for the Year Ended December 31, 2010 and Management Report

adidas AG Herzogenaurach

CONTENTS

3 4 5 35 37 41 47 107 109 110

Balance Sheet Statement of Income Notes Statements of Changes in Fixed Assets Supervisory Board and Executive Board List of Shareholdings Management Report Auditors Report Responsibility Statement Supervisory Board Report

The Financial Statements and Management Report of adidas AG for the financial year 2010 are filed with and published in the electronic Federal Gazette.

The Financial Statements and Management Report of adidas AG as well as the List of Shareholdings of adidas AG are also available for download on the Internet at > www.adidas-group.com/en/investorrelations/reports/annualreports.aspx

FINANCIAL STATEMENTS of adidas AG

BALANCE SHEET (EUR thousand)

Note 12/31/2010 ASSETS FIXED ASSETS Intangible assets Tangible assets Financial assets (1) (2) (2) (3) 160.688 228.643 3.395.275 3.784.606 CURRENT ASSETS Inventories Receivables and other assets Securities Cash and cash equivalents (6) (4) (5) 20.822 1.740.269 0 681.452 2.442.543 PREPAID EXPENSES (7) 37.481 6.264.630 EQUITY AND LIABILITIES EQUITY Subscribed capital Capital reserves Revenue reserves Retained earnings (9) (8) (8) 209.216 1.145.075 655.128 368.462 2.377.881 UNTAXED RESERVE ACCRUALS LIABILITIES DEFERRED INCOME (10) (11) (12) 5.685 314.692 3.566.183 189 209.216 1.145.075 652.752 284.555 2.291.598 6.007 239.815 3.079.687 0 19.192 1.670.602 3.825 232.078 1.925.697 48.324 5.617.107 166.142 171.339 3.305.605 3.643.086 12/31/2009

6.264.630

5.617.107

FINANCIAL STATEMENTS of adidas AG STATEMENT OF INCOME (EUR thousand)

Note (14)

Sales Change in inventory TOTAL OUTPUT Other operating income Cost of materials Personnel expenses Depreciation and amortization of tangible and intangible assets Other operating expenses INCOME FROM OPERATIONS Income from investments in related companies Profit received under a profit - positive transfer agreement - negative transfer agreement Depreciation on financial assets Interest result INCOME FROM ORDINARY ACTIVITIES extraordinary expenses EXTRAORDINARY RESULT Taxes on income Other taxes NET INCOME Retained earnings brought forward

2010 1.539.794 -206

2009 1.399.182 -205

1.539.588 (15) (16) (17) (18) (19)

1.398.977

1.279.789 -480.257 -274.493 -56.684 -1.930.917

753.497 -427.981 -249.939 -55.908 -1.211.360

77.026 (20) (21) (21) (22) (23)

207.286

89.585 120.413 0 0 -68.428

72.151 0 -7.918 -3.958 -67.515

218.596 (24) -19.050 -19.050 (25) -41.589 -824

200.046 0 0 -55.928 -214

157.133

143.904

211.329

140.651

RETAINED EARNINGS

368.462

284.555

Notes to the Financial Statements of adidas AG for the Year Ended 12/31/2010
In the interest of providing a clearer overall picture, certain items in the balance sheet and income statement have been combined as permitted in 265 (7) German Commercial Code (Handelsgesetzbuch, "HGB"), and have been disclosed and explained separately under the numerical text reference indicated below. The names and domiciles of other companies in which adidas AG holds at least a one-fifth interest, either directly or indirectly, and the disclosures related to these companies can be found in Appendix 3 to these notes. Accounting policies

First-time adoption of the German Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz, "BilMoG") The first-time adoption of the BilMoG resulted in changes in certain accounting policies, which are discussed below. The consistency principle was not applied to changes made due to the BilMoG. Accordingly, prior-year figures were not adjusted in line with the changes in accounting policies. Foreign currency translation Assets and liabilities denominated in a foreign currency are recorded at the mean spot rate as of the respective transaction date. Currency translation losses arising as of the balance sheet date due to the measurement of foreign-denominated assets and liabilities are reported. Currency translation gains from the measurement of current assets and liabilities falling due within less than one year are recorded in accordance with 253 (1) sentence 1 HGB and 252 (1) no. 4 clause 2 HGB. Currency translation gains are reported under "other operating income" and currency translation losses are reported under "other operating expense".

In contrast to the previous year, the adoption of the provisions of the BilMoG resulted in currency translation gains on receivables from or liabilities to affiliated companies arising out of corporate financing (netting accounts) being reported under "other operating income". Translation losses of the same nature are reported under "other operating expenses". Special tax-allowable reserve The Company exercised its option to maintain this reserve. Accounting policies relating to this reserve and its reversal remain the same as previously. Provisions Provisions for pensions are calculated on the basis of actuarial biometric assumptions (2005 G mortality tables by Prof. Dr. Klaus Heubeck) in accordance with the projected unit credit method (PUC). The provision amount recognized under the PUC method is defined as the actuarial present value of the pension obligations earned by the employees by the balance sheet date according to the retirement benefit formula and the vested pension amount based on their service in the past. Expected future wage and pension benefit increases are factored in to the provision using a 2 % p.a. growth rate. Fluctuation is assumed to range between 5 % and 20 %, depending on age. The rate used to discount the pension obligations in accordance with 253 (2) sentence 2 HGB amounts to 5.15 % as of December 31, 2010 (previous year: 5.25 %); this rate was determined and published by the German Bundesbank as the average market rate for the past seven fiscal years for an assumed term of 15 years. Other provisions cover all discernible risks and uncertain obligations and have been recognized in the amount which prudent business judgment dictates is required to cover future payment obligations. Future price and cost increases are factored in to the extent that there is sufficient objective evidence that they will occur. Provisions with terms in excess of one year are discounted at the average market rate for their respective maturity over the past seven years, in accordance with 253 (2) sentence 1 HGB.

Provisions for partial and early retirement liabilities, reported under other provisions, are discounted at 4.07 % as of December 31, 2010 (previous year: 4.15 %). This rate was determined and published by the German Bundesbank as the average market rate for the past seven fiscal years for a residual term of 3 years. Securities classified as current assets serve exclusively to satisfy liabilities from partial and early retirement obligations and are isolated from all other creditors. In accordance with the provisions of the BilMoG, these assets must be offset against the liabilities for which they serve as hedges. Accordingly, the underlying gains on the assets are offset against the losses arising from interest rate effects on the provision. The assets to be offset are measured at fair value as determined by their current exchange or market price. Any difference arising between the fair value and historical cost of the assets to be offset is subject to a restriction on distribution. The first-time adoption of the new accounting policies resulted in EUR 19,050 thousand in expenses in relation to the remeasurement of the provisions; this amount is reported under the extraordinary result. EUR 18,548 thousand of that amount is attributable to the increase in pension provisions. The income resulting from the reversal of EUR 2,376 thousand in provisions due to the remeasurement was taken directly to revenue reserves. The effect from the annual adjustment of the discount rate applied to the provisions in accordance with 253 (2) HGB is recognized immediately in profit and loss under other interest and similar income or interest and similar expenses. Internally generated intangible assets are not capitalized.

Deferred taxes Beginning in 2010, deferred taxes are recognized for temporary differences between accounting and tax carrying amounts of assets, liabilities, prepaid expenses and deferred income. Deferred taxes are calculated based on the combined income tax rate of adidas AG, which is currently 28 %. The combined income tax rate comprises corporate income tax, municipal trade tax and the solidarity surcharge. A net tax burden would be recognized on the balance sheet as a deferred tax liability. The Company elects not to exercise its right to recognize a deferred tax asset under 274 (1) no. 2 HGB in the event of a tax benefit granted. In the fiscal year, the Company had a net deferred tax asset, which it did not recognize on its balance sheet. Furthermore, the following accounting policies have been applied in the annual financial statements. Acquired intangible fixed assets are recognized at cost and subject to periodic straight-line amortization over their expected useful lives. The intangible assets acquired in 2009 in the course of the transfer of the brand management function are amortized over a useful life of eight years. Tangible fixed assets are recognized at cost. All recognizable direct and overhead costs are included in production costs. Items with a limited life are depreciated/amortized over their expected useful lives. Buildings are subject to straight-line amortization at adidas AG. The estimated useful life of business premises is 50 years maximum and from two to ten years for technical equipment and machinery, other equipment, and operating and office equipment. The refurbishment costs of buildings comprising the World of Sports headquarters, owned by GEV Grundstcksgesellschaft Herzogenaurach mbH & Co. KG, a company within the adidas AG Group, are being written down over 20 years. The factory outlet building is being depreciated over 33 years. By virtue of a use agreement between the property owner GEV Grundstcksgesellschaft Herzogenaurach mbH & Co. KG and adidas AG, adidas AG is the beneficial owner of the Laces office building under construction on the World of Sports premises. As with the other buildings, these buildings will be depreciated over 33 years upon completion.

Chattel assets are depreciated on a straight-line basis. Minor-value assets worth less than EUR 150 are written off in full in the year of their acquisition and are shown as disposals in the statement of changes in fixed assets. Omnibus items are recognized for assets worth between EUR 150 and EUR 1,000. These are depreciated on a straight-line basis over five years. 20 % is written off in the year of acquisition. Write-downs to the lower fair value are also recognized if an impairment is anticipated to be other than temporary. Long-term financial assets are recognized at cost. To the extent necessary, write-downs are made to their lower fair value. If the reasons for the writedown no longer apply, a reversal is recognized. Inventories are measured at the lower of cost or market. Manufacturing costs comprise direct costs that must be capitalized and appropriate portions of overhead costs. Allowances are taken for discernable fashion and technical risks, age structure, and marketability. Receivables and other assets are generally recognized at nominal values. Individual adjustments and allowances for doubtful accounts are taken to cover discernible risks. Derivative financial transactions entered into with banks by Group Treasury (primarily forward currency and currency option transactions) are generally related to underlying transactions with group companies. Hedge accounting is applied if there is a direct hedging relationship between these transactions. The net hedge presentation method is applied. The fair values of the hedges are matched and changes in value from the hedged risk which offset each other are not recognized. Unrealized losses are only recognized in profit or loss if they are not covered by unrealized gains in the hedge accounting. Derivative transactions that are not recognized using hedge accounting are measured individually at fair value. Any resulting losses are recognized in the income statement.

The fair value of interest rate swaps and cross currency swaps used for hedging purposes is calculated using generally accepted models. Hedge accounting is applied (using micro-hedges) if interest rate swaps and cross currency swaps are entered into for the purpose of hedging currency and interest rate risk from existing liabilities and there is a direct hedging relationship between these transactions. The net hedge presentation method is applied here, as well. Unrealized losses are recognized in profit or loss if they are not covered by unrealized gains in the hedge accounting. The dollar offset method is used to calculate the ineffective portion of the hedge to be recognized in profit and loss. Subscribed capital is recognized at the nominal amount. Liabilities are recognized at their settlement amount. Revenues are recognized once the price risk has been transferred to the purchaser. This generally occurs upon delivery of the merchandise. Licensing revenues are recognized in accordance with the underlying contractual agreements. Claims and revenues generally arise whenever the licensee generates sales revenue with adidas products. Income from profit and loss transfer agreements is recognized if the amount to be transferred or absorbed can be determined with reasonable certainty, even if the annual financial statements of the subsidiary have not yet been adopted. Income from long-term equity investments is generally recognized during the period in which a claim to such income arises and it can be reasonably expected that the amounts due will be collected. 1. Fixed assets Please see Appendix 1 to the notes on the financial statements for the statement of changes in fixed assets pursuant to 268 (2) HGB.

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2. Intangible fixed assets and tangible fixed assets

EUR thousand Balance as of 01/01 Additions Reebok, ASL residual carrying amount Disposals Depreciation, amortization and write-downs Balance as of 12/31

12/31/2010 337,481 109,677 0 1,143 56,684 389,331

12/31/2009 198,951 197,068 1,097 3,727 55,908 337,481

The significant additions primarily concern assets under construction for a new administration building on third-party land (EUR 54,712 thousand), as well as licenses for standard software, fixtures and fittings for adidas shops, and computer hardware.

3. Long-term financial assets Additions (EUR 87,472 thousand) related to the acquisition of shares in FC Bayern Mnchen AG, Munich, Germany from adidas International B.V., Amsterdam, Netherlands, (EUR 78,841 thousand) and the increase in the equity interest in adidas Canada Ltd., Ontario, Canada (EUR 8,631 thousand). During the year under review, EUR 2,300 thousand in shares in an affiliated company were added.

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4. Inventories

EUR thousand Raw materials, consumables and supplies Work in progress Finished goods and merchandise

12/31/2010 3,376 30 17,416 20,822

12/31/2009 3,326 60 15,806 19,192

Inventories relate to raw materials, consumables, and supplies for production purposes, work in progress in the production process, and merchandise at the Company's own adidas shops, the factory outlets, as well as merchandise of the Fashion Group, i.e., products from collections such as "Y3" and "Porsche Design".

5. Receivables and other assets

EUR thousand Trade accounts receivable of which with a residual maturity of more than one year Receivables from affiliated companies of which with a residual maturity of more than one year Other assets of which with a residual maturity of more than one year 12/31/2010 47,690 12/31/2009 41,144

0 1,675,158

0 1,611,420

18,368 17,421

71,017 18,038

1,681 1,740,269

2,450 1,670,602

12

The receivables from affiliated companies primarily concern receivables in connection with Group Treasury activities. Group Treasury balances out any fund surpluses or deficits at subsidiaries through adidas AG and settles payments between subsidiaries. Receivables from affiliated companies include EUR 6,592 thousand in trade accounts receivable. EUR 27,500 thousand in other receivables from affiliated companies was written down. Other assets include mainly VAT receivables from tax authorities, recognized option premiums, and accounts receivable from credit card companies.

6. Cash and cash equivalents

EUR thousand Cash-in-hand, bank balances and checks

12/31/2010 681,452

12/31/2009 232,078

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7. Prepaid expenses
EUR thousand Advertising and promotion agreements Discount on promissory note loan Other 12/31/2010 11,460 936 25,085 37,481 12/31/2009 16,678 1,553 30,093 48,324

EUR 11,460 thousand of the prepaid expenses relates to accrued expenditures in connection with long-term advertising and promotion agreements with sports clubs and athletes. The discount on promissory note loans includes EUR 921 thousand as a discount and EUR 15 thousand as a capitalized commitment fee. Other prepaid expenses mainly comprise advance payments for advertising, insurance premiums and maintenance.

8. Subscribed capital and capital reserves On December 31, 2009, the nominal capital of adidas AG (the company) amounted to EUR 209,216,186 divided into 209,216,186 no-par-value bearer shares and was fully paid in. On May 6, 2010, the Annual General Meeting of the company resolved the conversion from no-par-value bearer shares into registered no-par-value shares. The corresponding amendments to the Articles of Association were entered into the commercial register on July 13, 2010 and thus became effective on the same date. On October 11, 2010, the no-par-value bearer shares of the company were converted into registered no-par-value shares (registered shares). At the balance sheet date, the nominal capital of the company amounted to a total of EUR 209,216,186 and was divided into 209,216,186 registered shares. The nominal capital is fully paid in. The nominal capital remained unchanged. Consequently, on February 15, 2011, the nominal capital of adidas AG amounts to EUR 209,216,186 and is divided into 209,216,186 registered shares. Each share grants one vote and is entitled to dividends starting from the beginning of the year it was issued. Treasury shares held directly or indirectly
14

are not entitled to dividend payment in accordance with 71 b German Stock Corporation Act (Aktiengesetz AktG). On February 15, 2011, the company does not hold any treasury shares. The following table summarizes the changes in equity:
Changes in shareholders' equity (E UR thousa nd) 01/01/2010 Direct-to-equity BilMoG adjustment 209,216 1,145,075 652,752 284,555 2,291,598 2,376 2,376 -73,226 -73,226 157,133 157,133 Dividend Net profit for the year 12/31/2010

Subscribed capital Capital reserves Revenue reserves Net retained profits Equity

209,216 1,145,075 655,128 368,462 2,377,881

Authorised Capital The Executive Board of adidas AG did not make use of the existing amounts of authorised capital of up to EUR 95,000,000 in the financial year 2010 or in the period beyond the balance sheet date up to and including February 15, 2011. The following description of the existing authorised capital does not contain the cancellation of the Authorised Capital 2006, resolved by the Annual General Meeting on May 6, 2010, which had also not been made use of up to May 6, 2010. The authorised capital of the company, which is set out in 4 sections 2, 3 and 4 of the Articles of Association as at the balance sheet date, entitles the Executive Board, subject to Supervisory Board approval, to increase the nominal capital

15

until June 21, 2014 by issuing new shares against contributions in cash once or several times by no more than EUR 50,000,000 and, subject to Supervisory Board approval, to exclude residual amounts from shareholders subscription rights (Authorised Capital 2009/I); until June 21, 2012 by issuing new shares against contributions in kind once or several times by no more than EUR 25,000,000 and, subject to Supervisory Board approval, to exclude shareholders subscription rights (Authorised Capital 2009/II); until July 12, 2015 by issuing new shares against contributions in cash once or several times by no more than EUR 20,000,000 and, subject to Supervisory Board approval, to exclude residual amounts from shareholders subscription rights and to exclude shareholders subscription rights when issuing the new shares at a value not essentially below the stock market price of shares with the same features (Authorised Capital 2010). The authorisation to exclude subscription rights pursuant to the previous sentence may, however, only be used to the extent that the pro-rata amount of the new shares in the nominal capital together with the pro-rata amount in the nominal capital of other shares which have been issued by the company since May 6, 2010, subject to the exclusion of subscription rights pursuant to or in accordance with 186 section 3 sentence 4 AktG on the basis of an authorised capital or following a repurchase, or for which conversion or subscription rights or conversion or subscription obligations were granted after May 6, 2010, through the issuance of convertible bonds and/or bonds with warrants, with subscription rights excluded in accordance with 186 section 3 sentence 4 AktG, does not exceed 10 % of the nominal capital existing on the date of the entry of this authorisation into the commercial register or if this amount is lower as of the respective date on which the authorisation is used.

Contingent Capital The following description of the Contingent Capital is based on 4 section 5 of the Articles of Association of the company as well as on the underlying resolutions of the Annual General Meeting held on May 6, 2010. Additional contingent capital does not exist.

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Contingent Capital 2010 At the balance sheet date, the nominal capital is conditionally increased by up to EUR 36,000,000 divided into no more than 36,000,000 registered shares (Contingent Capital 2010). The contingent capital increase will be implemented only to the extent that holders or creditors of option or conversion rights or the persons obligated to exercise option or conversion duties on bonds issued by the company or a group company, pursuant to the authorisation of the Executive Board granted by the resolution adopted by the Annual General Meeting of May 6, 2010 up to May 5, 2015 and guaranteed by the company, exercise their option or conversion rights or, if they are obliged to exercise the option or conversion duties, meet their obligations to exercise the warrant or convert the bond, or to the extent that the company exercises its rights to choose to deliver shares in the company for the total amount or partially instead of a payment and insofar as no cash settlement, treasury shares or shares of another publiclisted company are used to serve these rights. The new shares shall be issued at the respective option or conversion price to be established in accordance with the aforementioned authorisation resolution. The new shares shall carry dividend rights from the commencement of the financial year in which the shares are issued. The Executive Board is authorised, subject to Supervisory Board approval, to stipulate any additional details concerning the implementation of the contingent capital increase. The Executive Board of adidas AG did not issue any option or conversion rights, or any shares from the Contingent Capital 2010 in the financial year 2010 or in the period beyond the balance sheet date up to and including February 15, 2011.

Repurchase of adidas AG shares At the Annual General Meeting on May 6, 2010, the shareholders of the company cancelled the authorisation to repurchase adidas AG shares granted by the Annual General Meeting on May 7, 2009, which had not been used. At the same time, the Annual General Meeting granted the Executive Board a new authorisation to repurchase adidas AG shares up to an amount totalling 10 % of the nominal capital until May 5, 2015. The authorisation may be used by the company but also by its subsidiaries or by third parties on account of the company or its subsidiaries or third parties assigned by the company or one of its subsidiaries. The authorisation was not utilised in the year under review and up to and including February 15, 2011.

17

Changes in the percentage of voting rights Pursuant to 160 section 1 no. 8 AktG, existing shareholdings which have been notified to the company in accordance with 21 section 1 or section 1a of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) need to be disclosed. The following table reflects shareholdings existing as at February 15, 2011 which have been notified to the company. The respective details are taken from the most recent voting rights notification received by the company. Note that the details on the percentage of shareholdings and voting rights may no longer be up-to-date.

Existing Shareholdings as at February 15, 2011

Notifying Party Date of Reaching, Exceeding or Falling Below
June 25, 2010 June 25, 2010

Reporting Treshold

Attribution in accordance with 22 WpHG

Shareholdings in %

Number of Voting Rights

Walter Scott & Partners Limited, Edinburgh, Schottland1 Neptune LLC, Pittsburgh, USA1

Exceeding 3 %

22 sec. 1 sent. 1 no. 6 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 -

3.0096

6,296,653

Exceeding 3 %

3.0096

6,296,653

Mellon International Holdings S.A.R.L., Luxemburg, Luxemburg1 BNY Mellon International Limited, London, Grobritannien1 MBC Investments Corp., Greenville, USA1

June 25, 2010

Exceeding 3 %

3.0096

6,296,653

June 25, 2010

Exceeding 3 %

3.0096

6,296,653

June 25, 2010

Exceeding 3 %

3.1682

6,628,400

Euro Pacific Growth

June 21,

Falling Below
18

2.95

6,178,394

Notifying Party

Date of Reaching, Exceeding or Falling Below

2010 March 12, 2010

Reporting Treshold

Attribution in accordance with 22 WpHG

Shareholdings in %

Number of Voting Rights

Fund, Los Angeles, USA2 BlackRock Financial Management, Inc., New York, USA3

3% Exceeding 5 % 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 in conjunction with 22 sec. 1 sent. 2 22 sec. 1 sent. 1 no. 6 5.03 10,533,558

BlackRock Holdco 2, Inc., Wilmington, Delaware, USA3

March 12, 2010

Exceeding 5 %

5.03

10,533,558

BlackRock, Inc., New York, USA3

March 12, 2010

Exceeding 5 %

5.21

10,904,232

The Bank of New York Mellon Corporation, New York, USA4

March 12, 2010

Exceeding 3 %

3.0745

6,432,398

Capital Research and Management Company, Los Angeles, USA5

1)

December 19, 2008

Exceeding 5 %

5.01

9,695,127

Transmission of notification through The Bank of New York Mellon Corporation, Pittsburgh, USA; see the companys disclosure dated July 23, 2010. see the companys disclosure dated June 28, 2010. Transmission of notification through BlackRock Investment Management (UK) Limited, London, UK; see the companys disclosure dated March 18, 2010. see the companys disclosure dated March 17, 2010. see the companys disclosure dated January 7, 2009.

2) 3)

4) 5)

All voting rights notifications disclosed by the company in the year under review and up to and including February 15, 2011 are available on the adidas Group website (www.adidas-Group.com/voting_rights_notifications).

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9. Net retained profits

EUR thousand Net retained profits as of 12/31/2009 Distribution of a dividend of 0.35 per ordinary share with a nominal value of 1 of the share capital for the 2009 fiscal year (209,216,186 ordinary shares) Retained profits brought forward Net income of adidas AG for the 2010 fiscal year Net retained profits as of 12/31/2010 284,555

73,226 211,329

157,133 368,462

10. Special tax-allowable reserves The special reserve for adjustments of EUR 322 thousand established in 2003 in accordance with 273 HGB and Section 35 Income Tax Regulations (Einkommensteuer-Richtlinien, "EStR") in connection with construction of the factory outlet was reversed as planned.

