Philips 2007 Annual Report Download - page 169

Philips Annual Report 2007 175
section 524 (g) proceedings also generally provide that claimants
may not in the court system assert asbestos personal injury claims
against other parties which have contributed to the Trust and met
other requirements.
As part of exploring a possible reorganization, the subsidiary and
its parent engaged an independent third party to serve as a putative
representative of future claimants (the “Futures’ Representative”)
and discussed matters with him such as the value of asbestos-related
claims expected to be led in the future, the funding of the Trust,
asbestos claims review process and distribution procedures. Additionally,
similar discussions have been held with counsel representing a majority
of known asbestos claimants. Negotiations have been held with
insurance carriers, pursuant to which the carriers would potentially
make contributions to the Trust in order to benet from the
protection of the channeling injunction.
For the purpose of potential bankruptcy proceedings and the
establishment of the section 524 (g) Trust , outside counsel for the
subsidiary engaged Timothy Wyant, Ph.D., an independent third party
expert, to project the value of asbestos-related claims pending as of
July 1, 2007 as well as the value of such claims that may be asserted
in the future. Mr. Wyant projected the value of such pending and
estimated future claims through the end of 2050 to range from USD
515.3 million to USD 660.2 million (EUR 350 million to EUR 448
million) on a discounted basis. The current position of counsel to the
Futures’ Representative and counsel representing a majority of known
asbestos claimants is that the estimated liability for present and future
asbestos claims is materially higher than Mr. Wyant’s estimate.
In case a bankruptcy implementing a section 524 (g) injunction cannot
be negotiated on reasonable terms, the subsidiary and its parent are
exploring other possibilities to resolve asbestos liabilities, including
other lings by the subsidiary under the United States federal
bankruptcy code in which payments have not been negotiated prior to
ling. There is no assurance that any form of bankruptcy petition will
be led by the subsidiary. If a bankruptcy implementing a section 524
(g) trust is led, the amount of the Trust and the potential contribution
to the Trust by the subsidiary’s parent is uncertain and cannot
reasonably be estimated at this time, but it may be different from
the amount of the Company’s recorded accrual for loss contingencies.
A bankruptcy ling by the subsidiary would not include any other
Company entity as a debtor.
The Company believes that it and its subsidiaries have a signicant
amount of insurance coverage for asbestos product liability. In prior
years, legal proceedings were commenced against certain third-party
insurance carriers which had provided various types of product liability
coverage. During 2007 and the last several years, agreements were
reached with certain insurance carriers resolving disputes with respect
to the interpretation and available limits of the policies, amounts
payable to the subsidiaries and terms under which future settlements
and related defense costs are reimbursable. Pursuant to these
settlements, insurers paid EUR 27 million in 2007 (EUR 34 million
was paid in 2006 and EUR 20 million was paid in 2005) for asbestos-
related defense and indemnity costs. At December 31, 2007, the
subsidiary’s recorded receivable from insurance carriers, for which
settlement agreements have been reached amounted to EUR 62.7
million (EUR 80 million at December 31, 2006 and EUR 48 million
at December 31, 2005) for the reimbursement of incurred defense
and indemnity costs as well as for probable recoveries of accrued
projected settlement costs with respect to pending and future claims,
which is reected in the Company’s consolidated balance sheet.
At December 31, 2007, an additional EUR 10.6 million, for which
a receivable has not been recorded, is payable to the subsidiary on
July 5, 2008, provided asbestos legislation in a certain form is not
passed by the US Congress by that date. The subsidiary has not
recorded a receivable from non-settling insurance carriers. The
subsidiary continues to pursue its litigation against non-settling
insurance carriers and to hold settlement discussions with various
insurance carriers in 2008.
The subsidiary’s recorded accrual for loss contingencies related to
asbestos product liability is based on an estimate of claims through
2016. If actual experience differs signicantly from the assumptions
made in forecasting future liabilities, if the assumptions used to
determine the estimate prove to be erroneous, if the costs of settling
claims asserted after 2016 are signicant, if insurance coverage is
ultimately less than anticipated, or if a section 524 (g) Trust is
established or some other course of action is pursued to resolve
asbestos liabilities, the Company’s consolidated nancial position
and results of operations could be materially affected.
