Reebok 2007 Annual Report Download

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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
    ... other current assets Working capital Net borrowings Shareholders' equity Capital expenditure Net cash provided by operating activities Per Share of Common Stock (â,¬) Basic earnings Diluted earnings Operating cash ï¬,ow Dividend Share price at year-end Other (at year-end) Number of employees Number...

  • Page 3
    ...; 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 KFS II and HATANA, Rbk EDGE Uniform Systemâ„¢ apparel...

  • 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
    ... 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 WORLD CHAMPION (HEPTATHLON...

  • Page 8
    ...AMERICAN YOUR 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...

  • 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
    ...GETTING THERE STEP BY STEP. DEMONSTRATED SUCCESSFULLY BY NATALIE GULBIS: CAREER HIGHLIGHTS & AWARDS - 2007 1ST AT EVIAN MASTERS MEMBER OF WINNING UNITED STATES SOLHEIM CUP TEAM - 2006 3RD AT KRAFT NABISCO CHAMPIONSHIP - 2005 5TH AT LPGA CHAMPIONSHIP 8TH AT WOMEN'S BRITISH OPEN 4TH AT US WOMEN'S OPEN...

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

  • Page 14
    AS A LEADER IN THE SPORTING GOODS INDUSTRY, THE ADIDAS GROUP INSPIRES CONSUMERS ALL OVER THE WORLD. WE CONTINUOUSLY STRIVE TO IMPROVE OUR PRODUCTS, PERFORMANCE AND SHAREHOLDER RETURNS. IN 2008, WE WILL USE THE OLYMPICS IN BEIJING, THE UEFA EURO 2008â„¢ IN AUSTRIA AND SWITZERLAND AND THE SUPER BOWL ...

  • Page 15
    ...adidas Golf Strategy 054 -- Internal Group Management System 056 -- Major Locations and Promotion Partnerships 060 -- Corporate Functions 062 -- Global Operations 062 -- Sustainability 065 -- Employees 068 -- Research and Development 072 02 03 04 05 01 GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR...

  • 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
    ... that all our hard work has helped the Group achieve new record sales and net income levels." 01 THE ADIDAS BRAND EXCEEDED YOUR INITIAL EXPECTATIONS FOR THE YEAR WITH 12 % CURRENCY-NEUTRAL SALES GROWTH. WHAT WERE THE MAIN FACTORS BEHIND THIS SUCCESS? A strong product pipeline and commitment to...

  • Page 18
    ... sporting events and leagues. We are the only sports company to ever sponsor a football World Cup. We currently partner with a number of the top marathons around the world - including London, Boston and Berlin. And our Group has long-term relationships with every major sports league in North America...

  • Page 19
    ... markets - the USA and the UK. To do this, we clearly have to maintain our discipline and focus on Reebok. In 2007, we made major management changes at the Reebok brand. We took tough decisions to improve US distribution - even stopping supply to the brand's largest customer where excess inventories...

  • Page 20
    ...strengths. We have been diligent in managing the adidas brand in the USA over the past few years - which has brought adidas four years of consecutive growth in the world's largest sporting goods market. Today, we have a much broader distribution base and a significantly improved performance product...

  • Page 21
    ... 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 addition, our share buyback program will moderate...

  • Page 22
    ... 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 Senior...

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

  • Page 24
    ... adidas Group. This success represents both a challenge as well as a motivation for us to consistently continue implementing 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...

  • Page 25
    ...-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 results as presented by the Executive Board as well as the business development of the Rockport brand, which was purchased...

  • Page 26
    ... 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 months results for 2007, as presented by the Executive Board. The auditor reported to the committee on its...

  • Page 27
    ... shareholders on the corporate website at Â- www.adidas-Group.com/corporate_governance on the same day. DETAILED EXAMINATION AND DISCUSSION OF THE 2007 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS KPMG audited the 2007 annual financial statements and Management Report of adidas...

  • Page 28
    ...as a member and as Chairman of the Supervisory Board. Additionally, we would like to express our appreciation of the tremendous personal dedication, the performance and the ongoing commitment of the Executive Board, the managements of Group companies, the Works Council and all adidas Group employees...

  • Page 29
    ...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 the Supervisory...