11. Provisions
EUR thousand Provisions for pensions and similar obligations Provisions for taxes O ther provisions 12/31/2010 129,649 11,334 173,709 314,692 12/31/2009 102,183 22,452 115,180 239,815

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After an appropriation to a pension fund in December 2006 for the entitlements of the current members of the Executive Board and two former members of the Executive Board, the pension provisions for pension commitments for the current board members are EUR 0. As a result of this adidas AG has an indirect obligation. Other payments recognized in profit or loss accrue to a pension trust fund to cover the pension entitlements of active members of the Executive Board earned after 2006. The provisions for former members of the Executive Board and their survivors amounted to EUR 37,638 thousand as of December 31, 2010 (previous year: EUR 29,857 thousand). Additionally, there are EUR 6,286 thousand in indirect obligations (previous year: EUR 4,622 thousand) for which no provisions have been recognized, since these obligations are fully funded by the pension fund. As of the balance sheet date, there are no shortfalls for the indirect obligations. Former members of the Executive Board and their survivors received a total of EUR 3,235 thousand in retirement pay in fiscal year 2010 (previous year: EUR 2,607 thousand). The largest item in other provisions concerns provisions for personnel of EUR 78,442 thousand (previous year: EUR 52,330 thousand). This amount is primarily attributable to provisions for performance-based remuneration components. Further significant items in other provisions are provisions for outstanding invoices (EUR 42,194 thousand; previous year: EUR 32,034 thousand) and provisions for marketing (EUR 27,805 thousand; previous year: EUR 19,404 thousand). Other provisions also contained a provision of EUR 3,445 thousand for hedges (previous year: EUR 678 thousand). Provisions for early and partial retirement obligations reported under other provisions amounted to EUR 7,853 thousand as of December 31, 2010 (previous year: EUR 8,538 thousand). The fair value of the netted assets amounted to EUR 4,282 thousand as of the balance sheet date (previous year: EUR 3,852 thousand) and historical costs amounted to EUR 4,082 thousand (previous year: EUR 4,034 thousand). Any difference arising between the fair value and historical cost of the netted assets is subject to a statutory restriction on distribution.

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12. Liabilities
EUR thousand 12/31/2010 Total Residual term up to 1 year Residual term 1 -5 years 12/31/2009 Residual Prior term year more than total 5 years

Liabilities to banks (previous year) Payments received on account of orders (previous year)

480,755

58,696 (198,796) 1,826 (0)

422,059 (380,000) 0 (0)

0 (99,559) 0 (0)

678,355

1,826

Trade accounts payable (previous year) Liabilities to affiliated companies (previous year) Other liabilities (previous year) of which for taxes of which relating to social security 12/31/2010 12/31/2009

33,804

33,630 (22,519)

174 (956)

23,475

3,010,500

2,702,872 (2,037,362) 37,723 (31,027)

203,229 (203,229) 1,138 (1,074)

104,399 (104,399) 437 (766)

2,344,990

39,298 3,650 2,390 3,566,183

32,867 3,347 1,022

2,834,747 (2,289,704)

626,600 (585,259)

104,836 (204,724)

3,079,687

The liabilities are unsecured. The liabilities to affiliated companies primarily concern liabilities from Group treasury activities. Trade payables to affiliated companies amounted to EUR 14,923 thousand. Other liabilities include leasing liabilities, tax and customs liabilities, liabilities relating to social security and similar obligations, accrued interest not yet payable, customer accounts with credit balances, and wages, salaries and commissions payable.

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13. Contingent liabilities and other financial commitments Contingent liabilities

EUR thousand Warranty obligations of which for affiliated companies - Bank loans - Letters of credit - Guarantee Agreement

12/31/2010 2,339,789

12/31/2009 1,945,886

(1,623,154) (170,310) (546,325)

(1,268,603) (108,550) (568,733)

The guarantee obligations for bank loans to affiliated companies relate primarily to US promissory note loans. adidas AG's letters of credit are mainly import letters of credit in connection with product purchases in the Far East. Most of the guarantee agreements are with adidas International Finance B.V., Amsterdam, the Netherlands, and secure a loan to an affiliated company. Due to past experience and the adidas Group's current strong financial position, the risk that these will be called on is considered extremely slight.

Other financial commitments Other financial commitments of EUR 529,754 thousand (previous year: EUR 616,306 thousand) for adidas AG include amounts for the entire foreseeable contractual period for promotion, advertising, rental and leasing agreements as of December 31, 2010. This includes commitments of EUR 30,462 thousand (previous year: EUR 30,317 thousand) to GEV Grundstcksgesellschaft Herzogenaurach mbH und Co. KG, a 90 %-held subsidiary.

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Maturities EUR thousand in 2011 2012 - 2015 after 2015 178,698 256,974 94,082 529,754

The Group acquires approximately 80 % of its products in Asia. Since a major portion of the product costs concerns raw materials that the suppliers have to acquire in US dollars (USD), billings to the adidas Group are also made in USD. In contrast, sales by Group companies to customers are mainly in EUR, the British pound sterling (GBP), Japanese yen (JPY), and in many other currencies. Currency hedges are entered into to reduce the risk of changes in fair value and in cash flows (currency risks). Most subsidiaries hedge their currency risks through adidas AG, except for those subsidiaries that are unable to hedge through adidas AG due to local currency restrictions or for those for which it is more sensible to hedge locally for economic reasons. Currency risks that are assumed by adidas AG from subsidiaries by entering into intra-Group currency transactions are strategically hedged with banks, normally for a period of between 12 and 24 months, using forward exchange transactions, currency swaps, currency options, or a combination of currency options, which provide protection and, at the same time, the opportunity to profit from future beneficial foreign exchange rate movements on financial markets. In some cases, longerterm transactions have been concluded in order to profit from the strong euro. In 2010, adidas AG purchased about USD 2.1 billion net to hedge its operating business.

24

O utstanding financial derivatives EUR million Nominal amount Currency hedging contracts Interest hedging contracts 12/31/2010 12/31/2009

6,333 240 6,573 12/31//2010 C arrying Fair amount value 12/31/2009 C arrying Fair amount value

6,048 369 6,417

EUR thousand Assets (O ther assets) Currency hedging contracts Interest hedging contracts Liabilities (O ther provisions) Currency hedging contracts Interest hedging contracts

6,800 0

33,779 6,043

5,755 0

49,016 2,902

-15,719 0 -8,919

-37,563 -2,820 -561

-2,749 0 3,006

-38,323 -6,863 6,732

Nominal amounts represent the gross total of all call and put contracts for derivative financial transactions. Fair values of forward exchange transactions are determined based on current ECB reference exchange rates, together with forward premiums or discounts. The fair values (gains and losses) of the currency hedging contracts are presented as net values in some instances. Currency options are measured using market quotes or option pricing models (Garman-Kohlhagen model). The fair values of interest rate hedges are calculated using discounted expected future cash flows, using current market interest rates for the remaining terms of the financial instruments concerned.

25

The nominal amounts of outstanding financial derivatives in foreign currency are translated into euros at year-end closing rates. The EUR interest hedges were entered into to hedge against the risk of changes in cash flows and the USD interest hedges were entered into to hedge against the risk of changes in fair value. The fair value of the interest hedges is reported at the clean price. The carrying amounts are taken from the balance sheet. The following table provides an overview of the risks hedged:

Hedged risk as of the balance sheet date EUR thousand

Nominal Net change in fair value Maturity

C urrency risk Risk Forward exchange transactions with subsidiaries Hedging Forward exchange transactions and options with banks Interest rate risk Risk Loans Hedging Interest-rate, cross-currency swap
239,839 239,839 -3,222 3,222 2 - 54 months 2 - 54 months

2,875,755

7,849

1 - 20 months

2,663,131

-4,494

1 - 20 months

26

14. Sales revenues adidas AG's business activities are primarily concentrated in one sector, specifically, the development, trading and marketing of sports and leisure articles. Due to the transfer of the brand management function in 2009 and the associated exploitation of the brand rights, adidas AG generates a significant portion of its revenue from licensing, primarily from associated companies.

EUR thousand Breakdo wn by product group Shoes Textiles Sports equipment

2010

2009

293,515 367,294 54,267 715,076

283,997 311,950 42,620 638,567 25,806 734,809 1,399,182

Other sales revenues Licensing and commission income

18,650 806,068 1,539,794

Of these revenues, EUR 630,116 thousand (previous year: EUR 573,053 thousand) were generated in Germany and EUR 909,677 thousand (previous year: EUR 826,147 thousand) outside Germany, mainly in Europe.

27

15. Other operating income Other operating income mainly consists of EUR 554,289 thousand in foreign currency gains and cost transfers to affiliated companies. The EUR 526,292 thousand increase in other operating income was due primarily to the separate disclosure of EUR 550,970 thousand in currency translation losses for the first time, which was necessary due to the BilMoG. A EUR 13,051 thousand reduction in cost transfers to associated companies counteracted this effect. Other operating income includes income relating to other periods of EUR 25,569 thousand, compared to EUR 28,066 thousand in the previous year. These consist primarily of income from litigation (EUR 10,065 thousand; previous year: EUR 0 thousand), insurance benefits (EUR 6,207 thousand; previous year: EUR 12,794 thousand) and income from the reversal of provisions (EUR 6,073 thousand; previous year: EUR 10,817 thousand).

16. Cost of materials

thousand Cost of raw materials, consumables and supplies, and of purchased merchandise

2010

2009

480,257

427,981

17. Personnel expenses

EUR thousand Wages and salaries Social security, post-employment and other employee benefit costs of which for old age pensions

2010 232,193 42,300 (9,869) 274,493

2009 207,159 42,780 (12,524) 249,939

28

The increase in personnel expense was due to higher employee headcounts, increased transfers to personnel provisions and higher salaries than in the previous year due to salary increases.

18. Amortization and write-downs of intangible fixed assets and depreciation and write-downs of tangible fixed assets Amortization and write-downs of intangible assets amounted to EUR 36,456 thousand (previous year: EUR 33,285 thousand) related to brand rights transferred from adidas International Marketing B.V., Amsterdam, the Netherlands, and computer software and licenses. Depreciation and writedowns of tangible fixed assets of EUR 20,228 thousand (previous year: EUR 22,623 thousand) relates primarily to write-downs of EUR 6,828 thousand (previous year: EUR 9,000 thousand) on computer hardware and write-downs on buildings of EUR 6,217 thousand (previous year: EUR 6,023 thousand).

19. Other operating expenses Other operating expenses essentially comprise cost transfers, currency exchange losses, advertising and promotional expenses, legal and consulting fees, services, travel expenses, rental and lease charges, postal and telephone expenses, and outgoing freight. The EUR 719,557 thousand increase in these expenses is due primarily to the separate disclosure of EUR 550,970 thousand in currency translation gains, a EUR 57,157 thousand increase in cost transfers, due mainly to greater marketing cost transfers by adidas International Marketing B.V., Amsterdam, in relation to the 2010 World Cup, as well as to a EUR 44,010 thousand increase in advertising expenses. Other operating expenses included currency translation losses amounting to EUR 502,401 thousand.

20. Income from long-term equity investments Income from long-term equity investments at adidas AG of EUR 89,585 thousand (previous year: EUR 72,151 thousand) essentially concerns dividend payments from subsidiaries in Ukraine, Mexico, Poland and the Netherlands and thus consists entirely of equity income from affiliated companies.

29

21. Profits received/losses absorbed in accordance with a profit and loss transfer agreement A profit and loss transfer agreement exists with adidas Insurance & Risk Consultants GmbH, Herzogenaurach, as well as with adidas Beteiligungsgesellschaft mbH, Herzogenaurach.

22. Write-downs on long-term financial assets No write-downs were recognized on loans to affiliated companies in 2010 (previous year: EUR 3,958 thousand).

23. Net interest income (loss)

EUR thousand Income from loans of long-term financial assets of which from affiliated companies Other interest and similar income of which from affiliated companies of which income from securities classified as current assets Interest and similar expenses of which to affiliated companies

2010

2009

299 (299)

1,040 (1,040)

22,180 (14,322) -90,907 (-51,769) -68,428

32,472 (23,280) (78) -101,027 (-30,246) -67,515

30

Other interest and similar income contains EUR 877 thousand from the compounding or discounting of provisions. Interest and similar expense contains EUR 6,741 thousand from the compounding or discounting of provisions, of which EUR 6,338 thousand is attributable to interest expense in connection with pension provisions. The interest expense from the provision for early and partial retirement obligations of EUR 356 thousand is offset against the income from fluctuations in the fair value of the assets offset in accordance with 246 (2) sentence 2 HGB amounting to EUR 408 thousand.

24. Extraordinary result The extraordinary result was due exclusively to the first-time adoption of the new provisions of the BilMoG. For a more detailed discussion, please refer to the section entitled "First-time adoption of the German Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz, "BilMoG")".

25. Taxes on income Taxes on income related primarily to withholding tax on licensing income, which resulted from the transfer of the brand management function to adidas AG, as well as trade tax. Taxes on income did not include any gains or losses from deferred taxes. Overall, deferred tax liabilities were more than offset by deferred tax assets. The Company opted not to recognize the surplus deferred tax assets in accordance with 274 (1) sentence 2 HGB. As of December 31, 2010, adidas AG expects to realize EUR 19,029 in future tax benefits due to temporary accounting differences. This amount was calculated based on a combined income tax rate of 28 %. Deferred tax liabilities resulted primarily from differences in carrying amounts for long-term liabilities. Deferred tax assets resulted primarily from pension provisions, amortization differences for intangible assets acquired due to the transfer of the brand marketing function and provisions for potential losses which cannot be recognized for tax purposes.

31

26. Other disclosures

No. of employees (annual average) Europe Headquarters Corporate Services Marketing Operations Market Central Uffenheim Scheinfeld Total 148 932 838 520 800 193 221 3,652 (as of December 31) 3,686 2010 Salaried Wage 146 851 838 498 708 46 75 2 81 0 22 92 147 146 Total 143 831 768 531 791 198 219 3,481 3,575 2009 Salaried Wage 138 750 768 505 706 48 69 5 81 0 26 85 150 150

27. Remuneration of the Executive Board and the Supervisory Board Remuneration of the Executive Board and the Supervisory Board of adidas AG Executive Board Total remuneration of members of the Executive Board in fiscal year 2010 was EUR 11,494 thousand (previous year: EUR 10,494 thousand). Please refer to the management report for disclosures pursuant to 285 sentence 1 no. 9a sentence 5-9 HGB. The provisions for former members of the Executive Board and their survivors amounted to EUR 37,638 thousand as of December 31, 2010 (previous year: EUR 29,857 thousand). Additionally, there are EUR 6,286 thousand in indirect obligations (previous year: EUR 4,622 thousand) for which no provisions have been recognized, since these obligations are fully funded by the pension fund. Former members of the Executive Board and their survivors received a total of EUR 3,235 thousand in retirement pay in fiscal year 2010 (previous year: EUR 2,607 thousand). Executive Board members did not receive any loans from the Company in fiscal 2010.

32

Supervisory Board The annual remuneration for members of the Supervisory Board in accordance with the Articles of Association was EUR 920 thousand. No loans were granted to members of the Supervisory Board in fiscal 2010.

Recommendation on appropriation of the net retained profits of adidas AG The Executive Board of adidas AG recommends that the shareholders approve a dividend of EUR 0.80 per share for 2010. It is therefore recommended that adidas AG's net retained profits as of December 31, 2010 be appropriated as follows:
EUR thousand Net retained profits as of December 31, 2010 Distribution of a dividend of EUR 0.80 per no-par value share on the nominal capital of 209,216,186.00 entitled to dividends for the 2010 fiscal year (209,216,186 no-par value shares) Amount carried forward 368,462

167,373 201,089

Declaration on the German Corporate Governance Code On February 11, 2011, the Executive Board and Supervisory Board of adidas AG issued an updated Declaration of Conformity in accordance with 161 AktG and made it accessible to the shareholders on a permanent basis. The wording of the Declaration of Conformity may be found on the Company's website.

33

Disclosures pursuant to 285 sentence 1 no. 10 HGB and 285 no. 17 HGB The disclosures pursuant to 285 sentence 1 no. 10 HGB are contained in Appendix 2 to the notes to the financial statements. In accordance with 285 no. 17 HGB (new version), the Company has opted not to include a disclosure of the total audit fee charged by the auditor in this report, since such disclosures are already contained in the consolidated financial statements of the adidas Group. In its function as the ultimate parent, adidas AG, Herzogenaurach (Local Court of Frth, HRB 3868), prepares consolidated financial statements, which are published in the electronic Federal Gazette.

Herzogenaurach, dated February 15, 2011

The Executive Board of adidas AG

34

adidas AG
Statement of Changes in Fixed Assets

Cost

in EUR thousand (HGB) Intangible fixed assets Industrial rights and similar rights and assets and licences in such rights Prepayments and assets under construction Tangible fixed assets Land, land rights and buildings, including buildings on third-party land Technical equipment and machinery Other equipment, office and operating equipment Prepayments and assets under construction

Brought forward from Jan. 1, 2010

Additions Reclassifications DIsposals

Balance as of Dec. 31, 2010

277.458 16.590 294.048

15.714 16.262 31.976

14.199 -14.180 19

1.926 0 1.926

305.445 18.672 324.117

135.769 23.245 138.934 53.473 351.421

3.168 2.589 9.606 62.338 77.701

2.194 100 119 -2.432 -19

136 32 5.880 1 6.049

140.995 25.902 142.779 113.378 423.054

Long-term financial assets Shares in affiliated companies Loans to affiliated companies Other long-term equity investments 3.329.342 14.143 0 3.343.485 Fixed assets 3.988.954 8.631 0 78.841 87.472 197.149 0 0 0 0 0 0 102 0 102 8.077 3.337.973 14.041 78.841 3.430.855 4.178.026

1)

Reversals of write-downs on shares in affiliated companies are reported in the income statement under

other operating income

35

Cumulative depreciation, amortisation and write-downs

Carrying amount Depreciation, amortisation and write-downs for the year

Balance as of Dec. 31, 2010

Net as of Dec. 31, 2010

Net as of Dec. 31, 2009

Reversals for the year

163.429 0 163.429

142.016 18.672 160.688

149.552 16.590 166.142

0 0 0

36.456 0 36.456

58.378 15.192 120.841 0 194.411

82.617 10.710 21.938 113.378 228.643

83.567 9.544 24.755 53.473 171.339

0 0 0 0 0

6.217 1.524 12.487 0 20.228

25.655 9.925 0 35.580 393.420

3.312.318 4.116 78.841 3.395.275 3.784.606

3.301.387 4.218 0 3.305.605 3.643.086

2.300 0 0 2.300 2.300

1)

0 0 0 0 56.684

36

Supervisory Board

Igor Landau, Paris, France Chairman Former Chief Executive Officer of Aventis S.A., Paris, France Membership in control bodies pursuant to 285 para. 10 HGB: Member of the Supervisory Board, Allianz SE, Munich, Germany Member of the Board of Directors, Sanofi-Aventis S.A., Paris, France Member of the Board of Directors, HSBC France S.A., Paris, France

Sabine Bauer*, Erlangen, Germany Deputy Chairwoman Chairwoman of the Central Works Council1), adidas AG Membership in control bodies pursuant to 285 para. 10 HGB: none

Willi Schwerdtle, Hofheim am Taunus, Germany Deputy Chairman General Manager, Procter & Gamble GmbH, Schwalbach am Taunus, Germany Membership in control bodies pursuant to 285 para. 10 HGB: none

Dieter Hauenstein*, Herzogenaurach, Germany Chairman of the Works Council Herzogenaurach, adidas AG Membership in control bodies pursuant to 285 para. 10 HGB: none

*= Employee representative 1) Since January 1, 2010; formerly Senior Manager Quality Analysis & Reporting, Global Operations, adidas AG 2) Since May 18, 2010: formerly Member of the Supervisory Board, CeramTec AG, Plochingen, Germany 3) Until November 1, 2010 4) Since April 29, 2010 5) Since August 13, 2010

37

Dr. Wolfgang Jger* , Bochum, Germany Managing Director, Hans-Bckler-Stiftung, Dsseldorf, Germany Membership in control bodies pursuant to 285 para. 10 HGB: none

Dr. Stefan Jentzsch, Kronberg, Germany Partner, Perella Weinberg Partners UK LLP, London, Great Britain Membership in control bodies pursuant to 285 para. 10 HGB: Member of the Supervisory Board, Sky Deutschland AG, Unterfhring, Germany

Herbert Kauffmann, Stuttgart, Germany Management Consultant, Stuttgart, Germany Membership in control bodies pursuant to 285 para. 10 HGB: none

Roland Nosko*, Wolnzach, Germany Trade Union Official, IG BCE, Headquarter Nuremberg, Germany Membership in control bodies pursuant to 285 para. 10 HGB: Deputy Chairman of the Supervisory Board2), CeramTec AG, Plochingen, Germany

Alexander Popov, Moscow, Russia Chairman of RFSO Lokomotiv, Moscow, Russia Membership in control bodies pursuant to 285 para. 10 HGB: none

*= Employee representative 1) Since January 1, 2010; formerly Senior Manager Quality Analysis & Reporting, Global Operations, adidas AG 2) Since May 18, 2010: formerly Member of the Supervisory Board, CeramTec AG, Plochingen, Germany 3) Until November 1, 2010 4) Since April 29, 2010 5) Since August 13, 2010

38

Hans Ruprecht*, Herzogenaurach, Germany Sales Director Customer Service, Market Central, adidas AG Membership in control bodies pursuant to 285 para. 10 HGB: none

Heidi Thaler-Veh*, Uffenheim, Germany Member of the Central Works Council, adidas AG Membership in control bodies pursuant to 285 para. 10 HGB: none

Christian Tourres, Lungern, Switzerland Former Member of the Executive Board of adidas AG Membership in control bodies pursuant to 285 para. 10 HGB: Member of the Board of Directors, Beleta Worldwide Ltd., Guernsey, Channel Islands3)

*= Employee representative 1) Since January 1, 2010; formerly Senior Manager Quality Analysis & Reporting, Global Operations, adidas AG 2) Since May 18, 2010: formerly Member of the Supervisory Board, CeramTec AG, Plochingen, Germany 3) Until November 1, 2010 4) Since April 29, 2010 5) Since August 13, 2010

39

Executive Board
Herbert Hainer, Herzogenaurach, Germany Chief Executive Officer Membership in control bodies pursuant to 285 para. 10 HGB: Deputy Chairman of the Supervisory Board, FC Bayern Mnchen AG, Munich, Germany Member of the Supervisory Board, Allianz Deutschland AG, Munich, Germany Member of the Supervisory Board, Engelhorn KGaA, Mannheim, Germany Member of the Supervisory Board, Deutsche Lufthansa AG, Cologne, Germany4)

Glenn Bennett, Portland/Oregon, USA Membership in control bodies pursuant to 285 para. 10 HGB: none

Robin Stalker, Oberreichenbach, Germany Membership in control bodies pursuant to 285 para. 10 HGB: Member of the Supervisory Board, Schaeffler GmbH, Herzogenaurach, Germany5)

Erich Stamminger, Nuremberg, Germany Membership in control bodies pursuant to 285 para. 10 HGB:
-

none

*= Employee representative 1) Since January 1, 2010; formerly Senior Manager Quality Analysis & Reporting, Global Operations, adidas AG 2) Since May 18, 2010: formerly Member of the Supervisory Board, CeramTec AG, Plochingen, Germany 3) Until November 1, 2010 4) Since April 29, 2010 5) Since August 13, 2010

40

Shareholdings of adidas AG, Herzogenaurach at December 31, 2010

Currency Equity (currency units in thousands) Share in capital held by 7) in % Profit / Loss (currency units in thousands)

Company and Domicile

Germany 1 GEV Grundstcksgesellschaft Herzogenaurach mbH & Co. KG Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Herzogenaurach (Germany) Kirchheim-Heimstetten (Germany) EUR 4.043 EUR EUR EUR EUR directly directly directly directly 94 EUR directly EUR 2.395 directly EUR 33 directly 100 100 100 100 100 100 100 100 EUR 354.103 directly 100 EUR 26 directly 100 EUR 37 directly 100 EUR 972 directly 90

1.503 2 2 276 312

2 GEV Grundstcks-Beteiligungsgesellschaft Herzogenaurach mbH

3 adidas Insurance & Risk Consultants GmbH 12) (formerly: adidas Versicherungs-Vermittlungs GmbH)

4 adidas Beteiligungsgesellschaft mbH 12)

5 Immobilieninvest und Betriebsgesellschaft Herzo-Base Verwaltungs GmbH

6 Immobilieninvest und Betriebsgesellschaft Herzo-Base GmbH & Co. KG

7 World of Commerce Management GmbH 6)

8 World of Commerce GmbH & Co. KG 6)

9 Hotel Herzo-Base GmbH & Co. KG 6)

10 Herzo-Base Management GmbH 6)

11 Factory Outlet Herzo-Base GmbH & Co. KG 6)

12 Reebok-CCM Hockey GmbH

Europe (incl. Middle East and Africa) 13 adidas sport gmbh Cham (Switzerland) Cham (Switzerland) Klagenfurt (Austria) Landersheim (France) Amsterdam (Netherlands) Amsterdam (Netherlands) Amsterdam (Netherlands) Amsterdam (Netherlands) Amsterdam (Netherlands) Amsterdam (Netherlands) Amsterdam (Netherlands) Stockport (Great Britain) Stockport (Great Britain) Stockport (Great Britain) Stockport (Great Britain) Stockport (Great Britain) EUR EUR USD USD GBP GBP GBP GBP GBP EUR EUR EUR EUR EUR CHF -3.057 6.997 93.151 5.680.662 762.088 36.967 11.056 4.623 562 3.510 48.698 CHF 9.133

directly directly

100 100

4.395 1.265 2.657 26.178 212.312 198.148 17 17 directly 110 97 30 24 24 24 27 100 100 100 100 100 100 100 100 100 100 1.468 2.224 2.422 0 609 10.672 -

41

14 Sarragan AG

15 adidas Austria GmbH

16 adidas France S.a.r.l.

directly 13 30

95,89 4,11 100

17 adidas International B.V.

