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ANNUAL REPORT 2006
SETTING THE PACE
»»»

Table of contents

  • Page 1
    ANNUAL REPORT 2006 »»» SETTING THE PACE

  • Page 2
    ... sales Operating margin Effective tax rate Net income attributable to shareholders 3) as a percentage of net sales Operating working capital as a percentage of net sales4) Equity ratio Financial leverage 229 260 314 383 483 Balance Sheet and Cash Flow Data (â,¬ in millions) Total assets Inventories...

  • Page 3
    ...apparel and accessories. It is market leader in the metalwoods category. TaylorMade-adidas Golf markets products under the brand names TaylorMade, adidas Golf and Maxï¬,i. adidas â,¬ in millions 2006 Sales Gross profit Gross margin Operating profit Operating margin Employees 6,626 3,059 46.2% 788...

  • Page 4
    ... sales growth (high-single-digit growth for the Group excl. Reebok) Bring major new concepts, technology evolutions and revolutions to market » » Group sales reach â,¬ 10.1 billion; currency-neutral growth of 53% (14% excluding Reebok) Major 2006 product launches: › adidas: +F50 TUNIT football...

  • Page 5
    ... TRUST YOUR STRENGTHS. YOUR STRATEGY. AND YOUR PERFORMANCE. YOU SET NEW STANDARDS. BECAUSE YOU KNOW YOU CAN. As an athlete. As a company. As the adidas Group. We have written sports history. And we keep on writing it. With passion. Enjoying challenges. Seeking new markets. Thinking outside the box...

  • Page 6
    ...SPORT HAS BEEN A GREAT LEARNING PLACE. IF YOU WANT TO ACHIEVE ...YOU CAN. Haile Gebrselassie. A living legend. A hero for a whole generation of runners. With irresistible finishing power. Four times World Champion and two times Olympic Champion in the 10,000 meters. Still pushing towards new goals...

  • Page 7
    » » » HAILE GEBRSELASSIE MID- AND LONG-DISTANCE RUNNER FASTEST MARATHON TIMES IN THE WORLD IN 2005 AND 2006

  • Page 8
    » » PEYTON MANNING QUARTERBACK, AMERICAN FOOTBALL 2007 SUPER BOWL CHAMPION AND MOST VALUABLE PLAYER

  • Page 9
    » Peyton Manning. The best quarterback on the field today. Tough training. Constant improvement. Never stands still. Always seizing new opportunities. Reading the field. And then throwing the decisive pass for a touchdown. I'VE NEVER TAKEN FOR GRANTED WHAT WE'VE HAD, NOT FOR A SINGLE GAME, NOT ...

  • Page 10
    » I ALWAYS THINK UNDER PAR. YOU HAVE TO BELIEVE IN YOURSELF. Sergio Garcia. Youngest player ever to compete in the Ryder Cup. Passion drives his shots. Precision his putts. Concentration is what powers his game. Confidence is a key to his success.

  • Page 11
    » » » SERGIO GARCIA GOLFER MEMBER OF EUROPE'S WINNING RYDER CUP TEAM 2006

  • Page 12
    » KEVIN GARNETT POWER FORWARD, BASKETBALL 10-TIME NBA ALL-STAR »

  • Page 13
    » » » Kevin Garnett. Born with a ball. Extremely agile. Aggressive in defense. With an amazing affinity for the hoop. One of the most outstanding all-round players the game has ever seen. Giving all he's got. And more. I FEEL LIKE IF YOU'RE GOING TO COMMIT YOURSELF, COMMIT YOURSELF ...

  • Page 14
    » Allyson Felix. Olympic Silver. Then World Champion. And just getting started. Driven by WHEN PEOPLE STEP UP AND RUN COMPETITIVE TIMES IT BRINGS THE WHOLE LEVEL UP. ATHLETES JUST BRING GREATNESS OUT OF EACH OTHER. competition. Getting better every day. And not about to stop.

  • Page 15
    ... Governance Report Compensation Report Our Share Operational and Sporting Highlights 2006 GROUP MANAGEMENT REPORT Structure and Strategy › adidas Group › Brand Segments › Corporate Functions Group Business Performance › adidas Group › Development by Segment Risk Report Opportunities Report...

  • Page 16
    012 ANNUAL REPORT 2006 › adidas Group › Interview with the CEO

  • Page 17
    ...in putting the right people and processes in place to ensure we maximize the long-term opportunities this milestone acquisition presents. While all this was going on, adidas reigned supreme at the 2006 FIFA World Cupâ„¢ during the summer taking product, communication and execution to new levels. And...

  • Page 18
    ...core competency and we believe that with a small number of topnotch brands, we can mean more to more consumers. And in the long term, this is what market leadership is all about. Within our Group, adidas is recognized as the altruistic, premium performance brand with a strong emphasis on team sports...

  • Page 19
    ... this market. At adidas, although our backlog development is negative in footwear, we are seeing positive sell-through at the retail level, particularly in running, which leaves us confident we will grow sales again in 2007. Reebok meanwhile should benefit from new product and campaign initiatives...

  • Page 20
    016 ANNUAL REPORT 2006 › adidas Group › What about TaylorMade-adidas Golf? What are the opportunities and challenges for this business segment in 2007? Our innovative strengths in this segment have allowed us to grow and increase market share in an otherwise challenging space. 2007 will be an...

  • Page 21
    ... these markets by storm. The Reebok revitalization will gain momentum with each new season of improved product, brand communication and distribution. We will achieve our integration targets of â,¬ 500 million in revenue and â,¬ 175 million in cost synergies by 2009. The Group is moving in the right...

  • Page 22
    018 ANNUAL REPORT 2006 › adidas Group › Executive Board Our Executive Board is comprised of four members who reï¬,ect the diversity and international character of our Group. Each Board member is responsible for at least one major business unit within the Group. Herbert Hainer was born in ...

  • Page 23
    ...Managing Director for Germany and later Europe and Asia/Pacific. In 1997, he was appointed to the Executive Board. In 2000, he was appointed Head of Global Marketing. In 2004, he was named President and CEO of adidas North America, while maintaining his position as Head of Global Marketing. In 2006...

  • Page 24
    ... 2006 Annual General Meeting, in particular the share split in a ratio of 1: 4 and the change of the company name from adidas-Salomon AG to adidas AG. Further, the Executive Board reported to us on the current status of the Reebok integration as well as on various capital increase measures planned...

  • Page 25
    ... to the Annual General Meeting. In 2006, the Audit Committee also spent considerable time on the preparation of the opening balance sheet of Reebok and the change-over of the individual balance sheets, previously prepared in accordance with US-GAAP, to International Financial Reporting Standards...

  • Page 26
    ...short-term challenges relating to the Reebok brand, we are confident that the Group is well positioned for continuing success. We appreciate the tremendous personal dedication, the performance and the ongoing commitment of the Executive Board, the Management Boards of the Group companies, the Works...

