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staying focused
acting decisively
Annual Report 2009
Financial, social and environmental performance

Table of contents

  • Page 1
    Annual Report 2009 Financial, social and environmental performance staying focused acting decisively

  • Page 2
    ...chapter Group financial statements sets out which parts of this Annual Report form the management report within the meaning of Section 2:391 of the Dutch Civil Code (and related Decrees). 7 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 Investor information The Philips investment proposition The year 2009 Share...

  • Page 3
    ...term debt Long-term debt Other non-current liabilities Contractual obligations Contingent liabilities Stockholders' equity Cash from (used for) derivatives and securities Proceeds from other non-current financial assets Assets in lieu of cash from sale of businesses Related-party transactions Share...

  • Page 4
    ... (loss) per common share in euros - basic - diluted Net operating capital Free cash ï¬,ows1) Stockholders' equity Employees at December 312) 1) Comparable sales growth by market cluster1) as a % 15 10 5 0 4.5 1.8 11.7 6.4 6.5 6.3 4.9 â- -Philips Group--â- -emerging markets--â- -mature markets 10...

  • Page 5
    ... Promoter Score % of businesses with (co-)leadership scores 75 60 50 50 51 25 0 2007 2008 2009 EBIT and EBITA1) in millions of euros 2,500 2,000 1,500 1,000 500 0 2005 2006 7.5 1,899 1,810 89 â- -EBIT --â- â- -EBITA----EBITA as a % of sales 7.8 2,094 227 1,867 4.5 1,050 436 614 2009 Employee...

  • Page 6
    ... 60% (co-) leadership Net Promoter Score "2009 was all about staying focused and acting decisively. As a result of the swift action we took, the Philips of 2010 is clearly a more agile, better company than the one that went into 2009." Gerard Kleisterlee, President 6 Philips Annual Report 2009

  • Page 7
    ... December 31, 2009) of 3.4% for shareholders. Dividend per common share in euros 0.8 0.60 0.44 0.4 0.70 0.70 0.70 0.6 0.2 0 2006 1) 2007 2008 2009 20101) Subject to approval by the 2010 Annual General Meeting of Shareholders How did we do against our Management Agenda 2009 Drive performance...

  • Page 8
    ... key endeavors was to step up our resource investment in emerging markets so that we are even better placed to meet the needs of local people - and to develop solutions for these countries that can also transfer to more mature markets throughout the rest of the world. 8 Philips Annual Report 2009

  • Page 9
    ... by businesses with global leadership positions in 2009. Management Agenda 2010 Our Management Agenda 2010 is our compass for the next year of our journey to bring "sense and simplicity" to health and well-being markets. In the column Drive performance we stress the importance of returning to...

  • Page 10
    ... leadership positions • Increase employee engagement to high performance level Implement strategy • Increase our market position in emerging markets • Drive key strategy initiatives for each sector • Leverage Sustainability as an integral part of our strategy 10 Philips Annual Report 2009

  • Page 11
    ... and service outlets 127 production sites Lighting 29 Healthcare 34 7 research laboratories spread over Europe, North America and Asia 3 incubators 35,000 registered trademarks Consumer Lifestyle 37 3,100 domain names 56,000 48,000 design rights patent rights Philips Annual Report 2009 11

  • Page 12
    ... products and services to include the way we work: engaging our employees; focusing our social investment in communities on education in energy efficiency and healthy lifestyles; reducing the environmental impact of our products and processes; and driving sustainability throughout our supply chain...

  • Page 13
    ... across the platforms, as they are united in different combinations by customer segments, channels, key processes and capabilities, and technology platforms. For the coming period we have set the following strategic priorities: ig h L ti n g Co nsu m e rL In if Philips Annual Report 2009 13

  • Page 14
    ... EcoVision4 targets over the period 2007 - 2012 • Double revenues from Green Products to 30% of total sales • Double investment in Green Innovations to a cumulative EUR 1 billion • Improve our operational energy efficiency by 25% and reduce CO2 emissions by 25% 14 Philips Annual Report 2009

  • Page 15
    ... outcomes, and to enable the delivery of quality healthcare at lower cost. By focusing on the range of medical issues associated with oncology, cardiology and women's health, we can deliver better, more differentiated solutions that are more clinically relevant. Philips Annual Report 2009 15

  • Page 16
    ...guided procedures. "The acquisition of Traxtal opens up great opportunities for further cuttingedge, minimally invasive intervention and therapy solutions in combination with our other leading diagnostic and imaging products in Ultrasound, CT and MR," said Steve Rusckowski, CEO of Philips Healthcare...

