Operational, and Financial.

adidas’ defines risk as the potential occurrence

of external or internal events that may
negatively impact its ability to achieve short-
term goals or long-term strategies. Risks also
include lost or poorly utilized opportunities.

Opportunities are broadly defined as internal

and external strategic and operational
developments that have the potential to
positively impact the Group if properly
exploited.

Risk and Opportunity Management

System

To facilitate effective management, adidas has

implemented an integrated management system
which focuses on the identification, assessment,
treatment, controlling and reporting of risks and opportunities. The key objective of
this system is to protect and further grow shareholder value through an opportunity-
focused, but risk-aware decision-making framework.

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 The main components of adidas’ risk
and opportunity management process
are:

Risk and opportunity

identification:

The adidas Group continuously

monitors the macroeconomic
environment, developments in the
sporting goods industry, as well as
internal processes to identify risks and
opportunities as early as possible. In
addition to the potential financial
impacts from changes in the overall
macroeconomic, political and social
landscape, each business unit actively
monitors brand, distribution channel
and price point developments in
adidas’ core sport, leisure lifestyle and
sport fusion markets. A key element of
the identification process is primary
qualitative and quantitative research
such as trend scouting, consumer sur-
veys and feedback from our business
partners and controlled space network.
Through this process, adidas seeks to identify the markets, categories, consumer target
groups, and product styles which show most potential for future growth at a local,
regional and global level. Equally, adidas’ analysis focuses on those areas that are at
risk of saturation, increased competition or changing consumer tastes.

Risk and opportunity assessment:

Identified risks and opportunities are assessed with respect to (1) occurrence
probability, and (2) potential contribution to loss or profit, with contribution being
defined as operating profit before intra-Group royalties. The occurrence probability of
individual risks and opportunities is evaluated on a scale of 0 to 100% likelihood. As
risks and opportunities have different characteristics, adidas has defined separate
methodologies for assessing the potential financial impact. In assessing the potential
contribution from opportunities, each opportunity is appraised with respect to
viability, commerciality, potential risks and the expected profit contribution. This
approach is applied to longer-term strategic prospects but also to shorter-term tactical
and opportunistic initiatives at both the Group and, more extensively, the brand level.

Risk and opportunity treatment:

Risks and opportunities are treated in accordance with the Group’s risk and
opportunity management principles. Line management in cooperation with central
risk management and, in exceptional cases, the Executive Board and /or Supervisory

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Board, decides which individual risks adidas accepts or avoids and the opportunities
to pursue or forgo. As part of this process, it also decides on which risk-compensating
or transfer measures will be implemented. Similarly, to maximize opportunities, it
may be necessary to reduce or limit distribution to protect prices and margins or
prolong product lifecycles. In some cases, it also seeks to transfer the responsibility or
execution for certain risks and opportunities to third parties (e.g. insurance,
outsourcing, distribution agreements or brand sub-licensing).

Risk and opportunity monitoring and controlling:

A primary objective of adidas’ integrated risk and opportunity management system is

to increase the transparency of Group risks and opportunities. In addition, it also seeks
to measure the success of its risk-compensating initiatives. The Group centrally
monitors each of these efforts on a frequent basis. In particular, central risk
management regularly examines the results of actions taken by operational
management to accept, avoid, reduce or transfer risks over time. With respect to
opportunities, it regularly monitors the objectives and key performance indicators
established during the initial identification and evaluation process. This not only
facilitates the validation of opportunities but also allows the company to adapt and
refine its products, communication and distribution strategy to ongoing developments
in its rapidly changing marketplace. In particular, adidas collaborates with its
manufacturing partners and retail customers to evaluate the impact of its growth and
efficiency initiatives. Feedback is relayed in a timely manner to product, marketing
and controlling functions.

Risk and opportunity aggregation and reporting:

Central risk management aggregates Group-wide risks and reports them to the
Executive Board on a regular basis. Individual risks are aggregated based on the sum
of all assessed risks (sum of occurrence likelihood × potential net loss), taking
correlations between individual risks into account. Risks with a likely impact of at
least € 1 million on the forecasted full year contribution are reported to central risk
management on a monthly basis. In addition, risks with a likely financial impact of €
5 million or more are required to be reported immediately upon identification to
central risk management. Opportunities are aggregated separately as part of the
strategic business planning, budgeting and forecasting processes. The realization of
risks and opportunities can have a critical impact on our ability to achieve adidas’
strategic objectives. Therefore, Management is updated in regular business reviews,
but also through ad hoc discussions as appropriate.

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