Philips 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Philips annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 219

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219

Annual Report 2004

Table of contents

  • Page 1
    Annual Report 2004

  • Page 2
    ... a downturn in the semiconductor market, Philips' ability to secure short-term profitability and invest in long-term growth in Lighting and product R&D in Medical Systems, and industry consolidation. Statements regarding market share, including as to Philips' competitive position, contained in this...

  • Page 3
    ... of cash flows Consolidated statements of stockholders' equity Accounting policies New accounting standards Notes to the consolidated financial statements Dutch GAAP information 176 Supervisory Board Report Information on the Philips Group 28 28 29 39 40 The structure of the Philips Group Business...

  • Page 4
    ... the sale of businesses Related-party transactions Share-based compensation Information on remuneration of the individual members of the Board of Management and the Supervisory Board Income from operations Financial income and expenses Income taxes Unconsolidated companies Other non-current assets...

  • Page 5
    ... Net operating capital in billions of euros 20 Employees (FTEs) position at year-end 300,000 250,000 15 14.4 14.3 200,000 219,429 188,643 170,087 164,438 161,586 10.5 10 8.1 150,000 7.2 100,000 5 50,000 0 2000 2001 2002 2003 2004 0 2000 2001 2002 2003 2004 4 Philips Annual Report 2004

  • Page 6
    ... 8,071 7,192 Cash flows before financing activities 1,980 2,734 3,350 Stockholders' equity Per common share in euros 13,919 10.91 12,763 9.97 14,860 11.60 Net debt : group equity ratio 27:73 18:82 1:99 Employees at December 31 170,087 164,438 161,586 Philips Annual Report 2004 5

  • Page 7
    6 Philips Annual Report 2004

  • Page 8
    ... our strategy to transform Philips into a truly market-driven healthcare, lifestyle and technology company. And with the introduction of our new brand promise 'Sense and simplicity' we are creating a unique, differentiated positioning that will further enhance our value proposition to our customers...

  • Page 9
    ... LCD venture LG.Philips LCD. Thanks to its successful IPO, the latter company now has direct access to the capital markets. We also took steps to dispose of some more of our financial holdings. Altogether, this resulted in Group net income of EUR 2,836 million, or EUR 2.22 per share. Cash flow from...

  • Page 10
    ... new brand positioning. At its core Product leadership through innovation My colleagues on the Board of Management and I actively review and measure the rate of innovation and new product development within each product division. This focused attention is already paying dividends. Medical Systems...

  • Page 11
    ... 20,000 employees and 15 R&D centers. Our plans to grow still further in China are on track. We are a market leader in domestic appliances and lighting, and we hold top 3 market positions in medical systems and semiconductors. In other parts of Asia too, especially in the dynamic ASEAN region and...

  • Page 12
    ...my colleagues on the Board of Management, I would like to express my thanks to you, our shareholders, for your continued support. I also wish to thank our customers for their loyalty and all Philips employees for their hard work during the year. Gerard Kleisterlee, On a personal note I would like to...

  • Page 13
    ... statements, observing Dutch law and applying US and Dutch GAAP, are presented for discussion and adoption to the General Meeting of Shareholders. A separate Annual Report on Form 20-F, certified by both the Chief Executive Officer and the Chief Financial Officer, is filed with the US Securities...

  • Page 14
    ... sustainability management in product divisions, businesses and regions; this has enabled Philips to respond to unique market challenges in developing countries. The focus of our 2004 report is on the process of embedding sustainability in our organization and company culture; in our product design...

  • Page 15
    ... on internal control, sets the standard for risk management and business control in the Company. The BCF addresses financial reporting, business processes and compliance. With respect to financial reporting, a structured, quarterly self-assessment and monitoring process is used company-wide to...

  • Page 16
    ... and values for 'doing business', rules are laid down in the Philips General Business Principles and enforced by a global system of Compliance Officers. The Philips General Business Principles include a Financial Code of Ethics. Internal auditors monitor the quality of the business controls through...

  • Page 17
    16 Philips Annual Report 2004

  • Page 18
    ... Management Committee and Chief Financial Officer since March 1997 Corporate responsibilities: Medical Systems, Control, Treasury, Fiscal, Mergers & Acquisitions, Investor Relations, Information Technology, Pensions, Real Estate, Purchasing, Corporate Investments, Region North America, Region Latin...

  • Page 19
    ... Lighting division since 2003 Corporate responsibilities: Lighting, Quality Policy Board Theo van Deursen joined Philips in 1973 after graduating in Electronics and Business Administration at Eindhoven University of Technology. Since then, he has held a number of key management positions, including...

  • Page 20
    ...Corporate responsibilities: Domestic Appliances and Personal Care Johan van Splunter studied Business Economics at the University of Amsterdam. He joined Philips in 1969, holding positions in product management, marketing and general management in the fields of personal care and consumer electronics...

  • Page 21
    ... of Royal Philips Electronics. J-M. Hessels 1942, Dutch* Member of the Supervisory Board since 1999; second term expires in 2007 Former Chief Executive Officer of Royal Vendex KBB and currently Chairman of the Supervisory Board of Euronext and member of the Supervisory Boards of Amsterdam Schiphol...

  • Page 22
    ...former Philips executive as a member. Members are appointed for fixed terms of four years and may be re-appointed for two additional four-year terms. The Supervisory Board currently consists of nine members, who are listed on page 20 of this Annual Report. At the General Meeting of Shareholders held...

  • Page 23
    ...4,538 per year; details are disclosed on pages 163 to 164 of this Annual Report. A proposal shall be made to the 2005 General Meeting of Shareholders to slightly adjust the fee structure for the chairman and members of the Supervisory Board and its committees. Report of the Corporate Governance and...

  • Page 24
    ... linked to the Company's financial Philips Annual Report 2004 23 General remuneration policy The objective of the remuneration policy for members of the Board of Management, approved by the 2004 General Meeting of Shareholders and published on the Company's website, is in line with that for Philips...

  • Page 25
    ...2002 Not applicable due to the fact that respective member was not a member of the Board of Management at that time The differences in pay-out are related to the level of performance in each year. Long-Term Incentive Plan For many years Philips has operated a Long-Term Incentive Plan (LTIP), which...

  • Page 26
    ... members of the Board of Management (and the other members of the Group Management Committee) are only allowed to trade in Philips securities (including the exercise of stock options) during 'windows' of ten business days following the publication of annual and quarterly results (provided the person...

  • Page 27
    ... changes in social and fiscal law, the implementation of a revised Dutch Pension Plan is now scheduled for January 1, 2006. the member of the Board of Management shall be eligible for a severance payment not exceeding twice the annual salary. The contract terms for current members of the Board...

  • Page 28
    ... signed these documents. We recommend to shareholders that they adopt the 2004 financial statements as presented in the full Annual Report for the year 2004. We likewise recommend to shareholders that they adopt the proposal of the Board of Management to pay a dividend of Audit fees Audit-related...

