Adidas 1997 Annual Report Download

Download and view the complete annual report

Please find the complete 1997 Adidas annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 63

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63

Annual Report 1997

Table of contents

  • Page 1
    Annual Report 1997

  • Page 2
    adidas-Salomon AG and Subsidiaries Selected Financial Data (International Accounting Standards) (DM million) Net sales Gross profit Gross margin (%) Income (loss) from operations Income (loss) from operations (% of net sales) Royalty and commission income Financial result Income before taxes and ...

  • Page 3
    Table of Contents Page President's Letter 2 Management Discussion and Analysis 4 The adidas Share 14 The Many Faces of adidas 15 Members of the Supervisory Board and the Board of Directors 30 Consolidated Financial Statements 31 Report of the Supervisory Board 60 1

  • Page 4
    ... in place - brand acceptance, product quality, trade-marketing, advertising, and sponsorship agreements with American athletes and teams. We have opened the door to the world's largest sporting goods market; now we must make the most of our strong competitive positioning there. In 1997, we made...

  • Page 5
    ...the brand through contemporary design and product development linked to the quick-changing dynamics of shifting marketplace requirements, cost-effective sourcing, target-oriented marketing, and leveraging technological research. You, the shareholder, have demonstrated your trust in our management of...

  • Page 6
    ...by shareholders' equity continuing positive development. Although exact figures are not yet available for individual countries, there are indications that the sports shoe market in the United States has Total Net Sales of the Brand (Change year-over-year in %) grown by more than 10%. Growth rates...

  • Page 7
    ... developed specifically for women for a wide variety of sporting activities. This segment also delivered a sales increase of more than 100%, significantly surpassing the strong growth rates of previous years. The "Feet You Wear" concept was launched in the second half of 1996. In 1997 adidas sold...

  • Page 8
    ... materials costs are priced in US dollar or other major currencies and (3) a significant portion of adidas production is carried out in countries which did not experience major devaluations e.g. China. Shares of Net Sales Apparel (Categories in % of net sales apparel) growth rates. Sales of soccer...

  • Page 9
    ... in 1997. This development is in line with the Company's policy not to extend licensee and distributor agreements upon expiry and to assume full control of distribution instead. One of the factors affecting royalty and commission income for fiscal 1997 was the loss of royalty income from South Korea...

  • Page 10
    ...in the accounting treatment with effect from January 1, 1997. In 1996 unrealized exchange gains and losses on outstanding hedging contracts were reflected in exchange rate effects. As, however, adidas enters into â...¢ â...¢ 1993 1994 1995 1996 1997 hedging contracts to protect the cost of future...

  • Page 11
    Management Discussion and Analysis Whilst the 1997 group tax rate again was sheltered by tax losses carried forward in the German operations and, to a lesser extent, in some other countries, it is anticipated that remaining losses carried forward in Germany will be used up during 1998. MARKET SHARE...

  • Page 12
    ... in Nagano/Japan, the Soccer World Cup in France, the Commonwealth Games and the Asian Games, in order to further strengthen the brand image in the region. All these events will be accompanied by the associated advertising and promotion activities. Total net sales of which Footwear Apparel 703...

  • Page 13
    ... sold in the region. In order to accomplish this, the percentage of sales of imported products was again increased - from 25% of total regional sales in 1996 to around 34% in 1997, with the remaining 66% being produced locally under license. Additional resources were added to product marketing...

  • Page 14
    ... the share capital of Sport Développement S.C.A. (the former Salomon 1997 family holding company, now re-named adidas Salomon France S.A.), a French company registered in Annecy, France. This company held 56% of the voting rights and 39% of the capital of Salomon S.A. and was purchased for a total...

  • Page 15
    ... distribution channels in the USA and Japan will already be used in 1998 in order to promote sales of adidas golf footwear and golf apparel. adidas and Salomon have also agreed on a close cooperation in the sector of hiking boots, a product category in which both companies can draw on extensive...

