Supervisory Board Report 2008

(Excerpt from the >> Annual Report 2008)

Dear Shareholders,

2008 was another very important year for the adidas Group. Major sports events such as the European Football Championship and the Olympic Games again drove the adidas brand to excellent levels of performance. TaylorMade-adidas Golf was again able to increase its revenues in a difficult golf market. At Reebok, key measures were initiated to revitalise the brand. But 2008 was also a year of major challenges, particularly in light of the global economic and financial crisis. The adidas Group delivered very good results in this difficult environment, confirming the successful implementation of the Group’s strategic plan.

Supervision and Advice in Dialogue with the Executive Board
In 2008, we, as the Supervisory Board, carefully and regularly monitored the Group’s management and supported the Executive Board in matters relating to the strategic development of the Group as well as major individual initiatives.

In this respect, the Executive Board informed us regularly, extensively and in a timely manner at Supervisory Board meetings as well as by additional oral and written reports. This information covered the Group’s 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 Group’s financial position and profitability, as well as all major decisions and business transactions. We were involved in all of the Group’s fundamental decisions at an early stage, granting our approval insofar as was necessary and, in our opinion, in the best interest of the Group after detailed consultation and examination. Our Supervisory Board members again had no conflicts of interest in 2008.

We held five Supervisory Board meetings in 2008. Furthermore, we passed additional resolutions on urgent matters between our meetings. All Supervisory Board members attended more than half of the Supervisory Board meetings. The external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft (formerly: KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft), Frankfurt am Main (KPMG), attended four of our five meetings. In addition, Dr. Friderichs, Chairman of the Supervisory Board, also maintained regular contact with the Executive Board, in particular with the Executive Board Chairman, between the Supervisory Board meetings, discussing strategy and keeping himself informed on the course of business and important events.

Main Topics Covered and Examined by the Supervisory Board
The development of sales and earnings as well as the financial position of the Group and the development of the individual brand segments were presented to us in detail by the Executive Board and subsequently discussed jointly at each of our meetings. 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 or compliance of the Executive Board’s management in carrying out its duties.

In our meeting held in the form of a conference call on January 29, 2008, we discussed and resolved upon the implementation of a share buyback programme based upon the authorisation granted by the Annual General Meeting on May 10, 2007, to repurchase adidas AG shares totalling up to 5% of the company’s stock capital.

The main topic on the agenda of the March 4, 2008 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 on December 31, 2007, as certified by KPMG. The Supervisory Board also reviewed the Executive Board’s 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 provided us with detailed responses to all of our questions. After having carefully considered adidas AG’s financial position and the expectations of shareholders and the capital market, we approved the proposal put forward by the Executive Board regarding the appropriation of retained earnings. Additionally, we discussed the proposed resolutions to be put to the 2008 Annual General Meeting. Following the recommendation of the Audit Committee, we resolved to propose to the Annual General Meeting that KPMG be appointed as auditor of the 2008 consolidated financial statements and the adidas AG annual financial statements and, if applicable, to examine the interim financial statements. We also approved all other resolutions which would later be put to the Annual General Meeting. Lastly, the Executive Board reported to us at this meeting on the business development of the Group with regard to the ongoing revitalisation process in the Reebok segment and the current status of the share buyback programme that we had approved in January. We also kept ourselves informed on key aspects of personnel development and training as well as the adidas Group’s performance-oriented compensation concept. 

The main focus of our May 7, 2008 meeting was the first quarter 2008 financial results as presented by the Executive Board. We also discussed the business development of the Reebok segment as well as the initiatives planned to improve market penetration. Additionally, we dealt in detail with the results of the efficiency examination regarding the work of the Supervisory Board conducted in the period December 2007 to February 2008. At this meeting, we also amended our Rules of Procedure with regard to the formation and tasks of a Nomination Committee and appointed the members of this committee. 

At our August 4, 2008 Supervisory Board meeting, discussions focused on the report for the first half year and the anticipated development of business for the remainder of 2008. We also reviewed the audit points and priorities agreed between the Audit Committee and KPMG for the audit of the consolidated financial statements and the adidas AG annual financial statements for 2008. In addition, we discussed possible measures to expand the Group’s brand portfolio and established the “Strategic Equity Investment Committee” ad hoc. A further agenda item of this meeting was the expansion of the tasks of the Audit Committee in connection with the anticipated introduction of the German Accounting Law Modernisation Act (Bilanzrechtsmodernisierungsgesetz – BilMoG) and the provisions of the German Corporate Governance Code. We approved the corresponding amendments to the Rules of Procedure for the Supervisory Board and resolved upon the Rules of Procedure for the Audit Committee.

At our Supervisory Board meeting held on November 5, 2008, discussions centred on the report for the first nine months of the year presented by the Executive Board and the outlook for the remainder of 2008. We also reviewed an internal corporate restructuring measure in the context of the Reebok integration and discussed in depth the budget and investment plan for the adidas Group, considering various scenarios for 2009. We indicated our agreement in principle with the budget and investment plan. As some clarification was still required with respect to several issues raised at our meeting, we delegated powers of final budget authorisation to the Steering Committee, as explained in the following report from the committees. Additionally, we dealt with the new provisions and stipulations of the German Corporate Governance Code and decided that in future the Supervisory Board as a whole will examine and resolve upon the Executive Board compensation system, including all integral contractual elements, prepared by the General Committee.

Resolutions of fundamental importance passed outside of our regular meetings related to the presentation of an updated Declaration of Compliance with regard to the recommendations of the German Corporate Governance Code on February 11, 2008, as well as the cancellation of shares, thus reducing the stock capital, in connection with the share buyback programme resolved upon in January 2008.