  • Page 27
    ..., Germany › Chairman of the Supervisory Board, RackeDujardin GmbH & Co. KG, Bingen, Germany (until December 19, 2006) 1) › Member of the Advisory Board, BRASILINVEST Group, São Paulo, Brazil 1) Fritz Kammerer 2) Deputy Chairman German, born in 1945 Chairman of the Central Works Council, adidas...

  • Page 28
    024 ANNUAL REPORT 2006 › adidas Group › Sabine Bauer 2) German, born in 1963 Team Leader Quality Service Systems, Global Operations, adidas AG Dr. iur. Manfred Gentz German, born in 1942 Chairman of the Administrative Board, Zurich Financial Services S.A., Zurich, Switzerland › Member of ...

  • Page 29
    ..., born in 1954 Sales Director Customer Service, Area Central, adidas AG Willi Schwerdtle German, born in 1953 General Manager, Procter & Gamble Holding GmbH, Schwalbach/Taunus, Germany Heidi Thaler-Veh 2) German, born in 1962 Member of the Central Works Council, adidas AG Christian Tourres French...

  • Page 30
    ... efforts to increase Annual General Meeting attendance. Dual Board System: Executive and Supervisory Boards As required by the German Stock Corporation Act (Aktiengesetz - AktG), adidas AG has a dual board system which assigns management functions to the Executive Board and control functions to the...

  • Page 31
    ...An important communication medium for this purpose is our website www.adidas-Group.com. With our financial reports, analyst and press conferences, ad hoc and press releases as well as Annual General Meeting information, all interested parties have the possibility to form an up-to-date and authentic...

  • Page 32
    028 ANNUAL REPORT 2006 › adidas Group › Information on Directors' Dealings and Share Ownership According to § 15a of the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG), Executive and Supervisory Board members, other key executives as well as persons in close relationship with ...

  • Page 33
    ...in Supervisory Board committees. We are, however, planning a new compensation structure, which will incorporate the recommendations of the German Corporate Governance Code. » Ownership of adidas AG shares or related financial instruments by Executive and Supervisory Board members is reported if it...

  • Page 34
    ... comprise essentially the use of a company car, the payment of insurance premiums, and, in exceptional cases, a tax equalization amount paid to level different tax rates in the USA and Germany. Our Executive Board members receive no additional compensation for mandates held within the adidas Group.

  • Page 35
    ... options under the Management Share Option Plan (MSOP) in August 2002. No new share option plan has been proposed to the Annual General Meeting. Executive Board Members' Total Compensation in 2006 â,¬ in thousands Share-based component (MSOP) Non-performancePerformancerelated component related...

  • Page 36
    032 ANNUAL REPORT 2006 › adidas Group › Number of Stock Options Outstanding Reduced In 2006, a total of 9,100 options were exercised within the scope of the Management Share Option Plan (MSOP) by the current members of our Executive Board in the period ending December 31, 2006. Compensation ...

  • Page 37
    ... interest costs and income associated with plan assets are subject to strong ï¬,uctuations. As a result, service cost is used as a parameter comparable to the provisions for pension obligations which the German Corporate Governance Code requires companies to disclose. Pensions for Former Executive...

  • Page 38
    ...REPORT 2006 › adidas Group › Our Share 2006 was a difficult year for the adidas AG share, in which it was unable to continue the excellent performance it delivered in 2005 and previous years. Concerns surrounding Reebok's short-term business outlook and the state of the North American sporting...

  • Page 39
    ... regarding Reebok's shortterm business outlook. Analyst reports commenting positively on the future of the combined Group after our annual Investor Day led to a recovery that continued until May. After a strong increase on the day of the announcement of our first quarter earnings, our share price...

  • Page 40
    ... % Dividend yield % Shareholders' equity per share â,¬ Price-earnings ratio at year-end Average trading volume per trading day shares DAX-30 ranking 3) at year-end by market capitalization by turnover 1) Adjusted for 1: 4 share split conducted on June 6, 2006. 2) Subject to Annual General Meeting...

  • Page 41
    ...to hold our share (2005: 25%). 6% issued a "sell" rating (2005: 0%). Award-Winning Investor Relations Activities adidas AG strives to maintain continuous close contact to institutional and private shareholders and analysts. In 2006, management and the Investor Relations team spent almost twenty days...

  • Page 42
    ... 6, the company's name change to adidas AG and share split in a ratio of 1: 4 are implemented on the stock exchange. June adidas amazes the world with spectacular brand communication in diverse locations all over Germany during the FIFA World Cupâ„¢ and proves to be the dominant football brand with...

  • Page 43
    ...spring 2007. August Runner's World Magazine announces Reebok as winner of the coveted "Editor's Choice" Award for the Trinity KFS running shoe. September Effective September 1, the adidas Group purchases the remaining 49% of shares from the joint venture partner in order to assume full ownership of...

  • Page 44
    » THINK FASTER AND BE CREATIVE. Sidney Crosby. The Next One. The greatest talent in the NHL since Gretzky and Lemieux. He attracts the puck like a magnet. Unstoppable.

  • Page 45
    ... Strategy » Major Locations and Promotion Partnerships » Internal Group Management System › Brand Segments » adidas » Reebok » TaylorMade-adidas Golf › Corporate Functions » Global Operations » Sustainability » Employees » Research & Development Group Business Performance › adidas...

  • Page 46
    ... ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Structure and Strategy One of the key strengths of our Group lies in the diversity and breadth provided by our portfolio of brands. Our brands share a common commitment to performance, technological...

  • Page 47
    ... future. These products have a clear foundation in sport but are meant for lifestyle and street wear. adidas Golf (24% of TaylorMade-adidas Golf sales) Reebok-CCM Hockey (8% of Reebok sales) Reebok-CCM Hockey is the world's largest designer, manufacturer and marketer of hockey equipment and related...

  • Page 48
    044 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Group Strategy Our goal as a Group is to lead the sporting goods industry with brands built on a passion for sports and a sporting lifestyle. We are a consumer-driven company and everything we do ...

  • Page 49
    ... generate both trade and consumer interest (see Research & Development, p. 69). This will allow us to introduce new products at high price points, positively impacting the Group's margins. Strategic partnerships with Stella McCartney, Yohji Yamamoto, Scarlett Johansson, Polar and Porsche Design are...

  • Page 50
    ... ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Major Locations and Promotion Partnerships As a true global player, the adidas Group sells products in virtually every country around the world. And the acquisition of Reebok significantly increased...

  • Page 51
    ... Official Supplier 4 1 3 IHF Men's World Championships 2007 adidas Official Partner of International Handball Federation FIFA Women's World Cup China 2007 adidas Official FIFA Partner (football) Japan Golf Tour TaylorMade number one driver French Open 2007 adidas Official Partner of Roland...

