1. Annual Report Blake Matchett ACG2021.001

2. Executive Summary Upon review, adidas Group’s stock equity is low and liabilities are high leaving the company a 170% debt to equity. Fortunately, liabilities decreased, shareholders’ equity increased in 2007. We can hope the same for the coming years as adidas Group’s sales continue to rise globally with a 5% profit margin and is only behind Nike in the North American Region. It remains a liquid company though assets fell in 2007. After my analysis of adidas Group, I find that overall the company has a a promising future in the global economy. Its dynamic marketing campaigns, new technologies, sustainable business practices, and ventures into new markets will open up the group to more economic possibilities. Regardless of these poor economic times, I suspect the company will remain a frontrunner in the sporting goods/clothing industry. http://www.adidas-group.com/en/investor/_downloads/pdf/annual_reports/2007/GB_2007_En.pdf

3. Part A. Introduction Herbert Hainer, Chief Executive Officer Herzogenaurach, Germany December 31, 2007 adidas Group produces and markets athletic and sports lifestyle products through three main brands: adidas, Reebok, and TaylorMade –adidas Golf. Products include footwear, apparel, golf clubs, and hardware, such as bags and balls. adidas Group is a global company that sells products to a number of populations such as the United States, Canada, Central and South America, Europe, China, and Japan.

4. Part A. Audit Report Independent Auditors: KPMG Deutsche Treuhand – Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Auditors concluded that adidas Group has sufficiently recorded all financial activities and supplies adequate information regarding its potential growth and potential risks.

5. Part A. Stock Market Information As of October 3, 2008: –Stock Price: $25.07 –Dividends per share: $0.32 If it was ever a time to buy adidas Group stock, it would be now. With share prices near their lowest this year, you can expect them to rise over time. The company is still increasing sales, profits, and gaining more and more clout in the retail industry as it steps further into the fashion world.

6. Part B. Industry Situation and Company Plans The sporting goods and clothing industry will always be a large factor in the global market. That’s because sports will always be part of everyday culture no matter where you live. They make a home in a variety of venues, whether watching them on television, listening on the radio, or playing them outside. With this wide popularity, sporting goods merchandisers have a large opportunity of marketing their products. Innovations in marketing continue to peak consumer interest and increase sales and profit. In the present economy, this industry will take a large hit, as many others also will. As these goods aren’t necessities and are at a moderate to high price point, we can expect consumers to spend their $150 on groceries rather than a pair of sneakers. In the future, adidas Group will be taking its product more into the mainstream fashion sector. Collaborating with renowned fashion designers Yoji Yamamoto and Stella McCartney, adidas is hoping to draw in more upper echelon clientele (adidas-group.com). Also, adidas is continuing its dynamic marketing campaigns with celebrities such as Yao Ming, Dale Earnhardt Jr., Missy Elliot, and various artists (adidas.com) as well as sponsoring an array of sporting events across the globe.

7. Part C. Income Statement € in millions* 20072006 Gross Profit4,8824,495 Income from Operations 847791 Net Income555496 The income Statement shows an increase in Gross Profit of 8.6%, an increase in Income from Operations of 7.1%, and an increase in Net Income of 12%. The increase in these factors show that adidas Group is steadily increasing its sales and reducing cost of sales. *1.3709 Euros per Dollar (Average rate for the year ending Dec.31)

8. Part C. Balance Sheet The balance sheet shows that total assets and total liabilities and equity decreased 0.6%. Short-term financial assets increased 137.6%. Other non-current liabilities increased 65.3%. Reserves decreased 62.2%. 2007 € in millions Assets =Liabilities +Stockholder’s Equity 8,325 =5,291 +3,034 2006 € in millions Assets =Liabilities +Stockholder’s Equity 8,379 =5,543 +2,836

9. Part C. Statement of Cash Flows Operating: Cash flows from operations are greater than the net income for the past two years. Investing: adidas Group is growing by investing €55 million in trademarks and other intangible assets, €230 million in Property, Plant, and Equipment, €9 million in acquisition of subsidiaries, and €11 million in long-term assets and investments. Financing: The primary source of financing for adidas Group is long-term loans of €424 million. Also, €86 million was spent on dividends. Overall, adidas Group’s cash has decreased over the past two years.

