Adidas 1996 Annual Report Download

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ANNUAL REPORT 1996

Table of contents

  • Page 1
    ANNUAL REPORT 1996

  • Page 2
    ...150 113 Total net sales of the brand - adidas - Licensees 4,709 1,374 3,500 1,450 3,196 1,466 2,544 1,367 2,675 1,249 Number of employees (year-end) * The 1992 IAS financial data included in this table is unaudited. 6,986 5,730 5,087 5,096 6,401 The Company produced audited accounts for 1992...

  • Page 3
    ...Arena 8 - Feet You Wear 12 - adidas Apparel 16 - Women in Sports 18 - Organizing for Growth 20 - Mission, Vision, Strategy 24 Members of the Supervisory Board and the Board of Directors 28 Report of the Supervisory Board 29 Management Discussion and Analysis 30 The adidas Share 39...

  • Page 4
    ... on the international sports scene. Thousands of athletes wearing the adidas colors successfully took part in the top championships worldwide: Germany triumphed at soccer's Euro '96 wearing head-to-toe adidas outfits, and over 220 medals were won at the Olympic Games in Atlanta by athletes who chose...

  • Page 5
    ... new streamlined corporate logo featuring the legendary three stripes; this ultimate seal of The year 1996 was the first full year for adidas as a public company; it also proved to be the best year in company history in terms of financial results. Strong growth in sales and profitability continued...

  • Page 6
    â...· T H E C E N T E N N I A L O LY M P I C G A M E S I N A T L A N T A : 6

  • Page 7
    ...of 1996. The Games also provided an ideal podium for adidas' Olympic champions' product testimonials in the truest sense of the word. brand mission as "the best sports brand in the world" in the eyes of the world's champions. Outside the Olympic arena, a major advertising campaign featured all-time...

  • Page 8
    â...· ADIDAS IN THE SPORTS ARENA: 8

  • Page 9
    ... and its products were present all over the world's best sports fields, in addition to the Summer Olympic Games, and on the most promising athletes. Because adidas helped make sports history in 1996, it's worth reviewing those twelve months, sport by sport: Soccer - Euro '96: adidas outfitted five...

  • Page 10
    10

  • Page 11
    ... in sports. For a growing number of the world's top athletes, then, adidas is already the world's best sports brand. pic Champion Croatian Handball Federation. And, to promote training shoes, adidas is now using American football: it has just signed key players Keyshawn Johnson (New York) and...

  • Page 12
    â...· FEET YOU WEAR ... 12

  • Page 13
    ... his life to imagining sports shoes that would enable athletes to perform better by helping the foot - a perfectly calibrated mechanism - to work as it was designed to do. Shoes like the Copa Mundial, Handball Spezial or Grand Slam followed the foot's own design. Another example is adidas' 'Torsion...

  • Page 14
    14

  • Page 15
    ...and comfort but in actual athletic performance and safety. In fact, Feet You Wear is demonstrating once again the wisdom in adidas' design philosophy that form should follow function. The success of Feet You Wear with the Equipment Integral tennis shoe was quickly followed by more products in other...

  • Page 16
    â...· A D I D A S A P PA R E L : 16

  • Page 17
    ... three years. In 1996, apparel sales grew by 51% year-over-year. This strong performance was the product of two unique adidas competitive advantages: unmatched expertise in the functional sports textiles sector plus a big boost from the adidas brand name. One of the best examples of this process...

  • Page 18
    â...· WOMEN IN SPORTS: 18

  • Page 19
    ... and comfort adapted to their needs. Workout clothing lines are developed with advice from the world's leading fitness instructors; we took their guidance and then innovated; in 1997, for example, women will be moving to the new adidas Feet You Wear workout shoe. best sports brand in the world, we...

  • Page 20
    â...· ORGANIZING FOR GROWTH: 20

  • Page 21
    ... to the formal programs available in each and every of our major centers, adidas employees benefit from training on the job under an informal 'mentor' system with adidas' more seasoned leaders coaching the company's future managers. We also believe in moving people between countries and regions to...