  • Page 29
    ... product divisions, each of which is responsible for the management of its business worldwide, being Medical Systems, Domestic Appliances and Personal Care, Consumer Electronics, Lighting, Semiconductors and Other Activities. Philips delivers products, systems and services in the fields of medical...

  • Page 30
    ... of the cash flow from investing activities, including capital expenditures, see also page 71 of this Annual Report. Medical Systems Philips Medical Systems is a global leader in medical imaging, patient monitoring and associated IT systems. The product range includes best-in-class technologies in...

  • Page 31
    ...Purchasing of the USA, which awarded Philips (as one of two companies) a three-year, approximately USD 2 billion agreement for the full line of imaging modalities and related services. These developments have further strengthened the division's position and reputation in the markets around the world...

  • Page 32
    ... chains and group purchasing organizations). A very small percentage of revenues is directly generated with consumers - e.g. through home monitoring equipment and related services as well as a home defibrillator introduced in 2003. Most imaging systems and clinical information solutions are sold...

  • Page 33
    ... projection TV; video products such as Home Theater in a Box (HTiB), DVD, DVD+RW, VCR and TV-VCR; audio systems, separates and portables; LCD and CRT computer monitors; mobile phones and cordless digital phones; set-top boxes; and accessories such as headphones and recordable media. In 2002, Philips...

  • Page 34
    ... and (joint) ventures (like LG.Philips LCD and LG.Philips Displays). Within Lamps, the largest business, the main growth areas are the thin 16 mm T5 fluorescent lamps, halogen lamps, Philips Annual Report 2004 33 leader in the world market for lighting products (in terms of sales, profitability and...

  • Page 35
    ...a regional basis. Sales and marketing are mainly conducted through the OEM and wholesale channels (for special lighting 100% OEM), making use of shared sales forces with other Philips Lighting businesses except for driver sales in North America. The main business focus is on 34 Philips Annual Report...

  • Page 36
    ... of the long-term players in the industry. Philips Semiconductors provides innovative silicon solutions for 'Connected Consumer' applications in the consumer, communications, automotive and computing markets. The Company's vision is to enable access to information, entertainment and services and in...

  • Page 37
    .... In the past, sales have increased in relation to high Christmas electronics sales. Philips Semiconductors' products and solutions are supplied to the large electronic equipment companies, whilst its standard products are also sold via a number of global distributors. The division delivers to more...

  • Page 38
    ...of the following main groups of activities: the Technology Cluster (such as Philips Research, Intellectual Property & Standards and Philips Center for Industrial Technology), Corporate Investments (such as Assembléon and Philips Enabling Technologies Group), Global Service Units, Philips Design and...

  • Page 39
    ... 9.0% of Group sales in 2003 and EUR 3,043 million or 9.6% of Group sales in 2002. As a system supplier, it covers the value chain from (co-)engineering through parts production to assembly and testing. Philips Business Communications (PBC) is a provider of enterprise communication solutions that...

  • Page 40
    ... new products investments, mainly in Consumer Health & Wellness. Unallocated Unallocated comprises the costs of the corporate center - including the Company's global brand management and sustainability programs - as well as country and regional overhead costs. Property, plant and equipment Philips...

  • Page 41
    ... its current underlying profitability level and to strengthen its leading position, the company is continuing its restructuring program and cost-reduction drive in view of the structural overcapacity in the market. LG.Philips LCD Co., a manufacturing venture between Philips and LG Electronics of...

  • Page 42
    ... top ten IC companies in terms of worldwide sales. The principal reasons for Philips' holding an interest in TSMC are to secure a strategic supply of wafers, to share and exchange technology and manufacturing knowledge, and to share the risk of capital expenditures. NAVTEQ Corporation is a leading...

  • Page 43
    42 Philips Annual Report 2004

  • Page 44
    ...which activities were consolidated or deconsolidated as disclosed in note 1 to the consolidated financial statements of the Philips Group on pages 106 to 112 of this Annual Report. The effect of consolidation changes has also been excluded in arriving at the comparable sales level. The Company stops...

  • Page 45
    ... and financial cash flows, 0.8 Jan. July 2002 Jan. July 2003 Jan. July 2004 Jan. which reduced the net debt to group equity position to 1:99 by year-end, providing the Company with a strong balance sheet and ample flexibility for growth and financial strategies. 44 Philips Annual Report...

  • Page 46
    ... at Lighting was due to higher sales in all businesses. Semiconductors excluding Mobile Display Systems showed comparable growth of just below 20%, the main driver being Mobile Communications. Within Other Activities, sales growth came from Optical Storage and Corporate Investments such as Assembl...

  • Page 47
    ... years. 46 Philips Annual Report 2004 Net interest in 2004 was EUR 70 million lower than in the previous year as a result of a significant decrease in net debt. Sale of the remaining shares in Vivendi Universal and ASML, which are accounted for under other non-current financial assets, resulted...

  • Page 48
    ... terms, full-year sales for 2004 increased 27% over 2003 to a record high. Company's participation in income and loss Results on sale of shares Gains and losses arising from dilution effects Investment impairment charges Total 169 715 53 (431) 506 983 193 254 (8) 1,422 Philips Annual Report...

  • Page 49
    ...dilution loss decreased the book value of Philips' investment in TSMC and is charged to income under results relating to unconsolidated companies. On August 16, 2002, Atos Origin purchased all of the common stock of KPMG Consulting in the UK and the Netherlands. The consideration for the acquisition...

  • Page 50
    Philips Annual Report 2004 49

  • Page 51
    ...a number of European countries) and for the delivery of enterprise systems in the healthcare IT market (Epic). In addition, it is broadening its base in China with the establishment of the Philips-Neusoft venture. Medical Systems' strategy is now aimed at becoming a clinically focused company unique...

  • Page 52
    ...Monitoring Systems, Computed Tomography and Ultrasound were the main contributors to this income improvement. The growing installed base is driving the increase in customer service. 40% 40 20% The Philips-Neusoft venture, of which Philips holds 51%, has been consolidated; a total cash investment...

  • Page 53
    ... a best-in-class cost position. In 2004, Philips announced the establishment of a new Consumer Health & Wellness group to develop products and services that diagnose, monitor, improve 2.1 2 2.2 2.3 2.1 2.0 and care for the health and well-being of consumers. Financial performance Nominal sales...

  • Page 54
    ..., mainly in Europe, and a sharp fall in Flat TV prices in the second half of 2004. Net restructuring charges totaled EUR 138 million and mainly related to the closure of the front-end projection display and Liquid Crystal on Silicon activities and the execution of the Business Renewal Program...

  • Page 55
    ..., expanding its leading position in lighting systems into fast-growing consumer electronics applications like video-projection systems, as well as developing its solid-state lighting (LED) activities. Lumileds Lighting, an unconsolidated venture with Agilent Technologies in which Philips holds a 48...

  • Page 56
    ..., declining afterwards in line with order books. The mobile phone market ended the year at a level of 650 million handsets. The mobile displays market experienced a continuous shift from monochrome to color, the latter now accounting for more than 80% of the market. Sales Sales growth % (decrease...