18 adidas International Trading B.V.

directly 16 17

93,97 6,03 100

19 adidas International Marketing B.V.

20 adidas International Finance B.V.

21 adidas Benelux B.V.

22 Reebok International Finance B.V.

23 Rockport (Europe) B.V.

24 adidas (UK) Limited 1)

25 adidas (ILKLEY) Limited 1) 6)

26 LARA SPORT (UK) Limited

1) 6)

27 Sarragan (UK) Limited 1) 6)

28 adidas Trefoil Trading (U.K.) Limited 1) 6)

Company and Domicile

Currency

Equity (currency units in thousands) Share in capital held by 7) in % 1.036.627 1.608 3.112 86.877 -6.791 3.610 8.838 56 3.228 25.482 34.308 43.602 28.971 59 28.107 14.865 17 39 17 17 41 21 4 30 30 30 30 100 100 100 100 100 100 100 100 100 100 100 30 100 -95.807 -330 14.707 2.185 1.115 252 734 8.334 263 3.231 17 100 1.212 371 8.122 50 100 736

Profit / Loss (currency units in thousands)

29 Three Stripes Limited Stockport (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) London (Great Britain) Basingstoke (Great Britain) Basingstoke (Great Britain) Dublin (Ireland) Dublin (Ireland) Dublin (Ireland) Brussels (Belgium) Zaragoza (Spain) Zaragoza (Spain) Monza (Italy) Lisbon (Portugal) Maia (Portugal) Lillestrom (Norway) Gressvik (Norway) Stockholm (Sweden) Malung (Sweden) Malung (Sweden) Helsinki (Finland) Forssa (Finland) rhus (Denmark) Prague (Czech Republic) Budapest (Hungary) NOK SEK SEK SEK EUR EUR DKK CZK HUF NOK EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP GBP GBP GBP USD GBP GBP USD GBP GBP GBP GBP

1) 6)

30 Reebok International Limited 11)

31 Reebok Finance Limited 6) 11)

24 25 17 110 110

50 50 65,1 34,9 100

32 RBK Holdings Limited 11) 110 96 30 89 11 100

33 Reebok Sports Limited

34 J.W. Foster & Sons (Athletic Shoes) Limited 6) 11)

35 The Rockport Company Limited 6) 11)

36 Reebok Eastern Trading Limited 6)

37 Reebok Pensions Management Limited 11)

38 Reebok Europe Holdings

39 Taylor Made Golf Limited

40 Ashworth U.K. Ltd. 5)

41 adidas (Ireland) Limited

42 adidas International Re Limited

43 Reebok Ireland Limited

44 adidas Belgium N.V.

42
70.750 539.015 105.077 1.750 9.229 18.381 141.127 1.320.477

45 adidas Espana S.A.

46 adidas Finance Spain S.A.

47 adidas Italy S.p.A

110 46 17

75 25 100

48 adidas Portugal - Artigos de Desporto, S.A.

49 adidas Business Services Lda.

50 adidas Norge AS

17 directly directly

98 2 100

51 Reebok Jofa AS

52 adidas Sverige AB

directly 94 52 17 17 17 directly directly

100 100 100 100 100 100 100 85

22.360 351.045 3.607 665 2.579 5.649 24.531 200.880

53 Nordic Hockey Company AB 10)

54 Reebok Jofa AB

55 adidas Suomi Oy

56 Reebok-CCM Hockey Oy

57 adidas Danmark A/S

58 adidas CR s.r.o.

59 adidas Budapest Kft.

Company and Domicile

Currency

Equity (currency units in thousands) Share in capital held by 7) in % directly 15 directly 110 17 17 directly directly directly directly 17 17 directly directly 17 18 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 3.268 4.579.466 6.443 2.288 4.247 243 531 1.053 217.938 1.211.365 159.804 -2.429 -18.597 124 55.204 268 11.990 12.241 2.352 1.533 3.400 23.842 -1.831 77 78 81 55 100 100 -2 1.051 2.175 2.535 9.707 15.955.659 39.349 86.675 15.212 428 2.614 1.265 388.478 1.829.756 373.940 16.771 1.123 1.240 142.773 1.499 31.755 12.514

Profit / Loss (currency units in thousands)

60 adidas Bulgaria EAD Sofia (Bulgaria) Moscow (Russia) Warsaw (Poland) Warsaw (Poland) Bucharest (Romania) Riga (Latvia) Bratislava (Slovak Republic) Ljubljana (Slovenia) Kiev (Ukraine) Almaty (Republic of Kazakhstan) New-Belgrade (Serbia) Zagreb (Croatia) Thessaloniki (Greece) Nicosia (Cyprus) Istanbul (Turkey) Istanbul (Turkey) Dubai (United Arab Emirates) Dubai (United Arab Emirates) Dubai (United Arab Emirates) Amman (Jordan) Cairo (Egypt) Cairo (Egypt) Cairo (Egypt) Holon (Israel) Holon (Israel) Cape Town (South Africa) USD ILS ILS ZAR EGP EGP JOD JOD USD USD TRY TRY EUR EUR HRK RSD KZT UAH EUR SKK EUR RON PLN PLN RUB BGN

61 LLC "adidas, Ltd."

62 adidas Poland Sp.z.o.o.

63 adidas Finance Poland S.A.

64 adidas Romania S.R.L.

65 adidas Baltics SIA

66 adidas Slovakia s.r.o.

67 adidas Trgovina d.o.o.

68 SC "adidas-Ukraine"

69 adidas LLP

70 adidas Serbia d.o.o.

71 adidas Croatia d.o.o.

72 adidas Hellas A.E.

73 adidas (Cyprus) Limited

74 adidas Spor Malzemeleri Satis ve Pazarlama A.S.

75 a-RET Tekstil ve Deri rnleri Ticaret A.S.

43
7.948 40.608 176.401 Portland, Oregon (USA) Portland, Oregon (USA) Portland, Oregon (USA) Portland, Oregon (USA) Carlsbad, California (USA) USD USD USD USD USD 4.939.208 40.011 47.078 -155 49.600

76 adidas Emerging Market L.L.C.

77 adidas Emerging Markets FZE

indirectly 16 17

51 49 100

78 adidas Levant Limited

79 adidas Levant Limited - Jordan

80 adidas Imports & Exports Ltd.

81 adidas Sporting Goods Ltd.

82 adidas Egypt Ltd. 6)

17 18 directly directly 17 directly

90 10 100 100 51 100

83 adidas Israel Ltd.

-560 10.952 33.411

84 Life Sport Ltd.

85 adidas (South Africa) (Pty) Ltd.

North America 86 adidas North America, Inc.

17 86 86 86 86

100 100 100 100 100

411.410 -28.681 3.881 10.524

87 adidas America, Inc. (formerly adidas Sales, Inc.)

88 adidas International, Inc.

89 adidas Team, Inc.

90 Taylor Made Golf Co. ,Inc. 13)

Company and Domicile

Currency

Equity (currency units in thousands) Share in capital held by 7) in %

Profit / Loss (currency units in thousands)

91 Ashworth, LLC. 13) Carlsbad, California (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Wilmington, Delaware (USA) Montgomery, Alabama (USA) Montgomery, Alabama (USA) Montgomery, Alabama (USA) Wilmington, Delaware (USA) Dover, Delaware (USA) Dover, Delaware (USA) Dover, Delaware (USA) Canton, Massachusetts (USA) Stoughton, Massachusetts (USA) Boston, Massachusetts (USA) Boston, Massachusetts (USA) Montpelier, Vermont (USA) Concord, Ontario (Canada) Concord, Ontario (Canada) Montreal (Canada) Montreal (Canada) Montreal (Canada) New Brunswick (Canada) USD USD CAD CAD CAD CAD CAD CAD USD USD USD USD USD USD -1.192.508 109.699 369 10.402 81.525 2.218 6.879 6.317 45.870 USD USD USD USD USD USD USD 91 91 91 99 103 103 91 93 USD 91 USD 12.764 88 USD 226.761 110 100 100 100 100 100 100 100 100 100 100 100 USD 110 100 USD -1 110 100 USD -18.339 93 100 USD 156.648 110 100 USD 12.281 110 100 USD 90 100

732 -498 -20 -6.586 935 -

92 The Reebok Worldwide Trading Company, LLC

93 Reebok-CCM Hockey, Inc. 9)

94 Sports Holdings Corp. 10)

95 RFC, Inc.

96 Reebok Securities Holdings LLC 2)

97 The Rockport Company, LLC

98 Textronics, Inc.

99 Ashworth Acquisition Corp. 13)

100 Ashworth Store I, Inc. 13)

101 Ashworth Store II, Inc. 13)

102 Ashworth EDC, LLC 13)

103 Putter, LLC (formerly Gekko Brands, LLC) 6) 13)

104 Bunker Shot, LLC (formerly Kudzu, LLC) 6) 13)

105 Tee Off, LLC (formerly The Game, LLC) 6) 13)

44

106 Sunice Holdings, Inc. 13)

107 SLM Trademark Acquisition Corp. 6) 9)

108 Onfield Apparel Group, LLC 8)

109 Reebok Onfield, LLC 8)

110 109 110 86 110

99 1 100 100 100

110 Reebok International Ltd. 2)

-456.677 -2.242 1.669 6.671 115 110 115 121 93 100 100 100 100 100 10 -11.898 -7.595

111 Reebok CHC, Inc. 2) 6)

112 Sports Licensed Division of the adidas Group, LLC

113 RBK Thailand, Inc. 2)

110 96 110

99 1 100

114 Reebok-CCM Hockey U.S., Inc.

115 adidas Canada Ltd. 14)

93 94 directly

64 36 100

116 adidas Style Retail Canada Limited 14)

117 R.C. Investments Ltd.

118 Reebok Canada Inc.

119 CCM Holdings (1983) Inc.

120 Sport Maska Inc.

Company and Domicile

Currency

Equity (currency units in thousands) Share in capital held by 7) in % 107 100 -

Profit / Loss (currency units in thousands)

121 SLM Trademark Acquisition Canada Corporation 6) 9) New Brunswick (Canada) CAD

Asia 122 adidas Sourcing Limited Hong Kong (China) Hong Kong (China) Hong Kong (China) Hong Kong (China) Hong Kong (China) Hong Kong (China) Hong Kong (China) Suzhou (China) Suzhou (China) Shanghai (China) Zhuhai (China) Tokyo (Japan) Tokyo (Japan) Seoul (Korea) Seoul (Korea) Pusan (Korea) New Delhi (India) New Delhi (India) New Delhi (India) New Delhi (India) Jakarta (Indonesia) Kuala Lumpur (Malaysia) Manila (Philippines) Singapore (Singapore) Taipei (Taiwan) Bangkok (Thailand) Bangkok (Thailand) Mulgrave (Australia) Auckland (New Zealand) MYR PHP SGD TWD THB THB AUD NZD IDR INR USD INR INR KRW -5.802.755 -81.589 883 859.995 22.245.799 32.501 251.568 18.411 602.334 -25.481 682.277 48.754 3.375 KRW 20.593.684 KRW 110.986.329 JPY 5.350.911 JPY 4.111.657 USD 1.600 CNY 24.578 CNY 2.794.820 4 17 122 30 30 directly directly 122 CNY 137.218 4 USD 1.876 126 USD 7.416 126 100 100 100 100 100 100 100 100 100 100 100 USD 33.569 110 100 HKD 93 100 HKD 184.288 directly 100 USD 5.616 17 100 USD 258.447 18 100

215.292 1.129 117.126 1.497 -134 -91 44.557 1.091.141 -7.969 520 1.418.104 917.411 36.993.112 9.508.645 950 288.279 -72

123 adidas Services Limited

124 adidas Hong Kong Ltd.

125 Smedley Industries (Hong Kong) Limited 6) 9)

126 Reebok Trading (Far East) Limited

127 Reebok (China) Services Limited

128 RIL Indonesia Services Limited

129 adidas (Suzhou) Co. Ltd.

130 adidas Sports (China) Co. Ltd.

131 adidas (China) Ltd.

132 Zhuhai adidas Technical Services Limited

133 adidas Japan K.K.

134 Taylor Made Golf Co., Ltd.

135 adidas Korea Ltd.

45

136 Taylor Made Korea Ltd.

137 adidas Korea Technical Services Ltd.

138 adidas India Private Ltd. 3)

139 adidas India Marketing Pvt. Ltd. 3)

140 adidas Technical Services Pvt. Ltd.

directly 17 138 17 122 152

99 1 91,4 8,6 100 93,15

141 Reebok India Company

-290.538 12.435.595 22.031 88.838 directly 17 100 100 6.522 402.213 -1.993 139.531 14.451 directly 100 -411

142 P.T. adidas Indonesia Ltd.

143 adidas (Malaysia) Sdn. Bhd.

144 adidas Philippines Inc.

17 directly directly 17 directly

99 1 60 40 100

145 adidas Singapore Pte. Ltd.

146 adidas Taiwan Limited

147 adidas Holding (Thailand) Co., Ltd.

148 adidas (Thailand) Co., Ltd.

149 adidas Australia Pty. Limited

indirectly directly 147 directly 17

51 49 50,01 49,99 100

150 adidas New Zealand Limited

Company and Domicile

Currency

Equity (currency units in thousands) Share in capital held by 7) in % 17 110 92 99 1 100 -5.982.057 -22.794.881 2.194

Profit / Loss (currency units in thousands)

151 adidas Vietnam Company Limited Ho Chi Minh City (Vietnam) Port Louis (Mauritius) USD VND

152 Reebok (Mauritius) Company Limited

Latin America 153 adidas Argentina S.A. Buenos Aires (Argentina) Buenos Aires (Argentina) Sao Paulo (Brazil) Sao Paulo (Brazil) Pinhais (Brazil) Jundiai (Brazil) Santiago de Chile (Chile) Bogota (Columbia) Mexico City (Mexico) Mexico City (Mexico) Neucalpan de Juarez (Mexico) Panama City (Panama) Panama City (Panama) Panama City (Panama) Montevideo (Uruguay) Caracas (Venezuela) San Juan (Puerto Rico) USD VEF UYU -436 -17 -2.477 USD USD 1.306 USD -23.523 MXN -307.643 MXN MXN 230.556 COP 51.182.945 CLP 41.427.037 BRL 44.484 17 BRL 155 99,99 99,99 BRL -11.065 122 100 BRL 411.297 ARS 5.461 ARS 179.155

39.185 -13.063 108.152 37.344 -2.688 8.914.142 9.343.526

154 Reebok Argentina S.A.

155 adidas do Brasil Ltda. 15)

17 4 17 18 4

95 5 89,99 10 100

156 ASPA do Brasil Ltda.

157 adidas Trading Paran Ltda. 15)

158 Reebok Produtos Esportivos Brasil Ltda.

159 adidas Chile Ltda. directly 3 directly directly directly directly directly 17 17 directly directly 17

160 adidas Colombia Ltda.

99 1 100 100 100 100 100 100 100 100 100 100

161 adidas de Mexico, S.A. de C.V. 4)

113.658 -26.823 61 513 -690

162 adidas Industrial, S.A. de C.V. 4)

163 Reebok de Mexico, S.A. de C.V.

164 adidas Latin America, S.A.

165 Concept Sport, S.A.

46

166 adidas Market LAM, S.A.

167 3 Stripes S.A. (adidas Uruguay) 6)

168 adidas Corporation de Venezuela, S.A. 6)

169 adisport Corporation

1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15)

Sub-group adidas UK Sub-group Reebok International Ltd. Sub-group India Sub-group Mexico, adidas Sub-group Taylor Made UK Company with no active business The number refers to the number of the company Sub-group Onfield Teilkonzern Reebok-CCM Hockey, Inc. Sub-group Sports Holdings Corp. Sub-group Reebok International Limited Profit and loss transfer agreement Sub-group Taylor Made Golf Co., Inc. Sub-group adidas Canada Sub-group adidas Brazil

Management Report of adidas AG for the 2010 Fiscal Year

Corporate Structure
adidas AG is the parent company of the adidas Group. This means adidas AG includes operating business functions, albeit primarily for the German market, as well as corporate headquarters functions such as global marketing, management of equity investments and the Group Treasury, Tax, Legal and Controlling departments. The majority of the operating business consists of the sale of merchandise to retailers and adidas' own retail activities. As in previous years, merchandise is purchased through the Dutch Group company, adidas International Trading B.V. adidas International Trading B.V. secures logistics services and the basic supply of adidas products for the European markets. It is also responsible for Global Supply Chain/International Trade operations (hereinafter called "TradeCo"). TradeCo has built up significant international trading functions and manages the Global Supply Chain in the Group for the adidas and Reebok brands. The brand management function and the trademarks for the adidas brand were transferred from adidas International Marketing B.V., Amsterdam, Netherlands, to adidas AG in 2009. In return, the costs of the remaining tasks of adidas International Marketing B.V. related to brand management are passed on to adidas AG. Following the transfer of the global rights to the adidas brand, as the licensor adidas AG generates income from awarding licenses to the Group's sales companies, and to a very minor extent, income from third parties.

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Development of the Sporting Goods Industry

Compared to the previous year, the German sporting goods market again showed an upward trend, thanks in part to the soccer World Cup in South Africa. The previous year's revenues were exceeded, primarily with the Football category posting very significant growth. Categories such as Outdoor, Running, Training and Swimming also posted some significant increases in revenues.

Results of Operations
Revenue growth Our Company's sales revenue is composed of group-external revenues from sporting goods by adidas Germany (EUR 598.7 million; previous year: EUR 537.0 million), Group-external revenues from Y-3 goods (EUR 39.4 million; previous year: EUR 35.3 million) as well as revenues from foreign subsidiaries (EUR 77.0 million; previous year: EUR 66.3 million). Reported revenues also include licensing and commission income (EUR 806.1 million; previous year: EUR 734.8 million) and other sales revenues (EUR 18.6 million; previous year: EUR 25.8 million). Sales revenues break down as follows:
Figures in EUR million Domesti c 251.0 316.9 43.6 611.5 0 18.6 630.1 2010 Foreign 42.6 50.4 10.6 103.6 806.1 0 909.7 Total 293.6 367.3 54.2 715.1 806.1 18.6 1,539.8 Domesti c 248.9 268.7 35.1 552.7 0 20.3 573.0 2009 Foreign 35.1 43.3 7.5 85.9 734.8 5.5 826.2 Total 284.0 312.0 42.6 638.6 734.8 25.8 1,399.2

Shoes Textiles Hardware Merchandise sales Licenses Other sales Total sales revenue

Our sales revenues grew by EUR 140.6 million year-on-year, increasing from EUR 1,399.2 million to EUR 1,539.8 million, with all segments posting an increase in revenue.

48

adidas Germany The adidas Germany segment comprises both the sales activities from retail, key accounts and buyer's associations and its own retail activities with adidas brand products in Germany. Revenue at our adidas Germany business segment in fiscal year 2010 was up EUR 61.7 million (+11.5 %) compared to 2009. Current sales were EUR 598.7 million compared to EUR 537.0 million in 2009. Sales revenue at adidas Germany is composed of the Sport Performance (EUR 483.0 million) and Sports Style (EUR 115.7 million) segments. The Sport Performance segment generated the following sales revenues:
F igures in EU R million T raining F ootball R unning S wimming O utdoor O ther S ales Performance 2010 165.6 175.1 57.5 25.2 19.9 39.7 483.0 2009 163.9 141.2 54.8 22.9 16.2 43.2 442.2

A restructuring of the Sports Performance division resulted in some adjustments to prior period amounts. Sales revenues in the Sport Performance segment grew consistently, posting an increase of EUR 442.2 million to EUR 483.0 million. (+9.2 %) Outstanding categories included Football with an increase of EUR 33.9 million (+24.0 %) and Outdoor gaining EUR 3.7 million (+22.8 %). The increase in revenue of EUR 20.9 million in the Sports Style segment is in part attributable to the "Neo" Collection successfully introduced in 2009 and its consistent expansion in 2010. Licensing income Licensing income rose due to the increase in consolidated revenue in 2010 from EUR 734.8 million EUR 806.1 million. Licensing income is attributable to licensing income from affiliated companies (EUR 763.0 million) and licensing income from third parties (EUR 43.1 million). Of the EUR 763.0 million, EUR 325.5 million is attributable to Europe, with the remainder arising primarily from North and South America as well as Asia.

