1. GENERAL4

Under the “PUMA” brand name, PUMA SE and its subsidiaries are engaged in the development and sale of a broad range of sports and sports lifestyle products, including footwear, apparel, and accessories. The company is a European stock corporation (Societas Europaea/SE) and the parent company of the PUMA Group, with its registered office on PUMA WAY 1, 91074 Herzogenaurach, Germany. The competent registry court is in Fürth (Bavaria).

The PUMA Group is included in the consolidated financial statements of Kering S.A., Paris; these financial statements are available on the website www.kering.com as well as from the “Autorité des Marchés Financiers (AMF)”.

The consolidated financial statements of PUMA SE and its subsidiaries (hereinafter referred to as the “Group” or “PUMA”) were prepared in accordance with the “International Financial Reporting Standards (IFRS)” accounting standards issued by the International Accounting Standards Board (IASB), as they are to be applied in the EU, and the supplementary accounting principles to be applied in accordance with Section 315a (1) of the German Commercial Code (Handelsgesetzbuch, HGB). The IASB standards and interpretations, as they are to be applied in the EU, which are mandatory for financial years as of Friday, January 1, 2016, have been applied.

The following new and amended standards and interpretations have been used for the first time in the current financial year:

The standards and interpretations used for the first time as of January 1, 2016 did not have any effect on the consolidated financial statements.

The following standards and interpretations have been released, but will only take effect in later reporting periods and are not applied earlier by the group:

IFRS 9 contains provisions for the recognition, measurement, derecognition and accounting of hedging transactions. As a result, the financial instruments previously accounted for under IAS 39 (Financial instruments: Recognition and Measurement) are now fully accounted for under IFRS 9. This includes, among other things, a new impairment model based on the expected credit defaults. IFRS 9 also contains new rules for the application of hedge accounting. Detailed analyses with respect to the first-time application of IFRS 9 are still being conducted. This is not expected to have any significant impact.

IFRS 15 stipulates when and in what amounts revenues are to be recognized. The standard provides a single, principle-based, five-step model to be applied to all contracts with customers. It also calls for more informative and relevant information to be provided to the target audience of the annual financial statements than before. Detailed analyses with respect to the first-time application of IFRS 15 are still being conducted. In particular, the new regulations on payments to customers, licenses and customer loyalty programs are subjected to a critical assessment. Because PUMA has not entered into any long-term contracts and multi-component agreements, no significant impact on accounting is expected.

The new leasing standard IFRS 16 will, in future, lead to the recognition of all leases in the form of a right to use and a corresponding leasing obligation. In all cases, they are presented in the income statement as a financing process, i.e. in general, the right to use must be amortized on a straight-line basis, and the leasing obligation must be amortized using the effective interest method. Detailed analyses with respect to the initial application of IFRS 16 are still being conducted. An estimate of the possible impact of the application of the new leasing standard is given in paragraph 28 (Other Financial Obligations: Obligations from Operating Leases).

The company does not anticipate the remaining standards mentioned above to have a significant impact on the consolidated financial statements.

The preparation of the consolidated financial statements was based on historical acquisition and manufacturing costs, with the exception of the profit or loss assessment of financial assets and liabilities at fair value.

The items contained in the financial statements of the individual Group companies are measured based on the currency that corresponds to the currency of the primary economic environment in which the company operates. The consolidated financial statements are prepared in euros (EUR or €). Amounts being shown in millions of euros with one decimal place may lead to rounding differences since the calculation of individual items is based on figures presented in thousands.

The cost of sales method is used for the income statement.

2. Significant Consolidation, Accounting and Valuation Principles

Consolidation Principles
The consolidated financial statements were prepared as of December 31, 2016, the reporting date of the annual financial statements of the PUMA SE parent company, on the basis of uniform accounting and valuation principles according to IFRS, as applied in the EU.

Subsidiaries are those companies in which the Group has existing rights which give it the current ability to control the company‘s main activities. The main activities are the activities which significantly influence the profitability of the company. Control is therefore exercised when the Group is exposed to variable returns from the relationship with a company and, by using its authority to exercise control over the main activities, it is possible to influence these returns. As a rule, the possibility of control is based on PUMA‘s holding a direct or indirect majority of the voting rights. The company is included from the time when the possibility of control exists. It ends when this no longer exists.

The capital consolidation of the subsidiaries acquired after January 1, 2005 is based on the acquisition method. Upon initial consolidation, the assets, debts and contingent liabilities that can be identified as part of a business combination are stated at their fair value as of the acquisition date, regardless of the non-controlling interests (previously referred to as minority interest). At the time of the acquisition, there is a separately exercisable right to vote on whether the interests of the non-controlling shareholders are valued at fair value or at proportional net asset value.

The surplus of the acquisition costs arising from the purchase that exceeds the Group’s share in the net assets stated at fair value is reported as goodwill. If the acquisition costs are lower than the amount of the net assets stated at fair value, the difference is reported directly in the income statement.

Pursuant to the contractual arrangement with the “joint venture partners”, PUMA is already the beneficial owner of some controlling interests. The companies are fully included in the consolidated financial statements, and, therefore, non-controlling interests are not disclosed. The present value of the capital shares attributable to the non-controlling shareholders and the present value of the residual purchase prices expected due to corporate performance are included in the capital consolidation as acquisition costs for the holdings. If there are any subsequent deviations, for acquisitions before January 1, 2010, these lead to a subsequent adjustment of the acquisition costs not affecting income. For business combinations as of January 1, 2010, the costs that can be directly allocated to the acquisition as well as subsequent deviations in the present value of expected residual purchase prices are recognized in the income statement pursuant to the application of the amended IFRS 3.

With respect to the remaining controlling interests, losses attributable to non-controlling interests are allocated to the latter, even if this results in a negative balance in non-controlling interests.

Receivables within the Group are offset against internal liabilities. As a general rule, any set-off differences arising from exchange rate fluctuations are recognized in the income statement to the extent that they accrued during the reporting period. If receivables and liabilities are long-term and capital-replacing in nature, the currency difference is recognized directly in equity and in Other Comprehensive Income.

In the course of the expense and income consolidation, inter-company sales and intra-group income are offset against the expenses attributable to them. Interim profits not yet realized within the Group as well as intra-group investment income are eliminated by crediting them in the income statement

Group of Consolidated Companies
Apart from PUMA SE, all subsidiaries in which PUMA SE has existing direct or indirect rights which give it the current ability to control the main activities are fully consolidated in the consolidated financial statements. At present, the possibility of control in all Group companies is based on the direct or indirect majority of the voting rights. Associated companies are accounted for in the Group using the equity method. The changes in the number of Group companies (including the parent company PUMA SE) were as follows:

The following changes occurred within the group of consolidated companies in financial year 2016:

The additions in the group of consolidated companies concern the acquisition of the companies Genesis Group International Ltd. and Admiral Teamsports Ltd. and the formation of the companies Janed Canada, LLC, PUMA Kids Apparel Canada, LLC, and PUMA Information Technology Services Philippines Company Limited Inc.

The disposals in the group of consolidated companies concern the closure of the companies PUMA Baltic UAB and the sale of the companies Brandon Oy, Brandon Company AB, Brandon AB, Brandon USA, Inc., Brandon Trading (Shanghai) Ltd., and Brandon Hong Kong Ltd.

These changes in the group of consolidated companies did not have a significant effect on the net assets, financial position and results of operations.

The Group companies are allocated to regions as follows:

PUMA Vertrieb GmbH, PUMA Mostro GmbH, PUMA Sprint GmbH, PUMA International Trading GmbH, and PUMA Europe GmbH have made use of the exemption under Section 264 (3) of the HGB.

Currency Conversion
As a general rule, monetary items in foreign currencies are converted in the individual financial statements of the Group companies at the exchange rate valid on the balance sheet date. Any resulting currency gains and losses are immediately recognized in the income statement. Non-monetary items are converted at historical acquisition and manufacturing costs.

The assets and liabilities of foreign subsidiaries, the functional currency of which is not the euro, have been converted to euros at the average exchange rates valid on the balance sheet date. Expenses and income have been converted at the annual average exchange rates. Any differences resulting from the currency conversion of net assets relative to exchange rates that had changed in comparison with the previous year were adjusted against equity.

The significant conversion rates per euro are as follows:

Derivative Financial Instruments/Hedge Accounting
Derivative financial instruments are recognized at fair value at the time a contract is entered into and thereafter. At the time when a hedging instrument is concluded, PUMA classifies the derivatives either as the hedge of a planned transaction (cash flow hedge) or the hedge of the fair value of a reported asset or liability (fair value hedge).

At the time when the transaction is concluded, the hedging relationship between the hedging instrument and the underlying transaction as well as the purpose of risk management and the underlying strategy are documented. In addition, assessments as to whether the derivatives used in the hedge accounting compensate effectively for a change in the fair value or the cash flow of the underlying transaction are documented at the beginning of and continuously after the hedge accounting.

Changes in the market value of derivatives that are intended and suitable for cash flow hedges and that prove to be effective are adjusted against equity, taking into account deferred taxes. If there is no complete effectiveness, the ineffective part is recognized in the income statement. The amounts recognized in equity are recognized in the income statement during the same period in which the hedged planned transaction affects the income statement. If, however, a hedged future transaction results in the recognition of a non- financial asset or a liability, gains or losses previously recorded in equity are included in the initial valuation of the acquisition costs of the respective asset or liability.

