Glossary

AFIRM (Apparel and Footwear International Restricted Substances List Management Working Group)

A centre of excellence comprising experts whose aim it is to reduce the use and impact of harmful substances in the apparel and footwear supply chains see also www.afirm-group.org.

American Depositary Receipt (ADR)

US-traded negotiable certificate of a foreign-based company held by a US bank that entitles the holder to all dividends and rights of the underlying stock. ADRs provide a way for US-based investors to invest in foreign-based companies by buying their shares in the USA instead of through an overseas exchange.

Backlogs

Also called order backlogs. The value of orders received for future delivery. Most retailers’ orders are received six to nine months in advance.

Basic Earnings Per Share (Basic EPS)

Performance indicator used to gauge a company’s earnings per share, based on the number of shares outstanding (excluding stock options, as well as options and conversion rights related to a convertible bond).
Basic EPS = net income / weighted average number of shares outstanding during the year see also Diluted Earnings Per Share.

Beta coefficient

Indicates a stock’s relative risk. A beta coefficient of more than one indicates that the stock has a higher risk than the overall market. Conversely, a beta coefficient of less than one indicates a lower risk.

Better Cotton Initiative

The Better Cotton Initiative (BCI) was created through a collaboration between the World Wildlife Fund (WWF) and a wide range of stakeholders involved in the cotton supply chain. BCI aims to promote measurable improvements in the key environmental and social impacts of cotton cultivation worldwide to make it more economically, environmentally, and socially sustainable see also www.bettercotton.org.

CAD

Computer-aided design (CAD) is the use of computer technology for the process of design and design documentation.

Capital expenditure

Total cash expenditure used for the purchase of tangible and intangible assets, excluding acquisitions and finance leases.

Celliant fibres

Celliant is a component for use in the textile industry. It is a fabric material that modifies visible and infrared light, redirecting this energy back to the body to increase blood flow and blood oxygen levels.

Commercial paper

Tradable unsecured promissory notes issued for the purpose of short-term financing. Commercial paper is issued on an ongoing, revolving basis with maturities typically between seven days and 12 months or more.

Concession corners

Retail space that is fully operated by one brand of the adidas Group and is part of a larger sales area operated by a retail partner.

Consumer price index (CPI)

Measure of the average price of consumer goods and services purchased by households. Determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. The percentage change in the CPI is a measure of inflation.

Controlled space

Controlled space includes own-retail business, mono-branded stores, shop-in-shops, joint ventures with retail partners and co-branded stores. Controlled space offers a high level of brand control and ensures optimal product offering and presentation according to brand requirements.

Corporate Governance

Distribution of rights and responsibilities among the primary stakeholders in a company, in particular shareholders, the Executive Board and the Supervisory Board.

Cost of sales

The amount the Group pays to third parties for expenses associated with producing and delivering our products. Own-production expenses are also included in the Group’s cost of sales.

Credit default swap

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) undergoes a defined ‘Credit Event’, often described as a default (fails to pay).

Credit spread

Risk premium which represents the yield difference between risk-free government bonds and corporate bonds with the same duration. A potential investor demands an additional yield (risk premium = credit spread) for the higher risk of default with corporate bonds versus government bonds.

Currency-neutral

Financial figures translated at prior-year exchange rates. This indicates increases or decreases to reported figures by eliminating variances arising from currency translation, thus reflecting the underlying business performance.

Customer relationship management (CRM)

Capabilities and methodologies used by a company with its customers to systematically design and build customer relationships and processes.

D&O liability insurance

Directors and Officers (D&O) liability insurance. Protects directors and officers from liability and litigation from actions against them, claiming wrongdoing in connection with the company’s business.

DAX-30 (DAX)

The DAX (Deutscher Aktienindex) is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

Days of sales outstanding (DSO)

Average time of receipt of outstanding payments from customers.

