adidas AG — Audit Report / Information 2009

Apr 29, 2010

adidas International Finance B.V.

Report ~~of the 2009~~ Financial Statements

KPMG Audit
Document to which our report dated

27 APR 2010

also referred
Initials for identification purposes
KPMG Accountants N.V.

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Contents

Financial report

• Directors’ report 3

• Financial statements 4

• Balance sheet as at 31 December 2009 4
• Profit and loss account for the year 2009 5

• Notes to the 2009 financial statements 6

• Other information 13

• Provisions in the Articles of Association governing the appropriation of profits 15
• Appropriation of net result 15
• KPMG Audit
• Document to which our report dated

27 APR 2010

also refers
Initials for identification purposes
KPMG Accountants N.V

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adidas International Finance B.V.

Directors' report

The objective of adidas International Finance B.V. is to be a financing partner for adidas Group entities in the widest sense possible. The ultimate parent company of the company is adidas A.G. Each requested finance activity is carefully reviewed and where required a guarantee from the ultimate parent company, adidas A.G., is obtained in order to minimize the risks for the company.

During 2009 the company redeemed the convertible bond of EUR 400 mln it had issued on October 8, 2003. In July 2009 the company issued a new Eurobond in the amount of EUR 500 mln. In accordance with the private placement agreement the company repaid USD 270 mln in January 2009 and received the same amount from Reebok International Ltd, US. As a significant portion of the company's finance activities are denominated in US dollar the significant balance sheet positions show movements related to revaluation as compared to prior year.

adidas International Finance B.V. does not run any material currency risks due to the fact that any incoming and outgoing financing activity is denominated in identical currencies.

The result of the company in 2009 amounts to EUR 2,061,000 which is in line with expectations and has not been influenced by unusual circumstances.

The Managing Directors as required by Section 5:25c(2c) of the Financial Markets Supervision Act confirm that to the best of their knowledge:

1. the financial statements give a true and fair view of the assets, liabilities, financial position and profit of adidas International Finance B.V.;
2. the directors' report gives a true and fair view of the position as per 31 December 2009 and the developments during the financial year 2009 of adidas International Finance B.V.; and
3. the directors' report describes the material risks that adidas International Finance B.V. is facing.

The company does not have any employees. For the future we expect that the company will further add to its portfolio and that it will maintain its current role in the operations of the adidas Group.

KPMG Audit
Document to which our report dated

Amsterdam, 27 April 2010

Managing Directors:
jocelyn Robiot

Managing Director

27 APR 2010
also refers to
Initials for identification purposes
KPMG Accountants N.V.
Inge Cupers

CFO
3

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adidas International Finance B.V.

Financial Statements

Balance sheet as at 31 December 2009

(before appropriation of result)

		2009		2008
		EUR 1,000	EUR 1,000	EUR 1,000	EUR 1,000
Fixed assets
Financial fixed assets	1		1,009,708		1,014,644
Current assets
Receivables	2	304,171		135,716
Cash and banks	3	6		9
			304,177		135,725
			1,313,885		1,150,369
Shareholders' equity	4
Issued and paid-up share capital		2,000		2,000
Other reserves		4,770		2,995
Result for the year		2,061		1,775
			8,831		6,770
Non-current liabilities	5		1,004,284		924,489
Current liabilities			300,770		219,110
			1,313,885		1,150,369

27 APR 2010

also refers to initials for identification purposes

KPMG Accountants N.V.

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adidas International Finance B.V.

Profit and loss account for the year 2009

	2009		2008
	EUR 1,000	EUR 1,000	EUR 1,000	EUR 1,000
Interest income	54,306		62,280
Total operating income		54,306		62,280
Interest expense	51,472		59,892
Other operating expenses	36		23
Other financial result	34		3
Total operating expenses		51,542		59,918
Result before taxation		2,764		2,362
Taxation		(703)		(587)
Net result		2,061		1,775

KPMG Audit
Document to which our report dated

27 APR 2010

also refers
Initials for identification purposes
KPMG Accountants N.V.

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adidas International Finance B.V.