Changes in the fair value of derivatives that are suitable for fair value hedges and which have been determined as such are recognized directly in the consolidated income statement together with the changes in the fair value of the underlying transaction attributable to the hedged risk. The changes in the fair value of the derivatives and the change in the underlying transaction attributable to the hedged risk are reported in the consolidated income statement in the item related to the underlying transaction.

The fair values of the derivative instruments used to hedge planned transactions and to hedge the fair value of a reported asset or liability are shown under other current financial assets or other current financial liabilities.

Leasing
Leases are to be classified either as finance leases or operating leases. Leases where the Company, in its capacity as the lessee, is responsible for all significant opportunities and risks that arise from the use of the lease object are treated as finance leases. All other leases are classified as operating leases. The lease payments from operating leases are recorded as an expense over the term of the contract.

Cash and Cash Equivalents
Cash and cash equivalents include cash and bank balances. To the extent that bank deposits are not immediately required to finance current assets, they are invested as risk-free fixed-term deposits, presently for a term of three months. The total amount of cash and cash equivalents is consistent with the cash and cash equivalents stated in the cash flow statement.

Inventories
Inventories are valued at acquisition or manufacturing costs or at the lower net realizable values derived from the selling price on the balance sheet date. As a general rule, the acquisition cost of the merchandise is determined using the average cost method. Value adjustments are adequately recorded, depending on age, seasonality, and realizable market prices, in a manner that is standard throughout the Group.

Receivables and Other Assets
Receivables and other assets are initially stated at fair value, taking into account transaction costs, and subsequently valued at amortized costs after deduction of value adjustments. All identifiable risks with respect to value adjustments are sufficiently accounted for in the form of individual risk assessments based on historical values.

Adjustments are conducted in principle if, after the entry record of the financial asset, there are objective indications for an adjustment which has an effect on the expected future cash flow from that financial instrument. Significant financial difficulties of a debtor, an increased probability that a creditor becomes insolvent or enters into a clean-up procedure, as well as a breach of contract, e.g. a cancellation or delay in interest or amortization payments, all count as indicators for an existing adjustment. The amount of the adjustment loss corresponds to the difference between the carrying amount and the cash value of the expected cash flows.

The non-current assets contain loans and other assets. Non-taxable non-current assets are discounted in principle at cash value if the resulting effect is significant.

Non-current Investments
The investments reported under non-current financial assets are classified as “available for sale”. This category includes financial instruments that are not loans and receivables or held-to-maturity financial investments and that are not recognized in the income statement at fair value. The “held-to-maturity financial investments” category and “financial assets recognized in the income statement at fair value” do not apply within the PUMA Group.

All purchases and disposals of non-current investments are recognized as of the trading day. The initial recognition of non-current investments is made at fair value plus transaction costs. They are also recognized at fair value in subsequent periods, provided this can be determined reliably. Unrealized gains and losses are recognized in the statement of comprehensive income, taking into account deferred taxes. When the non-current investments are sold, the profit or loss is recognized in the income statement.

If there are significant objective indications for an impairment of non-current investments, they are written down in the income statement. In the case of equity investments classified as available for sale, a substantial or sustained reduction in the fair value of the assets below their acquisition costs is an objective indication of an impairment. The same applies if there is no longer an active market for listed shares.

Property, Plant, and Equipment
Property, plant, and equipment are stated at acquisition costs, net of accumulated depreciation. The depreciation period depends on the expected useful life of the respective item. The straight-line method of depreciation is applied. The useful life depends on the type of the assets involved. Buildings are subject to a useful life of between ten and fifty years, and a useful life of between three to ten years is assumed for moveable assets.

Repair and maintenance costs are recorded as an expense as of the date on which they were incurred. Substantial improvements and upgrades are capitalized to the extent that the criteria for capitalization of an asset item apply.

As a general rule, lease objects, the contractual basis of which is to be classified as a finance lease are shown under property, plant and equipment; initially they are accounted for at fair value or the lower present value of the minimum lease payments and net of accumulated depreciation in subsequent accounting periods.

Goodwill
Goodwill resulting from a business acquisition is calculated based on the difference between the purchase price and the fair value of the acquired asset and liability items. Goodwill from acquisitions is largely attributable to the intangible infrastructure acquired and the associated opportunity to make a positive contribution to corporate value.

Goodwill amounts are allocated to the Group’s cash-generating units that are expected to benefit from the synergy effects resulting from the business combination.

An impairment test of goodwill per cash-generating unit (usually the countries) is performed once a year as well as whenever there are indicators of impairment and can result in an impairment loss. There is no reversal of an impairment loss for goodwill.

Other Intangible Assets
Acquired intangible assets largely consist of concessions, intellectual property rights and similar rights. These are valued at acquisition costs, net of accumulated amortization. The useful life of intangible assets is between three and ten years.

If the capitalization requirements of IAS 38.57 “Intangible Assets” are cumulatively met, expenses for the development phase for internally generated intangible assets are capitalized at the time they are created. In subsequent periods, both internally generated intangible assets and acquired intangible assets are measured at cost less 
accumulated amortization and impairment losses. In the Group, internally generated intangible assets are generally amortized on a straight-line basis over a useful life of three years.

The item also includes acquired trademark rights, which were assumed to have an indefinite useful life in light of the history of the brands and due to the fact that the brands are continued by PUMA.

Impairment of Assets
Intangible assets with an indefinite useful life are not written down according to schedule, but are subject to an annual impairment test. Property, plant and equipment and other intangible assets with finite useful lives are tested for impairment if there is any indication of impairment in the value of the asset concerned. In order to determine whether there is a requirement to record the impairment of an asset, the recoverable amount of the respective asset (the higher amount of the fair value less costs to sell and value in use) is compared with the carrying amount of the asset. If the recoverable amount is lower than the carrying amount, the difference is recorded as an impairment loss. The test for impairment is performed, if possible, at the level of the respective individual asset, otherwise at the level of the cash-generating unit. Goodwill, on the other hand, is tested for impairment only at the cash-generating unit level. If it is determined within the scope of the impairment test that an asset needs to be written down, then the goodwill, if any, of the cash- generating unit is written down initially and, in a second step, the remaining amount is distributed proportionately over the remaining assets. If the reason for the recorded impairment no longer applies, a reversal of impairment loss is recorded to the maximum amount of the written down cost. There is no reversal of an impairment loss for goodwill.

Impairment tests are performed using the discounted cash flow method. For determining the fair value less costs to sell and value in use, the expected cash flows are based on corporate planning data. Expected cash flows are discounted using an interest rate in line with market conditions.

Investments in Associated Companies
Associated companies represent shareholdings, over which PUMA has a significant influence, but which do not qualify as subsidiaries or joint ventures. Significant influence is generally assumed when PUMA holds, directly or indirectly, at least 20 percent, but less than 50 percent of the voting rights.

Holdings in associated companies are accounted for using the equity method. Here, the shares are initially recognized at their acquisition cost and are subsequently adjusted for the prorata changes in the Company’s net assets that are attributable to PUMA. Any recognized goodwill is shown in the carrying amount of the associated company.

Within the scope of the impairment test, the carrying amount of a company valued at equity is compared with its recoverable amount provided that there is an indication that the asset has decreased in value. If the recoverable amount is lower than the carrying amount, the difference is recorded as an impairment loss. If the reasons for the previously recognized impairment no longer apply, a write-up is recognized in the income statement.

Financial Debt, Other Financial Liabilities and Other Liabilities
As a general rule, these entries are recognized at their acquisition cost, taking into account transaction costs and subsequently recognized at amortized cost. Non-interest or low-interest-bearing liabilities with a term of at least one year are recognized at present value, taking into account an interest rate in line with market conditions, and are compounded until their maturity at their repayment amount. Liabilities from finance lease agreements are recorded as of the beginning of the lease transaction at the amount of the present value of the minimum lease amount, or at the lower fair value, and are adjusted by the repayment amount of the lease installments.

As a general rule, current financial liabilities also include those long-term loans that that have a maximum residual term of up to one year.

Provisions for Pensions and Similar Obligations
In addition to defined benefit plans, some companies also have defined contribution plans, which do not result in any additional pension commitment other than the current contributions. The pension provision under defined benefit plans is generally calculated using the projected unit credit method. This method takes into account not only known pension benefits and pension rights accrued as of the reporting date, but also expected future salary and pension increases. The defined benefit obligation (DBO) is calculated by discounting expected future cash outflows at the rate of return on senior, fixed-rate corporate bonds. The currencies and maturity periods of the underlying corporate bonds are consistent with the currencies and maturity periods of the obligations to be satisfied. In some of the plans, the obligation is accompanied by a plan asset. The pension provision shown is reduced by the plan asset.

Revaluations, consisting of actuarial profits and losses, changes resulting from use of the asset ceiling and return on plan assets (without interest on the net debt) are immediately recorded under Other Comprehensive Income. The revaluations recorded in Other Comprehensive Income are part of the retained earnings and are no longer reclassified into calculation of profit and loss. Past service costs are recorded as an expense if changes are made to the plan.

Other Provisions
Provisions are recognized if the Group, as a result of a past event, has a current obligation and this obligation is likely to result in an outflow of resources with economic benefits, the amount of which can be reliably estimated. The provisions are recognized at their settlement value as determined on the basis of the best possible assessment and are not offset by income. Provisions are discounted if the resulting effect is significant.