  • Page 30
    ... or dismissal is not achieved in the preceding resolution. In addition, a committee was established ad hoc in 2007 with three members for the "Sale of Herzo-Base" project. Â- see Supervisory Board Report, p. 020 TO OUR SHAREHOLDERS - Corporate Governance Report ANNUAL REPORT 2007 --- adidas Group

  • Page 31
    ... member, participated in 2007. Based on the results of the 2005 efficiency examination, this year's survey took the latest demands on the Supervisory Board functions into consideration and focused in particular on the timely supply of high-quality information by the Executive Board, activities...

  • Page 32
    ... Trading Act (Wertpapierhandelsgesetz - WpHG) Executive and 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...

  • Page 33
    ... regard to the next election of Supervisory Board members at the Annual General Meeting in 2009. MORE INFORMATION ON CORPORATE GOVERNANCE All adidas AG corporate governance documents are available on our website at Â- www.adidas-Group.com /corporate_governance. ANNUAL REPORT 2007 --- adidas Group

  • Page 34
    ...of the Long-Term Incentive Plan (LTIP). Both bonus systems are designed to provide a direct incentive for Executive Board members to achieve their defined targets and to support sustainable valueoriented management. -- The amount of the Performance Bonus is linked to the fixed annual salary and is...

  • Page 35
    ...basis for calculation. 3) Also contains a tax adjustment due to different tax rates in Germany and the USA. 1) This Compensation Report is an integral component of the audited Group Management Report and Notes and is also part of the Corporate Governance Report. ANNUAL REPORT 2007 --- adidas Group

  • 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
    ... an additional recommendation of the German Corporate Governance Code. COMPENSATION FOR ADVISORY CONTRACTS adidas AG had a project-related, fixed-term advisory contract with Dr. Hans Friderichs, which ended on June 30, 2007. Under this contract, Dr. Hans Friderichs received remuneration amounting...

  • Page 38
    ... 05 Reebok launches the brand's biggest campaign of the year "Run Easy". This campaign helps to significantly improve US annual growth in the Premier Running line. 23.05. A. C. Milan wins the UEFA TO OUR SHAREHOLDERS - Operational and Sporting Highlights 2007 ANNUAL REPORT 2007 --- adidas Group

  • Page 39
    ... its partnership with international humanitarian sports charity Right To Play. Brand adidas, through its employees and the Adi Dassler Fund, is able to show that sport can truly make the world a better place. 14.06. Â- Picture 06 Winning the 2007 NBA Finals in Cleveland, Ohio, USA, adidas sponsored...

  • Page 40
    ...A MEMBER OF IMPORTANT INDICES The adidas AG share is included in a variety of high-quality indices around the world, most importantly the DAX-30 and the MSCI World Textiles, Apparel & Luxury Goods Index. The DAX-30 is a blue chip stock market index consisting of the 30 major German companies trading...

  • Page 41
    ... 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 confidence and the growth potential...

  • Page 42
    ... of the world (2007: 2 %). adidas Group Management, which comprises current members of the Executive and Supervisory Boards, continues to hold less than 5 % in total. Smaller, undisclosed holdings, which also include private investors, continued to account for 4 % (2006: 4 %). SHAREHOLDER STRUCTURE...

  • Page 43
    ... corporate events to interested shareholders. 039 200 150 100 01 50 - adidas AG - DAX-30 - MSCI World Textiles, Apparel & Luxury Goods 1) Index: December 31, 2002 = 100 RECOMMENDATION SPLIT 1) Hold 16 % 84 % Buy 1) At year-end 2007. Source: Bloomberg. ANNUAL REPORT 2007 --- adidas Group

  • 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
    ... -- 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 062 -- Sustainability 065 -- Employees 068 -- Research and Development 072...

  • 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
    ... the North American sporting goods market. Therefore, we target market share expansion via a strong, consumer-driven product offering, a diversified distribution strategy, and visible and engaging communication initiatives. In Asia, where our Group is the market leader in terms of sales with number...

  • Page 49
    ... managing working capital and optimizing financial leverage remain key priorities for us. As always, we are committed to increasing returns to shareholders with above-industry-average share price performance and dividends. 045 Our own-retail business Mono-branded stores run by retail partners...

  • Page 50
    ...brand's lead innovation concept and a driving force of the adidas business going forward. It will guide all efforts in product design and development, (digital) marketing and distribution. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - adidas Strategy ANNUAL REPORT 2007 --- adidas...

  • Page 51
    ...critical to the brand's success moving forward. Because of the category's global importance, the brand is committed to support running with a substantial portion of overall marketing spend - now in both event and non-event years. adidas holds the number two position in terms of sales in the category...

