Adidas 2003 Annual Report Download - page 78

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ROYALTY AND COMMISSION INCOME DOWN 8% /// Royalty
and commission income decreased by 8% to € 42 million in
2003 from € 46 million in 2002. Higher sales for products
such as toiletries and perfume due to both increased number
of units and higher royalty rates were more than offset by
declines as a result of currency fluctuations. On a currency-
neutral basis, royalty and commission income would have
increased by 2%.
GOODWILL AMORTIZATION STABLE /// Goodwill amortization
was stable at € 45 million. The largest component of the
Group’s annual goodwill amortization continues to be the
approximately € 30 million related to the acquisition of the
Salomon group, which is being amortized over 20 years.
FINANCIAL EXPENSES REDUCED STRONGLY /// Financial
expenses were reduced by 44% to € 49 million in 2003 from
€87 million in 2002. This decline was supported by lower
interest expenses due to both a lower average level of debt
and lower interest rates in comparison to the prior year
(see Group Management Report/Finance and Investment).
In addition, financial expenses in 2002 included negative
currency effects resulting from devaluation in emerging
markets such as Argentina, Turkey and Brazil.
INCOME BEFORE TAXES GROWS 12% /// Supported by the
improvement in operating profit combined with the favorable
movement in the financial expenses, income before taxes
(IBT) was up 12% to € 438 million in 2003 from € 390 million
in 2002. As a percentage of sales, income before taxes
increased by 1.0 percentage points to 7.0% in 2003 from 6.0%
in 2002, reflecting a further improvement of the Group’s
healthy profitability level.
NET INCOME UP 14% TO RECORD LEVEL /// Net income for
the Group reached a record level of € 260 million in 2003, up
14% compared to the prior year’s level of € 229 million. This
increase is at the top end of the targeted 10 to 15% stated by
Management since the beginning of 2003. The main drivers of
this development were a strong IBT performance and also
lower minority interests, which declined 17% to € 11 million
in 2003 from € 14 million in 2002 mainly due to lower minority
interests at our Salomon TaylorMade-adidas Golf subsidiary in
Japan. In 2003, the tax rate increased slightly to 38.0% of
income before taxes, versus 37.9% in 2002.
EARNINGS PER SHARE INCREASE TO € 5.72 /// In 2003,
basic earnings per share were € 5.72 versus € 5.04 in 2002.
This is a 14% year-over-year increase in line with the develop-
ment of the Group’s net income. The total number of shares
outstanding increased by 31,250 shares in 2003 to 45,453,750
as a result of the second and third exercise periods of
Tranche II of the management stock option plan (MSOP) of
adidas-Salomon AG (see note 32). Diluted earnings per share
were also € 5.72 in 2003 versus € 5.04 in 2002.
74 REPORTING GROUP MANAGEMENT REPORT /// GROUP BUSINESS PERFORMANCE
NET FINANCIAL EXPENSES € in millions
1999 84
2000 94
2001 102
2002 87
2003 49