  • Page 17
    ... in their markets. New business models Investing in the future Our new imaging systems campus in Suzhou, which will manufacture our value range CT and MR systems, reï¬,ects Philips' commitment to gain leadership in the imaging market, particularly in China. In India, we plan to set up a plant for...

  • Page 18
    ... of care? Enabling quality healthcare Philips Healthcare Solutions helps care providers manage the uncertainty surrounding the investments, resources and technology that are so vital to quality healthcare provision. Extending far beyond the supply of equipment, our portfolio of healthcare services...

  • Page 19
    ...monitoring services to support cardiac and elderly care. We work together with our clinical provider customers to improve the quality of life for at-risk individuals in the home through better awareness, diagnosis, treatment, monitoring and management of their conditions. Philips Annual Report 2009...

  • Page 20
    ...sleep management solutions. Our Philips Respironics Sleep Therapy System uses advanced intelligence to deliver optimum care while making patient management easier for our provider customers. Customer input was a key element in the development of this new platform, delivering an even higher level of...

  • Page 21
    ... patients requiring dedicated respiratory treatments at home. Making life more livable We enjoy market leadership in home respiratory care, including oxygengeneration products for the ambulatory patient, home ventilation and airway clearance devices. Solutions like our new Trilogy100 portable at...

  • Page 22
    ... take place, the burden on the healthcare system can also be reduced. In the long term we believe that this approach will enable us to reduce the costs of health insurance for our customers," added Roelof Konterman, Chairman of the Board of Management of Achmea Health. 22 Philips Annual Report 2009

  • Page 23
    ... takes a holistic approach to enhancing consumer health, including addressing the need for healthy, caring relationships. Our Personal Care platform addresses consumers' need to look and feel their best, giving them the confidence to face life's challenges head-on. Philips Annual Report 2009 23

  • Page 24
    ... of the mouth. The ergonomic handle fits easily in a small hand and has two gripping locations so that the parent can hold the brush with the child to start with and then the child can hold it on its own for independent brushing. 24 Philips Annual Report 2009 A true case of "sense and simplicity"

  • Page 25
    ..., but also a new user experience in navigation. It is the world's first rice cooker to provide visual and audio step-by-step guidance, and bundles a nest of dedicated accessories for consumers to enjoy 30 different cooking experiences. Philips Annual Report 2009 25 Making cooking a joy - every day

  • Page 26
    ...Activity Monitor records your daily movements and transfers the information to a webpage that keeps track of your progress against your longer-term goals. It motivates, gives feedback and provides support to help people make sustainable changes in their lifestyles. It focuses on making everyday life...

  • Page 27
    ... is about sharing rich, pleasurable life experiences, free of any boundaries. In a complex world, this simplicity-led platform builds upon the implications and possibilities of the internet (r)evolution, with products and services blending to fulfill consumer needs. Philips Annual Report 2009 27

  • Page 28
    ..., Cinema 21:9 is the first TV to deliver a genuine cinematic viewing experience to movie lovers in their own home. Cinema 21:9 was named European Home Theater Innovation 2009-2010 (along with our BD9100 Blu-ray player) by the European Imaging and Sound Association. 28 Philips Annual Report 2009

  • Page 29
    2 Our strategy in action 2.4 - 2.4 Wide awake and smelling the coffee! Saeco acquisition allows Philips to expand in the high-growth, high-margin espresso machine market with a strong range of products. In July 2009 we closed the acquisition of Saeco International Group S.p.A. of Italy, one of the ...

  • Page 30
    ... is responsible for a total of 1.2 million deaths a year. As children breathe up to twice as much air as adults, they will inhale even higher levels of airborne contaminants and are even more exposed to acute respiratory conditions. In emerging markets like China, people living in cities face...

