Porsche 2010 Annual Report Download - page 91

The remaining cash-settled options held by
Porsche SE as of 31 July 2010, relating to about two
percent of Volkswagen AG’s ordinary shares, were
disposed of in full.
Derivative financial instruments used by Por-
sche SE and its remaining subsidiaries are entered
into mainly to manage interest rate risks as well as in
relation to the sale of the remaining shares in Porsche
Zwischenholding GmbH.
Any default on Porsche SE’s receivables,
most of which are due to companies of the Porsche
Zwischenholding GmbH group, could have a negative
impact on Porsche SE’s liquidity situation. In addition,
the investment of cash also gives rise to counterparty
risks. Regarding the term and call money investments
at Porsche SE, however, they are hedged using hedg-
ing systems customary in the banking business. Cash
investments are also exposed to interest rate risks.
Under the basic agreement Porsche SE and
Volkswagen AG granted each other put and call op-
tions for the remaining 50.1 percent share held by
Porsche SE in Porsche Zwischenholding GmbH. Re-
garding valuation of these options there is a risk of
future changes in value that could have a negative
impact on the Porsche SE group’s results of opera-
tions. Changes in value can primarily arise from
changes in the valuation of the underlying enterprise
value of Porsche Zwischenholding GmbH and changes
in the executive board’s assessment of the likelihood
of the failure of the merger as defined in the basic
agreement. In addition, if the merger as defined by
the basic agreement fails, Porsche SE’s put option
and Volkswagen AG’s call option for the 50.1 percent
share held by Porsche SE in Porsche Zwischenholding
GmbH would theoretically be exercisable as of the
end of the fiscal year 2011. In this case, the theoreti-
cal probability of exercise of the put and call options,
on which the evaluation is based, would increase to
100 percent and significantly influence the results of
operations. As of 31 December 2010, the executive
board of Porsche SE estimates a 50-percent theoreti-
cal probability of exercise of the options. The exer-
cise price for the options is 3,883 million euro in
each case and is subject to certain adjustments. In
order to secure any remaining claims of Volkswagen
AG from the agreement between Porsche SE and
Volkswagen AG on the investment held by Volks-
wagen AG in Porsche Zwischenholding GmbH, a
retention mechanism was agreed in favor of Volks-
wagen AG for the purchase price payable in the event
of the put or call options being exercised. If any
retained amount has not been used to fulfill claims of
Volkswagen AG, the retained amount must be paid to
Porsche SE on 30 June 2016, unless it is likely that
claims for indemnity will be made against the com-
pany as of that date.
A large portion of Porsche SE’s financial li-
abilities is subject to floating interest rates and, as a
result, interest payments are exposed to fluctuation
over time that cannot be foreseen. Should interest
rates rise, this would have an adverse effect on the
company’s liquidity situation. Porsche SE partially
limits this risk by using interest rate hedges (cap
structures). The amounts capitalized in connection
with interest rate hedges are also exposed to fluctua-
tions in value depending on the development of inter-
est rate levels and the remaining term. Interest rate
hedges are also exposed to counterparty risks.
For the risks from financial covenant rules
regarding the syndicated loan concluded in 2009,
please refer to “Risks originating from financial cove-
nants” in this section of the management report.
Overall, Porsche SE’s executive board con-
siders the risks arising from the use of financial in-
struments – with the exception of the possible effects
relating to the put and call options for the 50.1 per-
cent share held by Porsche SE in Porsche Zwischen-
holding GmbH – to be low.
For further information on financial risk man-
agement, financial instruments used and the associ-
ated risks, please also refer to note [24] of the con-
solidated financial statements of Porsche SE as of
31 December 2010.
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