Adidas 2003 Annual Report Download - page 149

Tax Expense
Tax expense is split as follows:
INCOME TAX EXPENSE € in thousands
Year ending December 31
2003 2002
Current tax expense 180,971 173,839
Deferred tax income (14,259) (25,977)
Income tax expense 166,712 147,862
Current taxes in the amount of € 1 million which relate to net investment hedges have been
credited directly to shareholders’ equity for the years’ ending December 31, 2003 and 2002 (see
also note 23).
The effective tax rate of adidas-Salomon differs from an assumed tax rate of 40% as follows:
RECONCILIATION OF TAX RATE
Year ending December 31
2003 2002
€ in millions in % € in millions in %
Expected income tax expense 175.3 40.0 156.0 40.0
Tax rate differential (63.2) (14.4) (56.7) (14.5)
Non-deductible goodwill amortization 16.5 3.8 17.8 4.6
Other non-deductible expenses 13.0 3.0 16.4 4.2
Losses for which benefits were not recognizable and
changes in valuation allowances 16.3 3.7 3.7 1.0
Other, net 1.8 0.4 1.6 0.3
159.7 36.5 138.8 35.6
Withholding tax expense 7.0 1.5 9.1 2.3
Income tax expense 166.7 38.0 147.9 37.9
28 /// EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net income attributable to shareholders
by the weighted average number of shares outstanding during the year.
Dilutive potential shares have arisen under the management stock option plan of
adidas-Salomon AG, which was implemented in 1999. As none of the required performance
criteria for the exercise of the stock options of Tranche I (1999) and III (2001) of the stock option
plan have been fulfilled to date, these Tranches did not affect the calculation of dilutive earnings
per share. However under Tranche II of the stock option plan, dilutive potential shares
im-
pact the
diluted earnings per share calculation.
It is not necessary to include dilutive potential shares arising from the convertible bond
issuance in October 2003 in the calculation of diluted earnings per share as at December 31, 2003
as none of the required conversion criteria were fulfilled at the balance sheet date (see note 15).
EARNINGS PER SHARE
Year ending December 31
2003 2002
Net income in € 260,085,000 228,571,000
Weighted number of shares outstanding 45,452,361 45,366,100
Weighted number of shares for diluted earnings per share 45,469,366 45,376,684
Basic earnings per share in € 5.72 5.04
Diluted earnings per share in € 5.72 5.04
ADDITIONAL INFORMATION
29 /// SEGMENTAL INFORMATION
The Group operates predominately in one industry segment, the design, wholesale and marketing
of athletic and sports lifestyle products. The Group is currently managed by brands and on the basis
of a regional structure.
Certain functions of the Group are centralized and an allocation of these functions to specific
segments is not considered to be meaningful. This includes mainly central treasury, worldwide
sourcing and global marketing as well as other headquarter departments. Assets, liabilities,
income and expenses relating to these corporate functions are presented in the Headquarter/
Consolidation column together with non-allocable items and the intersegment elimination.
Compared to the 2002 annual financial statements, the TaylorMade-adidas Golf segment does
not include Slazenger Golf. At the beginning of January 2002, the Group took over distribution and
licensing rights for the Maxfli and Slazenger Golf brands from the Dunlop Slazenger group.
Whereas adidas-Salomon purchased the Maxfli brand in late 2002, the distribution and licensing
rights for Slazenger Golf were terminated. Net sales for the Slazenger Golf brand were approxi-
mately € 25 million in 2002.
Information about the Group’s segments in accordance with the management approach is
presented on the following pages.
145
ADDITIONAL INFORMATION