12 » Trademarks and other Intangible Assets

Trademarks and other intangible assets consist of the following:

At December 31, 2021, trademarks, mainly related to the acquisition of Runtastic GmbH in 2015, have indefinite useful lives. This is due to the expectation of permanent use of the acquired trademark Runtastic.

adidas tests at least on an annual basis whether trademarks with indefinite useful lives are impaired based on the value-in-use concept on the basis of the relevant cash-generating units.

Due to the change in the composition of the company’s operating segments and associated cash-generating units respectively, the Reebok trademark was tested for impairment in the first quarter 2021. The individual Reebok markets are defined as the regional markets which are responsible for the distribution of the Reebok brand. The regional Reebok markets are Europe, the Middle East and Africa (EMEA), North America, Greater China, Asia-Pacific (APAC), and Latin America. The number of cash-generating Reebok business units amounted to a total of five (2020: six). The underlying value drivers and key assumptions for impairment testing purposes remained in principle unchanged compared to the impairment test performed for the consolidated financial statements as at December 31, 2020. In this context, there was no need for Reebok trademark impairment.

Due to the classification of Reebok as a discontinued operation and held for sale, the Reebok trademark was initially measured in accordance with IAS 36 ‘Impairment of Assets’ and subsequently reclassified to ‘Assets/Liabilities classified as held for sale.'

The impairment test for the Reebok trademark was performed based on Reebok cash-generating units in the individual markets until the reclassification of the trademark as ‘assets classified as held for sale.' This required an estimate of the recoverable amount of the Reebok groups of cash-generating units to which the Reebok brand was allocated as a corporate asset based on projected revenues of the respective Reebok markets. The recoverable amount of the respective Reebok markets was determined on the basis of value in use based on the present value of the expected future cash flows.

This calculation used cash flow projections based on the financial planning covering a five-year period in total. The planning was based on long-term expectations of the company and, in total for the Reebok markets an average annual mid-single to-low-double-digit sales increase with varying forecast growth prospects for the different Reebok markets. Furthermore, adidas expected the operating margin to expand, primarily driven by an improvement in the gross margin, as well as lower operating expenses as a percentage of sales. The planning of capital expenditure and working capital was primarily based on past experience. The planning for future tax payments was based on current statutory corporate tax rates of the individual Reebok markets. Cash flows beyond the detailed planning period of the respective Reebok markets were extrapolated using a steady growth rate of 1.7% (2020: 1.7%). According to the company’s expectations, this growth rate did not exceed the long-term average growth rate of the business sector in the individual markets in which Reebok operates.

Discount rates were based on a weighted average cost of capital calculation considering a five-year average market weighted debt/equity structure and financing costs referencing major competitors for each Reebok market. The discount rates used were after-tax rates and reflected the specific equity and country risk of the relevant Reebok markets. The respective discount rates applied to the cash flow projections of the respective cash-generating Reebok business units ranged from 7.2% to 11.8% (2020: 7.2% to 11.8%).

In connection with the impairment test in the first quarter of 2021, an adjustment of the discount rate by approximately 0.2 percentage points or a reduction of planned free cash inflows by approximately 9% would have not resulted in an impairment requirement.

Further information on total depreciation and amortization expenses, impairment losses, and reversals of impairment losses is provided in these Notes. See Note 31