Nike vs.

Adidas AG

Wensen Li and LongCock Wen

Table of Contents
Nike Inc. Company Info Company Background. Articles. Information Commentary. Adidas AG Company Info. Company Background Articles.. Key Ratios. Vertical Analysis Horizontal Analysis Current and Projected Strengths. Nike Inc.. Adidas AG.. Stock Analysis.. Nike Inc.. Adidas AG.. Investment Recommendation Appendix.

Nike Inc, Company Information

Company Background
Nike began its history as Blue Ribbon Sports in 1964 at the University of Oregon. Track star Philip Knight and his coach Bill Bowerman distributed Japanese Onitsuka Tiger shoes at track meets. While Philip Knight was selling the shoes out of his trunk, Bowerman started analyzing the shoe and pondering how he could enhance it for a better performance. That became the creation of Nike. The first retail location for the company opened in 1966 in Santa Monica, California. As the relationship between Blue Ribbon Sports and Onitsuka Tiger ended in 1971, the company launched its own line known simply as "Nike. Blue Ribbon Sports endorsed its first athlete; a track and field runner from Coos Bay, Oregon named Steve Prefontaine. After years of success, by the end of 1980, Nike became a publicly traded company. The Swoosh logo is designed by Carolyn Davidson in 1971 and it is supposed to represent the Greek Goddess Nike. Nike produces a wide range of sports equipment. Their first products were track running shoes. They currently also make shoes, jerseys, shorts, base layers, etc. for a wide range of sports, including track and field, baseball, ice hockey, tennis, association football (soccer),lacrosse, basketball, and cricket. Nike Air Max is a line of shoes first released by Nike, Inc. in 1987. The most recent additions to their line are the Nike 6.0, Nike NYX, and Nike SB shoes, designed for skateboarding. Nike has recently introduced cricket shoes called Air Zoom Yorker, designed to be 30% lighter than their competitors'. In 2008, Nike introduced the Air Jordan XX3, a high-performance basketball shoe designed with the environment in mind. Nike's world headquarters are surrounded by the city of Beaverton, but are within unincorporated Washington County. As of 2010, it employed more than

34,000 people worldwide. Nike has around 40 major shareholders including funds like Fidelity Contrafund and institutions like Vanguard Group, Inc.

Board of Directors: Philip H. Knight -Chairman Mark G. Parker-President, Chief Executive Officer & Director Orin C. Smith -Independent Director Alan B. Graf -Independent Director Johnathan A. Rodgers-Independent Director Phyllis M. Wise - Independent Director Douglas G. Houser - Independent Director John R. Thompson - Director John G. Connors - Independent Director John C. Lechleiter - Independent Director Timothy D. Cook - Independent Director Elizabeth J. Comstock - Independent Director

Nike Posts Strong Orders, Led by 31% Gain in China

By REUTERS Published: December 20, 2011

Source: http://www.nytimes.com/2011/12/21/business/nike-posts-strong-sales-and-orders-inlatest-quarter.html
Nikes quarterly results beat Wall Street estimates, as it attracted shoppers, especially in emerging markets, despite higher prices. Worldwide orders for the Nike brand, a closely watched measure of demand in coming months, grew 13 percent to 8.9 billion at the end of the quarter. In China, orders scheduled for delivery from December 2011 through April 2012 rose 31 percent, with a 12 percent rise in other emerging markets. In November, Nikes rival Adidas raised its sales outlook on strong demand in emerging markets, and Puma said in October that China and Latin America contributed most to overall sales growth. But for Nike, orders rose 16 percent even in North America, and were up in all other markets except Japan. The brand continues to show very strong demand, said Matt Arnold, consumer discretionary analyst for Edward Jones. The strength is just impressive, helping propel the stock higher. The company said margins dropped 2.6 percentage points as costs of labor and raw materials rose, but came in more or less in line with what most analysts had expected. Margins were pretty consistent with what we were looking for. Any time you see a brand that is witnessing this type of demand, it gives you confidence that, over time, pricing will be able to catch up with input costs and labor costs, Mr. Arnold said. For the quarter ended Nov. 3o, the second of Nikes fiscal year, it earned $469 million, or $1 a share, a rise of 3 percent over the year-ago quarter. Analysts, on average, were expecting earnings of 97 cents a share, according to Thomson Reuters. Revenue rose 18 percent to $5.73 billion. Excluding foreign exchange fluctuations, revenue for the Nike brand rose 18 percent. The company, which also owns the Converse, Cole Haan, Umbro and Hurley brands, said revenue from these

segments increased 5 percent. Nike shares were up 2.4 percent at $96.07 in after-market trade on Tuesday, after closing at $93.63.

Article Summary:

The main idea of this article is about how Nikes quarterly financial results are higher than expect even with its raised prices. Nike revenue increased 18% at the end of the quarter, with China at a 31% increase and a 12 percent climb in other markets. Nike is also increasing in North America by 16% and basically order increase in all other countries except for japan.

Rush to Buy New Sneakers Leads to Arrests By TIMOTHY WILLIAMS Published: December 23, 2011

Source: http://www.nytimes.com/2011/12/24/us/rush-to-buy-new-sneakers-leads-to-arrests.html
Oh, the joys of holiday shopping: the eve of Christmas Eve, Air Jordans and the sting of pepper spray in the eye. When retailers around the country put the new retro Nike Air Jordan basketball shoe on sale Friday, they were hoping for a modest last-minute boost two days before Christmas. What they got instead was a surge of shoppers so intent on buying a pair of the $180 shoes that in at least a dozen cities the police had to be summoned, and in a few cases, arrests were made. In Charlotte, N.C., shoppers smashed glass doors to get to the sneakers. In suburban Atlanta, the police made four arrests when a crowd broke down a door to get into a store before it opened. In Richmond, Calif., a man fired a single gunshot in the air just after a mall opened. In Louisville, officers had to stop fights that popped up among a crowd of waiting shoppers. And in a suburb of Seattle, the police used pepper spray. It wasnt just any sneaker they were after, but the Air Jordan 11 Retro Concord, a version of the shoe Michael Jordan first wore in 1995 and was promptly fined by the National Basketball Association for failing to conform to the leagues dress-code rules. Once the model was made available to the public, it became a big seller, its black-and-white tuxedo design sometimes substituted for dress shoes. Early Friday morning, however, police departments unaware of the shoes provenance were caught flat footed. In Tukwila, Wash., south of Seattle, sneaker aficionados started showing up at the Westfield Southcenter Mall before midnight to wait for the shoes to go on sale at 4 a.m. Mall officials had told the authorities that they expected a crowd of no more than 400 and would need only two police officers to help with security.