Provisions for the expected expenses from warranty obligations pursuant to the respective national sales contract laws are recognized at the time of sale of the relevant products, according to the best estimate in relation to the expenditure needed in order to fulfill the Group’s obligation.

Provisions are also recognized to account for onerous contracts. An onerous contract is assumed to exist where the unavoidable costs for fulfilling the contract exceed the economic benefit arising from this contract.

Provisions for restructuring measures are also recorded if a detailed, formal restructuring plan has been produced, which has created a justified expectation that the restructuring measures will be carried out by those concerned due to its implementation starting or its major components being announced.

Treasury Shares
Treasury stock is deducted from equity at its market price as of the date of acquisition, plus incidental acquisition costs. Pursuant to the authorization of the Annual General Meeting, treasury stock can be repurchased for any authorized purpose, including the flexible management of the Company’s capital requirements.

Equity Compensation Plans/Management Incentive Program
In accordance with IFRS 2, stock-based compensation systems are recognized at fair value and recorded under personnel costs. PUMA has stock-based compensation systems in the form of stock options (SOP) involving compensation in shares and in the form of virtual shares with cash compensation.

The expenses associated with the SOP are determined from the fair value of the options as of the grant date, without taking into account the impact of non-market-oriented exercise hurdles (e.g. forfeited options if the eligible employee leaves the company prematurely). The expense is recorded by distributing it as personnel costs over the vesting period until the options are vested and is recognized as a capital reserve. Non-market-oriented exercise hurdles are adjusted in accordance with current expectations and the assessment of expected exercisable options is reviewed on each balance sheet date. The resulting gains and losses are recognized in the income statement and recorded through a corresponding adjustment in equity over the remaining period up to the vesting date.

For share-based remunerations with cash compensation, a liability is recorded for the services received and measured with its fair value upon addition.Until the debt is cleared, its fair value is recalculated on every balance sheet date and on the settlement date, and all changes to the fair value are recognized in the income statement.

Recognition of Sales Revenues
Revenues from the sale of products (sales revenues) are recognized at the time of the transfer of the significant opportunities and risks associated with the ownership of the goods and products sold to the buyer if it is likely that the Group will derive the economic benefit from the sale. The amount of the recognized sales revenues is based on the fair value of the consideration received or to be received, taking into account returns, discounts and rebates.

Royalty and Commission Income
Income from royalties is recognized in the income statement in accordance with the invoices to be submitted by the license holders. In certain cases, values must be estimated in order to permit accounting on an accrual basis. Commission income is invoiced to the extent that the underlying purchase transaction is deemed realized.

Advertising and Promotional Expenses
Advertising expenses are recognized in the income statement as of the date of their accrual. As a general rule, promotional expenses stretching over several years are recognized as an expense over the contractual term on an accrual basis. Any expenditure surplus resulting from this allocation of expenses after the balance sheet date are recognized in the form of an impairment of assets or a provision for anticipated losses in the financial statements.

Product Development
PUMA continuously develops new products in order to meet market requirements and market changes. Research costs are recognized in full as expenses when they are incurred. Development costs are also recognized as an expense at the time they are incurred unless they meet the recognition criteria of IAS 38 “Intangible Assets”.

Financial Result
The financial results include the results from associated companies as well as interest income from financial investments and interest expense from loans and financial instruments. Financial results also include interest expenses from discounted non-current liabilities and from pension provisions that are associated with acquisitions of business enterprises or arise from the valuation of pension commitments.

Exchange rate effects that can be directly allocated to an underlying transaction are shown in the respective income statement item.

Income Taxes
Current income taxes are determined in accordance with the tax regulations of the respective countries where the Company conducts its operations.

Deferred Taxes
Deferred taxes resulting from temporary valuation differences between the IFRS and tax balance sheets of individual Group companies and from consolidation procedures are charged to each taxable entity and shown either as deferred tax assets or deferred tax liabilities.Deferred tax assets may also include claims for tax reductions that result from the expected utilization of existing losses carried forward to subsequent years and which is sufficiently certain to materialize. Deferred tax assets or liabilities may also result from accounting treatments that do not affect net income. Deferred taxes are calculated on the basis of the tax rates that apply to the reversal in the individual countries and that are in force or adopted as of the balance sheet date.

Deferred tax assets are shown only to the extent that the respective tax advantage is likely to materialize. Value adjustments are recognized on the basis of the past earnings situation and the business expectations for the foreseeable future if this criterion is not fulfilled.

Assumptions and Estimates
The preparation of the consolidated financial statements requires some assumptions and estimates that have an impact on the amount and disclosure of the recognized assets and liabilities, income and expenses, as well as contingent liabilities. The assumptions and estimates are based on premises, which in turn are based on currently available information. In individual cases, the actual values may deviate from the assumptions and estimates made. Consequently, future periods involve a risk of adjustment to the carrying amount of the assets and liabilities concerned.

All assumptions and estimates are continuously reassessed. They are based on historical experiences and other factors, including expectations regarding future global and industry-related trends that appear reasonable under the current circumstances. Assumptions and estimates are particularly relevant for the valuation of goodwill, brands, pension obligations, derivative financial instruments and taxes. The most significant forward-looking assumptions and sources of estimation uncertainty as of the reporting date concerning the above-mentioned items are discussed below.

Goodwill and Brands
A review of the impairment of goodwill is based on the calculation of the value in use. In order to calculate the value in use, the Group must estimate the future cash flows from those cash-generating units to which the goodwill is allocated. To this end, the data used were from the three-year plan, which is based on forecasts of the overall economic development and the resulting industry-specific consumer behavior. Another key assumption concerns the determination of an appropriate interest rate for discounting the cash flow to present value (discounted cash flow method). The “relief from royalty method” method is used to value brands. See paragraph 10 for further information, in particular with regard to the assumptions used for the calculation.

Pension Obligations
Pension obligations are determined using an actuarial calculation. This calculation is contingent on a large number of factors that are based on assumptions and estimates regarding the discount rate, the expected return on plan assets, future wage and salary increases, mortality and future pension increases. Due to the long-term nature of the commitments made, the assumptions are subject to significant uncertainties. Any change in these assumptions has an impact on the carrying amount of the pension obligations. At the end of each year, the Group determines the discount rate applied to determine the present value of future payments. This discount rate is based on the interest rates of corporate bonds with the highest credit rating that are denominated in the currency in which the benefits are paid and the maturity of which corresponds to that of the pension obligations. See paragraph 15 for further information, in particular with regard to the parameters used for the calculation.

Taxes
Tax items are determined taking into account the various prevailing local tax laws and the relevant administrative opinions and, due to their complexity, may be subject to different interpretations by persons subject to tax on the one hand and the tax authorities on the other hand. Differing interpretations of tax laws may result in subsequent tax payments for past years; depending on the management’s assessment, these differing opinions may be taken into account.

The recognition of deferred taxes, in particular with respect to tax losses carried forward, requires that estimates and assumptions be made concerning future tax planning strategies as well as expected dates of initial recognition and the amount of future taxable income. The taxable income from the relevant corporate planning is derived for this judgment. This takes into account the past financial position and the business development expected in the future. Active deferred tax assets on losses carried forward are recorded in the event of companies incurring a loss only if it is highly likely that future positive income will be achieved that can be offset against these tax losses carried forward. Please see paragraph 8 for further information and detailed assumptions.

Derivative Financial Instruments
The assumptions used for estimating derivative financial instruments are based on the prevailing market conditions as of the balance sheet date and thus reflect the fair value. See paragraph 24 for further information.

3. Cash and Cash Equivalents

As of December 31, 2016, the Group has € 326.7 million (previous year: € 338.8 million) in cash and cash equivalents. The average effective interest rate of financial investments was 0.7% (previous year: 1.0%). There are no restrictions on disposition.

4. Inventories

Inventories are allocated to the following main groups:

The table shows the carrying amounts of the inventories net of value adjustments. Of the value adjustments of € 44.0 million (previous year: € 48.2 million), approx. 69% (previous year: approx. 72%) were recognized as expense under costs of sales in the 2016 financial year.

The amount of inventories recorded as an expense during the period mainly includes the cost of sales shown in the consolidated income statement.

5. Trade Receivables

This item consists of:

Allowances for trade receivables developed as follows:

The age structure of the trade receivables is as follows


With respect to trade receivables that were not written down, PUMA assumes that the debtors will satisfy their payment obligations.

6. Other Current Financial Assets

This item consists of:

The amount shown is due within one year. The fair value corresponds to the carrying amount.

7. Other Current Assets

This item consists of:

The amount shown is due within one year. The fair value corresponds to the carrying amount.

Other receivables mainly include VAT receivables amounting to € 17.8 million (previous year: € 15.7 million).

8. Deferred Taxes

Deferred taxes relate to the items shown below:

Of the deferred tax assets, € 85.3 million (previous year: € 87.7 million) and of the deferred tax liabilities € 11.3 million (previous year: € 17.6 million) are short term.

As of December 31, 2016, tax losses carried forward amounted to a total of € 596.9 million (previous year: € 675.0 million). This results in a deferred tax asset of € 171.8 million (previous year: € 192.1 million). Deferred tax assets were recognized for these items in the amount at which the associated tax advantages are likely to be realized in the form of future profits for income tax purposes. Accordingly, deferred tax assets for tax losses carried forward of € 61.5 million (previous year: € 73.0 million) have not been recognized; of this amount, € 59.3 million (previous year: € 73.0 million) are non-forfeitable; however, € 13.4 million can never be used due to the absence of future expectations.