  • Page 22
    22

  • Page 23
    ... performance, while service level, market share or lead-time measure operational performance. Top management defines and Of course, we never will forget that our mission is based on the passion for sport. So we actively encourage management and employees worldwide to be sportsmen and -women...

  • Page 24
    â...· M I S S I O N , V I S I O N , S T R AT E G Y: K N O W I N G W H E R E W E WA N T 24

  • Page 25
    ...brand, product, and corporate development across the board. We have - The brand mission is to become the best sports brand in the world. - The brand vision is to become the leading performance brand in the world in both footwear and apparel in all categories where we compete. refined our strategic...

  • Page 26
    26

  • Page 27
    ... on the landmark Feet You Wear line of products. Although we produce products for many sports, the core categories will be soccer, running, basketball, tennis and training, with additional developments aimed at the women's and kids' segments. Product marketing will benefit from above-industry...

  • Page 28
    ... Charles Thomas Scott London, UK (since May 30, 1996) Heidi Thaler-Veh *) Uffenheim, Germany *) Employee representatives Board of Directors Robert Louis-Dreyfus (Chairman) Davos, Switzerland Pierre Galbois Paris, France (until April 30, 1996) Peter C. Moore Portland, USA Michel Perraudin Nuremberg...

  • Page 29
    ... and extensively informed about the development of the Company and about fundamental matters relating to corporate strategy and business transactions of major importance by means of verbal and written reports from the Board of Directors. In three joint meetings with the Board of Directors, the...

  • Page 30
    ...Europe and North America and, to a lesser extent, by the consolidation of new subsidiaries 1993 1994 1995 1996 â...· Gross profit grew by 35% to DM 1.9 billion based on strong volume growth 39.7 39.8 Improvement of operational and financial performance 4,709 continued in 1996: â...· Income before taxes...

  • Page 31
    ... billion in 1996, which resulted in a growth rate of 23%. The decreasing share of net sales by licensees relative to total brand net sales reflects the continuing strategy to purchase outright or to acquire a majority shareholding in licensee operations in countries with significant market size and...

  • Page 32
    ...the tight control of product costs and a further shift to the higher margin apparel business in the sales mix. Additionally, a more favorable Net Sales - Apparel product mix led to satisfactory margin performance in footwear as 2,314 high margin segments such as running increased their share while...

  • Page 33
    ...DM 62 million in 1996 reflecting both higher depreciation on equipment and additional goodwill amortization. The latter included DM 6 million from the purchase of the shareholdings in the Australian/New Zealand, South Korean and Singaporean subsidiaries and the full year effect of the acquisition of...

  • Page 34
    ... advertising and promotion strategy, combined with a continuous adaptation of sales and distribution structures to the requirements of the trade, will be critical to our continued success in the home market. North America The North American market for General market conditions in 1996 for sporting...

  • Page 35
    ... subsidiaries in Australia, our largest Asia/Pacific subsidiary, as well as in New Zealand by acquiring the outstanding shareholdings of 51% each from Pacific Dunlop. Effective October 1, 1996, we became a 51% shareholder in Jewoo Trading Co. Ltd., the distributor of adidas products in South Korea...

  • Page 36
    ...the new subsidiary Chile, which now also services Peru. Also contributing to the increase in net sales were export sales from a wholly-owned subsidiary in Panama to those Latin American countries without established adidas organizations. Large markets Assets consisting of inventory, receivables and...

  • Page 37
    ...outstanding majority shareholding in Australian and New Zealand subsidiaries from Pacific Dunlop effective as of July 1, 1996 â...· 51% shareholding in Jewoo Trading Co. Ltd., the distributor of adidas sporting goods in South Korea, from Dutch company Hagemeyer N.V. effective as of October 1, 1996 The...

  • Page 38
    ... our corporate structure to respond best to market demands. This new structure will focus the group-wide brand and promotional activities to achieve maximum efficiencies. In addition, we will continuously review all opportunities to improve operational efficiencies throughout the value-added chain...