But within a couple of hours, 2,000 people were waiting, rather impatiently, said Mike Murphy, a spokesman for the Tukwila Police Department. Some, he said, were smoking marijuana and drinking. It was not a nice, orderly group of shoppers, he said. The city of 19,000 had only nine other officers available, Mr. Murphy said. All were called to the mall. Clearly that wasnt enough to control the crowds, Mr. Murphy said. Fights started breaking out, so some pepper spray was used to disrupt the fighting. That stopped the fighting, but of course it agitated the crowd. Twenty-five extra officers from around the area were brought in, and before long things quieted down without serious injury, Mr. Murphy said. The police said people had broken two doors to get inside the mall and that an 18-year-old was arrested for punching a police officer. Another man was told to leave after he displayed what the authorities said were gang signs. Mr. Murphy said that by 6 a.m., the four stores in the mall that had the shoes were sold out a total of about 1,500 pairs.

Article summary:
The main topic of this article is about how the new Nike Air Jordan basketball shoes caused a lot of chaos due to its popular demand. The Air Jordan 11 Retro Concord, a version of the shoe Michael Jordan first wore in 1995, was put on sale two days before Christmas and people went crazy for the limited amount of pairs which resulted in glass doors getting smashed, people getting pepper sprayed and gunshots being fired

Information Commentary

The company profile for NIKE begins by talking about the origin of the companies name, Nike, the Greek goddess of victory who helped others succeed in times of war. It also mentions how NIKE is the world's #1 maker of athletic footwear and apparel which is very clever for the company to put in the profile because it grabs attention and shows its unique feat. The profile continues with explaining how it designs and sells footwear and uniforms for a wide variety of sports but also upscale Cole Haan shoes, as well as athletic apparel and equipment. It continues to explain how NIKE operates NIKETOWN shoe and sportswear stores, NIKE factory outlets, NIKE Women shops, and sells its products also online. The profile ends with more of NIKEs feats like how the company sells its items in some 690 NIKE-owned retail stores worldwide. The report to shareholders for NIKE starts off with a letter from CEO of NIKE, Mark Parker, to the shareholders. The report starts off with a brief overview of the whole year and their year-end revenue. It continues with a summary of their financial status and how NIKE continues to expand and acquiring new brands like Umbro, one of the worlds great football brand. The letter carries on with some new feats this year for NIKE like being named one of the worlds most ethical companies. Mark Parker ends the letter by saying they will keep up with the principals that got them here. The second part of the report is 5 year comparison of NIKEs revenue performance, stock performance, investment capital, and revenue distribution.

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The managements discussion and analysis starts with a overview of their background and history. Then NIKE explains their strategy, achieving long-term revenue growth by creating innovative, "must have" products, building deep personal consumer connections with our brands, and delivering compelling retail presentation and experiences. The managements discussion and analysis ends with NIKE listing a few key areas in which NIKE continues to strive to deliver shareholder value by driving operational excellence.

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Adidas AG Company Information

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Company Background

Adidas AG was initially an idea pursued by company founder Adolf (Adi) Dassler, which was to provide every athlete with the best possible equipment. In 1920, Dassler made his first shoes using the materials available after the First World War. On July 1, 1924, Adolf Dasslers brother, Rudolf Dassler, joined the business, which became Gebrder Dassler Schuhfabrik (Dassler Brothers Shoe Factory). The company sponsored its first African American, Jesse Owens, in the 1936 Summer Olympics, who would then go on to win 4 gold medals and establish a reputation for the company. The brothers split up in 1947. Rudolf Dassler found Puma, and Adolf Dassler founded Adidas AG. Adolf Dassler made a fresh start in 1947, and in 1949, he registered the company named Adolf Dassler adidas Sportschuhfabrik in the commercial register in Frth. After spanning for almost 70 years, Adolf Dassler died in 1987. The Dassler family withdrew from the company in 1989, and the enterprise transformed into a corporation.

Adidas AG is now a global leader in the sporting goods industry. Adidas has the most diverse range of products in the sporting goods industry from toiletries to fashion and sports apparel. Adidas also provides jerseys for the National Basketball Association, Major League Soccer, and the National Football League (Reebok). Adidas currently divided its brand into 3 lines of apparel: Adidas Performance, Adidas Originals, and Style Essentials. Adidas Performance dedicates its products to athletes while Adidas Originals focuses more on lifestyle and fashion. Style Essential is a new collection of trendy styles targeted mainly for young adults. Adidas also endorses professional athletes in different sports across the

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world. The current CEO of Adidas AG is Herbert Hainer. Adidas AG is the parent company of the Adidas Group, which consists of Adidas, Reebok Sportswear, and TaylorMade Adidas. Currently, Rockport Company is also a subsidiary of the Adidas Group. The Adidas Group headquarters is in Herzogenaurach, Germany. At the end of 2010, there were 43,541 employees and 60,000 shareholders across the globe. Executive Board: Herbert Hainer CEO Glenn Bennett Responsible for Global Operations Robin J. Stalker CFO Erich Stamminger Responsible for Global Brand

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Adidas Acquires Five Ten

posted by dpm on 11/03/2011

source: http://www.dpmclimbing.com/articles/view/adidas-acquires-five-ten
Herzogenaurach / Redlands, California The adidas Group today announced that it has signed a share purchase agreement to acquire Five Ten, a leading performance brand in outdoor action sports. The adidas Group intends to purchase the entire Five Ten business, which includes all of the issued share capital of Five Ten USA. The total purchase price is USD 25 million in cash at closing and contingent payments, which are dependent on Five Ten achieving certain performance measures over the next three years. The transaction is expected to close in the next couple of weeks.

As part of its Strategic Business Plan Route 2015, the adidas Group expectssales in the outdoor segment to exceed 500 million by 2015 based on organic growth. Through the acquisition of Five Ten, the adidas Group will be even better positioned towards the goal to become a leading player in the outdoor market.

