Philips 2008 Annual Report Download - page 163

The Company also sponsors defined-contribution and similar types
of plans for a significant number of salaried employees. The total cost
of these plans amounted to EUR 96 million (2007: EUR 84 million,
2006: EUR 80 million). In 2008, the defined-contribution cost includes
contributions to multi-employer plans of EUR 4 million (2007: EUR 4
million, 2006: EUR 4 million).
Cash flows
The Company expects considerable cash outflows in relation to
employee benefits which are estimated to amount to EUR 414 million
in 2009 (2008 actual: EUR 379 million), consisting of EUR 248 million
employer contributions to defined-benefit pension plans, EUR 100
million employer contributions to defined-contribution pension plans,
and EUR 66 million expected cash outflows in relation to unfunded
pension plans. The employer contributions to defined-benefit pension
plans are expected to amount to EUR 180 million for the Netherlands
and EUR 68 million for other countries.
Estimated future pension benefit payments
The following benefit payments are expected:
2009 1,136
2010 1,138
2011 1,149
2012 1,162
2013 1,173
Years 2014-2018 5,943
Netherlands other total
The accumulated benefit
obligation for all defined-
benefit pension plans was
2008 10,170 6,304 16,474
2007 10,944 7,123 18,067
Plan assets: investment policies/strategies
Investment policies are reviewed at least once per year. The resulting
investment plans determine the strategic asset allocations, the
constraints on any tactical deviation from such strategic allocations,
and the constraints on amongst others geographical allocations and
credit risk, and will be reflected in the investment guidelines to the
respective investment managers. In order to keep the investment
strategies in balance with pension obligations, asset-liability reviews
are carried out at least once every three years. Generally, plan assets
are invested in global equity and debt markets (with the exception of
debt or equity instruments that have been issued by the Company
or any of its subsidiaries) and property. Derivatives of equity and
debt instruments may be used to realize swift changes in investment
portfolios, to hedge against unfavorable market developments or
to fine tune any matching of assets and liabilities.
Plan assets in the Netherlands
The Company’s pension plan asset allocation in the Netherlands at
December 31, 2007 and 2008 was as follows:
2007 2008
Matching portfolio 59 75
- Debt securities 59 75
Return portfolio 41 25
- Equity securities 28 13
- Real Estate 8 4
- Other 5 8
100 100
The objective of the Matching portfolio is to match the interest rate
sensitivity of the plan’s real pension liabilities. The Matching portfolio
is mainly invested in euro-denominated government bonds and
investment grade debt securities and derivatives. Leverage or gearing
is not permitted. The size of the Matching portfolio is supposed to be
at least 70% of the fair value of the plan’s real pension obligations (on
the assumption of 2% inflation). The objective of the Return portfolio
is to maximize returns within well-specified risk constraints. The
long-term rate of return on total plan assets is expected to be 5.95%
per annum, based on expected long-term returns on equity securities,
debt securities, real estate and other investments of 8.3%, 4.0%, 6.5%
and 5.0%, respectively.
Philips Pension Fund in the Netherlands
On November 13, 2007, various officials, on behalf of the Public
Prosecutor’s office in The Netherlands, visited a number of offices of
the Philips Pension Fund and the Company in relation to a widespread
investigation into potential fraud in the real estate sector. The Company
was notified that one former employee and one employee of an
affiliate of the Company had been detained. This affiliate, Philips Real
Estate Investment Management BV, managed the real estate portfolio
of the Philips Pension Fund between 2002 and 2007. The investigation
by the public prosecutor is concerned with the potential involvement
of (former) employees of a number of Dutch companies with respect
to fraud in the context of certain real estate transactions. Neither
Philips Pension Fund nor any Philips entity is a suspect in this
investigation. The Philips Pension Fund and Philips are cooperating
with the authorities and have also started their own investigation. The
investigators expect to finalize their report in early 2009. Formal
notifications of suspected fraud have been filed with the public
prosecutor against the (former) employees concerned and with
our insurers. If any losses have been suffered, action will be taken to
recover such losses from the responsible individuals or legal entities.
At this time it is not possible to assess the outcome of this matter
nor the potential consequences. At present it is management’s
assessment that this matter will not cause a decline in plan assets
or an increase in pension costs in any material respect.
Plan assets in other countries
The pension plan asset allocations in other countries at December
31, 2007 and December 31, 2008 are shown in the table below. This
table also shows the target allocation for 2009.
Asset category 2007 2008
target
allocation
2009
%%%
Equity securities 24 18 20
Debt securities 73 73 74
Real estate 2 3 2
Other 1 6 4
100 100 100
SFAS No. 158
In September 2006, SFAS No. 158 was issued. This statement requires
an employer to recognize the funded status of a benefit plan -
measured as the difference between plan assets at fair value and
the benefit obligation - in the balance sheet.The offset of recognizing
the funded status is recorded in accumulated other comprehensive
income (within stockholders’ equity). Additionally, the additional
minimum pension liability and related intangible assets are derecognized
upon adoption of this standard. The incremental effect of applying
FASB Statement No. 158 on Accumulated other comprehensive
income as of December 31, 2006, amounted to a decrease of
EUR 477 million.
21
Postretirement benefits other than pensions
In addition to providing pension benefits, the Company provides other
postretirement benefits, primarily retiree healthcare benefits, in
certain countries. The Company funds those other postretirement
benefit plans as claims are incurred.
The table below provides a summary of the changes in the accumulated
postretirement benefit obligations for 2007 and 2008. It also provides
a reconciliation of the obligations to the amounts recognized in the
consolidated balance sheets.
All the postretirement benefit plans are unfunded and therefore
no plan asset disclosures are presented.
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Philips Annual Report 2008 163
254
Corporate governance
250
Reconciliation of
non-US GAAP information
262
Ten-year overview
266
Investor information