Reebok 2008 Annual Report Download - page 174

170 Consolidated Financial Statements Notes
13 Long-term fi nancial 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 purchased 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 existing contractual settlements were used in
order to reasonably estimate the fair value as at December 31, 2008. 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 insur-
ance products and are measured at fair value, as well as loans.
Fair value adjustments from impairment losses amounted to € 0 million and € 4 million for the
years ending December 31, 2008 and 2007, respectively. In the prior year, these are related to
impairments of other fi nancial assets to cover anticipated risks of default see also Note 27.
For details see Statement of Movements of Tangible and Intangible Assets and Financial Assets (Attach-
ment I to these Notes).
14 Other non-current assets
Other non-current assets consist of the following:
Other non-current assets
€ in millions
Dec. 31, 2008 Dec. 31, 2007
Prepaid expenses 108 105
Financial assets
Interest rate derivatives 8 4
Currency options 19 3
Forward contracts 7 —
Security deposits 23 22
Other fi nancial assets 2 1
Sundry 13 12
Other non-current assets 180 147
Prepaid expenses mainly include prepayments for long-term promotional contracts and service
contracts see also Note 32 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 September 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 bearer
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 put at par the bond in October 2009, October 2012 and October 2015.
The fair values of the liability component and the equity conversion component were determined
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 compo-
nent 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.
Consequently, bondholders 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.