Adidas 2002 Annual Report Download - page 138

Tax expense is split as follows:
Current taxes in the amount of € 1 million which relate to net investment hedges have been
debited directly to shareholders’ equity (see also note 21).
The effective tax rate of adidas-Salomon differs from an assumed tax rate of 40% as follows:
Deferred tax assets are recognized only to the extent that the realization of the related benefit
is probable. Based on the past performance and the prospects of the respective business for the
foreseeable future, valuation allowances are established where this criterion is not met.
Valuation allowances refer to deferred tax assets of companies which are operating in the
start-up phase or certain emerging markets, since the realization of the related tax benefits is not
probable. Further, adidas Salomon North America Inc. has tax loss carryforwards, which can in
part only be utilized in limited annual amounts through to 2007, for which a valuation allowance is
established for amounts in excess of income projections.
Deferred tax assets and liabilities are offset if they relate to the same fiscal authority. Hence
they are presented on the balance sheet as follows:
Deferred taxes attributable to fair value adjustments of qualifying hedging instruments (see
note 21) are recognized directly in equity.
The Group does not recognize deferred tax liabilities for unremitted earnings of non-German
subsidiaries to the extent that they are expected to be permanently invested in international
operations. The earnings could become subject to additional tax if they were remitted as dividends,
or if foreign earnings were loaned to the subsidiary, or if the Group were to sell its shareholdings in
the subsidiaries.
The Group estimates that the distribution of these earnings in their entirety would have
resulted in € 7 million and € 9 million of additional withholding taxes as at December 31, 2002 and
2001 respectively.
136 FINANCIAL ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS (IFRS) /// NOTES TO THE CONSOLIDATED INCOME STATEMENT
INCOME TAX EXPENSE € in thousands
Year ending December 31
2002 2001
Current tax expense 173,839 155,167
Deferred tax income (25,977) (8,222)
Income tax expense 147,862 146,945
DEFFERED TAX ASSETS/LIABILITIES € in thousands
Dec. 31 Dec. 31
2002 2001
Deferred tax assets 169,692 147,873
Deferred tax liabilities (51,398) (41,552)
Deferred tax assets, net 118,294 106,321
RECONCILIATION OF TAX RATE
Year ending December 31
2002 2001
€ in millions in % € in millions in %
Expected income tax expense 156.0 40.0 150.5 40.0
Tax rate differential (56.7) (14.5) (48.6) (12.9)
Non-deductible goodwill amortization 17.8 4.6 16.1 4.3
Other non-deductible expenses 16.4 4.2 16.1 4.2
Losses for which benefits were not recognizable
and changes in valuation allowances 3.7 1.0 5.5 1.4
Other, net 1.6 0.3 3.6 1.0
138.8 35.6 143.2 38.0
Withholding tax expense 9.1 2.3 3.7 1.0
Income tax expense 147.9 37.9 146.9 39.0