49

Earnings performance In addition to adidas AG's own sales activities, the development of results of operations is strongly impacted by the Company's holding function for the adidas Group. The latter is reflected primarily in currency effects, cost transfers and allocations, as well as in net interest income and net income from equity investments. In the fiscal year just ended, our operating result was EUR 77.0 million (previous year: EUR 207.3 million). Excluding the licensing income, the gross margin (gross revenue for the period minus cost of materials divided by gross revenue for the period) declined to 34.5 % (previous year: 35.6 %), due to increased procurement prices. Other operating income rose by 69.8 %, from EUR 753.5 million in the previous year to EUR 1,279.8 million in 2010. The increase resulted especially from the separate disclosure of gains and losses from currency translation of EUR 540.5 million (of which EUR 551.0 million was from currency translation of netting accounts). Other major income resulted from cost transfers to affiliated companies. This item primarily contains cost transfers for IT expenses and product-related costs, such as development, which are incurred at adidas AG for the various subsidiaries. Depreciation and EUR 56.7 million. amortization rose slightly by EUR 0.8 million to

Other operating expenses increased by 59.4 % to EUR 1,930.9 million (previous year: EUR 1,211.4 million). The increase in these expenses by EUR 719.6 million resulted essentially from the separate disclosure of gains and losses from currency translation of EUR 570.5 million (of which EUR 551.0 million from currency translation of netting accounts), from increased cost transfers of EUR 57.2 million related to the transfer of brand management functions from Marketing B.V., and an increase of EUR 44.0 million in advertising expenses to EUR 220.6 million. These advertising expenses include expenses for all ad campaigns, benefits to contracting partners, such as athletes, sports clubs and associations. Administrative costs, such as legal and consulting expenses and auditing costs were EUR 106.8 million (previous year: EUR 103.8 million), slightly above the previous year's level. The net interest expense of EUR 68.4 million was EUR 0.9 million more than the previous year's interest result. The net loss resulted primarily from the EUR 21.5 million increase in interest expenses to affiliated companies to EUR 51.8 million. The increase in interest expense to affiliated companies is primarily attributable to the increase in liabilities to affiliated companies and to higher interest rates. This was offset by the EUR 31.6 million decrease in
50

interest expense to third parties (EUR 39.1 million) as a result of the decrease in liabilities to banks, as well as to the EUR 10.3 million decrease in other interest and similar income (EUR 22.2 million), EUR 9.0 million of which was due primarily to the decrease in receivables from affiliated companies via the netting accounts. Income from equity investments rose by EUR 17.4 million year-on-year to EUR 89.6 million. The profit and loss transfer agreements generated income of EUR 120.4 million for adidas AG. Accordingly, the income from ordinary activities was EUR 218.6 million (previous year: EUR 200.0 million). The first-time application of the new provisions of the Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz, "BilMoG") gave rise to expenses of EUR 19,050 thousand from the adjustment of the measurement of provisions, which are reported in the extraordinary result. Taxes on income totaled EUR 41.6 million in the year under review (previous year: EUR 55.9 million). These were substantially expenses for withholding tax on licensing income (EUR 33.9 million) and expenses for trade tax (EUR 5.3 million). The net income for the year after taxes was EUR 157.1 million (previous year: EUR 143.9 million).

Assets and Liabilities

The Company's asset and capital structure is very strongly affected by its holding company and financing functions for the Group. For example, financial assets consisting primarily of shares in affiliated companies make up 54.2 % of the assets on the balance sheet. The netting accounts, through which transactions between the affiliated companies are settled, represent another 26.7 % of the assets and 48.1 % of the liabilities and equity on the balance sheet. Total assets/total liabilities and equity increased by 11.5 % or EUR 647.5 million year-on-year, from EUR 5,617.1 million to EUR 6,264.6 million.

51

With respect to assets, fixed assets increased by 3.9 % or EUR 141.5 million year-on-year, from EUR 3,643.1 million to EUR 3,784.6 million. This was caused by the following changes: Intangible assets declined by EUR 5.5 million due to amortization (previous year: increase of EUR 108.6 million). We invested EUR 77.7 million in tangible assets, of which EUR 62.3 million was for assets under construction. This was essentially related to capital expenditures in "LACES", an office building for our employees to be constructed at the World of Sports. The additions to financial assets essentially concern the acquisition of EUR 78.8 million in shares in FC Bayern Mnchen AG held by a Group company. Current assets increased overall by 26.8 % or EUR 516.8 million, from EUR 1,925.7 million to EUR 2,442.5 million. The increase in receivables and other assets by 4.2 % or EUR 69.7 million, from EUR 1,670.6 million to EUR 1,740.3 million, was attributable in particular to receivables from affiliated companies and are rooted in financing activities within the adidas Group. A parallel effect occurred with liabilities to affiliated companies. The sales activities of adidas AG are reflected in the balance sheet primarily under trade accounts receivable, which at EUR 47.7 million were 16.1 % above the previous year's level of EUR 41.1 million. Inventories increased 8.3 % from EUR 19.2 million to EUR 20.8 million and essentially concern merchandise inventories in connection with adidas AG's retail activities. Cash and cash equivalents also increased, rising from EUR 232.1 million to EUR 681.5 million. Liabilities increased by EUR 486.5 million to EUR 3,566.2 million, primarily due to the increase of EUR 665.5 million in liabilities to affiliated companies to EUR 3,010.5 million. In contrast, liabilities to banks fell EUR by 197.6 million to EUR 480.8 million. Equity rose by EUR 86.3 million or 3.8 % to EUR 2,377.9 million, essentially founded in the increase in net income for the period. In addition, provisions rose by 31.2 % or EUR 74.9 million to EUR 314.7 million. The increase is primarily attributable to the increase in provisions for pensions and other obligations as a result of the EUR 27.4 million measurement change in response to the BilMoG, as well as to the EUR 58.5 million increase in other provisions (mainly in the areas of personnel and marketing).

52

After reflecting the distribution from the previous year's retained earnings and the net income for the year generated, the equity ratio declined from 40.8 % to 38.0 %.

Financial Position
The Company's cash and cash equivalents increased year-on-year from EUR 232.1 million to EUR 681.5 million. Our Company generated a positive cash flow from operating activities of EUR 789.6 million (previous year: EUR 492.2 million) on net income for the period of EUR 157.1 million. The negative cash flow from investing activities was EUR 108.4 million (previous year: EUR 85.5 million). Financing activities resulted in a negative cash flow of EUR 231.8 million (previous year: cash outflows of EUR 176.2 million). The positive cash flow from operating activities resulted primarily from the net income for the period of EUR 157.1 million and from the change in settlement accounts between the subsidiaries in connection with the Company's function as a holding company and Group treasury (EUR 477.6 million). The negative cash flow from investing activities is attributable in particular to EUR 109.7 million in capital expenditures for tangible and intangible fixed assets. A counter-effect totaling EUR 1.1 million is attributable to disposals of tangible fixed assets. The cash outflow from financing activities primarily concerns cash outflows from dividend payments of EUR 73.2 million and the reduction of liabilities to banks totaling EUR 197.6 million. This was offset by cash inflows from the repayment of a loan by an affiliated company of EUR 36.7 million. There is a revolving credit of EUR 1.9 billion, which was unused as of the balance sheet date. adidas AG is able to meet its financial commitments at all times.

53

DISCLOSURES PURSUANT TO 289 SECT. 2 NO. 5 AND 289 SECT. 4 OF THE GERMAN COMMERCIAL CODE (HANDELSGESETZBUCH HGB)
289 Sect. 2 No. 5 HGB Compensation system for the Executive Board Following preparation by the General Committee, the compensation system for our Executive Board and the total compensation of each member of the Executive Board is determined and regularly reviewed by the entire Supervisory Board. The compensation system and compensation level are intended to form an incentive for sustainable long-term management. The compensation of the Executive Board members is designed to reflect the size and global orientation of the company as well as its economic situation and prospects, and is orientated towards the typical structure and level of executive board compensation at comparable companies. Taking into account the compensation structure at the adidas Group, the tasks and the contribution of each Executive Board member to the Groups success, his individual performance as well as the performance of the entire Executive Board are considered. Thus, an appropriate level of compensation can be ensured. Components of the compensation system The target annual income of our Executive Board members provides for a fixed compensation component amounting to around 35 % and a variable, i.e. performance-related, compensation component amounting to around 65 % in the case of 100 % target achievement. The fixed compensation consists of a contractually agreed, non-performancerelated annual salary that is paid in twelve monthly instalments. The variable compensation consists of a Performance Bonus and a compensation component with a long-term incentive effect, the Long-Term Incentive Plan 2009/2011 (LTIP 2009/2011) measured over a three-year period. The variable compensation components are designed in such a way that the incentive to achieve the sustainable targets set by the LTIP 2009/2011 is significantly higher than for achieving the targets necessary for granting the Performance Bonus. Corresponding contractual provisions ensure that this weighting will also be maintained in the future.

54

- The Performance Bonus serves as compensation for the Executive Boards performance in the past financial year in line with the short-term development of the company. It is determined by the Supervisory Board in a two-stage process: At the beginning of the 2010 financial year, the Supervisory Board determined as performance criteria both the businessrelated criteria (increase in income before taxes and retail margin) and the individual performance of each Executive Board member and defined explicit targets. The target achievement of business-related criteria can be rated with a maximum of 150 %. At the end of the financial year, the Supervisory Board stipulates a concrete bonus for each Executive Board member depending on the respective degree of target achievement. - The bonus resulting from the LTIP 2009/2011 (LTIP Bonus) serves as compensation for the long-term performance of the Executive Board in line with corporate planning. When determining the LTIP 2009/2011 of the Executive Board members, the Supervisory Board defined the following performance criteria with different weightings:
Increase of consolidated net income Reduction of net debt (adjusted for non-operating effects) Sales growth with regard to the Reebok, Rockport and Reebok-CCM

Hockey brands
Absolute and relative share price development

When calculating the LTIP Bonus payable following the three-year period, the degrees of target achievement of the performance criteria are accumulated and multiplied by the individual target amount. The payout of the LTIP 2009/2011, which is limited to a maximum of 150 % of the individual target amount (Cap), will be effected following the adoption of the annual financial statements for the period ending on December 31, 2011. Should the degree of target achievement for the three-year period lie below the threshold value of 50 %, the Executive Board members are not entitled to the LTIP bonus. A compensation component resulting from a management share option plan does not exist and is not planned. Executive Board compensation in detail The total compensation paid to our Executive Board in the 2010 financial year amounted to EUR 11.494 million (2009: EUR 10.494 million).

55

EXECUTIVE BOARD TOTAL COMPENSATION IN 2010

EUR IN THOUSANDS Non-performancerelated compensation components Performancerelated compensation component Performance Bonus Compensation component with longterm incentive effect1 Total

Annual fixed salary Herbert Hainer (CEO)

3)

Other benefits

LTIP Bonus 2009/2011

1,373 1,752 1,680 4,833 282) 497 14 510 840 1,861 Glenn Bennett Robin J. Stalker 550 555 840 1,961 162) 2) Erich Stamminger 700 1,022 1,080 2,839 37 Total 3,120 95 3,839 4,440 11,494 1) The indicated amount corresponds to the amount placed in the reserves in the 2010 financial year based on the forecasted degree of target achievement as at the balance sheet date. The amount of a possible payout is not specified therewith. Only if targets are met will payment be due following the approval of the annual consolidated financial statements for the period ending on December 31, 2011. ) Other benefits comprise non-monetary benefits resulting from the provision of a company car, entertainment expenses and contributions to pension insurance. 3) In accordance with Glenn Bennetts contract, the following compensation components were granted in US dollars: fixed annual salary $ 660,000, car allowance $ 18,000, Performance Bonus $ 677,000. An exchange rate of 1.3279 $/EUR (annual average rate 2010) was used as the basis for calculation.

EXECUTIVE BOARD TOTAL COMPENSATION IN 2009

EUR IN THOUSANDS Non-performancerelated compensation components Performancerelated compensation component Performance Bonus Compensation component with longterm incentive effect1 Total

Annual fixed salary Herbert Hainer (CEO)

3)

Other benefits

LTIP Bonus 2009/2011

1,250 1,512 1,400 4,189 272) 431 25 581 700 1,737 Glenn Bennett 2) Robin J. Stalker 500 612 700 1,825 13 2) Erich Stamminger 700 1,107 900 2,743 36 Total 2,881 101 3,812 3,700 10,494 ) The indicated amount corresponds to the amount placed in the reserves in the 2009 financial year based on the forecasted degree of target achievement as at the balance sheet date. The amount of a possible payout is not specified therewith. Only if targets are met will payment be due following the approval of the annual consolidated financial statements for the period ending on December 31, 2011. ) Other benefits comprise non-monetary benefits resulting from the provision of a company car, entertainment expenses and contributions to pension insurance. 3) In accordance with Glenn Bennetts contract, the following compensation components were granted in US dollars: fixed annual salary $ 600,000, car allowance and other benefits $ 34,190, Performance Bonus $ 810,000. An exchange rate of 1.3932 $/EUR (annual average rate 2009) was used as the basis for calculation.

56

Benefits in case of resignation from office as Executive Board member All Executive Board members have individual contractual pension commitments which essentially include the following provisions: Pension commitments The retirement pension commences with the termination of the Executive Board mandate upon reaching the age of 65. In the case of permanent occupational disability or survivor's benefits in the case of death, different provisions apply. - The retirement pension is determined in accordance with a modular system, i.e. starting from a base amount totalling 10 % of the pensionable income, a module of 2 % of the pensionable income is formed for each full year of tenure as an Executive Board member, which currently corresponds to the fixed annual salary indicated in the adjacent table.1) The retirement pension can reach a maximum level of 40 % of the pensionable income. - In the event of occupational disability of an Executive Board member prior to reaching the retirement age, he receives a disability pension amounting to the pension entitlements achieved up to this point. - If an Executive Board member dies during the term of his service contract or after retiring, the spouse is entitled to a survivors benefit amounting to 50 %, dependent children are entitled to a half-orphans pension of 15 % or an orphans pension of 30 % of the pension entitlements. The maximum limit of the survivor's benefits is 100 % of the pension entitlements. If an Executive Board member dies during the term of his service contract, his spouse receives, or alternatively any dependent children additionally receive the pro-rata annual fixed salary for the month of death and the following three months but no longer than until the agreed end date of the service contract. In the event that an Executive Board member leaves the company prior to reaching the retirement age, the non-forfeiture of the pension entitlement will be in line with the legal provisions. From the second year of pension payments, the current pension payments will increase by at least 1 % of the amount of the prior year pension and additionally by any income from the pension trust fund allocable to the respective Executive Board member.

1) Herbert Hainer and Erich Stamminger were both first appointed on April 1, 1997. Robin J. Stalker was first appointed on January 1, 2001. For Glenn Bennett, instead of his first appointment date (April 1, 1997), January 1, 2000, is used for the calculation of his pension entitlements. His base amount totals 20 % of the pension entitlements.
57

 Commitments to Executive Board members upon premature end of tenure In the service contracts of the Executive Board members Glenn Bennett, Robin J. Stalker and Erich Stamminger, a severance payment cap in the case of premature termination of tenure which is not due to good cause is not provided for due to the relatively short contractual terms of up to three years. The service contract of Herbert Hainer, on the other hand, which has a contractual term of more than three years, does provide for a severance payment relating to payment claims for the remaining period of his service contract. However, the severance payment has been limited to a maximum of twice the overall annual compensation (Severance Payment Cap). In this respect, the overall annual compensation means the overall compensation for the last full financial year prior to his resignation from the Executive Board while considering the expected total compensation for the current financial year. If the service contract is terminated due to a change of control, a possible severance payment is limited to 150 % of the Severance Payment Cap. Commitments to Executive Board members upon regular end of tenure In case of regular termination of the service contract, i.e. in case of nonrenewal of the service contract or termination due to reaching the retirement age, the respective Executive Board member is entitled to a follow-up bonus as individually agreed. This bonus amounts to 75 % for Glenn Bennett, 100 % for Robin J. Stalker and 125 % for Herbert Hainer and is based on the Performance Bonus granted to the respective Executive Board member for the last full financial year. The follow-up bonus is payable in two tranches, 12 and 24 months following the end of the contract. Instead of the follow-up bonus, the service contract with Erich Stamminger contains a severance payment of 100 % of the last annual fixed salary in the event that adidas AG decides not to renew his contract although he would be willing to continue his function as Executive Board member under the existing conditions. In this case, the amount is based on the annual fixed salary of the financial year at the time of retirement from office. The severance payment is granted instead of the follow-up bonus. The Supervisory Board has aligned this contractual provision to the system valid for the other Executive Board members as of the 2011 financial year and set a follow-up bonus in the amount of 125 %.

58

Other benefits and additional commitments to the Executive Board Except for the other benefits listed in the table, the Executive Board members did not receive any additional payments. The Executive Board members did not receive any additional compensation for mandates within the adidas Group. The Executive Board members did not receive any loans or advance payments from adidas AG. The company maintains a consequential loss and liability insurance for Board members of the adidas Group (D&O Insurance). It covers the personal liability in the event of claims raised against Executive Board members for indemnification of losses incurred in connection with their acts and omissions. For cases of damage occurring after July 1, 2010, there is a deductible in accordance with the statutory provisions and recommendations of the German Corporate Governance Code. This deductible amounts to 10 % of the damage up to a maximum of one and a half times the fixed annual salary for all cases of damage within one financial year. Payments to former members of the Executive Board and their surviving dependants In the 2010 financial year, pension payments to former Executive Board members or to their surviving dependants amounted to EUR 3.235 million (2009: EUR 2.607 million). As at December 31, 2010, the provisions for pension entitlements of this group of persons totalled EUR 37.638 million (2009: EUR 29.857 million). Additionally, indirect obligations amounting to EUR 6.286 million (2009: EUR 4.622 million) exist for which no provision have been made. These obligations were, however, completely funded by a pension fund. The dynamisation of the pension payments is made in accordance with statutory regulations or regulations under collective agreements unless a surplus from the pension fund is used after the commencement of retirement for an increase in retirement benefits. Compensation of the Supervisory Board The compensation of our Supervisory Board members is determined by the Annual General Meeting and regulated by 18 of the Articles of Association of adidas AG. The compensation is linked to the size of the Group and to the responsibility and scope of activities of the Supervisory Board members. After the respective financial year, the members receive fixed compensation for their function as well as compensation for the chairmanship of or membership in committees. There is no variable compensation granted in addition. Supervisory Board members who have not been members of the Supervisory Board for the entire financial year receive a pro-rated amount of compensation.

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The fixed annual compensation for each member of the Supervisory Board amounts to EUR 40,000. Three times this amount is paid to the Chairman of the Supervisory Board and twice this amount is paid to each Deputy Chairperson. Members of the General Committee or the Audit Committee receive an allowance of EUR 20,000 and EUR 40,000, respectively. The Chairman of the General Committee receives an additional annual allowance of EUR 40,000, while the Chairman of the Audit Committee receives an allowance of EUR 60,000. The remuneration paid for committee chairmanship also covers the membership in such committee. The members of the Steering Committee, the Mediation Committee, the Nomination Committee and committees which are established ad hoc do not receive additional compensation. If a Supervisory Board member is in more than one committee, the member receives only compensation for his/her task in the committee with the highest compensation. The Supervisory Board members are reimbursed for all expenses incurred in connection with their mandates as well as for the VAT payable on their compensation, insofar as they charge for it separately. With the new arrangement of memberships in committees and the chairmanships on May 7, 2009 following the election of the new Supervisory Board, the overall compensation of the Supervisory Board increased to EUR 920,000 in the 2010 financial year (2009: EUR 898,871). Other benefits and additional commitments to the Supervisory Board The Supervisory Board members did not receive any loans or advance payments from adidas AG. The company maintains a consequential loss and liability insurance for Board members of the adidas Group (D&O Insurance). It covers the personal liability in the event of claims raised against Supervisory Board members for indemnification of losses incurred in connection with their acts and omissions. For cases of damage occurring after July 1, 2010, there is a deductible of 10 % of the damage up to a maximum of one and a half times the fixed annual compensation for all cases of damage within one financial year in accordance with the recommendations of the German Corporate Governance Code.

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COMPENSATION OF THE SUPERVISORY BOARD

IN EUR 2010 2009

Members of the Supervisory Board as at December 31, 2010

Igor Landau
(Chairman of the Supervisory Board, Chairman of the General Committee)

160,000 100,000 100,000 40,000 80,000 80,000 100,000 60,000 40,000 80,000 40,000 40,000 920,000

138,871 78,871 78,871 25,914 51,828 65,914 64,785 52,957 25,914 80,000 40,000 40,000 898,8711)

Sabine Bauer
(Deputy Chairwoman of the Supervisory Board, Member of the General Committee)

Willi Schwerdtle
(Deputy Chairman of the Supervisory Board, Member of the General Committee)

Dieter Hauenstein Dr. Wolfgang Jger

(Member of the Audit Committee)

Dr. Stefan Jentzsch

(Member of the Audit Committee)

Herbert Kauffmann
(Chairman of the Audit Committee)

Roland Nosko
(Member of the General Committee)

Alexander Popov Hans Ruprecht

(Member of the Audit Committee)

Heidi Thaler-Veh Christian Tourres Total

1)

This amount includes the compensation of the Supervisory Board members Dr. Hans Friderichs, Fritz Kammerer, Dr. iur. Manfred Gentz and Klaus Wei, who retired from the Supervisory Board effective at the end of the Annual General Meeting on May 7, 2009, totalling EUR 154,946.

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289 Sect. 4 HGB

Composition of subscribed capital The nominal capital of adidas AG amounts to EUR 209,216,186 (as at December 31, 2010) and is divided into the same number of registered no-par-value shares with a pro-rata amount in the nominal capital of EUR 1 each (shares). Pursuant to 4 section 8 of the Articles of Association, shareholders claims to the issuance of individual share certificates are in principle excluded. Each share grants one vote at the Annual General Meeting. All shares carry the same rights and obligations. In the USA, we have issued American Depositary Receipts (ADRs). ADRs are deposit certificates of non-US shares that are traded instead of the original shares on US stock exchanges. Two ADRs equal one share. Restrictions on voting rights or transfer of shares We are not aware of any contractual agreements with the company or other agreements restricting voting rights or the transfer of shares. Based on the Code of Conduct of adidas AG, however, particular lock-up periods do exist for members of the Executive Board with regard to the purchase and sale of adidas AG shares. These lock-up periods are connected with the publication of our quarterly and full year results. Such lock-up periods also exist for employees who have access to yet unpublished financial results. In addition, restrictions of voting rights pursuant, inter alia, to 136 German Stock Corporation Act (Aktiengesetz AktG) or for treasury shares pursuant to 71b AktG may exist. Shareholdings in share capital exceeding 10 % of voting rights adidas AG has not been notified of, and is not aware of, any direct or indirect shareholdings in the share capital of adidas AG exceeding 10 % of the voting rights. Shares with special rights There are no shares bearing special rights, in particular there are no shares with rights conferring powers of control. Voting right control if employees have a share in the capital Like all other shareholders, employees who hold adidas AG shares exercise their control rights directly in accordance with statutory provisions and the Articles of Association.