We are very excited to join forces with Five Ten. Five Ten is a leading brand in the technical outdoor market and within the outdoor action sport community. Climbers, mountain bikers and other outdoor athletes around the world highly value their products, said Rolf Reinschmidt, Senior Vice President adidas Outdoor. Five Ten has continuously been at the forefront of innovations and shares the same passion for athletes as we do at adidas. It represents an excellent addition to the adidas Outdoor portfolio and will allow us to expand into complementary market segments. This acquisition underscores our clear commitment to the outdoors and our ambition to play a leading role in the outdoor industry going forward.I am very much looking forward to working on this journey together with Charles Cole, Founder and President of Five Ten.

The deal provides exciting prospects for Five Ten. Supported by the adidas Group, we can finally reach the full potential that the Brand of the Brave has to offer, commented Charles Cole, Founder and President of Five Ten. Here at Five Ten, we like the philosophy of adidas founder Adi Dassler, with his focus on product quality and in doing whatever is necessary to give the athlete the advantage. adidas has the same principles of putting athletes and performance first that have guided Five Ten for nearly 30 years and we are thrilled to be partnering with them.

Five Ten has been at the forefront of innovation in the technical outdoor market since the day Stealth, a revolutionary high-friction rubber compound, was created in 1985. Today, the Stealth product family includes more than half a dozen award-winning compounds that provide the

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highest friction to athletes in various conditions. The Five Ten Elite Team consists of some of the worlds most exciting athletes such as Dean Potter, National Geographics 2011 athlete of the year, JT Holmes, champion big-mountain skier and Suz Graham, the most versatile and progressive female action sports athlete in the world.

adidas is the athletic brand in the outdoors. It has a long history in innovative outdoor products including highlights such as the Super Trekking, the first light trekking shoe, being worn by climbing legend Reinhold Messner for his first Everest ascent without oxygen support in 1978. Its award-winning TERREX collection offers lightweight, technical equipment to athletes in the outdoors. The tradition of adidas founder Adi Dassler, who worked individually with athletes to make them better, continues today. adidas Outdoor has teamed up with top outdoor athletes like the Huber Brothers (Climbing, Germany), Beat Kammerlander (Climbing, Austria) and Barbara Zangerl (Climbing, Austria) as well as prestigious organizations such as Zermatt Alpin Center (Switzerland) and Ragni di Lecco (Italy).

Article Summary:
The Adidas Group signed a purchase agreement to acquire Five Ten, an outdoor performance brand, on November 3, 2011. Adidas now widened its demographics to the outdoor action sports community as well. The purchase price was $25 million in cash and The Adidas Group expects the sales revenue in its new acquisition to exceed 500 million. Both companies were ecstatic of the acquisition.

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Schumer Faults Adidas For Overseas Production

By STEVEN GREENHOUSE Published: November 25, 2009

Source: http://www.nytimes.com/2009/11/25/sports/basketball/25adidas.html
Adidas is planning to move most production of N.B.A. players' official jerseys and shorts out of the United States, managers of the main factory producing the gear said on Tuesday. With the decision threatening 100 jobs at the factory, American Classic Outfitters in Perry, N.Y., 50 miles east of Buffalo, Senator Charles Schumer, a New York Democrat, urged Adidas not to move the jersey operation. ''It is flat wrong for Adidas to move the production of jerseys worn by N.B.A. players outside the United States when there are U.S. companies that have done this work so well and for so long,'' Schumer said. ''And to do it in this economic climate adds insult to injury.'' Schumer said he might ask the N.B.A.'s commissioner, David Stern, to intervene. Donna Wampole, a production supervisor at the factory, said it had already cut workers' hours by 20 percent because of Adidas's decision. The nonunion plant made the jerseys worn by Michael Jordan and other members of the 1992 Olympic Dream Team. ''I think it's a horrible thing,'' Wampole said. ''I think American teams should be wearing American garments made in the United States.'' Adidas said in a statement that it had decided to begin moving production of N.B.A. uniforms closer to the source for materials. Robert Knoll, senior vice president for American Classic Outfitters, said Adidas informed him that a new fabric for jerseys had been developed in Asia and told the company two months ago that it planned to move production to Thailand -- not just the plant's production for 17 N.B.A. teams, but also its production for uniforms for the W.N.B.A. and for the N.B.A.'s Development League. The plant makes more than half of official N.B.A. jerseys; Adidas has contracts with two other American companies to make such jerseys. Knoll said his company and Adidas signed a six-year agreement in 2008, but ''there were so many holes in this contract that if the wind blows in a different direction, they could get out.''

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He said all of the Perry plant's production was for Adidas. The plant also makes uniforms for college and high school teams. ''We're going to do everything we can to keep this facility going at the level it was going,'' Knoll said. ''We'll be pursuing new business.'' Adidas said it produced uniforms at more than 30 plants in North America and would continue to do so. The N.B.A. did not reply to telephone messages.

Article Summary
Adidas is planning to move most of its production of NBA jerseys and apparel to Thailand. Adidass reason for this is that they want to move the production closer to the source material, which is a fabric developed in Asia. New York Democrat, Charles Schumer, urged Adidas not to move the production because it would threaten 100 jobs at the American Classic Outfitters factory in Perry, New York. Charles Schumer plans to get David Stern to intervene, but the NBA hasnt replied to the messages.

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Key Ratios

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Asset Turnover
Asset Turnover = Nike Inc. 2011 Average Total Assets = = $14 708 500 000 Asset Turnover = = 1.42 times Nike Inc. 2010 Average Total Assets = = $13 834 300 000 Asset Turnover = = 1.39 times Adidas AG 2010 Average Total Assets = = 9 746 500 000 Asset Turnover = = 1.23 times Adidas AG 2009 Average Total Assets = = 9 204 000 000 Asset Turnover = = 1.13 times Asset turnover ratio is the first profitability ratio used for the analysis. Asset turnover ratio determines how well a company uses its assets to generate sales. It is calculated by dividing net sales by average total assets. The numbers resulted from both companies are similar but Nike Inc. is still fairly more efficient. Out of each US dollar of asset, Nike produced 1.42 US dollars of sales while each euro of Adidas AGs assets produced 1.23 euros of sales. Over 2 fiscal years, Adidas AG improved in efficiency by almost 10%, while Nike Inc. only increased about 3%. Nike Inc. holds more total assets but also generate more sales. From recent fiscal year, Nike Inc. holds about $2 US billion worth of assets more than Adidas AG.