  • Page 57
    ...573 million, of which EUR 216 million related to SSMC, which was consolidated in 2004. In addition, the cash flow used for investing activities related to Crolles2 recorded by the Philips Group amounted to 40 20 0 Q1 Q2 Q3 2003 Q4 Q1 Q2 Q3 2004 Q4 EUR 105 million. 56 Philips Annual Report 2004

  • Page 58
    ... of activities: Technology 2002 2003 2004 Cluster (such as Philips Research, Intellectual Property & Standards, the Philips Center for Industrial Technology and the Incubator), Corporate Investments (such as Assembléon and Philips Enabling Technologies Group), Global Service Units for IT, Finance...

  • Page 59
    ...financial review and prospects Unallocated Corporate & Regional Overheads The costs of the corporate center, including a part of the Company's global brand management and sustainability programs, as well as country and regional overheads, are not attributable to the product sectors but are reported...

  • Page 60
    ... Europe (excl. Netherlands) USA and Canada Latin America Africa DAP 8,205 Asia Pacific Total Semiconductors 35,116 Consumer Electronics 16,993 The number of employees, both permanent and temporary, declined in 2004. Sales per employee continued to increase. Lighting 44,004 Sales per employee...

  • Page 61
    ... Lighting Semiconductors Other Activities Philips Group Net income improved to EUR 695 million, helped by the absence of impairment charges on financial assets. Income from operations improved by EUR 68 million, although it was negatively impacted by a lower level of sold businesses and real estate...

  • Page 62
    ... market conditions. Vocon/Telephony and the remaining part of Philips Contract Manufacturing Systems were 2002 sales income (loss) from operations income (loss) from operations as a % of sales Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities Unallocated Total...

  • Page 63
    ... the industry is facing structural overcapacity. Along with other major players, LG.Philips Displays reduced its capacity and took restructuring and impairment charges of EUR 417 million (Philips' share). In view of the deteriorated CRT market, the Company reassessed the value of its investment in...

  • Page 64
    ... share - basic). In 2003, the Company adopted SFAS No. 143 'Accounting for Asset Retirement Obligations'. The cumulative effect of this change in accounting principles related to prior years was a one-time, non-cash charge to income of EUR 14 million (net of taxes). Domestic Appliances and Personal...

  • Page 65
    ... capital Employees (FTEs) 9,855 (7) (4) 208 2.1 46 21,018 9,188 (7) 2 248 2.7 (82) 19,111 Despite the generally weaker markets, comparable sales increased by 2% during 2003, fueled by increases at Automotive & Special Lighting and Lighting Electronics. Sales in Asia Pacific and North America...

  • Page 66
    .... Net capital expenditures were maintained at a low level of EUR 205 million. In addition, the cash flow used for investing activities related to Crolles2 recorded by the Philips Group amounted to EUR 99 million. The loss for the Global Service Units (EUR 23 million) primarily In order to build...

  • Page 67
    ... Electronics and Other Activities. The Netherlands, Germany and the UK recorded the weakest sales performance, partly offset by a strong rise in Eastern Europe. Sales in North America decreased by 19% during 2003, mainly due to the weaker US dollar. Deconsolidations had an additional downward...

  • Page 68
    ...-projection activity was stopped together with the engine activities of LCoS. Furthermore, worldwide the Business Renewal Program was accelerated. The Restructuring: Medical Systems DAP Cons. Electronics Lighting Semiconductors Other Activities Release of excess provisions Total restructuring Asset...

  • Page 69
    ...million in connection with the decision to change the business model of Philips Business Communications and to reduce the Research activities in the United Kingdom, as well as for asset impairment in Sunnyvale, USA. Annual savings are expected to total approximately EUR 20 million. At year-end 2004...

  • Page 70
    ... Annual Report. * Releases of surplus restructuring provisions in 2002 totaled EUR 78 million. The releases were primarily related to Lighting, Components, Other Activities, Consumer Electronics and Semiconductors. ** Relates to provisions transferred to the joint venture LG.Philips Displays and...

  • Page 71
    Operating and financial review and prospects Liquidity and capital resources Cash flows Condensed consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002 are presented below: Cash flow from operating activities Cash flows from operating activities versus net ...

  • Page 72
    ... investments were also made. These outflows were offset by proceeds from the sale of various businesses in 2002 totaling EUR 813 million, primarily the sale of Philips Contract Manufacturing Services, X-ray Analytical, Communication, Security and Imaging, the HCP group of Medical Systems, Philips...

  • Page 73
    ... by EUR 1,233 million to EUR 5,876 Cash and cash equivalents Receivables Inventories Unconsolidated companies Other non-current financial assets Property, plant and equipment Intangible assets Total assets Accounts payable and other liabilities Provisions Debt Minority interests Stockholders...

  • Page 74
    ...million due to a dividend to shareholders were only partly compensated by the EUR 695 million positive net income and a EUR 151 million increase in other comprehensive income related to available-for-sale securities. The number of outstanding common shares of Royal Philips Electronics at December 31...

  • Page 75
    ... from guarantees provided, and the capital resources available to fund the cash requirements. The following table summarizes the Company's cash obligations at Cash and cash equivalents Long-term debt Short-term debt Net debt Available-for-sale securities at market value Main listed unconsolidated...

  • Page 76
    .... The majority of employees in Europe and North America are covered by defined-benefit plans. Contributions are made by the Company, as necessary, to provide assets sufficient to meet future benefits payable to plan participants. The Company expects considerable cash outflows in relation to employee...

  • Page 77
    ... of the Company. For a report on disclosure controls and procedures for the 2004 financial statements, please refer to page 197 of this Annual Report. Internal audit committees at product division, business and regional levels meet on a regular basis to address weaknesses in the business control...

  • Page 78
    ...for market share. To be successful, Philips must leverage the investment in its global brand positioning in the Chinese market to build greater consumer preference. If DAP is unable to pre-empt fundamental industry changes or create sustainable, unique appliance/consumable propositions, its current...

  • Page 79
    ..., equity price risk and credit risk. Philips owns available-for-sale securities and is a minority shareholder in a number of participations, of which the market value currently exceeds the equity investment reported in the financial statements. Sale of some or all of these assets would positively...

  • Page 80
    ... on the projected benefit obligations, funding requirements and periodic pension cost. A negative performance of the capital markets could have a material impact on pension expense and on the value of certain financial assets of the Company. For a discussion of pension-related exposure to changes in...

  • Page 81
    .... Equity prices are generally more volatile than interest rates. The sensitivity of the overall funded status to changes in equity valuations is still significant, despite the aforementioned decrease in equities in the total investments of the Dutch pension fund. change in AML (compared to total PBO...

  • Page 82
    ... impact of changes in equity prices on NPPC clearly exceeds that of changes in interest rates. Similar to the impact of interest rate changes, the impact of changes in equity valuations on NPPC is still the largest for the Netherlands, where equity investments compared to the Company's total pension...