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Executive Board appointment and dismissal Pursuant to 6 of the Articles of Association and 84 AktG, the Supervisory Board is responsible for determining the number of members of the Executive Board, for their appointment and dismissal as well as for the appointment of the Chief Executive Officer (CEO). Currently, the adidas AG Executive Board comprises the CEO as well as three further members. Executive Board members may be appointed for a maximum period of five years. Such appointments may be renewed and the terms of office may be extended, provided that no term exceeds five years. The Supervisory Board may revoke the appointment of an individual as member of the Executive Board or Chief Executive Officer for good cause, such as gross negligence of duties or a withdrawal of confidence by the Annual General Meeting. As adidas AG is subject to the regulations of the German Co-Determination Act (Mitbestimmungsgesetz - MitbestG), the appointment of Executive Board members and also their dismissal requires a majority of at least two thirds of the Supervisory Board members ( 31 MitbestG). If such a majority is not established in the first vote by the Supervisory Board, upon proposal of the Mediation Committee, the appointment or dismissal may be made in a second vote with a simple majority of the votes cast by the Supervisory Board members. Should the required majority not be established in this case either, a third vote, again requiring a simple majority, must be held in which, however, the Chairman of the Supervisory Board has two votes. Furthermore, the Fuerth local court shall, pursuant to 85 section1 AktG, in urgent cases, make the necessary appointment upon application by any party involved, if the Executive Board does not have the required number of members. Amendments to the Articles of Association Pursuant to 179 section 1 sentence 1 AktG, the Articles of Association of adidas AG can, in principle, only be amended by a resolution passed by the Annual General Meeting. Pursuant to 21 section 3 of the Articles of Association in conjunction with 179 section 2 sentence 2 AktG, the Annual General Meeting of adidas AG principally resolves upon amendments to the Articles of Association with a simple majority of the votes cast and with a simple majority of the nominal capital represented when passing the resolution. If mandatory legal provisions stipulate a larger majority of voting rights or capital, this is applicable. When it comes to amendments solely relating to the wording, the Supervisory Board is, however, authorised to make these modifications in accordance with 179 section 1 sentence 2 AktG in conjunction with 10 section 1 of the Articles of Association.

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Authorisation of the Executive Board to issue shares The authorisations of our Executive Board are regulated by 76 et seq. AktG in conjunction with 7 of the Articles of Association. The Executive Board is responsible, in particular, for managing the company and represents the company judicially and extra-judicially. The authorisation of the Executive Board to issue shares is regulated by 4 of the Articles of Association and by statutory provisions. Until June 21, 2012, the Executive Board is authorised to increase the nominal capital, subject to Supervisory Board approval, by issuing new shares against contributions in kind once or several times by no more than EUR 25,000,000 altogether (Authorised Capital 2009/II). Until June 21, 2014, the Executive Board is authorised to increase the nominal capital, subject to Supervisory Board approval, by issuing new shares against contributions in cash once or several times by no more than EUR 50,000,000 altogether (Authorised Capital 2009/I). Until July 12, 2015, the Executive Board is authorised to increase the nominal capital, subject to Supervisory Board approval, by issuing new shares against contributions in cash once or several times by no more than EUR 20,000,000 altogether (Authorised Capital 2010).

Subject to Supervisory Board approval, shareholders subscription rights may be excluded in certain cases for each of the above-mentioned authorisations. Pursuant to the resolution of the Annual General Meeting held on May 6, 2010, the Executive Board is authorised, subject to Supervisory Board approval, to issue bonds with warrants and/or convertible bonds by the company or affiliated companies once or several times in the total amount of up to EUR 1.5 billion, with or without a limited term, against contributions in cash and to accept guarantee of such bonds issued by affiliated companies until May 5, 2015. Furthermore, the Executive Board is authorised, subject to Supervisory Board approval, to grant to bondholders or bond creditors subscription or conversion rights relating to no more than a total of 36,000,000 shares in compliance with the corresponding conditions of the bonds. For this purpose, the nominal capital was conditionally increased by up to EUR 36,000,000 (Contingent Capital 2010). The Executive Board is authorised, subject to Supervisory Board approval, to exclude shareholders' subscription rights for fractional amounts and also insofar as this is necessary for granting subscription rights to which holders or creditors of bonds already issued before are entitled. Furthermore, the Executive Board is authorised, subject to Supervisory Board approval, to also exclude
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shareholders subscription rights if the issue price of the bonds is not significantly below the market value of these bonds and the number of shares to be issued does not exceed 10 % of the nominal capital. The issuance of new shares or the use of treasury shares must be taken into account when calculating the limit of 10 % in certain specific cases. This authorisation has not been utilised so far. Authorisation of the Executive Board to cancel shares The authorisations to repurchase adidas AG shares arise from 71 et seq. AktG and, as at the balance sheet date, from the authorisation granted by the Annual General Meeting on May 6, 2010. Until May 5, 2015, the Executive Board is authorised to repurchase adidas AG shares of up to an amount totalling 10 % of the nominal capital at the date of the resolution (or, as the case may be, a lower amount of nominal capital at the date of utilisation of the authorisation) for any lawful purpose and within the legal frame. The authorisation may be used by the company but also by its subsidiaries or by third parties on account of the company or its subsidiaries or third parties assigned by the company or one of its subsidiaries. The repurchase will be carried out via the stock exchange through a public repurchase offer, through a public invitation to submit sale offers or through granting tender rights to shareholders. Furthermore, the authorisation sets out the lowest and highest nominal value that may be granted in each case. The adidas AG shares repurchased based on this authorisation may in particular be used as follows: They may be sold via the stock exchange, through a public share purchase offer made to all shareholders or sold otherwise against cash (limited to 10 % of the nominal capital taking into account certain offsets) at a price not significantly below the stock market price of shares with the same features. They may be offered and assigned as consideration for the direct or indirect acquisition of companies, parts of companies or participations in companies or within the scope of company mergers. They may be offered and sold as consideration for the acquisition of industrial property rights or intangible property rights or for the acquisition of licences relating to such rights, also through subsidiaries.

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 They may be used for purposes of meeting the subscription or conversion rights or obligations or the company's right to delivery of shares arising from bonds with warrants and/or convertible bonds issued by the company or a direct or indirect subsidiary of the company in accordance with an authorisation granted by the Annual General Meeting. They may be cancelled without the cancellation or the execution thereof requiring an additional resolution of the Annual General Meeting. Furthermore, the shares may be assigned to members of the Executive Board as compensation by way of a stock bonus subject to the provision that resale by the Executive Board members shall only be permitted following a retention period of at least three years from the date of assignment. Responsibility in this case lies with the Supervisory Board. In case of utilisation of shares for the above-mentioned purposes, except for the cancellation of shares, shareholders subscription rights are excluded. The Supervisory Board may provide that transactions based on this authorisation may only be carried out subject to the approval of the Supervisory Board or one of its committees. In the scope of the authorisation resolved by the Annual General Meeting on May 6, 2010, the Executive Board is furthermore authorised to conduct the share buyback also by using equity derivatives which are arranged with a financial institution in close conformity with market conditions. adidas AG may acquire call options issued for physical delivery and/or sell put options or use a combination of call and put options or other equity derivatives if the option conditions ensure that these shares are only delivered if they were purchased in compliance with the equality principle. All share purchases using the aforementioned equity derivatives are limited to a maximum value of 5 % of the nominal capital existing at the date on which the resolution was adopted by the Annual General Meeting (or, as the case may be, a lower amount of nominal capital at the date of utilisation of the authorisation). The term of the options may not exceed 18 months and must furthermore be chosen in such a way that the shares are acquired upon the exercise of the options no later than May 5, 2015. The authorisation furthermore sets out the lowest and highest nominal value that may be granted in each case. For excluding subscription rights, the use and cancellation of shares purchased using equity derivative, the general rules adopted by the Annual General Meeting (set out above) are applicable accordingly.

As at December 31, 2010 adidas AG does not hold any treasury shares.

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Change of control/compensation agreements Material agreements entered into by adidas AG containing a change-of-control clause relate to financing agreements. In the case of a change of control, these agreements, in accordance with common practice, entitle the creditor to termination and early calling-in of any outstanding amounts. No compensation agreements exist between adidas AG and members of the Executive Board or employees relating to the event of a take-over bid.

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Declaration on Corporate Governance *

Dual board system In accordance with statutory provisions, adidas AG has a dual board system, which assigns management of the company to the Executive Board and advising and supervision of the Executive Board to the Supervisory Board. These two boards are strictly separated in terms of membership and duties and responsibilities. Composition and working methods of the Executive Board Our Executive Board consists of four members. There are no Executive Board committees. The Executive Board is responsible for independently managing the company, developing the Groups strategic orientation, agreeing this with the Supervisory Board and ensuring its implementation. In doing so, it is bound to the companys interests and obliged to achieve a sustainable increase in company value. Irrespective of the Executive Boards overall responsibility, its members are individually responsible for managing their respective business areas. The CEO is responsible in particular for leading the entire Executive Board as well as for management of the Groups business policy. In addition, he is in charge of various fields such as Global Sales, Internal Audit and Social & Environmental Affairs as well as Compliance. The business areas Finance, Global Brands and Global Operations are each assigned to a different member of the Executive Board. The Rules of Procedure and the Business Allocation Plan of the Executive Board set out the tasks and responsibilities of the Executive Board. These documents specifically stipulate requirements for meetings and resolutions as well as for cooperation with the Supervisory Board. At the Supervisory Board meetings, the Executive Board reports in writing and orally on the agenda items and resolution proposals and answers all questions from the individual Supervisory Board members. Furthermore, the CEO discusses the Groups strategy and business development with the Chairman of the Supervisory Board on a regular basis.

This Declaration on Corporate Governance is also part of the Corporate Governance Report including the Declaration on Corporate Governance which is published on the Group website under www.adidas-Group.com/corporate_governance.

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Composition and working methods of the Supervisory Board Our Supervisory Board consists of six shareholder representatives and six employee representatives in accordance with the German Co-Determination Act (Mitbestimmungsgesetz MitbestG). The Supervisory Board currently has two female members. Five members of the Supervisory Board have many years of international experience. The composition of the Supervisory Board is characterised by a high degree of diversity and comprehensive knowledge of the industry resulting from the different professional backgrounds of the members. The members of our Supervisory Board neither exercise directorship or similar positions or advisory tasks for key competitors of the company nor do they have business or personal relations with adidas AG or the Executive Board. In accordance with the recommendations of the German Corporate Governance Code (Code), the Supervisory Board determined the following objectives for its composition at the meeting held on February 9, 2011:

Maintain the composition of the Supervisory Board including members with an international background to the current extent Maintain two female members on the Supervisory Board until the next election of the Supervisory Board in 2014 Increase the degree of female representation on the Supervisory Board as of the next election of shareholder representatives and employee representatives in 2014; the Supervisory Board strives for at least three female members on the Supervisory Board, at least one of them on the side of the shareholder representatives Maintain the independence of all Supervisory Board members while considering the work relationships of the employee representatives vis--vis the company Consider the age limit of, in general, 72 at the time of election.

In addition, further important criteria for the qualification of the Supervisory Board members such as expert and industry knowledge as well as particular knowledge of and experience in applying accounting principles and internal control systems, are taken into account when nominating suitable candidates for election. Irrespective of the consideration of the aforementioned objectives and criteria, the best interests of the company will continue to play a decisive role for the Supervisory Board when nominating candidates for election. The Nomination Committee was provided with the aforementioned objectives that are to be taken into account when nominating candidates. Although the Supervisory Board cannot influence the employees decisions concerning their Supervisory Board candidates, the Supervisory Board also recommends to the employee representatives that, as far as possible, they strive to consider the set objectives
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with regard to the election nominations to be made by the relevant employee bodies. The Supervisory Board supervises and advises the Executive Board in matters relating to management of the company. The Executive Board reports to the Supervisory Board regularly, expeditiously and comprehensively on business development and planning as well as the risk situation and coordinates the strategy of the company and its implementation with the Supervisory Board. Moreover, the Executive Board provides the Supervisory Board with the annual financial statements of adidas AG and the annual consolidated financial statements of the adidas Group for its approval, taking into consideration the auditors reports. Certain business transactions and measures of the Executive Board are subject to Supervisory Board approval. In order to increase the efficiency of its work, the Supervisory Board has formed five permanent expert committees from within its members, which, inter alia, prepare its resolutions and, in certain cases, pass resolutions on its behalf. Those committees are the Steering Committee, the General Committee, the Audit Committee, the Mediation Committee in accordance with 27 section 3 MitbestG and the Nomination Committee. In addition, a committee responsible for the handling of real estate matters was established ad hoc in 2009. The chairmen of the committees report to the entire Supervisory Board on the results of the committee work on a regular basis. The composition of the committees and their respective tasks can be found on our website. Apart from the tasks and responsibilities, the Rules of Procedure of the Supervisory Board and of the Audit Committee also set out the individual requirements expected of the members and the procedure for meetings and passing resolutions. These Rules of Procedure are available on our website. The activities of the Supervisory Board and its committees in 2010 are outlined in the Supervisory Board Report. The members of the Supervisory Board are individually responsible for undertaking any necessary training and further education measures required for their tasks. The company supports the Supervisory Board members by offering a professional training programme tailored to the needs of the Supervisory Board, informs the Supervisory Board regularly about current legislative changes and provides the Supervisory Board with relevant specialist literature. Every two years, the Supervisory Board examines the efficiency of its work. In the year under review, the Chairman of the Supervisory Board and his Deputy Chairwoman dealt intensively with the efficiency examination. The efficiency examination was conducted through detailed questionnaires. The analysis was carried out by an external consultant, who presented the results at the
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Supervisory Board meeting in November 2010 and chaired the subsequent discussion. Based on the discussion, possibilities for improvement were debated which, however, did not leave any room for doubt concerning the efficiency of the Supervisory Boards activities. Avoiding conflicts of interest In the year under review, conflicts of interest of Executive Board members and Supervisory Board members were not reported to the General Committee, which is responsible in this case.

Declaration by the Executive Board and Supervisory Board of adidas AG pursuant to 161 German Stock Corporation Act (Aktiengesetz - AktG) on the German Corporate Governance Code The Executive Board and Supervisory Board of adidas AG issued their last Declaration of Compliance pursuant to 161 AktG on February 11, 2010. For the period from the publication of the last Declaration of Compliance to July 2, 2010, the following Declaration refers to the German Corporate Governance Code (hereinafter referred to as the Code) as amended on June 18, 2009. For the period as of July 3, 2010, the following Declaration refers to the recommendations of the Code as amended on May 26, 2010, which was published in the electronic Federal Gazette on July 2, 2010. The Executive Board and Supervisory Board of adidas AG declare that the recommendations of the Government Commission on the German Corporate Governance Code have been and are met with the following deviations: Deductible with regard to the D&O liability insurance (section 3.8) The D&O liability insurance for the members of our Executive Board and Supervisory Board, a group insurance for a number of executives, had not provided for a deductible until June 30, 2010. With effect from July 1, 2010, a deductible which complies with the provisions of the German Act on the Appropriateness of Management Board Remuneration (Gesetz zur Angemessenheit der Vorstandsvergtung VorstAG) was agreed for the Executive Board of adidas AG. A corresponding deductible was also agreed for the members of the Supervisory Board with effect from July 1, 2010.

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Agreeing severance payment caps when concluding Executive Board service contracts (section 4.2.3 subsection 4) In accordance with the recommendations of the Code, contracts with a term of more than three years provide for a severance payment cap. We believe that for contracts with a term of up to three years the short contractual term agreed in connection with further contractual provisions offers sufficient protection from inappropriate severance payments. Hence, no formal severance payment cap is planned. Age limit for Supervisory Board members (section 5.4.1 sentence 2 old version) Composition of the Supervisory Board (section 5.4.1 subsection 2 and 3 new version) An age limit for Supervisory Board members has not been set so far. The Audit Committee and the entire Supervisory Board discussed the recommendations of the Code regarding concrete objectives for the composition of the Supervisory Board. Subsequently, at its meeting on February 9, 2011, the Supervisory Board resolved upon the objectives and also set an age limit for Supervisory Board members. The new recommendations of the Code will thus be met when appointing new Supervisory Board members. Number of mandates of an Executive Board member (section 5.4.5 sentence 2 new version) As the Executive Board member Herbert Hainer currently holds two supervisory board mandates in Group-external listed companies and two mandates in supervisory bodies of companies with similar requirements, there has been a deviation from the recommendation since section 5.4.5 sentence 2 new version came into force. With effect from February 28, 2011, Herbert Hainer will resign his position at Engelhorn KGaA. Given the long period of membership in this supervisory body, the amended recommendation of the Code can only be met following a certain period of preparation. We regard this temporary deviation as justified. As of March 1, 2011, all Executive Board members will meet the recommendation of the Code. Compensation of the Supervisory Board (section 5.4.6 subsection 2) The members of our Supervisory Board do not receive any performancerelated compensation in order to exclude any potential conflicts of interest with regard to decisions of the Supervisory Board, which might influence performance criteria.

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Disclosure of the shares held by the individual members of the Executive Board and Supervisory Board or financial instruments related thereto (section 6.6 sentence 1) Insofar as no further statutory obligations exist, we report the ownership of shares if it exceeds 1 % of the shares issued by adidas AG but we do not report this on an individual basis for the members of the Boards. Instead, we publish the total holdings of all members of the Executive Board and all members of the Supervisory Board separately in order to safeguard the Board members interests worthy of protection.

Herzogenaurach, February 11, 2011 For the Supervisory Board - Chairman of the Supervisory Board signed Igor Landau For the Executive Board - Chief Executive Officer signed Herbert Hainer

The aforementioned Declaration of Compliance dated February 11, 2011 has been published on our website, where it can be downloaded at --> www.adidasGroup.com/corporate_governance.

Relevant management practices Our business activities are orientated towards the legal systems in the various countries and markets in which we operate. We furthermore bear significant responsibility for the environment and for the people living in these regions. Performance, passion, integrity and diversity are the values of our company, which are actively lived by our Executive Board members, Supervisory Board members and the employees in all areas of our company. Compliance within the adidas Group Our compliance system creates the organisational requirements for Groupwide awareness of the respective governing law as well as of our internal rules and guidelines and for ensuring their observance. The adidas Group perceives compliance as being all-embracing, orientated towards the product cycle and extending from the supply chain to the final consumer. Our Social & Environmental Affairs team deals with the rights of employees in the supply chain and coordinates product safety standards. Before our products reach the market, our Intellectual Property department researches the technologies, trademarks, logos and designs to identify possible infringements of the rights of third parties. In order to ensure standardised and exemplary actions and behaviour, we implemented a Code of Conduct in our company, which has been applicable in all regions and business areas
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since 2006. Guidelines for day-to-day behaviour in everyday work are stipulated in this Code. The Code of Conduct is available on our website. The internal compliance programme includes, inter alia, consistently implemented web-based training which is available to all employees worldwide in ten languages. Furthermore, on a global level we have designated local compliance officers reporting directly to the Chief Compliance Officer of the Group as contact persons, to whom complaints and information concerning possible compliance infringements can be reported. In the area of data protection, we also have a web-based training programme for all employees in ten languages. Additionally, the Group has a "Marketing Guide" to raise our employees' awareness with regard to data protection when in contact with customers. As a next measure, additional online training programmes in the fields of anti-trust law and contract law are being prepared. Compliance with working and social standards The development of company guidelines with regard to social minimum standards, work safety as well as health and environmental protection and the monitoring thereof at the production facilities of the adidas Group and its business partners is an integral component of our company policy. Our Group has an individual Code of Conduct for the supply chain, the Workplace Standards. These standards are orientated towards the conventions of the International Labour Organization (ILO) and follow the code of conduct of the World Federation of the Sporting Goods Industry (WFSGI). They help us to only choose such business partners who fulfil the Groups Workplace Standards and business practices in accordance with our values. We have appointed an expert team specifically for the coordination of compliance with and control of the Workplace Standards. We report on our sustainability programme in our Annual Report and publish sustainability reports regularly. Environmental responsibility and social commitment Sustainable actions are an important requirement for management that is successful in the long term and particularly embraces social and environmental responsibility towards present and future generations. With our Green Company initiative as part of our Group-wide environmental strategy, we combine all approaches regarding climate protection and resource conservation at our locations under one roof in order to realise the long-term goal of becoming a carbon-neutral company on a global level. We promote the positive development of the regions in which our Group operates by cooperating with charity organisations in order to improve the lives of local people by means of sports. Moreover, we are involved in education projects as well as science and humanitarian initiatives in various projects in Africa, Latin America and Asia.
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With the objective of producing and selling affordable shoes for the poorest of the poor, we have realised a successful pilot project in Bangladesh within the framework of our cooperation with Nobel Peace Laureate Professor Muhammad Yunus. The project is based on the adidas Group's core competencies and is positioned within the Reebok brand. Currently, a feasibility study is being conducted to examine to what extent the project can be realised as a working Social Business in accordance with the scientific principles of Professor Yunus.

Research and development

Creating innovative products that meet the changing requirements of athletes and consumers is key to positive brand awareness. Therefore, research and development activities (R&D) play a key role in the long-term success of our Company. We invest significant resources in constantly enhancing and marketing technological innovations and contemporizing our design philosophy to optimally satisfy the wishes of our consumers. Our research and development process is driven by teams of employees with various professional backgrounds. In 2011, our R&D activities will focus on to personalization and digital sport products. adidas AG expended EUR 34.9 million for research and development in 2010. R&D: an integral component of product development Research and development is organized decentrally throughout our Company. However, fundamental and biomechanical research findings are made available to all those involved in R&D throughout the Group. Each brand invests in its own research, design and development activities in accordance with its respective market positioning. The teams are normally focused either on a certain category or on a certain technology. Research and development is not an independent organizational unit within the individual segments, but rather it is closely integrated into the procurement, design and product marketing units. This allows all R&D results to be applied directly to a specific product. The marketing department sets the focus of development at the beginning of the product development phase. This focus is generally the result of a combination of consumer studies and feedback, competitor analyses and our own product testing, as the case may be. Additionally, our innovation teams are constantly on the lookout for ideas for potential product innovations. They analyze, independently of specific development projects, new materials, production processes and scientific studies - often even relating to other industries. The resulting ideas are presented to the product marketing department early on in order to assess the marketability of the new concept. After establishing the new concept, new technologies are developed using state-of-the-art CAD and Finite Element Analysis systems. Procurement and material teams work closely
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together with our suppliers during product development in order to identify innovative materials and to weigh cost aspects and production processes already in the development phase. As soon as the new technology appears to be practicable, a sample is produced. These sample products are then subjected to thorough testing by our innovation teams, as well as by top athletes. Only after these tests have been successfully completed are the new technologies passed on to product marketing, where they are then commercialized as part of the end product. adidas innovation team drives the brand's R&D activities The adidas brand's R&D activities concentrate on developing innovative technologies for performance sports. To solidify our Company's position as a leader in technology and innovation, the adidas innovation team (ait) is responsible for developing cutting-edge technologies and concepts in all product categories. The team is divided into groups that specialize in apparel, footwear and sports accessories, and in turn focus on specific product categories such as basketball, soccer or American football or deal with crosscategory projects such as intelligent products or energy management systems (cushioning technologies). The majority of these teams operate from Herzogenaurach, Germany and Portland, Oregon, USA. The product development process is supported by special innovation development centers in Asia that concentrate on implementing concepts by producing prototypes. These centers make an important contribution to the efficiency of developments because product development takes place in real production environments. Fitness and training at the heart of Reebok R&D activities The main focus of R&D teams at Reebok is on developing shoes, apparel and sports accessories for fitness and training activities, without compromising comfort and fit. The organizational structure of the teams follows the brand's respective priorities within the following product categories: Muscle strength and muscle activation, muscle training and flexibility. There are also certain cross-category teams such as the Reebok Advanced Concepts team, which supports special concepts from the original idea on to the production phase. Reebok's R&D teams mainly work in Canton, Massachusetts, USA. In addition, cooperating partners work in advanced development centers in China and Vietnam, which deal primarily with new technological developments, innovative materials, coatings, and production solutions. Selective purchase of external R&D expertise Above and beyond its internal R&D activities, our Company also purchases, to a limited extent, the R&D experience of established research partners. This strategy affords us greater flexibility and more rapid access to expertise that would otherwise require a large amount of time and resources to build up within our Company. In the interest of working efficiently and protecting the
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research results, these partnerships are generally established for the long run and exclusively. All projects that are realized jointly with external partners are founded on a clearly defined task that sets out the scope of the project. In this way, we ensure that the project is in line with our R&D focuses. Adidas maintains well-established relations with the University of Loughborough in England, the University of Calgary in Canada, and with the German Universities of Erlangen-Nuremberg, Aachen (RWTH) and Freiburg. For example, the University of Freiburg participated in studies on gripping, which were decisive for the development of the ultra-light adidas F50 adiZero soccer shoe. Strategy for active protection of trademarks and patents We always strive to obtain patent protection for all of our innovations in order to obtain an appropriate benefit from our Company's research and development accomplishments. One of the most important principles of our business is to ensure the best possible patent protection for our innovations in important markets. We are not dependent on individual technologies or related patent rights because we employ a broad spectrum of various technologies in our products. We possess a comprehensive portfolio of registered trademarks for our Group's brands and the accompanying brand names. Part of our business policy is to vigorously enforce the Group's trademark and patent rights by ferreting out breaches of patent rights and taking actions to prevent such breaches. This includes a rigorous program for combating counterfeits. We have also implemented comprehensive processes and undertaken extensive investigations to avoid breaching third-party property rights. Highly qualified expert staff The R&D departments for all brands employ experienced and qualified staff from a range of areas of expertise and diverse cultural backgrounds. Our engineering and biomechanics experts are primarily concerned with developing performance footwear with the primary intent of reducing strain on knees and other joints. Our materials specialists are primarily occupied with developing apparel and shoes that are more robust and flexible and that feature improved moister wicking and temperature control. In addition, our process and production specialists also make a decisive contribution to our successful product developments. We also employ specialists in software development, industrial and graphic design, electrical engineering, finite element analysis, advanced CAD design, and kinesiology. We expect a slight increase in the number of research and development employees in 2011.