  • Page 52
    ...back of strong communication and sports marketing support. In addition, adidas will work closely with key retailers and support them with a quick replenishment and "never-out-of-stock" program. adidas has identified women's training as one of its most important growth opportunities. Â- see Risk and...

  • Page 53
    ... brand's customers include sporting goods, sport specialty, athletic specialty and family footwear retailers as well as high-end department stores and directional accounts in the Sport Style division. To preserve the premium image of the adidas brand, it generally does not sell its products to value...

  • Page 54
    ..., an adidas Group unit which focuses on licensed apparel for both adidas and Reebok, acquired the assets of Mitchell & Ness Nostalgia Company, a wholesaler, marketer and distributor of authentic vintage athletic product effective October 31, 2007 (transaction value: low-single-digit million euro...

  • Page 55
    ... sales in both sport and lifestyle. By utilizing the Pump custom-fit footwear technology and further capitalizing on key partnerships with individual players such as Allen Iverson and Yao Ming, Reebok also intends to grow in the basketball category. 051 02 ANNUAL REPORT 2007 --- adidas Group

  • Page 56
    ... apparel sales or signature collections. As a result of its strong product offering and partnership portfolio, ReebokCCM Hockey expects to further strengthen its leadership position going forward. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - Reebok Strategy ANNUAL REPORT 2007...

  • Page 57
    ... technologies into its products, making technology its main selling proposition. 02 - Improve brand image and regain credibility in sports, Better service existing distribution channels, and Reduce its customer risk. Â- see Risk and Opportunity Report, p. 104 ANNUAL REPORT 2007 --- adidas Group

  • Page 58
    ...-ADIDAS GOLF STRATEGY TaylorMade-adidas Golf's mission is to be the leading performance golf company in the world in terms of sales and profitability. It combines two of golf's strongest brands: TaylorMade (focused on clubs and balls) and adidas Golf (focused on footwear and apparel). Both brands...

  • Page 59
    ... segment in the US market. The Burner® even was the bestselling driver worldwide in 2007. Another example of a successful implementation of this strategy is adidas Golf's high-priced TOUR360 golf shoe, which became the brand's best-selling golf shoe for two years running. 055 02 ANNUAL REPORT...

  • Page 60
    ... COMPONENTS Operating Profit Operating Working Capital Free Cash Flow Capital Expenditure 1) Non-Operating Components 1) Excluding goodwill and finance leases. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - Internal Group Management System ANNUAL REPORT 2007 --- adidas Group

  • 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
    ...retail activities and at-once business, which are not represented in the order book. We provide updates on these developments as part of our quarterly reports. Â- see Outlook, p. 118 GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - Internal Group Management System ANNUAL REPORT 2007...

  • Page 63
    ... of sales to mall-based customers in North America contributed to this development. Management took this decision to reduce product discounting at retail and protect brand image. For 2008 and 2009, we have again committed to ambitious targets which will help us optimize our Group's free cash ï¬,ow...

  • Page 64
    ... adidas Official Apparel and Footwear Outfitter Â- For a detailed list of all adidas Group subsidiaries at December 31, 2007, see Shareholdings, p. 194. GROUP MANAGEMENT REPORT - OUR GROUP -- Structure and Strategy - Major Locations and Promotion Partnerships ANNUAL REPORT 2007 --- adidas Group

  • Page 65
    ... 09 08 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...

  • Page 66
    ... business, Rockport, Reebok-CCM Hockey, the Sports Licensed Division and TaylorMade are not serviced through Global Operations but instead utilize own purchasing organizations. In order to quickly seize short-term opportunities in their local market or react to trade regulations, Group subsidiaries...

  • Page 67
    ... adidas and Reebok brands. - Higher sales by consistently providing those products at retail where consumer demand is high. Higher gross and operating margins as well as lower Group inventory levels due to lower product markdowns and faster sell-throughs. ANNUAL REPORT 2007 --- adidas Group

  • Page 68
    ... improving Reebok's apparel processes to achieve performance levels in line with the adidas brand. PROGRESSIVE RAMP-UP OF "WORLD CLASS SUPPLY CHAIN" AT BRAND ADIDAS In 2005, we started our "World Class Supply Chain" initiative to optimize adidas' product offering, to best attack market opportunities...

  • Page 69
    ..., we combined the best of both companies' previous social and environmental programs and created a new Group-wide set of Workplace Standards for our supply chain. These are based on International Labour Organization (ILO) and UN conventions relating to human rights and employment practices, and...