  • Page 16
    ... The change of name to adidas-Salomon AG was also approved. This means adidas shareholders will now also participate in Salomon's success. As the acquisition is fully debt-financed, there has not been any dilutive effect on shareholders' equity. Year end price High Low Net income Dividend Cash flow...

  • Page 17
    ...Page adidas-Salomon: a great fit 16 In the sports arena: racing with the heartbeat of champions 18 Feet You Wear: helping nature take its course 22 R&D: the challenge to match the athlete's quest for perfection 24 Advertising: a crucial role in the rejuvenation of the adidas brand 26 1997...

  • Page 18
    ... the respective sales and distribution channels. adidas' strong footwear position with retailers will be used to boost Salomon efforts, for example in the in-line skating sector, while the Taylor Made strength in golf retail will help adidas efforts to sell We will enhance marketing communication...

  • Page 19

  • Page 20
    ...Cyclist Jan Ullrich spins a win at the Tour de France The brand got a big boost in 1997 when this young German crossed the finish line on the Champs Elysées after a thrilling three weeks. and Haile Gebrselassie. HAILE'S EQUIPMENT SOLUTION FEET YOU WEAR RUNNING SHOE WHICH HE USES FOR 18 TRAINING

  • Page 21

  • Page 22
    ... of France...and plays ball with the New York Yankees In line with the endorsement philosophy of joining forces with the biggest symbols in sports, adidas signed the legendary baseball team. The sponsorship and licensing agreement provides for joint marketing activities with one of the biggest names...

  • Page 23

  • Page 24
    ... Heel Cross provides flexible support of the upper heel, while tension straps promote a dynamic, snug fit. This unique combination of breakthrough design features is complemented by the use of innovative, proprietary materials, such as adiPRENETM. 1998 will see the launch of a new Feet You Wear shoe...

  • Page 25
    23

  • Page 26
    ... Center in Scheinfeld, Germany - the ultimate sports manufacturing think tank. The GTC brings together under one roof four specialized laboratories to ensure that adidas products are second to none. The Mock-up Shop - laying the foundation for fit and performance. Designers and pattern engineers...

  • Page 27
    25

  • Page 28
    ... through its San Francisco office and has added local support facilities in key European markets. 1997 saw adidas' advertising reach new heights in one of the most competitive advertising sectors. However, in a market that demands a constant supply of new images and information, the brand can never...

  • Page 29
    27

  • Page 30
    ... people play soccer. Running. In 1997, adidas captured the number two position by more than doubling shoe sales. This was achieved through many product successes. This technology-driven momentum was increased through sponsorship programs and leveraged into exceptional brand recognition at America...

  • Page 31
    Eddie George 29

  • Page 32
    ... DIRECTORS Henri Filho Paris, France (Chairman) Robert Louis-Dreyfus Davos, Switzerland (Chairman) Dr. Hans Friderichs Mainz, Germany (Deputy Chairman) Christian Tourres Lungern, Switzerland (Deputy Chairman from December 15, 1997) Georg Beer* Herzogenaurach, Germany Glenn Bennett Portland, USA...

  • Page 33
    adidas-Salomon AG and Subsidiaries Consolidated Financial Statements (International Accounting Standards) 31

  • Page 34
    adidas-Salomon AG and Subsidiaries Consolidated Balance Sheets (in thousands of DM) At December 31, 1997 1996 ASSETS Cash and cash equivalents Inventories Receivables and other current assets Total current assets Property and equipment, net Goodwill and other intangible assets Investments and other...

  • Page 35
    adidas-Salomon AG and Subsidiaries Consolidated Income Statements (in thousands of DM) Year ended December 31, 1996 1997 (Note) Net sales Cost of sales Gross profit Selling, general and administrative expenses Depreciation and amortization Income from operations Royalty and commission income ...

  • Page 36
    ... net Dividends of adidas-Salomon AG (see note 11) Dividends to minority shareholders Increase (decrease) in short-term borrowings, net Net cash provided by (used in) financing activities Effect of exchange rates on cash (see note 18) Net increase (decrease) in cash and cash equivalents Cash and cash...

