Adidas 1996 Annual Report Download - page 33

The increase in Minority Interests
from DM 8 million in 1995 to DM 23
million in 1996 is due to new joint
ventures in Italy and South Korea as
well as the higher income achieved
by existing joint ventures. In addition,
Australia and New Zealand contrib-
uted significantly to minority interests
during the first half of 1996 although
both subsidiaries
were consolidated
on a 100% basis
for the first time
starting in July 1996.
33
expenses without jeopardizing the
quality of service to our custom-
ers. For example, it was decided
to outsource the distribution
of apparel in the U.S. to UPS
Worldwide Logistics in 1996.
During the first half of 1997 we
will also commence a relation-
ship with Caliber
Logistics which
will involve Caliber
undertaking
the distribution of our
U.S. foot-
wear from our facility in Spartan-
burg. We are confident that both
of these relationships will yield
benefits both in terms of cost
savings and quality delivered to
the trade.
vDepreciation and Amortiza-
tion increased from DM 51 mil-
lion in 1995 to DM 62 million in
1996 reflecting both higher de-
preciation on equipment and
additional goodwill amortization.
The latter included DM 6 million
from the purchase of the share-
holdings in the Australian/New
Zealand, South Korean and Singa -
porean subsidiaries and the full
year effect of the acquisition of
the outstanding minority interests
in the North American subsidiary.
vRoyalty and Commission
Income decreased slightly from
DM 100 mil
lion in 1995 to DM 97
million in 1996
reflecting the con-
tinued transformation of licens-
ees/distributors into majority or
wholly-owned sales subsidiaries.
However, reconciling the special
effect of transforming third party
licensees/distributors into group
companies, royalty income from
remaining licensees/distributors
increased by 8%.
Net Financial Expenses declined
substantially from DM 47 million in
1995 to DM 13 million in 1996 as
(1) net interest expenses were re-
duced by DM 4 million due to lower
interest rates in 1996 with net bor-
rowings on average at similar levels
in 1995 and 1996 and (2) currency
effects led to net exchange gains of
DM 21 million in 1996 on normal
hedging activities while in 1995 net
exchange losses of DM 9 million
were incurred. Due to our operations
in a multitude of currencies, we will
generally either have exchange los-
ses or gains on the movement of
the major currencies versus the
Deutsche Mark. A part of the cur-
rency effects result from hedging for
future physical transactions, which
have been reflected in net financial
expenses, by restating the value of
outstanding hedging contracts to
the fair market value. Unrealized
exchange gains on outstanding
hedging contracts, which were
included in net financial
expenses,
amounted to DM 8 million in 1996. In
1997, we will change the account-
ing treatment of hedging contracts.
Unrealized gains and/or losses on
outstanding hedging contracts will
no longer be recorded in net finan-
cial expenses at each balance date
but recorded upon the maturity of
each hedging transaction as part of
cost of sales.
Net Income rose by 28% to DM 314
million despite significantly higher
income taxes and minority interests.
Net income relative to net sales de-
creased from 7.0% in 1995 to 6.7%
in 1996 as a result of the negative
impact from higher income taxes as
compared to the previous fiscal year.
Income before Taxes
25
151
296
1995
444
9.4
199619941993
1.0
4.7
8.5
mIncome before
Taxes (DM million)
m Income before
Taxes in % of
Net Sales
Selling, General and
Administrative Expenses
812
1,009 1,095
1995
1,454
30.9
199619941993
31.9 31.6 31.3
mSG&A
Expenses
(DM million)
1) Not including depreciation
and amortization
m SG&A in %
of Net Sales1)
Operating
Expenses1) (%)
Promotion and
Advertising (%)
6978
22
63 60
31 37
40