In addition, no deferred taxes were recognized for deductible temporary differences amounting to € 5.0 million (previous year: € 5.9 million).

Deferred tax liabilities for withholding taxes from possible dividends on retained earnings of subsidiaries that serve to cover the financing needs of the respective company were not accumulated, since it is most likely that such temporary differences will not be cleared in the near future.

Deferred tax assets and liabilities are netted if they relate to a taxable entity and can in fact be netted. Accordingly, they are shown in the balance sheet as follows:

The changes in deferred tax assets were as follows:

The changes in deferred tax liabilities were as follows:

9. Property, Plant and Equipment

Property, plant and equipment at their carrying amounts consist of:

The carrying amount of property, plant, and equipment is derived from the acquisition costs. Accumulated depreciation of property, plant, and equipment amounted to € 307.5 million (previous year: € 280.6 million).

Property, plant, and equipment include leased assets (finance leasing) in the amount of €0.8 million (previous year: € 0.7 million).

The changes in property, plant, and equipment in the 2016 financial year are shown in “Changes in Fixed Assets”. As in the previous year, there were no impairment expenses that exceeded current depreciation during the reporting year.

10. Intangible Assets

This item mainly includes goodwill, intangible assets with indefinite useful lives, and assets associated with the Company’s own retail activities.

Goodwill and intangible assets with indefinite useful lives are not amortized according to schedule. Impairment tests were performed in the past financial year using the discounted cash flow method. This was based on data from the respective three-year plan. The recoverable amount was determined on the basis of the value in use. This did not result in an impairment loss.

The cash-generating unit ‘CPG – Cobra PUMA Golf’ includes the Cobra brand as an intangible asset, with an indefinite useful life, at € 134.9 million (previous year: € 130.6 million). The carrying amount of the Cobra brand is significant in comparison to the overall carrying amount of the intangible assets with an indefinite useful life. This is allocated to the Central Unit segment. The recoverable amount of the Cobra brand (Level 3) was determined on the basis of the “relief from royalty” method. As in the previous year, this calculation assumed a royalty rate of 8%, a 3% growth rate and a discount rate of 6.8% p.a..

In 2016, development costs related to COBRA brand golf clubs were capitalized for the first time in the amount of € 1.9 million. The development costs are allocated to other intangible assets in the “Changes in fixed assets” item. Current depreciation related to development costs amounted to € 0.0 million in 2016.

The changes in intangible assets in the 2016 financial year are shown in “Changes in Fixed Assets”. Other intangible assets include advance payments in the amount of € 2.0 million (previous year: € 0.5 million). As in the previous year, there were no impairment expenses that exceeded current depreciation.

Goodwill is allocated to the Group’s identifiable cash-generating units (CGUs) according to the country where the activity is carried out.

Summarized by region, goodwill is allocated as follows:

Assumptions used in conducting the impairment test 2016:

The tax rates used for the impairment test correspond to the actual tax rates in the respective countries. The cost of capital (WACC) was derived from observable market data.

In addition, as a rule, a growth rate of 3% is assumed. A growth rate of less than 3% was used only in justified exceptional cases.

The cash-generating unit ‚Dobotex‘ includes goodwill of € 139.4 million (previous year: €139.4 million), which is significant in comparison to the overall carrying amount of the goodwill. The cash-generating unit corresponds to a Business Unit of PUMA which is allocated to the Central Unit. The recoverable amount was determined by calculating value in use, using a discount rate of 6.5% p.a. (previous year: 6.3% p.a.) and a growth rate of 2% (previous year: 2%).

Sensitivity analyses related to the impairment tests carried out indicate that an increase in each discount rate of one percentage point and a simultaneous decrease in each growth rate of one percentage point result in an impairment indication in relation to goodwill and intangible assets with unlimited or indefinite useful lives in the total amount of € 19.3 million. Sensitivity analyses with an increase in the discount rate of one percentage point result in a total impairment indication of € 5.6 million and sensitivity analyses with a decrease in the growth rate of one percentage point result in a total impairment indication of € 2.6 million.

The following table contains the assumptions for the performance of the impairment test in the previous year:

A growth rate of 3% was generally assumed, and a growth rate of under 3% has only been used in exceptional cases where this is justified.

11. Investments in Associated Companies

The 20.02% interest in Wilderness Holdings Ltd. is shown under investments in associated companies. The carrying amount of the shares is € 16.5 million (previous year: € 15.2 million).

The following overview shows the aggregated benchmark data of the associated companies recognized at equity. The values represent the values based on the entire company and do not relate to the shares attributable to the PUMA Group.

PUMA’s share of the net earnings of Wilderness Holdings Ltd. amounts to € 1.2 million (previous year: € 1.0 million).

The reporting date of Wilderness Holdings Ltd. is February 28, 2017. The above information relates to the company‘s financial information as of December 31.

12. Other Non-current Assets

Other non-current financial and non-financial assets consist of:

The non-current investments relate to the 5.0% share in Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien (BVB), which has its headquarters in Dortmund, Germany.

Other financial assets mainly include rental deposits in the amount of € 19.9 million (previous year: €14.2 million). The other non-current non-financial assets mainly include deferrals in connection with promotional and advertising agreements.

In the 2016 financial year, there were no indicators of impairment of other non-current assets.

13. Liabilities

The residual terms of liabilities are as follows:

PUMA has confirmed credit facilities amounting to a total of € 487.6 million (previous year: €401.7 million). Of the financial liabilities, € 4.6 million (previous year: € 0.0 million) were claimed from credit facilities only granted until further notice. Unutilized confirmed credit facilities totaled € 433.1 million on December 31, 2016, compared to € 306.0 million the previous year.

The effective interest rate of the financial liabilities ranged between 1.0% and 12.25% (previous year: 0.6% to 12.2%).

The table below shows the cash flows of the original financial liabilities and of the derivative financial instruments with a positive and negative fair value: Current financial liabilities can be repaid at any time.

The following values were determined in the previous year:

14. Additional Disclosures on Financial Instruments

Financial instruments that are measured at fair value in the balance sheet were determined using the following hierarchy:

Level 1: 
Use of prices quoted on active markets for identical assets or liabilities.

Level 2: 
Use of input factors that do not involve the quoted prices stated under Level 1, but can be observed for the asset or liability either directly (i.e. as price) or indirectly (i.e. derivation of prices).

Level 3: 
Use of factors for the valuation of the asset or liability that are based on non-observable market data.

The fair value of “available-for-sale” financial assets (AfS) was determined according to Level 1. The market values of derivative assets or liabilities were determined on the basis of Level 2.

Cash and cash equivalents, trade receivables and other assets have a short residual maturity. Accordingly, as of the reporting date, the carrying amount approximates fair value. Receivables are stated at nominal value, taking into account deductions for default risk.

Accordingly, as of the reporting date, the carrying amount of loans receivable approximates fair value.

The fair values of other financial assets correspond to their carrying amount, taking into account prevailing market interest rates. Other financial assets include € 22.6 million (previous year: € 25.1 million) that were pledged as rental deposits at usual market rates.

Liabilities to banks can be terminated at any time and thus have a short maturity. Accordingly, as of the reporting date, the carrying amount approximates fair value.

Trade payables have a short residual maturity. The recognized values approximate fair value.

Pursuant to the contracts entered into, liabilities from acquisitions associated with acquisitions of business enterprises lead to payments. The resulting nominal amounts were discounted at a reasonable market interest rate, depending on the expected date of payment. As of the end of the financial year, the market interest rate only affects one company and is 0.4%.

The fair values of other financial liabilities are determined based on the present values, taking into account the prevailing interest rate parameters.

The fair values of derivatives with hedging relationships as of the balance sheet date are determined taking into account the prevailing market parameters. The discounted result of the comparison of the forward price on the reporting date with the forward price on the valuation date is included in the measurement.

Net income by measurement categories:

The net income was determined by taking into account interest rates, currency exchange effects, impairment losses, as well as gains and losses from sales.

General administrative expenses include write-downs of receivables.

15. Pension Provisions

Pension provisions result from employees’ claims for benefits, which are based on the statutory or contractual regulations applicable in the respective country, in the event of invalidity, death, or when a certain retirement age has been reached. Pension commitments in the PUMA Group include both benefit- and contribution-based pension obligaobligations and include both obligations from current pensions and rights to pensions payable in the future. The pension obligations are financed by both provisions and funds.

The risks associated with the pension obligations mainly concern the usual risks of benefit-based pension plans in relation to possible changes in the discount rate and, to a minor degree, inflation trends and recipient longevity. In order to limit the risks of changed capital market conditions and demographic developments, plans with the maximum obligations were agreed or insured a few years ago in Germany and the UK for new hires. The specific risk of salary-based obligations is low within the PUMA Group. The introduction in 2016 of an annual ceiling for pensionable salary in the UK plan ensures that this risk is now covered for the highest obligations. Unlike the previous year, the UK Plan has therefore been classified as a non-salary obligation.

The following values were determined in the previous year:

The main pension regulations are described below:

The general pension regulations of PUMA SE generally provide for pension payments to a maximum amount of € 127.82 per month and per eligible employee. They have been in place for new hires since 1996. In addition, PUMA SE provides individual commitments (fixed sums in different amounts) as well as contribution-based individual commitments (in part from salary conversion). The contribution-based commitments are insured plans. There are no statutory minimum funding requirements. The scope of the obligations attributable to domestic pension claims (PUMA SE) at the end of 2016 amounts to € 25.9 million and thus accounts for 32.2% of the total obligation. The fair value of the plan assets relative to domestic obligations amounts to € 14.1 million. The corresponding pension provision amounts to € 11.7 million.