  • Page 70
    ...sustainable structures that actively involve workers and management of our suppliers as well as local employee associations and non-governmental organizations (NGOs). In this way, acceptable working conditions become a routine part of business activities. In 2007, the SEA team conducted 267 training...

  • 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
    ...specific cross-brand leadership programs to promote respect and support between employees of our different brands. We also established a new Group-wide competency model that defines the required competencies for executive, management and professional employees. ANNUAL REPORT 2007 --- adidas Group

  • Page 74
    ...adidas Total l Total employees (in %) Management positions (in %) Male Female Male Female 52 48 67 33 29.6 3.6 16.1 54 46 77 23 28.9 3.5 8.1 68 32 84 16 36.6 5.0 4.5 52 48 70 30 30.8 4.0 12.4 4 Average age of employees (in years)1) Annual average length of service (in years) Annual training...

  • Page 75
    ... our Group-wide PEP system, to focus more on performance evaluation and career development. Further, we introduced a new Advanced Management Training program for employees at a department head position or higher. The program's goal is to enable them to continually improve their skills in change...

  • Page 76
    ... Best Apparel Company Runner's World US Golf Week adiSTAR adidas Control 4 running shoe Supernova adidas Cushion running shoe adiSTAR adidas Cushion 6 running shoe Premier Reebok Road Cushion KFS Premier Reebok Minocqua TR adidas TaylorMadeGolf adidas apparel Golf ADIDAS GROUP R& D STRUCTURE...

  • Page 77
    ... of the adidas and Reebok product development teams led to a decrease of adidas Group R & D expenses by 14 % to â,¬ 84 million in 2007 (2006: â,¬ 98 million). In 2007, R & D expenses represented 2.1 % of total operating expenses versus 2.6 % in the prior year. R & D expenses as a percentage of sales...

  • Page 78
    ... at brand adidas focus on the development of innovative footwear, apparel and hardware technologies. To solidify adidas' position as a leader in technology and innovation, the adidas Innovation Team (ait) is responsible for the ongoing development of new technologies and concepts in all key product...

  • Page 79
    ... brand sold around one million pairs of footwear in 2007. At Reebok-CCM Hockey, products launched in 2007 accounted for 58 % of sales. Only 12 % of sales were generated with products introduced at least three years ago. In apparel, Reebok-CCM Hockey launched the Rbk EDGE Uniform Systemâ„¢ in hockey...

  • 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
    ... 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 - Economic and Sector Development ANNUAL REPORT 2007 --- adidas Group

  • 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
    ...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. These were transferred to brand adidas in the first half of...

  • 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
    ...-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, royalty and commission income...

  • Page 88
    ...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 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
    ... 191 360 441 1) 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 91
    ... buyout of the adidas joint venture partner in Korea. Effective September 1, 2006, the Group purchased the remaining 49 % of shares. NET INCOME ATTRIBUTABLE TO SHAREHOLDERS â,¬ in millions 2003 2004 2005 2006 1) 2007 260 314 383 483 551 1) Including Reebok business segment from February 1, 2006...

  • Page 92
    ...absolute figures 36.4 33.8 8,325 8,379 8,325 8,379 Â- see Consolidated Balance Sheet, p. 152 . Â- see Consolidated Balance Sheet, p. 152 . GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance - Balance Sheet and Cash Flow Statement ANNUAL REPORT 2007 --- adidas Group

  • Page 93
    ... the Group's trade terms management and concerted collection efforts in all segments. OTHER CURRENT ASSETS UP 28 % Other current assets increased 28 % to â,¬ 529 million at the end of 2007 from â,¬ 413 million in 2006. This development was mainly due to higher prepayments for promotion contracts and...

  • Page 94
    ... 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 Group

  • Page 95
    ... Risk and Opportunity Report, p. 104 To optimize the Group's cash position and ensure optimal allocation of liquid financial resources, subsidiaries are required to transfer excess cash to the Group's headquarters. LONG-TERM FINANCIAL FLEXIBILITY ENSURED The adidas Group's long-term ï¬,exibility is...

  • Page 96
    ...xed variable variable 2009 2009 2010 2010 2010 2015 2018 EUR 150 fixed/variable fixed 2.50 % variable 2011 - 2012 fixed 2009 - 2016 EUR 399 fixed/variable 2008 - 2012 GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance - Treasury ANNUAL REPORT 2007 --- adidas Group

  • Page 97
    ... significantly better than our original target of below â,¬ 2 billion as communicated at the beginning of 2007. Â- see Internal Group Management System, p. 056 The Group's strong profitability improvement and continued tight working capital management were the primary drivers of this decline. In...

