More Reasons Why Customers (the Small and Mid-Sized are Joining the Largest) are Adopting a Terms Push Back Strategy and What Suppliers Can Do to Fight Back Frank Sebastian Director of AR, Credit and Collections Frank.Sebastian@adidas-group.com Larry Lipschutz, CCE Director of Credit & Collections llipschutz@frenchgerleman.com Scott E. Blakeley, Esq seb@blakeleyllp.com

The Supply Chain and Trade Credit Trade credit as driver of the economy Less expensive than external financing The origin of TPS: Credit crunch of 2008 Large companies sitting on record cash holdings but increasing the days to pay suppliers Customers stretching supplier terms to preserve cash and fill working capital gaps Inventory purchases are biggest cash drains Customers extending payables has become a best practice

The Supply Chain and Trade Credit Source: Credit Research Foundation

A Customer’s Request vs A Customer’s Request vs. Demand for Extended Terms: How Indispensable is the Customer (and the Supplier)? The Voice of the Supplier’s Credit, Sales and Management Teams.

The Supply Chain and Trade Credit Customer strategy for extending supplier terms Financially sound customer Financially struggling customer Re-credit score and supplier due diligence Formal vs. ad hoc TPS Accommodative vs. Punitive The small to medium sized customer vs. the large customer

Key Terms for Large Company TPS Cash Conversion Cycle(CCC)- Number of days to convert account receivables into cash flow. Days Payables Outstanding(DPO)- Number of days payables outstanding relative to purchases of inventory (cost of goods sold) Days Sales Outstanding(DSO)- Sales per day relative to average receivables Days Inventory Outstanding(DIO)- Cost of goods sold per day relative to average inventory levels

The Supply Chain and Trade Credit Added Reasons Customers are Rolling Out TPS Benchmarking: Customer’s Competitors Forcing TPS Customer Mergers Supply Chain Financing Moves Downstream The Press and the Cottage Industry of Consultants International Influence

PAYMENT TERMS AND SUPPLY CHAIN FINANCING COSTS COST OF CARRYING A/R   Ending A/R Annual Borrowing rate Daily cost of borrowing - Annual Rate / 360 Daily cost of carrying the A/R (Daily Rate x AR Amt) Example 20,000,000 4% 0.011111 % 2,222.22 Line #   New Terms Former Terms SCF Terms, Option 1 SCF Terms, Option 2 2% 10, N30 Formula 1 Invoice Amount 500,000 2 Payment Terms 75 30 15 10 For SCF, Days until Supplier Bank partner pays 3 Discount Amount 0% 2% Cash Discount for Early Pay 4 Suppliers Interest Rate 4% Either borrowing rate or Internal Rate of Return 5 Daily Rate 0.011111% Line 4 / 360 6 SCF Rate n/a 3.25% Supplier's Bank Interest Rate for Vendors 7 Daily SCF Rate - 0.009028% Line 6 / 360 8 Days Carried Same as Payment terms, Line 2 9 Suppliers Carrying Cost 4,167 1,667 833 556 Line 5 x Line 8 x Line 1 Days Financed 60 45 For SCF, New Terms (75) - Line 2 11 Finance Charge (Discount) 2,708 2,031 Line 7 x Line 10 x Line 1 12 Cash Discount 10,000 Line 3 x Line 1 13 Payment 497,292 497,969 490,000 Line 1 - Line 9 (or Line 10, for discount terms) 14 Net Payment 495,833 498,333 496,458 496,302 489,444 Line 13 - Line 9 Effective Discount 0.830% 0.333% 0.708% 0.740% 2.111% (Line 1 - Line 14)/ Inv. Amount PAYMENT TERMS AND SUPPLY CHAIN FINANCING COSTS

Government Response to TPS U.S. Supplier Pay Voluntary program aimed at larger companies – no maximum number of days to pay. Rather, these companies sign a pledge to reduce their DPO with smaller suppliers European Union (EU) Countries EU has adopted legislation for EU countries to have companies sign up for a supplier Prompt Pay Rule (PPR)

Credit Team’s Form Response to TPS 8677 Logo Athletic Court Indianapolis, Indiana 46219 T +317.895.7000

Supplier Strategy for Dealing with TPS

Supplier Strategy for Dealing with TPS Contract Controls

Supplier Strategy for Dealing with TPS

U.S. Public Companies with Industry Leading DPO’s Exhibit A Company Industry Rank, Avg. DPO in Latest Quarter vs. Industry Peers Historical Performance Rank, Avg. DPO in Latest Quarter vs. Co.’s Last 12 Quarters Primary Industry Pitney Bowes 99 100 Office Services and Supplies Arena Pharmaceuticals Biotechnology ITC Holding 85 Electric Utilities Expedia 92 Internet, Retail Goodrich Petroleum 97 89 Oil and Gas Exploration and Production Advance Auto Parts 96 Automotive Retail Cheniere Energy Partners Oil and Gas Storage and Transportation O’Reilly Automotive 95 Sotheby’s 94 Specialized Consumer Services MarkWest Energy Partners Cheniere Energy Edwards Lifesciences Healthcare Equipment South Jersey Industries 91 Gas Utilities Barnes & Noble Specialty Stores SemGroup 88 j2 Global 87 Internet Software and Services Xilinx 86 Semiconductors Informatica 84 Application Software Best Buy Computer and Electronics Retail Pioneer Natural Gas Resources Molycorp 83 Diversified Metals and Mining Dell Computer Hardware Waters 82 Life Science Tools and Services Actavis Pharmaceuticals Carrizo Oil & Gas 81 Coty 80 Personal Products Universal Health Services Healthcare Facilities U.S. Public Companies with Industry Leading DPO’s

Meet the Competition Form Exhibit B [Customer’s Letterhead] Dear [Vendor (your company)], This letter confirms that [Competitor] has offered us a sales arrangement for extended terms which includes: Product/Service involved:______________________________________ Terms of payment:____________________________________________ Date of offer:________________________________________________ Quantity of product/service involved:_____________________________ This information is provided to allow [Supplier] to meet the offer of [Competitor].   Sincerely, [Customer] Meet the Competition Form

Trends in Extended Terms Survey What is your firms annual sales revenue? In the last 12 months, how many existing customers requested extended payment terms beyond standard? What is generally your first action? Is there a formal policy to address these? Is the Robinson Patman Act considered? What are the driving factors that lead to accepting these? What percentage offered a Supplier Financing Option as a means to discount invoices before payment terms maturity? How does your team view the recent increase in these types of requests and the effect on working capital? When you accept requests, do you charge interest for additional carrying costs or charge back discount fees incurred from SFO? Have you lost business/revenue after refusing a request? Do you think a company’s brand strength/recognition/size can help refusing these requests without loss of revenue? Do you believe stronger legislation should be passed to protect smaller regional suppliers with lower brand recognition, against larger companies demanding extensive credit terms?