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Profit Margin
Profit Margin = Nike Inc. 2011

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Profit Margin = = 0.1022 = 10.22% Nike Inc. 2010 Profit Margin = = 0.1003 = 10.03%

Adidas AG 2010 Profit Margin = = 0.0472 = 4.72% Adidas AG 2009 Profit Margin = = 0.0236 = 2.36% Profit margin is a commonly used ratio to determine profitability of a company. It measures the percentage of each dollar of sales that results in net income. From the ratio analysis, Nike Inc. has a substantially higher profit margin. Its profit margin of 10.22% is more than double of Adidas AGs 4.72%. The net sales of Nike Inc. are about 1.5 times greater than Adidas AG (after converting currency), while the income is about 3 times greater. While Nike Inc. maintained relatively the same profit margin compared to the previous fiscal year, Adidas AG doubled its profit margin from its previous fiscal year. Adidas AGs net sales increased about 1.5 billion while its income doubled. This demonstrates that Adidas AG reduced its expenses for the recent fiscal year. The improvement is a good sign for Adidas AG but Nike Inc. is still far more profitable as profit margin is significantly higher.

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Return on Assets
Return on Assets = Nike Inc. 2011 Return on Assets = = 0.1450 = 14.50% Nike Inc. 2010 23

Return on Assets = = 0.1378 = 13.78% Adidas AG 2010 Return on Assets = = 0.0583 = 5.83% Adidas AG 2009 Return on Assets = = 0.0266 = 2.66%

Return on assets is an overall indicator of how profitable a company is relative to its assets. Return on assets is similar to the asset turnover ratio but instead it uses net income rather than net sales. The ratio divides net income by average total assets to conclude how well a company has converted its investments into net income. Although Adidas AG and Nike Inc. are the two biggest sports merchandising and manufacturing corporations in the world, it is safe to say that Nike Inc. is head and shoulders above Adidas AG. The return on assets ratio in the recent fiscal year for Nike Inc. is 14.5%, while the return on assets ratio for Adidas AG is 5.83%. The percentage of income generated by its assets for Nike Inc. is close to 3 times greater than that of Adidas AG. Although Nike Inc. has a much percentage, Adidas AG demonstrates significant improvement from the previous fiscal year as the return on asset percentage for Adidas AG doubled. This may foreshadow that Nike Inc. has hit a plateau while Adidas AG is still rising. At the end of the day, Nike Inc. simply comprises more assets and generates a higher income.

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Acid Test Ratio

Acid Test Ratio = Nike Inc. 2011 Acid Test Ratio = = 1.95:1 Nike Inc. 2010 Acid Test Ratio = = 2.31:1 Adidas AG 2010 Acid Test Ratio = = 0.788:1

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Adidas AG 2009 Acid Test Ratio = = 0.866:1

Acid test ratio is a quick indicator of a companys immediate short-term liquidity. This ratio measures the ability for a company to meet its short-term responsibilities (current liabilities) with its most liquid assets. Acid test ratio is calculated by dividing the sum of cash, temporary investments, and receivables by current liabilities. From the comparison, Nike Inc. is far better well off than Adidas as its 3 most liquid assets are already almost double its current liabilities. This means Nike Inc. will have no trouble paying off its short term liabilities and still have much to spare. On the other hand, Adidas AG cannot meet its short-term liabilities with just these 3 accounts. Adidas AG can only pay off about 79% of its current liabilities with its cash, temporary investments, and receivables. Both companies decreased in the acid test ratio from their respective previous fiscal years due to a larger increase in current liabilities. Although Nike Inc. dropped much more, it should be less concerned because Nike Inc. is still in a very good position, contrast to Adidas AG.

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Current Ratio
Current Ratio = Nike Inc. 2011 Current Ratio = = 2.85:1 Nike Inc. 2010 Current Ratio = = 3.26:1 Adidas AG 2010 Current Ratio = = 1.50:1 Adidas AG 2010 Current Ratio = = 1.58:1

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Current Ratio is similar to acid test ratio but more commonly used. Instead measuring the immediate liquidity of the company using the 3 most liquid assets, it measures the companys ability to pay off its short term debts using all of its current assets. It is calculated by dividing current assets by current liabilities. Similar to the acid test ratio results, Nike Inc. is in a much better position paying off short term debts compared to Adidas AG. Adidas AG is also in a respectable standpoint in terms of paying off debts unlike the results acquired through the acid test ratio. This means that a big portion of Adidas AGs current assets are in accounts such as inventory, prepaid expenses, etc. Similar to acid test ratios results, both companies decreased in liquidity and short-term debt paying abilities from the previous fiscal year. The current liabilities increased much more than current assets. Results from the current ratio are expected considering the results from the acid test ratio.

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Inventory Turnover
Inventory Turnover = Nike Inc. 2011 Average Inventory = = $2 378 000 000 Inventory Turnover = = 4.78 times Nike Inc. 2010 Average Inventory = = $2 199 000 000 Inventory Turnover = = 4.64 times Adidas AG 2010 Average Inventory = = $1 795 000 000 Inventory Turnover = = 3.49 times Adidas AG 2009 Average Inventory = = $1 733 000 000 Inventory Turnover = = 3.20 times

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Inventory turnover measures the average number of times the inventory is sold during the period. It is calculated by dividing the cost of goods sold over the average inventory. Since cost of goods sold is directly related to inventory, it is a good reflection of how each account affects each other. From the ratio analysis, Nike Inc. is much more frequent in selling its inventory as it sold its inventory 4.78 times last fiscal year. Adidas AG sold 3.49 times. Both companies raised their inventory turnover from the previous fiscal year. This indicates that more people are buying the companies products compared to last year.