  • Page 52
    048 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Internal Group Management System The adidas Group's central planning and controlling system is designed to continually increase the value of our Group and brands to maximize shareholder value. By ...

  • Page 53
    ... to meet targeted commercial and operational goals. We limit capital expenditure levels through disciplined budget monitoring and focused expenditure on our core strategies. Our capital expenditure is controlled with a top-down, bottom-up approach. We evaluate potential return on planned investments...

  • Page 54
    ...nancial returns of planned capital investments. The cost of equity is computed utilizing the risk-free rate, market risk premium and beta. The basis for the derivation of the cost of debt is the risk-free rate, credit spread and average tax rate. Structured Performance Measurement System Our Group...

  • Page 55
    ... growth in all regions, increased our earnings at a double-digit rate, and made progress on debt reduction during the year (see Group Business Performance, p. 72). For 2007 and beyond, we again strive to optimize our Group's free cash ï¬,ow development. We believe the current trading environment...

  • Page 56
    ...Group Management Report › › Structure and Strategy adidas adidas has a clear mission - "to be the leading sports brand in the world". To accomplish this mission, the organization at adidas is segmented to meet the needs of distinct groups of sport-oriented consumers. Our product and marketing...

  • Page 57
    ...result of oversupplying the market, we will continue our selective distribution strategy, which will also help us retain the high gross margins we generate with our product offering in this division. In the medium to long term, we intend to produce up to 30% of adidas brand revenues in this division...

  • Page 58
    .../accessories to retail partners. Additionally, we run adidas own-retail stores, where we sell our products directly to consumers. Our own-retail business accounts for close to 15% of adidas brand revenues. Wholesale: Building a Broad Platform At the core of our wholesale strategy is the idea...

  • Page 59
    ... brand, building upon the brand's history in sport and fitness. At Reebok, we emphasize fit and comfort in all our products to meet the individual needs of athletes. We have identified running, sports licensing, basketball and football as our key categories to expand our global presence in sport...

  • Page 60
    056 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Sports Licensing: Continued Growth in American Sports Being the only major brand that has official partnerships with the NFL, the NHL and MLB, Reebok has a unique positioning in sports licensing ...

  • Page 61
    ... Prices To reinforce Reebok's position as a premium sports and lifestyle brand, we intend to significantly improve and increase our product offering at high- and mid-price points to drive growth in average selling prices. Although this approach may slow our top-line development in the short term...

  • Page 62
    058 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy TaylorMade-adidas Golf TaylorMade-adidas Golf, which changed the game of golf by bringing the metalwood to the masses 27 years ago, today is market leader in the metalwoods category. Yet our ...

  • Page 63
    ... the golf market. To underline the premium positioning of the TaylorMade brand, our pricing strategy includes dominating the market at top price points and competing aggressively in the high-volume mid-price segment. At adidas Golf, to support our market perception as an innovative performance golf...

  • Page 64
    060 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Global Operations The adidas Group's Global Operations function coordinates the development, commercialization, manufacturing and distribution of our products and leads the Group's efforts in ...

  • Page 65
    ... in our Global Operations function going forward. In apparel, we will leverage adidas best practices and technologies to build in-house development and sourcing capabilities for Reebok. The business has so far been channeled through agents. This change will support Reebok apparel sales growth by...

  • Page 66
    ... programs in order to best serve our customers and capitalize on market opportunities. To facilitate a close working relationship with our suppliers, we have cross-functional teams based on-site at many factories. We measure the Group's suppliers based on quality and delivery performance criteria...

  • Page 67
    ...of the Sporting Goods Industry and the Fair Labor Association. This provides the Group with the opportunity to work closely with top companies from various sectors to develop sustainable business approaches and to debate social and environmental topics on a global level. The adidas Group makes every...

  • Page 68
    ... our business partners how to correct any instances of non-compliance and how to prevent future non-compliance. Our SEA team collaborates closely with other Group and brand functions such as Global Operations, Marketing, Product Development and Human Resources. It is directly involved in developing...

  • Page 69
    ... global mobility and helps our staff achieve a healthy worklife balance. adidas Group employees have a responsibility to adhere to our employee code of conduct; and as employers we have a responsibility to ensure their health and safety at work. Number of Employees 1) 2002 2003 2004 2005 2006...

  • Page 70
    ... Human Resources function focuses on five core processes: attracting, recruiting, developing, rewarding, and retaining staff. Employees by Function in % 2006 1) 2005 2) Own retail 29 Sales 21 32 Logistics Marketing Central functions & administration Production Research & development IT Total...

  • Page 71
    ...cross-functional and cross-brand "Business Management Program", hiring 10 top talents and training and developing them to take over management positions in the future. adidas Group Personnel Development Performance Culture Leadership Excellence Employee Development Based On Three Success Drivers...

  • Page 72
    ...passion to perform. Managers Ensure Compliance with Code of Conduct In 2006, a multi-cultural team from various functions and geographies within the Group developed and established our new Global Code of Conduct (see Corporate Governance Report, p. 26). All managers with personnel responsibility are...

  • Page 73
    ... Global R&D Activities Research and development within the adidas Group is organized in a decentralized structure, i.e. each brand separately runs its own research, design and development activities, with major locations in several countries. Our brand teams collaborate closely, sharing fundamental...

  • Page 74
    ... ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Structure and Strategy Divisional R&D Structure at Reebok Within the Reebok segment, the Reebok, Reebok-CCM Hockey and Rockport divisions run separate R&D teams due to the different product offering of each. At brand Reebok...

  • Page 75
    .... In 2006, R&D expenses represented 2.6% of total operating expenses versus 2.4% in the prior year. R&D expenses as a percentage of sales increased slightly to 1.0% from 0.9% in 2005. Other related expenses for product development and market research, for example, were incurred as part of the Group...

  • Page 76
    ... Group › Group Management Report › › Group Business Performance Group Business Performance In 2006, the adidas Group again delivered strong financial performance with sales growth significantly outpacing Management's initial expectations. Gross and operating margin as well as net income...

  • Page 77
    ... sales increased at low-single-digit rates, largely driven by the increased football offering. From a country perspective, strong growth in Spain and Italy was offset by promotional market conditions particularly in the UK, which led to declines in volume and price points. Average selling prices...

  • Page 78
    ...› Group Business Performance Income Statement First-Time Consolidation of Reebok Impacts 2006 Results The business of Reebok International Ltd. (USA) and its subsidiaries, which was acquired to broaden the adidas Group's product offering and to increase the Group's long-term growth opportunities...

