Adidas 2002 Annual Report Download - page 74

FINANCING STRATEGY AND NET BORROWINGS /// The
length and diversification of Group credit lines and instru-
ments were further improved in 2002, despite market trends
towards reduced lending commitments and the avoidance of
maturity extensions for existing commitments. Utilization of
available credit facilities for the Group was 45% at the end of
2002 versus 52% at the end of 2001. This improvement high-
lights the Group’s reduced overall borrowings as well as a
slight increase in outstanding credit lines and instruments.
Other signals of our improved financing structure include
the extension of maturities for the vast majority of adidas-
Salomon medium-term credit lines from 2005 to 2006.
Longer-dated private placements with the Group were also
in high demand amongst both domestic and international
investors. The volume of longer-term private placements
increased strongly, representing € 560 million of funding in
2002. The maturities of outstanding private placements
extend now up to 2012. In addition, the Group’s on-balance-
sheet asset-backed securities (ABS) program proved to be
a consistent source of funding with nearly equal utilization
rates throughout the year, and the Group’s commercial paper
programs continued to deliver a significant amount of attrac-
tively priced funding.
FAVORABLE INTEREST RATE DEVELOPMENT /// In 2002,
adidas-Salomon maintained the existing interest rate options
as protection against rising interest rates. Within this shelter,
we were able to participate in the continuous interest rate
reduction throughout the year by contracting the vast majority
of our financing for very short-term periods. The weighted
average interest rate on the Group’s borrowings fell from
4.5% in 2001 to 3.2% in 2002.
72 REPORTING MANAGEMENT DISCUSSION & ANALYSIS /// FINANCE AND INVESTMENT
CASH FLOW AND INVESTMENTS /// The Group’s cash pro-
vided by operating activities is used for investing activities, for
the reduction of debt and for the payment of dividends. Cash
outflows for investing activities were € 325 million in 2002, an
increase of 84% versus the 2001 level of € 177 million and
included the purchase of tangible, intangible and financial
assets. Spending for property, plant and equipment such as
investments in adidas own-retail activities and in the head-
quarter facilities in North America decreased by 29% from
€ 160 million in 2001 to € 114 million in 2002. Cash outflows
for intangible assets were € 151 million versus € 42 million
in 2001 and included the acquisition of the remaining shares
of adidas Italy and the purchase of the Maxfli golf brand in
December 2002. The net cash used for acquiring subsidiaries
in an amount of € 20 million is related to the acquisition of
the Canadian outdoor specialist Arc’Teryx, and the purchase
of Salomon Danmark ApS, a former distribution partner for
Salomon products in Denmark. These companies have now
been fully integrated into adidas-Salomon. The Group’s
financial assets increased with the purchase of a 10% stake in
the Bayern Munich football club for € 77 million in July 2002.
NET BORROWINGS REDUCED BY € 181 MILLION /// Net
borrowings at December 31, 2002 were € 1.5 billion, down
11% or € 181 million versus € 1.7 billion in the prior year.
This represents the Group’s lowest debt level in five years.
Positive currency effects influenced Group borrowing levels,
contributing roughly half of the improvement. Excluding these
effects, net borrowings were reduced in line with Management
targets despite the Group’s strategic participation in Bayern
Munich as well as the purchase of Arc’Teryx, the buyout of the
remaining shares of adidas Italy and the acquisition of
Salomon Danmark ApS.
INTEREST RATE DEVELOPMENT1)
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
1998 2002
1) Weighted average interest rate of gross borrowings
NET BORROWINGS € in millions
1998 1,655
1999 1,591
2000 1,791
2001 1,679
2002 1,498