Diluted Earnings Per Share (Diluted EPS)

Performance indicator used to gauge a company’s earnings per share, assuming that all stock options and conversion rights related to a convertible bond are exercised, which would result in an increase of the number of shares outstanding.
Diluted EPS = (net income + interest expense on convertible bonds net of tax) / (weighted average number of shares outstanding during the year + weighted share options + shares from assumed conversion of convertible bonds).

Dow Jones Sustainability Index

The Dow Jones Sustainability Index (DJSI) measures companies’ sustainability initiatives, focusing on how a company recognises the risks and opportunities arising from sustainability issues in its business strategy.

EBITDA

Earnings before interest, taxes, depreciation, amortisation and impairment losses as well as reversals of impairment losses for tangible and intangible assets.

Emerging markets

Developing countries showing potential for growth in both economic strength and private wealth in the future. For the adidas Group, emerging markets are the developing countries of Asia, Eastern Europe, Latin America and Africa.

Enterprise Resource Planning (ERP)

A business management system that integrates all facets of the business, including planning, manufacturing, sales and marketing.

Equity derivatives

Class of derivatives whose value is at least partly derived from one or more underlying equity securities. Options and futures are by far the most common equity derivatives, however there are many other types of equity derivatives that are actively traded.

Equity ratio

Shows the role of shareholders’ equity within the overall financing structure of a company.
Equity ratio = (shareholders’ equity / total assets) × 100.

Equity-to-fixed-asset ratio

Defines the percentage of non-current assets financed by equity.
Equity-to-fixed-asset ratio = equity / non-current assets.

E-tailer

Retailer that primarily uses the internet as a medium for consumers to shop for the goods or services provided. E-tailers optimise the internet potential to attract, convert and retain consumers.

Fair Factories Clearinghouse

The Fair Factories Clearinghouse (FFC) was established in 2004 with the purpose of improving social, environmental and security standards and helping create humane working conditions for workers making consumer goods globally. Membership includes many sporting and consumer goods companies as well as a wide range of consumer goods suppliers see also www.fairfactories.org.

Fair Labor Association (FLA)

The Fair Labor Association (FLA), a non-profit labour rights organisation, is a multi-stakeholder initiative bringing together companies, colleges and universities, and civil society organisations to improve working conditions worldwide by promoting adherence to international and national labour laws see also www.fairlabor.org.

Fair value

Amount at which assets are traded fairly between business parties. Fair value is often identical to market price.

Finance lease

Method of acquiring an asset that involves a lease with a special leasing company for a specific, non-terminable initial leasing term. The investment risk is borne by the lessee.

Financial leverage

Ratio reflecting the role of borrowings within the financing structure of a company.
Financial leverage = (net borrowings / shareholders’ equity) × 100.

Forward contract

Agreement to exchange amounts of one currency for another currency at an agreed fixed rate at a future date.

Franchising

Form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees). The franchisor offers assistance in organising, training, merchandising, marketing and managing in return for a monetary consideration.

Free cash flow

Cash that is generated by a company’s operating activities after the deduction of capital expenditure and other cash expenses such as taxes and interest from the operating profit.
Free cash flow = operating profit + depreciation and amortisation (incl. goodwill) +/– changes in operating working capital – capital expenditure +/- non-operating components.

German Co-Determination Act

Mitbestimmungsgesetz (MitbestG). This act governs the form of co-determination of employees in corporations employing more than 2,000 employees. It stipulates, among other things, that such a corporation’s Supervisory Board must be composed of an equal number of employee and shareholder representatives.

Goodwill

Intangible asset that quantifies the price that a buyer of a company has paid for the reputation, know-how and market position of the acquired company. Goodwill is the excess of the amount paid over the fair value of the net assets acquired at the purchase date.

Go-to-market

All instruments, tools and channels used to connect with consumers in order to best fulfil their needs.

Green grass retailers

Golf distribution channel. Small golf specialty shops typically located at a golf course.