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Dales Sales in Inventory

Day Sales in Inventory = Nike Inc. 2011 Day Sales in Inventory = = 76.44 days Nike Inc. 2010 Day Sales in Inventory = = 78.66 days Adidas AG 2010 Day Sales in Inventory = = 104.58 days Adidas AG 2009 Day Sales in Inventory = = 114.06 days

Day sales in inventory ratio is a variant of the inventory turnover ratio. Day sales in inventory ratio measures how long it takes a company to turn its inventory into sales. It is calculated by dividing 365 days over the inventory turnover ratio. Generally, a shorter the time period is better because it means that the company is pushing its products out faster. In this case, Nike Inc. takes 76.44 days to sell off its inventory, which is 28.14 days shorter than the 104.58 days at Adidas AG. This essentially means Nike Inc. sells its products

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faster than Adidas AG which overall results in more sales. Both companies shorten their days sales in inventory from their previous fiscal year. Adidas AG shorten its days by 10, thus the bigger improvement of the

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Debt to Total Assets

Debt to Total Assets = Nike Inc. 2011 Debt to Total Assets = = 0.3437 = 34.37% Nike Inc. 2010 Debt to Total Assets = = 0.3297 = 32.97% Adidas AG 2010 Debt to Total Assets = = 0.5646 = 56.46% Adidas AG 2009 Debt to Total Assets = = 0.5745 = 57.45%

Debt to total assets is a solvency ratio that measures the percentage of the total assets that is provided by creditors. It is calculated by total debt with total assets. For a business, a lower percentage is better because it means theres a lower risk that the business is unable to pay its creditors off. From the comparison, it is confirmed that 34.37% of Nike Inc.s assets is owned by creditors while 56.46% of Adidas AGs assets are owned by creditors. From the perspective of 2 years, Adidas AGs creditors percentage actually dropped while Nike Inc.s creditors percentage increased. This showed that Adidas AG paid off some of its creditors while Nike Inc. borrowed more from its creditors.

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Nevertheless, Adidas AG is still in a less comfortable position than Nike Inc. as more than half of its assets are owned by creditors while only about a third of Nike Inc.s assets are owned by creditors. The difference is substantial, so it is apparent that Nike Inc. has more equity buffer for the creditors.

Cash Total Debt Coverage

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Cash Total Debt Coverage = Nike Inc. 2011 Average Total Liabilities = = $4 910 000 000 Cash Total Debt Coverage = = 0.37 times Nike Inc. 2010 Average Total Liabilities = = $4 610 500 000 Cash Total Debt Coverage = = 0.69 times Adidas AG 2010 Average Total Liabilities = = $5 547 000 000 Cash Total Debt Coverage = = 0.161 times Adidas AG 2009 Average Total Liabilities = = $5 616 000 000 Cash Total Debt Coverage = = 0.213 times

Cash total debt coverage is the ratio to determine the companys ability to pay off its liabilities with the cash generated from operating activities. It is calculated by dividing net cash provided by operating activities. From the comparison, neither of these corporations will even be able to pay off the liabilities within the year, but Nike Inc. would pay it off more than twice as fast compared to Adidas AG. Both companies declined in effectiveness of paying debts from the previous fiscal year. This is not a good sign as it demonstrates that the gap between cash flow and liabilities increased. It is not the most important aspect because cash is only a portion of a businesss total assets.

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Interest Coverage
Interest Coverage = Nike Inc. 2011 Interest Coverage = = 103.71 times

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Nike Inc. 2010 Interest Coverage = = 85.67 times Adidas AG 2010 Interest Coverage = = 10.09 times Adidas AG 2009 Interest Coverage = = 4.73 times The last solvency ratio used is interest coverage ratio. Interest coverage ratio is used to determine the companys ability to pay interest payments when they are due. It is calculated by dividing the sum between income before interest expense and income tax by interest expense. From the comparison, Nike Inc. is significantly more reliable when it comes to meeting interest expense payments. Both companies improved their interest coverage from the previous fiscal year as Nike Inc. increased by 21% while Adidas AG increased by 113%. Adidas AG is far behind Nike Inc. as Nike Inc. exceeds Adidas AGs abilities by almost 10 times.

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Current and Projected Strengths

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Nike Inc.

Nike Inc. is the biggest shoe manufacturer and sportswear brand in the world. Current strengths of Nike are what distinguish Nike and allow it to excel over its competitors. Firstly, Nike is financially more successful than all of its competitors, with only Adidas AG close to it. Nikes generated a revenue exceeding $20 billion in fiscal year of 2010-11. Nike Inc. is also a very efficient business. Nike has no factories; rather it uses overseas contract factories for manufacturing. Furthermore, Nike is very well-known in the media. Nike endorses a multitude of athletes ranging from basketball to tennis. Finally, 39

Nike is very innovative with shoe technology. Nike designs materials such as Flywire, and Lunarlite foam to create shoes that are lighter, more durable, and more appealing.

Like most companies in the sporting goods merchandising industry, Nike Inc. share similar projected strengths. In the society of a growing population, the sporting goods industry is expected to expand. Nike is currently looking to diversify their demographics by tapping into untapped markets as well as reducing prices in third world countries. Finally, because Nike is heavily dependant on their footwear to generate most of their sales, they are planning to develop products outside sportswear such as sunglasses, and jewelry.

Adidas AG

Adidas AG is the 2nd biggest shoe manufacturer and sporting goods brand in the world, only 2nd to Nike Inc. Strengths of Adidas range from customer loyalty to their international recognition. Adidas is demographically widespread; there isnt a country in the world that hasnt seen the 3 stripes. Adidas is the biggest sponsor of the most popular sport in the world, football (soccer). Even in North American, where Nike is the most popular sportswear brand, Adidas is the provider for the National Basketball Association. Adidas offers a wide range of products from shoes to even perfume and toiletries. After they acquired Reebok, a previous rival, the only competitor against them now is Nike.

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Even outside of sports merchandising, Adidas has proven to be environmentally aware as it has never been accused of pollution.

The projected strengths are optimistic as well. Adidas AG has risen in almost every aspect in their financial reports from last year to this year. Sporting goods industry overall is expected to expand in 2012, as it is the year for the summer Olympics. Moreover, sales in basketball merchandise will be expected to recover and increase from the 2011 NBA Lockout. Adidas is expecting to further expand their outreach across the globe and continue developing their customer care service for better customer relations. Finally, Adidas is planning to enhance its web development and e-commerce to keep track of its products, customers, and retailers with ease.

Stock Analysis

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Nike Inc.

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For Nike, Inc. the stock from November 3 to November 14 stayed the same at 95.7 per share with some minor fluctuation. Then, from November 14 to November 25, there was a drastic drop from 95.45 per share all the way to 90.28 per share. Two days after, the stock increased right back up to 94.91 per share and from November 28 to December 9 the stocks stays fairly constant with a minor net increase of 2.77. From December 9 to December 20, the stock once again drops by 4.05 but from December 20 onwards, the stock continues to rise all the way up to 103.99 on January 31, 2012.

