Adidas 2002 Annual Report Download - page 125

Promotional expenses, including one-time upfront payments for promotional contracts, are
expensed pro rata over the term of the agreement.
Interest
Interest is recognized as an expense or income as incurred.
Income Taxes
Current income taxes are computed in accordance with the rules for taxation established in the
countries in which the Group operates.
The Group computes deferred taxes for all temporary differences between the carrying amount
and the tax basis of its assets and liabilities and tax loss carryforwards.
Deferred tax assets arising from deductible temporary differences and tax loss carryforwards
which exceed taxable temporary differences are only recognized to the extent that it is probable that
the company concerned will generate sufficient taxable income to realize the associated benefit.
Equity Compensation Benefits
Share options are granted to members of the Executive Board of adidas-Salomon AG as well as to
the Managing Directors/Senior Vice Presidents of its affiliated companies and to further senior
executives of the Group in connection with the management share option plan (MSOP) of adidas-
Salomon AG. The Company has the choice to settle a possible obligation by issuing new shares
or a cash compensation. When the options are exercised and the Company decides to issue new
shares, the proceeds received net of any transaction costs are credited to share capital and capital
surplus, and no personnel expenses are recorded. In the case of a cash settlement, the difference
between the exercise price and the fair value of the shares are debited to income.
Long-term Incentive Plans
The Group has established various long-term incentive plans which offer key employees a stock-
based compensation, including stock appreciation rights (“SARs”). Compensation costs for the
difference between the exercise price and the fair value of the SARs is recognized in the financial
statements when the SARs are exercised.
Use of Estimates
The preparation of financial statements in conformity with IFRS requires the use of assumptions
and estimates that affect reported amounts and related disclosures. Although these estimates are
based on Management’s best knowledge of current events and actions, actual results ultimately
may differ from those estimates.
123
All purchases and sales of investments are recognized on the trade date. Costs of purchases
include transaction costs. If the fair value of available-for-sale investments can be measured
reliably, they are subsequently carried at fair value. Realized and unrealized gains and losses
arising from changes in the fair value of these investments are included in the income statement in
the period in which they arise. Equity securities for which fair values cannot be measured reliably
are recognized at cost less impairment.
Borrowings
Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. In
subsequent periods, borrowings are stated at amortized cost using the effective interest method.
Any difference between proceeds (net of transaction costs) and the redemption value is recognized
in the income statement over the terms of the borrowings.
Other Liabilities
Other liabilities are recorded at their settlement amount.
Provisions
Provisions are recognized where a present – legal or constructive – obligation has been incurred
which is likely to lead to an outflow of resources which can be reasonably estimated.
Pensions and Similar Obligations
Provisions for pensions and similar obligations comprise the provision obligation of the Group
under defined benefit plans and defined contribution plans. The obligation under defined benefit
plans is determined using the projected unit credit method in accordance with IAS 19 (revised
2000). The Group does not recognize actuarial gains or losses of defined benefit plans as income
and expenses according to the corridor approach of IAS 19.92 (revised 2000) within the range of
10% of the present value of the defined benefit obligation.
Recognition of Revenues
Sales are recorded net of returns, discounts, allowances and sales taxes when title passes based
on the terms of the sale.
Royalty and commission income is recorded based on the terms of the contracts.
Advertising and Promotional Expenditures
Production costs for media campaigns are shown under prepaid expenses until the advertising
takes place for the first time, after which they are expensed in full. Significant media buying costs
(e.g. broadcasting fees) are expensed over the original duration of the campaign on a straight-line
basis.