The defined benefit plan in the UK has been closed to new hires since 2006. This defined benefit plan includes salary and length of service-based commitments to provide retirement, invalidity and surviving dependents’ pension benefits. In 2016, a growth ceiling of 1% p.a. on pensionable salary was introduced. Partial capitalization of the retirement pension is permitted.¬ There are statutory minimum funding requirements. The obligations regarding pension claims under the defined benefit plan in the UK amount to € 41.6 million at the end of 2016 and thus account for 51.8% of the total obligation. The obligation is covered by assets amounting to € 31.4 million. The provision amounts to €10.3 million.

The changes in the present value of pension claims are as follows:

The changes in the plan assets are as follows:

The pension provision for the Group is derived as follows:

In 2016, benefits paid amounted to € 3.0 million (previous year: € 2.3 million). Payments in 2017 are expected to amount to € 1.8 million. Of this amount, € 1.0 million is expected to be paid directly by the employer. In 2016, contributions to external plan assets amounted to € 1.9 million (previous year: € 2.3 million). Contributions in 2017 are expected to amount to € 1.7 million.

The changes in pension provisions are as follows:

The expenseses in the 2016 financial year are structured as follows:

Actuarial gains and losses recorded in Other Comprehensive Income:

Plan asset investment classes:

Of which investment classes with a quoted marked price:

As in previous years, plan assets do not include the Group’s own financial instruments or real estate used by Group companies.

The plan assets are used exclusively to fulfill defined pension commitments. Legal requirements exist in some countries for the type and amount of financial resources that can be chosen; in other countries (for example Germany), they can be chosen freely. In the UK, a board of trustees made up of Company representatives and employees is in charge of asset management. Its investment strategy is aimed at long-term profits and low volatility.

The following assumptions were used to determine pension obligations and pension expenses:

The indicated values are weighted average values. A standard interest rate of 1.25% was applied for the euro zone (previous year: 2.00%).

The following overview shows how the present value of pension claims from benefit plans would have been affected by changes to significant actuarial assumptions.

Salary and pension trends have only a negligible effect on the present value of pension claims due to the structure of the benefit plans.

The weighted average duration of pension commitments is 20 years.

16. Other Provisions

The warranty provision is determined on the basis of the historical value of sales generated during the past six months. It is expected that the majority of these expenses will fall due within the first six months of the next financial year. The warranty provision includes €1.9 million in non-current provisions (previous year: € 3.7 million).

Purchasing risks relate primarily to materials and molds that are required for the manufacturing of shoes. The provision will probably result in a payment in the following year.

Other provisions consist of risks associated with legal disputes in the amount of € 28.7 million (previous year: € 27.8 million) and provisions for anticipated losses from pending business and other risks in the amount of  € 36.1 million (previous year: € 32.4 million). Non-current provisions totaling € 27.9 million (previous year: € 19.8 million) are included in other provisions.

17. Liabilities from the Acquisition of Business Entities

Pursuant to the contracts entered into, liabilities from acquisitions associated with acquisitions of business enterprises lead to payments. The resulting nominal amounts were discounted at a reasonable market interest rate, depending on the expected date of payment.

The existing liabilities from acquistions relate to the acquisition of Genesis Group International Ltd. (previous year: PUMA Taiwan Sports Ltd.) and consist of:

18. Shareholders’ Equity

Subscribed Capital
The subscribed capital corresponds to the subscribed capital of PUMA SE. As of the balance sheet date, the subscribed capital amounted to € 38.6 million and is divided into 15,082,464 bearer shares. Each no-par-value share corresponds to € 2.56 of the subscribed capital (share capital).

Changes in the circulating shares:

Capital Reserve
The capital reserve includes the premium from issuing shares, as well as amounts from the grant, conversion and expiration of share options.

Retained Earnings and Net Profit
Retained earnings and net profit include the net income of the financial year as well as the income of the companies included in the consolidated financial statements achieved in the past to the extent that it was not distributed.

Reserve from the Difference Resulting From Currency Conversion
The equity item for currency conversion serves to record the differences from the conversion of the financial statements of subsidiaries with non-Euro accounting compared to the date of first consolidation of the subsidiaries.

Cash Flow Hedges
The “cash flow hedges” item includes the market valuation of derivative financial instruments. The item totaling € 54.3 million (previous year: € 21.2 million) is adjusted for deferred taxes in the amount of € -0.5 million (previous year: € -5.3 million).

Treasury Stock
The resolution adopted by the Annual General Meeting on May 6, 2015 authorized the company to purchase treasury shares up to a value of ten percent of the share capital until May 5, 2020. If purchased through the stock exchange, the purchase price per share may not exceed or fall below 10% of the closing price for the Company’s shares with the same attributes in the XETRA trading system (or a comparable successor system) during the last three trading days prior to the date of purchase.

The Company did not make use of the authorization to purchase treasury stock during the reporting period. As of the balance sheet date, the Company continues to hold a total of 142,551 PUMA shares in its own portfolio, which corresponds to 0.95% of the subscribed capital.

Authorized Capital
Pursuant to the resolution of the Annual General Meeting dated April 24, 2012, the Administrative Board is authorized to increase the share capital by April 23, 2017 as follows:

A) 
By issuing up to € 7.5 million worth of up to 2,929,687 new no-par bearer shares on one or more occasions with a pro-rata amount of the share capital of € 2.56 per share in exchange for cash contributions. The new shares can also be acquired by one or several banks as determined by the Administrative Board, subject to the obligation to offer these to the shareholders for subscription (indirect subscription right). The shareholders are basically entitled to a subscription right, whereby the shareholders’ subscription rights may be excluded to prevent fractional amounts (Authorized Capital I).

B) 
By issuing up to € 7.5 million worth of up to 2,929,687 new no-par bearer shares on one or more occasions with a pro-rata amount of the share capital of € 2.56 per share in exchange for cash contributions or contributions in kind. The new shares can also be acquired by one or several banks as determined by the Administrative Board, subject to the obligation to offer these to the shareholders for subscription (indirect subscription right). Shareholders have in principle subscription rights whereby the shareholders’ subscription rights may be wholly or partially excluded to avoid fractional shares (Subscribed Capital II).

Dividends
The amounts eligible for distribution relate to the net income of PUMA SE, which is determined in accordance with German Commercial Law.

The Managing Directors recommend to the Administrative Board and the Annual General Meeting that a dividend of € 0.75 per circulating share, or a total of € 11.2 million (with respect to the circulating shares as of December 31), be distributed to the shareholders from the net income of PUMA SE for the 2016 financial year. This corresponds to a payout ratio of 18.0% relative to consolidated net income compared to 20.2% in the previous year.

Appropriation of the Net Income of PUMA SE:

Non-controlling Interests
The non-controlling interest remaining as of the balance sheet date relates to the company PUMA Accessories North America, LLC (formerly: PUMA Wheat Accessories, Ltd) at € 1.1 million (previous year: € -0.5 million) and Janed, LLC at € 11.9 million (previous year: €7.2 million), PUMA Kids Apparel North America, LLC at € 0.6 million (previous year: €1.3 million), Janed Canada, LLC at € 0.8 million and PUMA Kids Apparel Canada, LLC at €0.9 million.

Capital Management
The Group’s objective is to retain a strong equity base in order to maintain both investor and market confidence and to strengthen future business performance.

Capital management relates to the consolidated equity of PUMA. This is shown in the consolidated balance sheet as well as the reconciliation statement concerning “Changes in Equity.”

19. Equity Compensation Plans/Management Incentive Program

In order to provide long-term incentives and thereby retain the management staff in the Company, PUMA uses share-based compensation systems in the form of stock option programs (SOP) and in the form of virtual shares with cash compensation.

The current programs are described below:

Explanation of “SOP”
Pursuant to the resolution of the Annual General Meeting of April 22, 2008, a stock option program, “SOP 2008”, was accepted in the form of a “Performance Share Program”. Conditional capital was created for this purpose and the Supervisory Board and the Board of Management of PUMA AG (as of July 25, 2011 change of form into SE) were authorized to grant subscription rights to the members of the Board of Management and other executives of the Company and of affiliated subsidiary companies for five years (after the registration of the conditional capital in the commercial register), but for at least three months after the end of the Annual General Meeting in 2013.

The term of the subscription rights issued and to be issued is five years and these subscription rights can be exercised after two years at the earliest, provided, however, that the price of the PUMA share has increased by at least 20% as of the date granted. In contrast to traditional stock option programs, the equivalent amount of the increase in value of the PUMA share since the date granted is serviced with shares, whereby the beneficiary pays an option price of € 2.56 per share granted if the share was issued as part of a capital increase. If employees leave the company, then their options rights expire.

Furthermore, pursuant to the authorization, the Administrative Board, in accordance with the recommendations of the Corporate Governance Code, may limit, fully or partially, the scope and contents of subscription rights issued to the company’s managing directors in the event of extraordinary unforeseen developments. This option is also available to the Board of Management with respect to the other executives concerned.

The programs were valued using a binomial model or a Monte Carlo simulation.