Adidas AG

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The graph above is depicting Adidas AGs stock price for 3 months between Nov. 4, 2011 and Feb. 3, 2012. The graph displays 2 types of activities. Before the year of 2012, Adidas AGs stocks have experiencing drops and rises in a similar pattern. The stock price hit the low point of this 3 month period on Dec.15, 2011 with a price of 47.89. Since then, the stock prices have overall been steadily rising. Although the stock prices have been rising since the New Year, the line still exhibits rigidness as the stocks prices have been experiencing some minor fluctuations. The value of the stock on Feb. 3, 2012 is 58.16, the highest in the 3 month period.

Investment Recommedation

44

After a comprehensive analysis and scrutiny of both companies, we came to the conclusion that Adidas AG is the company we recommend for an investment. Nike may be the worlds biggest sportswear company, but Adidas AG is showing greater progress. Certainly Nike Inc. is currently financially much more prosperous than Adidas AG, but in the interest of an investor, Adidas AG has a much more optimistic future. Although Nike and Adidas share similar strengths and weaknesses, it is evident that Adidas AG has strengths in far more aspects than Nike. From the perspective of a future shareholder, Adidas AG shows much more promising results in the future than Nike Inc.

Although Adidas AG has not reached the same financial success as Nike Inc., Adidas AG has shown dramatic financial growth between 2008 and 2010. While Nike Inc. had moderate growth, Adidas AG not only experienced respectable growth in revenue, but in efficiency as well. In this fiscal year, Adidas AG generated about 1.5 billion more than the 45

previous year. More surprisingly, Adidas AG more than doubled its net income from 245 million to 567 million. This demonstrates that Adidas AG reduced its expenses, thus operating more efficiently. On the other hand, while Nike Inc. is still more profitable, it only experienced a 0.19% increase in profit margin. Moreover, Adidas AG also gained almost 2 billion in assets, demonstrating that it is continuing to expand and grow. Nike Inc. only gained $500 million from the previous fiscal year. Lastly, Adidas AG doubled its profitability relative to its assets, despite the great increase in assets. This further shows that Adidas AG is improving in efficiency in its operation.

While Nike has the financial edge over Adidas, Adidas has much more strengths compared to Nike. Nike Inc.s overseas contract factories are as much as strengths as it is a weakness. Nike has been heavily criticized for its sweatshops in Asia. A prominent reason for Nike Inc.s high profit margin and return on assets is that sweatshops minimize expenses. Nike has violated numerous labour regulations and permanent subject of criticism by antiglobalization groups. This puts Nike Inc. at potential risk because considerable financial damage can be done when the contract factories are shut down. Adidas AG also has several advantages and positives over Nike Inc. While Nike mainly focuses sports apparel, Adidas also has broad line of fashion apparel (Adidas Originals). This allows Adidas to have a larger demographic. Lastly, while Nike endorses many famous athletes, Adidas is the leading brand in terms of sponsorships. Adidas sponsors the National Basketball Associations, majority of the National Soccer Teams, all of cricket, all of field hockey, and countless athletes. Reebok, a subsidiary of Adidas, is also the sponsor of the National Football League.

46

In conclusion, although the numbers presents Nike Inc. as the superior company, Adidas AG in the long run is much better for investment. Adidas AG is closing the financial gap, while maintaining its sponsorships and a better image in the eyes of the public. Adidas AGs stocks also display a moderate escalation and will continue to do so in the future. Adidas is rapidly closing the gap with Nike, and eventually, the 3 stripes will out-swoosh the swoosh.

Appendix

47

Adidas AG Balance Sheet

Currency in Millions of Euros

As of:

Dec 31 2007
Reclassified EUR

Dec 31 2008
Reclassified EUR

Dec 31 2009
EUR

Dec 31 2010
EUR

4-Year Trend

Assets Cash and Equivalents Short-Term Investments Trading Asset Securities TOTAL CASH AND SHORT TERM INVESTMENTS Accounts Receivable Other Receivables TOTAL RECEIVABLES Inventory Prepaid Expenses Other Current Assets TOTAL CURRENT ASSETS Gross Property Plant and Equipment 295.0 50.0 86.0 431.0 1,459.0 128.0 1,587.0 1,629.0 274.0 217.0 4,138.0 1,216.0 244.0 42.0 142.0 428.0 1,624.0 192.0 1,816.0 1,995.0 292.0 403.0 4,934.0 1,542.0 775.0 58.0 75.0 908.0 1,429.0 169.0 1,598.0 1,471.0 208.0 300.0 4,485.0 1,480.0 1,156.0 64.0 233.0 1,453.0 1,667.0 191.0 1,858.0 2,119.0 200.0 250.0 5,880.0 1,798.0

48

Accumulated Depreciation NET PROPERTY PLANT AND EQUIPMENT Goodwill Long-Term Investments Deferred Tax Assets, Long Term Other Intangibles Other Long-Term Assets TOTAL ASSETS

-514.0 702.0 1,436.0 108.0 315.0 1,485.0 141.0 8,325.0

-656.0 886.0 1,499.0 107.0 344.0 1,594.0 169.0 9,533.0

-757.0 723.0 1,478.0 107.0 412.0 1,502.0 168.0 8,875.0

-943.0 855.0 1,539.0 101.0 508.0 1,589.0 146.0 10,618.0

LIABILITIES & EQUITY Accounts Payable Accrued Expenses Current Portion of Long-Term Debt/Capital Lease Current Portion of Capital Lease Obligations Current Income Taxes Payable Other Current Liabilities, Total Unearned Revenue, Current TOTAL CURRENT LIABILITIES Long-Term Debt Capital Leases Minority Interest Unearned Revenue, Non-Current Pension & Other Post-Retirement Benefits Deferred Tax Liability Non-Current Other Non-Current Liabilities TOTAL LIABILITIES Common Stock 849.0 1,117.0 187.0 1.0 285.0 163.0 14.0 2,615.0 1,960.0 3.0 11.0 14.0 124.0 450.0 125.0 5,291.0 204.0 1,218.0 804.0 799.0 2.0 321.0 485.0 18.0 3,645.0 1,785.0 2.0 14.0 17.0 132.0 463.0 89.0 6,133.0 194.0 1,166.0 777.0 201.0 1.0 194.0 471.0 27.0 2,836.0 1,579.0 2.0 5.0 17.0 157.0 433.0 75.0 5,099.0 209.0 1,694.0 666.0 276.0 2.0 265.0 628.0 379.0 3,908.0 1,342.0 3.0 7.0 19.0 191.0 451.0 81.0 5,995.0 209.0