  • Page 83
    ... project benefit obligations. Retirement benefit accounting is intended to reflect the recognition of future benefit costs over the employee's approximate service period, based on the terms of the plans and the investment and funding decisions made by the Company. The accounting requires management...

  • Page 84
    ...as further information becomes available. Please refer to note 26 to the consolidated financial statements for a discussion of contingent liabilities. Management regularly reviews each equity and security investment for impairment based on the extent to which cost exceeds market value, the duration...

  • Page 85
    Operating and financial review and prospects Warranty costs The Company provides for warranty costs based on historical trends in product return rates and the expected material and labor costs to provide warranty services. If it were to experience an increase in warranty claims compared with ...

  • Page 86
    ...the tax basis and the IFRS measurement has been taken into account. With regard to the options that are offered in IFRS 1 'First-time adoption of International Financial Reporting Standards' the Company has chosen to use the options described below. For employee benefits under IAS 19 the Company has...

  • Page 87
    ...and financial review and prospects Other information Proposed dividend to shareholders of Royal Philips Electronics A proposal will be submitted to the 2005 Annual General Meeting of Shareholders to declare a dividend of EUR 0.40 per common share (EUR 513 million, based on the outstanding number of...

  • Page 88
    ...ongoing transformation into a truly market-driven company is reflected in our marketing investments, which - together with our strong R&D competencies - will help us to deliver the advanced and innovative products that our customers want. February 22, 2005 Board of Management Philips Annual Report...

  • Page 89
    88 Philips Annual Report 2004

  • Page 90
    ...public accounting firm We have audited the consolidated balance sheets of Koninklijke Philips Electronics N.V. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year...

  • Page 91
    ... a change in accounting principles (3,206) 709 2,836 7 O Cumulative effect of a change in accounting principles, net of tax - (3,206) (14) 695 - 2,836 8 O Net income (loss) The accompanying notes are an integral part of these consolidated financial statements. 90 Philips Annual Report 2004

  • Page 92
    ... effects on EPS are only taken into consideration if this does not result in an improvement in income per share or in a reduction in loss per share, as was the case in 2002. The accompanying notes are an integral part of these consolidated financial statements. Philips Annual Report 2004 91

  • Page 93
    ...17,400 30,723 2,494 17,497 29,411 16 O Intangible assets excluding goodwill: - At cost - Less accumulated amortization 2,189 (918) 17 O Goodwill Total non-current assets Total The accompanying notes are an integral part of these consolidated financial statements. 92 Philips Annual Report 2004

  • Page 94
    ... (loss) Treasury shares, at cost: 34,543,388 shares ( 35,384,262 shares in 2003) (1,256) 12,763 Total 29,411 (1,239) 14,860 30,723 263 71 16,970 (3,285) 263 97 19,346 (3,607) The accompanying notes are an integral part of these consolidated financial statements. Philips Annual Report 2004 93

  • Page 95
    ... of long-term debt Treasury stock transactions Dividends paid Net cash used for financing activities Cash provided by continuing operations Effect of changes in consolidation on cash positions Effect of changes in exchange rates on cash positions Cash and cash equivalents at beginning of year Cash...

  • Page 96
    ... statements of cash flows: 2002 2003 2004 Decrease in working capital/other current assets: Decrease (increase) in receivables and other current assets Decrease (increase) in inventories Increase in accounts payable, accrued and other liabilities 97 173 545 815 Net cash paid during the year...

  • Page 97
    ... number of shares in thousands Common stock Capital in excess of par value Retained earnings Currency translation differences Unrealized gain (loss) on availablefor-sale securities Additional minimum pension liability Change in fair value of cash flow hedges Total Treasury shares at cost Total...

  • Page 98
    ...in unconsolidated companies Investments in companies in which Royal Philips Electronics does not have the ability to directly or indirectly control the financial and operating decisions, but does possess the ability to exert significant influence, are accounted for using the equity method. Generally...

  • Page 99
    ... hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet, and recognizes any changes in its fair value in earnings. Cash and cash equivalents Cash and cash equivalents include all cash balances and short-term highly liquid investments...

  • Page 100
    ... in the related country or region may be increased to cover the increased risk. Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Assets manufactured by the Company include direct manufacturing costs, production overheads and interest...

  • Page 101
    ... exceeds the fair value of the asset. The review for impairment is carried out at the level where discrete cash flows occur that are independent of other cash flows. Assets held for sale are reported at the lower of the carrying amount or fair value, less costs to sell. Research and development All...

  • Page 102
    ... destination as agreed in the contract with the customer and where title to and risks for the goods passes to the customer. For products that require substantive installation activities by the Company, such as those related to the equipment sales of the Medical Systems segment and parts of the Other...

  • Page 103
    ... paid out as dividends in the foreseeable future, and for undistributed earnings of minority shareholdings. Changes in tax rates are reflected in the period that includes the enactment date. Benefit accounting The Company accounts for the cost of pension plans and postretirement benefits other than...

  • Page 104
    ...as the present value of the benefits attributed to employee service rendered and based on current and past compensation levels, exceeds the market value of the plan assets and existing accrued pension liabilities, this difference and the existing prepaid pension asset are recognized as an additional...

  • Page 105
    Financial statements of the Philips Group Use of estimates The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements in order to conform with generally accepted accounting principles. Actual ...

  • Page 106
    ... employee services in share-based payment transactions. The revised Statement contains certain changes compared with the original pronouncement. The most relevant for the Company will be the requirement to estimate forfeitures at the date of grant, whereas the original Statement permitted accounting...

  • Page 107
    ... net assets divested1) recognized gain (loss) Philips HeartCare Telemedicine Services Atos Origin NAVTEQ Philips Consumer Electronics Industries Poland 1) Including cash divested (8) 552 730 12 (6) 401 95 12 (2) 151 635 - Philips HeartCare Telemedicine Services In January 2004 the Company sold...

  • Page 108
    ... this new venture Philips can deploy its strategy for the market in China and gain a direct link to a long-term supply of skilled workforce including R&D capabilities. The entity has been consolidated since July 2004. Gemini Industries, Inc. In August 2004, the Company acquired all of the shares of...

  • Page 109
    Financial statements of the Philips Group 2003 During 2003 the Company completed several disposals of businesses. Also a number of acquisitions and ventures were completed. All business combinations have been accounted for using the purchase method of accounting. However, both individually and in ...

  • Page 110
    ...) and the Company (48% ownership). Philips and Accton each hold three seats on the board. Both companies are customers and development partners of the venture for wireless connectivity products. Both parents contributed their Wireless businesses to the venture, mainly consisting of intangible assets...

  • Page 111
    ... Philips Group Divestments cash inflow net assets divested recognized gain Fax business TechnoFusion SMATV Heat and Surface Treatment X-ray Analytical Philips Broadband Networks Payer shavers Communication, Security and Imaging business Philips Contract Manufacturing Services Health Care Products...

  • Page 112
    ... and services, acquired Philips Broadband Networks for a cash payment of approximately EUR 75 million. Philips Medical Capital Philips Medical Systems and Rabobank Group's subsidiary De Lage Landen International set up a venture to provide financing throughout the United States for the purchase of...

