Balance Sheet and Cash Flow

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					                                                                                                                             Group Business Performance   Income Statement
                                                                                                                                                          Balance Sheet and Cash Flow                                89

Balance Sheet and Cash Flow                                         Total Assets € in millions                                                            Inventories Up 7%
                                                                                                                                                          Group inventories increased 7% to € 1.230 billion in 2005
Salomon Divestiture Impacts Balance Sheet Items                                                                                                           versus € 1.155 billion in 2004. On a currency-neutral basis,
In the 2005 balance sheet, the assets and liabilities for the       2001                                                                       4,183      inventories decreased 2%, mainly as a result of the Salomon
Salomon business segment, which was deconsolidated at the           2002                                                                       4,261      divestiture. Inventories from continuing operations increased
beginning of the fourth quarter, are no longer included. At                                                                                               22% (13% currency-neutral), primarily due to anticipated
the end of 2004, assets in the amount of € 654 million and          2003                                                                       4,188      deliveries of World Cup products as well as increased inven-
liabilities in the amount of € 169 million were dedicated to the                                                                                          tory levels in North America to support future sales growth
                                                                    2004   1)
                                                                                                                                               4,434
Salomon business segment. However, a restatement of the                                                                                                   expectations in this region.
2004 balance sheet items is not allowed under IFRS.                 2005                                                                       5,750
                                                                                                                                                          Receivables Decrease by 8%
                                                                    1) Restated due to application of amendment to IAS 19.
Total Assets Increase 30%                                                                                                                                 Group receivables were reduced by 8% (–15% currency-
In 2005, total assets increased 30% to € 5.750 billion versus                                                                                             neutral) to € 965 million at the end of 2005 versus € 1.046 bil-
€ 4.434 billion in the prior year, mainly as a result of a strong                                                                                         lion in the prior year, mainly due to the divestiture of the
increase in cash largely related to provisional purchase price      Inventories € in millions                                                             Salomon business segment. Receivables from continuing
payments for the Salomon divestiture of € 460 million as well                                                                                             operations increased 24% (14% currency-neutral), which is
as an amount of € 639 million related to the approximately          2001                                                                       1,273      lower than sales growth during the last quarter of 2005.
10% capital increase of adidas-Salomon AG.
                                                                    2002                                                                       1,190

                                                                    2003                                                                       1,164

                                                                    2004                                                                       1,155

                                                                    2005                                                                       1,230



                                                                    Receivables € in millions


                                                                    2001                                                                       1,253

                                                                    2002                                                                       1,293

                                                                    2003                                                                       1,075

                                                                    2004                                                                       1,046

                                                                    2005                                                                         965
90                                                                                                                                                    Group Management Report




Balance Sheet Structure 1) in % of total assets                                     Other Current Assets Up 55%                                        Balance Sheet Structure 1) in % of total liabilities and equity
                                                                                    Other current assets increased 55% to € 586 million at the
                                                                                    end of 2005 from € 378 million in 2004, mainly due to the
Assets                                               2005           2004 2)         remaining payment of € 65 million related to the Salomon           Liabilities and equity                               2005                  2004 2)
                                                                                    divestiture. In addition, increased prepayments as well as a       Short-term borrowings                                       0
                                                                                    higher fair value of derivative financial instruments had an        Accounts payable                                            11.9
Cash and cash equivalents                                    26.5                   impact on this development, more than compensating the
                                                                                    effect of the divestiture of the Salomon business segment.         Long-term borrowings                                        18.0
                                                                              4.4                                                                                                                                                          4.2
                                                                                    As a result, other current assets from continuing operations
                                                                                                                                                                                                                                          13.3
Accounts receivable                                          16.8           23.6    increased by 63%.
                                                                                                                                                       Other liabilities                                           22.9
                                                                                                                                                                                                                                          21.1
                                                                                    Fixed Assets Reduced by 6%
Inventories                                                  21.4           26.1    Fixed assets were reduced by 6% to € 1.066 billion at the end
                                                                                                                                                                                                                                          26.1
                                                                                    of 2005 versus € 1.130 billion at the end of 2004, mainly as a
                                                                                    result of € 193 million related to the Salomon business seg-
Fixed assets                                                 18.5           25.5                                                                       Total equity                                                47.2
                                                                                    ment which was sold in the fourth quarter of 2005. Additions of
                                                                                    € 253 million in 2005 were partly counterbalanced by depre-                                                                                           35.3
Other assets                                                 16.8           20.4    ciation and amortization of € 143 million and other disposals
                                                                                    in an amount of € 12 million. Currency effects increased fixed
Total assets (€ in millions)                         5,750          4,434           assets by € 32 million.                                            Total liabilities and equity (€ in millions) 5,750                         4,434

