Adidas 2005 Annual Report Download - page 140

136 Financial Analysis
Pensions and Similar Obligations
Provisions for pensions and similar obligations comprise the provision obligation of the Group
under defi ned benefi t and contribution plans. The obligation under defi ned benefi t plans is
determined using the projected unit credit method in accordance with IAS 19.
As of January 1, 2005, due to application of the amendment to IAS 19 “Employee Benefi ts”
issued in December 2004, the Group recognizes actuarial gains or losses of defi ned benefi t
plans arising during the fi nancial year immediately outside the profi t and loss account in “other
comprehensive income” within equity as shown in the statement of recognized income and
expense. The prior year fi gures have been restated accordingly, however net income was not
changed as it was not necessary to recognize actuarial gains or losses pursuant to the corridor
approach of IAS 19 in 2004.
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 fi rst time, after which they are expensed in full. Signifi cant 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 income or expense as incurred and is not capitalized.
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 prob-
able that the company concerned will generate suffi cient taxable income to realize the associ-
ated benefi t.
Income tax is recognized in the income statement except to the extent that it relates to items
recognized directly in equity, in which case it is recognized in equity.
Equity Compensation Benefi ts
Stock options have been granted to members of the Executive Board of adidas-Salomon AG
as well as to the managing directors/senior vice presidents of its affi liated 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 obliga-
tion 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. In the past, the Company
has chosen to issue new shares. It is planned to maintain this choice in future.
In accordance with IFRS 2 an expense and a corresponding entry to equity for equity-settled
share options and an expense and a liability for cash-settled share options is recorded.
The Group has applied IFRS 2 retrospectively and has taken advantage of the transitional pro-
visions of IFRS 2 in respect of equity-settled awards. As a result, the Group has applied IFRS
2 only to equity-settled awards granted after November 7, 2002, that had not yet vested on
January 1, 2005.
Minority Interests
This line item within equity comprises the shares of third parties in the equity of a number of
companies included in consolidation.
In accordance with IAS 32, the fair value of minority interests in limited partnerships and com-
panies where put options exist is shown within other liabilities.
Estimation Uncertainty
The preparation of fi nancial statements in conformity with IFRS requires the use of assump-
tions and estimates that affect reported amounts and related disclosures. Although such es-
timates are based on Management’s best knowledge of current events and actions, actual
results may ultimately differ from these estimates.
The key assumptions concerning the future and other key sources of estimation uncertainty
at the balance sheet date that have a signifi cant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next fi nancial year are outlined in the
respective note.