Company Profile "Adidas - Salomon" November 1999 Marlies Filbri/SOMO, the Netherlands
Ingeborg Wick/SÜDWIND-Institut, Germany

Officers & Employees *1)
Chairman, President and CEO: Robert Louis-Dreyfus
SVP Footwear operations: Gleen Bennet
SVP Sales and Logistics, Europe, Africa, and Middle East: Herbert Hainer
SVP Marketing, Controlling, and Planning, Europe, Africa, and Middle East: Erich Stamminger
SVP International Marketing: Jan Valdmaa
President and CEO, Adidas America: Steve Wynne
Director of Mergers, Acquisitions and CFO: Dean Hawkins
Director of Human Resources, General Administration, and Investor Relations: Michel Perraudin
General Counsel: Manfred Ihle
Head of Sales, Licences, and Worldwide Distribution: Christian Tourres
Auditors: KPMG Deutsche Treuhand-Gesellschaft

Employees in 1998-99: 12,036
Employees in 1997-98: 7,993 (ie an increase of over 50%).

Products
Adidas-Salomon produces under the following brand names:

· Adidas: footwear, apparel and hardware
· Erima: Apparel
· Bonfire: Apparel

Newly acquired brands:

· Salomon: skis, snowboards, bindings, ski boots, cross country ski equipment, in-line skates
· Taylor Made, golfclubs and accessories
· Mavic, bike wheels and rims

Marketing

In 1997, Adidas became Adidas-Salomon with its US$1.4 billion purchase of Salomon, a French manufacturer of skis and other sporting goods. The deal put Adidas one step closer to competitor and world market leader Nike, and one step ahead of Reebok.

Salomon, aside from its winter sport equipment, also owns golf club brand Taylor Made and cycle brand Mavic. The merger makes Adidas/Salomon the second largest sport marketeer in the world, and number one in Europe. Salomon is currently very strong in North America and Japan, and Adidas has the largest market share in Europe. *2)

Adidas is, like Nike, very active in securing sponsoring and advertising deals with celebrities. Some of the most famous are Martina Hingis (tennis), Kobe Bryant (basketball), Peyton Manning, Paul Palmer (swimmer), Jan Ullrich (racing cyclist) and the New York Yankees. David Beckham, Patrick Kluivert and Zidane all wear Adidas boots, the Predator Accelerator. (Patrick Kluivert, insofar as he plays with the Dutch national team and FC Barcelona, is also sponsored by Nike).

The importance of celebrity sponsorship and events to Adidas is illustrated by Robert Louis-Dreyfus' letter in the company's 1998 annual report:

'When it comes to showcasing our brands, 1998 was truly exceptional. Early in the year, the Winter Olympics focused the attention of sports enthusiasts on Nagano. In summer, the Soccer World Cup in France attracted more spectators than any single sports event before. When the French team, promoting the three stripes, won the World Cup, we could not have wished for more. These were great times for our brands.'

Adidas will also be an official sponsor of Euro 2000. Adidas has reached an agreement with ISL Marketing AG of Switzerland to become an official sponsor of the 2000 UEFA European Championships. Adidas will have access to the official emblems, mascot and trophy for the design of its own products. The first of these products was due in stores before Christmas 1999. In addition, Adidas is official supplier of the 'EURO 2000 match balls' and referee equipment.

In 1998, the overall adidas budget for promotion and sponsoring accounted for nearly 13% of turnover, amounting to US$722 million - an increase of US$277 million compared to 1997.

Sales

In 1998, Adidas-Salomon achieved its second-best result in its history despite a flat market. In the USA, sales increased by more than 70%, in Europe, by more than 15%. This amounting to an increase in the company's share of the global market in sports goods of 12%.

Despite a decline in the growth of the global market in sports goods - due to economic and currency crisis in Asia, Russia and most recently South America, and changing consumer preferences in the USA in particular -, Adidas-Salomon increased net sales in 1998 by 48% to US$5.5 billion. Profits before taxes, however, decreased by 8% to 347 million US$ as overall financial results were negatively affected by the acquisition of Salomon.

Net Income/Total revenues

Adidas footwear, net sales according to categories
Running: 46.4%
Training: 11.6%
Basketball: 11.0%
Soccer: 10.8%
Tennis: 7.8 %
Others: 12.4%

Adidas footwear, net sales according to regions
Americas: 46.2 %
Europe: 47.6 %
Asia: 6.2 %

Adidas Apparel, net sales according to categories
All purpose: 62.5 %
Soccer: 16.2 %
Lifestyle: 7.9 %
Workout: 5.2 %
Others: 8.2 %

Adidas Apparel, net sales according to region
Europe: 64.4 %
Americas: 29.5 %
Asia: 6.1 %

Corporate Responsibility

Compared to US companies Nike and Reebok, Adidas has been slow to respond to issues of corporate responsibility. It was only in June 1998 that Adidas adopted a code of conduct ("Standards of Engagement") and an internal monitoring system. Until then, Adidas had stated that it did not wish to develop a code of its own but favoured an industry-wide code similar to that drawn up by the World Federation of Sporting Goods Industry (WFSGI).