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Initiatives for further streamlining the product development process Our goal is to react to changes in consumer demands even faster, more flexibly and more efficiently. To that end we are facilitating the direct interaction and participation by our suppliers in product development, quality control, product testing, and marketing. We fully implemented our "Fast and Lean Creation" program for shoes in 2010 and launched the program for apparel. Also in 2010, we made further progress in integrating the marketing and design teams in the product development process even earlier. This reduces costly product modifications in later phases of the development process to a minimum. Successfully marketing technological innovations In order to be an innovation leader it is not enough to merely develop industryleading technologies. While the awards we received in 2010 once again confirmed our technological leadership in the sporting goods industry, successfully marketing these technological innovations is of even greater significance. Our Company generated the majority of its revenue in 2010 from products that went on the market during the course of the year. Newlyintroduced products in 2010 attributed disproportionately to the development of consolidated net profit because, as a rule, new products have a higher gross margin than items that have already been on the market for more than one season. We assume that this development will carry on into 2011. Successful product launches in all major adidas categories Once again, the majority of our revenue in 2010 was from products in the current product line. In the Running category, adidas brought a new version of the ultra-light adiZero adios running shoe on the market in 2010. This shoe is popular thanks to its state-of-the-art composite materials, innovative engineering and its design. Athletes won more than 70 major races with this shoe in 2010. Among the highlights in the soccer category was the introduction of the adidas F50 adiZero at the FIFA 2010 World Cup. This shoe's new SprintSkin upper consists of an innovative, single-ply microfiber polyurethane synthetic material, which not only makes the shoe extremely light, but also gives it a unique fit at the same time. adidas also introduced the Clima365 series in 2010, which sets new standards in apparel technology for regulating body temperature. Body Mapping was used to determine the different sweat and heat zones on the body. Using this information as a basis, Clima365 has special fibers exactly where they are used most. Also in 2010, adidas expanded its miCoach interactive training system with the introduction of miCoach Pacer and miCoach App. miCoach Pacer is a type of digital personnel trainer, which supports athletes when training by giving audible training instructions in real time in connection with training programs for specific sports. With the new miCoach App, adidas brings personal coaching to various smart phone platforms such as the iPhone or Blackberry. This service further extends the

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training offering in the Running category and at the same time offers special training programs for soccer, tennis, American football and basketball. Ambitious R&D goals for 2011 Our Company will continue to bring at least one new and revolutionary technology or groundbreaking enhancement to the market each year. In 2011, intelligent product technologies will be in the focus of adidas' research and development activities because we intend to establish our brand as a technology leader in this rapidly expanding category.

Controlling system
The strategic aim of the adidas Group's corporate planning and controlling system is the continuous value creation for brands. Our primary financial objective is to generate maximum free cash flow by improving sales and profits as well as optimizing capital employed. Corporate management employs a multitude of different tools in its decision-making processes to evaluate the current state of our business development and to coordinate forward-looking strategy and capital spending decisions such that the Company can fully exploit economic and corporate profit potentials.

Risk and Opportunities Report

The adidas Group systematically endeavors at all times to identify and seize opportunities early in order to ensure profitability and concurrently increase longterm shareholder value. We are aware that this endeavor requires us to take certain risks in order to be able to exploit opportunities in the best possible manner. Our risk and opportunity management principles and system ensure that we can conduct our business activities in a well-controlled corporate environment.

2010 risk and opportunity management analysis The expectations of investors and financial markets with regard to transparent and comprehensive communication of risks and opportunities have increased significantly following the recent global economic and financial crisis. We therefore conducted a detailed analysis of our risk processes and systems in 2010. The goal of this analysis was to strengthen our Group-wide approach to risk and opportunity management, to increase awareness within the Group, and if necessary, to improve internal and external reporting. The implementation and enhancement of the system was transferred to Group Risk Management, which is responsible for the centrally-controlled risk and opportunity management process. Group Risk Management has named a group of senior management representatives (so-called risk managers). This group includes all
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of the managers reporting directly to the Executive Board of adidas AG as well as all the market managing directors of all of our markets. The normal duties of these risk managers include managing and monitoring risks and opportunities in their respective areas of responsibility. In the course of this process we developed and implemented a revised Group risk management policy. This policy documents the principles, procedures, tools, risk areas and responsibilities within the Group and is available to all employees online. It also prescribes the communications duties and reporting requirements. Fundamentals of risk and opportunity management The adidas Group is regularly confronted with risks and opportunities that can have both positive as well as negative impacts on the Group's assets, profitability and cash flow, but also on intangible assets such as brand image. We understand risks to be the potential financial impact from the occurrence of an internal or external event (or a series of events) that can negatively influence the attainment of our business objectives. We define opportunities as the potential financial impact from the occurrence of an internal or external event (or a series of events) that can positively influence the attainment of our business objectives. We have broken down the most important items in this risk and opportunities report into three key types of risks and opportunities: strategic and operational, those related to compliance with standards, and financial. Risk and opportunity management system The Executive Board of adidas AG has overall responsibility for an effective risk and opportunity management system, through which comprehensive and uniform management of all significant risks and opportunities is ensured. The Supervisory Board of adidas AG is responsible for monitoring the effectiveness of the Group risk management system, whereby this responsibility is exercised by the Supervisory Board's Audit Committee. To the extent relevant, the Global Internal Audit department includes compliance with the provisions of the Group risk management policy (ensured by risk managers) in the scope of their regular audits. To ensure the most effective risk and opportunity management possible, we have implemented an integrated risk and opportunity management system that identifies, measures, manages, monitors, and systematically reports risks and opportunities. The primary goal of this system is to ensure and further increase
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shareholder value. To achieve this goal, we use an opportunity-driven approach in decision making, without neglecting the risks. For us, a significant component of an optimal risk and opportunity management system is its ability to identify and measure risks and risk-compensating measures and opportunities at the place where they occur. In addition, a dovetailed approach to controlling, monitoring and reporting is of special importance. Risk and opportunity management is therefore a Group-wide task that applies the findings of management of our business units at the local level. The most important elements of our risk and opportunity management process are: Risk and opportunity identification: We continually monitor not only the macroeconomic environment and developments in the sporting goods industry, but also internal processes, in order to identify risks and opportunities as early as possible. The risk managers are primarily responsible for identifying risks and opportunities. Group Risk Management has prepared a catalog of potential risks (risk universe) to support risk managers in identifying and categorizing risks and opportunities. Among the tasks of each risk manager is to actively monitor the potential financial impacts from changes in the macroeconomic, political and social situation on the one hand. On the other hand, the risk managers carefully follow the development of brands, distribution channels and prices. Primary qualitative and quantitative market research is a key element in the identification process. This includes, for example, trend scouting, consumer surveys, and experiences of our business partners and from the selling space we control. These efforts are supported by global market research and competitor analysis. We use this process to seek to determine the markets, categories, target groups and products that offer the greatest opportunities for future growth at the local and global levels. Our analyses concentrate equally on the areas in which there are risks from market saturation, increasing competition, or changing consumer preferences. Risk and opportunity measurement: We measure identified risks and opportunities individually using a systematic measurement technique in order to be able to ensure effective risk and opportunity management. This method is applied consistently and allows priorities to be set and resources to be allocated appropriately. Under our risk management methods a particular value is calculated for each risk and each opportunity, specifically by multiplying the potential financial impact by the probability of occurrence. In so doing we define financial impact to be the greatest possible potential influence on the operating result excluding inter-Group licensing fees. The financial impact is measured based on five categories: insignificant, low, moderate, significant and major. Probability describes the possibility that a
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certain risk or opportunity will occur. The probability of occurrence for individual risks and opportunities is measured on a scale from 0 % to 100 % and compiled into five categories in order to present an aggregated probability for various categories of risks and opportunities. These five categories are "remote", "possible", "probable", "very probable" and "extremely probable/certain". As risks and opportunities exhibit different characteristics, we have established different methods for assessing the potential financial impact. The gross and net risk value must be determined for each individual risk. The gross risk value represents the greatest possible negative financial impact before implementing possible risk-compensating measures. The net risk value represents the expected financial impact after implementing all risk-compensating measures. On the one hand, this approach allows a comprehensive understanding of the impact that individual riskcompensating measures have, and on the other hand, forms the basis for scenario analyses and simulations. In addition, the respective risk managers must consider each risk from a temporal perspective in order to determine when it may occur. Each opportunity is appraised with respect to feasibility, potential risks and its expected earnings contribution when assessing its potential impact on the earnings contribution. This approach is applied to longer-term strategic opportunities but also to shorter-term tactical and opportunistic initiatives at both the Group and, more extensively, brand and market levels. Risk and opportunity management: Risks and opportunities are managed in accordance with the Group's risk and opportunity management principles set forth in the Group risk management policy. The risk managers are tasked with developing and implementing appropriate risk-compensating measures and with using opportunities in their respective areas of responsibility. In addition, the risk managers must develop a general strategy for dealing with the identified risks. These strategies include risk avoidance, risk reduction aimed at reducing the financial impact or probability, risk transfer to third parties, or risk acceptance. The decision on implementing the appropriate strategy also considers the costs in conjunction with the effectiveness of any planned risk-compensating measures. Risk and opportunity monitoring and reporting: Our integrated risk and opportunity management system is intended to increase the transparency of Group risks and opportunities. As both risks and opportunities are subject to ongoing change, risk managers continuously observe their development, as well as the reasonableness and effectiveness of the current strategy for handling risks and opportunities. Risk reporting comprises two separate,
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regular elements: On the one hand, regardless of the risk's probability of occurrence, risk managers are required to report gross risks with a potential impact on the earnings contribution of more than EUR 50 million to Group Risk Management. By the same token, net risks with a potential impact on the earnings contribution of more than EUR 1 million and the corresponding probability of occurrence must be reported. Significant changes to previously reported risks or newly-identified risks with a potential net impact on the earnings contribution of more than EUR 5 million are reported ad hoc to Group Risk Management. Opportunities are aggregated separately and the risk managers report all opportunities with a net impact on the earnings contribution of more than EUR 1 million. On the other hand, Group Risk Management provides the Executive Board of adidas AG with a report, updated quarterly, based on the submitted data. If circumstances are identified of which the Executive Board must be promptly informed due to their materiality, an ad hoc report is made outside the normal reporting channels. Risks from adidas AG's operating activities Risks from operating activities arise for adidas AG primarily from its own business relationship with customers. Credit risks A credit risk arises if a customer or other counterparty to a financial instrument fails to meet the contractual obligations. Our Company is exposed to this risk as a result of its operating activities and certain financing activities in connection with its holding function. Credit risks arise from operating activities primarily due to trade accounts receivable. At the end of 2010, there was no relevant concentration of the credit risk by customer type or region at adidas AG. Instead, our credit risk exposure is mainly influenced by individual customer characteristics. Under our Company's credit policy, a credit check is conducted for new customers before we offer them our standard payment and delivery terms and conditions. This review is based on external ratings from credit agencies. In addition, each customer has certain purchasing limits and their creditworthiness and purchasing limit are monitored continually. Customers whose creditworthiness does not meet the Company's minimum requirements can only acquire products against advance payment. Other activities to mitigate credit risks, which are employed on a selective basis only, include credit insurance, trade accounts receivable with recourse, bank guarantees, as well as retention of title clauses. adidas AG utilizes allowance accounts to recognize impairments that represent our estimate of incurred credit losses with respect to trade accounts receivable.
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The allowance consists of two components: (1) an allowance based on past due receivables dependent on the aging structure, and (2) a specific allowance that relates to individually assessed risk for each specific customer irrespective of aging. Allowance accounts are used to record impairment losses unless we are satisfied that no recovery of the amount owed is possible; at that point the amount considered irrecoverable is written off directly against the receivable. We believe that our general credit risk from customers remains almost unchanged in some important markets. Therefore, we estimate the likelihood of credit risks from customers to be remote and the potential financial impact to be low. Customer risks Customer risks arise from our dependence on key accounts that are able to exploit their bargaining power. This could create considerable margin pressure or lead to order cancellations. These risks arise not only due to the relative size of some of our key accounts, but also from our limited ability to influence their business, as well as from the external influences of their respective consumer environment. In addition, some key accounts have expanded their business activities using their own brands and their own label. This can have a negative impact on our efforts to gain additional shelf space. We have a broad-based distribution strategy, which also comprises the expansion of the selling space we control, to mitigate these risks. This reduces the negative consequences of possible sales losses at key accounts. In 2010, no individual customer of our Group accounted for more than 10 % of consolidated revenue. When needed, we also restrict or limit the sale of our products to protect the brand image or product margins. We limit the risk of increased competition using the prices of certain products, which can lead to margin erosion, by differentiating the product offering to the customer. In addition, our broadbased marketing efforts are directed at establishing desirable brands that meet our consumers' taste and ultimately result in high sell-through rates at our customers so that our customers have less incentive to become active in their own label segment. In view of positive developments in retail sales we estimate the risk that business with a single key account could fall significantly to be remote. However, due to increasing retail activities with regard to the introduction of own brands and labels, and pursuant to our Company's updated risk management methodology, we assume that customer risks in their totality have increased and the likelihood of occurrence is probable. We estimate the potential financial impacts for our Company to be moderate.
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Own-retail risks Given the extremely low share of overall revenue attributable to our own retail activities at adidas AG, we estimate the probability of occurrence from this distribution channel to be remote and the financial impacts to be low since revenue is generated mainly via key accounts and retailers. Risks from the loss of major event and promotional partnerships Event and promotional partnerships play a material role for the Company's brand image and the authenticity of our products with our consumers, and hence ultimately for revenue from licensed products as well. The adidas Group faces the risk of losing important partnerships or having to accept disadvantageous terms due to greater competition for attractive contracts. To mitigate these inherent risks, on the one hand we endeavor to extend our most important partnership agreements prior to their expiration. On the other hand, our strategy is to expand the portfolio of the Group's premium partnerships in order to increase the range of consumers for our brands and to reduce the dependency on individual partnerships. Two examples of this in 2010 were the extension of the partnership between adidas and the Mexican soccer association and Reebok's global partnership with Giorgio Armani for the creation of a joint collection. In addition, our contracts normally include change of control provisions and non-monetary compensation components. In this way, we avoid the risk that the negotiations revolve around prices alone. Over the short and mid-term we expect competition for top promotion partners to continue to be intense as smaller competitors are likely to increase their expenditures in this field. Based on the term of our most important agreements, we view the risk of the loss of important promotional agreements to be only probable. Over the mid-term, we assume that this risk has a potentially moderate financial impact. Risk from the loss of brand image Our Company faces considerable risk exposure if it should be unable to maintain the attention, attachment and buying decision of consumers with regard to our brands at a constantly high level. If the adidas Group's brands do not provide sufficient marketing resources to support our promotional partnerships and brand campaigns over the long-term, there is also the risk that we will lose attention of and attractiveness to our consumers compared to our largest competitors. To mitigate these risks, we have defined clear mission statements, values and goals for all our brands. These form the foundation of our product and brand communication strategies. We also continually refine our product offering to meet shifts in consumer demand and to contemporize our offering to respond to current trends. Central to all our brand image campaigns is ensuring clear and consistent messaging to our targeted consumer audience, in particular at the point-of-sale. Due to the market shares gained by
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TaylorMade and adidas' success at the FIFA World Cup, we are confident that the risk of loss of image for these brands is remote. In addition, we increased consumer interest in the Reebok brand and its brand image thanks to the successful introduction of new product initiatives at Reebok, such as in the muscle activation category and ZigTech. Considering these factors in their totality we consider the probability of occurrence of the net risk from the loss of brand image to be only possible. However, a substantial impairment of the brand image could have a substantial financial impact on our Group. Product quality risks Our Company faces the risk of possible product defects, which could result in injuries to consumers and/or damage to the image of our products on the market. To mitigate such risks, we have established special teams that monitor product quality at all levels of our supply chain. These teams thus conduct intensive quality control tests prior to production, collaborate closely with suppliers during the production process, conduct random checks after delivery to the retailers, openly communicate product defects, and if necessary, ensure timely settlement of product liability claims. We did not have to recall any products in 2010. Our assessment of product quality risks remains unchanged versus the prior year. We regard the probability of significant product liability cases or extensive product recalls as possible. As we are insured against significant product liability cases, we estimate the potential financial impacts to be moderate. Risks from extraordinary external disruptions Our Company is exposed to external risks such as natural disasters, epidemics, fire and accidents. Physical damage to our Group's or our suppliers' premises, production facilities, warehouses or goods in transit could lead to property damage or business interruptions. These risks are mitigated using various means such as working with reliable suppliers and logistics providers who guarantee high safety standards and emergency plans. In addition to our extensive insurance coverage, we have also implemented emergency plans to minimize potential negative consequences. We estimate the probability of occurrence of risks from extraordinary external disruptions to be remote. However, in connection with the methodology revised in 2010 for assessing risk we have adjusted our estimate of the potential financial impact. Should risks arise from extraordinary external disruptions, we now expect a major financial impact. We thus take into account the widespread and devastating consequences that natural disasters or terrorist actions could theoretically have for our business.
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Risks from adidas AG's function as a holding company adidas AG's holding function exposes it to the risks described in more detail below, which could mainly have an indirect influence on the recoverability of financial assets and receivables from affiliated companies. In addition, these risks could also impact the amount of adidas AG's future income from equity investments. Additional risks arise from corporate functions of adidas AG such as the Treasury and IT departments. Credit risks Credit risks from other financial contractual obligations arise from items such as other financial assets, short-term bank deposits and derivative financial instruments as well as from the central financing of affiliated companies. The Group Treasury department arranges currency and interest rate hedges, and invests cash with major banks of a high credit standing throughout the world. adidas Group companies are only authorized to work with banks rated "BBB+" or higher. Only in exceptional cases are subsidiaries authorized to work with banks that are rated lower than "BBB+". We consider the potential impacts to be low. To limit risk in these cases, restrictions are clearly stipulated such as the maximum cash deposit levels. In addition, the credit default swap premiums of our partner banks are monitored on a weekly basis. If a defined threshold is exceeded, the swap amounts are transferred to banks that are within the limit. The credit default swap premiums at numerous banks were lowered during the course of 2010 after having reached a peak as a result of the market turbulences in 2009. This development indicates a slight decline in the inherent risks. Although the situation on the financial markets improved in 2010, we continue to believe that the probability and potential financial impact of credit risks from these positions must be estimated to be moderate. Nevertheless, we believe our risk concentration is low due to the broad distribution of our investment business with more than 24 banks. As of December 31, 2010, no bank accounted for more than 8 % of our investment business and the average concentration, including subsidiaries' short-term deposits in local banks, was 1 %. This leads to a maximum exposure of EUR 105 million in the event of default of any single bank. Furthermore, we held derivative financial instruments with a positive fair market value in the amount of EUR 87 million. The maximum exposure to any single bank resulting from these assets amounted to EUR 8 million and the average concentration was 1 %. At EUR 1.675 billion, receivables from affiliated companies comprise a significant portion of current assets. Negative business performance at the affiliated companies can possibly result in bad debts at adidas AG. Recent years
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did not result in any significant losses. We therefore estimate the probability of bad debts to be possible. Inventory risks Our Company is exposed to inventory risks because we place our first production orders about six months prior to delivery. These risks relate to possible erroneous assessments of consumer demand at the time of production planning. A sudden decline in demand can possibly lead to excess inventories. The resulting higher share of inventory clearance sales and obsolete outdated inventories and lower liquidity due to the higher need for short-term operating working capital could possibly have a negative impact on our net results. On the other hand, a sudden increase in demand could result in product shortages at the point of sale at both our wholesale partners and in our own retail business. In such a situation, the Group would be exposed to the risk of missed revenue opportunities or of disappointing customers and consumers. This could impair the loyalty to our brands as well as our reputation as a reliable supplier as regards delivery dates and quantities. In addition, potential effects on our profitability could arise from costs, e.g. air freight costs, arising in connection with our actions to accelerate product resupply. To mitigate these risks, we work continually to improve our forecasting and materials planning processes. Our supply assurance program plays an extremely important role in reducing our production lead times. This program ensures product availability while concurrently avoiding excess inventories. The expected disproportionate growth of the retail segment will increase the susceptibility to fluctuations in consumer demand. However, our detailed planning for demand and inventory levels in 2011 will benefit from the improved macroeconomic situation compared to the previous year. We therefore estimate the probability of net risks from inventory levels occurring to be somewhat lower. We now estimate that the probability of inventory risks occurring to be possible and the potential financial impacts for our Group as moderate. As adidas AG itself has only minor inventory levels, it is not directly exposed to inventory risks. Financing and liquidity risks Liquidity risks arise from not having the necessary resources available to meet maturing liabilities with regard to timing, volume and currency structure. In addition, our Company faces the risk of having to accept unfavorable financing terms due to liquidity bottlenecks. Managing the liquidity risk is the task of the Group Treasury department, which uses an efficient cash management system. Our Company maintains short-term bilateral credit lines totaling EUR 1.6 billion and a firmly-committed medium-term syndicated loan facility
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without a market disruption clause totaling EUR 1.9 billion at international banks. The EUR 3.5 billion in credit lines is designed to ensure sufficient liquidity at all times We consider financing and liquidity risks to be unlikely due to the credit lines we have available, our financing structure, and our business model, and therefore expect the impact on the Company to be low. Currency risks Currency risks for adidas AG, and above all its affiliates, are a direct result of multi-currency cash flows. The biggest single driver behind these risks results from the mismatch in the amounts of the various currencies used for procurement or obtained from selling our products. The vast majority of our procurement expenses are in US dollars while consolidated sales are denominated in other currencies to a large extent most notably the euro. Utilizing a centralized system for managing currency risks, our Company hedges currency needs for projected procurement requirements on a rolling 12- to 24-month basis. Our goal here is to hedge a major portion of our hedging volume six months prior to the beginning of each season. In rare instances, hedges are also concluded beyond the 24-month horizon. Our Company also largely hedges balance sheet risks. Thanks to our strong global position, we are able to minimize currency risk to a large extent through natural hedges. Our Group's Treasury Policy allows us to utilize hedging instruments, such as currency options or option combinations, which provide protection while at the same time showing the potential to benefit from future favorable exchange rate developments in the financial markets. As hedging for 2011 has almost been completed already, it is clear that the exchange rates for our important currencies will be somewhat less favorable than in 2010. Volume forecast variances, greater currency volatility and a larger share of our business in emerging markets indicate additional currency risks for us in 2011. In addition, translation impacts from the conversion of non-eurodenominated results into our Group's functional currency, the euro, could lead to a material negative impact on our Group's financial performance. As a result we have increased our estimate of the currency risk. We now believe that the probability of currency risks occurring, which could impact the 2011 financial performance, must be estimated as extremely probable. We classify the potential impact from currency risks to be major. Interest rate risks Changes in market interest rates affect future interest payments for variableinterest liabilities. Significant interest rate increases could therefore impair adidas AG's profitability, liquidity and financial position.

