NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

IFRS 9 contains regulations for the recognition, measurement and derecognition as well as for hedge accounting. This means that the accounting of financial instruments carried out previously under IAS 39 (Financial Instruments: Recognition and Measurement) can now be completely replaced by accounting under IFRS 9. This includes, among other things, a new impairment model based on expected credit defaults. IFRS 9 also contains new regulations on the application of hedge accounting.

The new standard is to be applied for financial years beginning on or after January 1, 2018. PUMA will apply IFRS 9 for the first time for the financial year beginning on January 1, 2018; the adjustment of the previous year’s figures is waived in accordance with the transitional provisions of IFRS 9.

PUMA does not expect any significant effects from the first-time application of IFRS 9. With regard to the new impairment model of IFRS 9 for the value adjustment of debt instruments, PUMA does not expect any significant change in the amount of the value adjustments, as PUMA mainly has current trade receivables with no interest component. In addition, the majority of trade receivables are insured against credit risk, which limits the amount of the expected loss. PUMA will apply the hedge accounting rules prospectively as of January 1, 2018. It is expected that all existing hedge accounting relationships will also meet the requirements for hedge accounting in accordance with IFRS 9.

The introduction of IFRS 9 is accompanied by changes to IFRS 7, which will lead to additional disclosures in the notes to the financial statements in the future.

• For revenues from the sale of products, no conversion effects are expected, since control is generally transferred to the customer when the products are delivered and sales revenues and thus income continue to be recognized at this point in time.
• The accounting for licensing of trademark rights does not result in any changes to the previous accounting treatment, as the previous presentation corresponds to future regulations.
• With regard to the new requirements for the disclosure of payments to customers, it is expected that in individual cases there may be differences in accounting, which will lead to the disclosure of payments to customers as a reduction in sales revenue rather than the recognition of operating expenses. Overall, however, this is not expected to have a significant effect on accounting.
• With regard to the balance sheet presentation, IFRS 15 results in a shift in connection with reimbursement liabilities, which were previously reported under other provisions. The amount of the reimbursement liabilities will continue to be disclosed separately in the notes to the financial statements. Overall, however, this is not expected to have a significant effect on accounting.
• The sales-related warranty services cannot be purchased separately and do not lead to services that go beyond the assurance of the specifications at the time of the transfer of risk. They therefore fall under assurance type warranties, which continue to be accounted for in accordance with IAS 37.

This year, a project group was set up to deal intensively with the effects and implementation of the new requirements during the course of the project. The quantitative effects on the PUMA consolidated financial statements cannot yet be reliably described. The current operating lease volume is shown under Note 28 (Other Financial Obligations: Obligations from Operating Leases). It is currently expected that the conversion effect will mainly affect the properties leased by PUMA (retail, offices and warehouses).

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 €). The presentation of amounts in € million 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.

Pursuant to the contractual arrangement with the joint venture partners, PUMA is already the beneficial owner of 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 under 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.

The following changes occurred within the group of consolidated companies in financial year 2017:

The additions to the group of consolidated companies relate to the establishment of the companies PUMA North America Accessories Canada, LLC and Dobotex Nordic AB.

Furthermore, the company PUMA Information Technology Services Philippines Company Limited Inc. was renamed PUMANILA IT Services Inc. during the financial year.

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

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.

The significant conversion rates per euro are as follows:

The fair values of the derivative instruments used to hedge planned transactions and to hedge the fair value of a recognized asset or liability are shown under other current financial asserts 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 3 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.

NON-CURRENT INVESTMENTS

The investments reported under non-current financial assets are classified as available for sale. This category includes financial instruments that do not represent loans and receivables or held-to-maturity investments and are not measured at fair value through profit or loss. The categories held-to-maturity investments and financial assets at fair value through profit or loss are not applied within the PUMA Group.

All purchases and disposals of non-current investments are recorded on the trade date. Non-current investments are initially recognized at fair value plus transaction costs. They are also recognized at fair value in subsequent periods if this can be reliably determined. Unrealized gains and losses are recognized in the overall result, taking into account deferred taxes. The gain or loss on disposal of long-term investments is recognized in profit or loss.

If there is material objective evidence of impairment of the non-current investments, they are written down in the income statement. In the case of equity investments categorized as available-for-sale, a significant or prolonged decline in the fair value of the assets below their acquisition cost is to be regarded as objective evidence of impairment. The same applies if there is no longer an active market for listed shares.

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.

IMPAIRMENT OF ASSETS

Intangible assets with an indefinite useful life are not written down according to schedule, but are subjected 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.

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.

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.

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 if the underlying purchase transaction is classified as 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.

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.

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. The Group determines at the end of each year 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 section 15 for further information, in particular regarding 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 section 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 section 24 for further information.

