Reebok 2011 Annual Report Download - page 187

adidas Group
2011 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
04.8 Notes
183
2011
183
2011
Assets and liabilities of the Group’s non-euro functional currency
subsidiaries are translated into the presentation currency, the “euro”,
which is also the functional currency of adidas AG, at closing exchange
rates at the balance sheet date. For practical reasons, revenues and
expenses are translated at average rates for the period which approx-
imate the exchange rates on the transaction dates. All cumula-
tive 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 the income
statement.
A summary of exchange rates to the euro for major currencies in
which the Group operates is as follows:
Exchange rates (€ 1 equals)
Average rates for the year
ending Dec. 31,
Spot rates
at Dec. 31,
2011 2010 2011 2010
USD 1.3922 1.3279 1.2939 1.3362
GBP 0.8678 0.8584 0.8353 0.8608
JPY 111.0420 116.5624 100.2000 108.6500
CNY 9.0000 8.9885 8.1527 8.8493
RUB 40.8709 40.3032 41.4303 40.8200
Derivative financial instruments
The Group uses derivative financial instruments, such as 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 transactions with derivative financial instru-
ments for trading purposes.
Derivative financial instruments are initially recognised in the
statement of financial position at fair value, and subsequently also
measured at their fair value. The method of recognising the resulting
gains or losses is dependent on the nature of the hedge. On the date a
derivative contract is entered into, the Group designates derivatives as
either a hedge of a forecasted transaction (cash flow hedge), a hedge
of the fair value of a recognised asset or liability (fair value hedge) or a
hedge of a net investment in a foreign entity.
Changes in the fair value of derivatives that are designated and
qualify as cash flow hedges, and that are effective, as defined in IAS
39 “Financial instruments: recognition and measurement”, are recog-
nised in equity. When the effectiveness is not 100%, the ineffective
portion of the change in the fair value is recognised in the income
statement. Accumulated gains and losses in equity are transferred to
the income statement in the same periods during which the hedged
forecasted transaction affects the income statement.
For derivative instruments designated as fair value hedges, the gains
or losses on the derivatives and the offsetting gains or losses on the
hedged items are recognised immediately in the income statement.
Certain derivative transactions, while providing effective economic
hedges under the Group’s risk management policies, may not qualify
for hedge accounting under the specific rules of IAS 39. Changes in the
fair value of any derivative instruments that do not meet these rules
are recognised immediately in the income statement.
Hedges of net investments in foreign entities are accounted for
in a similar way to cash flow hedges. If, for example, the hedging
instrument is a derivative (e.g. a forward contract) or, for example,
a foreign currency borrowing, effective currency gains and losses in
the derivative and all gains and losses arising on the translation of the
borrowing, respectively, are recognised in equity.
The Group documents the relationship between hedging instru-
ments and hedge objects at transaction inception, as well as the risk
management objectives and strategies for undertaking various hedge
transactions. This process includes linking all derivatives designated
as hedges to specific firm commitments and forecasted transactions.
The Group also documents its assessment of whether the derivatives
that are used in hedging transactions are highly effective by using
different methods of effectiveness testing, such as the “dollar offset
method” or the “hypothetical derivative method”.
The fair values of forward contracts and currency options are
determined on the basis of market conditions on the reporting dates.
The fair value of a currency option is determined using generally
accepted models to calculate option prices. The fair market value of
an option is influenced not only by the remaining term of the option
but also by additional factors, such as the actual foreign exchange rate
and the volatility of the underlying foreign currency base.
Cash and cash equivalents
Cash and cash equivalents represent cash at banks, cash on hand and
short-term deposits with maturities of three months or less from the
date of acquisition.
Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
Receivables and other financial assets
Receivables and other financial assets are recognised at fair value,
which correspond to the nominal value for current receivables and
other financial assets. For non-current receivables and other finan-
cial assets, the fair value is estimated as the present value of future
cash flows discounted at the market rate of interest at the balance
sheet date. Subsequently, these are measured at amortised cost using
the “effective interest method”. If necessary, required allowances are
determined on the basis of individual risk assessment and of the
ageing structure of receivables past due.