Gross Domestic Product (GDP)

Market value of all finished goods and services produced within a country in a given period of time.
GDP = consumption + investment + government spending + (exports − imports).

Gross margin

Gross profit as a percentage of net sales.
Gross margin = (gross profit / net sales) × 100.

Gross profit

Difference between net sales and the cost of sales.
Gross profit = net sales – cost of sales.

Halo effect

The halo effect refers to the cognitive bias effect that when we consider something good (or bad) in one category, we are likely to make a similar evaluation in other (related) categories.

Hardware

Product category which comprises equipment that is used rather than worn by the athlete, such as bags, balls, fitness equipment, golf clubs and hockey sticks.

Hedging

A strategy used to minimise exposure to changes in prices, interest rates or exchange rates by means of derivative financial instruments (options, swaps, forward contracts, etc.) see also Natural hedges.

Institutional investors

Investors such as investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks and endowment funds. They are financially sophisticated, with a greater knowledge of investment vehicles and risks, and have the means to make large investments.

Interest coverage

Indicates the ability of a company to cover net interest expenses with income before net interest and taxes.
Interest coverage = (income before net interest expense and tax / net interest expense) × 100.

International Financial Reporting Standards (IFRS)

Reporting standards (formerly called IAS) which have been adopted by the International Accounting Standards Board (IASB). The objective is to achieve uniformity and transparency in the accounting principles that are used by businesses and other organisations for financial reporting around the world.

International Labour Organization

The International Labour Organization (ILO) is a specialised agency of the United Nations that engages in formulating and implementing international social and workplace standards and guidelines see also www.ilo.org.

ISO 14001

International Organization for Standardization (ISO) Standard 14001 specifies the requirements for an environmental management system within companies/organisations. It applies to those environmental aspects over which the organisation has control and over which it can be expected to have an influence (e.g. energy and water consumption).

Joint venture

A cooperation between companies involving the foundation of a new, legally independent business entity in which the founding companies (two or more companies) participate with equity and significant resources.

Key accounts

Wholesalers or retailers which are primary customers for the Group and account for a large percentage of sales.

Kicks

Informal word for athletic footwear.

Kinesiology

The science of the psychological mechanisms associated with human movement.

Leather Working Group

The Leather Working Group (LWG) was formed in April 2005 to promote sustainable and appropriate environmental stewardship practices within the leather industry see also www.leatherworkinggroup.com.

Licensed apparel

Apparel products which are produced and marketed under a licence agreement. The adidas Group has licence agreements with sports organisations (e.g. FIFA, UEFA, IOC), sports leagues (e.g. NFL, NBA), professional teams (e.g. Real Madrid, AC Milan) and universities (e.g. UCLA, Notre Dame).

Lien

The right to take and hold or sell the asset of a debtor as security or payment for a debt.

Liquidity I, II, III

The liquidity ratio indicates how quickly a company can liquidate its assets to pay for current liabilities.
Liquidity I:
((Cash + short-term financial assets) / current liabilities) × 100.
Liquidity II:
((Cash + short-term financial assets + accounts receivable) / current liabilities) × 100.
Liquidity III:
((Cash + short-term financial assets + accounts receivable + inventories) / current liabilities) × 100.

Market capitalisation

Total market value of all shares outstanding.
Market capitalisation = number of shares outstanding × current market price.

Marketing working budget (MWB)

Promotion and communication spending including sponsorship contracts with teams and individual athletes, as well as advertising, retail support, events and other communication activities, but excluding marketing overhead expenses. As MWB expenses are not distribution channel-specific, they are not allocated to the Group’s operating segments.

Mono-branded stores

adidas, Reebok or Rockport branded stores not operated or owned by the adidas Group but by franchise partners. This concept is used especially in the emerging markets such as China, benefiting from local expertise of the respective franchise partners see also Franchising.

