Adidas 2002 Annual Report Download - page 70

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68 REPORTING MANAGEMENT DISCUSSION & ANALYSIS /// GROUP BUSINESS PERFORMANCE
GROWTH IN AMORTIZATION OF GOODWILL DRIVEN BY
ACQUISITIONS /// Goodwill amortization increased by 12%
from € 40 million in 2001 to € 45 million in 2002. The pur-
chase of the remaining shares of adidas Italy and the acquisi-
tion of Arc’Teryx were the main drivers of this increase. The
largest component of the Group’s goodwill amortization,
however, continues to be the € 30 million related to the
acquisition of the Salomon group in 1997, which is being
amortized over 20 years.
FINANCIAL RESULT HELPED BY LOWER INTEREST
EXPENSES ///
Financial expenses declined 14% from € 102
million in 2001 to € 87 million in 2002. The decline was mainly
attributable to lower interest expenses as a result of lower net
borrowings and average interest rates, which were partially
offset by higher non-cost-of-sales related exchange rate
effects.
NO EXTRAORDINARY INCOME RECORDED IN 2002 /// In 2002,
no extraordinary income was recorded at adidas-Salomon.
This compares with € 2 million in 2001.
INCOME BEFORE TAXES INCREASES BY 4% /// Supported
by the favorable movement in the financial result, income
before taxes increased by 4% from € 376 million in 2001 to
€ 390 million in 2002. As a percentage of net sales, income
before taxes declined by 0.2 percentage points from 6.2% in
2001 to 6.0% in 2002, reflecting a healthy profitability level
despite incremental spending for the strategic initiatives
mentioned under operating expenses.
OPERATING EXPENSES INCLUDE ONE-TIME GAINS AND
LOSSES /// Operating expenses were impacted by one-time
gains of € 23 million, which include the release of a legal
provision in the amount of € 15 million and income in the
amount of € 8 million related to the sale of land. Offsetting
these gains, however, were one-time expenses for restructur-
ing programs and legal provisions in the Group which were
also reported in 2002.
OPERATING PROFIT IMPROVES DESPITE SPENDING ON KEY
INITIATIVES /// Operating profit for the Group increased from
€ 475 million to € 477 million in 2002. Solid top-line growth
and gross margin improvements more than compensated
for the operating expense increases mentioned above. On a
brand basis, the adidas operating profit decreased by 3% from
€ 352 million in 2001 to € 343 million in 2002. The Salomon
operating profit declined by 38% from € 63 million in 2001
to € 39 million in 2002. The brand suffered from poor winter
sports conditions in several key markets, which were partially
offset by continued strong performance at Mavic and growing
soft goods sales. TaylorMade-adidas Golf had another excel-
lent year with operating profit growing 19% from € 63 million
in 2001 to € 74 million in 2002, driven by healthy revenue
gains in Asia, the success of metalwoods and new product
introductions. The Group’s operating profit comparison was
also slightly impacted by the results of central hedging
activities that improved versus the prior year. Detailed in-
formation on the sales and operational performance of the
individual brands is presented in this report (see note 27).
OPERATING PROFIT GROWS IN ALL REGIONS /// In 2002,
the Group’s positive operating profit development was
underpinned by improvement in all regions (see note 27). In
Europe, operating profit grew 6% from € 444 million in 2001
to € 471 million in 2002. This was generated by operating
profit improvements at all brands. In North America, signifi-
cant operating profit gains at brand adidas more than com-
pensated for declines at Salomon and TaylorMade-adidas
Golf. As a result, the region’s operating profit grew from € 161
million in 2001 to € 162 million in 2002. In Asia, operating
profit grew 11% from € 170 million in 2001 to € 189 million in
2002, reflecting strong improve
ments at adidas and Taylor-
Made-adidas Golf. In Latin America, operating profit grew
50% from € 16 million in
2001 to € 24 million in 2002 as a
result of strict cost control
at adidas in Latin America.
ROYALTY AND COMMISSION INCOME UP 9% /// Royalty and
commission income increased by 9% from € 42 million in
2001 to € 46 million in 2002. This was largely due to a higher
level of sales under licenses for products such as cosmetics
and eyewear, in addition to higher royalty rates for these
products.
adidas /// FINALE 2003,
MATCH BALL OF THE UEFA
CHAMPIONS LEAGUE™