The following parameters were used to determine the fair value:

The historical volatility during the year prior to the date of valuation was used to determine the expected volatility.

Changes in the “SOP” during the financial year:

Pursuant to Section 5 of the Option Terms and Conditions, every year the options are subject to a vesting period from December 15 for up to ten trading days after the Annual General Meeting. Accordingly, no options can be exercised as of the reporting date.

As of the date of allocation, the average fair value per option is € 49.44 for “Tranche I– 2008”. Taking into account the vesting period, there are no expenses for the current financial year. Of the options in circulation, 0 options belong to the previous members of the Board of Management of PUMA AG or the current Managing Directors.

Pursuant to the allocation, the average fair value per option was € 53.49 for “Tranche II – 2008”. Taking into account the vesting period, there are no expenses for the current financial year. Of the options in circulation, 0 options belong to the previous members of the Board of Management of PUMA AG or the current Managing Directors.

Pursuant to the allocation, the average fair value per option was € 61.81 for “Tranche III – 2008”. Taking into account the vesting period, there are no expenses for the current financial year. Of the options in circulation, 0 options belong to the previous members of the Board of Management of PUMA AG or the current Managing Directors.

Pursuant to the allocation, the average fair value per option was € 40.14 for “Tranche IV – 2008”. Taking into account the vesting period and the forfeitures, there are no expenses for the current financial year. A total of 0 options belong to the previous members of the Board of Management of PUMA AG or the current Managing Directors at the end of the year.

Pursuant to the allocation, the average fair value per option was € 44.59 for “Tranche V – 2008”. Taking into account the vesting period and the forfeitures, there are no expenses for the current financial year. A total of 4,484 options belong to the current Managing Directors at the end of the year.

Explanation of “virtual shares” (monetary units)
In the 2013 financial year, the Company began to grant “monetary units” on an annual basis as part of a management incentive program. In this context, monetary units are based on the performance of the PUMA and Kering shares. Each of these monetary units entitles the bearer to a cash payment at the end of the term. This payment depends on the year-end price of the PUMA share that is determined (component 1), which has a 70% weighting, and on the year-end price of the Kering share (component 2), which has a 30% weighting. Component 1 compares success with the rights to the average virtual value increase of the last 30 days of the previous year. Component 2, on the other hand, measures the success by comparing the development of the Kering share with the average development of a reference portfolio of the luxury and sports sector over the same period. Monetary units are subject to a vesting period of three years. After that, there is an exercise period of two years (in the period from April to October) which can be freely used by participants for the purposes of execution. The fundamental exercise condition after the vesting period is the existence of an active employment relationship with PUMA.

In the 2016 financial year, an expense of € 2.1 million was formed for this purpose on the basis of the contractual commitments to the Managing Directors.

This commitment consisting of share-based remuneration transactions with cash compensation is recorded as personnel provisions and revalued on every balance sheet date at fair value. Expenses are likewise recorded over the vesting period. Based on the market price on the balance sheet date, the provision for the two programs amounted to a total of € 4.9 million at the end of the financial year.

Explanation of the “Game Changer 2017” program
In addition, another long-term incentive program called “Game Changer 2017” was launched in 2014. Participants in this program consist mainly of top executives who report to the Managing Directors, as well as individual key functions in the PUMA Group. The goal of this program is to bind this group of employees to the Company in the long term and to allow them to participate in the medium-term success of the Company.

The duration of the program is three years and is based on the medium-term objectives of the PUMA Group in terms of EBIT (70%), working capital (15%), and gross profit margin (15%). For the program, a corresponding provision is recognized each year when the respective currency-adjusted targets are met. The credits accumulated in this way will then be paid out to the participants in March 2017. The payment is subject to the condition that the participant is in an unterminated employment relationship with a company of the PUMA Group as of December 31, 2016. In the reporting year, € 0.5 million was allocated for this program.

Explanation of the “Game Changer 2018” program
In 2015, the “Game Changer 2018” program was launched, which is subject to the same parameters as the “Game Changer 2017” program. In the reporting year, € 0.8 million was allocated for this program.

Explanation of the “Game Changer 2019” program
In 2016, the “Game Changer 2019” program was launched, which is subject to the same parameters as the “Game Changer 2017” program. In the reporting year, € 1.0 million was allocated for this program.

Other operating income and expenses are allocated based on functional areas as follows:

Within the sales and distribution expenses, marketing/retail expenses account for a large proportion of the operating expenses. In addition to advertising and promotional expenses, they also include expenses associated with the Group’s own retail activities. Other sales and distribution expenses include warehousing expenses and other variable sales and distribution expenses.

Administrative and general expenses include expenses for the statutory auditor of PUMA SE in the amount of € 0.9 million (previous year: € 0.8 million). Of this, € 0.8 million is allocated to auditing expenses (previous year: € 0.7 million) and € 0.1 million to tax advisory services (previous year: € 0.1 million).

Other operating income includes income from the allocation of development costs in the amount of € 0.7 million (previous year: € 6.1 million) and other income in the amount of €0.2 million (previous year: € 17.8 million).

Overall, other operating expenses include personnel costs, which consist of:

In addition, cost of sales includes personnel costs in the amount of € 15.3 million (previous year: € 20.7 million).

The annual average number of employees was as follows:

As of the end of the year, a total of 11,495 individuals were employed (previous year: 11,351).

21. Financial Result

This financial result consists of:

Income from associated companies results exclusively from the shareholding in Wilderness Holdings Ltd. (see also paragraph 11).

Financial income includes exclusively interest income.

Interest expenses result from financial liabilities as well as financial instruments.

Moreover, the financial result includes a total of € 6.4 million in expenses from currency conversion differences (previous year: income of € 8.2 million), which are attributable to financing activities.

22. Income Taxes

In general, PUMA SE and its German subsidiaries are subject to corporate income tax, plus a solidarity surcharge and trade tax. Thus, a weighted mixed tax rate of 27.22% continued to apply for the financial year.

Reconciliation of the theoretical tax expense with the effective tax expense:

The tax effect resulting from items that are directly credited or debited to equity is shown directly in the statement of comprehensive income.

Other effects includes withholding tax expenses of € 11.0 million (previous year: € 11.4 million).

23. Earnings per Share

The earnings per share are determined in accordance with IAS 33 by dividing the consolidated annual surplus (consolidated net earnings) attributable to the shareholder of the parent company by the average number of circulating shares. Potential shares from the management incentive program may lead to a dilution of this indicator (see paragraph 19).

The calculation is shown in the table below:

24. Management of the Currency Risk

In the 2016 financial year, PUMA designated “forward purchase USD” currency derivatives as cash flow hedges in order to hedge the amount payable of purchases denominated in USD, which is converted to euros.

The nominal amounts of open rate-hedging transactions, which relate mainly to cash flow hedges, refer to currency forward transactions in a total amount of € 1,850.6 million (previous year: € 1,491.2 million). Cash flows for these underlying transactions are expected in 2017 and 2018. For further details, please refer to the explanatory note under paragraph 13.

The market values of open rate-hedging transactions on the balance sheet date consist of:

The changes in effective cash flow hedges are shown in the schedule of changes in shareholders’ equity and the statement of comprehensive income.

In order to disclose market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes in relevant risk variables on earnings and equity. The periodic effects are determined by relating the hypothetical changes caused by the risk variables to the balance of the financial instruments held as of the balance sheet date. The underlying assumption is that the balance as of the balance sheet date is representative for the entire year.

Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and is monetary in nature. Differences resulting from the conversion of the individual financial statements to the Group currency are not taken into account. All non-functional currencies in which PUMA employs financial instruments are generally considered to be relevant risk variables.

Currency sensitivity analyses are based on the following assumptions:
Material primary monetary financial instruments (cash and cash equivalents, receivables, interest-bearing debt, liabilities from finance leases, non-interest-bearing liabilities) are either denominated directly in the functional currency or transferred into the functional currency through the use of currency forward contracts.

Currency forward contracts used to hedge against payment fluctuations caused by exchange rates are part of an effective cash-flow hedging relationship pursuant to IAS 39. Changes in the exchange rate of the currencies underlying these contracts have an effect on the hedge reserve in equity and the fair value of these hedging contracts.

If, as of December 31, 2016, the USD had appreciated (devalued) against all other currencies by 10%, the hedge reserve in equity and the fair value of the hedging contracts would have been € 106.2 million higher (lower) (December 31, 2015: € 105.5 million higher (lower)).

Currency risks are discussed in greater detail in the Group Management Report under the Risk Management section.

25. Segment Reporting

Segment reporting is based on geographical regions in accordance with our internal reporting structure. Sales revenues and operating results (EBIT) are shown according to the head office of the respective Group company of the corresponding region. The inter-company sales of the respective region are eliminated. The allocation of the remaining segment information is also determined on the basis of the respective Group company’s head office. The totals equal the amounts at the time in the income statement and the balance sheet.

The regions are subdivided into EMEA (Europe, Middle East and Africa), Americas (North and Latin America), and Asia/Pacific.

The segments’ internal sales are generated on the basis of market prices. They are not considered in the representation, as they are not relevant for controlling.

Due to a change in internal reporting in connection with the presentation of intercompany allocations, there has been a shift in profitability between the individual regions and the Central Unit. The previous year’s figures for the operating result (EBIT) have been adjusted accordingly. The remaining segment figures are not affected by the change.

Investments and depreciation/amortization relate to additions and depreciation/amortization of property, plant and equipment and intangible assets during the current financial year. As in the previous year, no total impairment expenses were taken into account in the segments.

