01 » General
The consolidated financial statements of adidas AG as at December 31, 2019 comprise adidas AG and its subsidiaries and are prepared in compliance with International Financial Reporting Standards (IFRS), as to be applied in the European Union (EU) as at December 31, 2019, and the additional requirements pursuant to § 315e section 1 German Commercial Code (Handelsgesetzbuch – HGB).
The following new standards and interpretations and amendments to existing standards and interpretations are effective for financial years beginning on January 1, 2019 and have been applied for the first time to these consolidated financial statements:
- IFRS 16 Leases (EU effective date: January 1, 2019): The new standard replaces the guidance in IAS 17 ‘Leases’ and the respective interpretations IFRIC 4 ‘Determining Whether an Arrangement Contains a Lease’, SIC-15 ‘Operating Leases – Incentives’ and SIC-27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’. For lessees, IFRS 16 eliminates the required classification of leases into operating and finance leases in accordance with IAS 17, replacing it with a single accounting model requiring lessees to recognize a right-of-use asset and a corresponding lease liability for leases with a lease term of more than twelve months. In contrast, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. The new standard had a significant impact on the company’s consolidated statement of financial position upon initial application. adidas has a significant number of rental arrangements and leases worldwide which were classified as leases under IAS 17 – mainly pertaining to more than 2,500 rented own-retail stores as well as rented offices and warehouses.
adidas applied IFRS 16 as of January 1, 2019 and transitioned to IFRS 16 in accordance with the modified retrospective approach with no adjustments to the 2018 comparative financial information, using practical expedients as described below. The reclassifications and the adjustments arising from the implementation of IFRS 16 are therefore recognized in the opening statement of financial position on January 1, 2019.
adidas elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, adidas relied on its assessment made applying IAS 17 and IFRIC 4 ‘Determining Whether an Arrangement Contains a Lease’. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after January 1, 2019.
The company collected real estate lease contracts in its global real estate lease management system, which captures the relevant information from real estate lease contracts. Additionally, adidas implemented a technical system to ensure the administration of data from non-real estate lease contracts and a lease engine to guarantee IFRS 16-compliant accounting valuations and measurements.
Amounts paid for software licensing and leases are not within the scope of IFRS 16 and are accounted for in accordance with IAS 38.
At initial application of IFRS 16, adidas elected to use the following practical expedients permitted by the standard:
- the accounting for operating leases with a remaining lease term of less than twelve months as at January 1, 2019, as short-term leases;
- the exclusion of initial direct costs for the measurement of the right-of-use asset as at January 1, 2019;
- the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
- no adjustments at January 1, 2019, for leases for which the underlying asset is of low value.
- Until December 31, 2018, adidas as a lessee classified leases as operating leases or finance leases under IAS 17. The vast majority of the company’s lease contracts were classified as operating lease contracts and the respective rent expense was expensed on a straight-line basis over the lease term. At transition, for leases classified as operating leases under IAS 17, lease liabilities were recognized and measured at the present value of the remaining lease payments, discounted at the incremental borrowing rate of adidas as at January 1, 2019. Right-of-use assets were initially measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognized at December 31, 2018, for that specific lease. For leases previously classified as finance leases, adidas recognized the carrying amount of the lease asset and lease liability according to IAS 17 at December 31, 2018, as the carrying amount of the right-of-use asset and the lease liability according to IFRS 16 at January 1, 2019.
Under IFRS 16, lease expenses are presented by straight-line depreciation charges on the right-of-use assets and interest expenses due to the compounding of the lease liabilities in accordance with the effective interest method. Fixed payments on operating leases which were expensed under IAS 17 are eliminated under IFRS 16. These changes resulted in a negative impact on the company’s net income from continuing operations in the amount of € 54 million for the year ended December 31, 2019.
Due to the presentation of lease payments as financing activities under IFRS 16, the cash flows from operating activities increased while the cash flows from financing activities declined accordingly. This resulted in a decline in cash flows from financing activities in the amount of € 692 million and an improvement in cash flows from operating activities in the amount of € 684 million. No adjustments result from the first-time application of IFRS 16 in retained earnings.
Further information about current accounting methods under IFRS 16 and the impact of IFRS 16 initial application at adidas is provided in these Notes.
NOTE 02, and NOTE 12 NOTE 21
- IFRS 9 Amendment – Prepayment Features with Negative Compensation (EU effective date: January 1, 2019): The amendment offers additional guidance on how to classify prepayable financial assets according to IFRS 9 and it clarifies the accounting for financial liabilities following a modification. adidas does not have any financial assets with prepayment features. Additionally, the company did not modify financial liabilities. Therefore, this amendment did not have any impact on the company’s consolidated financial statements.
- IAS 19 Amendment – Plan Amendment, Curtailment or Settlement (EU effective date: January 1, 2019): The amendment makes it mandatory to determine the current service cost and net interest for the period using the assumptions used for remeasurement when a plan amendment, curtailment or settlement occurs. This amendment did not have any material impact on the consolidated financial statements.
