Philips 2014 Annual Report Download - page 175

32 Group nancial statements 12.9
Annual Report 2014 175
Below table shows the credit ratings of the nancial
institutions with which Philips had short-term deposits
above EUR 25 million as of December 31, 2014:
Philips Group
Credit risk with number of counterparties
for deposits above EUR 25 million
2014
25-100 million
100-500
million
500-2,000
million
AA-rated
governments – – –
AA-rated
government
banks – – –
AAA-rated bank
counterparties – – –
AA-rated bank
counterparties 2 1 –
A-rated bank
counterparties 7 3 –
9 4 –
For an overview of the overall maximum credit
exposure of the group’s nancial assets, please refer to
note 30, Fair value of nancial assets and liabilities for
details of carrying amounts and fair value.
Country risk
Country risk is the risk that political, legal, or economic
developments in a single country could adversely
impact our performance. The country risk per country is
dened as the sum of the equity of all subsidiaries and
associated companies in country cross-border
transactions, such as intercompany loans, accounts
receivable from third parties and intercompany
accounts receivable. The country risk is monitored on a
regular basis.
As of December 31, 2014, the Company had country risk
exposure of EUR 8.5 billion in the United States, EUR
2.6 billion in Belgium and EUR 1.8 billion in China
(including Hong Kong). Other countries higher than EUR
500 million are United Kingdom (EUR 709 million) and
Japan (EUR 576 million). Countries where the risk
exceeded EUR 300 million but was less than EUR 500
million are Germany, Malaysia, Poland and Saudi
Arabia. The degree of risk of a country is taken into
account when new investments are considered. The
Company does not, however, use nancial derivative
instruments to hedge country risk.
Other insurable risks
Philips is covered for a broad range of losses by global
insurance policies in the areas of property damage/
business interruption, general and product liability,
transport, directors’ and ocers’ liability, employment
practice liability, crime, and aviation product liability.
The counterparty risk related to the insurance
companies participating in the above mentioned global
insurance policies are actively managed. As a rule
Philips only selects insurance companies with a S&P
credit rating of at least A-. Throughout the year the
counterparty risk is monitored on a regular basis.
To lower exposures and to avoid potential losses,
Philips has a global Risk Engineering program in place.
The main focus of this program is on property damage
and business interruption risks including company
interdependencies. Regular on-site assessments take
place at Philips locations and business critical suppliers
by risk engineers of the insurer in order to provide an
accurate assessment of the potential loss and its
impact. The results of these assessments are shared
across the Company’s stakeholders. On-site
assessments are carried out against the predened Risk
Engineering standards which are agreed between
Philips and the insurers. Recommendations are made
in a Risk Improvement report and are monitored
centrally. This is the basis for decision-making by the
local management of the business as to which
recommendations will be implemented.
For all policies, deductibles are in place, which vary
from EUR 250,000 to EUR 2,500,000 per occurrence
and this variance is designed to dierentiate between
the existing risk categories within Philips. Above this
rst layer of working deductibles, Philips operates its
own re-insurance captive, which during 2014 retained
EUR 2.5 million per occurrence for property damage
and business interruption losses and EUR 5 million in
the aggregate per year. For general and product liability
claims, the captive retained EUR 1.5 million per claim
and EUR 6 million in the aggregate. New contracts were
signed on December 31, 2014, for the coming year,
whereby the re-insurance captive retentions remained
unchanged.
32 Subsequent events
Acquisition of Volcano
On December 17, 2014, Philips and Volcano Corporation
(Volcano) announced that they had entered into a
denitive merger agreement. Volcano is a US-based
global leader in catheter based imaging and
measurement solutions for cardio vascular applications
and is very complementary to the Philips vision,
strategy, and portfolio in image-guided therapy. On
February 17, 2015, Philips completed a tender oer to
acquire all of the issued and outstanding shares of
Volcano for USD 18.00 per share. The total equity
purchase price and the settlement of stock option rights
involved an amount of USD 955 million (approximately
EUR 840 million) and was paid in cash at closing date.
Philips is nancing the acquisition through a
combination of cash on hand and the issuance of debt.
Philips will consolidate 100% of Volcano as of February
17, 2015. Due to the recent closing date, additional IFRS
disclosures cannot be made until the initial accounting
for the business combination has been completed.