Adidas 2005 Annual Report Download - page 145

141
Consolidated Financial Statements (IFRS)
With settlement on October 8, 2003, adidas-Salomon issued a € 400 million convertible bond
through its wholly-owned Dutch subsidiary, adidas-Salomon International Finance B.V., guar-
anteed by adidas-Salomon AG. The bond was issued in tranches of € 50,000 each with a matu-
rity up to 15 years. The bond is, at the option of the respective holder, subject to certain condi-
tions, convertible from and including November 18, 2003, up to and including September 20,
2018, into ordinary no-par-value bearer shares of adidas-Salomon AG at the conversion price
of € 102.00 which was fi xed upon issue. The coupon of the bond is 2.5% and is payable annually
in arrears on October 8 of each year, commencing on October 8, 2004. The bond is convertible
into approximately four million no-par-value shares.
The convertible bond is not callable by the issuer until October 2009 and callable thereafter,
subject to a 130% trigger between October 2009 and October 2012 and subject to a 115% trig-
ger between October 2012 and 2015, unconditionally thereafter. Investors have the right to put
the bond in October 2009, October 2012 and October 2015.
The fair values of the liability component and the equity conversion component were determined
on the issuance of the bond. The fair value of the liability component, included in long-term
borrowings, was calculated using a market interest rate of approximately 4.6% for an equiva-
lent straight bond without conversion rights. Due to the retrospective application of the amend-
ment to IAS 39 and IAS 32, the liability and equity split of the convertible bond has changed. As
a result, the liability component as at the date of issuance increased by € 71.1 million with an
equivalent decrease in equity. The amount of the equity component, which is included in equity
in the capital reserve, amounts to € 44.1 million (less transaction costs of € 0.9 million).
In subsequent periods, the liability component is valued on the amortized cost basis.
The adidas-Salomon AG share traded above 110% (€ 112.20) of the conversion price of € 102
on more than 20 trading days within the last 30 trading days in the fourth quarter of 2004. Con-
sequently, bond holders have the right to convert their convertible bonds into equity, beginning
January 1, 2005. An early redemption or conversion of the convertible bond is not expected.
Gross borrowings declined by € 85 million in 2005 compared to € 176 million in 2004.
Borrowings are denominated in a variety of currencies in which the Group conducts its busi-
ness. The largest portions of effective gross borrowings (before liquidity swaps for cash man-
agement purposes) as at December 31, 2005 are denominated in euros (76%; 2004: 68%) and
US dollars (16%; 2004: 24%).
Month-end weighted average interest rates on borrowings in all currencies ranged from 3.7%
to 4.2% in 2005 and from 3.0% to 3.8% in 2004.
As at December 31, 2005, the Group had cash credit lines and other long-term fi nancing
arrangements totaling € 5.1 billion (2004: € 3.1 billion); thereof unused credit lines accounted
for € 4.1 billion (2004: € 2.0 billion). In addition, the Group had separate lines for the issuance
of letters of credit in an amount of approximately € 0.4 billion (2004: € 0.3 billion).
The Group’s outstanding fi nancings are unsecured.
The private placement and convertible bond documentations each contain a negative-pledge
clause. Additionally, the private placement documentation contains minimum equity
covenants. As at December 31, 2005, actual shareholders’ equity was well above the amount
of the minimum equity covenant.
The amounts disclosed as borrowings represent outstanding borrowings under the following
arrangements with aggregated expiration dates as follows:
As all short-term borrowings were backed by long-term arrangements in 2005, the Group has
returned to reporting them as long-term borrowings. At the end of 2004, gross borrowings in
the amount of € 186 million were reported as short-term borrowings.
The borrowings relating to the outstanding convertible bond changed in value, refl ecting the
accruing interest on the debt component in accordance with IFRS requirements.
Notes to the Consolidated Balance Sheet
Gross Borrowings as at December 31, 2005 € in millions
Up to Between 1 Between 3 After
1 year and 3 years and 5 years 5 years Total
Bank borrowings 0 0 102 0 102
Private placements 31 294 65 177 567
Convertible bond 0 0 366 0 366
Total 31 294 533 177 1,035
Gross Borrowings as at December 31, 2004 € in millions
Up to Between 1 Between 3 After
1 year and 3 years and 5 years 5 years Total
Bank borrowings 168 4 0 0 172
Private placements 18 141 239 194 592
Convertible bond 0 0 356 0 356
Total 186 145 595 194 1,120