5. TRADE RECEIVABLES

This item consists of:

Allowances for trade receivables developed as follows:

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

The decrease of derivative financial instruments is mainly due to the decline of the US dollar exchange rate.

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 € 35.9 million (previous year: € 17.8 million).

The effects of the US tax reform finally resolved at the end of 2017 on tax loss carryforwards and temporary differences were taken into account when measuring deferred tax assets and liabilities as of December 31, 2017. Due to the tax rate reduction, an adjustment of € 0.9 million was recorded in the income statement.

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:

In 2017, development costs in connection with COBRA brand golf clubs amounting to € 1.8 million (previous year: € 1.9 million) were capitalized. Development costs are allocated to the item Other Intangible Assets in Changes in Fixed Assets. Current amortization of development costs amounted to € 0.6 million in 2017 (previous year: € 0.0 million).

The changes in intangible assets in the 2017 financial year are shown in Changes in Fixed Assets of Appendix 1 to the notes of the consolidated financial statemens. Other intangible assets include advance payments in the amount of € 8.7 million (previous year: € 2.0 million).

Current amortization of intangible assets amounting to € 14.3 million (previous year: € 11.3 million) are included in other operating expenses. Distribution expenses accounted for € 2.1 million of this amount (previous year: € 2.2 million), € 0.1 million was attributable to product management/merchandising expenses (previous year: € 0.0 million), € 0.6 million to development (previous year: € 0.0 million) and € 11.5 million to administrative and general expenses (previous year: € 9.1 million). As in the previous year, there were no impairment expenses that exceed 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 regions, goodwill is allocated as follows:

The cash-generating unit Dobotex includes goodwill of € 139.4 million (previous year: € 139.4 million), which is significant in comparison to the total carrying amount of goodwill. The cash-generating unit corresponds to a business area of PUMA which is allocated to the Central Unit. The recoverable amount was determined by calculating the value in use using a discount rate of 7.6% p. a. (previous year: 6.5% p. a.) and a growth rate of 2% (previous year: 2%).

Sensitivity analyses with regard to the impairment tests carried out at the balance sheet date show that an increase in discount rates of one percentage point each and a reduction in growth rates of one percentage point each result in an indication of impairment with regard to intangible assets with an unlimited or indefinite useful life of € 11.8 million. The corresponding sensitivity analyses with regard to goodwill do not provide any indication of impairment.

The sensitivity analysis with a one percentage point increase in the discount rate and the sensitivity analysis with a one percentage point reduction of the growth rate do not show any indication of impairment.

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 € 1.6 million (previous year: € 1.2 million). Dividends received amount to € 0.8 million (previous year: € 0.7 million).

The balance sheet date of Wilderness Holdings Ltd. is February 28, 2017. The above information relates to the Company’s financial information as at December 31.

The non-current investments relate to the 5.0% shareholding in Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien (BVB) with registered office in Dortmund, Germany.

Other financial assets mainly include rental deposits in the amount of € 19.2 million (previous year: € 19.9 million). The other non-current non-financial assets mainly include deferrals in connection with promotional and advertising agreements.

In the 2017 financial year, there were no indicators of impairment of other non-current assets.

The current financial liabilities can be repaid at any time.

The following values were determined in the previous year:

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: € 22.6 million) that were pledged as rental deposits at usual market rates.

The current liabilities to banks can be repaid at any time. Accordingly, as of the reporting date, the carrying amount approximates fair value. The non-current bank liabilities consist of fixed-interest loans. The reported carrying amounts correspond to the repayment amounts. Non-current bank loans are reported under other non-current financial liabilities.

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

Pursuant to the contracts entered into, purchase price liabilities 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 0.6% (previous year: 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 a hedging relationship at the balance sheet date are determined on the basis of current market parameters, i. e., reference prices observable on the market, taking into account forward premiums and discounts. 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. The fair values are also checked for the counterparty’s non-performance risk. In doing this, PUMA calculates credit value adjustments (CVA) or debt value adjustments (DVA) on the basis of an up/down method, taking current market information into account. No material deviations were found, so that no adjustments were made to the fair value determined.

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.

The following values were determined in the previous year:

The main pension arrangements are described below:

The general pension scheme of PUMA SE generally provides for pension payments to a maximum amount of € 127.82 per month and per eligible employee. It was closed for new members beginning in 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. At the end of 2017, the obligation attributable to pension entitlements in Germany (PUMA SE) amounted to € 27.1 million (previous year: € 25.9 million), representing 33.3% of the total commitment. The fair value of the plan assets relative to domestic obligations amounts to € 16.4 million. The corresponding pension provision amounts to € 10.7 million.

