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SPORT KNOWS NO BOUNDARIES. SPORT IS PASSION. ALL OVER THE WORLD.
EVERY ATHLETE LIVES IT. AND WE DO, TOO. EVERY SECOND.
ANNUAL REPORT 2007
T
ANNUAL REPORT 2007

Table of contents

  • Page 1
    ANNUAL2007 REPORT 2007 ANNUAL REPORT T SPORT KNOWS NO BOUNDARIES. SPORT IS PASSION. ALL OVER THE WORLD. EVERY ATHLETE LIVES IT. AND WE DO, TOO. EVERY SECOND.

  • Page 2
    ... margin Effective tax rate Net income attributable to shareholders as a percentage of sales Operating working capital as a percentage of sales Equity ratio Financial leverage Return on equity Balance Sheet and Cash Flow Data (â,¬ in millions) Total assets Inventories Receivables and other current...

  • Page 3
    ...to market 2007 RESULTS --Net sales reach â,¬ 10.3 billion; Group currency-neutral sales grow 7 % --Major 2007 product launches: adidas new technologies in adiSTAR, SuperNova and Response running shoe families, Stella McCartney "Gym / Yoga" collection, TechFitâ„¢ apparel Reebok running shoes Trinity...

  • Page 4
    ... GROUP VALUES: PERFORMANCE, PASSION, INTEGRITY AND DIVERSITY. THE ADIDAS GROUP LIVES FOR SPORT LIKE NO OTHER COMPANY. ALL OF OUR BRANDS SHARE THIS UNCOMPROMISING DEDICATION. -UNITED BY SPORT- -- YOUR FAVORITE COVER -DO YOU WANT TO SEE YOUR FAVORITE PRODUCT OR CAMPAIGN ON THE FRONT OF THIS REPORT...

  • Page 5
    EXPERIENCE & AMBITION YOUR INDIVIDUAL EXCELLENCE. YOUR MUTUAL RESPECT. YOUR UNWAVERING FOCUS. YOUR UNBREAKABLE WILLPOWER. THIS IS WHAT MAKES A GREAT TEAM. DEMONSTRATED SUCCESSFULLY BY 2007 UEFA CHAMPIONS LEAGUEâ„¢ WINNER A. C. MILAN. -UNITED BY PERFORMANCE-

  • Page 6
    ENTHUSIASM & DEDICATION YOUR DRIVE FOR SUCCESS. YOUR TOTAL COMMITMENT. YOUR WORLD-CLASS PERFORMANCE. AND YOUR ONE-OF-A-KIND ENTHUSIASM THAT INSPIRES EVERYONE ELSE. -UNITED BY PASSION-

  • Page 7
    ... PASSION, TALENT AND ABSOLUTE DEDICATION ARE THE KEYS TO YOUR SUCCESS. DEMONSTRATED SUCCESSFULLY BY CAROLINA KLÃœFT: CAREER HIGHLIGHTS & AWARDS - 2007 WORLD CHAMPION (HEPTATHLON) EUROPEAN INDOOR CHAMPION (PENTATHLON) - 2006 EUROPEAN ATHLETE OF THE YEAR (WOMEN) EUROPEAN CHAMPION (HEPTATHLON) - 2005...

  • Page 8
    ... TEAM SPIRIT HELPS YOU BREAK DOWN BOUNDARIES. DEMONSTRATED SUCCESSFULLY BY TRACY McGRADY: CAREER HIGHLIGHTS & AWARDS - 2007 7-TIME NBA ALL-STAR (2001 TO 2007) - 2003 NBA SCORING CHAMPION (2002 AND 2003) - 2001 NBA MOST IMPROVED PLAYER AWARD --- YAO MING DISCIPLINE: BASKETBALL POSITION: CENTER TEAM...

  • Page 9
    TALENT & TEAMWORK CELEBRATING YOUR DIFFERENCES. EMBRACING CHANGE. AND BRINGING OUT THE BEST IN EACH OTHER. THIS IS WHAT MAKES A WINNING COMBINATION. -UNITED BY DIVERSITY-

  • Page 10
    TENACITY & COMPASSION STEPPING UP TO THE PLATE. STICKING TO YOUR PRINCIPLES. STANDING UP FOR FAIR PLAY. -UNITED BY INTEGRITY-

  • Page 11
    ... AWARD (2004 TO 2007) 5-TIME WINNER OF THE EDGAR MARTINEZ AWARD (2003 TO 2007) MEMBER OF THE WORLD SERIES CHAMPION BOSTON RED SOX BASEBALL TEAM (2004 AND 2007) LED THE AMERICAN LEAGUE IN EXTRA BASE HITS - 2006 LED THE AMERICAN LEAGUE IN HOME RUNS LED THE AMERICAN LEAGUE IN RUNS BATTED IN BOSTON RED...

  • Page 12
    ...3RD AT KRAFT NABISCO CHAMPIONSHIP - 2005 5TH AT LPGA CHAMPIONSHIP 8TH AT WOMEN'S BRITISH OPEN 4TH AT US WOMEN'S OPEN MEMBER OF WINNING UNITED STATES SOLHEIM CUP TEAM - 2002 2ND IN LOUISE SUGGS ROLEX ROOKIE OF THE YEAR - 2001 TURNED PROFESSIONAL FINISHED 3RD AT LPGA FINAL QUALIFYING TOURNAMENT - 1998...

  • Page 13
    FOCUS & DRIVE CONCENTRATING. KEEPING YOUR EYE ON THE BALL. AND FOLLOWING IT THROUGH. TIME AND AGAIN. -UNITED BY DIRECTION-

  • Page 14
    ..., ARIZONA, USA, TO STRENGTHEN OUR GROUP'S STRONG POSITIONING. BUT IT'S MORE THAN JUST BIG SPORTS EVENTS. INNOVATION, STATE-OF-THE-ART DESIGN AND EXCITING BRAND COMMUNICATION ARE WHAT DRIVE OUR GROUP'S ONGOING SUCCESS. ALL OF OUR ATHLETES. ALL OF OUR CONSUMERS. ALL OF OUR BRANDS. -UNITED BY SPORT...

  • Page 15
    ...Mission Statement 042 -- Group Brands and Divisions 043 -- Group Strategy 044 -- adidas Strategy 046 -- Reebok Strategy 050 -- TaylorMade-adidas Golf Strategy 054 -- Internal Group Management System 056 -- Major Locations and Promotion Partnerships 060 -- Corporate Functions 062 -- Global Operations...

  • Page 16
    .... With prominent positions at these two events and strong execution of brand strategies, the Group expects even stronger top- and bottom-line growth in 2008. Herbert Hainer CEO and Chairman of the Executive Board TO OUR SHAREHOLDERS - Interview with the CEO ANNUAL REPORT 2007 --- adidas Group

  • Page 17
    ... running and football. We put increased emphasis on controlled space as a key distribution channel for future growth - which means everything from new own-retail formats and expanded franchise networks in emerging markets to creative shopin-shop concepts in more mature markets. We also made digital...

  • Page 18
    ... means partnering with the event's biggest local star - basketball great - Yao Ming. This event will help our Group become the market leader in China this year, as well as drive sales growth throughout the region in 2008 and beyond. TO OUR SHAREHOLDERS - Interview with the CEO ANNUAL REPORT 2007...

  • Page 19
    .... In addition, Reebok is customizing its product offering for key retail partners - which means more relevant products for consumers, and higher margins for Reebok. And through the launch of the brand's global communication campaign -"Your Move"- Reebok is set to establish itself as a supporter of...

  • Page 20
    ...digit operating margin in the very near future. We sold Maxï¬,i because we now have all the know-how we need to be successful in the premium golf ball category. We are focused on growing our core golf brands: TaylorMade and adidas Golf. AFTER A SOLID 2007, WHAT CAN WE EXPECT FROM THE GROUP IN TERMS...