  • Page 37
    adidas-Salomon AG and Subsidiaries Notes to Consolidated Financial Statements adidas-Salomon AG (the former adidas AG*), a German stock corporation, and its subsidiaries design, develop and market a broad range of athletic and active lifestyle products, consisting of athletic footwear, apparel and ...

  • Page 38
    ... are not capitalized due to the short product life cycle in the fashion industry. These costs are also not significant to the Company's financial position. The Company spent approximately DM 49.1 million, DM 37.4 million and DM 35.3 million on product research and development in 1997, 1996 and 1995...

  • Page 39
    ...-time upfront payments for promotional contracts, are generally expensed pro rata over the whole term of the agreement. Income taxes: Income taxes are computed in accordance with accounting principles generally accepted in the countries in which the Company operates. The Company recognized deferred...

  • Page 40
    ... price totalled DM 65 million. The purchase costs in excess of the proportionate shares of the acquired net assets of DM 55 million were allocated to goodwill of adidas-Salomon AG. Effective December 22, 1997 the Company acquired 100% of the Salomon Family Holding Company, Sport Développement...

  • Page 41
    ... Dec. 31, 1996 713,167 62,620 650,547 93 142,990 24,177 817,807 Prepaid and other current assets are essentially comprised of refundable taxes, prepaid expenses mainly for promotion agreements, as well as premiums for interest and currency options. Cash deposits refer to adidas Korea. 6. Property...

  • Page 42
    ...at cost Cash deposits Long-term receivables and other long-term assets Dec. 31, 1997 943,819 6,820 6,847 957,486 Dec. 31, 1996 2,580 22,858 5,018 30,456 Investments primarily relate to the purchase price of DM 942 million for the acquisition of the Salomon Family Holding Company (now adidas Salomon...

  • Page 43
    ... Financial Statements Credit lines: Prior to the announcement of the acquisition of the Salomon group, the Company had cash credit lines of approximately DM 2.4 billion and separate lines for the issuance of letters of credit, which are used primarily to support the Company's sourcing activities...

  • Page 44
    ... right to subscribe shares to key management. At the Shareholders' Meeting on May 28, 1997 the shareholders resolved the following change of the Articles of Association with regard to the capital: The authorization of the Executive Board, subject to Supervisory Board approval, to increase the stock...

  • Page 45
    ... effects of these adjustments. At the annual general meeting of the Company held on May 28, 1997, the Company's shareholders approved the distribution of a dividend of DM 1.10/share. Earnings available for dividend distributions are determined by reference to the retained earnings of adidas-Salomon...

  • Page 46
    ... (in thousands): Dividend of DM 1.65 per ordinary share Allocation to revenue reserves Unappropriated earnings of adidas-Salomon AG as of December 31, 1997 DM 74,826 DM 379,641 DM 454,467 12. Leasing arrangements The Company leases space for its offices, warehouses and equipment under leases...

  • Page 47
    ...rates. The Company's portfolio of currency options is actively managed. In 1997, the Company incurred option premium payments in a total amount of DM 29.7 million, equal to approximately 1.7% of the total amount of purchases of USD against other currencies, or approximately 0.8% of the cost of goods...

  • Page 48
    ... exchange contracts and currency options were determined on the basis of the market conditions on the reporting date. The fair value of the interest rate caps on the reporting date was assessed by the financial institutions which these caps had been arranged with. Credit risk: The Company arranges...

  • Page 49
    ... jurisdictions taxed at rates different from statutory German rates and the benefits of prior year operating loss carryforwards of adidas-Salomon AG and of adidas North America Inc. realized in the current years. During the period ended December 31, 1997 the Company realized net deferred tax assets...

  • Page 50
    ..., that being the design, wholesale and marketing of athletic and active lifestyle products. Information about the Company's operations by geographic markets is presented below. Revenues are classified on the basis of the Company's geographic reporting structure and since 1997 in the geographic...

