Reebok 2007 Annual Report Download - page 172

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ANNUAL REPORT 2007 --- adidas Group CONSOLIDATED FINANCIAL STATEMENTS - Notes to the Consolidated Balance Sheet
 13 LONG-TERM FINANCIAL ASSETS Long-term fi nancial assets include a 10 % investment in
FC Bayern München AG of € 77 million which remains unchanged from when the stake was pur-
chased in July 2002. This investment is classifi ed as available for sale and recorded at fair value.
This equity security does not have a quoted market price in an active market, therefore other
methods of reasonably estimating fair value as at December 31, 2007 were used. Dividends are
distributed by FC Bayern München AG instead of regular interest payments.
Additionally, long-term fi nancial assets include investments which are mainly invested in
insurance products and are measured at fair value, as well as loans.
Fair value adjustments from impairment losses amounted to € 4 million and € 8 million for
the years ending December 31, 2007 and 2006, respectively. As in the prior year, these are relat-
ed to impairments of other fi nancial assets to cover anticipated risks of default.  see also Note 26
For details  see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attachment I to these Notes)
 14 OTHER NON-CURRENT ASSETS Other non-current assets consist of the following:
OTHER NON-CURRENT ASSETS
€ in millions
Dec. 3
1
Dec. 31
2
007 2006
Prepaid expenses
Financial assets
Interest rate derivatives
Currency options
Security deposits
Other fi nancial assets
Sundry
Other non-current assets
10
5
103
4
3
3
1
22
22
1 1
1
2 4
147 134
4
Prepaid expenses mainly include prepayments for long-term promotional contracts and service
contracts.  see also Note 31 and Note 22
 15 BORROWINGS AND CREDIT LINES With settlement on October 8, 2003, adidas issued a
€ 400 million convertible bond through its wholly-owned Dutch subsidiary, adidas International
Finance B.V. The bond was guaranteed by adidas AG and issued in tranches of € 50,000 each
with a maturity up to 15 years. The bond is, at the option of the respective holder, subject to
certain conditions, convertible from and including November 18, 2003, up to and including Sep-
tember 20, 2018, into ordinary no-par-value bearer shares of adidas AG at the conversion price
of € 25.50 which was fi xed upon issue. The coupon of the bond is 2.5 % and is payable annually in
arrears on October 8 of each year, commencing on October 8, 2004. The bond is convertible into
approximately 16 million no-par-value shares.
The convertible bond is not callable by the issuer until October 2009. It is callable thereafter,
subject to a 130 % trigger between October 2009 and October 2012 and subject to a 115 % trigger
between October 2012 and 2015. The convertible bond is unconditionally callable thereafter.
Investors have the right to convert the bond in October 2009, October 2012 and October 2015.
The fair values of the liability component and the equity conversion component were deter-
mined on the issuance of the bond. The fair value of the liability component, included in long-
term borrowings, was calculated using a market interest rate of approximately 4.6 % for an
equivalent straight bond without conversion rights. Due to the retrospective application of the
amendment to IAS 39 and IAS 32, the liability and equity split of the convertible bond changed.
As a result, the liability component as at the date of issuance increased by € 71.1 million with
an equivalent decrease in equity. The amount of the equity component, which is included in
equity in the capital reserve, amounts to € 44.1 million (less transaction costs of € 0.9 million).
The liability component is valued using the “effective interest method”.
The adidas AG share fi rst traded above 110 % (€ 28.05) of the conversion price of € 25.50 on
more than 20 trading days within the last 30 trading days in the fourth quarter of 2004. Con-
sequently, bond holders have had the right to convert their convertible bonds into equity since
January 1, 2005. An early redemption or conversion of the convertible bond is currently not
expected.