Notes to the 2009 financial statements

General

Relationship with parent company and principal activities

adidas International Finance B.V. was incorporated on 22 August 2003. Its statutory seat is Amsterdam. The company is a private limited liability company, with 100% of the shares being held by adidas International B.V., Amsterdam, the Netherlands.

The company's principal activities are:

• to be a finance company in the widest sense, including but not limited to, to borrow and to lend money in general, to grant loans to affiliates, to conduct foreign exchange transactions, to manage the result of currency risks, to raise funds by way of securities, bank loans, bond issues, notes and other debt instruments and to borrow in any other way, to finance third parties in any way, to provide security or undertake the obligations of third parties, including guarantees for debts of other persons, and in general to render services in the fields of trade and finance;
• to participate in, to take an interest in any other way in, to conduct the management of other business enterprises of whatever nature;
• furthermore and finally, all activities which are incidental to or which may be conducive to any of the foregoing.
• The company does not have any employees.

The financial year of the company coincides with the calendar year.

Functional and presentation currency

These financial statements are presented in euro, which is the Company's functional currency. All financial information presented in euro has been rounded to the nearest thousand unless stated otherwise.

Basis of presentation

The accompanying financial statements have been prepared in accordance with Part 9 of Book 2 of the Netherlands Civil Code.

The financial statements of the company are ultimately consolidated in the financial statements of adidas AG, Herzogenaurach, Germany, a copy of which is annually filed with the Chamber of Commerce. The statements of adidas AG include a statement of cash flows. Such statement is therefore not included in these financial statements.

Document to which our report dated

27 APR 2010
also refers to
Initials for identification purposes
KPMG Accountants N.V.

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adidas International Finance B.V.

Use of estimates

The preparation of financial statements requires the Company’s management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities as reported in the financial statements. Actual results can differ from these estimates.

Principles for the translation of foreign currencies

The assets and liabilities denominated in foreign currencies are translated at the exchange rate applicable on balance sheet date.

Foreign currency transactions are converted at exchange rates approximating those prevailing at the time of the transaction.

Exchange differences are presented as financial income or expenditure to the profit and loss account for the year under review.

Principles for the valuation of assets and liabilities

Assets and liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition assets and liabilities are measured at amortised cost using the effective interest method.

Insofar as not stated otherwise, monetary assets and liabilities are shown at nominal value.

Income tax expense

Income tax expense comprises current tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or subsequently enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Document to which our report dated

27 APR 2010

also refers

Initials for Certification purposes

KPMG Accountants N.V.

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adidas International Finance B.V.

1 Financial fixed assets

This concerns loans to group companies.

	EUR 1,000
Balance as at 31 December 2008	1,014,644
Movements:
• Additions to group companies	805,783
• Repayments from group companies	(500,924)
• Reclassification to current	(291,798)
• Additions due to revaluation	(17,997)
Balance as at 31 December 2009	1,009,708

In 2009 loans in the amount of USD 442 mln were transferred from Reebok International Ltd, US to adidas A.G. Additional loans were granted to adidas AG of EUR 500 mln and adidas Vietnam of USD 1,150K.

Payments under these loans become due as follows: USD 288 mln in 2011, USD 7.5 mln in 2012, USD 292 mln in 2013, EUR 500 mln in 2014 and USD 150 mln in 2016. All loans are unsecured except the loan to Reebok International Ltd, U.S., of USD 288 mln which is guaranteed by adidas A.G. The interest percentage on these loans ranges from 1.08 to 5.57%. The fair value of these loans does not deviate materially from the book value.

2 Receivables

	2009	2008
	EUR 1,000	EUR 1,000
Group companies	11,734	134,929
Loans to group companies-current	291,798	-
Prepayments and other receivables	639	787
	304,171	135,716

3 Cash and banks

KPMG

KPMG Audit

The balances are available on demand.

27 APR 2010

also refer to

Initials for identification purposes

KPMG Accountants N.V.

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adidas International Finance B.V.

