IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 35 / Business Combinations (IFRS 3)

413

Effective January 31, 2006, the adidas Group assumed control of Reebok International Ltd. (USA), with all its direct and indirect shareholders. The purchase price for 100% of the shares of

Reebok International Ltd. (USA) was $3.6 billion (€3 .00 billion ), fully paid in ca sh. The acquisition had the following effect on the Group' s assets and liabilities: Reebok's Net Assets at the Acquisition Date € in millions

Recognised value Oil acquisit ion

Preacquisition caro -ing amollnts

Fair valu e adiustments

Cash and cash equivalents Accounts receivable Inventories Other current assets Property. plant. and equipment, net Trademarks and other intangible assets, net Long-term financial assets Deferred tax assets Other noncurrentassets Borrowings Accounts payable Income taxes Accrued liabilities and provisions Other current liabilities Pensions and similar obligations Deferred tax liabilities Other noncurrent liabilities Minority interests Net assets

539 453 447 103 293 68

539 453 502 100 260 1,742 4 242 16

55

(3) (33)

1,674 4 44

198 16

(506) (109) (59) (329) (418) (7) ( II )

(506) ( 109) (59) (359) (418) (7) (589)

(30)

(578)

(2) (3)

(2) (3)

673

1,133

1,806 1,165 2,971 539 2,432

Goodwill arising on acquisition Purchase price settled in cash Cash and cash equivalents acquired Cash outflow on acquisition Following valuation methods for the acquired assets have been applied.

• Inventories: The pro rata basis valuation is applied for estimating the fair value of acqu ired inven tories . The realized margins were added to the book values of the acquired inventories. Subsequently, cost to complete for selling, advertising, and genera l administration and a reasonable pro rata allowa nce were deducted. • Property, plant, and equipment: The comparison method was used for acquired land by considering the prices pai d for comparab le properties . The direct cap italizatio n method was applied for the valuation of all acquired buildings. The annual ren ts which ca n be realized will be adj usted by dedu cting risk factors and applicable opera ting costs and are finally discounted. The acquired mach inery and equipment is valued with the depreciated replacement cost method . The repl acement costs are determined by applying an index to the asset's historical cost. The replacement costs are then adj usted for the loss in value caused by depreciation. • Trademarks and other intangible assets : The relief-from-roy alty method is applied for trademarks and technologies. The fair value is determined by discou nting the roya lty savings after tax and adding a tax amort ization benefi t, resulting from the amo rtization of the acquired asset. For the valuation of licensing agreements, customer relationships, and order backlogs, the mult iperiod-excess-earnings method was used . The respective future excess cash flows are ident ified and adj usted in order to eliminate all elements not assoc iated with these assets . Future cash flows are measu red on the basis of the expected sales by dedu cting variable and sales-related imputed costs for the use of contributory assets. Sub sequently, the outcome is discounted using an appropriate discount rate and adding a tax amortization benefit. • Long-term financial assets: The discounted cash flow method was used for the valuation of a partic ipation. Future free cash flows were discounted back to the valuation a date using an appropriate discount rate. The excess of the acquisition cos t paid over the net of the amounts of the fa ir values ass igned to all assets acquired and liabilitie s ass umed, taking into con sideration the respective deferred taxe s, is referred to as goodwill. Any acquired asset that does not meet the identification and recognition criteria for an asset is included in the amount recognized as goodwill.