  • Page 21
    ... need to keep investing in our brands to capitalize on both short-term opportunities and to realize our long-term strategic goals. In 2008, we will also have costs related to the year's major sporting events and other important brand initiatives such as expanding our controlled space activities. In...

  • Page 22
    ... with Reebok International Ltd. in 1983, where he worked for ten years in various operations and product functions of which the latest was Director of Footwear Development. In 1993, Glenn Bennett joined adidas AG and began working as the Head of Worldwide Footwear Development. He was promoted to...

  • Page 23
    019 01 ANNUAL REPORT 2007 --- adidas Group

  • Page 24
    ... the Group's strategic goals going forward. In 2008, we expect major sports events and exciting new product launches to drive further expansion of our brands' market positions around the world. Dr. Hans Friderichs Chairman of the Supervisory Board SUPERVISORY FUNCTIONS In the year under...

  • Page 25
    ... the Annual General Meeting. Lastly, the Executive Board reported to us at this meeting on the development of the TaylorMade-adidas Golf segment, including the Maxï¬,i golf ball brand acquired at the beginning of 2003. The main focus of our May 9, 2007 meeting was the first quarter 2007 financial...

  • Page 26
    ... Supervisory Board member until June 30, 2007. The Audit Committee met four times in 2007. The auditor was always in attendance. Committee members discussed the annual financial statements of adidas AG and consolidated financial statements for 2006 intensively, as well as the half year and nine...

  • Page 27
    .... We discussed the Group's dividend policy with the Executive Board and, in light of the financial position of adidas AG as well as shareholders' and capital market expectations, we approved the proposal regarding the appropriation of retained earnings. 023 01 ANNUAL REPORT 2007 --- adidas Group

  • Page 28
    ... effective from the end of the November 7, 2007 Supervisory Board meeting, for personal reasons. He was a member of the adidas AG Supervisory Board for 14 years, and during this eventful period he provided valuable supervisory and advisory support to our Executive Board. Dr. Stefan Jentzsch, member...

  • Page 29
    ..., Germany 01 SABINE BAUER 2) Senior Manager Quality Service Systems, Global Operations, adidas AG HEIDI THALER-VEH 2) Member of the Central Works Council, adidas AG DR. IUR. MANFRED GENTZ Chairman of the Administrative Board, Zurich Financial Services S. A., Zurich, Switzerland -- Member of...

  • Page 30
    ... Audit Directive. DUAL BOARD SYSTEM 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 Supervisory Board. These two boards. are strictly separated in terms of...

  • Page 31
    ... Code of Conduct while carrying out the adidas Group's business. In 2007, we began to train employees in compliance-relevant matters by means of an e-learning seminar especially developed for this purpose. This guarantees further enhancement of our risk management. Â- see Risk and Opportunity Report...

  • Page 32
    ...Supervisory Board members, other key executives as well as persons in close relationship with them are required to disclose the purchase or sale of adidas AG shares or related financial instruments within five business days (Directors' Dealings). In 2007, we received eight Directors' Dealings noti...

  • Page 33
    ... 2008, our Executive Board members do not hold any further stock options. Should we decide, however, to initiate a new stock option plan in the future, we will comply with this recommendation. We do not specify an age limit for Supervisory Board members as our shareholders currently do not consider...

  • Page 34
    ...nancial position of the Group into consideration. Other benefits mainly comprise the use of a company car, the payment of insurance premiums and, in exceptional cases, an adjustment amount paid to equalize tax treatment of personal income between the USA and Germany. Executive Board members receive...

  • Page 35
    ... $ 326,595, Performance Bonus $ 900,000. An exchange rate of 1.3709 $ / â,¬ (annual average rate 2007) was used as the basis for calculation. 3) Also contains a tax adjustment due to different tax rates in Germany and the USA. EXECUTIVE BOARD TOTAL COMPENSATION IN 2006 â,¬ in thousands Share-based...

  • Page 36
    ...annual fixed salary as a one-time payment in the event that adidas AG decides not to renew the respective contract although the Executive Board member would be willing to continue his function as Executive Board member under the existing conditions. If an Executive Board member dies during his term...

  • Page 37
    ... 2007, a total contribution of â,¬ 545,219 was made. For future pension entitlements of our Executive Board members, adidas AG has established pension reserves. In the Consolidated Balance Sheet, plan assets which have arisen from the payments into the pension fund or pension trust fund are reported...

  • Page 38
    ...Â- 06 SECOND QUARTER -- 01.04. Â- Picture 04 adidas by Stella McCartney starts into its sixth season with the fall / winter 2007 collection introducing Gym Dance as a new category. 04.04. Â- Picture 05 Reebok launches the brand's biggest campaign of the year "Run Easy". This campaign helps to signi...

  • Page 39
    ... Â- 10 Â- 11 Â- 12 FOURTH QUARTER -- 04.10. For the eighth consecutive time, adidas AG is included in the Dow Jones Sustainability Indexes. adidas AG is also again included into the FTSE4Good Index. 10.10. TaylorMade-adidas Golf introduces a new product line of golf equipment called r7® CGB MAX...

  • Page 40
    ... Our share price also suffered as a result of concerns about the short-term Reebok business outlook, the weak state of the US mall-based channel as well as several earnings announcements from suppliers and retailers which were below market expectations. Despite the positive reaction to our quarterly...

  • Page 41
    ...cult with spill-over effects on the country's economy as well as international credit and capital markets. ADIDAS AG HISTORICALLY OUTPERFORMS BENCHMARK INDICES The adidas Group is committed to continuously enhancing shareholder value. The long-term development of our share price reï¬,ects investor...

  • Page 42
    ... investors accounted for 11 % of adidas AG shares (2007: 12 %). The shareholdings in the rest of Europe excluding Germany decreased to 38 % (2007: 40 %). 2 % are held by institutional shareholders in other regions of the world (2007: 2 %). adidas Group Management, which comprises current members of...

  • Page 43
    ... analyst support in 2007. Around 30 analysts regularly published research reports on adidas AG. In 2007, both Lehman Brothers and Goldman Sachs shifted coverage on our share to Europe from North America. This follows a similar trend initiated by other banks in 2006, after our acquisition of Reebok...

  • Page 44
    CHAMPION & CHALLENGER DELIVERING YOUR PERSONAL BEST. AND GUIDING YOUR TEAM BEYOND ALL BOUNDARIES. THIS IS WHAT LEADERSHIP IS ALL ABOUT. DEMONSTRATED SUCCESSFULLY BY AUSTRALIAN NATIONAL CRICKET TEAM CAPTAIN AND 2007 ICC CRICKET WORLD CUP WINNER RICKY PONTING. -UNITED BY DEDICATION-

  • Page 45
    ...Mission Statement 042 -- Group Brands and Divisions 043 -- Group Strategy 044 -- adidas Strategy 046 -- Reebok Strategy 050 -- TaylorMade-adidas Golf Strategy 054 -- Internal Group Management System 056 -- Major Locations and Promotion Partnerships 060 -- Corporate Functions 062 -- Global Operations...

  • Page 46
    ... our brands and products to improve our competitive position. WE ARE DEDICATED to consistently delivering outstanding financial results. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - Corporate Mission Statement - Group Brands and Divisions ANNUAL REPORT 2007 --- adidas Group

  • Page 47
    ... adidas is proud to support athletes in all sports, the Sport Performance division is mainly focused on four key categories: running, football, basketball and training. REEBOK (79 % of Reebok sales) Reebok is an American-inspired, global brand that creates and markets sports and lifestyle products...

  • Page 48
    ...supporting product initiatives at the point-of-sale. In addition, our commercial success also depends on leveraging the scale of our organization and sharing best practice across our Group. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - Group Strategy ANNUAL REPORT 2007 --- adidas...