10. Part D. Accounting Policies Topics of Notes to the Financial Statements: –General –Summary of Significant Accounting Policies –Assets/Liabilities Classifies as Held-for-Sale –Acquisition/Disposal of Subsidiaries as Well as Assets and Liabilities –Cash and Cash Equivalents –Short-Term Financial Assets –Accounts Receivable Inventories –Other Current Assets –Property, Plant, and Equipment, –Goodwill –Trademarks and Other Intangible Assets – Long-Term Financial Assets –Other Non-Current Assets –Borrowings and Credit Lines –Accrued Liabilities and Provisions, –Other Current Liabilities, –Pensions and Similar Obligations, –Minoriy Interests, –Shareholders’ equity, –Other Non-Current Liabilities, –Leasing and Service Arrangements –Financial Instruments –Other Operating Income and expenses –Cost by Nature –Financial Income/Financial Expenses –Income Taxes –Earnings per Share –Segmental Information –Additional Cash Flow Information –Commitments and Contingencies –Equity Compensation Benefits –Other Information –Information Relating to the German Corporate Governance Code –Events After the Balance Sheet Date Policies –Cash: Cash and Cash equivalents represent cash and short term bank deposits with maturities of three months or less from the date of acquisition. –Inventories: Costs are determined by average cost method. Net realizable value allowances are computed based on age and expected future sales. –Plant, Property, and Equipment: Stated at cost, less Accumulated Depreciation. Computed by straight line method or declining balance method (only when necessary).

11. Part E. Financial Analysis Liquidity Ratios Working Capital (€ in millions) = Current – Current Assets Liabilities 4,138 – 2,429 = 1,709 adidas Group has a large amount of working capital to continue normal business operations. It also means that adidas Group is a liquid company.

12. Current Ratio = Current Assets Current Liabilities 4,138 = 1.7 2,429 A current ratio of 1.7 is a good place to be in the merchandising industry. This shows adidas Group is a liquid company.

13. Receivable Turnover = Net Sales Average Accounts Receivable 10,299 1,459 + 1,415 = 7.17 times 2 adidas Group collected its accounts receivable 7.17 times. It seems the company has successful credit and collection policies.

14. Average Days’ Sales = 365 Days Uncollected Receivables Turnover 365 = 50.91 Days 7.17 adidas Group turned its receivables approximately 50.91 days or around 7 times a year. This rate is normal for apparel companies because the allow retail outlets time to sell products before paying for them.

15. Inventory Turnover = Cost of Goods Sold Average Inventory 5,417 1,629 + 1,607 = 3.3 times 2 This number gives the average number of times adidas Group sells its inventory in a year. 3.3 doesn’t seem like a large number but we are looking at billions of dollars of inventory. Therefore, sales still stay high.

16. Average Days’ Inventory = 365 Days on Hand Inventory Turnover 365 Days = 109 Days 3.3 It takes adidas Group 109 days to sell its inventory. This number makes sense because adidas Group sells millions of non-necessity products and it takes a longer period to sell them.

17. Part E. Financial Analysis Profitability Ratios Profit Margin = Net Income Net Sales 555 =.05 = 5% 10,299 This percentage tells us that on every dollar adidas Group earns, the company makes five cents. This seems so be a good percentage given the volume of its net sales.

18. Asset Turnover = Net Sales Average Total Assets 10,299 8,325 + 8,379 = 1.2 Times 2 This number is the relationship between adidas Group’s sales and its assets. It tells us that for every dollar spent on assets adidas Group would produce sales of $1.20.

19. Return on Assets = Net Income Average Total Assets 555 8,325 + 8,379 =.07 = 7% 2 In the merchandising industry it is expected to have a couple percentage points higher than what adidas Group has scored. It should be taking in more income considering the amount of Assets.

20. Return On Equity = Net Income Average Stockholder’s Equity 555 3,023 + 2,828 =.19 = 19% 2 adidas Group is making nineteen cents per stock dollar invested.

21. Debt To Equity = Total Liabilities Stockholders’ Equity 5,291 = 1.7 = 170% 3,034 We see here that adidas Group’s debt to equity ratio is a high 170% meaning that more than half of its financing is from creditors. I would suspect many of the creditors to be sporting goods and clothing manufacturers. This is a bad position considering the downswing of the economy. Part E. Financial Analysis Solvency Ratio

22. Part E. Financial Analysis Market Strength Ratios Price/Earnings per Share: 2007 2006 25.07 = 9.25 Times 25.29 = 10.67 Times 2.71 2.37 Investors are paying a moderate price in relation to earnings.

23. Dividend Yield = Dividends per Share Stock Price 2007 2006.32 =.013 = 1.3%.32 =.013 = 1.3% 25.07 25.29 Investors are paid 1.3% of the market price per share.