  • Page 113
    ...Salaries and wages Pension costs Other social security and similar charges: - Required by law - Voluntary Total 6,862 130 995 196 8,183 6,020 442 851 138 7,451 5,932 284 769 130 7,115 See note 20 to the financial statements for further information on pension costs. Employees The average number...

  • Page 114
    ... to management and staff departments in the corporate center, product divisions and country/regional organizations, amounting to EUR 1,181 million in 2004 (2003: EUR 1,238 million, 2002: EUR 1,406 million). Additionally, the pension costs and costs of other postretirement benefit plans relating to...

  • Page 115
    ...Consumer Electronics, the R&D and production activities related to Creative Display Solutions (front-projection) and the engine activities related to Liquid Crystal on Silicon (LCoS) were stopped. Furthermore, certain restructuring costs were incurred in conjunction with the Business Renewal Program...

  • Page 116
    ... of assets Other costs Total 6 - 3 9 30 33 2 65 (25) (33) (3) (61) - - (2) (2) 11 - - 11 The remaining new restructuring projects in 2004 for the Philips Group amounted to EUR 11 million and covered a number of smaller projects, which were all related to lay-offs. Philips Annual Report 2004...

  • Page 117
    ...427 * Releases of surplus restructuring provisions in 2002 totaled EUR 78 million. The releases were primarily related to Lighting, Components, Other Activities, Consumer Electronics and Semiconductors. ** Other changes primarily related to translation differences. 116 Philips Annual Report 2004

  • Page 118
    ... and liabilities for restructuring costs in 2004 are presented by sector as follows: balance Dec. 31, 2003 additions utilized released other changes balance Dec. 31, 2004 Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities Total 22 3 55 10 66 85 241 3 8 140 65...

  • Page 119
    Financial statements of the Philips Group Additions of EUR 490 million are presented by sector as follows: personnel costs writedown of assets other costs total Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities Total 14 - 58 20 50 31 173 - - 10 5 209 30 254 4 - 4...

  • Page 120
    ... 2004 Initial public offering NAVTEQ Remaining activities of PCMS Speech Processing activities Partial sale of PCMS Communication, Security and Imaging business Philips Broadband Networks X-Ray Analytical Earn-out of JDS Uniphase shares Glass activities Display Components Components activities in...

  • Page 121
    Financial statements of the Philips Group 3 Financial income and expenses O 2002 2003 2004 Interest income Interest expense Total interest expense, net Impairment loss on available-for-sale securities Income from non-current financial assets Foreign exchange results Miscellaneous financing ...

  • Page 122
    ... tax rate, non-taxable gains on the IPO of NAVTEQ and the sale of shares in Vivendi Universal and ASML are included in the line non-taxable income; the non-tax-deductible impairment charge relating to MedQuist is included in the line non-tax-deductible impairment charges. Philips Annual Report...

  • Page 123
    Financial statements of the Philips Group Deferred tax assets and liabilities Deferred tax assets and liabilities relate to the following balance sheet captions: 2003 assets liabilities assets 2004 liabilities Intangible assets Property, plant and equipment Inventories Receivables Other assets ...

  • Page 124
    ...2003: EUR 152 million), relates to unremitted earnings in foreign Group companies, which are considered to be permanently re-invested. Under current Dutch tax law, no additional taxes are payable. However, in certain jurisdictions, withholding taxes would be payable. Philips Annual Report 2004 123

  • Page 125
    Financial statements of the Philips Group 5 Investments in unconsolidated companies O Results relating to unconsolidated companies 2002 2003 2004 Company's participation in income and loss Results on sales of shares Gains and losses arising from dilution effects Investment impairment charges ...

  • Page 126
    ... Company's shareholding in TSMC was diluted as a result of shares issued to employees, in 2004 by 0.2%. Also in 2004, the TSMC Board of Management decided to withdraw some share capital, increasing Philips' shareholding by 0.1%. 2003 On August 16, 2002, Atos Origin purchased all of the common stock...

  • Page 127
    ... investments. 2003 In 2003, LG.Philips Displays (LPD) was impacted by worsening market conditions and increased price erosion, mainly caused by the rapid penetration of Liquid Crystal Display panels for application in TV and monitors. For LPD, the revised market outlook resulted in a non-cash asset...

  • Page 128
    ...: total investments loans Balance of equity method investments as of January 1, 2004 Changes: Reclassification to other non-current financial assets Transfer to/from consolidated companies Acquisitions/additions Sales/repayments Share in income/value adjustments Dividends received Translation and...

  • Page 129
    ... value of Philips' shareholdings in the publicly listed companies TSMC, LG.Philips LCD and NAVTEQ, based on quoted market prices at December 31, 2004, is EUR 5,126 million, EUR 3,992 million and EUR 1,040 million respectively. Summarized financial information for the Company's equity investments...

  • Page 130
    ... in accounting principles. In 2003, the Company adopted SFAS No. 143 'Accounting for Asset Retirement Obligations'. The cumulative effect of this change in accounting principle related to prior years was a one-time, non-cash charge to income of EUR 14 million (net of taxes). Philips Annual Report...

  • Page 131
    ... case in 2002. 9 Receivables O Trade accounts receivable include instalment accounts receivable of EUR 45 million (2003: EUR 6 million). Income taxes receivable (current portion) totaling EUR 46 million (2003: EUR 138 million) are included under other receivables. 130 Philips Annual Report 2004

  • Page 132
    ... current assets O Other current assets primarily consist of a current deferred tax asset of EUR 334 million (2003: EUR 357 million), derivative instruments - assets of EUR 523 million (2003: EUR 411 million) and prepaid expenses. The Company has no trading securities. Philips Annual Report 2004...

  • Page 133
    ... the Philips Group 12 Other non-current financial assets O The changes during 2004 are as follows: total available-forsale securities loans restricted liquid assets other Balance as of January 1, 2004 Changes: Reclassification from unconsolidated companies Acquisitions/additions Sales/redemptions...

  • Page 134
    ...be available for sale, the equity value of Atos Origin (EUR 364 million) is reclassified from unconsolidated companies to other non-current financial assets (please refer to note 5). During 2003, 13,810,000 ASML shares were sold at a gain of EUR 114 million. Additionally, 6,000,000 shares of Vivendi...

  • Page 135
    ... the Philips Group 15 Property, plant and equipment O total land and buildings machinery and installations lease assets other equipment prepayments and construction in progress no longer productively employed Balance as of January 1, 2004: Cost Accumulated depreciation Book value Changes in...

  • Page 136
    ... be sold, leased or otherwise marketed amounted to EUR 25 million at the end of 2004 (2003: EUR 12 million). The amounts charged to the income statement for amortization or impairment of these capitalized computer software costs amounted to EUR 6 million (2003: EUR 2 million). Philips Annual Report...

