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adidas Group
2011 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
04.8 Notes
188
2011
188
2011
04.8
03 Acquisition/disposal of subsidiaries as
well as assets and liabilities
Effective November 4, 2011, adidas America Inc. signed a share
purchase agreement to acquire Stone Age Equipment, Inc. (“Five
Ten”) based in Redlands, California (USA). Five Ten is a company in the
outdoor action sports sector focusing on categories such as climbing
and mountain biking. Through the acquisition of Five Ten, the adidas
Group intends to improve its position in the outdoor category, which
provides significant growth opportunities as articulated in the Group’s
strategic business plan “Route 2015”. The entire business of Five Ten
was purchased for a purchase price in the amount of US $ 25 million
in cash and contingent payments in an amount of US $ 13 million, of
which US $ 3 million was paid up front. The contingent payments are
dependent on Five Ten achieving certain performance measures over
the next three years.
The acquisition had the following effect on the Group’s assets and
liabilities, based on a preliminary purchase price allocation:
Net assets of Stone Age Equipment, Inc. at the acquisition date
(€ in millions)
Pre-acquisition
carrying amounts
Fair value
adjustments
Recognised
values on
acquisition
Accounts receivable 2 – 2
Inventories 4 – 4
Other current assets 1 0 1
Property, plant and equipment 0 – 0
Trademarks – 8 8
Other intangible assets – 14 14
Other non-current assets 0 – 0
Short-term borrowings (0) – (0)
Accounts payable (3) – (3)
Current accrued liabilities (0) – (0)
Long-term borrowings (1) – (1)
Deferred tax liabilities – (9) (9)
Net assets 3 13 16
Goodwill arising on acquisition 11
Purchase price in consideration of
contingent payments 27
Less: contingent payments in
subsequent years (7)
Cash outflow on acquisition 20
The following valuation methods for the acquired assets were
applied:
– Trademark: The “relief-from-royalty method” was applied for the
trademark/trade name. The fair value was determined by discounting
notional royalty savings after tax and adding a tax amortisation benefit,
resulting from the amortisation of the acquired asset.
– Other intangible assets: For the valuation of technologies and other
intangible assets, the “multi-period-excess-earnings method” was
used. The respective future excess cash flows were identified and
adjusted in order to eliminate all elements not associated with these
assets. Future cash flows were measured on the basis of the expected
sales by deducting variable and sales-related imputed costs for the
use of contributory assets. Subsequently, the outcome was discounted
using the appropriate discount rate and adding a tax amortisation
benefit.
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 recog-
nised as goodwill. Any acquired asset that did not meet the identifica-
tion and recognition criteria for an asset was included in the amount
recognised as goodwill.
The goodwill arising on this acquisition was allocated to those
cash-generating units operating in the outdoor product segment at
the time of the acquisition. The goodwill is denominated in the local
functional currency SEE NOTE 02 .
If this acquisition had occurred on January 1, 2011, total Group net
sales would have been € 13.4 billion and net income would have been
€ 670 million for the year ending December 31, 2011.
The acquired subsidiary contributed net losses of € 0 million to
the Group’s net income for the period from November to December
2011.