4 Shareholders' equity

	Issued and paid-up share capital EUR 1,000	Other reserves EUR 1,000	Result for the year EUR 1,000	Total EUR 1,000
Balance as at 31 December 2007	2,000	1,366	1,629	4,995
Appropriation of the result		1,629	(1,629)	-
Result for the period			1,775	1,775
Balance as as 31 December 2008	2,000	2,995	1,775	6,770
Appropriation of the result		1,775	(1,775)	-
Result for the period			2,061	2,061
Balance as at 31 December 2009	2,000	4,770	2,061	8,831

5 Non-current liabilities

KPMG Audit

Document to which our report dated
27 APR 2010
also refers to
Initials for identification purposes
KPMG Accountants N.V.

27 APR 2010

also refers to
Initials for identification purposes
KPMG Accountants N.V.

Balance as at 31 December 2008	924,489
Movements:
• Bond conversion	(399,950)
• Issuance of Eurobond	497,551
• Reduction due to revaluation	(17,806)
Balance as at 31 December 2009	1,004,284

EUR 1,000

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adidas International Finance B.V.

With settlement on 8 October 2003, the company had issued a EUR 400 million convertible bond, guaranteed by adidas A.G. The bond was listed on the Frankfurt Stock Exchange. The bond was issued in tranches of EUR 50,000 each with a maturity up to 15 years. The bond was, at the option of the respective holder, subject to certain conditions, convertible from and including 18 November 2003 up to and including 20 September 2018 into ordinary no-par-value bearer shares of adidas A.G. at the conversion price of EUR 25.50 which was fixed upon issuance of the bond.

The coupon of the bond was 2.5% and was payable annually in arrears on 8 October of each year, commencing on 8 October 2004. The bond was convertible into approximately 16 million no-par-value shares. The convertible bond was not callable by the issuer until October 2009 and callable thereafter, subject to a 130% trigger between October 2009 and October 2012 and subject to a 115% trigger between October 2012 and 2015, unconditionally thereafter. Investors had the right to convert the bond in October 2009, October 2012 and October 2015.

The fair value of the liability component and the equity conversion component were determined on issuance of the bond. The fair value of the liability component amounted to EUR 283 million in October 2003 and was calculated using a market interest rate of 5.3% for an equivalent straight bond. The residual amount of EUR 117 million represented the fair value of the option at the time of issuance. In the balance sheet the convertible bond is included in long-term liabilities for EUR 400 million.

In December 2004, adidas AG as guarantor of the bonds irrevocably waived its right towards all current and future bondholders to elect the cash payment (in lieu of the delivery of all or part of the shares) upon exercise of the conversion right through a bondholder pursuant to §9 (1) and (2) of the Terms and Conditions of the Bonds.

The adidas A.G. stock first traded above 110% (EUR 28.05) of the conversion price of EUR 25.50 on more than 20 trading days within the last 30 trading days in the fourth quarter of 2004. Consequently, bondholders have had the right to convert their convertible bonds into equity since January 1, 2005.

The bond was redeemed prematurely on October 8, 2009 being effective November 23, 2009. Up to and including November 9, 2009, all conversion rights deriving from the outstanding 7,999 bonds were exercised.

In December 2006 adidas International Finance B.V. assumed from adidas A.G. the obligations under a US private placement transaction with a value of US $ 1.0 billion which was originally entered into by adidas A.G. in January 2006. In 2009 the first installment of US $ 270 mln was paid. Payments under these obligations are guaranteed by adidas A.G. and become due as follows: US $ 288 mln in 2011, US $ 292 mln in 2013 and US $ 150 mln in 2016. The interest percentage on these obligations ranges from 5.20 to 5.44%.

The private placement and convertible bond documentation each contain a negative-pledge clause. Additionally, the private placement documentation contains minimum

27 APR 2010

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KPMG Accountants N.V.

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adidas International Finance B.V.

equity covenants and net loss covenants. As at December 31, 2009, actual shareholders' equity was well above the amount of the minimum equity covenant.

The fair value of the private placements amounts to EUR 536 mln at year-end.