49

Additional Paid in Capital Retained Earnings Comprehensive Income and Other TOTAL COMMON EQUITY TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

-2,658.0 161.0 3,023.0 3,034.0 8,325.0

338.0 3,202.0 -348.0 3,386.0 3,400.0 9,533.0

722.0 3,350.0 -510.0 3,771.0 3,776.0 8,875.0

722.0 3,844.0 -159.0 4,616.0 4,623.0 10,618.0

Adidas AG Income Statement

Currency in Millions of Euros

As of:

Dec 31 2007
Reclassified EUR

Dec 31 2008
Reclassified EUR

Dec 31 2009
EUR

Dec 31 2010
EUR

4-Year Trend

Revenues TOTAL REVENUES Cost of Goods Sold GROSS PROFIT Selling General & Admin Expenses, Total Other Operating Expenses OTHER OPERATING EXPENSES, TOTAL OPERATING INCOME Interest Expense Interest and Investment Income NET INTEREST EXPENSE Currency Exchange Gains (Loss)

10,299.0 10,299.0 5,417.0 4,882.0 1,705.0 2,246.0 3,951.0 931.0 -166.0 27.0 -139.0 7.0

10,799.0 10,799.0 5,543.0 5,256.0 1,508.0 2,703.0 4,211.0 1,045.0 -178.0 37.0 -141.0 -25.0

10,381.0 10,381.0 5,669.0 4,712.0 1,376.0 2,796.0 4,172.0 540.0 -138.0 16.0 -122.0 -25.0

11,990.0 11,990.0 6,260.0 5,730.0 1,668.0 3,170.0 4,838.0 892.0 -112.0 23.0 -89.0 2.0

50

Other Non-Operating Income (Expenses) EBT, EXCLUDING UNUSUAL ITEMS Impairment of Goodwill Gain (Loss) on Sale of Assets Other Unusual Items, Total EBT, INCLUDING UNUSUAL ITEMS Income Tax Expense Minority Interest in Earnings Earnings from Continuing Operations NET INCOME NET INCOME TO COMMON INCLUDING EXTRA ITEMS

-2.0 797.0 -21.0 -3.0 815.0 260.0 -4.0 555.0 551.0 551.0

-879.0 21.0 10.0 -6.0 904.0 260.0 -2.0 644.0 642.0 642.0

-3.0 390.0 -3.0 -35.0 358.0 113.0 -245.0 245.0 245.0

-1.0 804.0 -16.0 -14.0 806.0 238.0 -1.0 568.0 567.0 567.0

Adidas AG Cash Flow Statement

Currency in Millions of Euros

As of:

Dec 31 2007
Reclassified EUR

Dec 31 2008
Reclassified EUR

Dec 31 2009
EUR

Dec 31 2010
EUR

4-Year Trend

NET INCOME Depreciation & Amortization Amortization of Goodwill and Intangible Assets DEPRECIATION & AMORTIZATION, TOTAL Amortization of Deferred Charges (Gain) Loss from Sale of Asset Asset Writedown & Restructuring Costs Change in Accounts Receivable Change in Inventories Change in Accounts Payable CASH FROM OPERATIONS Capital Expenditure

551.0 148.0 64.0 212.0 --7.0 3.0 -66.0 26.0 97.0 780.0 -230.0

642.0 167.0 61.0 228.0 --7.0 6.0 -236.0 -324.0 374.0 497.0 -316.0

245.0 198.0 65.0 263.0 1.0 23.0 35.0 464.0 617.0 -312.0 1,198.0 -195.0

567.0 194.0 54.0 248.0 1.0 5.0 14.0 -100.0 -561.0 757.0 894.0 -227.0

51

Sale of Property, Plant, and Equipment Cash Acquisitions Sale (Purchase) of Intangible Assets Investments in Marketable & Equity Securities CASH FROM INVESTING Long-Term Debt Issued TOTAL DEBT ISSUED Short Term Debt Repaid Long Term Debt Repaid TOTAL DEBT REPAID Repurchase of Common Stock Common Dividends Paid TOTAL DIVIDEND PAID Other Financing Activities CASH FROM FINANCING Foreign Exchange Rate Adjustments NET CHANGE IN CASH

30.0 -9.0 -45.0 -58.0 -285.0 ---109.0 -315.0 -424.0 --85.0 -85.0 -1.0 -510.0 -1.0 -16.0

27.0 -56.0 -52.0 -84.0 -444.0 588.0 588.0 -186.0 --186.0 -409.0 -99.0 -99.0 --106.0 2.0 -51.0

16.0 -22.0 -36.0 59.0 -162.0 497.0 497.0 -404.0 -508.0 -912.0 --97.0 -97.0 --512.0 7.0 531.0

1.0 --25.0 -102.0 -330.0 33.0 33.0 -198.0 --198.0 --73.0 -73.0 --238.0 55.0 381.0

52

Nike Inc. Balance Sheet

Currency in Millions of U.S. Dollars

As of:

May 31 2008
Reclassified USD

May 31 2009
Restated USD

May 31 2010
Restated USD

May 31 2011
USD

4-Year Trend

Assets Cash and Equivalents Short-Term Investments Trading Asset Securities TOTAL CASH AND SHORT TERM INVESTMENTS Accounts Receivable TOTAL RECEIVABLES Inventory Prepaid Expenses Deferred Tax Assets, Current Other Current Assets TOTAL CURRENT ASSETS 2,133.9 642.2 -2,776.1 2,795.3 2,795.3 2,438.4 602.3 227.2 -8,839.3 2,291.1 1,164.0 0.1 3,455.2 2,883.9 2,883.9 2,357.0 482.3 272.4 283.2 9,734.0 3,079.0 2,067.0 -5,146.0 2,650.0 2,650.0 2,041.0 453.0 249.0 420.0 10,959.0 1,955.0 2,583.0 -4,538.0 3,138.0 3,138.0 2,715.0 563.0 312.0 31.0 11,297.0

53

Gross Property Plant and Equipment Accumulated Depreciation NET PROPERTY PLANT AND EQUIPMENT Goodwill Long-Term Investments Deferred Tax Assets, Long Term Other Intangibles Other Long-Term Assets TOTAL ASSETS

