19 » Pensions and Similar Obligations
The Group has obligations both from defined contribution and defined benefit pension plans. The benefits are provided pursuant to the legal, fiscal and economic conditions in each respective country.
Pensions and Similar Obligations € in millions
| Dec. 31 2006 |
Dec. 31 2005 |
|
| Defined benefit plans | 126 | 131 |
| Thereof: | ||
| adidas AG | 109 | 123 |
| Similar obligations | 8 | 17 |
| Pensions and similar obligations | 134 | 148 |
Defined Contribution Plans
The total expense for defined contribution plans amounted to € 42 million in 2006 (2005:
€ 14 million). All other pension plans are defined benefit plans, which are partly funded by
plan assets.
Defined Benefit Plans
Given the diverse Group structure, different defined benefit plans exist, comprising both pension
payments and widow’s and orphan’s pensions.
Actuarial Assumptions in %
| Dec. 31 2006 |
Dec. 31 2005 |
|
| Discount rate | 4.5 | 4.0 |
| Salary increases | 3.5 | 3.0 |
| Pension increases | 1.5 | 1.5 |
| Expected return on plan asset | 3.0 | — |
The actuarial valuations of the defined benefit plans are made at the end of each reporting
period. The assumptions for employee turnover and mortality are based on empirical data, the
latter for Germany on the 2005 version of the mortality tables of Dr. Heubeck. The actuarial
assumptions in Germany and in other countries are not materially different.
As of January 1, 2005, due to application of the amendment to IAS 19 “Employee Benefits”
issued in December 2004, the Group recognizes actuarial gains or losses of defined benefit
plans arising during the financial year immediately outside the income statement in the statement
of recognized income and earnings (SoRIE). The actuarial gain (loss) recognized in the
statement of recognized income and expense for 2006 was € 2 million (2005: € 14 million) The
cumulative recognized actuarial losses amount to € 30 million (2005: € 31 million) (see also
Note 22).
Pension Expenses € in millions
| Year ending Dec. 31 | ||
| 2006 | 2005 | |
| Current service cost | 7 | 9 |
| Interest cost | 5 | 5 |
| Expected return on plan assets | (1) | — |
| Pension expenses | 11 | 14 |
Of the total pension expenses, an amount of € 7 million (2005: € 11 million) relates to employees in Germany. Contributions to post-employment benefit plans for employees living in Germany for the year ending December 31, 2007, are expected to amount to € 11 million. The pension expense is recorded within the operating expenses whereas the production-related part thereof is recognized within the cost of sales.
Defined Benefit Obligation € in millions
| 2006 | |
| Defined benefit obligation as at January 1 | 131 |
| Increase in companies consolidated | 34 |
| Currency translation differences | 1 |
| Current service cost | 7 |
| Interest cost | 5 |
| Pensions paid | (6) |
| Actuarial loss in 2006 | (2) |
| Defined benefit obligation as at December 31 | 170 |
Status of Funded and Unfunded Obligations € in millions
| Dec. 31 2006 |
Dec. 31 2005 |
|
| Present value of unfunded obligation | 110 | 131 |
| Present value of funded obligation | 60 | — |
| Present value of total obligations | 170 | 131 |
| Fair value of plan assets | (44)1) | — |
| Recognized Liability for defined benefit obligations | 126 | 131 |
1) Part of the € 46 million total of plan assets cannot be deducted, as it is not possible to use the exceeding amount for another plan. |
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The calculations of the recognized assets and liabilities from defined benefit plans are based
upon statistical and actuarial calculations. In particular, the present value of the defined benefit
obligation is impacted by assumptions on discount rates used to arrive at the present
value of future pension liabilities and assumptions on future increases in salaries and benefits.
Furthermore, the Group’s independent actuaries use statistically based assumptions covering
areas such as future participant plan withdrawals and estimates on life expectancy. The
actuarial
assumptions used may differ materially from actual results due to changes in market
and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of
participants and other changes in the factors being assessed. These differences could impact
the assets or liabilities recognized in the balance sheet in future periods.
Movement in Plan Assets € in millions
| 2006 | |
| Fair value of plan assets at January 1 | — |
| Increase in companies consolidated | 25 |
| Contributions paid into the plan | 20 |
| Expected return on plan assets | 1 |
| Fair value of plan assets at December 31 | 46 |
The plan assets are invested in several pension funds. The return on plan assets is in conformity with the current strategy of the pension funds. In 2006, the actual return on plan assets was € 2 million.
Historical Development € in millions
| Dec. 31 2006 |
Dec. 31 2005 |
Dec. 31 2004 |
Dec. 31 2003 |
Dec. 31 2002 |
|
| Defined benefit obligation | 170 | 131 | 118 | 100 | 93 |
| Plan assets | 44 | — | — | — | — |
| Deficit in plan | 126 | 131 | 118 | 100 | 93 |
| Experience adjustments | 4 | 1 | — |
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