  • Page 79
    ...-neutral sales in North America for the adidas Group excluding Reebok increased 14% driven by doubledigit growth rates at both adidas and TaylorMade-adidas Golf. In euro terms, revenues increased 13% to â,¬ 1.768 billion in 2006 from â,¬ 1.561 billion in the prior year. Sales for the adidas Group in...

  • Page 80
    076 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Group Business Performance Currency-Neutral Net Sales Growth by Segment and Region 1) in % North Europe America adidas 9 Reebok 2) TaylorMade-adidas Golf 3) (9) Total 4) 32 13 32 107 Latin Asia America 20 18 35 33 47 53...

  • Page 81
    ...cooperation agreement with Amer Sports Corporation, which more than offset the gross margin increase at adidas. The gross margin of TaylorMade-adidas Golf declined marginally as a result of the inclusion of the Greg Norman apparel business. Gross profit for the Group excluding Reebok grew by 13% to...

  • Page 82
    ... Continued efficiency improvements in operating overhead costs more than offset higher marketing expenses related to the 2006 FIFA World Cupâ„¢. In absolute terms, operating expenses for the adidas Group excluding Reebok increased by 13% to â,¬ 2.872 billion in 2006 from â,¬ 2.537 billion in 2005...

  • Page 83
    ...-adidas Golf which more than compensated higher marketing expenditures at brand adidas related to the 2006 FIFA World Cupâ„¢. Operating Overheads Decrease as a Percentage of Sales Group operating overheads include overhead costs related to marketing, sales, logistics, research and development...

  • Page 84
    080 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Group Business Performance Reebok Acquisition Drives Net Financial Expenses Increase Net financial expenses increased 203% to â,¬ 158 million in 2006 from â,¬ 52 million in the prior year. This reï¬,ects the financing ...

  • Page 85
    ... despite the capital increase conducted on November 3, 2005. The Group's total number of shares outstanding increased by 489,840 shares in 2006 to 203,536,860 as a result of shares from stock options exercised as part of Tranches II, III and IV of the Management Share Option Plan (MSOP) of adidas AG...

  • Page 86
    ... ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Group Business Performance Balance Sheet and Cash Flow Statement Reebok Acquisition Impacts Balance Sheet Items Total assets grew considerably in 2006, mainly reï¬,ecting the first-time inclusion of assets and liabilities...

  • Page 87
    adidas Group › » Balance Sheet and Cash Flow Statement 083 Total Assets Increase 46% At the end of 2006, total assets increased 46% to â,¬ 8.379 billion versus â,¬ 5.750 billion in the prior year, mainly as a result of the first-time inclusion of assets related to the Reebok business. ...

  • Page 88
    ... adidas. Strong Cash Flow Development In 2006, cash inï¬,ow from operating activities was â,¬ 762 million and was primarily used to finance working capital needs in accordance with the seasonality of the business. The Group used â,¬ 2.988 billion of net cash for investing activities mainly related...

  • Page 89
    ... Balance Sheet and Cash Flow Statement » Treasury 085 Treasury Treasury System and Responsibilities Our Group's treasury policy governs all treasury-related issues, including banking policy and approval of bank relationships, global financing arrangements and liquidity/asset management, currency...

  • Page 90
    ... on the debt component in accordance with IFRS requirements. As a result, gross borrowings increased to â,¬ 2.578 billion at the end of 2006 from â,¬ 1.035 billion in the prior year (see Note 16, p. 160). Financing Structure â,¬ in millions 2006 Total cash and short-term financial assets Bank...

  • Page 91
    ...2011 - 2012 2015 2009 - 2016 2018 2006 - 2012 Currency Management Reï¬,ects Reebok Integration As the adidas Group operates worldwide, currency management is a key focus of the Group's central Treasury department. Because our Group sources the majority of products from independent suppliers in Asia...

  • Page 92
    ... and training, contributed to this strong improvement. In the football category, sales were positively impacted by adidas' role as Official Sponsor, Supplier and Licensee of the 2006 FIFA World Cup™ and the brand's sponsorship of six participating teams. In euro terms, Sport Performance sales...

  • Page 93
    ... increases in comparable store sales and new store openings. adidas Own-Retail Sales by Channel Internet 1% Concession corners 5% Factory outlets 52% Concept stores 42% adidas Own-Retail Stores 2006 2005 Concept stores 414 312 Factory outlets 256 221 Concession corners E-commerce Total...

  • Page 94
    090 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Group Business Performance Gross Margin Improves to 46.2% The adidas gross margin increased by 0.9 percentage points to 46.2% in 2006 from 45.3% in 2005. This represents the segment's highest gross margin since the IPO. ...

  • Page 95
    ... wholesale business was consolidated in the TaylorMade-adidas Golf segment until the end of November when it was sold to MacGregor Golf Company. The results of the GNC-related retail outlet operations, which were not part of the transaction, will be reported as part of Reebok's own-retail activities...

  • Page 96
    ... reported results: IFRS regulations stipulate that acquiring companies must allocate the purchase price paid for an acquisition according to the fair values assigned to acquired assets and liabilities, the so-called purchase price allocation (PPA). Following the Reebok acquisition, the adidas Group...

  • Page 97
    ... the purchase price allocation for the Reebok segment. Excluding these effects, the Reebok gross margin was 38.0%. This margin is lower than the adidas Group's average gross margin due to Reebok's overproportionate exposure to North America, where average gross margins in our industry are generally...

  • Page 98
    ... increase. Growth was driven by strong sales increases in North America and Asia and the inclusion of the Greg Norman apparel business. In euro terms, this represents an improvement of 21% to â,¬ 856 million in 2006 from â,¬ 709 million in 2005. TaylorMade-adidas Golf gross margin declined...

  • Page 99
    ... marketing expenditures as a percentage of sales due to the outstanding sales growth during the year. Operating Profit Grows 44% The TaylorMade-adidas Golf operating margin increased 1.4 percentage points to 8.5% in 2006 from 7.1% in 2005. This development was a result of the strong sales growth...

  • Page 100
    096 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Risk Report Risk Report The adidas Group constantly explores and develops opportunities to maximize earnings and to increase longterm shareholder value. In doing so, we acknowledge that it is necessary to take certain ...

  • Page 101
    ... risks Financial Risks Currency risks Interest rate risks Investment risks Financing and liquidity risks Strategic Risks Portfolio risks Risks from loss of key promotion partnerships Brand image risks Research and development risks Product quality risks Own-retail risks Personnel risks Operational...

  • Page 102
    ... a regionally balanced sales mix and continually adapt the Group's distribution strategy. The sporting goods industry currently faces a highly promotional retail landscape in the UK. Following three years of declining average selling prices, the adidas brand initiated a new trade distribution policy...

  • Page 103
    ... the medium-term future, as low. Investment Risks In the past year, the adidas Group has primarily used free cash ï¬,ow to reduce borrowings which increased by approximately â,¬ 3 billion upon the purchase of Reebok. Therefore, only a very limited amount of cash is invested in investment funds (see...

