Reebok 2008 Annual Report Download - page 169

adidas Group Annual Report 2008 165
Effective September 5, 2008, adidas International, Inc. acquired 100% of the shares of Textronics,
Inc. for a purchase price in the amount of US $ 35 million. Based in Wilmington /Delaware (USA),
Textronics, Inc. is a specialist in the development of wearable sensors for use in fi tness and
health monitoring.
The acquisition had the following effect on the Group’s assets and liabilities (based on a
preliminary purchase price allocation):
Textronics, Inc.’s net assets at the acquisition date
€ in millions
Pre-
acquisition
carrying
amounts
Fair value
adjustments
Recognised
values on
acquisition
Cash and cash equivalents 0 — 0
Inventories 0 — 0
Other current assets 0 — 0
Property, plant and equipment, net 0 — 0
Trademarks and other intangible assets, net — 9 9
Deferred tax assets — 3 3
Accounts payable (0) — (0)
Other current liabilities (0) — (0)
Deferred tax liabilities — (3) (3)
Net assets 0 9 9
Goodwill arising on acquisition 16
Purchase price settled in cash 25
Cash and cash equivalents acquired 0
Cash outfl ow on acquisition 25
Pre-acquisition carrying amounts were based on applicable IFRS standards.
The following valuation methods for the acquired assets were applied:
— Trademarks and other intangible assets: The “relief-from-royalty” method was applied for
trademarks /trade names. The fair value was determined by discounting the royalty savings after
tax and adding a tax amortisation benefi t, resulting from the amortisation of the acquired asset.
For the valuation of core technology, the “multi-period-excess-earnings method” was used.
The respective future excess cash fl ows were identifi ed and adjusted in order to eliminate all
elements not associated with these assets. Future cash fl ows were measured on the basis of the
expected sales by deducting variable and sales-related imputed costs for the use of contribu-
tory assets. Subsequently, the outcome was discounted using the appropriate discount rate and
adding a tax amortisation benefi t. The “income approach” was applied for covenants not-to-
compete by comparing the estimated prospective cash fl ows with and without the agreements
in place. The value of the covenants not-to-compete is the difference between these discounted
cash fl ows being discounted to present value at the appropriate discount rate.
The excess of the acquisition cost paid versus the net of the amounts of the fair values assigned
to all assets acquired and liabilities assumed, taking into consideration the respective deferred
taxes, was recognised as goodwill. Any acquired asset that did not meet the identifi cation and
recognition criteria for an asset was included in the amount recognised as goodwill.
The goodwill arising on this acquisition was allocated to the cash-generating unit adidas and is
managed in the local functional currency.
If this acquisition had occurred on January 1, 2008, total Group net sales would have been
€ 10.8 billion and net income would have been € 640 million for the year ending December 31,
2008.
The acquired subsidiary contributed net losses of € 1 million to the Group’s net income for the
period from September to December 2008.