  • Page 49
    ... our Group, Â- see Research and Development, p. 072 we continuously challenge the boundaries of functionality and performance. It is our objective to launch at least one major new technology or technological evolution per year. Through design partnerships and collaborations with Stella McCartney...

  • Page 50
    ... example, the brand extended a strategic partnership with its key account Intersport International Corporation. Within the scope of this cooperation, adidas offers customized product ranges in Intersport stores in categories such as football and running in 32 markets worldwide. Additionally, adidas...

  • Page 51
    ... distribution, supporting retail partners and utilizing partnerships with selected global marathon events (e. g. the Boston, London and Berlin Marathons), the brand expects to leverage its product offering globally and further strengthen its position in the running market. SPORT PERFORMANCE...

  • Page 52
    ..., to support these product concepts, adidas will run a global communication campaign centered around yoga. The brand will also continue to carefully extend the product offering and distribution of its acclaimed adidas by Stella McCartney range. SPORT STYLE: CAPITALIZING ON BRAND AUTHENTICITY AND...

  • Page 53
    ... selling prices and increasing profitability. adidas believes a strong brand image is the best defense against a promotional retail environment (i. e. competition at retail via price wars) and is prepared to give up short-term revenue opportunities as necessary to preserve the long-term market...

  • Page 54
    ... distribution strategy, Reebok intends to offer the right product for the right accounts at the right margins. Moreover, Reebok is committed to building a work environment that matches the need of its employees and to hiring people who fit the brand's values. GROUP MANAGEMENT REPORT - OUR GROUP...

  • Page 55
    ... to European countries. Further, Reebok will offer key directional retailers the possibility to order customized products on quick delivery timelines (i. e. 60 days). Reebok also increasingly interacts with consumers on a personal level, utilizing predominately digital marketing initiatives. Going...

  • Page 56
    ... 2008. By creating global ranges that include region-specific executions, Reebok aims to evolve into a credible and competitive market player in the branded apparel category. Therefore, Reebok is currently revamping its product design and development processes - adopting adidas best practices where...

  • Page 57
    ...emerging markets. In the near-term future, factory outlets will remain the most important format within Reebok's ownretail strategy in North America. Reebok-CCM Hockey mainly focuses on working closely with partners such as the NHL to establish jointly managed co-branded stores. Building on its 2007...

  • Page 58
    .... The brand intends to increase sales in the golf ball category by extending the TaylorMade branded offering and further leveraging the successful NOODLE franchise. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - TaylorMade-adidas Golf Strategy ANNUAL REPORT 2007 --- adidas Group

  • Page 59
    ... of its product offering at retail. The company also utilizes existing adidas infrastructure, particularly own-retail stores, to distribute adidas Golf products and drive growth in emerging markets. PRICING STRATEGY REFLECTS BRAND POSITIONING TaylorMade-adidas Golf's pricing policy mirrors the...

  • Page 60
    ... To keep Group and brand management focused on ongoing performance improvement, a portion of the responsible managers' total compensation is variable and linked to a combination of operating profit, operating working capital development, Group earnings before tax, or relative / absolute stock price...

  • Page 61
    ...public relations) on key global brand initiatives and focusing our promotion spend on well-selected partnerships with top events, leagues, clubs and athletes. We also aim to increase operational efficiency and reduce operating overhead expenses as a percentage of sales. Refining business processes...

  • Page 62
    ... financial returns of planned capital investments. The cost of equity is computed utilizing the risk-free rate, market risk premium and beta. Cost of debt is calculated using the risk-free rate, credit spread and average tax rate. STRUCTURED PERFORMANCE MEASUREMENT SYSTEM Our Group has developed an...

  • Page 63
    ... annual basis. We also provide updates throughout the year as appropriate. In 2007, we achieved all key financial targets within the focus of our Internal Management System. We outperformed global industry and macroeconomic growth, increased our earnings at a double-digit rate, and made strong debt...

  • Page 64
    060 MAJOR LOCATIONS AND PROMOTION PARTNERSHIPS The adidas Group sells products in virtually every country around the world. As at December 31, 2007, the Group had more than 170 subsidiaries worldwide with our headquarters located in Herzogenaurach, Germany. Our Group has also assembled an ...

  • Page 65
    ... 04 03 02, 0 2 04, 04 0 40 05 01 02 10 13 12 11 14 14 12, 12 2, 13 13, 1 3, 1 3, 15 5 02 01 16 SPORT IS GLOBAL. SPORT IS VARIETY. SPORT BRINGS THE WORLD TOGETHER. ATHLETES. FANS. DIFFERENT CULTURES. DIFFERENT GOALS. -UNITED BY SPORT-

  • Page 66
    ... partners, 71 % were located in Asia, 17 % were located in Europe and 12 % in the Americas. 28 % of all suppliers were located in China. Our Global Operations function manages product development, commercialization and distribution and also supervises sourcing of the adidas, Reebok and adidas Golf...

  • Page 67
    ... replenishing fastselling products at retail by sharing real-time customer sellthrough data with our suppliers. Being closest to every consumer enables the Group to achieve: 063 1) Figures only include adidas, Reebok and adidas Golf brands. 02 HARDWARE PRODUCTION BY REGION 1) Europe 4 % 96...

  • Page 68
    ...adidas brand concepts (e. g. adiSTAR, TECHFIT™, Predator®) to all markets globally with first priority in our supply chain, communications support and retail execution. The evergreen model provides short lead time and never-outof-stock capabilities for our most commercial long-lifecycle products...

  • Page 69
    ... Group must manage wide-ranging commercial and competitive pressures to deliver growth. Simultaneously, we have a responsibility towards our employees and the environment, to ensure that decent working conditions and environmental standards are met throughout our global organization and supply chain...

  • Page 70
    ... to help encourage factory improvements. In 2007, we terminated our business relationship with four suppliers for compliance reasons. CAREFUL SUPPLIER SELECTION To improve working conditions throughout our supply chain, our Group SEA team works closely with the Global Operations function on supplier...

  • Page 71
    ... supply chain. Activities focus on helping suppliers establish sound environmental management systems to best reduce their negative environmental impacts. We develop guidelines and training programs for our suppliers using the environmental performance of our own production sites as examples of best...

  • Page 72
    ...Reebok business. EMPLOYEES BY SEGMENT TaylorMadeadidas Golf 4 % HQ functions 14 % 60 % adidas Reebok 22 % EMPLOYEES BY REGION Latin America 4 % Asia 18 % 47 % Europe North America 31 % GROUP MANAGEMENT REPORT - OUR GROUP -- Corporate Functions - Employees ANNUAL REPORT 2007 --- adidas Group

  • Page 73
    EMPLOYEES BY FUNCTION in % 2007 2006 Own retail 41 29 Sales Logistics Marketing Central functions and administration Production Research and development IT Total 14 21 15 9 9 6 3 3 16 10 10 7 4 3 DIVERSITY A KEY SUCCESS FACTOR Diversity is one of our Group's strengths and core values. Â- ...

  • Page 74
    ...ve years' work experience to prepare them for future management positions within our Group. At year-end 2007, we employed 23 participants (2006: 22) in our FTP and 7 (2006: 3) in the BMP. - GROUP MANAGEMENT REPORT - OUR GROUP -- Corporate Functions - Employees ANNUAL REPORT 2007 --- adidas Group

  • Page 75
    ... a one-time gratification to employees in Germany. 02 Additional compensation components for senior management and Executive Board members include Long-Term Incentive Programs (LTIP) and a Management Share Option Plan (MSOP). Â- see Compensation Report, p. 030 ANNUAL REPORT 2007 --- adidas Group

  • Page 76
    ... ongoing success of our Group. As a result, research and development (R & D) is a cornerstone for our business going forward. We invest considerable resources into continuously developing and commercializing technological innovations and fresh design ideas, in order to best unite our brands' values...