  • Page 104
    ... The adidas Group faces risks from the loss of major promotion partnerships which play an important role in building brand image and generating sales of licensed product. To mitigate the inherent risk, we follow the strategy of broadening the Group's portfolio of premium partnerships in order to...

  • Page 105
    ...approximately 80% of the Group's cost of sales. Hence, the adidas Group faces risks from significant increases of these costs and also from business interruptions at one of our major suppliers, which would have a material impact on the Group's ability to meet short-term customer demand. For example...

  • Page 106
    ... the top line and optimize our cost structure. Centralized Group and brand functions such as planning, marketing, finance, treasury, global operations, and mergers and acquisitions, are responsible for anticipating global macroeconomic, industry and long-term strategic options. Brand teams at...

  • Page 107
    ...term growth drivers Increasing sports participation rates in mature markets Industry Opportunities Fast-growing women's segment Increasing focus on kids Building market share in high-growth sports categories Running category to grow further Technology to drive growth of customized products Strategic...

  • Page 108
    ...help create a strong association between our brands and sports at an early age. Kids represent an important current and future target group for many sports categories. As a result, we will continue to focus on and invest in this critical segment of the business. Building Market Share in High-Growth...

  • Page 109
    ... future revenue generation. We continue to search for new opportunities to strengthen our portfolio of high-profile teams, athletes and sports associations. We look for premium partners that positively and uniquely showcase our brand values and have high visibility with key consumer groups. A core...

  • Page 110
    ... to financing, there have been no major developments since the end of 2006. Subsequent Share Count Changes As a result of stock options exercised as part of various tranches of the Management Share Option Plan (MSOP) of adidas AG, the number of outstanding shares increased by 30,200 to 203,567,060...

  • Page 111
    ...America. The transfer of the NBA and Liverpool licensed businesses from Reebok to adidas also negatively affected apparel backlogs development. Excluding the effects of this transfer, total Reebok backlogs decreased 10% on a currency-neutral basis. Positive Retail Feedback for TaylorMade-adidas Golf...

  • Page 112
    ... wholesale business was consolidated in the TaylorMade-adidas Golf segment until the end of November 2006. The results of the GNC-related retail outlet operations, which were not part of the transaction, will be reported as part of Reebok's own-retail activities from January 1, 2007. Sales recorded...

  • Page 113
    ...the UK announced in 2006 to improve the positioning of our product at retail will temper European development. In Asia, we are again targeting significant sales growth for brand adidas in 2007, mainly driven by strong increases in China, Korea and Southeast Asia. In Latin America, year-end customer...

  • Page 114
    ...GNC-related retail operations which were reported as part of TaylorMade-adidas Golf in 2006. Our focus on improving Reebok's position in performance sports will be driven by several product launches in both footwear and apparel. Running will be a key focus with the launch of our "Run Easy" marketing...

  • Page 115
    ... 1% of sales on research and development. Areas of particular focus include running, football and basketball at the adidas and Reebok brands, as well as golf hardware at TaylorMade-adidas Golf. The number of employees working in research and development throughout the Group will increase in 2007...

  • Page 116
    112 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Subsequent Events and Outlook Working Capital Management to Improve Balance Sheet Operating working capital management is a major focus of our efforts to improve the Group's balance sheet (see Internal Group Management ...

  • Page 117
    ... double-digit rates in 2008 and 2009, respectively, as a result of our continuing top-line growth and improved profitability projected at all brands. Group Medium-Term Financial Targets to 2009 Annual currency-neutral sales growth Gross margin Operating margin Annual net income growth high-single...

  • Page 118
    114 ANNUAL REPORT 2006 › adidas Group › Group Management Report › › Reporting Pursuant to § 315 Section 2 No. 4 and Section 4 HGB Reporting Pursuant to § 315 Section 2 No. 4 and Section 4 HGB adidas AG as the parent company of the adidas Group utilizes an organized market as defined ...

  • Page 119
    ... Annual General Meeting dated May 20, 1999, the Executive Board implemented a Management Share Option Plan (MSOP) for members of the Executive Board of adidas AG, as well as managing directors/senior vice presidents of its related companies and other executives of adidas AG and its related companies...

  • Page 120
    » FOR ME, HEPTATHLON IS FUN. AND HAVING FUN IS WHAT I NEED TO BE SUCCESSFUL. Carolina Klüft. The heptathlon queen. Relaxed but fully focused. Enjoying every discipline. Every challenge. Every crowd. Even pressure puts a smile on her face. Performance powered by fun.

  • Page 121
    ... 2006 117 CAMPAIGNS AND PRODUCTS 119 119 122 124 126 128 130 130 132 134 136 137 138 138 adidas › Impossible Is Nothing › Running › Football › Basketball › Originals Reebok › Running › American Football › Women's › Hockey › Rockport TaylorMade-adidas Golf › Drivers...

  • Page 122
    ...". » Reebok launches the global "Run Easy" advertising campaign which communicates the fun and joy of running to all consumers. » TaylorMade-adidas Golf presents the "Our longest driver ever. Pick One." campaign to focus consumer attention on the leading position the TaylorMade brand enjoys on...

  • Page 123
    ... › » Impossible Is Nothing 119 » The adidas brand's largest campaign in 2007 is "Impossible Is Nothing" and this year communication focuses on the mind of the athlete with more than 20 international sports personalities using their own hand-drawn illustrations and paintings to tell their...

  • Page 124
    ...ANNUAL REPORT 2006 › adidas Group › Campaigns and Products › GILBERT ARENAS GUARD, BASKETBALL « When no-one else believes in you - believe in yourself Hi, I'm Gilbert Arenas and this is my story: When I entered the NBA... you, anything you do is a positive. It wasn't even about basketball any...

  • Page 125
    ...« Where you start isn't necessarily where you end up. I am Yelena Isinbayeva and this is my story: I dreamed to be the Olympic champion in gymnastics, but that's very difficult because I was so tall. My coach asked me to try pole vault. I said: "Are you crazy?". Now I have 20 world records. Where...

  • Page 126
    ... will then be featured alongside some of adidas' key innovations including the adiStar and the MEGABOUNCE to produce creative print ads and point-of-sale material. The campaign reminds consumers that adidas knows their goals and can help them achieve their own personal "impossibles". adidas RUNNING

  • Page 127
    adidas › » Running 123

  • Page 128
    124 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products › adidas FOOTBALL « "Impossible Is Nothing" is also a core element of adidas football brand communication in 2007. Here the story focuses on a battle between two fictitious clubs: "Predator F.C." and "F50 Club de Fútbol", ...