  • Page 98
    ... subscription rights or conversion rights for a maximum of 20,313,723 shares, which may also be serviced from the Contingent Capital 2003. Â- see Note 21, p. 173 GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Group Business Performance - Additional Disclosures ANNUAL REPORT 2007 --- adidas Group

  • Page 99
    ... Executive Board or employees relating to the event of a change of control. NO DONATIONS TO POLITICAL PARTIES In accordance with our Code of Conduct, donations to political parties and their affiliates are not permitted by or in the name of our Group. 095 03 ANNUAL REPORT 2007 --- adidas Group

  • Page 100
    ...ON OPERATIONAL PERFORMANCE The transfer of the NBA and Liverpool licensed businesses from Reebok to brand adidas in the first half of 2006 had only a minor effect on sales growth in the adidas segment. Sales related to these businesses accounted for around one percentage point of total sales growth...

  • Page 101
    ... and Liverpool. 097 Sport Performance Concept Stores 41 % ADIDAS OWN-RETAIL STORES 2007 2006 Sport Performance Concept Stores 459 356 03 Originals Concept Stores Factory Outlets 83 58 317 256 Concession Corners Internet Total 142 2 203 2 1,003 875 ANNUAL REPORT 2007 --- adidas Group

  • Page 102
    .... ADIDAS OPERATING PROFIT BY QUARTER â,¬ in millions Q1 2006 Q1 2007 Q2 2006 Q2 2007 Q3 2006 Q3 2007 Q4 2006 Q4 2007 9 64 135 191 279 270 365 395 GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR -- Business Performance by Segment - adidas Business Performance - Reebok Business Performance ANNUAL...

  • 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
    ... impacted the first half of the year. The majority was spent for the brand's largest advertising campaign of the year, "Run Easy". Â- see Reebok Strategy, p. 050 Onetime costs for the Reebok integration into the adidas Group also negatively affected operating overhead development. The negative...

  • Page 106
    ... Reebok business segment. These operations relate to the distribution of GNC products via Reebok own-retail stores. The divestiture had a negative impact on the segment's sales development. In total, the GNC apparel business contributed â,¬ 63 million of sales to the TaylorMade-adidas Golf segment...

  • Page 107
    ... 30, 2006. TAYLORMADE-ADIDAS GOLF OPERATING PROFIT BY QUARTER 1) â,¬ in millions Q1 2006 Q1 2007 Q2 2006 Q2 2007 Q3 2006 Q3 2007 Q4 2006 Q4 2007 2 (1) 33 27 15 15 22 24 03 1) Including Greg Norman apparel business from February 1, 2006 to November 30, 2006. ANNUAL REPORT 2007 --- adidas Group

  • Page 108
    ... SYSTEM Supervisory and Executive Boards Central Risk Management Reporting Brand and Headquarter Functions Risk and Opportunity aggregation Treatment Controlling Identification Assessment GROUP MANAGEMENT REPORT - OUR FINANCIAL YEAR - Risk and Opportunity Report ANNUAL REPORT 2007 --- adidas...

  • 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
    ... marketing, product and brand communication programs. And, we continue to focus on supply chain improvements to speed up concept-to-shelf timelines. Â- see Global Operations, p. 062 In 2007, we implemented new consumer segmentation strategies at both brand adidas and Reebok and combined Group...

  • Page 111
    ...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. As...

  • Page 112
    ... TaylorMade-adidas Golf, as evidenced in improving market research results, gives us confidence that brand image risk 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...

  • 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
    ... of premium partnerships in order to reduce our reliance on single affiliations. During 2007, we successfully 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...

  • Page 115
    ... exposure 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...

  • Page 116
    ... to timing, volume and currency structure. In addition, the adidas Group faces the risk of having to accept unfavorable financing terms due to liquidity restraints. Our Group's Treasury department uses an efficient cash management system to manage liquidity risk. At December 31, 2007, Group cash...

  • Page 117
    ... assumed at a year-end value instead of the more relevant sales-weighted average figure, which we utilize internally to better reï¬,ect both the seasonality of our business and intra-year currency ï¬,uctuations. The Group increased the proportion of its longer-term hedges in 2007, to strategically...