  • Page 77
    ...total operating expenses versus 2.6 % in the prior year. R & D expenses as a percentage of sales decreased slightly to 0.8 % from 1.0 % in 2006. Â- see Note 24, p.184 Other related expenses for product development and market research, for example, were incurred as part of the Group's other operating...

  • Page 78
    ... technologies into casual and dress shoes. In all Reebok divisions, R & D includes a development / engineering team as well as a design and commercialization team, a human performance laboratory and a prototype sampling group with the product marketing teams in each strategic business unit. Major...

  • Page 79
    ..., products launched in 2007 accounted for 50 % of sales. Less than 20 % of total sales were generated with products introduced more than three years ago. INNOVATION CONTINUES AS KEY SUCCESS FACTOR FOR TAYLORMADE-ADIDAS GOLF In the TaylorMade-adidas Golf segment, current products (i. e. products...

  • Page 80
    DISCIPLINE & CLARITY UNTIRING IN YOUR FOCUS. UNAMBIGUOUS IN YOUR APPROACH. ALWAYS AIMING FOR HIGHER GOALS. DEMONSTRATED SUCCESSFULLY BY 21-TIME WORLD POLE VAULT RECORD HOLDER YELENA ISINBAYEVA. -UNITED BY COMMITMENT-

  • Page 81
    ... MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance 078 -- Economic and Sector Development 078 -- Income Statement 080 -- Balance Sheet and Cash Flow Statement 088 -- Treasury 091 -- Additional Disclosures 094 -- Business Performance by Segment 096 -- adidas Business Performance...

  • Page 82
    ... credit costs. REGIONAL GDP DEVELOPMENT 1) in % Latin America Global Europe USA Asia 010 008 006 004 002 000 2007 2006 Source: Allianz. 1) Real, percentage change versus prior year; 2007 figures are estimated. GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance...

  • Page 83
    ...-digit rate with running, basketball and training being the main contributors. Apparel sales also increased at a double-digit rate, mainly due to growth in the training category. Average selling prices were stable throughout the region. LATIN AMERICAN SPORTING GOODS MARKET INCREASES In Latin America...

  • Page 84
    ... of the Reebok business into the adidas Group. Revenue synergies mainly occurred in the Reebok segment. Sales increased incrementally in several countries for which Reebok had purchased the distribution rights in order to better control brand management and gain market share. Revenues grew...

  • Page 85
    ...revenues reï¬,ects sales for the full twelve-month periods of both years. It also includes GNC retail sales which were transferred from the TaylorMade-adidas Golf segment to the Reebok segment, effective January 1, 2007. However, it excludes sales related to the NBA and Liverpool licensed businesses...

  • Page 86
    ...business segment. 2) Including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, 2006. GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance - Income Statement ANNUAL REPORT 2007 --- adidas Group

  • Page 87
    ... basis. Increased adidas and TaylorMade-adidas Golf sales through external licensees and higher average royalty rates at all brands were the main drivers of this increase. The consolidation of the month of January in the Reebok segment in 2007 also positively impacted this development. In euro terms...

  • Page 88
    ...ects one-time costs related to the integration of Reebok into the adidas Group as well as higher expenses in the Reebok segment for advertising, product development and initiatives to grow the brand in emerging markets. In absolute terms, operating expenses for the adidas Group increased by 9 % to...

  • Page 89
    ... PERCENTAGE OF SALES Group operating overheads include overhead costs related to marketing, sales, logistics, research and development as well as central finance and administration functions. Operating overhead expenses as a percentage of sales increased 2.2 percentage points to 26.0 % in 2007 from...

  • Page 90
    ... quarter of 2005. FINANCIAL EXPENSES DECREASE BY 14 % Financial expenses decreased 14 % to â,¬ 170 million in 2007 (2006: â,¬ 197 million), mainly as a result of significantly lower gross borrowings versus the prior year. INCOME BEFORE TAXES INCREASES BY 13 % As a result of the Group's operating...

  • Page 91
    ... 14 % The Group's net income attributable to shareholders increased 14 % to â,¬ 551 million in 2007 from â,¬ 483 million in 2006. This development was in line with initial Management expectations that targeted an increase at a rate approaching 15 %. The Group's higher operating profit, lower net...

  • Page 92
    ... policy and changes in management discretion in the application of accounting standards had no impact on the structure of the Group's balance sheet in the reporting period. BALANCE SHEET STRUCTURE 1) in % of total assets BALANCE SHEET STRUCTURE 1) in % of total liabilities and equity Assets 2007...

  • Page 93
    ..., accounts payable were up 22 %. The increase is primarily due to increased product deliveries from suppliers in the last quarter of the year, reï¬,ecting the Group's sales growth expectations. 089 1) Restated due to application of amendment to IAS 19. 2) Including Reebok business segment from...

  • Page 94
    ...rate effect of â,¬ 1 million. 2007 CAPITAL EXPENDITURE BY SEGMENT TaylorMadeadidas Golf 4 % Reebok 20 % 52 % adidas HQ / Consolidation 24 % GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance - Balance Sheet and Cash Flow Statement - Treasury ANNUAL REPORT 2007 --- adidas...

  • Page 95
    ...local managing directors and financial controllers are responsible for managing treasury matters in the respective subsidiaries. Brand and regional controlling ensures that the transactions of the individual business units are in compliance with the Group's Treasury Policy. TOTAL CREDIT FACILITIES...

  • Page 96
    ...: 4.8%), mainly as a result of higher interest rates in the Euro Zone. As a result, our debt reduction in 2007 focused primarily on decreasing the Group's variable financing arrangements to better protect against future interest rates increases. Â- see Risk and Opportunity Report, p. 104 Long-term...

  • Page 97
    ... (2,231) (1,766) 7 2007 2006 1) Restated due to application of amendment to IAS 39. 2) Including Reebok business segment from February 1, 2006 onwards. Total cash and short-term financial assets Bank borrowings Commercial paper Private placements Convertible bond Gross total borrowings Net cash...

  • Page 98
    ... are members of the Executive Board of adidas AG as well as managing directors / senior vice presidents of its affiliated companies and other executives of the adidas Group. Shares are issued to MSOP beneficiaries if they exercise their stock options in accordance with the option conditions and...

  • Page 99
    ...on condition of a change of control following a takeover offer. Certain changes of control clauses, however, do exist between various subsidiaries and third parties. Currently, no compensation agreements exist between adidas AG and members of the Executive Board or employees relating to the event of...

  • Page 100
    ... in 2007. The key categories identified by brand management as medium-term growth drivers Â- see adidas Strategy, p. 046 contributed the majority of this increase, with particularly strong growth in the running and training categories. In euro terms, Sport Performance sales improved 10 % in 2007 to...

  • Page 101
    ... the adidas segment. All markets in this region grew at double-digit rates. Currency translation effects negatively impacted sales in euro terms in all regions. Sales in Europe grew 7 % in euro terms to â,¬ 3.526 billion in 2007 from â,¬ 3.302 billion in 2006. Revenues in North America decreased...

  • Page 102
    ... sales. Higher average royalty rates also supported growth. In addition, increased intra-Group royalties received from the TaylorMade-adidas Golf segment due to strong adidas Golf sales contributed to this development. adidas royalty and commission income relates, for example, to royalty income...

  • Page 103
    ... countries for which Reebok had purchased the distribution rights, in particular Russia and China, also contributed to this development. Distribution buybacks were made to better control brand management and gain market share. Â- see Reebok Strategy, p. 050 099 03 ANNUAL REPORT 2007 --- adidas...

