Reebok 2007 Annual Report Download - page 115

111
ANNUAL REPORT 2007 --- adidas Group
03
FUTURE CASH OUTFLOWS
€
in millions
Up to Between 1 Between 3 After
1 year and 3 years and 5 years 5 years
T
ota
l
As at December 31, 2007
Bank borrowings
incl. commercial
paper
Private placements
Convertible bond
Accounts payable
Other fi nancial
liabilities
Derivative fi nancial
liabilities
T
ota
l
As at December 31, 2006
Bank borrowings
incl. commercial
paper
Private placements
Convertible bond
Accounts payable
Other fi nancial
liabilities
Derivative fi nancial
liabilities
T
ota
l
0 — 198 — 1
98
8
186 583 376 419
1,564
4
— 384 — — 38
4
4
849 — — —
8
4
9
16 1 1 2
20
88 62 8 2 1
60
1,139 1,030 583 423 3,175
3
3
0
144 — 275 — 41
9
9
109 610 474 591
1
,7
84
4
— — 375 —
3
7
5
5
752 — — — 7
52
2
18 2 2 3
25
5
37 29 12 5 8
3
3
1,060 641 1,138 599 3,438
8
9
0
8
F
INANCIAL RISK
S
CREDIT RISKS A credit risk arises if a customer or other
counter party to a fi nancial instrument fails to meet its contrac-
tual obligations. The adidas Group is exposed to credit risk
from its operating activities and from certain fi nancing activi-
ties. Credit risks arise principally from accounts receivable and
to a lesser extent from other contractual fi nancial obligations
such as other fi nancial assets, short-term bank deposits and
derivative fi nancial instruments.  see Note 23, p. 180 Without
taking into account any collateral or other credit enhance-
ments, the carrying amount of fi nancial assets represents the
maximum exposure to credit risk.
At the end of 2007, there was no relevant concentration of credit
risk by type of customer or geography. Instead, our credit risk
exposure is mainly infl uenced by individual customer charac-
teristics. Under the Group’s credit policy, new customers are
analyzed for creditworthiness before standard payment and
delivery terms and conditions are offered. This review utilizes
external ratings from credit agencies. Purchase limits are also
established for each customer. Then both creditworthiness and
purchase limits are monitored on an ongoing basis. Customers
that fail to meet the Group’s minimum creditworthiness are
allowed to purchase products only on a pre-payment basis.
Other activities to mitigate credit risks, which are employed on
a selective basis only, include credit insurances, bank guaran-
tees as well as retention of title clauses.
The Group utilizes allowance accounts for impairments that
represent our estimate of incurred credit losses with respect
to accounts receivable. The allowance consists of two compo-
nents: (1) an allowance based on historical experience of
unexpected losses established for all receivables based on the
ageing structure of receivables past due date, and (2) a specifi c
allowance that relates to individually assessed risk for each
specifi c customer – irrespective of ageing. Allowance accounts
are used to record impairment losses unless our Group is sat-
isfi ed that no recovery of the amount owed is possible; at that
point the amount considered irrecoverable is written off
against the receivable directly.
At the end of 2007, no customer at either adidas, Reebok or
TaylorMade-adidas Golf accounted for more than 10 % of
accounts receivable. Allowance for doubtful accounts receiv-
able remained at a similar level of total accounts receivable in
2007 compared to the prior year. Our Days of Sales Outstanding
were unchanged compared to the prior year at 58 days. As a
result, we believe that our overall credit risk level from cus-
tomers has remained nearly unchanged despite an increasingly
diffi cult retail environment in many key markets.  see Economic
and Sector Development, p. 078 Therefore, we continue to estimate the
likelihood and potential fi nancial impact of credit risks from
customers as low.
Credit risks from other fi nancial contractual relationships in-
clude items such as other fi nancial assets, short-term bank
deposits and derivative fi nancial instruments. The adidas Group
Treasury department arranges currency and interest rate
hedges, and invests cash, with major banks of a high credit
standing throughout the world. All banks are rated “A–” or
higher in terms of Standard & Poor’s long-term ratings (or a
comparable rating from other rating agencies). Foreign-based
adidas Group companies are authorized to work with banks
rated “BBB +” or higher. Only in exceptional cases are subsid-
iaries authorized to work with banks rated lower than “BBB +”.
To limit risk in these cases, restrictions are clearly stipulated
such as maximum cash deposit levels. As a result, we estimate
the likelihood and potential fi nancial impact of credit risks
from these assets as low. We believe our risk concentration is
limited due to the broad distribution of our investment business
with a syndicate of approximately 30 banks. In 2007, no bank
accounted for more than 17 % of our investment business and
the average concentration is 1 %. This leads to a maximum ex-
posure of € 63 million in the event of default of any single
bank.