Since PUMA is active in only one business area, the sports equipment industry, products are allocated according to the footwear, apparel and accessories product segments in accordance with the internal reporting structure. According to this reporting structure, except the allocation of sales revenue and of the gross profit there is no other allocation of the operating result as well as of the asset and liability items.

Business segments 1-12/2016

* includes CPG (Cobra PUMA Golf Business), Brandon, Dobotex, sports merchandising, sourcing and central office functions



26. Notes to the Cash Flow Statement

The cash flow statement was prepared in accordance with IAS 7 and is structured based on cash flows from operating, investment and financing activities. The indirect method is used to determine the cash outflow/inflow from ongoing operating activities. The gross cash flow, derived from earnings before income tax and adjusted for non-cash income and expense items, is determined within the cash flow from ongoing operating activities.¬ Cash inflows/outflows from operating activities, reduced by investments in property, plant and equipment as well as intangible assets is referred to as “free cash flow”.

The financial resource fund reported in the cash flow statement includes all payment methods and equivalent payment methods shown under “Cash and cash equivalents”, i.e. cash in hand, checks, and current bank balances.

27. Contingencies and Contingent Liabilities

Contingencies
As in the previous year, there were no reportable contingencies.

Contingent Liabilities
As in the previous year, there were no reportable contingent liabilities.

28. Other Financial Obligations

Obligations from Operating Leases
The Group rents and leases offices, warehouses, facilities, fleets of vehicles and sales rooms for its own retail business. Rental agreements for the retail business are concluded for terms of between five and fifteen years. The remaining rental and lease agreements typically have residual terms of between one and five years. Some agreements include options of renewal and price adjustment clauses.

Total expenses resulting from these agreements amounted in 2016 to € 149.9 million (previous year: € 143.3 million) of which € 16.2 million (previous year: € 15.9 million) were dependent on sales.

As of the balance sheet date, the obligations from future minimum rental payments for operating lease agreements are as follows:

Further Other Financial Obligations
Furthermore, the Company has other financial obligations associated with license, promotional and advertising agreements, which give rise to the following financial obligations as of the balance sheet date:

As is customary in the industry, the promotional and advertising agreements provide for additional payments on reaching pre-defined goals (e.g. medals, championships). Although these are contractually agreed upon, they naturally cannot be exactly foreseen in terms of their timing and amount.

In addition, there are other financial obligations totaling € 7.2 million, of which € 3.0 million relate to the years from 2017. These include service agreements of € 6.6 million and other obligations of € 0.6 million.

29. Managing Directors and Administrative Board

Disclosures pursuant to Section 314 (1)(6) of the HGB (German Commercial Code)
In accordance with the Act on Disclosure of Management Board Compensation of August 3, 2005, the disclosure of the individual earnings of the members of the Board of Management and Managing Directors may be dispensed with for a period of 5 years pursuant to Section 286 (5); Section 285(9)(a) sentences 5 – 8; Section 314 (2)(2); Section 314 (1)(6)(a) sentences 5 – 8 of the HGB, if the Annual General Meeting passes a resolution in this regard by a 75% majority.

Pursuant to the resolution of the Annual General Meeting of May 7, 2013, the Company was authorized to refrain from disclosures pursuant to Section 285(9)(a) sentences 5 – 8 and Section 314 (1)(6)(a) sentences 5-8 of the HGB with respect to the financial year beginning on January 1, 2013 and all subsequent financial years ending December 31, 2017 at the latest.

The Managing Directors and the Administrative Board are of the opinion that the shareholders‘ justified interest in information is sufficiently accounted for by the disclosure of the total compensation of the Managing Directors. The Administrative Board will ensure that individual compensation is appropriate in accordance with its statutory duties.

The Managing Directors
The compensation of the Managing Directors, which is determined by the Administrative Board, consists of non-performance-based and performance-based components. The non-performance-based components consist of a fixed salary and non-cash compensation, whereas the performance-based components consist of bonuses and components with a long-term incentive effect. Along with job assignments and performance of each individual Managing Director, the criteria for calculating the total remuneration are the economic situation, long-term strategic planning and related targets, the long-term durability of targeted results and the Company‘s long-term prospects.

A fixed salary is paid out monthly as non-performance-based basic compensation. In addition, the Managing Directors receive non-cash compensation, such as company cars, pension contributions and insurance premiums. In principle, these benefits are granted to all Managing Directors in an equal manner and are included in the non-performance-based compensation.

The bonus component of performance-related compensation is mainly based on the PUMA Group‘s operating income (EBIT) and free cash flow and is staggered according to the degree to which targets are met. In addition, qualitative individual goals are set. An upper limit is also agreed.

The previous performance-based compensation component with a long-term incentive effect (stock appreciation rights) as part of a stock option plan was not granted beyond the 2012 financial year. The existing options can be exercised until the end of April 2017 if the exercise criteria are met. Details on the parameters used for the respective programs are provided in Section 19 of the Notes to the Consolidated Financial Statements.

Pro-rata provisions totaling € 2.1 million (previous year: € 1.9 million) were set up for the compensation program in place in the 2016 financial year (virtual shares/monetary units) with long-term incentives (from the years 2013 to 2016) for Managing Directors. Under the performance-based program, 70% of the compensation will be based on the medium-term performance of PUMA SE’s share and 30% will be based on the medium-term performance of Kering SA’s share in relation to benchmark companies. Further information on this program can be found in Section 19 of the Notes to the Consolidated Financial Statements.

The fixed compensation for the three Managing Directors amounted to € 1.9 million in the financial year (previous year: € 1.9 million) and variable bonuses came to € 2.5 million (previous year: € 1.5 million). Non-cash compensation totaled € 0.1 million (previous year: € 0.1 million).

The Managing Directors receive pension benefits, for which the Company took out a pension liability insurance policy. The proportion of the pension capital that is already financed through contributions to the pension liability insurance is deemed to be vested. During the financial year, € 0.4 million was allocated for Managing Directors (previous year: € 0.4 million). The present value of the pension benefits granted to active Managing Directors in the amount of € 2.6 million as of December 31, 2016 (previous year: € 1.7 million) was offset against the pledged asset value of the pension liability insurance policy, which was of an equal amount.

Pension obligations to former members of the Board of Management, their widows and Managing Directors amounted to € 13.6 million (previous year: € 13.3 million) and are accordingly recognized as liabilities under pension provisions, unless they are offset against asset values of an equal amount. Pensions paid totaled € 0.2 million (previous year: € 0.2 million).

In 2016, a long-term incentive program, Game Changer 2019, was introduced for senior management and strategically important employee that will allow this group of employees to participate in PUMA SE’s earnings over the medium term. € 1.2 million has been set aside for this program. An additional € 1.0 million was set aside for the predecessor program Game Changer 2018 (Tranche 2) (previous year: € 1.0 million) and an additional €0.7 million was set aside for the program Game Changer 2017 (Tranche 3) (previous year: €0.8 million) in the reporting period. Further information on this program can be found in Section 19 of the Notes to the Consolidated Financial Statements.

Administrative Board
In accordance with the Articles of Association, the Administrative Board has at least three members; it currently consists of nine members. The compensation of the Administrative Board is comprised of a fixed and a performance-based component. The total fixed compensation amounted to € 0.3 million (previous year: € 0.3 million).

In accordance with the Articles of Association, each member of the Administrative Board receives a fixed annual compensation in the amount of € 25.0 thousand. The fixed compensation is increased by an additional fixed annual amount of € 25.0 thousand for the Chairman of the Administrative Board, € 12.5 thousand for the Vice-Chairman of the Administrative Board, € 10.0 thousand for each committee chairman (excluding the Nominating Committee) and € 5.0 thousand for each committee member (excluding the Nominating Committee).

In addition, each Administrative Board member receives performance-based compensation equal to € 20.00 for each € 0.01 by which the earnings per share figure exceeds a minimum amount of € 16.00 per share. The performance-based compensation amounts to a maximum of € 10.0 thousand per year. The Chairman of the Administrative Board receives twice this amount (maximum € 20.0 thousand) and the Vice Chairman receives one and a half times this amount (maximum € 15.0 thousand) in compensation. Since earnings per share are below the minimum amount in the financial year, no performance-based compensation will be paid.

30. Related Party Relationships

In accordance with IAS 24, relationships to related companies and parties that control or are controlled by the PUMA Group must be reported, unless such related parties are already included as consolidated companies in the consolidated financial statements of PUMA SE. Control is defined as the ability to determine an entity’s financial and business policies and benefit from its activities.

SAPARDIS SE, Paris, a wholly owned subsidiary of Kering S.A., Paris, presently holds over 75% of the subscribed capital of PUMA SE. Kering S.A. is controlled by Artémis S.A., Paris, which in turn is a wholly-owned subsidiary of Financière Pinault S.C.A., Paris. Consequently, all companies that are directly or indirectly controlled by Artémis S.A. and are not included in the consolidated financial statements of PUMA SE are defined as related companies.

In addition, the disclosure obligation pursuant to IAS 24 extends to transactions with associated companies as well as transactions with other related companies and parties. These include non-controlling shareholders in particular.

Transactions with related companies and parties largely concern the sale of goods and services. These sales were concluded under normal market conditions that are also customary with third parties.