  • Page 137
    ..., MedQuist (please refer to note 2). Please refer to note 35 for a specification of goodwill by product sector. Acquisitions represent the goodwill paid on the acquisitions of Philips-Neusoft Medical Systems Co., Ltd. in China and Gemini Industries, Inc. in the USA. 136 Philips Annual Report 2004

  • Page 138
    ...follows: 2003 long-term short-term long-term 2004 short-term Pensions for defined-benefit plans (see note 20) Other postretirement benefits (see note 21) Deferred tax liabilities (see note 4) Restructuring (see note 2) Product warranty Postemployment benefits and obligatory severance payments Loss...

  • Page 139
    Financial statements of the Philips Group The changes in total provisions excluding deferred tax liabilities are as follows: 2002 2003 2004 Balance as of January 1 Changes: Additions Utilizations Releases Translation differences Changes in consolidation Balance as of December 31 3,253 1,550 (1,...

  • Page 140
    ... projects/orders totaling EUR 46 million (2003: EUR 42 million). 20 Pensions O Employee pension plans have been established in many countries in accordance with the legal requirements, customs and the local situation in the countries involved. The majority of employees in Europe and North America...

  • Page 141
    ... beginning of year Service cost Interest cost Employee contributions Actuarial (gains) and losses Plan amendments Settlements Changes in consolidation Benefits paid Exchange rate differences Miscellaneous Projected benefit obligation at end of year Plan assets Fair value of plan assets at beginning...

  • Page 142
    ... of 1% is included. The components of net periodic pension costs were as follows: 2002 Netherlands Other Netherlands 2003 Other Netherlands 2004 Other Service cost Interest cost on the projected benefit obligation Expected return on plan assets Net amortization of unrecognized net transition...

  • Page 143
    ... investments. In order to keep the plan's investment strategy in balance with the structure of its pension benefit obligation, asset-liability reviews are carried out periodically. The structure of the pension benefit obligation, expectations and scenarios with regard to the long-term rate of return...

  • Page 144
    ... strategic investment policy. The new strategic targets are related to the size and the structure of the pension obligations. The expected long-term rate of returns on assets for the plan in the Netherlands will be 5.7% in 2005. The expected returns on equity securities, debt securities, real estate...

  • Page 145
    ... benefit plans are unfunded and therefore no plan asset disclosures are presented. 2003 Netherlands Other Total Netherlands Other 2004 Total Projected benefit obligation Projected benefit obligation at beginning of year Service cost Interest cost Actuarial (gains) and losses Curtailments Changes...

  • Page 146
    ... benefit obligation 8 61 3 28 (7) (48) (2) (24) Estimated future postretirement benefit payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: 2005 2006 2007 2008 2009 Years 2010 - 2014 40 40 41 42 43 228 Philips Annual Report...

  • Page 147
    ... statements of the Philips Group 22 Other current liabilities O Other current liabilities are summarized as follows: 2003 2004 Advances received from customers on orders not covered by work in process Other taxes including social security premiums Other short-term liabilities Total 23 Short-term...

  • Page 148
    ... 2005 due after 2005 due after 2009 average remaining term (in years) amount outstanding 2003 Eurobonds USD bonds USD putable bonds Convertible debentures Private financing Bank borrowings Liabilities arising from capital lease transactions Other long-term debt Total Corresponding data previous...

  • Page 149
    ... Certain portions of long-term and short-term debt have been secured by collateral as follows: amount of the debt property, plant and equipment collateral other assets Institutional financing Other debts Total Previous year 222 20 242 29 500 18 518 2 93 - 93 52 148 Philips Annual Report 2004

  • Page 150
    ... dates during the next 20 years. The future payments that fall due in connection with these obligations are as follows: 2005 2006 2007 2008 2009 Later 186 124 115 71 63 195 The long-term operating leases are mainly related to the rental of buildings. A number of these leases originate from sale...

  • Page 151
    ... period total amounts committed less than 1 year 2-5 years after 5 years Guarantees for the benefit of unconsolidated companies/third parties 422 189 92 141 In conjunction with a refinancing of LG.Philips Displays (LPD), the parent companies, LG Electronics and the Company, each provided an equity...

  • Page 152
    ... not discounted to their present value since the amounts and the timing of related cash payments are not reliably determinable. Potential insurance recoveries are recognized when recoveries are deemed probable. Litigation Royal Philips Electronics and certain of its Group companies are involved as...

  • Page 153
    Financial statements of the Philips Group cases involving a number of defendants. During 2004, 2,436 cases, representing 4,085 claimants, were filed against the Company's subsidiaries (568 cases, representing 2,587 claimants were filed in 2003). While management believes there are meritorious ...

  • Page 154
    ..., representing the market price on the acquisition date. When issued, shares are removed from treasury stock on a FIFO basis. Any difference between the cost and the market value at the time treasury shares are issued, is recorded in capital in excess of par value. Philips Annual Report 2004 153

  • Page 155
    ... earnings A dividend of EUR 0.40 per common share will be proposed to the 2005 Annual General Meeting of Shareholders. 28 Cash from derivatives O The Company has no trading derivatives. A total of EUR 125 million cash was generated by foreign exchange derivative contracts related to financing...

  • Page 156
    ...long-term basis, thereby increasing shareholder value. Under the Company's plans, options are granted at fair market value on the date of grant. In 2003 and 2004, the Company issued restricted share rights that vest in equal annual installments over a three-year period. Restricted shares are Philips...

  • Page 157
    Financial statements of the Philips Group Under the terms of employee stock purchase plans established by the Company in various countries, substantially all employees in those countries are eligible to purchase a limited number of shares of Philips stock at discounted prices through payroll ...

  • Page 158
    ... assumptions, including the expected stock price volatility. The Company's employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Philips Annual Report 2004 157

  • Page 159
    Financial statements of the Philips Group The following table summarizes information about the stock options outstanding at December 31, 2004: Fixed option plans options outstanding number outstanding at Dec. 31, 2004 exercise price per share weighted average remaining contractual life (years) ...

  • Page 160
    ... status of the Company's stock option plans as of December 31, 2004, 2003 and 2002 and changes during the years then ended is presented below: Fixed option plans 2002 shares weighted average exercise (price in EUR) shares 2003 weighted average exercise (price in EUR) shares 2004 weighted average...

  • Page 161
    ... the applicable accounting principles. In 2004, no (additional) pension benefits were granted to former members of the Board of Management. In 2004, the present members of the Board of Management were granted 152,019 stock option rights (2003: 167,220 stock option rights, 2002: 489,600 stock option...

  • Page 162
    ...use of the company car), then this share is both valued and accounted for here. The method employed by the fiscal authorities in the Netherlands is the starting point for the value stated. Annual incentive figure 2003 relates to period January-March 2002. Salary figure 2003 relates to period January...

  • Page 163
    Financial statements of the Philips Group The tables below give an overview of the interests of the members of the Board of Management under the stock option plans and the restricted share plans respectively of Royal Philips Electronics: number of options as of Jan. 1, 2004 granted during 2004 ...

  • Page 164
    ... members is EUR 40,840 and for the Chairman EUR 74,874. Additionally, the membership of committees of the Supervisory Board is compensated by an amount of EUR 4,538 per year per committee. At year-end 2004, the present members of the Supervisory Board held no stock options. Philips Annual Report...

