Philips 2008 Annual Report Download - page 178

Additional information required by SFAS No. 107 is presented in
the following table:
December 31, 2007 December 31, 2008
carrying
amount
estimated
fair value
carrying
amount
estimated
fair value
Assets
Cash and cash equivalents 8,769 8,769 3,620 3,620
Accounts receivable -
current 4,670 4,670 4,289 4,289
Accounts receivable -
non-current 84 84 50 50
Current financial assets −−121 121
Liabilities
Accounts payable (3,372) (3,372) (2,992) (2,992)
Debt (3,557) (3,640) (4,158) (4,141)
The carrying amounts of cash and cash equivalents, accounts
receivable (current and non-current), current financial assets and
accounts payable approximate fair value because of the short maturity
of these instruments. The fair value of the debt is estimated on the
basis of the quoted market prices, or on the basis of discounted
cash flow analyses based upon market rates plus Philips' spread for
the particular tenors of borrowing agreements. Accrued interest is
included under accounts payable and not within the carrying amount
or estimated fair value of debt. At December 31, 2008 total accrued
interest expense was EUR 79 million (2007: EUR 110 million). The
accrued interest on bonds, which is the main part of the accrual, was
EUR 70 million. (2007: EUR 99 million).
36
Other financial instruments, derivatives and
currency risk
The Company does not purchase or hold financial derivative
instruments for trading purposes. Assets and liabilities related to
derivative instruments are disclosed in Other current assets, note 11,
note 12 and note 18 respectively. Currency fluctuations may impact
Philips’ financial results.
The Company is exposed to currency risk in the following areas:
Transaction exposures, such as forecasted sales and purchases,
•
and on-balance-sheet receivables or payables resulting from such
transactions;
Translation exposure of net income in foreign entities;
•
Translation exposure of foreign-currency intercompany •
and external debt and deposits;
Translation exposure of equity invested in consolidated foreign
•
entities; and
Exposure to equity interests in non-functional-currency
•
equity-accounted-investees and available-for-sale investments.
It is Philips’ policy that significant transaction exposures are hedged.
The Philips policy generally requires committed foreign-currency
exposures to be hedged fully using forwards. Anticipated transactions
are hedged using forwards or options or a combination thereof. The
policy for the hedging of anticipated exposures specifying the use of
forwards/options and the hedge tenor varies per business and is a
function of the ability to forecast cash flows and the way in which the
businesses can adapt to changed levels of foreign exchange rates. As a
result, hedging activities may not eliminate all currency risks for these
transaction exposures. Generally, the maximum tenor of these hedges
equals 18 months. The Company does not hedge the exposure arising
from translation exposure of net income in foreign entities. Translation
exposure of equity invested in consolidated foreign entities financed
by equity is partially hedged. If a hedge is entered into, it is accounted
for as a net investment hedge.
The currency of the external funding and deposits of the Company
is matched with the required financing of subsidiaries either directly
by external foreign currency loans and deposits, or by using foreign
exchange swaps. In certain cases where group companies have foreign
currency debt or liquid assets, these exposures are also hedged through
the use of foreign exchange derivatives.
Philips does not currently hedge the foreign exchange exposure arising
from equity-accounted investees and available-for-sale investments.
The Company uses foreign exchange derivatives to manage its
currency risk. The US dollar and pound sterling account for a high
percentage of the Company’s foreign exchange derivatives.
The Company hedges certain commodity price risks using derivative
instruments to minimize significant, unanticipated earnings fluctuations
caused by commodity price volatility. The commodity price derivatives
that Philips enters into are normally concluded as cash flow hedges to
offset forecasted purchases.
Changes in the value of foreign currency accounts receivable/payable
as well as the changes in the fair value of the hedges of accounts
receivable/payable are reported in the income statement under cost
of sales. The hedges related to forecasted transactions are recorded
as cash flow hedges. The results from such hedges are deferred within
other comprehensive income in stockholders’ equity. Currently, a loss
of EUR 28 million is deferred in stockholders’ equity as a result of these
hedges. During 2008, a loss of EUR 3 million was recorded in the
income statement as a result of ineffectiveness of transaction hedges.
Changes in the fair value of hedges related to external and
intercompany debt and deposits are recognized within Financial
income and expenses in the income statement. The changes in the
fair value of these hedges related to foreign exchange movements are
largely offset in the income statement by changes in the fair value of
the hedged items. The Company recorded a gain of EUR 11 million in
other comprehensive income under currency translation differences
as a result of net investment hedges of investments in foreign
subsidiaries during 2008.
Philips has 2 embedded derivatives within convertible bonds. One was
issued to Philips in September 2005 by TPV Technology Ltd., the face
value of the bond being EUR 149 million and the value of the option
at year-end EUR 10 million. Changes in the value of the embedded
derivative are reported in Financial income and expenses during 2008
(EUR 37 million). A further convertible bond was issued to Philips in
August 2008 by CBAY, the face value of the bond being EUR 65 million
and the value of the option at year-end less than EUR 1 million.
Changes in the value of the embedded derivative are reported in
Financial income and expenses during 2008 (EUR 6 million).
37
Subsequent events
Share repurchase program
On January 26, 2009, the Company announced that it had stopped the
EUR 5 billion share repurchase program, which was announced on
December 19, 2007, until further notice.
Philips Annual Report 2008178
180
Sustainability performance
192
IFRS financial statements
244
Company financial statements
124
US GAAP financial statements
Notes to the US GAAP
financial statements