  • Page 129
    adidas › » Football 125

  • Page 130
    126 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products ›

  • Page 131
    ... groups. One of the best examples of this fresh creative approach is the "It Takes 5ive" global basketball campaign. It is based on the brand's core belief that the sport is bigger than the individual, and that athletes working together can do great things. This campaign features a team of five top...

  • Page 132
    128 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products ›

  • Page 133
    ... 129 adidas ORIGINALS « Brand communication for sports lifestyle products needs to have a different look and feel to connect with consumers. And in 2007, adidas Originals is all about "Free Thinking". Each element of the campaign combines items from a real and an imaginary world, creating...

  • Page 134
    130 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products › Reebok RUNNING « In 2007, Reebok kicks off the global "Run Easy" campaign. This is the brand's most important advertising campaign of the year. The message is simple: Reebok wants to inspire consumers to fulfill their ...

  • Page 135
    Reebok › » Running 131

  • Page 136
    132 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products ›

  • Page 137
    Reebok › » American Football 133 » An important component of revitalizing the Reebok brand is to remind consumers of the brand's unique strength in American performance sports. Reebok has the largest sports licensing division in the USA and is a leading innovator in performance products, fan ...

  • Page 138
    134 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products › » In 2007, two campaigns will remind consumers of Reebok's unique strength in the women's segment. Scarlett "Hearts" Rbk Scarlett "Hearts" Rbk is a signature collection developed in collaboration with Hollywood actress ...

  • Page 139
    Reebok › » Women's 135

  • Page 140
    136 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products › Reebok HOCKEY « Reebok's signature campaign "I AM WHAT I AM" is central to the brand's hockey advertising this year. Print and television ads feature some of hockey's most eclectic personalities such as Pavel Datsyuk and ...

  • Page 141
    Reebok › » Hockey » Rockport 137 » Building on Rockport's storied heritage and commitment to innovation and design, the 2007 advertising highlights a new evolutionary footwear collection of men's dress, casual and outdoor looks that feature advanced technology engineered for athletic ...

  • Page 142
    138 ANNUAL REPORT 2006 › adidas Group › Campaigns and Products ›

  • Page 143
    ...footwear is promoted through the "Equipment for Your Body" marketing campaign. This shoe employs three proprietary technologies to deliver greater stability, balance and leverage, helping athletes of all abilities to produce a more confident and aggressive swing. TaylorMade-adidas Golf DRIVERS AND...

  • Page 144
    » » I WANT TO BE REMEMBERED AS A PLAYER WHO WAS THE BEST IN HIS POSITION BUT REMAINED HUMBLE. Richie McCaw. Captain of the renowned All Blacks. His tackles - feared. His work rate - inspiring. His commitment - intense. At the top of his game. But always down to earth.

  • Page 145
    ... FLANKER, RUGBY 2006 IRB WORLD PLAYER OF THE YEAR 141 CONSOLIDATED FINANCIAL STATEMENTS 142 143 144 145 146 148 149 157 173 176 182 184 190 192 194 200 Executive Board Statement Independent Auditor's Report Consolidated Balance Sheet Consolidated Income Statement Consolidated Statement of Cash...

  • Page 146
    ... reporting thereon is assured and the Executive Board is in a position to recognize potential investment risks and negative developments at an early stage and take appropriate countermeasures. In accordance with the resolution adopted by the shareholders at the Annual General Meeting in 2006, KPMG...

  • Page 147
    ...until May 29, 2006: adidas-Salomon AG), Herzogenaurach - comprising the balance sheet, the income statement, statement of recognized income and expense, cash ï¬,ow statement and the notes to the consolidated financial statements - together with the Group Management Report for the business year from...

  • Page 148
    ... ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › Consolidated Balance Sheet â,¬ in millions (Note) Cash and cash equivalents Short-term financial assets Accounts receivable Inventories Income tax receivables Other current assets Assets classified as held for sale...

  • Page 149
    ... Balance Sheet › Consolidated Income Statement › 145 Consolidated Income Statement â,¬ in millions (Note) Net sales Cost of sales Gross profit (% of net sales) Royalty and commission income Other operating income and expenses (% of net sales) Operating profit (% of net sales) Financial...

  • Page 150
    ...and equipment Acquisition of minority shareholders Acquisition of subsidiaries net of cash acquired Buyback of employee stock options and convertible bonds Disposal of discontinued operations net of cash Sale of short-term financial assets Purchase of investments and other long-term assets Interest...

  • Page 151
    ... Statement of Cash Flows â,¬ in millions (Note) Financing activities: Increase in long-term borrowings Proceeds from issue of share capital Dividend of adidas AG Dividends to minority shareholders Exercised share options Capital contributions by minority shareholders Decrease in short-term...

  • Page 152
    148 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › Consolidated Statement of Recognized Income and Expense â,¬ in millions (Note) Net (loss)/gain on cash ï¬,ow hedges, net of tax Net gain/(loss) on hedge of net investments in foreign subsidiaries, net of tax ...

  • Page 153
    ...athletic and sports lifestyle products. The Group's headquarters are located at Adi-Dassler-Str. 1, 91074 Herzogenaurach, Germany. The adidas Group has divided its operating activities by major brand into three segments: adidas, Reebok and TaylorMade-adidas Golf. The business of Reebok International...

  • Page 154
    ... shareholders' equity without affecting income. In the individual financial statements of Group companies, monetary items denominated in non-euro currencies are generally measured at closing exchange rates at the balance sheet date. The resulting currency gains and losses are recorded directly...

  • Page 155
    ... on the basis of the market conditions on the reporting dates. The fair value of a currency option is determined using generally accepted models to calculate option prices. The fair market value of an option is inï¬,uenced not only by the remaining term of the option but also by further determining...

  • Page 156
    ... the long-term average growth rate of the business in which the trademarks are allocated. The discount rate is based on a weighted average cost of capital calculation considering the debt/equity structure and financing costs of the major competitors. The discount rate used is after-tax rates and re...

  • Page 157
    ... (2) 284 Total goodwill 436 1,165 3 (88) 1,516 adidas December 31, 2005 Additions - Reebok acquisition Additions - other Currency effects December 31, 2006 150 699 3 (57) 795 Reebok - 466 - (29) 437 Financial Assets All purchases and sales of investments are recognized on the trade date. Costs of...

  • Page 158
    ... the associated benefit. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Equity Compensation Benefits Stock options have been granted to members of the Executive Board of adidas...

  • Page 159
    ... 30, 2005. The final debt-free purchase price was â,¬ 497 million. A first payment of â,¬ 460 million was received in October 2005. The remaining amount was paid in the first quarter of 2006. The Salomon business segment included the related subsidiaries and brands Salomon, Mavic, Bonfire...

  • Page 160
    156 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › 5 » Acquisition/Disposal of Subsidiaries The adidas Group assumed full ownership of its subsidiary in India, adidas India Marketing Private Ltd., New Delhi (India), by purchasing the remaining 8.6% of shares ...