  • Page 31
    ... needs. For example, bright white light for the home office and working spaces, more yellowish light for living rooms or bedrooms. For us, this means an increased focus on solutions that allow our customers to play with light, adapting it to their moods and wishes. Philips Annual Report 2009 31

  • Page 32
    ... for functional or ambient lighting. And the lamps last up to 25 times longer than incandescent bulbs while consuming only a fraction of the energy! They pay for themselves in as little as 18 months - meanwhile, the contribution to the environment starts right away. 32 Philips Annual Report 2009

  • Page 33
    ... meet consumers' lighting needs. In China we have opened 80 Philips-branded lighting stores that uniquely address customer demand for energy-efficient, value-added lighting solutions for the home. The interior layout is based on rooms in the home rather than product categories. We also have 800...

  • Page 34
    ...novel design possibilities and unique interactivity of light and human gesture," says Rudy Provoost, CEO of Philips Lighting. "Economic and environmental concerns are driving all of us to make the move to cleaner, more energy-efficient solutions as quickly as we can. What's particularly exciting is...

  • Page 35
    ... of our customers in the office, outdoor, industry, retail, hospitality, entertainment, healtcare and automotive segments, we are delivering new, responsible forms of lighting - customer-centric, simplicity-led innovations that enhance people's experience of light. Philips Annual Report 2009 35

  • Page 36
    ... have been taking careful and deliberate steps to position ourselves to deliver across the lighting value chain, especially in solidstate. We have not acquired these businesses simply to expand. We have set out to capture value in specific market segments by offering total solutions. Creating and...

  • Page 37
    ...The result? Annual energy savings of over USD 60,000. As of 2009, the Energy Services Group is leading an unprecedented commercial energy audit and lighting upgrade program aimed at replacing inefficient lighting systems currently found in 85% of existing buildings. A key element of the program is...

  • Page 38
    ... identity as a whole. The project came second at the 2009 city.people.light awards, an annual competition organized by the Lighting Urban Community International Association (LUCI) and Philips to reward projects which demonstrate the contribution lighting can make to the well-being of those visiting...

  • Page 39
    ... and Green Innovations and by inspiring individuals to make simple changes that can have profound results. We seek to facilitate new solutions to drive responsible energy practices and have long focused on the energy efficiency of our products and production processes. Philips Annual Report 2009...

  • Page 40
    ... global climate change program can be agreed, it will create the conditions for transformational change of our world economy and deliver the signals that companies need to speed up investment of billions of dollars in energy-efficient products, services, technologies and infrastructure such...

  • Page 41
    ...in the dark Philips is working to help the Indonesian government meet its goal to reduce global warming caused by excessive energy consumption. With economic growth of 5-6% annually, Indonesia faces the challenge of fastrising domestic energy demand with declining oil and gas production. Encouraging...

  • Page 42
    ...maintaining our focus on overall environmental performance improvement, driven by our EcoVision III and EcoVision4 action programs. Working with stakeholders we aim to share expertise and cocreate innovative solutions that will make a difference to future generations. 42 Philips Annual Report 2009

  • Page 43
    .... In addition to continuing our systematic Energy Potential Scans, green lease car policy and global green IT program, new initiatives include a green purchasing policy and investigating options to buy and generate renewable energy. Operational energy efficiency Philips Annual Report 2009 43

  • Page 44
    ... EU. We expanded the voluntary collection and recycling services started in 2008 in India and Brazil, and also launched them in Argentina during 2009. Philips supports the development of Waste Electrical and Electronic Equipment (WEEE) legislation that creates a level playing field based on fair...

  • Page 45
    ..., a different approach to marketing and distribution, and multi-sector partnerships. Taking into account the MDGs that relate to our expertise, we are focusing on projects that simply enhance life with light and simplify healthcare with a resolute focus on people's needs. Philips Annual Report 2009...

  • Page 46
    ... care at community healthcare centers," he explains. Philips will provide funding and technical support to this three-year program, announced in June 2009. Project HOPE (Health Opportunities for People Everywhere) will bring to the team more than 50 years of experience in international public...

  • Page 47
    ... of Bangalore, India, with access to education and literacy training - cornerstones of women's development. And as the largest supporter of LUTW to date, we are helping provide solar lighting for learning and literacy programs in developing countries. LUTW helped us test solar reading solutions in...

  • Page 48
    ... sound environmental and ethical standards as well as providing working conditions for their employees that reï¬,ect both the Philips General Business Principles and the Electronic Industry Citizenship Coalition (EICC) Code of Conduct. We continue to focus on the Philips Supplier Sustainability...