Natural hedges

Offset of currency risks that occurs naturally as a result of a company’s normal operations, without the use of derivatives. For example, revenue received in a foreign currency and used to pay known commitments in the same foreign currency.

Net borrowings

Portion of gross borrowings not covered by the sum of cash and short-term financial assets. If a negative figure is shown, this indicates a net cash position.
Net borrowings = short-term borrowings + long-term borrowings – cash – short-term financial assets.

Non-controlling interests

Part of net income which is not attributable to the reporting company as it relates to outside ownership interests in subsidiaries that are consolidated with the parent company for financial reporting purposes.

OHSAS 18000

OHSAS 18000 is an international occupational health and safety management system specification.

ÖKO-Tex Standard 100

An international testing and certification system for textiles, defining and limiting the use of certain chemicals.

Operating lease

Method of leasing assets over periods less than the expected lifetime of those assets. An operating lease is accounted for by the lessee without showing an asset or a liability on his balance sheet. Periodic payments are accounted for by the lessee as operating expenses for the period.

Operating overheads

Expenses which are not directly attributable to the products or services sold, such as costs for sales, marketing overhead costs, logistics, research and development, as well as general and administrative costs, but not including costs for promotion, advertising and communication.

Operating profit

Profit from operating activities after cost of sales and other operating expenses.
Operating profit = gross profit + royalty and commission income + other operating income – sales working budget – marketing working budget – operating overheads.

Operating working capital

Company’s short-term disposable capital which is used to finance its day-to-day business. In comparison to working capital, operating working capital does not include non-operational items such as cash, financial assets and taxes.
Operating working capital = accounts receivable + inventories – accounts payable
see also Working capital.

Option

Financial instrument which ensures the right to purchase (call option) or to sell (put option) a particular asset (e.g. shares or foreign exchange) at a predetermined price (strike price) on or before a specific date.

Performance business

In the sporting goods industry, business related to technical footwear and apparel, used primarily in doing sports.

Price-earnings ratio (P/E)

A company’s share price divided by its current or future diluted earnings per share. The P/E ratio is used by investors as a fundamental measure of the attractiveness of a particular security versus other securities or the overall market. It is usually more useful to compare P/E ratios of one company to other companies in a similar industry. In general, a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.

Price points

Specific selling prices, normally using “psychological” numbers, for example a product price of US $ 99.99 instead of US $ 100.

Private investor

Individual who invests his/her own money in the capital market, as opposed to an institutional investor.

Private placement

Placement of debt securities directly to institutional investors, such as banks, mutual funds, insurance companies, pension funds and foundations.

Product licensees

Companies that have the authorisation to use the name of a brand or business for the production and sale of products. For adidas, licensed products include cosmetics, watches and eyewear, for Reebok, fitness equipment and for TaylorMade-adidas Golf, bags and gloves.

Promotion partnerships

Partnerships with events, associations, leagues, clubs and individual athletes. In exchange for the services of promoting the adidas Group, the party is provided with cash and/or promotional material.

Push-pull model

A push-pull system in the retail business describes the supply and demand dynamic between retailers and consumers. Under the push model, products are supplied based on anticipated customer orders (speculative) whereas in a pull model system goods are supplied based on consumer point-of-sale demands and actual market sales trends.

Regions

The adidas Group distinguishes seventeen markets which are aggregated into six regions: Western Europe, European Emerging Markets, North America, Greater China, Other Asian Markets and Latin America.

Return on capital employed (ROCE)

Measure of the returns that a company is realising from its capital.
ROCE = (income before taxes + financial result ) / (average of shareholders’ equity + non-controlling interests + total net borrowings) × 100.

Return on equity (ROE)

Indicator of company profitability related to the shareholders’ financing.
ROE = (net income / shareholders’ equity) × 100.

Risk-free rate

Rate of return to be expected on a risk-less investment, e.g. government bonds.

