Philips 2011 Annual Report Download - page 172

12 Group financial statements 12.11 - 12.11
172 Annual Report 2011
• Transaction exposures, related to forecasted sales and purchases
and on-balance-sheet receivables/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 foreign-currency-denominated equity
invested in consolidated companies
• Translation exposure to equity interests in non-functional-
currency investments in associates and available-for-sale financial
assets.
It is Philips’ policy that significant transaction exposures are hedged by
the businesses. Accordingly, all businesses are required to identify and
measure their exposures resulting from material transactions
denominated in currencies other than their own functional currency.
Philips’ policy generally requires committed foreign currency exposures
to be fully hedged using forwards. Anticipated transactions may be
hedged using forwards or options or a combination thereof. The
amount hedged as a proportion of the total exposure identified varies
per business and is a function of the ability to project cash flows, the
time horizon for the cash flows and the way in which the businesses
can adapt to changed levels of foreign-currency exchange rates. As a
result, hedging activities will not eliminate all currency risks for these
anticipated transaction exposures. Generally, the maximum tenor of
these hedges is 18 months.
The following table outlines the estimated nominal value in millions of
euros for transaction exposure and related hedges for Philips’ most
significant currency exposures consolidated as of December 31, 2011:
Estimated transaction exposure and related hedges
in millions of euros
maturity 0-60 days maturity over 60 days
exposure hedges exposure hedges
Receivables
Functional vs. exposure currency
EUR vs. USD 471 (457) 1,637 (1,093)
USD vs. EUR 255 (227) 1,208 (653)
EUR vs. GBP 70 (64) 166 (100)
EUR vs. PLN 54 (47) 56 (30)
EUR vs. JPY 50 (49) 198 (142)
USD vs. JPY 32 (26) 157 (80)
EUR vs. SEK 27 (22) 53 (31)
CLP vs. USD 24 (24) − −
HKD vs. USD 23 (23) 4 (4)
CNY vs. EUR 22 (18) 112 (54)
EUR vs. RUB 21 (21) − −
Others 203 (169) 558 (300)
Payables
Functional vs. exposure currency
EUR vs. USD (572) 565 (1,107) 756
ARS vs. USD (76) 76 (1) 1
BRL vs. USD (54) 51 (129) 88
EUR vs. PLN (39) 31 (152) 80
USD vs. CNY (38) 38 (237) 144
GBP vs. EUR (27) 19 (73) 38
IDR vs. USD (23) 16 (99) 52
CLP vs. USD (21) 20 (11) 5
USD vs. MYR (21) 15 (54) 22
EUR vs. GBP (17) 16 (52) 31
Others (241) 195 (588) 337
The derivatives related to transactions are, for hedge accounting
purposes, split into hedges of on-balance-sheet accounts receivable/
payable and forecasted sales and purchases. Changes in the value of on-
balance-sheet foreign-currency accounts receivable/payable, as well as
the changes in the fair value of the hedges related to these exposures,
are reported in the income statement under costs of sales. Hedges
related to forecasted transactions, where hedge accounting is applied,
are accounted for as cash flow hedges. The results from such hedges
are deferred in other comprehensive income within equity to the
extent that the hedge is effective. As of December 31, 2011, a gain of
EUR 9 million was deferred in equity as a result of these hedges. The
result deferred in equity will be released to earnings mostly during 2012
at the time when the related hedged transactions affect the income
statement. During 2011, a net gain of EUR 1 million was recorded in
the income statement as a result of ineffectiveness on certain
anticipated cash flow hedges.
The total net fair value of hedges related to transaction exposure as of
December 31, 2011 was an unrealized asset of EUR 7 million. An
instantaneous 10% increase in the value of the euro against all
currencies would lead to an increase of EUR 19 million in the value of
the derivatives; including a EUR 77 million increase related to foreign
exchange transactions of the euro against the US dollar, partially offset
by a EUR 17 million decrease related to foreign exchange transactions