One page of the 1998 annual report is devoted to the company's commitment to social responsibility:

Social responsibility is an integral part of our brand values, and Adidas-Salomon has a tradition of requiring its suppliers to conform to social and environmental standards. In 1998 further steps were taken to ensure that there are acceptable working conditions in the factories which supply Adidas-Salomon products. All suppliers are obliged to adhere to the corporate Standards of Engagement (SOE) confirming the policy on minimum requirements for labour, health, safety and environmental issues. The SOE is based on the World Federation of the Sporting Goods Industry model Code of Conduct and states that Adidas-Salomon will not conduct business with suppliers which use forced labour or child labour and do not comply with the employment laws of the country concerned. It has been translated for display in factories into the languages of the countries where products are sourced.' *3)

To monitor these standards, Adidas has initiated an internal monitoring program, with subsequent audits of suppliers conducted all over the world by regionally located Adidas-Salomon personnel. The majority of Adidas suppliers have been evaluated for compliance with the SOE and other action plans developed with individual suppliers to improve working conditions. Adidas-Salomon has teamed up with Business for Social Responsibility, a non-profit organisation which promotes corporate citizenship, to train monitors and suppliers' representatives. With the assistance of experienced environmental consultants, a manual on health and safety and environmental issues has been developed which will help to make the SOE effective in practice. Manuals on labour issues are also being developed. *4)

Next to that, Adidas-Salomon supports, through the WFSGI, projects which provide educational opportunities for working children in Pakistan and thus alternatives to stitching footballs. A similar project is being developed in India. Both involve local sports goods manufacturers, the ILO, Save the Children, UNICEF and local NGOs.

In January 1999, Adidas appointed David Husselbee as global director of Social and Environmental Affairs. Husselbee used to work for Save the Children Fund and worked on WFSGI child labour projects in Pakistan.

The WFSGI code was drawn up in 1997. It contains voluntary provisions and recommendations for organisations that want to test their own conduct or develop a code themselves. The WFSGI formed a committee on Ethics and Fair Trade in 1995. It has been designed to serve as a model for companies committed to ensuring that their operations satisfy the highest ethical standards in the global marketplace.

The voluntary character of the code becomes problematic when considering compliance mechanisms: the WSFGI refers to neither independent monitoring nor sanctions. Member companies can use the model code to regulate their own business practices and those of their partners, but are not obliged to do so. This diminishes the probability of effective implementation and control.

Adidas sources most of its products from suppliers all over the globe. About 95% of its sports shoes and 60% of its garments are sourced from Southeast Asia. The increase in Adidas sales of sports shoes and garments is due to a "strict control" of international sourcing costs. The Adidas Annual Report of 1996 already states that sourcing is at the heart of the business and a crucial factor in reducing production costs.

The consequences of this policy on working conditions in the supplier factories of Adidas has been described in detail over the last months:

1. At the Formosa/Evergreen factory in El Salvador, there are about 1000 women who work 60-70 hours per week for a monthly wage of US$133. Women becoming pregnant are dismissed. Unions are being suppressed. (German TV broadcast "Monitor" 13 August 1998)
2. The monthly wage in the Chinese shoe factory Han Tin is between US$47 and US$72. Workers have to work seven days a week with forced overtime of up to seven hours a day - paid at the normal rate of pay. (Asia Monitor Resource Center and Hong Kong Christian Industrial Committee, October 1997)
3. The women workers at the Bulgarian knitting supplier Orfei earn 67 US $ per month. (Documentation of the International Forum on Clean Clothes 30 April - 5 May 1998 Brussels)
4. At the Tainan factory in Indonesia, neither the minimum wage nor the legally prescribed overtime pay are being paid. Overtime is forced and exceeds the legally prescribed maximum number of hours. Union activities are being hampered. Sanctions for mistakes are excessive in proportion to the wages paid. Health and safety are neglected. Female workers are sexually harassed. ("Cheap production in Indonesia for Germany's fashion TNCs: Steps towards alternatives" , SÜDWIND-Materialien Nr. 7, Siegburg/Germany, November 1999, p. 9-12)
5. When collective bargaining negotiations were taking place at the Indonesian sports shoe
   factory Nikomas Gemilang in September 1999, military troops appeared in and around
   the premises. (ibidem, p. 13-15)

International pressure on Adidas has increased over the last few months, with the aim to press the company to go beyond internal monitoring. Subsequently, Adidas has started to respond to letters from international Clean Clothes Campaigns sympathisers and to talk to the German Clean Clothes Campaign.

In 1999, Adidas became a member of the Fair Labor Association in the USA and applied for membership of the Ethical Trading Initiative in Great Britain. Although progress is slow and confined to selected cases of labour violations such as Formosa/Evergreen, Adidas opted for corrective measures from the end of 1998. In June 1999 the US audit company "Verité" , hired by Adidas, monitored Formosa/Evergreen and reported continued, gross violations of labour legislation. This report was communicated to the Clean Clothes Campaign by adidas, as well as a correctional action plan dated October 1999. Over a year after publication of the Formosa/Evergreen report, there is little progress, but at least first improvements are beginning to be felt by the workers: workers applying for a job are no longer asked if they are members of a union.

*1) Hoovers Company Profile, www.hoovers.com
*2) Adidas/Salomon Merger, http://mountainzone.com.news.adidas, 22 September 1997
*3) Adidas-Salomon Annual Report 1998, p.24.
*4) ibidem