Risk premium

Extra return that the overall market or a particular stock must provide over the risk-free rate to compensate an investor for taking a relatively higher risk.
Risk premium = market risk – risk-free rate.

Sales working budget

Sales working budget expenditures relate to advertising and promotion initiatives at the point of sale as well as store fittings and furniture. As sales working budget expenses are channel-specific, they are allocated to the Group’s operating segments.

Segment

Also Business Segment. Units within a company that have profit and loss responsibility. The adidas Group is currently divided into six major business segments: Wholesale, Retail, TaylorMade-adidas Golf, Rockport, Reebok-CCM Hockey and Other Centrally Managed Brands.

Sell-through

An indicator of how fast retailers are selling a particular product to the consumer.

Shop-in-shop

adidas, Reebok or Rockport area within a larger store. The concept may be operated by the store or the adidas Group depending on individual arrangements. The goal of this distribution method is to give consumers a similar experience to an own-retail environment, albeit on a smaller scale.

Signature Collection

Collection bearing the name or the brand of top athletes.

Stakeholders

All groups that have a direct or indirect interest in the efforts and results of a company, for example lenders, shareholders, consumers, retailers, suppliers, licensees, business partners in the supply chain, employees, international sport federations, non-governmental organisations, media, etc.

Swap

A derivative in which two counterparties agree to exchange one stream of cash flows against another stream.

Syndicated loan

A syndicated loan is one that is provided by a group of lenders and is structured, arranged and administered by one or several commercial banks or investment banks known as arrangers.

Top- and bottom-line growth

A company’s bottom line is its net income, or the “bottom” figure on a company’s income statement. More specifically, the bottom line is a company’s income after all expenses have been deducted from revenues. The top line refers to a company’s sales or revenues.

Top-down, bottom-up

Specific concept for information and knowledge processing. Information and empowerment of management decisions is delegated from top to bottom in a first step. After going into more detail on the bottom level, the final information/decision is transported back to the top.

Toxproof mark/TÜV Rheinland Group

The Toxproof mark is a safety mark issued by TÜV Rheinland, especially for testing the quantities of toxins in products.

Trendscouting

Identification and commercialisation of future trends, particularly lifestyle trends.

Vertical retailer

A retail company that (vertically) controls the entire design, production and distribution processes of its products.

Visual merchandising

Activity of promoting the sale of goods, especially by their presentation in retail outlets.This includes combining products, environments and spaces into a stimulating and engaging display to encourage the sale of a product or service.

VOC (Volatile Organic Compounds)

Volatile organic compounds (VOCs) are organic chemical compounds that can vapourise into the air and may be harmful and cause breathing and health problems. VOCs are by-products of the shoe manufacturing process.

Weighted average cost of capital (WACC)

Calculation of the cost of capital according to the debt / equity structure, utilising a weighted average cost of capital (WACC) formula. The cost of equity is typically computed utilising a risk-free rate, market risk premium and a beta factor. The cost of debt is calculated through the risk-free rate, credit spread and average tax rate.

Working capital

A company’s short-term disposable capital used to finance the day-to-day operations.
Working capital = total current assets – total current liabilities
see also Operating working capital.

Working capital turnover

Shows how often a working capital item was used in and replaced by the generation of sales in the period under review. The ratio shows how long working capital is tied up and thus is an indicator of the volume of capital needed to generate sales. The higher the ratio, the more positive it is deemed to be.
Working capital turnover = net sales / working capital.

World Business Council for Sustainable Development (WBCSD)

The WBCSD is a global association of some 200 international companies dealing exclusively with business and sustainable development see also www.wbcsd.org.

World Federation of the Sporting Goods Industry (WFSGI)

The WFSGI is an independent non-profit organisation formed by sporting goods brands, manufacturers, suppliers, retailers and other sporting industry-related businesses. It is the world authoritative body for the sporting goods industry and is officially recognised by the International Olympic Committee (IOC) as the industry representative see also www.wfsgi.org.

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