  • Page 104
    ...of strong sales growth, particularly in Mexico and Chile. REEBOK 2007 NET SALES BY REGION Latin America 4 % Asia 11 % 53 % North America Europe 32 % GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Business Performance by Segment - Reebok Business Performance ANNUAL REPORT 2007 --- adidas Group

  • Page 105
    .... Major openings in 2007 included concept stores in Hong Kong and Moscow. REEBOK SEGMENT GROSS MARGIN SUPPORTED BY REALIZATION OF COST SYNERGIES The gross margin of the Reebok segment increased 3.7 percentage points to 38.7 % in 2007 from 35.0 % in 2006. This development was in line with Management...

  • Page 106
    ... category, also increased. Â- see TaylorMade-adidas Golf Strategy, p. 054 Currency translation effects negatively impacted segment revenues in euro terms. Segment sales decreased 6 % to â,¬ 804 million in 2007 from â,¬ 856 million in 2006. TAYLORMADE-ADIDAS GOLF NET SALES BY QUARTER 1) â,¬ in...

  • Page 107
    ... revenues grew at a high-singledigit rate. Like-for-like sales in North America increased at a low-single-digit rate. GROSS MARGIN INCREASES TO 44.7 % TaylorMade-adidas Golf gross margin increased 0.8 percentage points to 44.7 % in 2007 (2006: 43.9 %). This development was in line with Management...

  • Page 108
    ... opportunity management is a Group-wide activity, which utilizes critical day-to-day management insight from local and regional business units. Support and strategic direction is provided by brand and global functions. Centralized risk management is responsible for the alignment of various corporate...

  • Page 109
    ... and social landscape, each business unit actively monitors brand, distribution channel and price point developments in our 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...

  • Page 110
    ...Global Operations, p. 062 In 2007, we implemented new consumer segmentation strategies at both brand adidas and Reebok and combined Group resources for market research and competitor research. In addition, we increased and focused our marketing working budget spend at Reebok, in line with the future...

  • Page 111
    ... a regionally balanced sales mix and continually adapting the Group's distribution strategy. In 2007, we employed this strategy by instigating a new adidas distribution policy in the UK. In this market, several years of retail consolidation had led to inadequate product presentation among retailers...

  • Page 112
    ...in both these segments remains low. . During the past twelve months, we introduced our first postacquisition initiatives to support our long-term brand image strategy for Reebok. In 2008, we will increase our efforts by launching several new product technologies and a new global brand campaign to...

  • Page 113
    ...of 2007, the Group decided to limit the Reebok product offering to an important mallbased key account in North America who had continually discounted Reebok product. Although we have been strengthening Reebok's business in other retail channels such as sporting goods, we expect this development will...

  • Page 114
    ... secured long-term contract extensions with a variety of important partners and announced several important new event and multi-year promotion partnership agreements. Â- see adidas Strategy, p. 046 In 2007, competition for top partnership assets within our industry increased notably. An example of...

  • Page 115
    ... is mainly inï¬,uenced by individual customer characteristics. Under the Group's credit policy, new customers are analyzed for creditworthiness before standard payment and delivery terms and conditions are offered. This review utilizes external ratings from credit agencies. Purchase limits are...

  • Page 116
    ... sheet exposure, including inter-company balances from monetary assets and liabilities denominated in foreign currencies. Moreover, all currency derivatives were re-evaluated using hypothetical foreign exchange rates to determine the effects on net income and equity. The analysis was performed...

  • Page 117
    ...have the vast majority of our hedging volume secured six months prior to the start of a given season. In rare instances, long-term promotion partnership contracts are hedged beyond the 18-month horizon. The Group also largely hedges balance sheet risks. Due to our strong global position, we are able...

  • Page 118
    ... new celebrity partnerships to upgrade and emotionalize the brand's lifestyle offering. In 2008 and beyond, we will launch new initiatives in this category to capitalize on Reebok's lifestyle credibility. GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR - Risk and Opportunity Report ANNUAL REPORT 2007...

  • Page 119
    ... products to increase going forward. STRATEGIC AND OPERATIONAL OPPORTUNITIES STRONG MARKET POSITIONS WORLDWIDE The adidas Group has the highest market share in numerous countries around the world. This strong competitive position offers us many advantages in terms of global brand visibility, market...

  • Page 120
    ... developments can potentially have a positive impact on the Group's financial results. Our Group Treasury department closely monitors the financial markets to identify opportunities. GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR - Risk and Opportunity Report - Subsequent Events ANNUAL REPORT 2007...

  • Page 121
    ... STRUCTURE On February 5, 2008, we announced the expansion of the Amsterdam-based adidas International Trading B.V. to create a global, multi-brand trading platform for the adidas Group. Primary responsibility will be to purchase product from our suppliers and sell it to the adidas and Reebok sales...

  • Page 122
    ... the Beijing 2008 Olympic Games to have a positive long-term impact on the image and sales development of both adidas and Reebok. Supported by this event, we expect the adidas Group to become the market leader in China in 2008. However, we expect no significant sales increase related to the Olympic...

  • Page 123
    ...growth rates are expected in Latin America. The momentum of the region's sporting goods industry is projected to remain intact, but there are concerns related to increasing trade barriers being implemented in certain markets such as Argentina and Brazil. 119 03 ANNUAL REPORT 2007 --- adidas Group

  • Page 124
    ...-digit rate due to increases in Asia and Europe. ADIDAS ORDER BACKLOGS (CURRENCY-NEUTRAL) 1) Development by quarter in % Q1 / 06 Q2 / 06 Q3 / 06 Q4 / 06 Q1 / 07 Q2 / 07 Q3 / 07 Q4 / 07 20 17 15 12 16 10 9 7 9 5 3 1 0 1) Change year-over-year. GROUP MANAGEMENT REPORT - OUR FINANCIAL...

  • Page 125
    ... focus on the key North American market. Our efforts to broaden the brand's lifestyle offering will also become more visible. We anticipate a positive sales development at Reebok-CCM Hockey and Rockport, supported by the launch of new product lines. Retailer and trade show feedback, especially...

  • Page 126
    ... the launch of Reebok's new 2008 brand campaign "Your Move". Â- see Reebok Products and Campaigns, p. 138 The marketing working budget at TaylorMade-adidas Golf is expected to remain stable as a percentage of sales in 2008. GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR - Outlook ANNUAL REPORT 2007...

  • Page 127
    ... running, football, basketball and training at the adidas and Reebok brands, as well as golf hardware at TaylorMadeadidas Golf. The number of employees working in research and development throughout the Group will increase in 2008 to support our increasing number of innovation projects. Accounting...

  • Page 128
    ... suppliers. Finally, we plan to commission external verification of the tools and processes developed for selecting organic and recycled materials used in our products. - Â- see Subsequent Events, p. 117 GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR - Outlook ANNUAL REPORT 2007 --- adidas Group

  • Page 129
    ... for licensed products of brand adidas, particularly in North America. - PHASING OF INTEGRATION COST SYNERGIES â,¬ in millions Cost of sales: By integrating Reebok into our Global Operations function, we expect to achieve a cost of sales reduction through optimized purchasing processes by 2009...

  • Page 130
    RESOLUTE & REAL YOU'RE SOMEONE WHO KNOWS THAT ACTIONS SPEAK LOUDER THAN WORDS. EVERY TIME PEOPLE UNDERESTIMATE YOU, YOU PROVE THEM WRONG. DEMONSTRATED SUCCESSFULLY BY NEW YORK GIANTS QUARTERBACK AND 2008 SUPER BOWL CHAMPION AND MVP ELI MANNING. -UNITED BY DETERMINATION-

  • Page 131
    04 PRODUCTS AND CAMPAIGNS -- adidas Products and Campaigns 129 -- Reebok Products and Campaigns 138 -- TaylorMade-adidas Golf Products and Campaigns 146 04

  • Page 132
    128 OUR RESEARCHERS, DESIGNERS AND DEVELOPERS ALL HAVE ONE COMMON GOAL: TO CREATE THE BEST SPORTS AND LIFESTYLE PRODUCTS IN THE WORLD. THE RESULT IS TECHNOLOGY THAT SETS NEW STANDARDS. AND STYLE THAT SETS NEW TRENDS. FOR EVERY TYPE OF SPORT. FOR EVERY TYPE OF ATHLETE. FOR EVERY TYPE OF CONSUMER. TO...