  • Page 51
    ... with other clubs. 21. Special Reward and Incentive Plan (SRIP) adidas-Salomon AG has implemented a one-time offer share option plan during the second quarter 1997 for certain key-employees and executive board members. The options can be exercised at a fixed pre-determined price. The rights and...

  • Page 52
    ... and all outstanding shares of Salomon S.A., a publicly traded company admitted to the official market of the Paris Stock Exchange. The offer price of FRF 521.50 in the tender offer was the same as the implied price per Salomon share paid to the shareholders of the Family Holding Company. After the...

  • Page 53
    Auditors' Report To the Board of Directors and the Supervisory Board adidas-Salomon AG Herzogenaurach, Germany We have audited the accompanying consolidated balance sheets of adidasSalomon AG and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements...

  • Page 54
    ... Shareholdings of adidas-Salomon AG, Herzogenaurach As at December 31, 1997 Equity 000 currency units Share in capital held by in % Company and domicile Germany 1 2 erima Sportbekleidungs GmbH Reutlingen adidas Versicherungs-Vermittlungs GmbH Herzogenaurach Currency DEM DEM 16,466 50 directly...

  • Page 55
    ... adidas Budapest Kft. 2) Budapest (Hungary) Predator Kft. 2) Budapest (Hungary) A.T.P. Kft. 2) Budapest (Hungary) Questra Kft. Budapest (Hungary) 2) Currency Equity 000 currency units Share in capital held by in % GRD USD HUF HUF HUF HUF 2,057,237 (453) 1,491,405 directly 9 indirectly directly...

  • Page 56
    ... America Inc. 4) Portland, Oregon (USA) adidas America Inc. 4) Spartanburg, South Carolina (USA) adidas Distribution Center Inc. 4) Lansing, Michigan (USA) Sports Inc. Portland, Oregon (USA) 4) 12) Currency Equity 000 currency units Share in capital held by in % USD USD USD USD 93,210 directly...

  • Page 57
    ...) Salomon group 13) Europe 80 adidas Salomon France S.A. (formerly Sport Développement S.C.A.) Metz-Tessy (France) (March 31, 1997) Salomon S.A. Annecy (France) (Salomon group at March 31, 1997) Salomon Ã-sterreich GmbH Salzburg (Austria) Salomon Schweiz A.G. Stans (Switzerland) directly 19...

  • Page 58
    ...Sub-group Ireland Sub-group LCS / Sarragan America Sub-group Mexico 4) 6) 8) Sub-group Hungary Sub-group USA Sub-group India Sub-group Venezuela 9) Eight companies have not been included in the consolidated financial statements of adidas-Salomon AG due to their insignificance. 10) Associated company...

  • Page 59
    57

  • Page 60
    ... adidas-Salomon AG and Subsidiaries Statement of Movements of Property and Equipment (in DM 000) Acquisition and production costs Balance at Jan. 1, 1997 Property and equipment Land, land rights and buildings Technical equipment and machinery Other equipment, furniture and fittings Construction...

  • Page 61
    Accumulated depreciation Balance at Dec. 31, 1997 Book value Net book value Dec. 31, 1997 Net book value Dec. 31, 1996 Depreciation for the year 100,368 45,971 179,201 2,120 327,660 140,944 21,627 106,374 5,640 274,585 135,007 20,109 78,355 7,620 241,091 7,397 6,322 44,309 2,120 60,148 59

  • Page 62
    ... purchase by adidas of the Family Holding Company, Sport Développement S.C.A., holding 39 per cent of the capital and 56 per cent of the voting rights in Salomon S.A. Immediately preceding the Extraordinary Shareholders` Meeting in Nuremberg on December 15, 1997, the Supervisory Board extended the...

  • Page 63
    ... Germany Mailing address: Postfach 1120 91072 Herzogenaurach Germany Tel: Fax: +49 (9132) 84-0 +49 (9132) 84-2241 Investor Relations: Tel: Fax: +49 (9132) 84-2187 +49 (9132) 84-3127 Internet address: http://www.adidas.de http://www.adidas.com (US) Conception: Peter C. Moore Design...