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To mitigate interest rate risks and maintain financial flexibility, a core tenet of our Company's financial strategy is to continue to use excess cash flow from operating activities to reduce net financial liabilities. In addition, our Company always strives to identify adequate hedging strategies using derivative interestrate instruments to reduce the interest rate risk. The interest rate level in North America and Europe reached the new low during 2010. However, in view of the low interest rates, reduced government spending to boost economic growth, and climbing rates of inflation year-on-year, there is an elevated risk of increases in interest rates. We therefore now conclude that the probability of a Group-wide increase in interest rates is extremely probable. In spite of this, in view of the higher proportion of longer-term fixed interest financing in the Group's financing structure in 2010, we estimate the financial impact from potential interest rate increases to be moderate. Risk of decreasing equity investment and licensing income Licensing income and income from equity investments, including income from profit and loss transfer agreements, represent a significant contribution to income for adidas AG. Due to its function as a holding company, the Company is exposed to the risk that it will receive no income from equity investments due to country restrictions at the subsidiary level or that subsidiaries' falling profits will reduce the Company's income from equity investments or it will collect less licensing income due to lower revenues at the subsidiaries. If subsidiaries with profit and loss transfer agreements experience negative business performance, the risk of loss absorption increases. However, thanks to our global strength, we consider the probability of declining licensing income and income from equity investments to be possible since we hold equity interests in subsidiaries all around the world and the license agreements relating to brand management are concluded globally. Lower equity investment or licensing income from individual markets can be compensated for by the equity investment and licensing income from other subsidiaries. As profit and loss transfer agreements exist essentially with subsidiaries whose income consists of income from equity investments, we estimate the probability of ongoing loss absorption over a longer period to be possible. The potential financial impact from declining equity investment and licensing income is estimated to be moderate. Macroeconomic risks Growth in the sporting goods industry is dependent to a large extent on consumer spending and consumer confidence. Sudden economic downturns or social policy factors such as civil unrest, nationalization or expropriation, especially in regions where our Company is highly represented, therefore pose a significant short-term risk to revenue development. To mitigate this risk, adidas strives to balance revenues across key global regions and also between
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developed and emerging markets. In addition, one of the key elements in our positioning in performance sports is the utilization of a comprehensive event and partnership portfolio, in which demand is more predictable and less sensitive to macroeconomic developments. We expect the global economy to grow in 2011, however with regional variations and still subject to high risks, in particular in view of the continuing debt crises in some euro zone countries. We therefore assess the probability that adverse macroeconomic developments could impact our business as probable. The risk has thus fallen compared to the previous year. However, we continue to consider the potential net risk of such events to be significant. Consumer demand risks Failure to anticipate changes in consumer demand for sporting goods and to react accordingly is one of the most serious threats for our industry. Changes in consumer demand can be sudden and unexpected, in particular in the fashion segments of our business. As the product development cycles in our industry average around 12 to 18 months, our Company faces the risk of a short-term revenue loss if we are incapable of reacting rapidly to such changes. Even more critical, however, is the risk of continuously overlooking a new consumer trend in the long run or failing to acknowledge its potential magnitude over a sustained period of time. To mitigate this risk, identifying and responding to consumer demand shifts as early as possible is a key responsibility of all of our brands, and of the respective risk managers in particular. To that end, we utilize extensive primary and secondary market research tools as outlined in the description of our risk and opportunity identification process. As a leader in our industry, our brand strategies continue to be focused on influencing rather than reacting to the changing consumer environment. We invest considerable resources in research and development in order to remain innovative and to launch new technologies and designs on the market. In addition, we also seek to enhance consumer demand for our brands and brand initiatives through extensive marketing, product and brand communication programs. We also focus on supply chain improvements to speed up creation-to-shelf timelines. In 2011 we will continue to focus on additional product innovations, supported by comprehensive marketing campaigns. Given the broad spectrum of our product offering, retailer feedback, and other early indicators, we view the net risk from shifts in consumer demand as unchanged versus the previous year. For this reason we consider shifts in consumer demand to be probable and estimate the potential financial impacts as moderate.

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Industry consolidation risks adidas AG is exposed to risks from market consolidation and strategic alliances among competitors and/or retailers. These could result in a reduction of our bargaining power, or harmful competitive behavior such as price wars. Abnormal product discounting and less allocated shelf space at retailers are typical outcomes of these risks Sustained competitive pressure in one of the Group's key markets could threaten revenue and profitability development. To mitigate this risk, we are committed to maintaining a regionally balanced sales mix and continually adjust the Group's distribution strategy accordingly. We place particular focus on initiatives relating to selling space that we control. Although the market capitalization of many companies in the sporting goods industry increased considerably in 2010, we believe that mergers and acquisitions will intensify in view of the positive general conditions on the credit market as well as improved corporate balance sheets and business outlook. As a result of this, we continue to assess the probability of occurrence of risks from market consolidation as being very probable. We consider the potential financial impact on earnings contribution to be significant. Regulatory risks Regulatory risks primarily comprise potential losses from major changes to trade policy. In particular, our Company faces risks arising from sudden major increases in import restrictions as well as sharp jumps in import tariffs and duties. Such risks can impact the free flow of goods within the Group and from suppliers to the Group. For example, some Latin American countries have introduced high import tariffs for shoes imported from China, which negatively impacts our profitability in these markets. To minimize these risks, we proactively utilize a diversified supplier base which establishes a certain protection against unforeseen regulatory changes and also allows us to shift production to other countries at an early stage if necessary. As a result of the probability of more restrictive protective measures by governments, we categorize the probability of additional political and regulatory actions are occurring as probable. We estimate that an unexpected, significant change in the political and regulatory environment could have a significant financial impact. Legal risks adidas AG is exposed to the risk of claims and litigation for infringement of third-party intellectual property, patent and other rights. To reduce this risk, new product technologies, designs and names are carefully researched to identify and avoid potential conflicts with the rights of third parties. We have
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strengthened our Intellectual Property department resources to drive further enhancements in our patent portfolio, and in the reviewing and analysis of third-party patents. Due to our safeguards in place, and in view of the fact that we are not dependent on individual products or product groups, we believe there is only a potential likelihood of the Group infringing third-party intellectual property or patent rights in a material way. Nevertheless, we believe that litigation could have a moderate financial impact on our Company should it occur. Risks from product counterfeiting and imitation As popular consumer brands with technological and design innovations as defining characteristics, our Company's brands are frequent targets for counterfeiting and imitation by third parties. To reduce the loss of sales and the potential reputation damage resulting from counterfeit products sold under our brand names, we make use of extensive legal protection (generally through registration) and work closely with law enforcement authorities, investigators and outside counsel. Although we have stepped up measures such as product security labeling with our authorized suppliers, the development of these measures remains a high and continuing priority. More than 12 million counterfeit products of the adidas Group were found worldwide in 2010. We continue to regard the probability of counterfeiting and imitations to be extremely probable. However, we believe we have budgeted sufficient resources to support our ongoing efforts, such as increasing the number of local trademark protection managers, to successfully combat counterfeiting and imitation. We therefore estimate the potential negative impact from the net risks from counterfeiting and imitation on our forecast earnings contribution to be moderate. Social and environmental risks We have a continuing responsibility to our employees, suppliers and the environment. Malpractice in these areas, in particular human rights violations, dubious employment practices and production processes that damage the environment, can have a significant impact on the reputation and operational efficiency of our Company and its suppliers. To limit this risk, we have established workplace standards to which suppliers must conform before and during business relationships with adidas AG. Internal inspections of supplier factories verified by extensive independent audits are conducted regularly. In the event of non-compliance with these standards, we develop joint action plans and set deadlines to ensure future compliance and further improvement. If these deadlines are not met, we end our business relationship with the supplier in question.

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We developed our first globally comprehensive environmental strategy (2015 Environmental Strategy) in 2010 in order to minimize the effects of production and distribution of our products on the environment. This strategy uses a holistic approach to ecological issues such as the long-term use of resources, climate protection, air and water emissions, effluent treatment, as well as hazardous materials, chemicals and products. As part of this strategy we will expand our "Better Place" initiatives to additional athletic shoes and apparel products of the adidas brand. We are presently aware of concrete risks arising from social and environmental lapses only in isolated cases and therefore estimate its overall probability of occurrence to be remote. Nonetheless, we are confident that both the statutory regulations and consumer expectations with respect to socially and environmentally friendly business practices and conduct will be more stringent going forward. This thus also increases our obligations as a responsible company. For example, due to this trend, we will have to bear greater costs in connection with meeting the more stringent environmental standards. The potential financial impacts of social and environmental risks have risen as a result and are now classified as moderate. Risks from rising input costs Raw material and labor costs account for approximately 70 % of the Group's cost of sales. Prices of materials such as rubber, cotton, polyester, as well as raw materials, which closely correlate with the oil price, are especially subject to the risk of price changes. As our ordering process and price negotiations usually take place around six months in advance of production, our procurement function has sufficient transparency and reaction time to manage and plan for sharp increases in input costs. To reduce the financial impact on our product margins from higher procurement costs, we are implementing further lean production processes at our partner factories, eliminating time and cost from the procurement process, and where possible, re-engineering our products and selectively increasing prices. In addition, as part of our "end-to-end" profitability initiatives we have established a special team, whose task is to identify actions for managing rising input costs within the supply chain. In the medium term we have the ability to adapt our procurement structure to take advantage of more competitive pricing in other locations. Raw material costs rose considerably compared to the previous year due to the significant global economic upturn. We expect this to have a negative effect on our procurement costs in 2011. As we begin planning for 2012, further price increases cannot be ruled out. For this reason the net risks from rising input costs increased substantially compared to end of 2009. We estimate the
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probability of occurrence of such risks as extremely probable and the potential financial impact as major. Supplier default risk Over 95 % of our product offering is sourced through independent suppliers mainly located in Asia. We work closely with suppliers who demonstrate reliability, quality, innovativeness and continuous improvement in order to reduce the supplier default risk. In addition, we have insured ourselves against the risk of business interruptions caused by physical damage to supplier premises. We therefore estimate the probability of occurrence of net risks from the loss of suppliers occurring as possible and the extent of the potential financial loss as moderate. Personnel risks Our employees and their talents are extremely important for achieving our goal of being the world's leading supplier in the sporting goods industry. The loss of key employees in strategic positions to competitors or other companies is therefore an obvious risk for us. In addition, because the labor market is increasingly competitive, we also face the risk of being unable to identify, recruit and retain the most talented people that best meet the specific needs of our Company. In addition, insufficient continuing education could lead to gaps in critical business knowledge, in particular in product design and development. To mitigate this risk, we do our best to offer our employees a motivating work environment. The aim is to help establish our Company as the industry's most sought-after employer. Attractive bonus and incentive programs as well as long-term career opportunities and planning will help us achieve this objective. Due to of the expansion our own retail activities (which has a higher staff turnover than the Company average) and the increasing number of employees in emerging markets (where a higher wage and salary inflation intensifies the volatility in the job market) we assume that employee turnover will be slightly higher in the future. Additionally, the employment market is constantly growing more competitive with the competition for the most talented employees growing more fierce. For this reason we regard the probability of personnel risks occurring to be possible. For this reason, the probability of personnel risks occurring has increased and is now considered to be likely. These risks could entail a moderate financial impact for our Company. Risks from non-compliance There is the risk that our employees violate directives and standards for appropriate and responsible business practices. In order to successfully manage this risk, the Group Policy Manual was launched at the end of 2006 to provide the framework for basic work procedures and processes. It also includes a Code of Conduct which stipulates that all employees shall act
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ethically and in compliance with the laws and regulations of the legal systems where they conduct Group business. All new employees must take a special course on our Code of Conduct as part of our global program to ensure adherence to standards. We continue to consider serious breaches as being remote. In connection with our updated risk management methodology, we estimate the potential financial impact from this risk to be lower and now assume it must be considered to be low. IT risks Important business processes are based on IT systems, from product marketing to procurement and warehouse management on to invoice processing, customer support and financial reporting. A major breakdown of the systems or a significant data loss could result in considerable disruptions to our business. Insufficient project management could delay the execution of projects critical to our Company or make them more expensive than planned. To reduce these risks our IT organization performs proactive preventive system maintenance and service continuity planning and ensures compliance with pertinent IT principles. Data security at our most important systems is ensured using restricted access rights for users based on their respective job description and through mandatory changing of passwords at prescribed intervals. Compliance with privacy law provisions is also ensured. We perform data backups several times a day for the central enterprise resource planning system switching to various data centers. In addition, our contingency solution for the enterprise resource planning system allows us to quickly switch to a remote site if necessary without any data loss. Security, control mechanisms and system reliability is monitored by the Internal Audit Department. IT project risks are further reduced by using proven project methods for all IT projects. This includes strict cost control and regular risk audits for all important projects. In addition to these fundamental controls, our Company continued to concentrate on additional IT control measures in 2010. The IT organization's strategic alignment and five-year plan are coordinated with adidas AG's 2015 Strategic Business Plan. We have implemented new quality assessments for major projects to ensure that senior managers are able to assess the progress, quality and cost of these projects on important milestones during the life of the initiative. Finally, IT-related processes and systems are a focus of the 2010 Group report on risk and opportunity management. Based on these factors we continue to believe that the probability of a serious IT breakdown occurring is remote. However, the potential financial impact of such a breakdown would be significant.
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Opportunities from operating activities and from adidas AG's function as a holding company The opportunities listed below arise for adidas AG due to both its operating activities as well as from its function as a holding company, on the one hand directly via centralized functions, and on the other hand, indirectly via its influence on affiliates. Favorable macroeconomic and fiscal developments As a consumer goods company, consumer confidence and spending may have an impact on our revenue growth. Therefore, better than initially forecasted, macroeconomic developments that support consumer demand and purchasing power can have a positive impact on our Company's revenue and profitability. In addition, legislative changes, for example with regard to taxation of corporate profits, can positively impact profitability. Increasing significance of sports in the battle against obesity More and more governments are promoting an active lifestyle to fight obesity and cardiovascular diseases. According to the International Obesity Task Force (IOTF), more than 600 million adults were considered as obese and another 1.0 billion as overweight in 2010. In addition, up to 200 million school-age children are estimated to be obese or overweight. Once considered a problem only in affluent nations, obesity is now becoming a serious problem in countries with lower per capita incomes as well. This development has serious health consequences and dramatic effects on healthcare costs. As a result, governments and non-governmental organizations are increasing their efforts to promote a healthy lifestyle and encourage sports participation. Given our strong market position, in particular in categories considered suitable for weight loss such as endurance training, running and swimming, we expect to benefit from this trend. Ongoing fusion of sports and lifestyle The border between pure athletics and lifestyle continues to blur as sport becomes a more integral part in the lives of more and more people. People want to be fashionable when engaging in sporting activities without compromising on quality or the latest technological advances. At the same time, performance features and styles are finding their way into products meant for more leisure-oriented use. We estimate the global sports lifestyle market to be at least three times larger than the performance market. This development opens up additional opportunities for our Company and our brands which already enjoy strong positions in this market. One example of this is our plan for expanding the adidas NEO label in connection with our Route 2015 business plan.

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Emerging markets as long-term growth engine According to United Nations estimates, the global population will increase from the current 6.9 billion to 7.3 billion by the end of 2015. By 2050 there may well be more than 9 billion people. A majority of this population growth is occurring in the emerging markets. Rising employment and real incomes and a growing middle class are stimulating these economies and subsequently our industry. Sports participation in countries like China and India has historically been lower than in industrialized countries but we expect participation to increase in the future. Increasing leisure time and greater capital spending on infrastructure are driving this trend. In addition, people are increasingly aware of the positive effects of athletic activity. We also have an additional growth opportunity in that European and North American sporting goods brands are often seen as easily accessible, affordable luxury goods. Women's category offers long-term potential In our opinion, the women's sports market is one of the most attractive segments in the sporting goods industry with women's shoes accounting for more than a one-third of athletic footwear sales. However, our Company still generates the majority of its revenues in the men's and unisex categories. The adidas Group will continue to invest in the development of special performance and lifestyle products for women which underscore feminine individuality, authenticity and style. Current examples of this commitment are the adidas Women's Techfit apparel collection, which was developed in collaboration with the Berlin State Ballet (Staatsballett Berlin), Reebok's EasyTone shoes and apparel and a TaylorMade series of Burner golf clubs and golf irons developed specifically for women. Increasing consumer demand for functional apparel Demand for functional apparel has increased significantly in recent years as consumers realize the benefits of this apparel over traditional cotton sportswear. Improved moisture management, superior ease of motion and increased comfort are all factors encouraging consumers to switch to highperformance gear. Designing and developing functional apparel requires significantly more expertise, product and material research as well as production know-how compared to low-tech apparel. Therefore, only a few companies are able to supply high-end functional apparel. Our resources and our positioning as a sports performance leader enable us to constantly develop innovative products and capitalize on them. For example, adidas brought the Terrex Softshell jacket on the market in 2010. This jacket combines excellent breathability and wind protection with an optimal fit that adjusts to the body's movement, thus ensuring the greatest comfort.

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Growing popularity of "green" products Consumers increasingly consider the impact of their consumption patterns on the environment, which is increasing demand for environmentally-friendly products. In 2010 we worked harder on creating suitable product platforms to promote growth in this segment. We concentrated in particular on further expanding the adidas "Better Place" program. The first products from this program were launched worldwide in 2009. This program pays particular attention to adhering to sustainability principles in designing products and packaging. For example, we use more recycled materials and monitor energy consumption when preparing materials and products. All of adidas' Performance categories are participating in this program and our Company is pursuing ambitious goals in this regard in advance of the 2012 Olympic Games in London. We have set a goal of using a certain proportion of sustainable materials in 100 % of adidas athletic shoes and in 20 % of adidas apparel products by 2012. Reebok is also counting increasingly on environmentallyfriendly products, for example, launching the Kids' Green Easy shoe collection for babies and small children in January 2010. The use of recycled raw materials in this collection takes environmental aspects into account. Naturally, we do not restrict our efforts in using environmentally-friendly materials for our products just to these special programs. We also follow this principle in other categories as well, albeit to a lesser extent. New options for involving consumers through social media Advances in digital communication offer significant opportunities for our brands. For example, we can contact our consumers more often and more easily build lasting relationships and brand loyalty. Our Company carefully follows the latest developments and trends in communication technology. This is exemplified by the new social media and networks, through which our brands are already able to reach more consumers. The decisive advantage in this is that our brands can have a dialogue with our consumers. For example, consumers can actively participate in brand campaigns or take part in designing and developing new products. We thereby create a far more intensive brand experience that is especially appealing to the younger generation. The majority of our divisions are therefore investing considerable resources in presenting adidas AG's brands on the various social media platforms, such as Facebook and Twitter. For example, the adidas Originals Facebook page already has more than 6.5 million friends. Strong market positions worldwide Our Company is the market leader in numerous countries. This strong competitive position offers us many advantages in terms of global brand visibility, market position and the ability to effectively expand our position in emerging markets. As a result of our strong partnership portfolio and marketing efforts, consumers around the globe are highly aware of our brands
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and are receptive to our brand messaging. This makes demand for our products more stable compared to smaller competitors, which is why many retailers consider our products as core to their offering. This puts us in a strong position in competing for shelf space. Multi-brand approach We believe there is a natural limit to the audience size a single brand can appeal to, given the diverse tastes and expectations of a highly-fragmented consumer market. Our multi-brand approach provides us with the opportunity to leverage the power of our brands in a more precise and meaningful way. We are able to utilize the combined strengths of each brand to gain market share and to cover a broader range of demographics, consumer demands and price segments. Personalization and customization gaining ground Today's consumers are looking for choice and variety that goes beyond choosing from a wide selection of products. They are looking for individual selection and diversity. We develop unique, relevant products that meet specific functional and aesthetic requirements. We expect the market for personalized and customized footwear, apparel and sports accessories to grow strongly and evolve in the coming years, which is why we will continue investing in this segment. Using opportunities in new, rapidly growing sports categories Using the potential offered by emerging, fast growing sports categories is an additional opportunity for our brands. Our brand teams conduct market research and trend marketing studies to identify changes in lifestyle and in the requirements of their target consumers as early as possible. Changes in lifestyles and preferences can result in new consumer demands that are not satisfied by the current product offering. For example, muscle activation has developed into a significant category in less than two years. Following the successful market introduction of the Reebok EasyTone Walking Shoe in 2009, the brand launched additional models in 2010 and expanded the muscle activation concept to other sports categories as well as to apparel. In addition, we are experiencing the trend that more and more athletes and sports enthusiasts prefer minimalist products that support the body's natural sequence of motion. Demand for such products is an important potential future trend. We want to launch more light and flexible products on the market that support the athlete's natural movements in order to utilize this opportunity. Further expanding the reach of the sales organization The sporting goods retail environment is changing constantly. Consumers increasingly want to identify with brands. We therefore continually adapt our distribution to cater to this change and have made controlled space initiatives a
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strategic priority. This includes the management of selling space for key retail partners and the launch of new formats for the Company's own retail business. In November 2010, for example, the Reebok Reetone World opened in Munich. In addition to the popular toning shoes, together with important dealers, Reebok also offers exclusive items from the "On the Move" collection. Customers can also design and personalize their own Reebok shoes at the YourReebok Station. adidas also opened exclusive NBA in-store shops in several hundred Champs Sports stores across the USA in advance to the 2010/2011 basketball season. We believe that initiatives such as these allow us to address consumers more effectively and create emotional loyalty to our products. Cost optimization drives profitability improvements Continued optimization of key business processes and strict cost control are vital to achieving high profitability and return on invested capital. We believe that we have by no means fully exhausted the options for further optimizing cost structures within our Company. We believe we will be able to realize mediumterm economies of scale as we continue to integrate adidas and Reebok functions. In addition, we continue to strive to further increase efficiency in our supply chain and make it truly demand-driven. By implementing end-to-end planning processes and improvements in supply capabilities, we also see opportunities to not only better serve our customers but also to drive shortterm operating capital requirements down further. Reducing the number of products is an additional example. This reduces the time and expense required for product development, achieves lower warehousing costs, and we obtain the ability to offer collections more closely focused on our retail partners. Favorable changes in the financial markets Favorable exchange and interest rate developments can potentially have a positive impact on our Company's financial results. Our Group Treasury department closely monitors the financial markets to identify opportunities. Management assessment of overall risk and opportunities Management aggregates all risks reported by the various business units and functions. Based on the compilation of risks taking into account the probability of occurrence and potential financial impact and the current business outlook explained in this report corporate management does not foresee any individual or aggregate risks which could materially jeopardize the viability of the Company as a going concern. Given the continued positive response to our capital demand, the market confirms this assessment. Our Company has therefore not requested an official rating by a leading ratings agency.

