Philips 2007 Annual Report Download - page 224

Philips Annual Report 2007230
Pension expense of dened-benet plans recognized in the
income statement:
2005 2006 2007
Service cost 343 327 265
Interest cost on the projected benet
obligation 949 942 920
Expected return on plan assets (1,102) (1,214) (1,216)
Net actuarial (gain) loss recognized (607) (82) (119)
Prior-service cost (28) 6 6
Settlement loss 3 5 75
Curtailment benet (4) (25) 2
Unrecognized net assets 878 436 420
Other 2 31 (3)
434 426 350
of which discontinued operations 52 45 −
Actual return on plan assets 2,495 1,050 645
The unrecognized net assets are primarily related to the prepaid
pension asset in the Netherlands.
The pension expense of dened-benet plans is recognized
in the following line items:
2005 2006 2007
Cost of sales 99 67 26
Selling expenses 47 55 41
General and administrative expenses 253 268 266
Research and development expenses 35 36 17
434 426 350
The Company also sponsors dened-contribution and similar types
of plans for a signicant number of salaried employees. The total cost
of these plans amounted to EUR 84 million (2006: EUR 80 million,
2005: EUR 56 million). In 2007, the dened-contribution cost includes
contributions to multi-employer plans of to EUR 4 million (2006:
EUR 4 million, 2005: EUR 3 million).
Cash ows
The Company expects considerable cash outows in relation to
employee benets which are estimated to amount to EUR 314 million
in 2008, consisting of EUR 160 million employer contributions to
dened-benet pension plans, EUR 89 million employer contributions
to dened-contribution pension plans, and EUR 65 million expected
cash outows in relation to unfunded pension plans. The employer
contributions to dened-benet pension plans are expected to
amount to EUR 129 million for the Netherlands and EUR 31 million
for other countries.
Expected returns per asset class are based on the assumption that
asset valuations tend to return to their respective long-term equilibria.
The Expected Return on Assets for any funded plan equals the average
of the expected returns per asset class weighted by their portfolio
weights in accordance with the fund’s strategic asset allocation.
The weighted average assumptions used to calculate the projected
benet obligations as of December 31 were as follows:
2006 2007
Netherlands other Netherlands other
Discount rate 4.3% 5.2% 4.8% 5.6%
Rate of
compensation
increase * 3.5% * 3.9%
The weighted average assumptions used to calculate the net periodic
pension cost for years ended December 31:
2006 2007
Netherlands other Netherlands other
Discount rate 4.2% 5.1% 4.3% 5.2%
Expected returns
on plan assets 5.7% 6.1% 5.7% 6.1%
Rate of
compensation
increase * 3.4% * 3.5%
* The rate of compensation increase for the Netherlands consists of a general
compensation increase and an individual salary increase based on merit,
seniority and promotion. The average individual salary increase for all active
participants for the remaining working lifetime is 0.75% annually. The assumed
rate of general compensation increase for the Netherlands for calculating the
projected benet obligations, amounts to 2.3% (2006: 2.0%). The indexation
assumption used to calculate the projected benet obligations for the
Netherlands is 2.3% (2006: 2.0%) until 2008 and 1.15% (2006: 1.0%) from
2008 onwards.The difference reects a change in indexation policy.
Historical data
2006 2007
Present value of dened-benet obligations 20,410 18,679
Fair value of plan assets 21,352 20,200
Surplus 942 1,521
Experience adjustments in % on:
- dened-benet obligations (gain) loss (0.9%) (0.8%)
- fair value of plan assets (gain) loss 0.8% 2.8%
Dened-benet plans: other postretirement benets
In addition to providing pension benets, the Company provides
other postretirement benets, primarily retiree healthcare benets, in
certain countries. The Company funds other postretirement benet
plans as claims are incurred.
128 Group nancial statements 188 IFRS information
Notes to the IFRS nancial statements
240 Company nancial statements