adidas-Salomon 2004 First Quarter Results: Net income rises 41% HERZOGENAURACH, Germany, May 5 /PRNewswire-FirstCall/ -- * Currency-neutral sales up 3% * Income before taxes grows 33% * Significant improvement in North American order backlogs * Net borrowings reduced by euro 579 million * Full year earnings growth target increased adidas-Salomon currency-neutral first quarter sales up 3% During the first quarter of 2004, Group sales increased 3% on a currency- neutral basis. In euro terms, revenues declined 3% to euro 1.623 billion in 2004 from euro 1.669 billion in 2003. "It was a great first quarter for adidas-Salomon, with operational improvements in every region," commented adidas-Salomon Chairman and CEO Herbert Hainer. "I'm extremely impressed with how committed our organization has been to delivering superior performance." adidas drives top-line growth in the first quarter From a brand perspective, adidas currency-neutral sales increased by 3%, driven by solid development in the Sport Performance division. In the Salomon segment, revenues increased by 2% on a currency-neutral basis in the first quarter of 2004, largely due to positive developments in the cycling, nordic and apparel categories. Revenues at TaylorMade-adidas Golf decreased 4% on a currency-neutral basis. This was mainly related to the timing of 2004 product launches. Currency effects from a strong euro, especially versus the US dollar, negatively impacted sales at all brands in euro terms. As a result, adidas sales in euro terms declined 2% to euro 1.378 billion in the first quarter of 2004 from euro 1.405 billion in 2003. Salomon sales in euros were down 1% to euro 122 million in the first three months of 2004 from euro 124 million in the prior year. TaylorMade-adidas Golf sales in euro terms declined 13% to euro 116 million in 2004 from euro 134 million in 2003. 1st Quarter 1st Quarter 2003 2004 Change y-o-y Change y-o-y euro in euro in in euro terms currency-neutral millions millions in % in % adidas 1,405 1,378 (2) 3 Salomon 124 122 (1) 2 TaylorMade-adidas Golf 134 116 (13) (4) Total 1,669 1,623 (3) 3 adidas-Salomon sales by brand in 2004, "Total" includes HQ/Consolidation Currency-neutral sales growth in all regions except North America From a regional perspective, Group sales in Europe grew 4% on a currency- neutral basis, boosted by solid increases in France, Iberia, the UK and the emerging markets. In North America, Group sales declined 7% on a currency- neutral basis due to a decrease in footwear sales in the adidas Sport Performance division. In Asia, currency-neutral sales increased 6% driven by double-digit growth in Japan, China and Australia. In Latin America, where revenues are generated predominately by adidas, currency-neutral sales increased 43% in the first quarter, making it the fastest growing region within the Group. Higher sales in Argentina, Brazil and Mexico were the main drivers of this improvement. In euro terms, currency translation effects negatively impacted sales in the first three months in all regions. Sales in Europe increased 2% in euro terms to euro 951 million in the first three months of 2004 from euro 933 million in the prior year. In North America, sales in euros declined 19% to euro 328 million in 2004 versus euro 405 million in 2003. In euro terms, sales in Asia were down 2% to euro 276 million in 2004 from euro 281 million in 2003. In Latin America, sales in euros grew 36% to euro 49 million in 2004 from euro 36 million in the prior year. 1st Quarter 1st Quarter 2003 2004 Change y-o-y Change y-o-y euro in euro in in euro terms currency-neutral millions millions in % in % Europe 933 951 2 4 North America 405 328 (19) (7) Asia 281 276 (2) 6 Latin America 36 49 36 43 Total 1,669 1,623 (3) 3 adidas-Salomon sales by region in 2004, "Total" includes HQ/Consolidation Group gross margin up 3.4 percentage points adidas-Salomon gross margin grew 3.4 percentage points to 45.9% in the first quarter of 2004 (2003: 42.5%). This represents the highest first quarter gross margin in the history of the Group and reflects the improving product mix and increased adidas own-retail activities, as well as favorable currency effects. As a result, gross profit for the Group rose 5% in the first quarter of 2004 to reach euro 744 million versus euro 708 million in 2003. Operating profit grows 24% Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill), increased by 1% to euro 601 million in the first quarter of 2004 from euro 592 million in 2003. As a percentage of sales, this equates to 37.0%, which is 1.5 percentage points higher than the 2003 level of 35.5%. This increase reflects timing effects in the marketing working budget expenditures associated with the adidas "Impossible is Nothing" global advertising campaign as well as initial expenditures for the Olympic Summer Games in Athens. Operating expenses were also impacted by the continued expansion of adidas own-retail activities. Group operating profit improved 24% to euro 144 million in 2004 from euro 116 million in the first quarter of 2003, reflecting the quarter's strong gross margin development. Similarly, the operating margin grew 1.9 percentage points to 8.9% in the first three months of 2004 versus 7.0% in the same period of 2003. Income before taxes up 33% due to further reduction in financial expenses Income before taxes grew 33% to euro 130 million in the first quarter of 2004 from euro 98 million in 2003. Operational progress was enhanced by significantly lower financial expenses which declined 33% to euro 12 million in 2004 from euro 18 million in the first quarter of 2003. The main factor contributing to this development was lower interest expenses associated with a lower average level of debt. Goodwill amortization was stable versus the prior year at euro 11 million in the first quarter of 2004. Royalty and commission income declined 13% to euro 9 million in 2004 from euro 11 million in 2003 as a result of currency effects. Net income surges 41% Net income for the Group increased 41% to euro 72 million in the first quarter of 2004 from euro 51 million in 2003. Solid currency-neutral sales growth and the improving gross and operating margins, supported by lower financial expenses, were the drivers of this improvement. Minority interests were down 23% to euro 5 million in 2004 from euro 6 million in the prior year. As a result of these developments, basic earnings per share increased by 41% to euro 1.58 for the first three months of 2004 versus euro 1.13 in 2003. Net borrowings reduced by euro 579 million Net borrowings at March 31, 2004 were euro 1.045 billion, down 36% or euro 579 million versus euro 1.624 billion in the prior year. Positive currency effects influenced Group borrowing levels by around 10%. As a consequence, the Group's financial leverage improved 73 percentage points to 71% in 2004 from 144% in 2003. Successful working capital management continues Group inventories were reduced by 4% to euro 1.074 billion at the end of the first quarter of 2004 from euro 1.119 billion in 2003. On a currency- neutral basis, inventories were down 1%. Receivables at adidas-Salomon were reduced by 5% to euro 1.346 billion at the end of the first quarter of 2004 versus euro 1.410 billion in the prior year. On a currency-neutral basis, this represents a decline of 2%. Order backlogs up Currency-neutral order backlogs for adidas grew 3% at the end of the first quarter of 2004. Apparel orders increased 13% on a currency-neutral basis, reflecting the Group's successful "Apparel Breakthrough" initiative to grow sales in this product category. Footwear backlogs declined 5% on a currency- neutral basis, mainly as a result of lower, but compared to former quarters significantly improving orders in North America. In euro terms, adidas total order backlogs increased 1%. Footwear Apparel Total Change currency- currency- currency- y-o-y in euros neutral in euros neutral in euros neutral in % Europe (6) (6) 10 10 1 2 North America (23) (14) 1 12 (14) (4) Asia 15 16 23 24 20 21 Total (8) (5) 10 13 1 3 adidas order backlogs by product category and region as at March 31, 2004 Full year net earnings target increased As a result of the Group's first quarter performance and business expectations for the rest of 2004, adidas-Salomon is confirming the sales guidance provided with the 2003 full year results and increasing the Group's earnings target. Group revenues are expected to increase by 3 to 5% on a currency-neutral basis, with double-digit currency-neutral growth in Asia and Latin America and mid-single-digit sales growth in Europe. Positive sales development is also expected in North America during the second half of the year. Group gross