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Management remains confident that the financial performance of adidas AG forms a solid basis for our future business development and provides the necessary resources for exploiting the opportunities available to us. The following risks have increased compared to last year's assessment: natural risks, risks from rising input costs as well as customer risks. The following risks are now classified lower: macroeconomic risks, inventory risks, as well as risks from non-compliance. Nonetheless, these changes in individual risks have no material impact on our Company's overall risk profile. We believe that the overall risk profile has not changed year-on-year.

Description of the main features of the internal control and risk management system in relation to the financial reporting process pursuant to 289 (5) HGB. We understand the internal control and risk management system in relation to the financial reporting process as a system that is embedded in the risk management system applicable throughout the Group The risk management system in relation to the financial reporting process is aimed at minimizing the risk of misstatements in the accounting records and in external reporting. As a parent company, adidas AG must ensure that corporate-wide adherence to legal and company-internal provisions is guaranteed. We understand the risk management system as a process which, following the principle of separation of functions, comprises various sub-processes in the accounting, controlling, taxes, treasury, planning, reporting and legal fields for identifying, measuring, managing, monitoring and communicating risks. All of the clearly defined subprocesses are assigned clear responsibilities. In the first step, the risk management system serves to identify and assess, and then limit and monitor recognized risks in the financial reporting process that could be an obstacle to the goal of compliance of the financial statements. The financial reporting process's internal control system should ensure that, in spite of identified risks, annual financial statements and management reports are prepared with reasonable assurance of compliance. The Internal Audit Department regularly reviews processes relevant to accounting to ensure the effectiveness of the internal control and risk management system. The Executive Board was responsible for designing the scope and orientation of the systems established based on the specific requirements of adidas AG's annual financial statements and management report. However, even appropriate and functional systems cannot guarantee absolute assurance. Preparation of the financial statements is supported by a computerized tool. The tasks, descriptions and responsibilities of financial statement closing operations are clearly defined in this tool and the chronological sequence of and dependencies between the individual tasks are mapped. The tool shows the

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status of closing operations at all times and makes it possible to recognize and react to possible delays early. All processes are documented. Standardizing and harmonizing processes is the fundamental requirement for structured and correct accounting. Certain postings in the subsidiary ledgers, such as supplier invoices or incoming payments, are made in a shared service center. There are controls using computerized systems such as SAP and invoice workflow and manual controls, such as fulfillment of VAT requirements by supplier invoices. Certain functions such as Treasury and the management of receivables and payables accounts (netting accounts) of Group companies are handled centrally within adidas AG. Group policies create the basis for centralized management of the entire Group's financing and foreign currency requirements. This is supported by computerized systems such as the Treasury Management system. For example, the subsidiaries' requests are depicted in the Treasury Management system and the confirmed transactions are transferred automatically to SAP. Different user roles prevent abuse or manipulation of the system. A number of interfaces are connected to the SAP accounting module and contribute figures for the accounting. These interfaces have been documented and accepted by the Internal Audit Department. Interface protocols, manual analyses and user authorization profiles ensure that the interfaces work correctly and the correct figures are transferred. The interaction of various departments such as Taxes, Legal, Group Planning and Controlling, which contribute significant components and analyses to the financial statements, are of core significance for the accounting. If necessary, independent expert opinions are obtained for presenting and recognizing extremely complex transactions or those that seldom occur. Certain closing entries are only made for the quarterly or year-end closings. These items, some of which are also complex, are reviewed separately yet again within the Accounting department. After all of the postings have been completed, the department head inspects the balance sheet and statement of income. All finance systems employed are protected against abuse by appropriate authorization concepts and access restrictions. Access authorizations are reviewed regularly and updated if necessary. Group IT minimizes the risk of data loss and the outage of IT systems relevant to accounting by centralized management and monitoring of almost all IT systems, by managing change processes, and regular system backups.

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Events after the balance sheet date

There were no material events at our Company after the balance sheet date.

Outlook
Our Company assumes that merchandise sales in 2011 will increase compared to the previous year in the low single-digit percentage point range. Revenue expectations for the 2012 fiscal year are above those for 2011. The increase is primarily the result of growth due to the expectation of higher soccer revenues (2012: European Football Championship). Orders on hand at adidas Germany are currently above the previous year's level, due to the extremely positive pre-order sales in Q1 2011 among other reasons. We also expect a positive effect in the still-growing Sports Style segment. Training Revenues in the Training category are expected to come in at the high 2010 level in coming years. Football The FIFA Women's World Cup and marketing of the official game ball, the German Football League "Torfabrik" ball and a new adiZero soccer shoe will be major highlights for adidas in 2011, which will also provide positive stimuli in other categories. At the end of 2011, the UEFA Euro 2012 will give an additional positive impetus from the sale of European championship items, such as the German national soccer team's German Football Association jersey. We expect further increases in revenues in the Running and Outdoor Sports Performance categories. Running adidas is among the leading suppliers in the Running category. The Trail Running segment has strong demand and, besides a wide range of colors in Running Culture technically-inspired running products in Lifestyle Optics will give an additional impetus and further strengthen our position in the second half of 2011. adidas is also among the leading suppliers in the Textiles segment . Thanks to the Running Culture segment, here too, we will address new customer groups and achieve additional growth. As shown by sales figures to date, the miCoach
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application, the personal trainer for the runners, makes the Running category interesting for young target groups as well. This application also addresses the trend for personally individualized training sessions. Outdoor By its clear positioning as the athletic outdoor brand, adidas regained credibility and the trust of dealers and consumers in this segment. In addition, demographic change and the related increasing number of older people in society is creating enormous growth potentials for the adidas brand, particularly in the Outdoor segment, because greater numbers of older people want to remain fit through hiking and other outdoor activities and are demanding outdoor products. Sports Style The Sports Style segment, which contains Originals and Fashion Group, makes a considerable contribution to setting the adidas brand apart in the Streetwear and Fashion segment. Thanks to Originals, adidas can offer a range of genuine lifestyle products in the streetware market. Due to its considerable history, adidas has a unique product portfolio, which it reinterprets for young lifestyle consumers. Originals now comprises 16 % of the adidas brand's total revenue in Germany. Originals will again put forward new concepts in 2011. adidas Originals will be presented to a broad range of trade professionals at Bread&Butter Berlin, the most important fashion fair in the street and sportswear market. The launch of the new Denim Collection in the 2011 Spring/Summer Collection will further bolster the brand's persuasiveness as a fashion provider and contribute to additional revenue growth. In the Premium Sports Style segment, Y3 underscores adidas' claim to credibility. Fashion Group is bringing out new concepts in 2011 with Neo APP and SLVR: Neo APP is the ideal addition to the successful shoe concept, while SLVR closes the gap between the Premium Y3 segment and the NEO entry segment. This will systematically further expand the significance of the adidas brand in the Fashion segment in 2011. Holding function Due to our holding company structure, a key portion of our income consists of distributions from subsidiaries and income from profit and loss transfer agreements, whereby the amount of the foreign dividends to be collected or income from profit and loss transfers is significantly affected by the economic situation in the subsidiaries' foreign markets. Compared to 2010, we currently assume a moderate increase in income from equity investments for 2011 and 2012. The Executive Board expects income from profit and loss transfers for 2011 to remain at approximately the same level as in 2010. Due to the transfer of brand management to adidas AG in 2009,
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the global development of the adidas brand since that time is reflected in the revenue-dependent licensing income flowing to adidas AG. Here, too, the adidas AG's net income is directly influenced to a strong degree by global business development. For 2011 and 2012, we assume increasing consolidated revenue, and correspondingly, increasing licensing income. adidas AG's net income is influenced to a considerable degree by cost transfers, of which the largest share are marketing expenses charged by adidas International Marketing B.V., the Dutch Group company, to adidas AG. We expect lower cost transfers in 2011 than in 2010 because it is a "non-event" year. Cost transfers are anticipated to increase again in 2012 because the European Football Championship taking place then will again entail higher marketing outlays. The Company continues to hedge currency risks (with banks) for almost all Group companies, from which no significant impact on net income is expected. In addition, adidas AG enters into currency hedges for non-procurement transactions (e.g., income from the licensing business), the influence of which on the Company's net income for the 2011 and 2012 fiscal years cannot be foreseen however. Thanks to an unrestricted line of credit of EUR 1.9 billion granted to adidas AG until October 2012 (which is not currently being drawn down), our Company does not expect any negative effects on earnings due to increasing refinancing costs. Assuming no significant changes in currency effects and refinancing costs, we believe that net income for 2011 and 2012 will remain at about the same level as 2010 with a slight growth trend. However, significant changes in the underlying assumptions can lead to considerable deviations from these forecasts.

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Auditors Report
We have audited the annual financial statements, comprising the balance sheet, the income statement, and the notes to the annual financial statements, together with the bookkeeping system, and the management report of adidas AG, Herzogenaurach, for the fiscal year from January 1 to December 31, 2010. The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law are the responsibility of the Company's Executive Board. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit. We conducted our audit of the annual financial statements in accordance with 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprfer (Institute of Public Auditors in Germany, IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the assets and liabilities, financial position and profit or loss in the annual financial statements in accordance with German principles of proper accounting and in the management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Executive Board, as well as evaluating the overall presentation of the annual financial statements and management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations.

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In our opinion, based on the findings of our audit, the annual financial statements comply with the statutory regulations and give a true and fair view of the assets, liabilities, financial position, and profit or loss of adidas AG in accordance with German principles of proper accounting. The management report is consistent with the annual financial statements, and on the whole, provides a suitable understanding of the Company's position and suitably presents the risks and opportunities of future development.

Frankfurt am Main, February 15, 2011 KPMG AG Wirtschaftsprfungsgesellschaft [original German version signed by:] Michael Kozikowski Wirtschaftsprfer [German Public Auditor] Achim Wolper Wirtschaftsprfer [German Public Auditor]

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Responsibility Statement by management required by section 37y of the German WpHG in conjunction with section 37w(2) no. 3 of the German WpHG regarding the annual financial statements as at December 31, 2010
To the best of our knowledge, and in accordance with the applicable reporting principles, the annual financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and the Management Report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal opportunities and risks associated with the expected development of the company. Herzogenaurach, February 15, 2011 The Executive Board

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Supervisory Board Report

Dear Shareholders, After entering 2010 with cautious optimism, the adidas Group can now look back on a year characterised by recovery and success. For the adidas Group, this was a year of major sports events such as the FIFA World Cup and the Olympic Winter Games. Furthermore, thanks to innovative products and marketing campaigns, all of our brands met with a very positive response among our consumers. The Group grew in almost all regions. The positive effects of the new organisational structure also contributed to the significant improvement of the Groups results in 2010. Supervision and advice in dialogue with the Executive Board In the past financial year, we regularly advised the Executive Board on the management of the company and carefully and regularly supervised its activities. In particular, we examined the legality, expediency and regularity of the Executive Boards management. The Executive Board informed us regularly, extensively and in a timely manner through oral and written reports, both at Supervisory Board meetings and in the periods between our meetings. This information covered the Groups business policy as well as all relevant aspects of business planning, including finance, investment and personnel planning. We were also kept up-to-date on the course of business, the operational position of adidas AG and the Group (including the risk situation and risk management), the Groups financial position and profitability, as well as all major decisions and business transactions. We were directly involved in all of the Groups fundamental decisions. After indepth consultation and examination of the detailed information submitted to us by the Executive Board, we approved transactions requiring Supervisory Board approval and in cases where, in our opinion, review by the Supervisory Board was necessary in the best interest of the Group. We held five Supervisory Board meetings in 2010, one of them in the form of a conference call. In individual cases, we passed written circular resolutions. In addition, we held a meeting in February 2011, at which we discussed matters relating to the 2010 financial year. Apart from one meeting which one member was unable to attend due to an urgent business appointment that could not be postponed, all Supervisory Board members attended all meetings in the year under review. The same applies to the committee meetings. The external auditor, KPMG AG Wirtschaftsprfungsgesellschaft (KPMG), attended four

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meetings of the Supervisory Board and all meetings of the Audit Committee. The Supervisory Board Chairman and the Audit Committee Chairman, an independent financial expert as defined by the German Stock Corporation Act, also maintained regular contact with the Chief Executive Officer and the Chief Financial Officer between the Supervisory Board meetings and informed themselves on the current developments of the business situation and major business transactions. The Executive Board regularly provided us with detailed reports for the preparation of our meetings. After in-depth examination and consultation, we resolved upon the Executive Boards resolution proposals. Main topics discussed and examined by the entire Supervisory Board The development of sales and earnings, the employment situation as well as the financial position of the Group and the business development of individual markets were presented to us in detail by the Executive Board at all but one of our meetings and were subsequently discussed together. Other Supervisory Board agenda items included numerous individual topics, which we discussed in depth with the Executive Board. These discussions did not give rise to any doubt as to the legality, expediency or regularity of the Executive Boards management in carrying out its duties. At our February 10, 2010 meeting, which the Executive Board did not attend, we discussed in detail and resolved upon the 2010 Performance Bonus Plan for the Executive Board including the relevant criteria and targets as proposed by the General Committee. Furthermore, we amended the wording of the Rules of Procedure of the Executive Board, to be in line with the German Corporate Governance Code, and aligned the business allocation plan to the new segmental reporting. Subsequently, we resolved upon the Declaration of Compliance which had been prepared in detail by the Audit Committee at its previous meeting. The main topic on the agenda of the March 2, 2010 financial statements meeting was the review of the consolidated financial statements and the adidas AG annual financial statements as well as the respective Management Reports for the year ending December 31, 2009, as certified by KPMG. We also reviewed the Executive Boards proposal regarding the appropriation of retained earnings. Following initial Audit Committee examination and consultation, we discussed material aspects of these financial statements with the Executive Board and KPMG. Both the Executive Board and KPMG provided us with detailed responses to all of our questions. After having carefully considered adidas AGs financial position and the expectations of shareholders and the capital market, we approved the proposal submitted by the Executive Board regarding the appropriation of retained earnings. Following the discussion and resolution on the agenda items for the 2010 Annual General Meeting, we dealt

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comprehensively with the budget and investment plan for 2010, which we subsequently approved. At our May 5, 2010 meeting, the Executive Board reported in detail on the current business development and the financial situation of the Group after the first quarter of 2010. Furthermore, we discussed the method and scope of the upcoming efficiency examination of the Supervisory Board. Additionally, we dealt with the economic situation and the potential for development of the Retail segment and the eCommerce distribution channel. Following a detailed presentation by the Executive Board and subsequent discussion of this topic, we approved the transfer of shares held in FC Bayern Mnchen AG from adidas International B.V. to adidas AG. The main focus of our August 3, 2010 meeting were the results of the first half year, which were well above market expectations, as well as the anticipated development of business for the remainder of 2010. Moreover, the Executive Board extensively reported on the IT strategy of the Group and we dealt in detail with the new provisions of the German Corporate Governance Code which came into force in July 2010. Furthermore, we renewed Erich Stammingers mandate as Executive Board member and approved the conclusion of his new service contract prepared by the General Committee. At our Supervisory Board meeting held on November 3, 2010, discussions centred on the report for the first nine months of the year and the outlook for the remainder of the 2010 financial year. Following the Executive Boards detailed presentation of the strategic business plan Route 2015 for the years 2011 to 2015, we focused on the medium-term business development of the Group. Furthermore, the Executive Board informed us about the growth potential of the adidas Outdoor category. Another major point of focus was the report of the Audit Committee Chairman on the key contents of the Audit Committee meetings held on September 29, 2010 and November 2, 2010, which dealt with the Audit Committees examination of the effectiveness of the updated risk management system, the internal control system and the compliance system. The Audit Committee, to which we have delegated monitoring of the effectiveness of these systems, explained that the systems comply with statutory regulations. At our meeting on February 9, 2011, at which the Executive Board was present only part of the time, we discussed and approved the budget and investment plan for 2011 based on the detailed presentations provided by the Executive Board. Following a comprehensive report by the Executive Board, we furthermore approved the sale of Herzo Base real estate. We subsequently focused on the objectives for the future composition of the Supervisory Board

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and, in addition, we also resolved upon the content of the 2011 Declaration of Compliance. Furthermore, we resolved upon the General Committees proposal concerning the amount of the 2010 Performance Bonus to be granted to each member of the Executive Board. Report from the committees In order to perform our tasks in an efficient manner, we have five Supervisory Board standing committees and also the project-related Committee for Real Estate Projects, which was established ad hoc in 2009 Supervisory Board, p. 20. These committees not only have the task of preparing topics and resolutions of the Supervisory Board, they partly also make decisions on behalf of the Supervisory Board. The committees work in the year under review is summarised as follows: The Steering Committee, which is authorised to pass resolutions on behalf of the entire Supervisory Board in particularly urgent cases, did not meet in the year under review. All Supervisory Board resolutions were able to be passed by the Supervisory Board as a whole. The General Committee, which is responsible for preparing personnel decisions of the Supervisory Board and for submitting proposals with regard to the Executive Board compensation and also the contents, structure and conclusion of the Executive Board members service contracts, met twice in 2010. A further meeting, dealing with topics of the year under review, took place in February 2011. At the meetings of the General Committee, the resolution proposals on the criteria and targets for the 2010 Performance Bonus Plan to be submitted to the Supervisory Board were prepared following detailed discussion. In addition, the committee comprehensively dealt with the service contract to be concluded in connection with the reappointment of Erich Stamminger as a member of the Executive Board. Furthermore, the members of the committee discussed the Performance Bonus payments to be made to the members of the Executive Board for the 2010 financial year. The Audit Committee held five meetings in 2010, and also one meeting in February 2011 dealing with topics of the year under review. The auditor and the Chief Financial Officer were present at these meetings. The committee members focused on the examination of the annual financial statements and the consolidated financial statements including the Management Reports for 2009 as well as the discussion of the audit reports with the auditor and the detailed examination of the first half year report and quarterly financial reports prior to their publication. The

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auditor reported to the committee members in detail on his auditing activities and results. Furthermore, the Audit Committee obtained the required auditors declaration of independence and prepared the Supervisory Board proposal for the Annual General Meeting recommending the auditor for the 2010 financial year. Together with the auditor, the Audit Committee established the priority topics for the audit of the 2010 annual financial statements and consolidated financial statements and resolved upon the assignment of the audit to the auditor. In addition, the committee members focused on monitoring the independence of the auditor, the auditors qualification as well as the other advisory services rendered and the audit fees. In the course of the examination of the effectiveness of the updated risk management system, the internal control system as well as the internal audit system and the compliance organisation, the members of the Audit Committee were informed in detail on applied methods, systems and the efficiency thereof through written and oral reports. They discussed these matters in depth, inter alia with the auditor, and assured themselves of the effectiveness of the systems. Furthermore, the Audit Committee, which under the Rules of Procedure of the Supervisory Board is also responsible for matters relating to corporate governance, dealt with the new provisions of the German Corporate Governance Code as amended on May 26, 2010 and discussed the contents of the Declaration of Compliance to be issued by the Supervisory Board. At its last meeting in the financial year under review, the members of the committee discussed the draft budget and investment plan for 2011 as explained by the Chief Financial Officer. The Audit Committee Chairman reported orally on the results of the Audit Committee meetings in the following Supervisory Board meetings and furthermore regularly provided the Supervisory Board with written information. The Mediation Committee again had no reason to meet in 2010. The Nomination Committee also had no reason to meet, as there are no Supervisory Board elections scheduled. The Committee for Real Estate Projects, which had been established ad hoc in 2009, also did not meet in 2010.

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Corporate Governance and Declaration of Compliance In the past financial year, we comprehensively dealt with the new provisions of the German Corporate Governance Code and their implementation within the Group. In the second half of the year, the Supervisory Board examined the efficiency of its activities including the collaboration with the Executive Board by means of detailed questionnaires. Following the respective self-assessment by the members of the Supervisory Board, an external consultant critically analysed the results and presented them to the entire Supervisory Board. This analysis did not give rise to any doubts concerning the efficiency of the activities of the Supervisory Board. In the year under review, our Supervisory Board members again had no conflicts of interest as defined by the German Corporate Governance Code. After detailed discussions on corporate governance topics within the Audit Committee, we followed the recommendation of the Audit Committee and on February 11, 2011, issued an updated Declaration of Compliance pursuant to 161 German Stock Corporation Act (Aktiengesetz AktG), which is permanently available to shareholders on the corporate website at www.adidas-Group.com/corporate_governance. Further information on corporate governance including the compensation of the Executive Board and the Supervisory Board is contained in the Corporate Governance Report including the Declaration on Corporate Governance, see page 25. Examination of the adidas AG annual financial statements and consolidated financial statements KPMG audited the consolidated financial statements and the Group Management Report for 2010 prepared by the Executive Board in accordance with 315a German Commercial Code (Handelsgesetzbuch HGB) in compliance with IFRS and issued an unqualified opinion thereon. The auditor also approved without qualification the 2010 annual financial statements and the Management Report of adidas AG prepared in accordance with HGB requirements. The financial statements, the proposal put forward by the Executive Board regarding the appropriation of retained earnings and the auditors reports were distributed to all Supervisory Board members by the Executive Board in a timely manner. We examined them in depth in the presence of the auditor at the Audit Committee meeting held on February 25, 2011 and at the Supervisory Boards March 1, 2011 financial statements meeting during which the Executive Board explained the financial statements in detail. At both meetings, the auditor reported on the material results of the audit with focus on the priority topics for the year under review as agreed with the Audit Committee. The auditor did not report any significant weak points with respect to the system for early risk detection and the internal control system. The auditor was available for questions and the provision of additional information to the Audit Committee and the other Supervisory Board members. Based on our own examinations, we are convinced that there are no objections

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to be raised. Following the recommendation of the Audit Committee, at our financial statements meeting we therefore approved the audit results and the financial statements prepared by the Executive Board. The annual financial statements of adidas AG were thus approved. We also discussed with the Executive Board the proposal concerning the appropriation of retained earnings with regard to the dividend policy and adopted it in light of the position of the company and the expectations of shareholders and the capital market. In memoriam We will always honour the memory of our long-standing Supervisory Board Chairman, Mr. Henri Filho, who passed away on December 25, 2010 at the age of 79. As a member of the Supervisory Board from April 1993 and Chairman of the Supervisory Board from April 1994 until November 2007, he provided the adidas AG Executive Board with outstanding supervisory and advisory support to the benefit of the adidas Group. During his tenure, the adidas Group became one of the global leaders in the sporting goods industry. Expression of thanks The Supervisory Board wishes to express its appreciation of the tremendous personal dedication, the performance and the ongoing commitment of the Executive Board, the management of the Group companies, the Works Council and all adidas Group employees, which was decisive for achieving the Groups excellent results. For the Supervisory Board

Igor Landau Chairman of the Supervisory Board March 2011

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