  • Page 165
    Financial statements of the Philips Group The individual members of the Supervisory Board received, by virtue of the positions they held, the following remuneration (in euros): 2004 membership committees total L.C. van Wachem W. de Kleuver L. Schweitzer R. Greenbury J-M. Hessels K.A.L.M. van Miert...

  • Page 166
    ... rate risk, equity price risk, commodity price risk, credit risk and country risk. The Company does not purchase or hold financial derivative instruments for trading purposes. Currency risk Currency fluctuations may impact Philips' financial results. The Company has a structural currency mismatch...

  • Page 167
    .../payable as well as the changes in the fair value of the hedges of accounts receivable/payable are reported in the income statement. Forecasted transactions are not yet recorded in the accounts of the Company. Therefore the hedges related to these forecasted transactions are recorded as cash flow...

  • Page 168
    ... to translation exposure of investments in foreign entities financed by debt are recognized in the income statement. The changes in the fair value of these hedges related to foreign exchange movements are offset in the income statement by changes in the fair value of the hedged items. The Company...

  • Page 169
    ... The EUR 4,349 million in cash and short-term deposits and the USD 2,500 million stand-by facility mitigate the liquidity risk for the Company. Equity price risk Philips is a shareholder in several publicly listed companies such as TSMC, LG.Philips LCD, NAVTEQ, FEI, Atos Origin, JDS Uniphase and GN...

  • Page 170
    ...insurance policies in the areas of: Property Damage, Business Interruption, Liability, Transport, Directors and Officers Liability, Employment Practice Liability, Crime and Aviation Products Liability. To lower exposures and to avoid potential losses, Philips has a worldwide Risk Engineering program...

  • Page 171
    Financial statements of the Philips Group Fair value of financial assets and liabilities The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative ...

  • Page 172
    ... as Home Theatre in a Box; DVD, DVD+RW; audio systems, separates and portables; LCD and CRT computer monitors; mobile phones and cordless digital phones; set-top boxes; and accessories such as headphones and recordable media. Lighting The Lighting division consists of four lines of business - Lamps...

  • Page 173
    ... Other Activities in 2004. Unallocated Unallocated includes general and administrative expenses in the corporate center and the costs of regional and country organizations. Also included are the costs for the Company's global brand management and sustainability programs. 172 Philips Annual Report...

  • Page 174
    Product sectors 2004 sales (to third parties) income (loss) from operations as a % of sales results relating to unconsolidated companies Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities Unallocated Total 5,884 2,044 9,919 4,526 5,464 2,482 - 30,319 34 323 361 591 ...

  • Page 175
    Financial statements of the Philips Group 2004 total assets net operating capital total liabilities excl. debt long-lived assets capital expenditures depreciation property, plant and equipment Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities Unallocated Total 4,...

  • Page 176
    ...sales (to third parties) total assets net operating capital long-lived assets capital expenditures depreciation property, plant and equipment Netherlands United States Germany France United Kingdom China Other countries Total... 1,161 350 557 114 111 32 157 493 1,814 Philips Annual Report 2004 175

  • Page 177
    ...any, is measured based on projected discounted future operating cash flows using a business-specific Weighted Average Cost of Capital. Securities that are designated as available-for-sale are classified under other non-current financial assets and are stated at their fair values. Changes in the fair...

  • Page 178
    ...lower book value: - financial income and expenses* - results relating to unconsolidated companies Reversal of impairment of available-for-sale securities * Higher dilution gain LG.Philips LCD, due to amortization of goodwill Net income in accordance with Dutch GAAP Basic earnings per common share in...

  • Page 179
    ... before cumulative effect of a change in accounting principles 2,336 - 719 (14) 7 O Cumulative effect of a change in accounting principles, net of tax Net income 2,336 705 The accompanying notes are an integral part of these consolidated financial statements. 178 Philips Annual Report 2004

  • Page 180
    ... of treasury stock) during the year (in thousands) Basic earnings per common share in euros: Net income Diluted earnings per common share in euros: Net income Dividend paid per common share in euros 2004 2003 1,280,251 1,277,174 1.82 0.55 1.81 0.36 0.55 0.36 Philips Annual Report 2004 179

  • Page 181
    ... assets excluding goodwill: - At cost - Less accumulated amortization 2,108 (1,119) O 41 Goodwill consolidated companies: - At cost - Less accumulated amortization 2,769 (1,472) The accompanying notes are an integral part of these consolidated financial statements. 180 Philips Annual Report...

  • Page 182
    ...OOOO 25 O 19 20 21 26 Long-term debt Long-term provisions Other non-current liabilities Total non-current liabilities 26 O Commitments and contingent liabilities Group equity 6 O 42 O Minority interests Stockholders' equity: Common shares, par value EUR 0.20 per share: Authorized: 3,250,000,000...

  • Page 183
    ... equity of the Philips Group in millions of euros unless otherwise stated number of shares outstanding issued issued paid-up capital share premium other reserves revaluation reserve treasury shares total Balance as of December 31, 2002 Net income Net current period change Dividend paid Share...

  • Page 184
    ... remainder arose from the change in fair value of other securities. 38 Income taxes O See note 4 to the consolidated financial statements based on US GAAP. The difference in income taxes based on Dutch GAAP and income taxes based on US GAAP relates to the different accounting treatment under Dutch...

  • Page 185
    ... Origin shares sold. Gains and losses arising from dilution effects in 2004 include EUR 20 million in connection with the higher dilution gain from the inital public offering of LG.Philips LCD, due to the continued amortization of goodwill under Dutch GAAP. For the Company's investment in LG.Philips...

  • Page 186
    ... to the consolidated financial statements based on US GAAP. The EUR 91 million difference in other non-current assets between Dutch and US GAAP in 2004 (2003: EUR 63 million) results from the tax effect on the amortization of tax-deductible goodwill under Dutch GAAP. Philips Annual Report 2004 185

  • Page 187
    ...years, accumulating to EUR 143 million at the end of 2004. goodwill relating to consolidated companies Balance as of January 1, 2004: Acquisition cost Accumulated amortization Book value Changes in book value: Acquisitions Amortization and write-downs Impairment losses Translation differences Total...

  • Page 188
    ... and statements of income of Royal Philips Electronics in millions of euros The balance sheets are presented before appropriation of profit Balance sheets as of December 31 2004 2003 Assets Current assets: Cash and cash equivalents 3,597 8,503 12,100 Non-current assets: B O C O D O E O 2,368...

  • Page 189
    ... of Royal Philips Electronics only reflect the net after-tax income of affiliated companies and other income after taxes. With respect to the accounting principles, see page 176 of the Dutch GAAP consolidated financial statements, which form part of these notes. A Receivables O 2004 2003 Trade...

  • Page 190
    C Other non-current financial assets O total security investments other receivables Balance as of January 1, 2004 Changes: Sales/redemptions Value adjustments Translation and exchange differences Balance as of December 31, 2004 1,015 (890) 45 (2) 168 982 (883) 47 - 146 33 (7) (2) (2) 22 ...