  • Page 161
    ...Financial Assets Short-term financial assets are classified at "fair value through profit or loss". They comprise investment funds as well as marketable equity securities. Changes in the fair value are recognized in the income statement as they occur. The majority of marketable securities relates...

  • Page 162
    ... Current Assets Other current assets consist of the following: Other Current Assets â,¬ in millions Dec. 31 2006 Prepaid expenses Tax receivables other than income tax Interest rate options Currency options Forward contracts Security deposits Land held-for-sale Sundry Other current assets, gross...

  • Page 163
    ... Consolidated Balance Sheet 159 12 » Goodwill Goodwill primarily relates to the Group's acquisitions of the Reebok business as well as of subsidiaries in the United States, Australia/New Zealand, Netherlands/Belgium and Italy. Goodwill â,¬ in millions Dec. 31 2006 Goodwill, gross Less: impairment...

  • Page 164
    160 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › 14 » Long-Term Financial Assets Long-term financial assets include a 10% investment in FC Bayern München AG of â,¬ 77 million which was made in July 2002. This investment is classified as available for sale and ...

  • Page 165
    ... which the Group conducts its business. The largest portions of effective gross borrowings (before liquidity swaps for cash management purposes) as at December 31, 2006 are denominated in euros (51%; 2005: 76%) and US dollars (44%; 2005: 16%). Month-end weighted average interest rates on borrowings...

  • Page 166
    ... differences Changes in companies Release consolidated Thereof noncurrent Dec. 31 2005 Provisions Marketing Employee benefits Returns, allowances, warranty Restructuring Taxes, other than income taxes Other provisions Total provisions Accrued liabilities Goods and services not yet invoiced...

  • Page 167
    ... Consolidated Balance Sheet 163 18 » Other Current Liabilities Other current liabilities consist of the following: Other Current Liabilities â,¬ in millions Dec. 31 2006 Liabilities due to personnel Tax liabilities other than income taxes Liabilities due to social security Interest rate options...

  • Page 168
    164 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › The actuarial valuations of the defined benefit plans are made at the end of each reporting period. The assumptions for employee turnover and mortality are based on empirical data, the latter for Germany on the ...

  • Page 169
    ... of the exercise of a total of 10,000 stock options in August 2006 and the issuance of 40,000 no-par-value bearer shares associated with the Management Share Option Plan. Capital reserves thus increased by â,¬ 121,890. At the balance sheet date, the nominal capital of adidas AG therefore amounted to...

  • Page 170
    ... Annual General Meeting of May 11, 2006, the Articles of Association were adjusted to reï¬,ect this increase as well as the share split. Contingent Capital 1999/I The Contingent Capital 1999/I serves the purpose of granting stock options in connection with the Management Share Option Plan to members...

  • Page 171
    ... Capital 2006 As a result of the resolution adopted by the Annual General Meeting on May 11, 2006, the nominal capital of adidas AG at the balance sheet date is conditionally increased by up to â,¬ 20,000,000, divided into no more than 20,000,000 no-par-value bearer shares (Contingent Capital 2006...

  • Page 172
    ... by reference to the retained earnings of adidas AG and calculated under German Commercial Law. The Executive Board of adidas AG recommends a dividend of â,¬ 0.42 for 2006, subject to Annual General Meeting approval. The dividend for 2005 was â,¬ 1.30 per share (but before the implementation of...

  • Page 173
    ... 32 Balance at December 31, 2005 Net income recognized directly in equity Net income Total recognized income and expense for the period Dividend payment Increase share capital due to share split Exercised share options Acquisition of shares from minority shareholders Acquisition of Reebok - minority...

  • Page 174
    170 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › 23 » Leasing and Service Arrangements Operating Leases The Group leases offices, retail stores, warehouses and equipment under leases with expiration dates of between one and sixteen years. Rent expenses are ...

  • Page 175
    ... exchange rate developments in the financial markets. In 2006, the Group contracted currency options with premiums paid in a total amount of â,¬ 11 million (2005: â,¬ 27 million). The effective part of the currency hedges is directly recognized in hedging reserves and the acquisition costs of...

  • Page 176
    ... the investment in the foreign entity is disinvested. In order to determine the fair values of its derivatives that are not publicly traded, the adidas Group uses accepted finance-related economic models based on market conditions prevailing at the balance sheet date. Management of Interest Rate...

  • Page 177
    ...(2005: â,¬ 2 million). Operating Income and Expenses (Continuing Operations) â,¬ in millions Year ending Dec. 31 2006 2005 Marketing working budget Marketing overhead 1) Sales force 1) Logistics 1) Research & development 1) Central finance & administration expenses Other Total Thereof: Depreciation...

  • Page 178
    174 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › 27 » Financial Expenses, Net Financial result consists of the following: Financial Expenses, Net (Continuing Operations) â,¬ in millions Year ending Dec. 31 2006 2005 Interest income Net foreign exchange gain Fair ...

  • Page 179
    ...Continuing Operations) â,¬ in millions Year ending Dec. 31 2006 2005 Current tax expenses Deferred tax expenses/(income) Income tax expenses 213 14 227 295 (74) 221 Current taxes in the amount of â,¬ 2 million which relate to net investment hedges have been credited directly to shareholders' equity...

  • Page 180
    176 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › 29 » Earnings Per Share Basic earnings per share are calculated by dividing the net income attributable to shareholders by the weighted average number of shares outstanding during the year. Due to the share split, ...

  • Page 181
    ... 232 - (36) - 2,522 2,214 45 30 - adidas Group 2005 6,996 3,334 47.7% 686 9.8% 5,750 3,038 211 115 - 2006 Net sales to third parties Gross profit in % of net sales Operating profit in % of net sales Assets Liabilities Capital expenditure Amortization and depreciation (excl. goodwill amortization...

  • Page 182
    ... Annual General Meeting on May 8, 2002, and on May 13, 2004, the Executive Board was authorized to issue non-transferable stock options for up to 1,373,350 no-par-value bearer shares to members of the Executive Board of adidas AG as well as to managing directors/senior vice presidents of its related...

  • Page 183
    ...stock options, the stock market price for the adidas AG share - calculated upon the basis of the total shareholder return approach - has increased by an annual average of at least 8%. (2) Relative Performance: During the same period, the stock market price for the adidas AG share must have developed...

  • Page 184
    180 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › 34 » Other Information Employees The average numbers of employees are as follows: Employees Year ending Dec. 31 2006 2005 Own retail Sales Logistics Marketing Central functions & administration Production Research ...

  • Page 185
    ... the Balance Sheet Date Group-Specific Subsequent Events In January 2007, the adidas Group acquired additional or all shares of minority interests at two subsidiaries, respectively. Date of Authorization for Issue The Executive Board of adidas AG approved the consolidated financial statements for...

