Adidas 1996 Annual Report Download - page 54

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The Company sponsors and contributes to a defined benefit plan in Germany. The
employee benefits of this plan are based on years of service. Pension costs are
generally funded currently, subject to German regulatory funding limitations. The
pension accruals of adidas AG were calculated actuarially using the projected unit
credit method in accordance with International Accounting Standards. Measure-
ment of the projected benefit obligation was based on a discount rate of 7% and
7.5% in 1996 and 1995, respectively, and an expected compensation growth rate
between 2.2% and 3%. Additionally, the Company sponsors and contributes to a
defined contribution plan in Germany for certain employees. The Company’s
contributions to the plan are determined annually and are allocated to an employee
based on years of service and the employee’s compensation. The actuarial
valuations of the plans described herein are made at the end of each reporting
period. The actuarial valuations of the plans are dated November 25, 1996 and
December 12, 1996.
Additionally, the Company sponsors and/or contributes to various other plans out-
side of Germany which are not significant.
Pension expense totalled DM 13 million, DM 14 million and DM 8 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
14. Financial instruments The Company uses derivative financial instruments to reduce exposure to market
risks resulting from fluctuations in currency exchange and interest rates. The Com-
pany does not enter into financial instruments for trading or speculative purposes.
Management of foreign exchange risk:
The Company is subject to currency exposure due to a high share of sourcing
from suppliers in the Far East which invoice in USD, and the majority of its sales in
European countries.
It is the Company’s policy to hedge currency risks due to future operations when
it becomes exposed. Up to and including 1996, such hedging occurred when
the Company communicated its prices for a new selling season to its customers.
Reacting to the appreciation of the USD primarily versus the Continental European
currencies and the Japanese Yen in recent months, the Company has modified its
hedging policy to permit the hedging for a period up to a maximum of two years.
In principle, the Company manages its currency exposures centrally from the head-
quarters in Herzogenaurach.
54