  • Page 39
    ... perhaps best illustrated by the extensive analyst coverage of adidas by major investment banks and research houses as well as by the number of major institutional investors who are among our shareholders. Based on the financial performance in 1996, adidas is proposing to the Annual General Meeting...

  • Page 40
    THE WORLD OF ADIDAS â...¥ Subsidiaries / Joint Ventures â...¥ Licensees / Distributors â...¥ Combination 40

  • Page 41
    ADIDAS AG AND SUBSIDIARIES C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( I N T E R N AT I O N A L A C C O U N T I N G S TA N D A R D S ) The consolidated financial statements of adidas AG according to German GAAP in the German language may be obtained from the Company. 41

  • Page 42
    ...Note 1996 1995 Property and equipment, net Intangible and other assets Total assets (6) (7) (16) 241,091 224,625 2,455,547 198,632 132,001 1,777,323 Liabilities and shareholders' equity Short-term borrowings and current portion of long-term liabilities Accounts payable Other current liabilities...

  • Page 43
    ADIDAS AG AND SUBSIDIARIES C O N S O L I D AT E D I N C O M E S TAT E M E N T S Year ended December 31, (in thousands of DM) Net sales Cost of sales Gross profit Selling, general and administrative expenses Depreciation and amortization Income from operations Royalty and commission income Financial...

  • Page 44
    ... (Gains) losses on sales of property and equipment Operating profit before working capital changes Increase in receivables and other current assets Increase in inventories Increase in accounts payable and other current liabilities Cash provided by operations Interest paid Income taxes paid Net cash...

  • Page 45
    ... consolidation: The consolidated financial statements include the accounts of adidas AG and its significant direct and indirect subsidiaries. The Company's investments in other companies are accounted for at cost. All significant intercompany transactions and accounts are eliminated in consolidation...

  • Page 46
    ... and interest rate caps are recognized in financial expenses (Note 14) and cost of sales, respectively. Gains and losses related to qualifying hedges of firm commitments are deferred. Inventories: Finished goods are valued at the lower of cost or net realizable value. Costs are determined using...

  • Page 47
    ... costs in excess of the proportionate share of the acquired net assets totalling DM 113 million were allocated to goodwill of adidas AG. At the annual general meeting of the Company on July 26, 1995, the Company's shareholders approved, effective January 1, 1995, the merger of adidas International...

  • Page 48
    ... Korea) of DM 8 million were allocated to goodwill of adidas AG. Additionally in 1996 the Company increased its presence through new subsidiaries in Chile, India, Israel, Egypt, Taiwan, France and Ukraine. 4. Inventories Inventories by major classification are as follows: Dec. 31, (in DM 000...

  • Page 49
    Prepaid and other current assets are mainly comprised of refundable taxes, debit balances in accounts payable, security deposits and prepaid expenses mainly for promotion agreements. Cash deposits refer to Jewoo Trading Co. Ltd., Korea (see Note 17). 6. Property and equipment, net Property and ...

  • Page 50
    ...agreed maximum margins on drawings under the facility, if any, initially runs till August 31, 2000, but contains a provision for an annual extension. The Company can cancel the agreement once per year, for the first time on September 30, 1997. 9. Other current liabilities Other current liabilities...

  • Page 51
    ...' equity By resolution of a meeting of the shareholders on October 20, 1995, the shareholders of the Company approved the adoption of new articles of association for adidas AG. Such new articles of association had the effect of reducing the existing par value of common shares from DM 50 to DM...

  • Page 52
    ... translation adjustments are included in Retained earnings as it is not practicable to determine the cumulative effects of these adjustments At the annual general meeting of the Company held on May 30, 1996, the Company's shareholders approved the distribution of a dividend of DM 0.25/share. 52

  • Page 53
    ... law. The Board of Directors will recommend to the annual general meeting that the unappropriated earnings of adidas AG at December 31, 1996 should be appropriated as follows (in thousands): Dividend of DM 1.10 per ordinary share The remaining balance is to be carried forward to the new year...