4,103.0 -2,211.9 1,891.1 448.8 -520.4 743.1 -12,442.7

4,255.7 -2,298.0 1,957.7 193.5 13.7 801.6 467.4 81.7 13,249.6

4,390.0 -2,458.0 1,932.0 188.0 15.0 858.0 467.0 -14,419.0

4,906.0 -2,791.0 2,115.0 205.0 15.0 872.0 487.0 7.0 14,998.0

LIABILITIES & EQUITY Accounts Payable Accrued Expenses Short-Term Borrowings Current Portion of Long-Term Debt/Capital Lease Current Income Taxes Payable Other Current Liabilities, Total TOTAL CURRENT LIABILITIES Long-Term Debt Deferred Tax Liability Non-Current Other Non-Current Liabilities TOTAL LIABILITIES TOTAL PREFERRED EQUITY Common Stock Additional Paid in Capital Retained Earnings Comprehensive Income and Other 1,287.6 1,475.7 177.7 6.3 88.0 286.2 3,321.5 441.1 854.5 -4,617.1 0.3 2.8 2,497.8 5,073.3 251.4 1,031.9 1,593.6 342.9 32.0 86.3 190.3 3,277.0 437.2 842.0 -4,556.2 0.3 2.8 2,871.4 5,451.4 367.5 1,255.0 1,609.0 139.0 7.0 59.0 295.0 3,364.0 446.0 854.0 1.0 4,665.0 -3.0 3,441.0 6,095.0 215.0 1,469.0 1,654.0 187.0 200.0 117.0 331.0 3,958.0 276.0 910.0 11.0 5,155.0 -3.0 3,944.0 5,801.0 95.0

54

TOTAL COMMON EQUITY TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

7,825.3 7,825.6 12,442.7

8,693.1 8,693.4 13,249.6

9,754.0 9,754.0 14,419.0

9,843.0 9,843.0 14,998.0

Nike Inc. Income Statement

Currency in Millions of U.S. Dollars

As of:

May 31 2008
Reclassified USD

May 31 2009
Restated USD

May 31 2010
Restated USD

May 31 2011
USD

4-Year Trend

Revenues TOTAL REVENUES Cost of Goods Sold GROSS PROFIT Selling General & Admin Expenses, Total OTHER OPERATING EXPENSES, TOTAL OPERATING INCOME Interest Expense Interest and Investment Income NET INTEREST EXPENSE Currency Exchange Gains (Loss)

18,627.0 18,627.0 10,239.6 8,387.4 5,953.7 5,953.7 2,433.7 -38.7 115.8 77.1 -77.0

19,176.0 19,176.0 10,572.0 8,604.0 6,150.0 6,150.0 2,454.0 -40.0 50.0 10.0 -15.0

19,014.0 19,014.0 10,214.0 8,800.0 6,326.0 6,326.0 2,474.0 -36.0 30.0 -6.0 -35.0

20,862.0 20,862.0 11,354.0 9,508.0 6,693.0 6,693.0 2,815.0 -34.0 30.0 -4.0 33.0

55

Other Non-Operating Income (Expenses) EBT, EXCLUDING UNUSUAL ITEMS Merger & Restructuring Charges Impairment of Goodwill Gain (Loss) on Sale of Assets Other Unusual Items, Total EBT, INCLUDING UNUSUAL ITEMS Income Tax Expense Earnings from Continuing Operations NET INCOME NET INCOME TO COMMON INCLUDING EXTRA ITEMS NET INCOME TO COMMON EXCLUDING EXTRA ITEMS

8.5 2,442.3 --60.6 -2,502.9 619.5 1,883.4 1,883.4 1,883.4

104.0 2,553.0 -195.0 -199.0 --202.0 1,957.0 470.0 1,487.0 1,487.0 1,487.0

84.0 2,517.0 ----2,517.0 610.0 1,907.0 1,907.0 1,907.0

-2,844.0 ----2,844.0 711.0 2,133.0 2,133.0 2,133.0

1,883.4

1,487.0

1,907.0

2,133.0

Nike Inc. Cash Flow Statement

Currency in Millions of U.S. Dollars

As of:

May 31 2008
Reclassified USD

May 31 2009
Restated USD

May 31 2010
Restated USD

May 31 2011
USD

4-Year Trend

NET INCOME Depreciation & Amortization Amortization of Goodwill and Intangible Assets DEPRECIATION & AMORTIZATION, TOTAL (Gain) Loss from Sale of Asset (Gain) Loss on Sale of Investment Asset Writedown & Restructuring Costs Change in Accounts Receivable Change in Inventories Change in Accounts Payable Change in Other Working Capital

1,883.4 312.3 9.2 321.5 -60.6 ---118.3 -249.8 330.9 -11.2

1,487.0 371.0 12.0 383.0 -21.0 380.0 -238.0 32.0 -220.0 14.0

1,907.0 255.0 141.0 396.0 ---182.0 285.0 297.0 -70.0

2,133.0 342.0 16.0 358.0 ----273.0 -551.0 151.0 -35.0

56

CASH FROM OPERATIONS Capital Expenditure Sale of Property, Plant, and Equipment Cash Acquisitions Divestitures Investments in Marketable & Equity Securities CASH FROM INVESTING Short-Term Debt Issued TOTAL DEBT ISSUED Short Term Debt Repaid Long Term Debt Repaid TOTAL DEBT REPAID Issuance of Common Stock Repurchase of Common Stock Common and/or Preferred Dividends Paid TOTAL DIVIDEND PAID Other Financing Activities CASH FROM FINANCING Foreign Exchange Rate Adjustments NET CHANGE IN CASH

1,936.3 -449.2 1.9 -571.1 246.0 380.4 -489.8 63.7 63.7 --35.2 -35.2 343.3 -1,248.0 -412.9 -412.9 63.0 -1,226.1 56.8 277.2

1,736.0 -456.0 33.0 ---519.0 -798.0 177.0 177.0 --7.0 -7.0 187.0 -649.0 -467.0 -467.0 25.0 -734.0 -47.0 157.0

3,164.0 -335.0 10.0 ---937.0 -1,268.0 ---205.0 -32.0 -237.0 364.0 -741.0 -505.0 -505.0 58.0 -1,061.0 -47.0 788.0

1,812.0 -432.0 1.0 ---537.0 -1,021.0 41.0 41.0 --8.0 -8.0 345.0 -1,859.0 -555.0 -555.0 64.0 -1,972.0 57.0 -1,124.0

57