Reebok 2007 Annual Report Download - page 162

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ANNUAL REPORT 2007 --- adidas Group CONSOLIDATED FINANCIAL STATEMENTS - Notes
CURRENCY TRANSLATION Transactions of assets and liabilities in foreign currencies are trans-
lated into the respective functional currency at spot rates on the transaction date.
In the individual fi nancial statements of Group companies, monetary items denominated in
non-functional currencies of the subsidiaries, are generally measured at closing exchange rates
at the balance sheet date. The resulting currency gains and losses are recorded directly in
income.
Assets and liabilities of the Group’s non-euro functional currency subsidiaries are translated
into the reporting currency the “euro”, which is also the functional currency of adidas AG,
at closing exchange rates at the balance sheet date. Revenues and expenses are translated
at exchange rates on the transaction dates. All cumulative differences from the translation of
equity of foreign subsidiaries resulting from changes in exchange rates, are included in a sepa-
rate item within shareholders’ equity without affecting income.
A summary of exchange rates to the euro for major currencies in which the Group operates
is as follows:
EXCHANGE RATES
€
1 e
q
uals
Average rate
for the year ending Dec. 31 Spot rate at Dec. 31
200
7 2006
2007
2006
USD
GBP
JPY
1.3709
1.2562
1.4721
1.3170
0.6845
0.6820
0.7334
0.6715
1
6
1.1
9
146.08
1
64.9
3
156.93
DERIVATIVE FINANCIAL INSTRUMENTS The Group uses derivative fi nancial instruments, such
as interest and currency options, forward contracts, as well as interest rate swaps and cross-
currency interest rate swaps to hedge its exposure to foreign exchange and interest rate risks.
In accordance with its treasury policy, the Group does not enter into derivative fi nancial instru-
ments with banks for trading purposes.
Derivative fi nancial instruments are initially recognized in the balance sheet at fair value,
and subsequently also measured at their fair value. The method of recognizing the resulting
gains or losses is dependent on the nature of the item being hedged. On the date a derivative
contract is entered into, the Group designates certain derivatives as either a hedge of a fore-
casted transaction (cash fl ow hedge), a hedge of the fair value of a recognized asset or liability
(fair value hedge) or a hedge of a net investment in a foreign entity.
 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated fi nancial statements
are prepared in accordance with the consolidation, accounting and valuation principles described
below.
PRINCIPLES OF CONSOLIDATION The consolidated fi nancial statements include the accounts
of adidas AG and its direct and indirect subsidiaries, which are prepared in accordance with uni-
form accounting principles.
A company is considered a subsidiary if adidas AG directly or indirectly governs the fi nancial
and operating policies of the respective enterprise.
The number of consolidated subsidiaries evolved as follows for the years ending December 31,
2007 and 2006, respectively:
NUMBER OF CONSOLIDATED COMPANIES
200
7 2006
Januar
y
1
Newly founded / consolidated companies
Divestments / exclusion from consolidation
Merged companies
Purchased companies
D
ecember
31
168 94
6
2
(1
)
(4)
(2
)
(1)
—
77
171 168
A schedule of the shareholdings of adidas AG is shown in Attachment II to these Notes. Further,
a schedule of these shareholdings will be published on the electronic platform of the German
Federal Gazette.
The fi rst-time consolidation of purchased companies had a material impact in 2006.  see Note 4
Within the scope of the fi rst-time consolidation, all acquired assets and liabilities are recog-
nized in the balance sheet at fair value. A debit difference between the investment book value
and the proportionate fair value of assets and liabilities is shown as goodwill. A credit difference
is recorded in the income statement. No fair value adjustments are recognized at the fi rst-time
consolidation of acquired minority interests in companies accounted for using the purchase
method. A debit difference between the cost for such an additional investment and the carrying
amount of the net assets at the acquisition date is shown as goodwill. A credit difference is
recorded in the income statement.
All intercompany transactions and balances, as well as any unrealized gains and losses
arising from intercompany transactions are eliminated in preparing the consolidated fi nancial
statements.