Adidas 1997 Annual Report Download - page 38

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36
Research and development:
Research costs are expensed as incurred. Development costs are also expensed as incurred and
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, respectively.
Currency translation:
Assets and liabilities of the Company’s non-Deutsche-Marks functional currency subsidiaries are
translated into Deutsche Marks at closing exchange rates at the balance sheet date. Revenues
and expenses are translated at the average exchange rates for the year. All cumulative differences
from the translation of equity of foreign subsidiaries resulting from changes in exchange rates are
included in shareholders’ equity without affecting income.
A summary of exchange rates used to translate the financial statements of the Company’s sub-
sidiaries to Deutsche Marks for major currencies in which the Company operates is as follows:
Average rate for the year Year-end spot rate
ended December 31, at December 31,
1997 1996 1995 1997 1996
1 USD 1.7334 1.5035 1.4377 1.7921 1.5548
100 FRF 29.7084 29.4103 28.7151 29.8830 29.6380
1 GBP 2.8399 2.3487 2.2787 2.9820 2.6267
100 ESP 1.1843 1.1878 1.1493 1.1814 1.1866
1,000 ITL 1.0170 0.9742 0.8740 1.0177 1.0174
1 AUD 1.2883 1.1763 1.0611 1.1740 1.2400
100 KRW 0.1824 0.1870 – 0.1090 0.1841
Inventories:
Finished goods are valued at the lower of cost or net realizable value. Costs are determined using
a standard valuation method which approximates the first-in, first-out method or the average cost
method. The lower of cost or net realizable value allowances are computed consistently through-
out the Company based on the age and expected future sales of the items on hand.