Philips 2008 Annual Report Download - page 239

For an explanation of long-term debt, see note 59 for other
long-term liabilities, see note 60. Property, plant and equipment
includes EUR 140 million (2007: EUR 94 million) for finance leases
and other beneficial rights of use, such as buildings rights and hire
purchase agreements.
Long-term operating lease commitments totaled EUR 710 million
(2007: EUR 724 million). These leases expire at various dates during
the next 20 years.
The long-term operating leases are mainly related to the rental of
buildings. A number of these leases originate from sale-and-leaseback
arrangements. In 2008, a small sale-and-operational-leaseback has
been concluded. Operating lease payments for 2008 totaled EUR 16
million (2007: EUR 14 million, 2006: EUR 20 million).
The remaining minimum payments are as follows:
2009 16
2010 12
2011 8
2012 8
2013 8
Thereafter 41
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Contingent liabilities
Guarantees
Philips’ policy is to provide only guarantees and other letters of
support, in writing. Philips does not stand by other forms of support.
At the end of 2008, the total fair value of guarantees was EUR 10
million (2007: EUR 3 million). The following table outlines the total
outstanding off-balance sheet credit-related guarantees and business-
related guarantees provided by Philips for the benefit of unconsolidated
companies and third parties as at December 31, 2008.
Expiration per period
in millions of euros
business-
related
guarantees
credit-
related
guarantees total
2008
Total amounts committed 443 42 485
Less than 1 year 205 18 223
1-5 years 78 7 85
After 5 years 160 17 177
2007
Total amounts committed 432 45 477
Less than 1 year 142 5 147
1-5 years 95 16 111
After 5 years 195 24 219
Environmental remediation
The Company and its subsidiaries are subject to environmental
laws and regulations. Under these laws, the Company and/or its
subsidiaries may be required to remediate the effects of the release
or disposal of certain chemicals on the environment.
In the United States, subsidiaries of the Company have been named as
potentially responsible parties in state and federal proceedings for the
clean-up of various sites. The Company accrues for losses associated
with environmental obligations when such losses are probable and
reliably estimable.
Legal proceedings
The Company and certain of its group companies and former group
companies are involved as a party in legal proceedings, including
regulatory and other governmental proceedings, including discussions
on potential remedial actions, relating to such matters as competition
issues, commercial transactions, product liability, participations and
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environmental pollution. In respect of antitrust laws, the Company
and certain of its (former) group companies are involved in
investigations by competition law authorities in several jurisdictions
and are engaged in litigation in this respect. Since the ultimate
disposition of asserted claims and proceedings and investigations
cannot be predicted with certainty, an
adverse outcome could have
a material adverse effect on the Company’s
consolidated financial
position and consolidated results of operations for a particular period.
Provided below are disclosures of the more significant cases:
Asbestos
Judicial proceedings have been brought in the United States, relating
primarily to the activities of the Company’s US subsidiary TH
Agriculture & Nutrition L.L.C. (THAN) prior to 1981, involving
allegations of personal injury from alleged asbestos exposure. The
claims generally relate to asbestos used in the manufacture of unrelated
companies’ products in the United States and frequently involved
claims for substantial compensatory and punitive damages. THAN’s
businesses which allegedly gave rise to these alleged liabilities were
completely sold in 1984 and its ongoing operations are not material
to its parent, Philips Electronics North America Corporation
(PENAC), or the Company.
During the past several years, certain of the asserted claims were
settled. Additionally, various alternatives for resolving pending and
future claims were explored, including the possibility of THAN filing
for bankruptcy. In the fourth quarter of 2008, THAN solicited votes
for the acceptance of a plan of reorganization from the holders of
asbestos claims. Approximately ninety percent of the claimants (both
in number and value of claims) voted in favor of the plan, exceeding
the thresholds of seventy-five percent in number and two-thirds in
value which are required for a prepackaged bankruptcy under section
524(g) of the Bankruptcy Code. On November 24, 2008, THAN filed
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 charge to income from operations
in the amount of EUR 353 million was recorded in 2008. In 2006, a
charge to income from operations in the amount of EUR 252 million
was recognized, representing the cost of disposing of pending and
estimated future claims filed through 2016. The charge recognized in
2007 was EUR 4 million. At December 31, 2008, the recorded provision
for loss contingencies with respect to asbestos product liability
amounted to EUR 624 million (EUR 261 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
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Philips Annual Report 2008 239
254
Corporate governance
250
Reconciliation of
non-US GAAP information
262
Ten-year overview
266
Investor information