Annual Report 1997 (1.5 MB PDF) - adidas Group

15. Financial result Financial result consists of the following:
adidas-Salomon AG and Subsidiaries
Notes to Consolidated Financial Statements
Year ended December 31,
(in DM 000) 1997 1996 1995
Interest income 14,215 9,063 9,216
Interest expense 47,663 43,108 47,247
Interest expense, net 33,448 34,045 38,031
Income from investments 109 46 94
Other – net, primarily net exchange (gains)/losses (2,319) (21,385) 9,050
31,020 12,614 46,987
In 1996, unrealized gains and losses due to changes in the fair value of outstanding currency
options, which hedge future commercial transactions, were recognized in income as part of net
financial expenses. With effect from January 1, 1997, the accounting treatment was changed.
Unrealized gains or losses on hedging contracts, which hedge future commercial transactions, are
now recorded upon maturity of each hedging transaction as part of the cost base of such transactions.
If the Company’s 1996 accounting treatment for currency options had been continued
in 1997, the Company would have accounted for an additional exchange gain on outstanding
currency options in an amount of DM 36.6 million for the year ended December 31, 1997.
16. Income taxes The Company computes its income tax liabilities in accordance with International Accounting
Standards No. 12. The Company’s corporate statutory tax rate was 48.375% (45% plus 7.5% surtax
thereon) for the years ended December 31, 1997, 1996 and 1995. In addition, the Company’s
statutory trade tax rate was 15%. The statutory trade tax is deductible for corporate tax purposes.
The Company’s effective tax rates were 27.5%, 24.0% and 14.5% for the years ended December 31,
1997, 1996 and 1995, respectively. The differences between statutory and effective tax rates result
primarily from earnings in jurisdictions taxed at rates different from statutory German rates and the
benefits of prior year operating loss carryforwards of adidas-Salomon AG and of adidas North
America Inc. realized in the current years.
During the period ended December 31, 1997 the Company realized net deferred tax assets
previously unrecognized, principally from net operating loss carryforwards (approximately
DM 129 million).
The cumulative amounts of unremitted earnings of international subsidiaries are expected to be
mainly required for use in the international operations.
The Company netted the tax effect of certain temporary differences between the book value of the
Company’s assets and liabilities and the related tax bases of those assets and liabilities including
the effect of the operating loss carryforwards as of December 31, 1997 and 1996 (note 2).
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