  • 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
    ...North American distribution in the growing sporting goods retail channel. Here, we are able to showcase a much broader choice of our footwear - and particularly apparel products - compared to the athletic specialty channel where industry sales decreased. 115 03 ANNUAL REPORT 2007 --- adidas Group

  • Page 120
    ... 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 --- adidas Group

  • Page 121
    ...a design, development, marketing and manufacturing company for team uniforms worn by professional and amateur teams throughout North America. Both Saxon Athletic sales and the transaction value in euros represent an amount in the low-single-digit millions. SUBSEQUENT EVENTS AT TAYLORMADE-ADIDAS GOLF...

  • Page 122
    ... to be positively impacted by this event as the related top-line growth is projected to be offset by a modest marketing working budget increase. The Olympic Games will be the most important sports event ever in China, one of the fastest-growing markets for sporting goods in the world. adidas is the...

  • Page 123
    ... the market. Mixed development of product categories and distribution channels is expected to continue throughout 2008. Whereas growth in running and soccer footwear as well as training apparel is projected to continue, sales in the basketball and Classics categories are expected to decline. In...

  • Page 124
    ...adidas will benefit from this event in terms of additional sales of football products. In addition, we expect strong improvements in the Sport Performance running, training and basketball categories, supported by a compelling pipeline of product launches. Strong order backlogs and positive retailer...

  • Page 125
    ...sports will highlight additional 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...

  • Page 126
    ... 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 --- adidas...

  • Page 127
    ... 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 effects related to purchase price...

  • Page 128
    ... could be realized in countries where we anticipate long-term growth opportunities for the Reebok business and the price for a buyback is reasonable. In the TaylorMade-adidas Golf segment, no major changes will arise from the divestiture of the Maxï¬,i brand. AMBITIOUS NON-FINANCIAL GOALS FOR 2008...

  • Page 129
    ... markets in Asia and Latin America as well as Emerging Europe. This will be achieved by buying out distributors and joint venture partners. Currency-neutral sales growth Gross margin Operating margin Net income growth high-single-digit 46 % to 48 % approx. 11 % double-digit 03 ANNUAL REPORT 2007...

  • 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
    ... 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 year...

  • Page 134
    130 INNOVATION & 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 ...

  • 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
    ... Games, adidas launched its biggest-ever Chinese marketing campaign which includes exciting visuals at famous locations such as Yong Ding Men, a gate in the old Beijing city wall. This campaign demonstrates the power of "Together" by showcasing how the entire Chinese nation supports their athletes...

  • Page 138
    ... Impossible 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...

  • 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 quality. 137 04 YOUR FAVORITE ...

  • Page 142
    ... -- 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 exceptional cushioning and...

  • 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
    ... Stick U-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...

  • Page 147
    ... COVER -- REEBOK -- 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...

  • 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
    -- ROCKPORT -- Live 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...

  • Page 150
    ... 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 innovation with world-class...

  • 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
    ...Consolidated Income Statement 153 -- Consolidated Statement of Cash Flows 154 -- Consolidated Statement of Recognized Income and Expense 156 -- Notes 157 -- Statement of Movements of Intangible and Tangible Assets and Financial Assets 192 -- Shareholdings 194 -- Segmental Information 200 -- Ten-Year...

  • Page 154
    ...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 risks associated with...

  • 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
    ... SHEET (IFRS) â,¬ in millions Â- Note Cash and cash equivalents Short-term financial assets Accounts receivable Inventories Income tax receivables Other current assets Assets classified as held for sale Total current assets Property, plant and equipment Goodwill Trademarks Other intangible assets...

  • Page 157
    ...shareholders (% of net sales) Net income attributable to minority interests Basic earnings per share (in â,¬) Diluted earnings per share (in â,¬) . Rounding differences may arise in percentages and totals. The accompanying notes are an integral part of these consolidated financial statements. Year...

  • Page 158
    ... equipment Acquisition of further investments in subsidiaries Acquisition of subsidiaries and other business units net of cash acquired Buyback of employee stock options and convertible bonds Disposal of discontinued operations net of cash (Purchase of) / Proceeds from sale of short-term financial...

