Adidas 2003 Annual Report Download - page 135

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.
When convertible bonds are issued, the fair value of the liability component is determined
using a market interest rate for a comparable straight bond; this amount is presented under
long-term borrowings on the amortized cost basis until conversion or maturity of the bond. The
remaining portion is included in shareholders’ equity; the value of the equity component is not
changed in subsequent periods.
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.
Promotional expenses, including one-time up-front 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 stock option plan (MSOP) of
adidas-Salomon AG. The Company has the choice to settle a possible obligation by issuing new
shares or providing the equivalent cash compensation. When 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 is
debited to income.
Long-term Incentive Plans
The Group has established various long-term incentive plans which offer key employees stock-
based compensation, including stock appreciation rights (“SARs”). Compensation costs for the
difference between the exercise price and the fair value of the SARs are 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 such estimates
are based on Management’s best knowledge of current events and actions, actual results may
ultimately differ from these estimates.
131