- IAS 28 Amendment – Long-term Interests in Associates and Joint Ventures (EU effective date: January 1, 2019): The amendment clarifies that IFRS 9 ‘Financial Instruments’ – including the impairment requirements – should be applied to long-term interests in an associate or joint venture forming part of a net investment but for which the equity method is not applied. adidas does not have long-term interests in an associate or joint venture forming part of a net investment but for which the equity method is not applied, and which was not already accounted for according to IFRS 9. Therefore, the amendment did not have any impact on the consolidated financial statements.
- IFRIC 23 – Uncertainty over Income Tax Treatments (EU effective date: January 1, 2019): This new interpretation applies to income taxes within the scope of IAS 12 ‘Income Taxes’ and clarifies the accounting for uncertainties in income taxes. In the case of uncertainty regarding the determination of taxable profit/tax loss, tax bases, unused tax losses, unused tax credits and tax rates under IAS 12, this interpretation must be applied. This interpretation has no impact on the consolidated financial statements.
- Improvements to IFRS (2015 – 2017) – Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (EU effective date: January 1, 2019): These improvements include amendments to IFRS 3 which clarify that when an entity obtains control of a business that was previously a joint operation the entity must remeasure its previously held interests in that business. The amendments to IFRS 11 clarify that an entity does not remeasure previously held interests in a business when it assumes joint control of a joint operation. The amendments to IFRS 3 and IFRS 11 did not have an impact as the aforementioned transactions did not take place during the year ending December 31, 2019. The amendments to IAS 12 clarify that the income tax effects resulting from dividend payments should be presented in the same manner as the income from which the dividends are derived. In other words, the income tax consequences from dividends should be shown in profit or loss unless the dividend relates to income which is recorded in equity or other comprehensive income. These amendments did not have any impact on the consolidated financial statements. The amendments to IAS 23 specify that when a qualifying asset has become ready for its intended sale or use, any outstanding borrowed amount is no longer used in the calculation of the capitalization rate for the specific qualifying asset, but instead used in the general capitalization rate for borrowings. adidas currently capitalizes the borrowing costs for one qualifying asset. The amendments to IAS 23 did not have a material impact on the consolidated financial statements.
New standards and interpretations as well as amendments to existing standards and interpretations are usually not applied by adidas before the EU effective date.
New standards and interpretations and amendments to existing standards and interpretations issued by the International Accounting Standards Board (IASB) and endorsed by the EU which are effective for financial years beginning after January 1, 2019, and which have not been applied in preparing these consolidated financial statements are:
- IFRS 9, IFRS 7 and IAS 39 Amendments – Interest Rate Benchmark Reform (EU effective date: January 1, 2020): The amendments modify specific hedge accounting requirements, so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of the interest rate benchmark reform. The amendments apply for all hedging relationships that are directly affected by the interest rate benchmark reform. During the last financial year adidas did not conclude or possess any hedge instruments which were affected by the changes. Therefore, this amendment is not expected to have any impact on the consolidated financial statements.
- IAS 1 and IAS 8 Amendment – Definition of Material (EU effective date: January 1, 2020): The amendment clarifies the definition of ‘material’. and aligns the definition used in the Conceptual Framework with the accounting standards themselves. This amendment is not expected to have any material impact on the consolidated financial statements.
- General Amendments – References to the Conceptual Framework (EU effective date: January 1, 2020): The amendments update references to the Conceptual Framework in individual standards. This amendment is not expected to have an impact on the consolidated financial statements.
The following new standards and interpretations as well as amendments to existing standards and interpretations were issued by the IASB. These are not yet endorsed by the EU and hence have not been applied in preparing these consolidated financial statements:
- IFRS 3 Amendment – Definition of a Business (IASB effective date: January 1, 2020): The amendment adds additional guidance in order to help entities determine whether they have acquired a business or a group of assets. This amendment is not expected to have any material impact on the consolidated financial statements.
- IFRS 17 – Insurance Contracts (IASB effective date: January 1, 2021): The new standard regulates the recognition, measurement, presentation, and disclosure of certain insurance contracts that influence the entity’s financial position, financial performance and cash flows. Insurance contracts which the entity issues, reinsurance contracts the entity holds, and investment contracts with discretionary participation features issued by the entity are all within the scope of the standard. IFRS 17 replaces IFRS 4 ‘Insurance Contracts’, which is currently not applied by the company. Therefore, the standard is not expected to have any impact on the consolidated financial statements.
- IAS 1 Amendment — Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (IASB effective date: January 1, 2022): The amendment clarifies the classification of current and non-current liabilities when presenting amounts in the statement of financial position. This amendment is not expected to have any material impact on the consolidated financial statements.
The consolidated financial statements have in principle been prepared on the historical cost basis with the exception of certain items in the statement of financial position such as financial instruments, derivative financial instruments and plan assets, which are measured at fair value.
The consolidated financial statements are presented in euro (€) and, unless otherwise stated, all values are presented in millions of euro (€ in millions). Due to rounding principles, numbers presented may not exactly sum up to totals provided. This can lead to individual amounts rounded to zero.