In July 2009 adidas International Finance B.V. issued a Eurobond in an amount of EUR 500 mln. The notes have a nominal value of EUR 1,000 each. The bond has a maturity date of July 14, 2014. The interest rate is fixed at 4.75% and is payable annually on July 14 commencing on July 14, 2010. The bond is unconditionally and irrevocably guaranteed by adidas A.G and is listed on the Luxembourg Stock Exchange. The fair value of the Eurobond amounts to EUR 518 mln at year-end.

6 Current liabilities

At 31 December 2009 current liabilities consists of the following:

| | | 2009
EUR 1,000 | 2008
EUR 1,000 |
| --- | --- | --- | --- |
| Private placements | | - | 194,007 |
| Accrued bond interest | | 23,027 | 18,905 |
| Bank borrowings incl. commercial paper | | 35,167 | 18 |
| Group companies KPMG | | 241,945 | 5,461 |
| Trade payables | KPMG Audit | 12 | 9 |
| Income tax | Document to which our report dated | 619 | 710 |
| | 27 APR 2010 | 300,770 | 219,110 |

7 Contingent liabilities and off-balance sheet commitments

Claims

As at 31 December 2009, no claims have been lodged against adidas International Finance B.V.

Other commitments

The company has no other commitments.

8 Remuneration

The directors did not receive a salary from adidas International Finance B.V.

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adidas International Finance B.V.

9 Related parties

The company has related party transactions in the form of loan agreements as further described in notes 1 (financial fixed assets) and 5 (long-term liabilities) with the following companies:

• Reebok International Ltd, US
• adidas A.G.
• adidas International B.V.
• adidas Italy SpA
• adidas Argentina S.A.
• adidas Vietnam

10 Audit Fee

With reference to Section 2:382a(3) of the Netherlands Civil Code, the fees for the financial year that have been charged by KPMG Accountants N.V. and other KPMG network companies to the company are included in the consolidated financial statements of adidas A.G.

KPMG Audit
Document to which our report dated
27 APR 2010
also refers
Initials for identification purposes
KPMG Accountants N.V.

Amsterdam, 27 April 2010

Managing Director:

Jocelyn Robiot
Inge Cupers

12

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adidas International Finance B.V.

Other information

To the annual general meeting of shareholders of adidas International Finance B.V.

AUDITOR'S REPORT

Report on the financial statements

We have audited the accompanying financial statements 2009 of adidas International Finance B.V., Amsterdam as set out on page 4-12, which comprise the balance sheet as at 31 December 2009, the profit and loss account for the year then ended and the notes.

Management's responsibility

Management of the Company is responsible for the preparation and fair presentation of the financial statements and for the preparation of the Directors' report, both in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

KPMG Audit
Document to which our report dated

27 APR 2010

also refers.
Initials for identification purposes
KPMG Accountants N.V.

13

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adidas International Finance B.V.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of adidas International Finance B.V. as at 31 December 2009, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code.

Report on other legal and regulatory requirements

Pursuant to the legal requirement under 2:393 sub 5 part f of the Netherlands Civil Code, we report, to the extent of our competence, that the Directors' report is consistent with the financial statements as required by 2:391 sub 4 of the Netherlands Civil Code.

Amstelveen, 27 April 2010

KPMG Audit
Document to which our report dated

KPMG ACCOUNTANTS N.V.
A.S. Welling RA
27 APR 2010
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KPMG Accountants N.V

14

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adidas International Finance B.V.

Provisions in the Articles of Association governing the appropriation of profits

Under article 35 of the company's Articles of Association, the profit is at the disposal of the General Meeting of Shareholders which can allocate said profit either wholly or partly to the formation of – or addition to – one or more general or special reserve funds.

The company may only make distributions to shareholders and other persons entitled to distributable profits to the extent that its equity exceeds the total amount of its issued share capital and the reserves to be maintained pursuant to the law.

Appropriation of net result

The Board of Directors proposes to add the net result of the year 2009 to the other reserves. This proposal is not collected in these financial statements.

KPMG Audit
Document to which our report dated

27 APR 2010

also refers to
Initials for identification purposes
KPMG Accountants N.V

15

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