Report from the Committees
In order to perform our tasks in an efficient manner, we have five Supervisory Board standing committees. We also established the project-related “Strategic Equity Investment Committee” ad hoc. The standing committees prepare specific topics and resolutions to be dealt with by the Supervisory Board as a whole. In individual cases, we have delegated decision-making powers to these committees. At our Supervisory Board meetings, the chairmen of the committees always reported to us in detail on the committees’ work and meetings, ensuring complete exchange of information and good cooperation between the committees and the Supervisory Board as a whole.

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 Supervisory Board in particularly urgent cases, met twice in the year under review. In October 2008, the Steering Committee approved the acquisition of Ashworth, Inc. This makes TaylorMade-adidas Golf the world’s leading golf apparel company. In November 2008, after discussing in detail the potential impact of the global economic and financial crisis on the 2009 budget, the Steering Committee granted its final authorisation of the budget and investment plan for 2009.
		The General Committee met three times in 2008. The main topics were the system and level of Executive Board compensation as well as the preparation of new structures for Executive Board employment contracts.
		The Audit Committee met five times in 2008. The auditor and the Chief Financial Officer were always in attendance. Committee members examined in detail the consolidated financial statements and the adidas AG annual financial statements for 2007, the auditor’s reports as well as the first half year report and quarterly financial reports for 2008. The auditor reported to the committee members in detail on its auditing activities and results. Furthermore, the Audit Committee prepared the Supervisory Board proposal for the Annual General Meeting recommending the appointment of the auditor for 2008 and obtained the auditor’s declaration of independence. Together with the auditor, the Audit Committee also established the priority topics for the audit of the consolidated financial statements and the adidas AG annual financial statements for 2008 and resolved upon the audit assignment including the auditor’s fee. In addition, the Audit Committee prepared the decisions of the Supervisory Board relating to corporate governance topics, in particular the Supervisory Board’s decision concerning the declaration on the German Corporate Governance Code pursuant to § 161 of the German Stock Corporation Act (Aktiengesetz - AktG). Together with the Chief Financial Officer, the Audit Committee discussed in detail the budget and investment planning for 2009, taking into account the economic and financial crisis. Furthermore, the committee dealt intensively with the structures of compliance management as well as the internal control and risk management systems and the effectiveness of these systems. The Audit Committee also reviewed the Internal Audit report on its auditing activities within the Group and the methodology in 2008 as well as plans for 2009. The Audit Committee Chairman always reported to the Supervisory Board on the results of all its committee meetings at the subsequent meeting of the entire Supervisory Board.
		The Nomination Committee established in May 2008 met for the first time in November. In addition to organisational aspects of its future work, the committee discussed the current composition of the Supervisory Board and defined requirements for the future composition of the shareholders’ representatives with regard to the required competencies and qualifications. At the beginning of 2009, the committee prepared the proposals for the election of the shareholders’ representatives to be made to the Annual General Meeting of adidas AG on May 7, 2009.
		The Mediation Committee again had no reason to meet in 2008.
		In August 2008, the "Strategic Equity Investment Committee" established ad hoc granted its approval to the acquisition of Textronics, Inc. with a view to the further development of the Group's product offering.

Declaration of Compliance and Effective Corporate Governance
The subject of corporate governance is very important to the Supervisory Board. We discussed the implementation of the changes in the German Corporate Governance Code, as amended on June 6, 2008, with the Executive Board, both at Supervisory Board and at Audit Committee meetings. The Supervisory Board also resolved upon the updated Rules of Procedure for the Supervisory Board and the Rules of Procedure for the Audit Committee. Furthermore, we decided to comment not only on the recommendations of the German Corporate Governance Code but, on a voluntary basis, also on the suggestions. We report on corporate governance at adidas together with the Executive Board in the Corporate Governance Report. On February 11, 2009, together with the Executive Board, we issued an updated Declaration of Compliance with the German Corporate Governance Code in accordance with § 161 AktG. This declaration was made permanently available on the same day on the corporate website at www.adidas-Group.com/corporate_governance.

Detailed Examination and Discussion of the 2008 Consolidated Financial Statements and the adidas AG Annual Financial Statements
KPMG audited the consolidated financial statements and the Group Management Report prepared 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 2008 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 auditor’s reports were submitted to the Audit Committee and the Supervisory Board in a timely manner. They were examined first by the Audit Committee on February 27, 2009. At our meeting on March 3, 2009, the adidas AG annual financial statements were then examined by the Supervisory Board as a whole and discussed in the presence of the auditor. The auditor reported the material results of the financial statements audit with focus on the 2008 priority topics as agreed with the Audit Committee. These included in particular the regularity of the adidas AG annual financial statements as incorporated in the consolidated financial statements, impairment tests for goodwill and intangible assets as well as the completeness of financial instrument information in accordance with IFRS 7 as presented in the Notes to the Group’s financial statements. The auditor was available for questions and the provision of supplementary information. Having examined the consolidated financial statements and the adidas AG annual financial statements as well as the Management Reports, we came to the conclusion that there were no objections to be raised. Following the recommendation of the Audit Committee, we therefore approved the audit results and adopted the financial statements prepared by the Executive Board at our financial statements meeting. The annual financial statements of adidas AG were thus adopted. We discussed the dividend policy with the Executive Board and, in light of the financial position of adidas AG as well as shareholder and capital market expectations, we approved the proposal regarding the appropriation of retained earnings.

Expression of Thanks
At the conclusion of our five-year term in office, which expires at the end of the Annual General Meeting on May 7, 2009, we would like to express our appreciation of the tremendous personal dedication, the performance and the ongoing commitment of the Executive Board, the managements of Group companies, the Works Council and all adidas Group employees.

For the Supervisory Board

Dr. Hans Friderichs
Chairman of the Supervisory Board

March 2009

 back to top