Reebok 2006 Annual Report Download - page 158

Consolidated Financial Statements ›
154 ANNUAL REPORT 2006 › adidas Group ›
As of January 1, 2005, due to application of the amendment to IAS 19 “Employee Benefits”
issued in December 2004, the Group recognizes actuarial gains or losses of defined benefit
plans arising during the financial year immediately outside the income statement in “other
reserves” within equity as shown in the statement of recognized income and expense.
Recognition of Revenues
Sales are recognized at the fair value of the consideration received or receivable when the sig-
nificant risks and rewards of ownership of the goods are transferred to the buyer and when it is
probable that the economic benefits associated with the transaction will flow to the Group.
Royalty and commission income is recognized based on the terms of the contracts on an
accrual basis.
Advertising and Promotional Expenditures
Production costs for media campaigns are included in prepaid expenses (other current and
non-current assets) until the advertising is finalized, after which they are expensed in full.
Significant media buying costs (e.g. broadcasting fees) are expensed over the original duration
of the campaign after usage.
Promotional expenses, including one-time up-front payments for promotional contracts,
are expensed systematically over the term of the agreement.
Interest
Interest is recognized as income or expense as incurred and is not capitalized.
Income Taxes
Current income taxes are computed in accordance with the applicable taxation rules estab-
lished in the countries in which the Group operates.
The Group computes deferred taxes for all temporary differences between the carrying
amount and the tax basis of its assets and liabilities and tax loss carryforwards. As it is not
permitted to recognize a deferred tax liability for goodwill the Group does not compute any
deferred taxes thereon.
Deferred tax assets arising from deductible temporary differences and tax loss carry-
forwards which exceed taxable temporary differences are only recognized to the extent that it
is probable that the company concerned will generate sufficient taxable income to realize the
associated benefit.
Income tax is recognized in the income statement except to the extent that it relates to
items recognized directly in equity, in which case it is recognized in equity.
Equity Compensation Benefits
Stock options have been granted to members of the Executive Board of adidas AG as well
as to the managing directors/senior vice presidents of its affiliated companies and to further
senior executives of the Group in connection with the Management Share Option Plan (MSOP)
of adidas AG (see also Note 33). The Company has the choice to settle a possible obligation by
issuing new shares or providing the equivalent cash compensation. When options are exercised
and the Company decides to issue new shares, the proceeds received net of any transaction
costs are credited to share capital and capital surplus. In the past, the Company has chosen to
issue new shares. It is planned to maintain this methodology in future.
In accordance with IFRS 2, an expense and a corresponding entry to equity for equity-
settled stock options and an expense and a liability for cash-settled stock options is recorded.
The Group has applied IFRS 2 retrospectively and has taken advantage of the transitional
provisions of IFRS 2 with respect to equity-settled awards. As a result, the Group has applied
IFRS 2 only to equity-settled awards granted after November 7, 2002, that had not yet vested
on January 1, 2005 [Tranche V (2003)].
Estimation Uncertainty
The preparation of financial statements in conformity with IFRS requires the use of assump-
tions and estimates that affect reported amounts and related disclosures. Although such
estimates are based on Management’s best knowledge of current events and actions, actual
results may ultimately differ from these estimates.
The key assumptions concerning the future and other key sources of estimation uncer-
tainty at the balance sheet date which have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are outlined in
the respective Note.