  • Page 159
    ... and totals. The accompanying notes are an integral part of these consolidated financial statements. Year ending Dec. 31, 2007 Year ending Dec. 31, 2006 21 (424) (85) (1) 0 (510) (1) (16) 311 295 1,099 (66) (4) 6 1,035 (23) (1,214) 1,525 311 5 5 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 160
    ... financial statements. 23 Year ending Dec. 31, 2007 Year ending Dec. 31, 2006 18 (38) - 10 (237) (265) 555 290 286 4 (67) 0 1 (215) (281) 496 215 202 13 CONSOLIDATED FINANCIAL STATEMENTS - Consolidated Statement of Recognized Income and Expense - Notes ANNUAL REPORT 2007 --- adidas Group

  • Page 161
    ... German stock corporation, and its subsidiaries 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...

  • Page 162
    ...difference is recorded in the income statement. No fair value adjustments are recognized at the first-time consolidation of acquired minority interests in companies accounted for using the purchase method. A debit difference between the cost for such an additional investment and the carrying amount...

  • Page 163
    ... goods are valued at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Costs are determined using a standard valuation method: the "average cost...

  • Page 164
    ... adidas Group has thus defined the three segments adidas, Reebok and TaylorMade-adidas Golf as the relevant cash-generating units. Years Trademarks Software Patents, trademarks and concessions indefinite 3-5 5 - 15 CONSOLIDATED FINANCIAL STATEMENTS - Notes ANNUAL REPORT 2007 --- adidas Group

  • Page 165
    ... equity as shown in the statement of recognized income and expense. 161 In 2007, the adidas Group determined that no impairment of goodwill was necessary. The recoverable amount of a cash-generating unit is determined on the basis of fair value less costs to sell, which are calculated with 1 % of...

  • Page 166
    ... 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 directors / senior vice presidents of its affiliated companies and to...

  • Page 167
    .... 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 â,¬ in millions Dec. 31, 2007 Dec. 31, 2006 Accounts receivable and other current assets Property, plant and equipment...

  • Page 168
    ...book values of acquired inventories. Subsequently, the costs for completion for selling, advertising and general administration as well as a reasonable profit allowance were deducted. CONSOLIDATED FINANCIAL STATEMENTS - Notes - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007 --- adidas...

  • 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
    ... 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 --- adidas Group

  • 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
    ...of the convertible bond is currently not expected. Prepaid expenses mainly include prepayments for long-term promotional contracts and service contracts. Â- see also Note 31 and Note 22 CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007 --- adidas Group

  • Page 173
    ... 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 2007 --- adidas Group

  • 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
    ...'s pensions as well as other post-employment benefits for employees and members of the Executive Board. These plans are partly funded. ACTUARIAL ASSUMPTIONS in % Dec. 31 2007 Dec. 31 2006 Information regarding forward contracts as well as currency options and interest rate derivatives is also...

  • Page 176
    ... 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 2007 --- adidas Group

  • Page 177
    ... were mainly purchased as part of the acquisition of the Reebok business. In accordance with IAS 32, the following minority interests are not reported within minority interests: GEV Grundstücksgesellschaft Herzogenaurach mbH & Co. KG (Germany), as the company is a limited partnership, and adidas...

  • Page 178
    ... once or several times by no more than a maximum of â,¬ 6,250,000 and, subject to Supervisory Board approval, to exclude shareholders' subscription rights (Authorized Capital 2005 / II); CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet ANNUAL REPORT 2007 --- adidas Group

  • Page 179
    ... decided on January 29, 2008, to make use of this authorization. The Company began a share buyback program on January 30, 2008, and has since acquired a total of 1,180,000 shares corresponding to 0.58 % of the stock capital (as at February 15, 2008). 175 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 180
    .... 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 --- adidas Group

  • Page 181
    ...entitled to a dividend payment, the number of shares entitled to a dividend payment may change until the resolution on the dividend payment. Retained earnings to be allotted to treasury shares held by adidas AG at that time, will also be carried forward. 177 05 ANNUAL REPORT 2007 --- adidas Group

  • 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
    ... 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 Group

  • Page 186
    ... net income in 2007 (2006: â,¬ 27 million). The time value of the currency options not being part of the hedge in an amount of negative â,¬ 9 million (2006: negative â,¬ 9 million) was recorded in the income statement in 2007. The total net amount of US dollar purchases versus other currencies...

  • Page 187
    ... investment in the foreign entity is divested. In order to determine the 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...

  • Page 188
    ... promotion and communication spending such as promotion contracts, advertising, retail support, events and other communication activities. However, it does not include marketing overhead expenses. In 2007, marketing working budget accounted for approximately 34 % (2006: 35 %) of the total operating...