  • Page 133
    ... of the game as well as at the heart of the new adiPure footwear line. Timeless design highlights adidas' unique heritage in the world's biggest sport. adiPure features intricate detailing, ultra-soft leather and a glove-like fit. It is the signature shoe of reigning FIFA world footballer of the...

  • Page 134
    ... & DYNAMICS -- ADIDAS RUNNING -- adiSTAR Control The adiSTAR Control is an exciting addition to adidas' premium family of running shoes. It employs road-smoothing ForMotionâ„¢ elements and is enhanced with a lighter upper, extra cushioning in the midsole and a snug and comfortable lining for...

  • Page 135
    ... TRAINING -- TECHFIT™ POWERWEB The adidas TECHFIT™ POWERWEB is at the cutting edge of athletic design and delivers unique benefits in power and balance by focusing on improving body stability and posture. This compression apparel reduces muscle vibration and enhances temperature management...

  • Page 136
    132 UNIQUE & COLORFUL -- ADIDAS ORIGINALS -- Handbags For Feet This collection is a new must-have for style-conscious women. It offers a comprehensive selection of footwear featuring graphics and materials inspired by luxurious handbag design. YOUR FAVORITE COVER

  • Page 137
    ... how the entire Chinese nation supports their athletes and the Games themselves. Famous Chinese Olympians such as basketball superstar Sui Feifei, key members of the Chinese women's volleyball team, diving sensation Hu Jia and football legend Zheng Zhi are featured in the campaign. 133 04 YOUR...

  • Page 138
    ... Is Nothing Building further on the Impossible Is Nothing message, in 2008 adidas will introduce a new multi-stage football campaign for the UEFA EURO 2008â„¢. This campaign aims to help consumers improve their game through insights given by some of the world's best footballers. Players such...

  • Page 139
    -- ADIDAS BASKETBALL -- Basketball Is A Brotherhood The team idea is at the core of the "Basketball Is A Brotherhood" campaign. As official sponsor to the NBA, adidas is proud to be front and center at this year's NBA All-Star Game in New Orleans, Louisiana, USA. With stand-out players such as ...

  • Page 140
    ...the diversity of its product offers as the one, genuinely global sports brand. Now thirty years later, adidas is reintroducing the visual device to celebrate the brand's originality and highlight the breadth and depth adidas Originals lifestyle products offer around the world. YOUR FAVORITE COVER

  • Page 141
    -- ADIDAS Y-3 -- Global Spring / Summer 2008 Campaign The inspiration for the Y-3 2008 advertising campaign is rooted in video aesthetics of the 1980s. The grainy quality, movement and fast-looking action all blend to create a stimulating environment with an urban ...

  • Page 142
    138 FIT & FUNCTIONALITY -- REEBOK RUNNING -- HEXRIDE Rally Running Shoe Reebok's HEXRIDE running footwear collection features a hexagonal sole, in a honeycomb shape, which is one of the top strength-to-weight ratio constructions engineering can offer. The HEXRIDE technology features both ...

  • Page 143
    ...139 04 -- REEBOK WOMEN'S -- Reebok Pink Ribbon Collection Reebok is the official global footwear and apparel sponsor of the 2008 Avon Walk Around the World for Breast Cancer. The brand has developed a special Pink Ribbon collection of sports and lifestyle products. All products carry the symbolic...

  • Page 144
    ...STYLISH & ICONIC -- REEBOK WOMEN'S LIFESTYLE -- Freestyle Cities Collection: Paris Inspired by some of the world's most famous cities, Reebok's Freestyle Cities Collection features shoes designed as unique as the cities they take inspiration from. Fresh new treatments and colors update this Classic...

  • Page 145
    ... appeal to collectors and fans alike of the popular 1980s animated television series. This line features five of Reebok's most celebrated Classic models tied in to the five key robot characters of the original series. The Voltron Collection is a key directional and lifestyle story for the brand.

  • Page 146
    ...foam technology makes the new CCM Vector U+ Pro Skate an ultra-lightweight, completely thermo-formable and extremely strong hockey skate. This skate also features Reebok's PlayDry anti-microbial liner to reduce slippage. The newly designed Black & Gold Rbk 7K Sickick Stick is currently being used by...

  • Page 147
    ...Your Move Reebok's "Your Move" global marketing campaign will support the brand's commitment to celebrating individuality, while also encouraging consumers to play by their own rules. The "Your Move" message will be communicated through integrated brand, running, women's and global football stories.

  • Page 148
    144 -- REEBOK OLYMPIC GAMES -- Fuel Yao's Unlimited Power Reebok's 2008 Chinese marketing campaign „Fuel Yao's Unlimited Power", Reeboks Marketingund Werbekampagne 2008 in China ehrt Basketball-Ikone "Fuel Yao's Unlimited Power" celebrates basketball iconYao Ming und seine aufregende Reise zu den...

  • Page 149
    ... in Rockport Rockport's new advertising campaign underscores the brand's commitment to style, substance and authenticity. Rockport strives to deliver shoes which make it easy for consumers to go where they want to go, do what they want to do and be who they want to be. That's what it means to "Live...

  • Page 150
    ...TAYLORMADE-ADIDAS GOLF -- TOUR360 LTD adidas Golf's new TOUR360 LTD represents a new class of high-performance golf footwear that melds advanced technology with luxurious features. Instantly popular with adidas Golf's Tour Staff professionals, the TOUR360 LTD proves that properly uniting performance...

  • Page 151
    -- TAYLORMADE-ADIDAS GOLF -- The Beast Campaign TaylorMade's "Beast" advertising campaign for the new Tour Burner® driver utilizes muscular language to convey the club's function: extreme power fueled by innovation. The campaign is designed to convey the club's persona: brash, powerful and in-your-...

  • Page 152
    ABILITY & INSTINCT YOU PLAY WITH STYLE AND SUBSTANCE. YOU ALWAYS SEEM TO BE IN THE RIGHT PLACE AT THE RIGHT TIME. AND YOUR TEAMMATES KNOW THEY'RE ALL BETTER BECAUSE OF YOU. DEMONSTRATED SUCCESSFULLY BY 2007 NHL LEADING SCORER AND MVP SIDNEY CROSBY. -UNITED BY TALENT-

  • Page 153
    ... FINANCIAL STATEMENTS -- Responsibility Statement 150 -- Independent Auditor's Report 151 -- Consolidated Balance Sheet 152 -- Consolidated Income Statement 153 -- Consolidated Statement of Cash Flows 154 -- Consolidated Statement of Recognized Income and Expense 156 -- Notes 157 -- Statement...

  • Page 154
    ...true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and...

  • Page 155
    ... by adidas 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 January 1, 2007 to...

  • Page 156
    ... as held for sale Total current liabilities Long-term borrowings Pensions and similar obligations Deferred tax liabilities Non-current accrued liabilities and provisions Other non-current liabilities Total non-current liabilities Share capital Reserves Retained earnings Shareholders' equity Minority...

  • Page 157
    ... STATEMENT (IFRS) â,¬ in millions 153 Â- 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 income Financial expenses Income before taxes (% of net sales) Income...

  • Page 158
    ...before working capital changes (Increase) / Decrease in receivables and other current assets Decrease in inventories Increase / (Decrease) in accounts payable and other current liabilities Cash provided by operations Interest paid Income taxes paid Net cash provided by operating activities Investing...

