04 » First-Time Conso­lidation/Dispo­sal of Subsidiaries as well as Assets and Liabilities

Effective as of December 2019, an amendment to the contractual arrangements existing between Agron, Inc. and adidas entered into force granting adidas the power to approve key financial and operational targets as well as the organizational structure of Agron, Inc. adidas has the right to, and is exposed to, the returns from its contractual business relations with Agron, Inc., which are dependent on the level of its net sales and overall profitability. As a result of the extended power, adidas has the ability to directly influence the amount of these variable returns and consequently obtained control over Agron, Inc. Therefore, a fair value of its assets and liabilities was consolidated for the first time into the company’s consolidated statement of financial position as at December 31, 2019. In addition, starting from January 1, 2020, income and expenses of Agron, Inc. will be included in the company’s consolidated income statement. As adidas holds no equity interests of Agron, Inc., both net assets as well as income and expenses are attributable entirely to the non-controlling interest. adidas has not transferred any consideration to the owners of Agron, Inc. in relation to the amendment of the contractual arrangements. The effect of the first-time consolidation was reflected entirely within the equity and neither goodwill nor a gain from a bargain purchase has been recognized.

Agron, Inc. is engaged in the design, development and distribution of sports accessories, primarily under licenses from adidas America, Inc. These products are sold directly by Agron, Inc. to retailers in the USA.

The following assets and liabilities of Agron, Inc. were recognized at the date of first-time consolidation in the company’s consolidated statement of financial position based on the preliminary fair value calculation:

Loss allowance recognized for accounts receivable amounted to € 3 million.

Financial statements of Agron, Inc. as at December 31, 2019 (adidas reporting date) were not available by the time the consolidated financial statements of adidas were prepared. Therefore, financial statements of Agron, Inc. as at November 30, 2019 were used instead. Those statements were adjusted for the effects of significant transactions that occurred between November 30, 2019 and December 31, 2019.

The following valuation methods for the recognized assets were applied:

• Inventories: The fair value of inventory was measured using the cost approach. Realized margins were added to the book values to calculate the selling price. Marketing and logistic costs were then deducted from the selling price.
• Other intangible assets: The fair value of the license agreement between Agron, Inc. and adidas America, Inc. was determined by discounting future profits after taxes until the end of the contract term on December 31, 2024.

For the year ending December 31, 2019 no net sales as well as no income and expenses of Agron, Inc. were included in the company’s consolidated income statement. If the first-time consolidation had occurred on January 1, 2019, the company’s total net sales would have been € 24,055 million while net income attributable to shareholders would have remained unchanged at € 1,976 million for the year ending December 31, 2019.

As at April 15, 2019 (closing date), the company formally completed the divestiture of its Global Merchandising, S.L. subsidiary. The final purchase price amounted to € 3 million in total, received in cash. All contractually agreed closing net assets were transferred by adidas at the closing date. In 2019, a resulting loss from this transaction in an amount of € 4 million was accounted for as other operating expenses.

The following assets and liabilities were derecognized from the consolidated statement of financial position as a result of the completed divestiture of Global Merchandising, S.L.: