Page 2 of 5

Other activities to mitigate credit risks include retention of title clauses as well as, on a selective basis, credit insurances, accounts receivable sales without recourse and bank guarantees.

Objective evidence that financial assets are impaired includes, for instance, significant difficulty of the issuer or debtor, indications of the potential bankruptcy of the borrower and the disappearance of an active market for a financial asset because of financial difficulties. The Group utilises allowance accounts for impairments that represent our estimate of incurred credit losses with respect to accounts receivable.

Allowance accounts are used as long as the Group is satisfied that recovery of the amount due is possible. Once this is no longer the case, the amounts are considered irrecoverable and are directly written off against the financial asset.

The allowance consists of two components:

(1) an allowance established for all receivables dependent on the ageing structure of receivables past due date and

(2) a specific allowance that relates to individually assessed risk for each specific customer – irrespective of ageing.

At the end of 2010, no Group customer accounted for more than 10% of accounts receivable. We therefore believe that the potential financial impact of our credit risks from customers, particularly smaller retailers, is moderate and we rate the likelihood of occurrence as possible see Economic and Sector Development.

The adidas Group Treasury department arranges currency and interest rate hedges, and invests cash, with major banks of a high credit standing throughout the world. adidas Group companies are authorised to work with banks rated BBB+ or higher.

Only in exceptional cases are subsidiaries authorised to work with banks rated lower than BBB+. To limit risk in these cases, restrictions are clearly stipulated, such as maximum cash deposit levels. In addition, the credit default swap premiums of our partner banks are monitored on a weekly basis. In the event that the defined threshold is exceeded, credit balances are shifted to banks compliant with the limit. During 2010, the credit default swap premiums for many banks further declined from their highs in the aftermath of the financial turmoil in 2008. This development indicates a slight decrease of the associated risks.

Although financial market conditions improved in 2010, we continue to believe that the potential financial impact of credit risks from these assets is moderate and the likelihood of occurrence is possible. Nevertheless, we believe our risk concentration is limited due to the broad distribution of our investment business with more than 24 banks. At December 31, 2010, no bank accounted for more than 8% of our investment business and the average concentration, including subsidiaries’ short-term deposits in local banks, was 1%. This leads to a maximum exposure of € 105 million in the event of default of any single bank.

Furthermore, we held derivatives with a positive fair market value in the amount of € 86 million. The maximum exposure to any single bank resulting from these assets amounted to € 8 million and the average concentration was 1%.

Financing and liquidity risks

Liquidity risks arise from not having the necessary resources available to meet maturing liabilities with regard to timing, volume and currency structure. In addition, the adidas Group faces the risk of having to accept unfavourable financing terms due to liquidity restraints. Our Group’s Treasury department uses an efficient cash management system to manage liquidity risk. At December 31, 2010, Group cash and cash equivalents amounted to € 1.16 billion (2009: € 775 million). Moreover, our Group maintains € 2.17 billion bilateral short-term credit lines and a € 1.86 billion committed medium-term syndicated loan facility with international banks, which does not include a market disruption clause. The € 4.03 billion in credit lines are designed to ensure sufficient liquidity at all times see Treasury.

Future cash outflows arising from financial liabilities that are recognised in the Consolidated Statement of Financial Position are presented in the adjacent table:

               
  04

Future cash outflows1)

€ in millions

  
               
   
Up to 1
year		 Between
1 and 3
years		 Between
3 and 5
years

After

5 years

 Total  
  As at December 31, 2010          
 
  Bank borrowings2) 95 — — — 95  
  Private placements3) 320 482 237 118 1,157  
  Eurobond3) 24 48 514 — 586  
  Accounts payable 1,694 — — — 1,694  
  Other financial liabilities 27 2 1 — 30  
  Derivative financial liabilities 96 12 0 0 108  
  Total 2,256 544 752 118 3,670  
   
 
 
 
 
  
 
  As at December 31, 2009          
 
  Bank borrowings2) 103 — — — 103  
  Private placements3) 245 537 370 201 1,353  
  Eurobond3) 24 48 538 — 610  
  Accounts payable 1,166 — — — 1,166  
  Other financial liabilities 21 0 1 1 23  
  Derivative financial liabilities 81 23 1 1 106  
  Total 1,640 609 909 203 3,361  
1) Rounding differences may arise in totals. 

2)

 Classified as long-term (between 1 and 3 years) in the consolidated financial statements, as they are covered by the committed mid-term syndicated loan.
3)
Including interest payments.


Top