1) For absolute figures see Consolidated Balance Sheet.                                                                                                 1) For absolute figures see Consolidated Balance Sheet.
2) Restated due to application of IAS 32 and amendment to IAS 19.                   Other Non-Current Assets Increase 19%                              2) Restated due to application of IAS 32/IAS 39 and amendment to IAS 19.
                                                                                    Other non-current assets increased by 19% to € 122 million
                                                                                    at the end of 2005 from € 103 million in 2004, mainly due to
                                                                                    a higher non-current portion of security deposits related to
                                                                                    adidas own-retail activities as well as prepaid promotion con-
                                                                                    tracts. Other non-current assets from continuing operations
                                                                                    increased 20%.

                                                                                    Other Non-Current Liabilities Decrease 28%
                                                                                    Other non-current liabilities decreased 28% to € 22 million
                                                                                    at the end of 2005 from € 31 million in 2004, primarily due to
                                                                                    the divestiture of the Salomon business segment as well as a
                                                                                    reduced non-current portion of negative fair values of finan-
                                                                                    cial instruments used for hedging activities within the Group.
                                                                                    Other non-current liabilities from continuing operations were
                                                                                    reduced by 16%.
                                                                                                                             Group Business Performance   Balance Sheet and Cash Flow
                                                                                                                                                                                                                                         91

Equity Ratio 1) in %                                                                Equity Base Significantly Strengthened                                  Change in Cash and Cash Equivalents 1) € in millions
                                                                                    The Group’s equity base was further strengthened in 2005.
                                                                                    Shareholders’ equity rose 74% to € 2.684 billion at the end of
2001                                                                        24.3    2005 versus € 1.544 billion in 2004. This takes into consider-                                                          514       23         1,525

2002                                                                        25.4    ation the adjustment of the prior year figure due to revised IAS
                                                                                    standards (sse Notes to the Consolidated Balance Sheet/note
2003   2)
                                                                            30.7    15). The majority of the net income was retained within the
                                                                                    Group and used to strengthen the equity base. In addition, the                                           440
2004   2)
                                                                            34.8
                                                                                    approximately 10% increase of the adidas-Salomon AG share
2005                                                                        46.7    capital had a strong positive impact on shareholders’ equity.
1) Excluding minority interests
2) Restated due to application of IAS 32/IAS 39 and amendment to IAS 19.            Expenses Related to Off-Balance Sheet Items                                               352
                                                                                    The most important off-balance sheet assets are operating
                                                                                    leases, which are related to offices, retail stores, warehouses
                                                                                    and equipment. Rent expenses increased 34% to € 171 mil-                    196
Financial Leverage in %
                                                                                    lion in 2005 from € 128 million in the prior year (see Notes to
                                                                                    the Consolidated Balance Sheet/note 22).
2001                                                                       165.5                                                                             Cash and      Net cash      Net cash       Net cash    Effect of Cash and
                                                                                                                                                                cash      provided by   provided by    provided by exchange      cash
2002                                                                       138.5    Strong Cash Flow Development                                            equivalents    operating     investing      financing rates on equivalents
                                                                                    In 2005, the Group generated € 380 million of cash inflow                 at the end    activities    activities     activities    cash    at the end
2003 1)                                                                     79.2    through continuing operating activities. Cash inflow from                  of 2004                                                          of 2005

2004 1)                                                                     43.1
                                                                                    investing activities was € 440 million, mainly due to the dis-
                                                                                                                                                           1) Including continued and discontinued operations
                                                                                    posal of discontinued operations, which generated net cash
2005                                                                       (20.5)   from the provisional purchase price payment of € 460 million.
1) Restated due to application of IAS 32/IAS 39 and amendment to IAS 19.
                                                                                    Cash outflows for investments in intangible assets amounted
                                                                                                                                                           Capital Expenditure by Investment Area
                                                                                    to € 21 million net. Investments in the purchase of property,
                                                                                    plant and equipment amounted to € 188 million and were
                                                                                    related to adidas own-retail activities, the Group’s IT develop-       Retail support 9%                                               Own retail 34%
                                                                                    ment as well as other projects such as shop-in-shop con-
                                                                                    cepts and the Adi Dassler Brand Center at the adidas Group
                                                                                                                                                           IT 13%
                                                                                    Headquarters in Herzogenaurach, Germany. Cash inflow
                                                                                    from financing activities was € 514 million, mainly as a result
                                                                                    of the issuance of new shares for an amount of € 639 million.
                                                                                                                                                           adidas HQ 18%                                             Other projects 26%