The defined benefit plan in the United Kingdom has not been available to new hires since 2006. This defined benefit plan includes salary and length of service-based commitments to provide old age, invalidity and surviving dependents’ retirement benefits. In 2016, a growth cap of 1% p. a. was introduced on the pensionable salary. Partial capitalization of the old-age pension is permitted. There are statutory minimum funding requirements. The obligations regarding pension claims under the defined benefit plan in the UK amount to € 41.5 million at the end of 2017 (previous year: € 41.6 million) and represents 51.1% of the total obligation. The obligation is covered by assets amounting to € 32.0 million. The provision amounts to € 9.5 million.

The pension provision for the Group is derived as follows:

In 2017, benefits paid amounted to € 2.3 million (previous year: € 3.0 million). Contributions in 2018 are expected to amount to € 2.2 million. Of this, € 0.9 million is expected to be paid directly by the employer. Contributions to external plan assets amounted to € 3.1 million in 2013 (previous year: € 1.9 million). Contributions in 2018 are expected to amount to € 1.7 million.

The changes in pension provisions are as follows:

Plan assets investment classes:

Of which investment classes with a quoted market price:

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 19 years.

17. LIABILITIES FROM THE ACQUISITION OF BUSINESS ENTITIES

Pursuant to the contracts entered into, purchase price liabilities 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 purchase price liability relates to the acquisition of Genesis Group International Ltd. and is made up as follows:

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 in the amount of € -44.8 million (previous year: € 54.3 million) is offset by deferred taxes in the amount of € 3.7 million (previous year: € -0.5 million).

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 and the Administrative Board will propose to the Annual General Meeting that a one-off dividend of € 12.50 per circulating share or a total of € 186.8 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 2017 financial year.

Appropriation of the Net Income of PUMA SE:

NON-CONTROLLING INTERESTS

The non-controlling interests remaining as of the balance sheet date relate to PUMA Accessories North America, LLC with €4.9 million (previous year: € 1.1 million), Janed, LLC with € 21.3 million (previous year: € 11.9 million), PUMA Kids Apparel North America, LLC with € 1.3 million (previous year: € 0.6 million), Janed Canada, LLC, with € 2.4 million (previous year: € 0.8 million), PUMA North America Accessories Canada, LLC with € 0.5 million and PUMA Kids Apparel Canada, LLC, with € 0.8 million (previous year: € 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.

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 was € 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 expiration, 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, there are no expenses for the current financial year. Tranche V was terminated against payment of a cash settlement. A total of 0 options belonged to the current Managing Directors at the end of the year.

The SOP 2008 stock option program expired at the end of the 2017 financial year.

EXPLANATION OF THE “GAME CHANGER 2017” PROGRAM

In addition, another global long term incentive program called Game Changer 2017 was launched in 2014. Participants in this program consist mainly of top executives reporting to the managing directors and individual key positions in the PUMA Group. The aim of this program is to bind this group of employees to the company on a long-term basis and to allow them to share in the medium-term success of the Company.

The term of the program is 3 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 this purpose, a corresponding provision is set up each year when the respective currency-adjusted targets are met. The resulting savings were paid out to the participants in March 2017. The payment was subject to the condition that the individual participant was in an unterminated employment relationship with a company of the PUMA Group as of December 31, 2016. No further expenses were incurred for this program in the year under review.

EXPLANATION OF THE “GAME CHANGER 2018” PROGRAM

In 2015, the global Game Changer 2018 program was launched, which is subject to the same parameters as the Game Changer 2017 program (employment relationship until 12/31/2017 and payout March 2018). Provisions of €1.0 million were set aside for this program in the year under review.

EXPLANATION OF THE “GAME CHANGER 2019” PROGRAM

In 2016, the global Game Changer 2019 program was launched, which is subject to the same parameters as the Game Changer 2017 program (employment relationship until 12/31/2018 and payout March 2019). Provisions of € 1.4 million were set aside for this program in the year under review.

EXPLANATION OF THE “GAME CHANGER 2020” PROGRAM

In 2017, the global Game Changer 2020 program was launched, which is subject to the same parameters as the Game Changer 2017 program (employment relationship until 12/31/2019 and payout March 2020). Provisions of € 1.4 million were set aside for this program in the year under review.

EXPLANATION OF THE MOMENTUM 2020 PROGRAM

In addition, a global program called Momentum was launched in 2017, which is subject to the same parameters (employment until December 31, 2019 and payout in March 2020) as the Game Changer programs. The difference to the Game Changer programs lies in the different participants. While the participants in the Game Changer programs consist of top executives, the Momentum program includes employees who are not part of this group. Provisions of € 0.9 million were set aside for this program in the year under review.

Of this, € 0.7 million is allocated to auditing expenses (previous year: € 0.6 million), € 0.2 million to other assurance services (previous year: € 0.2 million) and € 0.0 million to tax advisory services (previous year: € 0.1 million).

