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Response to the HKCIC Report on Working Conditions of Soccer and Football Workers in Mainland China

May 24, 2002

Herzogenaurach, 24 May 2002 - At adidas-Salomon, it is our policy to listen to the views of our stakeholders. Those stakeholders who are in direct contact with the employees of factories where our products are made, provide valuable information regarding working conditions and treatment of the workforce. Consequently, we have studied the report by the Hong Kong Christian Industrial Committee ("HKCIC") on 'Working Conditions of Soccer and Football Workers in Mainland China' extremely closely. The report, which was published in April 2002, describes poor workplace and living conditions for workers employed by three factories located in Guangdong Province in Southern China. It is stated that two of the factories - Guang Ho and Tai Yang - have produced balls for adidas-Salomon, among other brands.

Currently, only one of these factories (which is known to us as "Kuan Ho Sporting Goods Limited") is a business partner to adidas-Salomon. Our manufacturing agreement with the other named supplier, Tai Yang, was terminated in June 2001 due to their failure to comply with our Standards of Engagements (SOE) - our code of conduct.

With respect to the Kuan Ho factory, the issues that have been reported by HKCIC have been based on an unspecified number of worker interviews. HKCIC has not had direct access to the factory and we note that their report contains a number of factual inaccuracies related to the manufacturing processes, work practices and pay. Nonetheless we take the report very seriously and we share a common concern with the HKCIC: the wellbeing and safety of the workers who make our products in that factory.

Our Standards of Engagement, requires our suppliers to comply with core labour, health and safety, and environmental standards. In China, one of our main sourcing countries, we have six full-time compliance staff, monitoring labour rights, working conditions and occupational health and safety issues. Other members of the SOE Team in the region visit China regularly to support the SOE programme and conduct training workshops.

In addition to our internal SOE efforts, through our membership of the Fair Labour Association ("FLA") we require independent third party monitors to regularly audit our suppliers in China. A number of FLA independent audits have been conducted at China factories supplying adidas-Salomon, including those supplying footballs. As a further measure, we welcome constructive discussion with, and investigations by, other stakeholders who have the same mission as the SOE Team: to improve the lives of people making adidas-Salomon products. This is the basis upon which we have been engaged in discussions with HKCIC, a non-government organisation with whom we have worked on joint projects in the past.

After the report was published we have immediately met with HKCIC, to understand first hand the allegations set out in their report, and to provide the HKCIC with information relating to our internal SOE efforts at Kuan Ho. Since the third quarter of 2001, we have been aware of problems within the factory. These problems relate to physical working conditions, i.e. basic health and safety, as well as workers´ rights in respect of minimum wages, disciplinary practices and working hours. The SOE action plans which have been developed for the factory over the last 6 months, address many of the allegations raised by HKCIC in its report. We have invited HKCIC to continue to independently monitor the factory, to gauge whether the actions we have required of Kuan Ho have addressed the concerns of the workers.

It has been our decision from the start - as soon as problems at Kuan Ho were identified by our SOE Team - not to terminate business with the factory, but urge the management to make the necessary improvements. To do this, we have spent considerable time interviewing workers to gain their perspective. We have also met with management regularly to agree deadlines for action plan items requiring immediate and ongoing attention. We recognise that there are limits to the leverage we can apply to this contractor; adidas-Salomon´s orders only account for 10% of the annual production in the factory. We are therefore encouraging other major brands that do business with Kuan Ho to join us in our efforts.

Finally, we have made it clear to the Kuan Ho´s management in China, that the findings of the HKCIC mirror, in part, the issues which the internal SOE Team has identified and has been working on locally. In particular, we have been concerned about workers being subjected to fines, the lack of proper disciplinary procedures, worker documentation and employment contracts, and poor communication with workers over pay rates, voluntary overtime and rest days. While Kuan Ho´s management has already made improvements, there is still a long way to go before all workers may enjoy fully their rights and a working environment 100% free of occupational hazards. We will continue to work closely with the factory and other stakeholders to ensure that this is achieved.