  • Page 189
    ... (190) 1) Relates to the acquisition of Reebok International Ltd. (USA) and its subsidiaries for the year ending December 31, 2006. Â- see Note 4 Â- 27 INCOME TAXES adidas AG and its German subsidiaries are subject to German corporate and trade taxes. For the years ending December 31, 2007 and...

  • 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
    ...TaylorMade-adidas Golf segment. In 2007, the remaining retail activities were allocated to the Reebok segment. Both the NBA and Liverpool licensed businesses were transferred to brand adidas in the first half of 2006. Information about the Group's segments in accordance with the management approach...

  • 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
    ... 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 companies and to other executives of adidas AG and its related companies until August 27, 2004. The granting of stock options took place in...

  • Page 194
    ...basis of the total shareholder return approach - has increased by an annual average rate of at least 8 %. -- (2) Relative Performance: During the same period, 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...

  • Page 195
    ... INFORMATION EMPLOYEES The average numbers of employees are as follows: EMPLOYEES Year ending Dec. 31 2007 2006 Under the Management Share Option Plan (MSOP) of adidas AG, members of the Executive Board held non-transferable stock options for 0 and 2,800 shares of adidas AG as at December 31, 2007...

  • Page 196
    ... 22 1 - - (10) - - (16) 92 199 380 338 83 (10) 8 37 - - 8 (8) 118 (10) 21 - (3) - 8 (19) 115 54 (7) 16 8) 55 (8) 14 - - - (2) - - (15) 44 29 63 71 CONSOLIDATED FINANCIAL STATEMENTS - Statement of Movements of Intangible and Tangible Assets and Financial Assets ANNUAL REPORT 2007 --- adidas Group

  • Page 197
    ...equipment, furniture and fittings Construction in progress Total tangible assets Shares in affiliated companies Participations Other financial assets Total...129 (1) ) 5 4 - - (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
    ... business 8) The 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...

  • Page 200
    ...Sub-group adidas Sourcing 4) Sub-group 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 Reebok-CCM Hockey, Inc. (formerly: The Hockey Company) 11) Sub-group Sports...

  • Page 201
    ... business 8) The 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...

  • 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
    ... business 8) The 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...

  • 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
    ...2004 and 2005 reï¬,ect continuing operations as a result of the divestiture of the Salomon business segment. 5) Including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, 2006. 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 206
    ...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... FINANCIAL STATEMENTS - Ten-Year Overview ANNUAL REPORT 2007 --- adidas Group

  • Page 207
    ... and discontinued operations. In 1998 before special effect of â,¬ 369 million for acquired in-process research and development - expensed. 7) Figures adjusted for 1: 4 share split conducted on June 6, 2006. 8) Subject to Annual General Meeting approval. 05 ANNUAL REPORT 2007 --- adidas Group

  • Page 208
    ...+ non-current liabilities) / (non-current assets + inventories). ATHLETIC SPECIALTY A largely mall-based retail distribution concept in North America that focuses primarily on selling sports and sports lifestyle products to consumers. BACKLOGS Also called order backlogs. The value of orders received...

  • Page 209
    ... / non-current assets. FAIR VALUE Amount at which assets are traded fairly between business partners. Fair value is often identical to market price. FAMILY FOOTWEAR CHANNEL Primarily North American retail distribution channel, catering for affordable footwear across all age groups. FINANCE LEASE...

  • Page 210
    ... 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 period of time...

  • Page 211
    ... professional men's ice hockey league in North America, comprising 30 teams from the USA and Canada. OPERATING EXPENSES Expenses which are not directly attributable to the products or services sold. Operating expenses are expenses for sales, marketing overheads and marketing working budget, research...

  • Page 212
    ... company that have profit and loss responsibility. The adidas Group 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...

  • Page 213
    ...be an SKU. SOURCING Process of managing external suppliers in order to commercialize, produce and deliver final products to customers. SPORT FUSION Footwear and apparel products mixing performance-oriented features and casual styles. SPORTING GOODS CHANNEL Sports retail store, offering a very broad...

  • Page 214
    ... Locations 060, 073 M Major Locations and Promotion Partnerships 060 Management Share Option Plan (MSOP) 190 f. Market Capitalization 036 Marketing Working Budget 084, 122 Mission Statement 042 N Net Income Attributable to Shareholders 087, 202 Non-Balance Sheet Items 090 Notes 157 ff. O Operating...

  • 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
    ....com www.adidas-Group.com/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...