Philips 2008 Annual Report Download - page 169

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a petition, along with a prepackaged plan of reorganization, in the U.S.
Bankruptcy Court for the Southern District of New York seeking
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Under
the proposed Plan of Reorganization, which must be approved by the
Bankruptcy Court and the U.S. District Court for the Southern District
of New York, an Asbestos Personal Injury Trust (the Trust) would be
established in accordance with section 524(g) of the Bankruptcy Code
to assume, liquidate and satisfy all liabilities of THAN determined to
arise from, or relate to pending and future claims alleging personal
injury or death based on or related to alleged exposure to asbestos
fiber distributed by THAN, a product containing asbestos fiber
distributed by THAN, or an asbestos-containing product distributed
by THAN. The Trust would be funded by a contribution of USD 900
million (EUR 639 million) by PENAC and THAN. Additionally, under
the Plan, PENAC will forgive certain debt of THAN and assume
certain liabilities from THAN. If approved by the Courts, the Plan
of Reorganization will result in a permanent injunction directing all
claims alleging personal injury or death from exposure to asbestos
distributed by THAN to the Trust and will bar all related litigation
against THAN, its affiliates (including PENAC and the Company) and
certain third parties. As a result of THAN’s bankruptcy filing, an
automatic stay has been implemented, staying, restraining and enjoining
the commencement or continuation of any and all actions or other
proceedings against THAN. Additionally, on December 3, 2008, the
U.S. Bankruptcy Court issued a preliminary injunction staying,
restraining and enjoining the commencement or continuation of
any and all actions or other proceedings against PENAC, its affiliates,
and certain third parties, based on or related to alleged exposure to
asbestos fiber distributed by THAN, a product containing asbestos
fiber distributed by THAN, or an asbestos-containing product
distributed by THAN.
In connection with these matters, a pre-tax charge to earnings of
EUR 326 million was recorded in 2008. In 2006, a pre-tax charge to
earnings of EUR 334 million was recognized, representing the cost of
disposing of pending and estimated future claims filed through 2016.
There was no expense recognized in 2007. At December 31, 2008,
the recorded provision for loss contingencies with respect to asbestos
product liability amounted to EUR 640 million (EUR 316 million at
December 31, 2007). During 2008, costs of EUR 24 million were
incurred with respect to litigation, claims administration, insurance
recoveries, and bankruptcy related matters (EUR 27 million was
incurred in 2007 and EUR 15 million was incurred in 2006).
In prior years, legal proceedings were commenced against certain
third-party insurance carriers which had provided various types of
product liability coverage to PENAC and THAN. During 2008 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 PENAC and THAN,
and terms under which future settlements and related defense costs
are reimbursable. In conjunction with these settlements, insurance
recoveries of EUR 87 million were recognized in 2008 (EUR 17 million
was recognized in 2007 and EUR 79 million was recognized in 2006).
Insurers paid EUR 113 million in 2008 (EUR 27 million was paid in
2007 and EUR 34 million was paid in 2006) for asbestos-related
defense and indemnity costs. At December 31, 2008, EUR 121 million
was jointly held by PENAC and THAN in an insurance settlement
proceeds trust for future contribution to the Trust if the Plan of
Reorganization is approved by the Courts. Additionally, at December
31, 2008, the recorded receivable from insurance carriers, for which
settlement agreements have been reached amounted to EUR 36 million
(EUR 62.7 million at December 31, 2007) 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 reflected in the Company’s
consolidated balance sheet. Insurance receivables have not been
recorded from non-settling insurance carriers. Litigation against
non-settling insurance carriers continues to be pursued. Additionally,
settlement discussions are also being held with certain carriers.
MedQuist
On January 22, 2008, Philips and four employees of Philips’ affiliates
that once served on the board of directors of MedQuist, Inc. were
named as defendants in a lawsuit filed in New Jersey state court
challenging MedQuist’s exploration of strategic alternatives, as well
as Philips ultimate sale of its MedQuist stake to an unaffiliated third
party in August 2008. On July 10, 2008, the defendants moved to
dismiss the complaint and, on November 24, 2008, the court dismissed
the action in its entirety and with prejudice. In December 2008 the
plaintiff filed a notice of appeal.
