Philips 2014 Annual Report Download - page 141

11 Group nancial statements 12.9
Annual Report 2014 141
11 Goodwill
The changes in 2013 and 2014 were as follows:
Philips Group
Goodwill in millions of EUR
2013 - 2014
2013 2014
Balance as of January 1:
Cost 9,119 8,596
Amortization and impairments (2,171) (2,092)
Book value 6,948 6,504
Changes in book value:
Acquisitions 4 68
Purchase price allocation adjustment (4) 8
Impairments (26) –
Divestments and transfers to assets classied as
held for sale (55) (160)
Translation dierences (363) 738
Balance as of December 31:
Cost 8,596 9,151
Amortization and impairments (2,092) (1,993)
Book value 6,504 7,158
Acquisitions in 2014 which included goodwill mainly
related to the acquisition of General Lighting Company
(GLC) for EUR 58 million. In addition, goodwill changed
due to the nalization of purchase price accounting
related to acquisitions in the prior year. Divestments
and transfer to assets classied as held for sale in 2014
relate to the sectors Healthcare and Lighting. In 2014
the movement of EUR 738 million in translation
dierences is mainly explained by the increase of the
USD/EUR rate which impacted the goodwill nominated
in USD.
In 2013 the movement of EUR 55 million in divestments
and transfers to assets classied as held for sale mainly
relate to divestments in the Healthcare sector.
For impairment testing, goodwill is allocated to (groups
of) cash-generating units (typically one level below
operating sector level), which represent the lowest level
at which the goodwill is monitored internally for
management purposes.
In 2014, a cash-generating unit Healthcare Informatics
Services & Solutions was created in the Healthcare
sector. As a result of the change, a portion of the
goodwill associated with the unit Patient Care & Clinical
Informatics and the unit Home Monitoring was
allocated to Healthcare Informatics Services &
Solutions. The name of the cash-generating unit
Patient Care & Clinical Informatics was changed in 2014
to Patient Care & Monitoring Solutions.
Goodwill allocated to the cash-generating units
Respiratory Care & Sleep Management, Imaging
Systems, Patient Care & Monitoring Solutions and
Professional Lighting Solutions is considered to be
signicant in comparison to the total book value of
goodwill for the Group at December 31, 2014. The
amounts associated as of December 31, 2014, are
presented below:
Philips Group
Goodwill allocated to the cash-generating units in millions of EUR
2013 - 2014
2013 2014
Respiratory Care & Sleep Management 1,544 1,704
Imaging Systems 1,414 1,592
Patient Care & Monitoring Solutions 1,0631) 1,317
Professional Lighting Solutions 1,266 1,470
Other (units carrying a non-signicant
goodwill balance) 1,217 1,075
Book value 6,504 7,158
1) Revised to reect the new organizational structure of the Healthcare
sector
The basis of the recoverable amount used in the
impairment tests for the units disclosed in this note is
the value in use. In the 2014 annual impairment test,
performed in the second quarter, and in the tests
performed in the second half of 2014, the estimated
recoverable amounts of the cash-generating units
tested approximated or exceeded the carrying value of
the units, therefore no impairment loss was recognized.
Key assumptions used in the impairment tests for the
units were sales growth rates, income from operations
and the rates used for discounting the projected cash
ows. These cash ow projections were determined
using management’s internal forecasts that cover an
initial period from 2014 to 2018 that matches the period
used for our strategic process. Projections were
extrapolated with stable or declining growth rates for a
period of 5 years, after which a terminal value was
calculated. For terminal value calculation, growth rates
were capped at a historical long-term average growth
rate.
The sales growth rates and margins used to estimate
cash ows are based on past performance, external
market growth assumptions and industry long-term
growth averages.
Income from operations in all units is expected to
increase over the projection period as a result of volume
growth and cost eciencies.
Cash ow projections of Respiratory Care & Sleep
Management, Imaging Systems, Patient Care &
Monitoring Solutions and Professional Lighting
Solutions for 2014 were based on the key assumptions
included in the table below. These assumptions are
based on the annual impairment test performed in the
second quarter except for the unit Professional Lighting
Solutions which performed an updated test in Q4 2014
given the acquisition of GLC in the second half of the
year.