Adidas 2005 Annual Report Download - page 139

Download and view the complete annual report

Please find page 139 of the 2005 Adidas annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 180

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180

135
Consolidated Financial Statements (IFRS)
Goodwill has been allocated for impairment testing purposes to fi ve cash-generating units
at the end of 2005. The Group’s cash-generating units are identifi ed according to brand and
region of operations in line with the internal management approach. The adidas Group has
thus defi ned the four regions in the adidas segment (adidas Region Europe, North America,
Asia and Latin America) as well as the segment TaylorMade-adidas Golf as the relevant cash-
generating units.
The carrying amounts of goodwill are allocated to the cash-generating units as follows:
In 2005, the adidas Group determined that there is no impairment of any of its cash-generating
units containing goodwill with indefi nite useful lives.
The recoverable amount of a cash-generating unit is determined on the basis of the greater of
net selling and value in use. These calculations use cash fl ow projections based on the next
year’s detailed fi nancial budget and fi nancial planning covering a fi ve-year period in total. Cash
fl ows beyond the fi ve-year period are extrapolated using steady growth rates of around 2%.
The growth rates do not exceed the long-term average growth rate of the business in which
each cash-generating unit operates.
The discount rates are based on a weighted average cost of capital calculation considering the
debt/equity structure and fi nancing costs of the major competitors of each cash-generating
unit. The discount rates used are after-tax rates and refl ect specifi c equity and country risk of
the relevant cash-generating unit. The applied discount rates for the specifi c cash-generating
unit are between 7.5% and 8.6%.
An impairment loss for a cash-generating unit is allocated fi rst by writing down goodwill, then
prorating to other assets in the cash-generating unit. Reversal of impairments is recognized,
with the exception of impairment of goodwill.
The goodwill for Salomon was sold in connection with the divestiture of the Salomon business
segment.
Research and Development
Research costs are expensed as incurred. Development costs are also expensed as incurred
and are not capitalized due to the short product life cycle of sporting goods.
The Group spent approximately € 63 million and € 59 million on product research and develop-
ment for the years ending December 31, 2005 and 2004, respectively.
Investments
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 state-
ment of the period in which they arise. Equity securities for which fair values cannot be mea-
sured reliably are recognized at cost less impairment.
Borrowings
Borrowings are recognized initially at the loan amounts received, net of transaction costs in-
curred. In subsequent periods, long-term 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.
The fair value of the liability component of the convertible bond is determined using a market
interest rate for a comparable straight bond; this amount is presented under long-term bor-
rowings on an 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 in-
curred which is likely to lead to an outfl ow of resources which can be reasonably estimated.
Non-current provisions are discounted if the effect of discounting is material.
Allocation of Goodwill € in millions
Dec. 31 Dec. 31
2005 2004
adidas Region Europe 117 117
adidas Region North America 21 21
adidas Region Asia 12 12
adidas Region Latin America 0 0
Salomon – 138
TaylorMade-adidas Golf 286 284
Total goodwill 436 572
Notes