  • Page 159
    ...millions 155 Â- Note Financing activities: (Decrease) / Increase in long-term borrowings Dividend to shareholders of adidas AG Dividend to minority shareholders Exercised share options Net cash (used in) / provided by financing activities Effect of exchange rates on cash Decrease in cash and cash...

  • Page 160
    ...of net investments in foreign subsidiaries, net of tax Actuarial gain of defined benefit plans, net of tax Currency translation Net income recognized directly in equity Net income after taxes Total income and expense recognized in the financial statements Attributable to shareholders of adidas AG...

  • Page 161
    ... design, develop, produce and market - increasingly through own-retail activities - a broad range of 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...

  • Page 162
    ... are recorded directly in income. Assets and liabilities of the Group's non-euro functional currency subsidiaries are translated into the reporting currency the "euro", which is also the functional currency of adidas AG, at closing exchange rates at the balance sheet date. Revenues and expenses...

  • Page 163
    ... cash and short-term bank deposits with maturities of three months or less from the date of acquisition. RECEIVABLES AND OTHER ASSETS Receivables and other assets are recognized at fair value, which is estimated as the present value of future cash ï¬,ows discounted at the market rate of interest...

  • Page 164
    ...ve-year average debt/equity structure and financing costs including the Group's major competitors. The discount rate used is after-tax rates and reï¬,ects specific equity and country risk. The applied discount rate is 7.5 % (2006: 7.5 %). Expenditures for internally generated intangible assets are...

  • Page 165
    ... discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on high-quality corporate bonds. Calculations are performed by qualified actuaries using the projected unit credit method in accordance with IAS 19...

  • Page 166
    ... 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 were granted to members of the Executive Board of adidas AG as well as to the managing...

  • Page 167
    ...2006, the adidas Group assumed control of Reebok International Ltd. (USA), with all its direct and indirect shareholdings. The purchase price for 100 % of the shares of Reebok International Ltd. (USA) was US$ 3.6 billion (â,¬ 3.0 billion), fully paid in cash. 163 ASSETS CLASSIFIED AS HELD-FOR-SALE...

  • Page 168
    ... Fair value adjustments Cash and cash equivalents Accounts receivable Inventories Other current assets Property, plant and equipment, net Trademarks and other intangible assets, net Long-term financial assets Deferred tax assets Other non-current assets Borrowings Accounts payable Income taxes...

  • Page 169
    ...FINANCIAL ASSETS Short-term financial assets are classified at "fair value through profit or loss". Changes in the fair value are recognized in the income statement as they occur. The majority of short-term financial assets are marketable securities relating to money market funds and structured...

  • Page 170
    ... other current assets to property, plant and equipment (Land and buildings). For details Â- see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attachment I to these Notes) CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007...

  • Page 171
    ... 2006. Future changes in expected cash ï¬,ows and discount rates may lead to impairments of the accounted trademarks in the future. For details Â- see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attachment I to these Notes) 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 172
    ... active market, therefore other methods of reasonably estimating fair value as at December 31, 2007 were used. Dividends are distributed by FC Bayern München AG instead of regular interest payments. Additionally, long-term financial assets include investments which are mainly invested in insurance...

  • Page 173
    ... short-term borrowings are based upon long-term arrangements, the Group reports them as long-term borrowings. The borrowings related to our outstanding convertible bond changed in value, reï¬,ecting the accruing interest on the debt component in accordance with IFRS requirements. 05 ANNUAL REPORT...

  • Page 174
    ... salary payments, such as bonuses and overtime, as well as outstanding vacation. Other accrued liabilities mainly include items not otherwise allocated and also accruals for interest. CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007 --- adidas Group

  • Page 175
    ...conditions in each respective country. PENSIONS AND SIMILAR OBLIGATIONS â,¬ in millions Dec. 31 2007 Dec. 31 2006 Liabilities due to personnel Tax liabilities other than income taxes Liabilities due to social security Deferred income Financial liabilities Interest rate derivatives Currency options...

  • Page 176
    ...invested in several pension funds. The return on plan assets is in conformity with the current strategy of the pension funds. In 2007, the actual return on plan assets was â,¬ 7 million (2006: â,¬ 2 million). CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT...

  • Page 177
    ...Management Share Option Plan. In October 2007, the nominal capital again increased as a result of the exercise of a total of 975 stock options in August 2007 and the issuance of 3,900 shares associated with the Management Share Option Plan. At the balance sheet date, the nominal capital of adidas AG...

  • Page 178
    ... Contingent Capital 1999 / I serves the purpose of fulfilling stock options in connection with the Management Share Option Plan to members of the Executive Board of adidas AG as well as to managing directors / senior vice presidents of its affiliated companies and to other executives of adidas AG...

  • Page 179
    ... German Stock Corporation Act has been observed. The Executive Board of adidas AG did not issue any shares from the Contingent Capital 2006 in the period beyond the balance sheet date up to and including February 15, 2008. ACQUISITION OF TREASURY SHARES By resolution of the Annual General Meeting...

  • Page 180
    ...% net debt to equity. In addition, it is intended to largely use future excess cash for a buyback of adidas AG shares. There were no changes in the Group's approach to capital management during the year. CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007...

  • Page 181
    ... to the retained earnings of adidas AG and calculated under German Commercial Law. The dividend for 2006 was â,¬ 0.42 per share (total amount: â,¬ 85.5 million) approved by the 2007 Annual General Meeting. The Executive Board of adidas AG will propose to shareholders a dividend payment of â,¬ 0.50...

  • Page 182
    ... STATEMENT OF CHANGES IN EQUITY â,¬ in millions Â- Note Balance at December 31, 2005 Net income recognized directly in equity Net income Total recognized income and expense for the period Dividend payment Increase in share capital due to share split Exercised share options Acquisition of shares...

  • Page 183
    ... long-term contracts. Financial commitments under these contracts mature as follows: FINANCIAL COMMITMENTS FOR SERVICE ARRANGEMENTS â,¬ in millions Dec. 31 2007 Dec. 31 2006 Within 1 year Between 1 and 5 years After 5 years Total 48 62 - 110 43 42 - 85 5 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 184
    ...) Available-for-Sale Financial Assets (AfS) Financial Liabilities Measured at Amortized Cost (FLAC) Financial Liabilities at fair value through profit or loss Held for Trading (FLHfT) CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007 --- adidas Group

  • Page 185
    ... Value Option - FVO) thereof: Held for Trading (FAHfT) Loans and Receivables (LaR) Available-for-Sale Financial Assets (AfS) Financial Liabilities Measured at Amortized Cost (FLAC) Financial Liabilities at fair value through profit or loss Held for Trading (FLHfT) 05 ANNUAL REPORT 2007 --- adidas...

  • Page 186
    ... future cash ï¬,ows using current interest rates for debt of similar terms and remaining maturities. Fair values of short-term financial assets measured at "fair value through profit or loss" and long-term financial assets classified as available-for-sale are based on quoted market prices...

  • Page 187
    ... fair values of its derivatives that are not publicly traded, the adidas Group uses generally accepted finance-related economic models based on market conditions prevailing at the balance sheet date. The above summary for 2007 includes the notional amount of one long-term US dollar interest rate...

  • Page 188
    ... within the cost of sales as they are directly attributable to the production costs of goods sold. Total other operating income was â,¬ 80 million and â,¬ 55 million for the years ending December 31, 2007 and 2006, respectively. The other operating income consists of payments in accounts receivable...