The following overview illustrates the scope of the business relationships:


In addition, dividend payments to non-controlling shareholders were made in the amount of € 19.3 million in 2016 (previous year: € 42.0 million).

Excluding dividend income of more than € 0.7 million (previous year: € 0.7 million), there were no other transactions with associated companies.

Receivables from related companies and parties are, with one exception, not subject to value adjustments. Only with respect to the receivables from a non-controlling shareholder and its group of companies were gross receivables in the amount of € 52.2 million adjusted in value for a subsidiary of PUMA SE in Greece as of December 31, 2016 (previous year: € 52.2 million). As in the previous year, no expenses were recorded in the 2016 financial year in this connection.

Liabilities to companies included in the Kering Group include € 19.0 million (previous year: € 74.7 million) in current financial liabilities, which were taken out as part of the financing activities. They are shown under other current financial liabilities.

The Managing Directors as well as the members of the Administrative Board of the PUMA Group are related parties within the meaning of IAS 24. The services and compensation of this group of individuals is shown in paragraph 29.

As part of consulting, service and employment contracts, members of the Administrative Board received compensation from PUMA in the amount of €0.3 million (previous year: €0.3 million).

31. Corporate Governance

In November 2016, the Managing Directors and the Administrative Board submitted the required compliance declaration with respect to the recommendations issued by the Government Commission German Corporate Governance Code pursuant to Section 161 of the AktG (Aktiengesetz, German Stock Corporation Act) and published it on the Company’s website (www.puma.com). Please also refer to the Corporate Governance Report in the Management Report of PUMA SE.

32. Events after the Balance Sheet Date

There were no events after the balance sheet date that had any material impact on the net assets, financial and results of operations.

33. Declaration by the Legal Representatives

We state to the best of our knowledge that the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with the applicable accounting principles, and that the combined management report including the management report of the parent company provides a true and fair view of the course of the development and performance of the business and the position of the Group, together with a description of the principal risks and opportunities associated with the expected performance of the Group.

Date of Release
The Managing Directors of PUMA SE released the consolidated financial statements on January 30, 2017 for distribution to the Administrative Board. The task of the Administrative Board is to review the consolidated financial statements and state whether it approves them.

Herzogenaurach, January 30, 2017


Bjørn Gulden
Chief Executive Officer (CEO)
Membership of other supervisory boards and controlling bodies:
• Tchibo GmbH, Hamburg, Germany
• Borussia Dortmund GmbH & Co. KGaA, Dortmund,   Germany
• Dansk Supermarked A/S, Højbjerg, Denmark
• Pandora A/S, Kopenhagen, Denmark

 

 

 

 


Michael Lämmermann
Chief Financial Officer (CFO)

 

 

 

 

 

 


Lars Radoor Sørensen
Chief Operating Officer (COO)
Membership of other supervisory boards and controlling bodies:
• Scandinavian Brake Systems A/S, Svendborg,
Denmark
• Hoyer Group A/S, Copenhagen, Denmark (from
January 1, 2017)

 

 


Jean-François Palus
(Chairman)
London, United Kingdom
Group Managing Director and Member of the Board of Directors of Kering S.A., 
Paris, France, responsible for Strategy, Operations, and Organization

Membership of other supervisory boards and controlling bodies:
• Kering Americas, Inc., New York, USA
• Volcom, Inc., Costa Mesa, USA
• Kering Luxembourg S.A., Luxembourg, Luxembourg
• Kering Tokyo Investment Ltd., Tokyo, Japan
• Pomellato S.p.A., Milan, Italy
• Volcom Luxembourg Holding S.A., Luxembourg, Luxembourg
• Sowind Group S.A., La Chaux-de-Fonds, Switzerland
• Guccio Gucci S.p.A., Florence, Italy
• Gucci America, Inc., New York, USA
• Christopher Kane Ltd., London, United Kingdom
• Manufacture et fabrique de montres et chronomètres Ulysse Nardin S.A., Le Locle,  Switzerland
• Kering Eyewear S.p.A., Padua, Italy
• Yugen Kaisha Gucci LLC, Tokyo, Japan
• Birdswan Solutions Ltd., Haywards Heath, West Sussex, United Kingdom
• Paintgate Ltd., Haywards Heath, West Sussex, United Kingdom
• Stella McCartney Ltd., Haywards Heath, West Sussex, United Kingdom
• Kering Asia Pacific Ltd., Hong Kong, China
• Kering South East Asia PTE Ltd., Singapore

François-Henri Pinault
(Vice Chairman)
Paris, France
CEO and Chairman of the Board of Directors of Kering S.A., Paris, France

Membership of other supervisory boards and controlling bodies:
• Artémis S.A., Paris, France
• Financière Pinault S.C.A., Paris, France
• Société Civile du Vignoble de Château Latour S.C., Pauillac, France
• Christie’s International Ltd., London, United Kingdom
• Soft Computing S.A., Paris, France
• Yves Saint Laurent S.A.S., Paris, France
• Sapardis SE, Paris, France
• Volcom, Inc., Costa Mesa, USA
• Stella McCartney Ltd., Haywards Heath, West Sussex, United Kingdom
• Kering International Ltd., London, United Kingdom
• Manufacture et fabrique de montres et chronomètres Ulysse Nardin S.A., 
Le Locle, •Switzerland
• Kering Eyewear S.p.A., Padua, Italy
• Kering UK Services Ltd., London, United Kingdom

Thore Ohlsson
Falsterbo, Sweden
President of Elimexo AB, Falsterbo, Sweden

Membership of other supervisory boards and controlling bodies:
• Nobia AB, Stockholm, Sweden
• Elite Hotels AB, Stockholm, Sweden
• Tomas Frick AB, Vellinge, Sweden
• Tjugonde AB, Malmö, Sweden
• Dahlqvists Fastighetsförvaltning AB, Kristianstad, Sweden (from 1 January 2017)

Todd Hymel
Santa Ana, USA
Chief Executive Officer (CEO) of Volcom Inc., Costa Mesa/USA

Membership of other supervisory boards and controlling bodies:
• Electric Visual Evolution LLC, Costa Mesa, USA

Jean-Marc Duplaix
Paris, France
Chief Financial Officer (CFO) of Kering S.A., Paris, France

Membership of other supervisory boards and controlling bodies:
• Sapardis SE, Paris, France
• Redcats S.A., Paris, France
• E_lite S.p.A., Milan, Italy
• Kering Italia S.p.A., Florence, Italy
• Pomellato S.p.A., Milan, Italy
• Kering Japan Ltd., Tokyo, Japan
• Kering Tokyo Investment Ltd., Tokyo, Japan
• Kering Luxembourg S.A., Luxembourg, Luxembourg
• Qeelin Holding Luxembourg S.A., Luxembourg, Luxembourg
• E-Kering Lux S.A., Luxembourg, Luxembourg
• Luxury Fashion Luxembourg S.A., Luxembourg, Luxembourg
• Kering Spain S.L. (previously named Noga Luxe S.L.), Barcelona, Spain
• Kering Eyewear S.p.A., Padua, Italy
• GPo Holding S.A.S., Paris, France
• Gucci Immobiliare Leccio Srl, Florence, Italy
• Design Management Srl, Florence, Italy
• Design Management 2 Srl, Florence, Italy
• Kering Studio S.A.S., Paris, France
• Balenciaga Asia Pacific Ltd., Hong Kong, China
• Kering Eyewear Japan Ltd., Tokyo, Japan
• REF Bresil S.A., Paris, France
• Redcats International Holding S.A.S., Paris, France
• Redcats Management Services S.A.S., Paris, France
• Balenciaga S.A., Paris, France
• Kering Investments Europe B.V., Amsterdam, Netherlands

Belén Essioux-Trujillo
Paris, France
Senior Vice-President Human Resources, Kering S.A., Paris, France
Member until April 11, 2016

Membership of other supervisory boards and controlling bodies:
• Sapardis SE, Paris, France
• Castera S.A.R.L., Luxembourg, Luxembourg
• Luxury Goods Services S.A., Cadempino, Switzerland

Béatrice Lazat
Paris, France
Human Resources Director, Kering S.A., Paris, France
Member since May 4, 2016

Membership of other supervisory boards and controlling bodies:
• Sapardis SE, Paris, France
• Castera S.A.R.L., Luxembourg, Luxembourg
• Luxury Goods Services S.A., Cadempino, Switzerland
• Augustin S.A.R.L., Paris, France
• Prodistri S.A., Paris, France
• Conseil et Assistance S.N.C., Paris, France

Bernd Illig
(Employee Representative)
Bechhofen, Germany
Administrator IT Systems of PUMA SE

Martin Köppel
(Employee Representative)
Weisendorf, Germany
Chairman of the Works Council of PUMA SE

Guy Buzzard
(Employee Representative)
West Kirby, United Kingdom
Key Account Manager (Sales) of PUMA United Kingdom Ltd.

Executive Committee
Thore Ohlsson (Chairman)
Jean-Marc Duplaix
Martin Köppel

Personnel Committee
François-Henri Pinault (Chairman)
Jean-François Palus
Bernd Illig

Audit Committee
Thore Ohlsson (Chairman)
Jean-Marc Duplaix
Guy Buzzard

Sustainability Committee
Jean-François Palus (Chairman)
François-Henri Pinault
Martin Köppel

Nominating Committee
François-Henri Pinault (Chairman)
Jean-François Palus
Todd Hymel

4 G4-17

This is a translation of the German version. In case of doubt, the German version shall apply.