  • Page 186
    ...ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › Statement of Movements of Intangible and Tangible Assets and Financial Assets â,¬ in millions (Attachment I) Goodwill ACQUISITION COST December 31, 2004 Netting goodwill amortization Currency effect Additions Increase...

  • Page 187
    Statement of Movements of Intangible and Tangible Assets and Financial Assets › 183 Other equipment, furniture and fittings Construction in progress Total tangible assets Shares in affiliated companies Participations Other financial assets Total financial assets 356 - 22 81 - (7) 21 (...

  • Page 188
    184 ANNUAL REPORT 2006 › adidas Group › Consolidated Financial Statements › Shareholdings of adidas AG, Herzogenaurach as of December 31, 2006 (Attachment II) Company and Domicile 1 2 3 4 5 6 GEV Grundstücksgesellschaft Herzogenaurach mbH & Co. KG GEV Grundstücks-...

  • Page 189
    ...) Reebok Spain SA American Sports & Leisure (cz) s.r.o. Reebok (Poland) SA RBK Holdings Limited 12) Reebok International Finance BV Reebok Sports Limited J.W. Foster & Sons Athletic Shoes Ltd. 7) 12) Rockport Company Limited 7) 12) Reebok Eastern Trading Limited 7) Reebok Pension Management Limited...

  • Page 190
    ... adidas America Inc. 88 adidas Promotional Retail Operations Inc. 89 adidas Sales Inc. 90 adidas Village Corporation 91 adidas Interactive Inc. 92 adidas International, Inc. 93 adidas Team Inc. 94 Taylor Made Golf Co. Inc. 95 adidas Canada Ltd. 96 Reebok International Ltd. 2) 97 The Rockport Company...

  • Page 191
    Shareholdings › 187 Shareholdings of adidas AG, Herzogenaurach as of December 31, 2006 (Attachment II) Company and Domicile 100 101 102 103 104 Reebok Worldwide Trading Co. LLC The Hockey Company Corp. 10) Sports Holdings Corp. 11) WAP Holdings Inc. 11) Maska US Inc. Canton, Massachusetts (USA...

  • Page 192
    ... New Zealand Ltd. adidas Services Limited Reebok Technical Services Private Limited Reebok Korea Ltd. Reebok Japan Inc. RIL Shanghai Ltd. Reebok India Company Smedley (H.K.) Ltd. 10) 7) Reebok Trading (Far East) Ltd. RIL Securities Ltd. Reebok (China) Services Limited Zhuhai Reebok Sporting Products...

  • Page 193
    ...India 5) Sub-group Mexico, adidas 6) Sub-group Mexico, Reebok 7) Companies with no active business 8) The number refers to the number of the company. 9) Sub-group Onfield 10) Sub-group The Hockey Company Corporation 11) Sub-group Sports Holding Corporation 12) Sub-group Reebok International Limited

  • Page 194
    ... Group Segmental Information: Ten-Year Overview â,¬ in millions 2006 BRANDS adidas Net sales Gross profit Gross margin Operating profit 1) Operating margin 1) Operating assets Reebok 2) Net sales Gross profit Gross margin Operating profit Operating margin Operating assets TaylorMade-adidas Golf...

  • Page 195
    191 adidas Group Segmental Information: Ten-Year Overview â,¬ in millions 2006 Discontinued Operations 4) Net sales Gross profit Gross margin Operating profit Operating margin Operating assets REGIONS 5) 6) Europe Net sales North America Net sales Asia Net sales Latin America Net sales 2005 ...

  • Page 196
    ... to shareholders 6) Income Statement Ratios Gross margin 3) Operating expenses as a percentage of net sales 3) Operating margin 3) 4) Interest coverage 3) Effective tax rate 3) Net income attributable to shareholders as a percentage of net sales 6) Balance Sheet Data (â,¬ in millions) Total assets...

  • Page 197
    ...2006 1) Balance Sheet Ratios Financial leverage 5) Equity ratio 5) Equity-to-fixed-assets ratio 5) Asset Coverage I 5) Asset Coverage II 5) Fixed asset intensity of investments Current asset intensity of investments Liquidity I 5) Liquidity II 5) Liquidity III 5) Working capital turnover 5) Return...

  • Page 198
    ... seven days and 12 months or more. Continuing Operations Ongoing operations of a business contributing to the future economic development of a company. They include acquisitions and exclude divestitures. For the adidas Group this roughly equals the Group's brands adidas and TaylorMade-adidas Golf...

  • Page 199
    .../ total assets. Days of Sales Outstanding (DSO) The average time of receipt of outstanding payments from customers. Diluted Earnings per Share (Diluted EPS) A performance indicator used to gauge a company's earnings per share, assuming that all stock options, options and conversion rights related to...

  • Page 200
    196 ANNUAL REPORT 2006 › adidas Group › Glossary › Forward Contract Agreement to exchange amounts of one currency for another currency at an agreed fixed rate at a future date. Free Cash Flow Cash that is generated by a company's operating activities after the deduction of capital ...

  • Page 201
    ...+ short-term financial assets + accounts receivable + inventories) / current liabilities) x 100. Market Capitalization The total market value of all outstanding shares. It is calculated by multiplying the number of outstanding shares by the current market price. Market Risk Premium The extra return...

  • Page 202
    ...the adidas Group. Own retail includes adidas concept stores (Sport Performance and Sport Heritage) and concession corners as well as factory outlets and e-commerce for both the adidas and Reebok brands. Price-Earnings Ratio (P/E Ratio) A company's share price divided by its current or future diluted...

  • Page 203
    ... The cost of debt is calculated through the risk-free rate, credit spread and average tax rate. Working Capital A company's short-term disposable capital used to finance the day-to-day operations. See also Operating Working Capital. Working capital = total current assets - total current liabilities...

  • Page 204
    ..., 177 Investor Relations 037 L Leases 170 Liquidity 085 ff. Locations 046 f. M Management Share Option Plan (MSOP) 030 ff., 114 ff., 154, 178 Market Capitalization 034 f. Marketing Working Budget 079, 173 Mission Statement 042 N Net Income Attributable to Shareholders 081, 111 ff. Non-Balance Sheet...

  • Page 205
    ...investors adidas Group is a member of DAI (German Share Institute), DIRK (German Investor Relations Association) and NIRI (National Investor Relations Institute, USA). This report is also available in German. For further adidas Group publications, please see our corporate website. Concept and Design...

  • Page 206
    FINANCIAL CALENDAR 2007 March 7 2006 Full Year Results Analyst and press conferences in Herzogenaurach, Germany Press release, conference call and webcast First Quarter 2007 Results Press release, conference call and webcast Annual General Meeting in Fürth (Bavaria), Germany Webcast Dividend ...