  • Page 189
    ... taken into account for the calculation of the deferred tax assets and liabilities of the German companies in 2007. For non-German companies, deferred taxes are calculated based on tax rates that have been enacted or substantively enacted by the closing date. 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 190
    ...utilized for the calculation of the deferred tax assets and liabilities. The total change relates mainly to a UK tax rate reduction effective in 2008. CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Income Statement - Notes - Additional Information ANNUAL REPORT 2007 --- adidas Group

  • Page 191
    ... 219,467,177 219,399,522 2 the design, wholesale and marketing of athletic and sports lifestyle products. The Group is currently managed by brands. Certain Group functions are centralized and an allocation of these functions to specific segments is not considered to be meaningful. This includes...

  • Page 192
    ... PRIMARY SEGMENTAL INFORMATION BY BRAND â,¬ in millions adidas 2007 2006 2007 Reebok 2006 TaylorMade-adidas Golf 2007 2006 HQ / Consolidation 2007 2006 2007 adidas Group 2006 Net sales to third parties Gross profit in % of net sales Operating profit in % of net sales Assets Liabilities Capital...

  • Page 193
    ... of an asset deal. Â- see Note 4 In 2006, this line item includes the acquisition of Reebok International Ltd. Â- see Note 4 Â- 32 EQUITY COMPENSATION BENEFITS MANAGEMENT SHARE OPTION PLAN (MSOP) OF ADIDAS AG Under the Management Share Option Plan (MSOP) adopted by the shareholders of adidas AG on...

  • Page 194
    ..., the stock market price for the adidas AG share must have developed by an annual average of 1 % more favorably than the stock market prices of a basket of global competitors of the adidas Group and in absolute terms may not have fallen. The stock options may only be exercised against payment of...

  • Page 195
    ... shares, thus reducing its stock capital. Effective February 11, 2008, TaylorMade-adidas Golf divested the Maxï¬,i brand. The divested business accounted for approximately 1 % of TaylorMade-adidas Golf sales in 2007. DATE OF AUTHORIZATION FOR ISSUE The Executive Board of adidas AG approved...

  • Page 196
    ... Total intangible assets Land and buildings Acquisition cost January 1, 2006 Currency effect Additions Increase in companies consolidated Transfers to assets held for sale Decrease in companies consolidated Transfers Disposals December 31, 2006 /January 1, 2007 Currency effect Additions Increase...

  • Page 197
    ...equipment, furniture and fittings Construction in progress Total tangible assets Shares in affiliated companies Participations Other financial assets Total financial assets... (3) ) (5) ) 129 (2) ) 6 - - - - (3) ) 130 15 - - 8 23 - - 4 27 114 106 103 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 198
    ...Sub-group Onfield 10) Sub-group Reebok-CCM Hockey, Inc. (formerly: The Hockey Company) 11) Sub-group Sports Holdings Corporation 12) Sub-group Reebok International Limited 13) Profit and loss transfer agreement CONSOLIDATED FINANCIAL STATEMENTS - Shareholdings ANNUAL REPORT 2007 --- adidas Group

  • Page 199
    ...number refers to the number of the company. 9) Sub-group Onfield 10) Sub-group Reebok-CCM Hockey, Inc. (formerly: The Hockey Company) 11) Sub-group Sports Holdings Corporation 12) Sub-group Reebok International Limited 13) Profit and loss transfer agreement 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 200
    ...100 100 North America 87 adidas North America, Inc. 88 adidas America, Inc. 89 adidas Promotional Retail Operations, Inc. 90 adidas Sales, Inc. 91 adidas Village Corporation 92 adidas Interactive, Inc. 1) Sub-group adidas UK 2) Sub-group Reebok International Ltd. 3) Sub-group adidas Sourcing 4) Sub...

  • Page 201
    ...number refers to the number of the company. 9) Sub-group Onfield 10) Sub-group Reebok-CCM Hockey, Inc. (formerly: The Hockey Company) 11) Sub-group Sports Holdings Corporation 12) Sub-group Reebok International Limited 13) Profit and loss transfer agreement 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 202
    ...Sub-group Onfield 10) Sub-group Reebok-CCM Hockey, Inc. (formerly: The Hockey Company) 11) Sub-group Sports Holdings Corporation 12) Sub-group Reebok International Limited 13) Profit and loss transfer agreement CONSOLIDATED FINANCIAL STATEMENTS - Shareholdings ANNUAL REPORT 2007 --- adidas Group

  • Page 203
    ...units in thousands) Share in capital held by8) (Attachment II) 199 Company and Domicile Currency in % 150 151 152 153 154 155 156 Reebok Trading (Far East) Ltd. RIL Securities Ltd. Reebok (China) Services Limited Zhuhai adidas Technical Services Ltd. (formerly: Zhuhai Reebok Sporting Products...

  • Page 204
    ... ADIDAS GROUP SEGMENTAL INFORMATION: TEN-YEAR OVERVIEW â,¬ in millions 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 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...

  • Page 205
    ADIDAS GROUP SEGMENTAL INFORMATION: TEN-YEAR OVERVIEW â,¬ in millions 201 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Regions 4) 5) Europe Net sales North America Net sales Asia Net sales Latin America Net sales 4,369 4,162 3,166 3,068 3,365 3,200 3,066 2,860 2,723 2,774...

  • Page 206
    ...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 5) Inventories Receivables and other current assets Working capital 5) Net total borrowings Shareholders' equity...

  • Page 207
    ...) ) 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 on...

  • Page 208
    ... references to the supplier of the product. CAPITAL EXPENDITURE Total cash expenditure (excluding acquisitions and finance leases), net of any recoverable taxes (e. g. Value Added Tax - VAT) for the purchase, lease or construction of assets. APPENDIX - Glossary ANNUAL REPORT 2007 --- adidas Group

  • Page 209
    ...and increase shop sales. DAYS OF SALES OUTSTANDING (DSO) Average time of receipt of outstanding payments from customers. DEMAND-DRIVEN SUPPLY CHAIN Management of up- and downstream relationships between suppliers and customers to deliver the best value to the customer at the least cost to the supply...

  • Page 210
    ...paid over the fair value of the net assets acquired at the purchase date. GREEN GRASS RETAILERS Golf distribution channel. Small golf specialty shops typically located at a golf course. GROSS DOMESTIC PRODUCT (GDP) Market value of all finished goods and services produced within a country in a given...

  • Page 211
    ... men's basketball league in the USA, comprising 30 teams. Operating working capital = accounts receivable + inventories - accounts payable. OPTION Financial instrument which ensures the right to purchase (call option) or to sell (put option) a particular asset (e. g. shares or foreign exchange...

  • Page 212
    ... is currently divided into four major business segments: adidas, Reebok, TaylorMade-adidas Golf and HQ / Consolidation. SEGMENTAL REPORTING Information regarding the financial position and results of operations in individual brands (segments) and regions. This gives an indication of developments in...

  • Page 213
    ... tier suppliers as well as the adoption of best costing practices. WORKING CAPITAL A company's short-term disposable capital used to finance the day-to-day operations. Â- see also Operating Working Capital Working capital = total current assets - total current liabilities. WORKING CAPITAL TURNOVER...

  • Page 214
    ... and Campaigns 127 ff. Product Launches 072 ff. 122, 127 ff. Promotion Partnerships 044 ff., 060, 110 Provisions 161 ff., 170 Purchase Price Allocation (PPA) 080, 099 ff., 204 R Recognized Income and Expense Statement 156 Research and Development 072 ff. Responsibility Statement 150 Risk Report 104...

  • Page 215
    FINANCIAL CALENDAR 2008 - March 5 - 2007 Full Year Results Analyst and press conferences in Herzogenaurach, Germany Press release, conference call and webcast - May 6 - First Quarter 2008 Results Press release, conference call and webcast - May 8 - Annual General Meeting in Fürth (Bavaria), ...

  • Page 216
    ... 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 häfelinger + wagner design, Munich © 2008 adidas AG. adidas is a registered trademark of the...