MedQuist
The Company holds approximately 70% of the common stock in
MedQuist. During 2007, MedQuist became current in its nancial
lings with the U.S. Securities and Exchange Commission (‘SEC’) for
the rst time since the ling of its Form 10-Q for the third quarter
of 2003.
Two putative class actions are pending against MedQuist arising from
allegations of, among other things, inappropriate billing by MedQuist
for its transcription services. One putative class action has been
brought against MedQuist by current and former customers. The
other putative class action was led on behalf of MedQuist’s medical
transcriptionists.
In 2007, a shareholder putative class action that had been pending
against MedQuist was settled, with MedQuist agreeing to pay USD
7.75 million to settle all claims throughout the class period against all
defendants in the action. Neither MedQuist nor any of the individuals
named in the action admitted to liability or any wrongdoing in
connection with the settlement.
The pending litigation matters are in various preliminary stages and
are being defended by MedQuist. On the basis of current knowledge,
the Company has concluded that potential future losses cannot
be reliably estimated. MedQuist also is the subject of ongoing
investigations by the SEC and the U.S. Department of Justice (DOJ)
relating to its billing practices.
During 2007, MedQuist continued its previously announced program
of offering accommodations to customers potentially affected by the
billing issues under review. MedQuist’s board authorized the company
to make accommodation offers to certain customers in an aggregate
amount of USD 65 million to resolve any issues concerning prior billing
by MedQuist to those customers. This amount was subsequently
adjusted to USD 66.6 million. As of December 31, 2007, MedQuist has
entered into settlement agreements with certain customers to resolve
concerns over certain billing related issues, and paid or credited to
their account an aggregate amount of USD 54 million. MedQuist has
made additional offers to certain other customers in the aggregate
amount of USD 1.2 million. MedQuist has also established a program
for certain other customers that involves the issuance of accommodation
credits that can be used as an offset against the future purchase of
goods and services from MedQuist. MedQuist’s board authorized the
company to make accommodation credit offers up to an additional
USD 9.2 million beyond the original cash payment program of USD
65.4 million. As of December 31, 2007, MedQuist has entered into
agreements with certain customers who have accepted the settlement
credit offers with a total credit value of USD 4.4 million and have
extended additional credit offers with the credit value of USD 0.4 million.
As of December 31, 2007, the Company has a total accrual of
EUR 9 million with respect to the billing-related issues at MedQuist.
It is not possible to estimate the level and timing of the other costs
and expenses related to these matters.
On November 2, 2007, the Company announced its intention to
sell its approximately 70% interest in MedQuist. The nancial results
attributable to the Company’s interest in MedQuist have been
presented as discontinued operations. See note 1 for further
information on MedQuist.
LG.Philips LCD
On December 11, 2006, LG.Philips LCD, an equity-accounted investee
in which the Company holds 19.9% of the common stock, announced
that ofcials from the Korean Fair Trade Commission visited the
ofces of LG.Philips LCD and that it had received a subpoena from
the United States Department of Justice and similar notice from the
Japanese Fair Trade Commission in connection with inquiries by those
regulators into possible anticompetitive conduct in the LCD industry.
Subsequent to the public announcement of these inquiries, certain
Philips group companies were named as defendants in several class
action antitrust complaints led in the United States courts, seeking
damages on behalf of purchasers of products incorporating thin-lm
transistor liquid crystal display panels, based on alleged anticompetitive
conduct by manufacturers of such panels. The complaints assert claims
under federal antitrust law, as well as various state antitrust and unfair
competition laws. In addition, in February 2007, certain plaintiffs led
purported class actions in a United States court against LG.Philips
LCD and certain current and former employees and directors of
LG.Philips LCD for damages based on alleged violations of U.S. federal
securities laws. No Philips group company is named as a defendant in
these actions.
Group nancial statements
Notes to the group nancial statements
Company nancial statements 250 Corporate governance246 Reconciliation of
non-US GAAP information 258 The Philips Group in the last ten years 260
Investor information