LG Display
On December 11, 2006, LG Display Co. Ltd (formerly LG.Philips LCD
Co. Ltd.), a company in which the Company holds 13% of the common
stock, announced that officials from the Korean Fair Trade Commission
visited the offices of LG Display 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 a number of
class action antitrust complaints filed in the United States courts,
seeking damages on behalf of purchasers of products incorporating
thin-film transistor liquid crystal display panels (TFT-LCD panels),
based on alleged anticompetitive conduct by manufacturers of such
panels. Those lawsuits were consolidated in two master actions in the
United States District Court for the Northern District of California:
one, asserting a claim under federal antitrust law, on behalf of direct
purchasers of TFT-LCD panels and products containing such panels,
and another, asserting claims under federal antitrust law, as well as
various state antitrust and unfair competition laws, on behalf of indirect
purchasers of such panels and products. On December 5, 2008,
following the partial grant of motions to dismiss consolidated class
action complaints in those master actions, the plaintiffs filed amended
consolidated class action complaints, asserting essentially the same
legal claims as those alleged in the prior complaints. The Company
and certain other companies within the Philips group companies that
were named as defendants in various of the original complaints have
entered into agreements with the plaintiffs that generally toll the
statutes of limitations applicable to plaintiffs’ claims, following which
the plaintiffs agreed to dismiss without prejudice the claims against
the Philips defendants. None of the companies within the Philips group
of companies currently is named as a defendant in the pending amended
complaints, but the litigation is continuing. In addition, in February
2007, certain plaintiffs filed purported class actions in a United States
court against LG Display and certain current and former employees
and directors of LG Display for damages based on alleged violations
of U.S. federal securities laws. No Philips group company is named
as a defendant in these actions.
Beginning in November 2008, several manufacturers of TFT-LCD
panels, including LG Display, and certain executives of two of those
companies entered into plea agreements with the United States
Department of Justice (DOJ), pursuant to which those companies and
individuals agreed to plead guilty to participating in a conspiracy to fix
the prices of TFT-LCD panels. On December 15, 2008, LG Display and
its wholly owned subsidiary, LG Display America Inc., pleaded guilty
to participating in a conspiracy from September 2001 to June 2006
to fix the price of TFT-LCD panels sold worldwide. Pursuant to that
plea, LG Display was sentenced to pay in five annual installments a
total of USD 400 million in criminal fines. The DOJ has announced
that its investigation is continuing. On the basis of current
knowledge,
the Company cannot determine whether a loss is probable with
respect to these actions.
CRT Investigations
On November 21, 2007, the Company announced that competition
law authorities in several jurisdictions have commenced investigations
into possible anticompetitive activities in the Cathode-Ray Tubes, or
CRT industry. As one of the companies that formerly was active in
the CRT business, Philips is subject to a number of these ongoing
investigations. The Company has assisted the regulatory authorities
in these investigations. In the U.S., Philips has been informed that the
Department of Justice has deferred Philips’ obligation to respond
to the grand jury subpoena Philips received in November of 2007.
Subsequent to the public announcement of these investigations, certain
Philips group companies were named as defendants in over 50 class
action antitrust complaints filed in various federal district courts in
the United States. These actions allege anticompetitive conduct by
manufacturers of CRTs and seek treble damages on behalf of direct
and indirect purchasers of CRTs and products incorporating CRTs.
These complaints assert claims under federal antitrust law, as well as
various state antitrust and unfair competition laws and may involve
joint and several liability among the named defendants. These actions
have been consolidated by the Judicial Panel for Multidistrict Litigation
for pre-trial proceedings in the United States District Court for the
Northern District of California. Pursuant to a Stipulation and Order
issued by the District Court on September 12, 2008, a broad stay of
merits discovery has been imposed and the Court has set a deadline
of March 9, 2009 for the filing of separate consolidated amended
complaints by the direct and indirect purchasers. Philips intends to
move to dismiss such consolidated amended complaints once they
are filed and otherwise will vigorously defend these lawsuits.
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Philips Annual Report 2008 169
254
Corporate governance
250
Reconciliation of
non-US GAAP information
262
Ten-year overview
266
Investor information