margin is projected to be at least 45% and operating margin will improve versus the prior year\'s level. As a result of strong first quarter performance, Group earnings for the full year are now expected to grow by 10 to 15%. Herbert Hainer said: "The steps we've taken all along, and particularly those we took to overcome the challenges of last year, are paying off. Our margins have strengthened sharply, we have boosted our net income, and we're starting to see measurable progress in North America. With a great quarter like this as a start, we are confident that the full year performance in 2004 will be better than we had originally expected." Please visit our corporate website: http://www.adidas-salomon.com/ adidas-Salomon CONSOLIDATED INCOME STATEMENT (IFRS) 1st QUARTER 2004 euro IN MILLIONS 2004 2003 Change 2004/2003 NET SALES 1,623 1,669 (2.8) % COST OF SALES 878 960 (8.6) % GROSS PROFIT 744 708 5.1 % (% OF NET SALES) 45.9% 42.5% 3.4 PP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 578 567 1.9 % (% OF NET SALES) 35.6% 34.0% 1.6 PP DEPRECIATION AND AMORTIZATION (EXCL. GOODWILL) 23 25 (9.4) % OPERATING PROFIT 144 116 23.8 % (% OF NET SALES) 8.9% 7.0% 1.9 PP GOODWILL AMORTIZATION 11 11 (1.0) % ROYALTY AND COMMISSION INCOME 9 11 (13.2) % FINANCIAL EXPENSES, NET 12 18 (33.0) % INCOME BEFORE TAXES AND MINORITY INTERESTS 130 98 33.1 % (% OF NET SALES) 8.0% 5.8% 2.2 PP INCOME TAXES 53 40 32.1 % (% OF INCOME BEFORE TAXES AND MINORITY INTERESTS) 40.7% 41.0% (0.3) PP MINORITY INTERESTS (5) (6) (23.2) % NET INCOME 72 51 40.9 % (% OF NET SALES) 4.4% 3.1% 1.4 PP BASIC EARNINGS PER SHARE (IN euros) 1.58 1.13 40.6 % DILUTED EARNINGS PER SHARE (IN euros) 1.58 1.13 40.6 % NET SALES euro IN MILLIONS 2004 2003 Change 2004/2003 adidas 1,378 1,405 (2.0) % Salomon 122 124 (1.0) % TaylorMade-adidas Golf 116 134 (13.1) % EUROPE 951 933 1.9 % NORTH AMERICA 328 405 (19.0) % ASIA 276 281 (1.7) % LATIN AMERICA 49 36 35.5 % ROUNDING DIFFERENCES MAY ARISE IN PERCENTAGES AND TOTALS FOR FIGURES PRESENTED IN MILLIONS AS CALCULATION IS ALWAYS BASED ON THE FIGURES STATED IN THOUSANDS. adidas-Salomon CONSOLIDATED BALANCE SHEET (IFRS) euro IN MILLIONS Mar. 31 Mar. 31 Change Dec. 31 2004 2003 2003 CASH AND CASH EQUIVALENTS 213 68 214.6% 190 SHORT-TERM FINANCIAL ASSETS 201 1 - 89 ACCOUNTS RECEIVABLE 1,346 1,410 (4.6)% 1,075 INVENTORIES 1,074 1,119 (4.0)% 1,164 OTHER CURRENT ASSETS 312 331 (5.9)% 259 TOTAL CURRENT ASSETS 3,146 2,929 7.4% 2,777 PROPERTY, PLANT AND EQUIPMENT, NET 348 341 2.0% 345 GOODWILL, NET 583 627 (7.0)% 591 OTHER INTANGIBLE ASSETS, NET 105 113 (7.1)% 104 LONG-TERM FINANCIAL ASSETS 90 88 2.6% 88 DEFERRED TAX ASSETS 198 171 15.5% 178 OTHER NON-CURRENT ASSETS 132 73 82.3% 105 TOTAL NON-CURRENT ASSETS 1,456 1,413 3.1% 1,411 TOTAL ASSETS 4,602 4,341 6.0% 4,188 ACCOUNTS PAYABLE 494 524 (5.8)% 592 INCOME TAXES 192 137 39.8% 158 ACCRUED LIABILITIES AND PROVISIONS 555 468 18.5% 455 OTHER CURRENT LIABILITIES 176 157 11.8% 139 TOTAL CURRENT LIABILITIES 1,416 1,287 10.0% 1,344 LONG-TERM BORROWINGS 1,459 1,693 (13.8)% 1,225 PENSIONS AND SIMILAR OBLIGATIONS 108 99 9.0% 105 DEFERRED TAX LIABILITIES 61 53 14.3% 66 OTHER NON-CURRENT LIABILITIES 32 22 45.3% 35 TOTAL NON-CURRENT LIABILITIES 1,660 1,867 (11.1)% 1,432 MINORITY INTERESTS 57 58 (1.2)% 57 SHAREHOLDERS' EQUITY 1,468 1,130 30.0% 1,356 TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY 4,602 4,341 6.0% 4,188 ADDITIONAL BALANCE SHEET INFORMATION OPERATION WORKING CAPITAL 1,926 2,005 (3.9)% 1,646 WORKING CAPITAL 1,729 1,641 5.4% 1,433 NET TOTAL BORROWINGS 1,045 1,624 (35.7)% 946 FINANCIAL LEVERAGE 71.2% 143.8% 69.8% ROUNDING DIFFERENCES MAY ARISE IN PERCENTAGES AND TOTALS FOR FIGURES PRESENTED IN MILLIONS AS CALCULATION IS ALWAYS BASED ON THE FIGURES STATED IN THOUSANDS. DATASOURCE: adidas-Salomon CONTACT: Media Relations: Jan Runau, Head of Corporate PR, +49-9132-84-3830, or Anne Putz, Corporate PR Manager, +49-9132-84-2964, or Investor Relations: Natalie M. Knight, Head of Investor Relations, +49-9132-84-3584, or Dr. Charlotte Brigitte Loos, Investor Relations Manager, +49-9132-84-2187, or Hendric Junker, Investor Relations Manager, +49-9132-84-4989, all of adidas-Salomon; or U.S. Media Relations: Doug Donsky of Edelman Financial, +1-212-704-4473, for adidas-Salomon Web site: http://www.adidas-salomon.com/

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