Philips 2008 Annual Report Download - page 232

Home Healthcare Solutions and Professional Luminaires increased by
the acquisitions of Respironics and Genlyte, respectively (see note 39)
and are the most sensitive to fluctuations in the key assumptions used
in the impairment tests as set out below.
The key assumptions used in the annual (performed in Q2) and
trigger-based impairment tests were growth of sales and gross margin,
together with the rates used for discounting the forecast cash flows.
Sales and gross margin growth are based on management’s internal
forecasts that cover an initial period of no more than five years and
then are extrapolated with stable or declining growth rates, after
which a terminal value is calculated for which growth rates are capped.
The pre-tax discount rates are determined for each cash-generating
unit (typically one level below sector level) and, in the annual test,
ranged from 9.4% to 15.6%.
Due to deteriorating economic circumstances and the decline of the
market capitalization of the company, trigger-based impairment tests
were performed in the latter half of the year using updated
assumptions. The pre-tax discount rates for Home Healthcare
Solutions, Professional Luminaires and Imaging Systems were 12.2%,
14.0% and 10.5%, respectively and the growth rate cap applied to the
terminal value was 2.7%.
The trigger-based tests resulted in goodwill impairment charges of
EUR 301 million, mainly related to Lumileds as a consequence of
weaker demand for LED solutions in the automotive, display and cell
phone markets. The pre-tax discount rate used for the Lumileds
impairment test was 14.6%.
Please refer to the Information by sector and main country that
begins on page 206 of this Annual Report for a specification of
goodwill by sector.
54
Accrued liabilities
Accrued liabilities are summarized as follows:
2007 2008
Personnel-related costs:
- Salaries and wages 433 438
- Accrued holiday entitlements 178 192
- Other personnel-related costs 169 161
Fixed-asset-related costs:
- Gas, water, electricity, rent and other 62 69
Ta x e s :
- Income tax payable 154 132
- Other taxes payable 12 16
Communication & IT costs 31 23
Distribution costs 109 92
Sales-related costs:
- Commission payable 43 53
- Advertising and marketing-related costs 66 87
- Other sales-related costs 206 249
Material-related costs 134 170
Interest-related accruals 110 79
Deferred income 556 664
Derivative instruments - liabilities (see note 68) 144 505
Restructuring-related liabilities 20 165
Other accrued liabilities 548 539
2,975 3,634
Please refer to note 42 for a specification on the income tax payable.
55
Provisions
2007 2008
long-
term
short-
term
long-
term
short-
term
Provisions for defined-benefit
plans (see note 56) 750 68 699 64
Other postretirement benefits
(see note 56) 396 23 329 23
Postemployment benefits and
obligatory severance payments 92 11 73 16
Product warranty 133 190 107 203
Loss contingencies (environmental
remediation and product liability)
402 49 178 634
Restructuring-related provisions 22 2 161 40
Other provisions 226 39 247 63
2,021 382 1,794 1,043
Product warranty
The provision for product warranty reflects the estimated costs of
replacement and free-of-charge services that will be incurred by the
Group with respect to products sold. The changes in the provision
for product warranty are as follows:
2006 2007 2008
Balance as of January 1 378 365 323
Changes:
Additions 438 354 333
Utilizations (443) (369) (357)
Translation differences (13) (16) (3)
Changes in consolidation 5 (11) 14
Balance as of December 31 365 323 310
Loss contingencies (environmental remediation and product liability)
This provision includes accrued losses recorded with respect to
environmental remediation and product liability (including asbestos)
obligations which are probable and can be estimated reliably. The
asbestos liabilities have been classified as current at December 31,
2008. Please refer to note 62.
The changes in this provision are as follows:
2006 2007 2008
Balance as of January 1 287 510 451
Changes:
Additions 304 16 318
Utilizations (39) (66) (15)
Releases (5) 29 37
Translation differences (37) (38) 21
Balance as of December 31 510 451 812
Postemployment benefits and obligatory severance payments
The provision for postemployment benefits covers benefits provided
to former or inactive employees after employment but before
retirement, including salary continuation, supplemental unemployment
benefits and disability-related benefits.
The provision for obligatory severance payments covers the Company’s
commitment to pay employees a lump sum upon the employee’s
dismissal or resignation. In the event that a former employee has
passed away, the Company may have a commitment to pay a lump
sum to the deceased employee’s relatives.
Other provisions
Other provisions include provisions for employee jubilee funds totaling
EUR 76 million (2007: EUR 79 million) and expected losses on existing
projects/orders totaling EUR 13 million (2007: EUR 14 million).
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180
Sustainability performance
244
Company financial statements
124
US GAAP financial statements
192
IFRS financial statements
Notes to the IFRS financial
statements