  • Page 54
    The Company sponsors and contributes to a defined benefit plan in Germany. The employee benefits of this plan are based on years of service. Pension costs are generally funded currently, subject to German regulatory funding limitations. The pension accruals of adidas AG were calculated actuarially ...

  • Page 55
    ...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 its currency and interest rate hedges, and it invests its...

  • Page 56
    ...of international subsidiaries are expected to be required for use in the international operations. At December 31, 1996, little or no tax liability would result upon remittance of these earnings. The Company netted the tax effect of certain temporary differences between the book value of the Company...

  • Page 57
    ... 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. Sales between geographic regions are at cost plus...

  • Page 58
    ...Cash flow statement Effective October 1, 1996, the Company acquired 51% of the shares of Jewoo Trading Co. Ltd. in South Korea. The fair value of assets acquired and liabilities assumed were as follows: (in DM 000) Cash Inventories Receivables and other current assets Property, plant and equipment...

  • Page 59
    ... events The Company will realign its corporate structure in 1997. In the future, adidas International B.V. will be responsible for international license business of the adidas brand and international promotion activities. Herzogenaurach, February 19, 1997 The Board of Directors of adidas AG 59

  • Page 60
    AUDITORS' REPORT To the Board of Directors and the Supervisory Board adidas AG Herzogenaurach, Germany We have audited the accompanying consolidated balance sheets of adidas AG and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of income and ...

  • Page 61
    ... as at December 31, 1996 Equity 000 currency Share in capital held by in % Company and Domicile Currency units Germany 1 erima Sportbekleidungs GmbH, Reutlingen 2 adidas Versicherungs-Vermittlungs GmbH, Herzogenaurach DEM 50 directly 100 DEM 16,466 directly 100 Europe 3 adidas Sarragan France...

  • Page 62
    ... December 31, 1996 Equity 000 currency Share in capital held by in % Company and Domicile Currency units 17 BIG L.A. N.V.*) Houthalen (Belgium) 18 adidas International B.V. Amsterdam (Netherlands) 19 adidas Budapest Kft. 1) Budapest (Hungary) 20 Predator Kft. 1) Budapest (Hungary) 21 A.T.P. Kft...

  • Page 63
    ... USD 544 directly 100 America 42 adidas North America Inc. 4) Portland, Oregon (USA) 43 adidas America Inc. 4) Spartanburg, South Carolina (USA) 44 adidas Distribution Center Inc. 4) Lansing, Michigan (USA) 45 adidas (Canada) Ltd. 4) Toronto (Canada) 46 Sports Inc. 4) Portland, Oregon (USA) 47...

  • Page 64
    ... 31, 1996 Equity 000 currency Share in capital held by in % Company and Domicile Currency units 51 LXZDO Inc. 5) 9) (former LCS Design Outlets Inc.) Spartanburg, South Carolina (USA) USD 50 100 Latin America 52 adidas de Mexico S.A. de C.V. 6) Mexico-City (Mexico) 53 adidas Industrial...

  • Page 65
    ... 100 NZD 1,337 directly 100 Sub-group Hungary Sub-group UK Sub-group Ireland 4) 5) 6) Sub-group USA Sub-group LCS America Sub-group Mexico 7) 8) Sub-group Venezuela Sub-group India 9) Five companies, that have not been included in the consolidated financial statements of adidas AG due to...

  • Page 66
    ADIDAS GROUP S TAT E M E N T O F M O V E M E N T S OF PROPERTY AND EQUIPMENT (in thousands of DM) Acquisition and production costs Change in companies Balance on Jan. 1, 1996 Property and equipment Land, land rights and buildings Technical equipment and machinery Other equipment, furniture and ...

  • Page 67
    Attachment II to the Notes Accumulated depreciation Book value Net Balance on Disposals Dec. 31, 1996 Balance on Dec. 31, 1996 book value Dec. 31, 1996 Net book value Dec. 31, 1995 Depreciation for the period 5,201 669 15,588 3,961 25,419 228,574 58,672 223,050 7,620 517,916 93,567 ...

  • Page 68
    ... 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 and...