First-Time Consolidation of Reebok Impacts R&D Expenses
Given
the short product lifecycles in the sporting goods industry, R&D
costs at the adidas Group are recognized as expense in the period in
which they are incurred and are not capitalized. The increase in
employees, primarily as a result of the acquisition of Reebok, drove
R&D expenses higher by 56% to € 98 million in 2006 (2005: € 63
million). For the Group excluding Reebok, R&D expenses increased
14% to € 72 million. In 2006, R&D expenses represented 2.6% of
total operating expenses versus 2.4% in the prior year. R&D
expenses as a percentage of sales increased slightly to 1.0% from 0.9%
in 2005. Other related expenses for product development and market
research, for example, were incurred as part of the Group’s other
operating overheads.
Active Trademark and Patent Protection Policy
To capitalize on the Group’s R&D achievements, we seek to gain
trademark and patent protection for our key products, technologies and
innovations in all major markets for footwear, apparel and hardware. We
hold registered trademark rights or have applied for trademark
protection for the Group’s brands and other proprietary names in most
countries around the world. Our business is not dependent upon any
single patent or licensed technology. As part of our business policy,
we rigorously defend the adidas Group’s trademarks and patents by
monitoring and prosecuting infringements of trademark and patent rights
around the world (see Risk Report).
R&D Expenses € in millions
R&D Expenses in % of Net Sales
R&D Expenses in % of Operating Expenses
Successful Product Introductions Highlight R&D Strength
Developing industry-leading technologies is only one aspect of being an
innovation leader. Even more important is the successful
commercialization of those technological innovations. The majority of
the adidas Group’s sales in 2006 were generated with products newly
introduced in the course of the year. At brand adidas, products
launched in 2006 accounted for 79% of brand sales. Only 5% of total
sales were generated with products introduced three or more years ago.
Two examples of how adidas transformed technological innovations into
commercial success in 2006 are the first modular football boot +F50
TUNIT and the +Teamgeist™ match ball of the 2006 FIFA World Cup™. After
being launched in the market in March 2006, sales of the +F50 TUNIT
football boot clearly surpassed our original targets. Similarly, after
successfully launching the +Teamgeist™ in December 2005 featuring a
completely new 14-panel configuration, sales figures clearly exceeded
our original targets. An example of how Reebok successfully
commercialized R&D efforts in 2006 is the Trinity KFS running
shoe introduced in 2006, featuring both the innovative KFS upper
material construction and DMX cushioning. This shoe was very well
received at retail and won the prestigious Global Runner’s World
Editor’s Choice award. In the TaylorMade-adidas Golf segment, current
products (i.e. products launched in the last 18 months, which is the
typical product lifecycle in golf) represented 79% of total sales.
Products that had been brought to market three or more years ago
accounted for 8% of TaylorMade-adidas Golf sales. As in prior years,
all our brands will launch several new highlight products during the
course of 2007 featuring major technologies (see Subsequent Events and Outlook).
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