TaylorMade-adidas Golf Business Performance

In 2007, sales growth in the TaylorMade-adidas Golf segment exceeded Management’s initial expectations. Profitability developed in line with expectations. TaylorMade-adidas Golf revenues increased 1 % on a currency-neutral basis despite the divestiture of the Greg Norman Collection (GNC) wholesale business in November 2006. In euro terms, segment sales declined 6 % to € 804 million in 2007 from € 856 million in 2006. On a like-for-like basis, however, sales increased 9 %. The segment’s gross margin grew 0.8 percentage points to 44.7 % (2006: 43.9 %) as a result of higher margins in metalwoods and irons. In euro terms, gross profit declined 4 % to € 360 million in 2007 from € 376 million in the prior year. The segment’s operating margin decreased 0.4 percentage points to 8.1 % (2006: 8.5 %). This was due to higher operating expenses as a percentage of sales, which more than offset the positive gross margin development. As a result, operating profit decreased 10 % to € 65 million from € 73 million in 2006.

TAYLORMADE-ADIDAS GOLF AT A GLANCE
€ in millions

1) Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.

TAYLORMADE-ADIDAS GOLF NET SALES BY QUARTER1) € in millions
1)	Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.

TAYLORMADE-ADIDAS GOLF 2007 NET SALES BY PRODUCT
1)	Includes irons, putters, golf balls, golf bags, gloves and other accessories.

GNC DIVESTITURE AFFECTS REPORTED RESULTS
Compared to the prior year, 2007 results of the TaylorMade-adidas Golf segment do not include results of the GNC apparel business. This is due to the divestiture of the GNC wholesale business, which was completed on November 21, 2006. In addition, results of the GNC-related retail outlet operations, which were excluded from the transaction, are now reported in the Reebok business segment. These operations relate to the distribution of GNC products via Reebok own-retail stores. The divestiture had a negative impact on the segment’s sales development. In total, the GNC apparel business contributed € 63 million of sales to the TaylorMade-adidas Golf segment in 2006.

CURRENCY-NEUTRAL SALES INCREASE 1 %
Currency-neutral sales at TaylorMade-adidas Golf in 2007 increased 1 % despite the divestiture of the GNC wholesale business. On a comparable basis, excluding prior year GNC sales, revenues increased 9 %. This development was above Management’s initial expectation of mid-single-digit growth. Underlying adidas Golf apparel and footwear revenues grew significantly. Hardware sales, in particular in the metalwoods category, also increased.  see TaylorMade-adidas Golf Strategy Currency translation effects negatively impacted segment revenues in euro terms. Segment sales decreased 6 % to € 804 million in 2007 from € 856 million in 2006.

CURRENCY-NEUTRAL REVENUES GROW IN NEARLY ALL REGIONS
TaylorMade-adidas Golf currency-neutral sales grew in all regions except North America in 2007. Sales in Europe increased 5 % on a currency-neutral basis, driven by strong growth in the UK. In North America, sales declined 9 % on a currency-neutral basis. While revenues in Canada increased, declines in the USA resulting from the divestiture of the GNC wholesale business could not be offset by underlying sales increases. TaylorMade-adidas Golf sales in Asia increased 20 % on a currency-neutral basis, driven by strong double-digit growth in Japan and South Korea. In Latin America, currency-neutral sales grew 32 %. Revenue increases were driven by strong growth in Argentina and Mexico.

Currency translation effects negatively impacted segment revenues in euro terms. In euro terms, sales in Europe increased 3 % to € 95 million in 2007 from € 92 million in 2006. Revenues in North America decreased 16 % to € 422 million in 2007 from € 505 million in 2006. In Asia, sales grew 11 % to € 282 million in 2007 (2006: € 254 million), and in Latin America revenues increased 20 % to € 6 million in 2007 (2006: € 5 million). On a like-for-like basis, excluding the impact from the GNC divestiture, sales increased by double-digit rates in Asia and Latin America. In Europe, like-for-like revenues grew at a high-single-digit rate. Like-for-like sales in North America increased at a low-single-digit rate. 

GROSS MARGIN INCREASES TO 44.7 %
TaylorMade-adidas Golf gross margin increased 0.8 percentage points to 44.7 % in 2007 (2006: 43.9 %). This development was in line with Management’s initial expectation of a gross margin improvement. The increase was due to higher margins in the metalwoods and irons categories. The GNC divestiture also had a positive impact on the segment’s gross margin development. Gross profit, however, decreased by 4 % to € 360 million in 2007 versus € 376 million in 2006.

TAYLORMADE-ADIDAS GOLF 2007 NET SALES BY REGION

TAYLORMADE-ADIDAS GOLF GROSS MARGIN BY QUARTER1) in %
1)	Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.

TAYLORMADE-ADIDAS GOLF OPERATING PROFIT BY QUARTER1) € in millions
1)	Including Greg Norman apparel business from February 1, 2006 to November 30, 2006.

ADIDAS GOLF SALES GROWTH DRIVES ROYALTY AND COMMISSION EXPENSE INCREASE
Royalty and commission expenses at TaylorMade-adidas Golf increased 10 % to € 18 million in 2007 (2006: € 16 million). This development was driven by significantly higher adidas Golf sales, which generated higher intra-Group royalties paid to the adidas segment.

OPERATING EXPENSES AS A PERCENTAGE OF SALES INCREASE
Operating expenses as a percentage of sales at TaylorMade-adidas Golf increased 0.9 percentage points to 34.4 % in 2007 from 33.5 % in 2006. A main reason for this increase was the divestiture of the GNC wholesale business, which had lower marketing expenditures as a percentage of sales. Operating overhead expenses as a percentage of sales were almost stable compared to the prior year. In absolute terms, operating expenses decreased 3 % to € 277 million in 2007 from € 287 million in 2006.

OPERATING PROFIT DECLINES
The TaylorMade-adidas Golf operating margin decreased 0.4 percentage points to 8.1 % in 2007 from 8.5 % in 2006. This development was in line with Management’s initial expectation. The higher gross margin was unable to offset higher operating expenses as a percentage of sales. Operating profit for TaylorMade-adidas Golf declined 10 % to € 65 million in 2007 versus € 73 million in 2006.