  • Page 191
    ... Other Total Of which long-term Of which short-term 9 146 14 169 130 39 16 93 15 124 35 89 As almost all obligations in connection with pension plans have been covered by separate pension funds or third parties, the provision for pensions refers to additional payments that the Company intends...

  • Page 192
    ... (de facto) take over control of the Company, the General Meeting of Shareholders in 1989 adopted amendments to the Company's Articles of Association that allow the Board of Management and the Supervisory Board to issue (rights to) preference shares to a third party. Philips Annual Report 2004 191

  • Page 193
    ...for delivery upon exercise of options and convertible personnel debentures and under restricted share programs and employee stock purchase plans are accounted for as a reduction of stockholders' equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When...

  • Page 194
    ... for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in Part 9, Book 2 of the Netherlands Civil Code. Eindhoven, February 22, 2005 KPMG Accountants N.V. Philips Annual Report 2004 193

  • Page 195
    ... 2003, a dividend was paid of EUR 0.36 per common share. The balance sheet presented in this report, as part of the consolidated financial statements for the period ended December 31, 2004, is before dividend, which is subject to shareholder approval after year-end. 194 Philips Annual Report 2004

  • Page 196
    ... results. The Board of Management has, for practical purposes, adopted a division of responsibilities indicating the functional and business areas monitored and reviewed by the individual members. According to the Company's corporate objectives and Dutch law, the Board of Management is guided by the...

  • Page 197
    ... and the General Meeting of Shareholders and dismissed by the latter. Individual data on the members of the Board of Management are published in the Annual Report, and updated on the Company's 196 Philips Annual Report 2004 Relationship between Board of Management and Supervisory Board The Board of...

  • Page 198
    ... to financial reporting a structured self-assessments and monitoring process is used company-wide to assess, document, review and monitor compliance with internal control over financial reporting. On the basis of risk assessments, product division and business management determines the risks related...

  • Page 199
    ... shares after three years from the delivery date, Philips will grant 20% additional (premium) shares, provided he/she is still with Philips. The Plan is designed to stimulate long-term investment in Philips shares. To further align the interests of members of the Board of Management and shareholders...

  • Page 200
    ... of Conduct on Inside Information, members of the Board of Management are only allowed to trade in Philips securities (including the exercise of stock options) during 'windows' of ten business days following the publication of annual and quarterly results (provided the person involved has no 'inside...

  • Page 201
    ... 'structure regime' does not apply to the Company itself. Members are currently elected by the General Meeting of Shareholders for fixed terms of four years, upon a binding recommendation from the Supervisory Board and the Meeting of Priority Shareholders (until the Amended Articles of Association...

  • Page 202
    ...changes in a member's holding of securities related to Dutch listed companies to the Philips Compliance Officer to be in line with best practices and sufficient to reach an adequate level of transparency; however, it is not fully in compliance with the Dutch Corporate Governance Code, Philips Annual...

  • Page 203
    ... Committee meets at least four times a year, before the publication of the annual and quarterly results. At least one of the members of the Audit Committee, which currently consists of three members of the Supervisory Board, is a financial expert as set out in the Dutch Corporate Governance Code and...

  • Page 204
    ... is to ensure that business issues and practices are shared across Philips and to implement common policies. General Meeting of Shareholders General In reviewing the Company's annual and interim statements, including non-financial information, and advising the Supervisory Board on the adequacy and...

  • Page 205
    ... and Dutch law and in the manner as described in this corporate governance report. The Board of Management and Supervisory Board are also 204 Philips Annual Report 2004 Logistics of the General Meeting of Shareholders and provision of information General The Company may set a registration date for...

  • Page 206
    ... N.V.'s stock market. Proxy voting and the Shareholders Communication Channel Philips was one of the key companies in the establishment of the Shareholders Communication Channel, a project of Euronext Amsterdam, banks in the Netherlands and several major Dutch companies to simplify contacts between...

  • Page 207
    ... financial reports. The annual financial statements are presented for discussion and adoption to the Annual General Meeting of Shareholders, to be convened subsequently. Philips, under US securities regulations, separately files its Annual Report on Form 20-F, incorporating major parts of the Annual...

  • Page 208
    ... shareholders at the Annual General Meeting of Shareholders, Philips elaborates its financial results during (public) conference calls, which are broadly accessible. It publishes informative annual and quarterly reports and press releases, and informs investors via its extensive website. The Company...

  • Page 209
    ... of the number of meetings with analysts and presentations to analysts or investors, not all of these meetings and presentations are announced in advance by means of a press release and on the Company's website and can be followed in real time. Compliance with the Dutch Corporate Governance Code In...

  • Page 210
    Philips Annual Report 2004 209

  • Page 211
    ... comparable GAAP financial measure is made for each non-GAAP performance measure. Sales growth composition (in %) Comparable growth Currency effects Consolidation changes Nominal growth 2004 versus 2003 Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities Philips Group...

  • Page 212
    ... accounts - provisions1) Include assets not comprised in NOC: - investments in unconsolidated comp. - other non-current financial assets - deferred tax assets - liquid assets Total assets 1) Philips Group Medical Systems DAP Consumer Electronics Lighting Semiconductors Other Activities...

  • Page 213
    ... of the sale of PolyGram N.V. in 1998 in order to present the Philips Group accounts on a continuing basis. Definitions intangible assets, property, plant and equipment, non-current receivables and current assets excl. cash and cash equivalents, securities and deferred tax positions, after deduction...

  • Page 214
    ... assets Non-current financial assets/unconsolidated companies Net assets discontinued operations Non-current receivables/assets Property, plant and equipment (book value) Intangible assets (book value) Non-current assets Total assets Property, plant and equipment: Capital expenditures for the year...

  • Page 215
    ...As well as financial reports and presentations, the site also provides information on related issues, such as governance, business ethics and sustainability. Shareholders are also welcome to visit our website www.philips.com, which provides extensive information about the Philips Group. Share price...

  • Page 216
    ...- a project of Euronext Amsterdam, banks in the Netherlands and several major Dutch companies to simplify contacts between a participating company and its shareholders. Philips will use the Shareholders Communication Channel to distribute the Agenda for this year's General Meeting of Shareholders as...

  • Page 217
    ...- Investor Relations, Telephone: 31-20-59 77222 Manager - Investor Relations, Telephone: 31-20-59 77447 Outside the USA Non-US shareholders and other non-US interested parties can obtain copies of the Annual Report 2004 free of charge from: Royal Philips Electronics Corporate Control - Publications...

  • Page 218
    ... Resonance • Ultrasound • Nuclear Medicine • Medical IT • Cardiac & Monitoring Systems • Dictation & Speech Recognition Systems • Remote Patient Care • Customer Financing • Document Management Systems • Asset Management Services Domestic Appliances and Personal Care • Shaving...

  • Page 219
    www.philips.com www.philips.com/investor 9922 130 09128