Other operating income includes other income of € 0.3 million (previous year: € 0.2 million). In the previous year, this item also included allocations of development costs amounting to € 0.7 million.

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

In addition, cost of sales includes personnel costs in the amount of € 12.8 million (previous year: € 15.3 million).

The average number of employees for the year was as follows:

As of the end of the year, a total of 11,787 individuals were employed (previous year: 11,495).

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 include withholding tax expenses in the amount of € 9.7 million (previous year: € 11.0 million).

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, 2017, 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 € 120.4 million higher (lower) (December 31, 2016: € 106.2 million higher (lower)).

Currency risks and other risk and opportunity categories are discussed in greater detail in the Combined Management Report under the Risk and Opportunity Management section as well as in sections 2 and 13 of the Notes to the consolidated financial statements.

OPERATING SEGMENTS 1-12/2017

Lease liabilities of € 0.4 million are divided into short-term lease liabilities (€ 0.3 million), other short-term financial liabilities and long-term lease liabilities (€ 0.1 million), which are part of other long-term financial liabilities. Non-current financial liabilities of € 27.9 million are part of other non-current financial liabilities.

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.

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 € 26.1 million, of which € 13.1 million relate to the years from 2019. These include service agreements of € 25.5 million and other obligations of € 0.6 million.

Pro-rata provisions totaling € 8.4 million (previous year: € 2.1 million) were set up for the existing compensation program (virtual share/monetary units) with long-term incentives (from the years 2014 to 2017) for Managing Directors in financial year 2017 according to the vesting periods. 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 S.A.’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. In addition, a payment of € 0.4 million (previous year: € 0.0 million) was made in connection with the Stock Option Program 2012, which expired at the end of April 2017.

Managing Directors have pension commitments as part of deferred compensation, which are paid from the aforementioned performance-based and/or non-performance-based remuneration for which the company has taken out reinsurance for pension commitments. 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 € 4.5 million as of Sunday, December 31, 2017 (previous year: € 2.6 million) was offset against the pledged asset value of the pension liability insurance policy, which was of an equal amount.

There are performance-based pension obligations to former members of the Board of Management and their widows/widowers amounting to € 3.3 million (previous year: € 3.5 million and contribution-based pension obligations in association with deferred payment from previous members of the Board of Management and Managing Directors of € 10.3 million (previous year: € 10.0 million). Both items are accordingly recognized as liabilities under pension provisions, unless they are offset against asset values of an equal amount. Pension obligations to former members of the Board of Management and their widows/widowers amounted to € 0.2 million (previous year: € 0.2 million).

ADMINISTRATIVE BOARD

In accordance with the Articles of Association, the Administrative Board has at least three members; it currently consists of six 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.

In addition, dividend payments of € 13.3 million were made to non-controlling shareholders in the financial year 2017 (previous year: € 19.3 million).

Apart from dividend income of € 0.8 million (previous year: € 0.7 million) there were no further 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, 2017 (previous year: € 52.2 million). As in the previous year, no expenses were recorded in this respect in the financial year 2017.

As of December 31, 2017, there were no liabilities to companies included in the Kering Group arising from financing activities (previous year: € 19.0 million). In the previous year, this item was reported 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 section 29.

As part of consulting, service and employment contracts, members of the Administrative Board received compensation from PUMA in the amount of € 0.1 million (previous year: € 0.3 million).

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 the management report summarized in the management report of the parent company for the 2017 financial year 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 February 9, 2018 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, February 9, 2018

THE MANAGING DIRECTORS

Gulden                                Lämmermann                             Sørensen

MICHAEL LÄMMERMANN

Chief Financial Officer (CFO)

LARS RADOOR SØRENSEN

Chief Operating Officer (COO)
Membership of other supervisory boards and controlling bodies:

TODD HYMEL

Santa Ana, USA
Chief Executive Officer (CEO) of Volcom LLC,
Costa Mesa/USA
Member until April 12, 2017

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
• 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
• 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
• Altuzarra LLC, New York/USA

BÉATRICE LAZAT

Paris, France
Human Resources Director, Kering S.A., Paris/France

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

MARTIN KÖPPEL

(Employees’ Representative)
Weisendorf, Germany
Chairman of the Works Counsel of PUMA SE

GERNOT HEINZEL

(Employees’ Representative)
Hausen, Germany
Key Account Manager Shoe Chains
Germany South
Member since April 12, 2017

BERND ILLIG

(Employees’ Representative)
Bechhofen, Germany
Administrator IT Systems of PUMA SE
Member until April 12, 2017

GUY BUZZARD

(Employees’ Representative)
West Kirby, United Kingdom
Field Account Manager at PUMA
United Kingdom Ltd.
Member until March 12, 2017