  • Page 49
    ... goal is to improve conditions in the electronics supply chain. To do just that, we conducted a record total of 858 supplier audits to identify and resolve issues in 2009. Our approach The Philips Supplier Sustainability Involvement Program is built on five pillars: setting out our requirements...

  • Page 50
    ... to work for our 350 employees." Integrating new suppliers The Dutch Association of Investors for Sustainable Development (VBDO) awarded Philips with top sustainability scores in its 2009 Responsible Supply Chain Management Benchmark, ranking the company highest among the 40 large publicly listed...

  • Page 51
    ...and value diverse perspectives. It is crucial that we communicate properly among ourselves and that everyone is given full opportunity to use their individual talents. Leaders who do well in connecting our people with the long-term Philips ambitions are highly recognized. Philips Annual Report 2009...

  • Page 52
    ... around customers and markets, we will grow the number of executives with BRIC (Brazil, Russia, India, China) nationality. Philips Pride, our network for gays, lesbians and gay-friendly colleagues, has grown to over 150 members, mainly based in the Netherlands and US. 52 Philips Annual Report 2009

  • Page 53
    ... assessed not just on what they achieve (results) - but also on how they achieve it (behavior). 'Leading to Win' is about aligning the way we set targets, manage and reward performance with our ambition to become a high-performance growth company. Philips Annual Report 2009 53 Changing how we...

  • Page 54
    ... in our communities We at Philips have long been active in the communities where we live and work. Now we are taking this dedication to the next level with our first global social investment program, called SimplyHealthy@Schools. Initiatives around the world bring "sense and simplicity" to people...

  • Page 55
    ... resources can be made available to those looking for tips on how to get more physical activity into their day," said Neil Meltzer, American Heart Association Board Chairman and President and Chief Operating Officer, Sinai Hospital of Baltimore. Fighting a global killer Philips Annual Report 2009...

  • Page 56
    ..., our partners, our people 3.6 - 3.6 Making a difference to children Building on our heritage of working with the communities where we operate, we have launched our first global social investment program. It's called SimplyHealthy@Schools. With SimplyHealthy@Schools, Philips employees are going...

  • Page 57
    ... We took decisive action to generate cash and manage our costs in line with revenues. The effects of this became increasingly visible in our earnings and cash ï¬,ow performance, especially in the second half of the year." Pierre-Jean Sivignon, Chief Financial Officer Philips Annual Report 2009 57

  • Page 58
    ...and acquisition-related charges, portfolio changes and strict cost control. We generated cash ï¬,ows from operating activities of EUR 1,545 million, or 6.7% of sales, as we continued our focus on stringent working capital management. Key data 4.1.1 in millions of euros unless otherwise stated 2007...

  • Page 59
    ... sales, research and development costs increased from 6.7% to 7.0%, largely due to Lighting. The overview below shows sales, EBIT and EBITA according to the 2009 sector classifications. Sales, EBIT and EBITA 2009 sales Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group...

  • Page 60
    ... of Television in North America and a higher Ambilight share of sales. EBITA in 2008 included EUR 198 million of restructuring charges and a EUR 42 million gain on the sale of the SetTop Boxes activity. 2009 was impacted by EUR 120 million of restructuring charges, EUR 48 million of product...

  • Page 61
    ... Care Systems (various locations in the US). Other restructuring projects focused on reducing the fixed cost structure of Corporate Research Technologies, Philips Information Technology, Philips Design, and Corporate Overheads within Group Management & Services. The net interest expense in 2009...

  • Page 62
    ... in both the Philips shareholding and the number of Philips board members, LG Display was accounted for as an availablefor-sale financial asset and no longer as an equityaccounted investee. For further information, refer to note 6 in the Group financial statements. 62 Philips Annual Report 2009

  • Page 63
    ... brand license agreement with respect to the North America television, audio and video businesses; the sale of Philips Speech Recognition Services (PSRS); and the divestment of High Tech Plastic-Optics; the sale of Philips' approximate 70% ownership stake in MedQuist. Philips Annual Report 2009 63

  • Page 64
    ... of "sense and simplicity". Driving thought leadership in Health and Well-being, combined with a continued focus on Net Promoter Score (NPS) to improve customer experiences across all touchpoints, was central to Philips' marketing strategy in 2009. As a result, the company moved up to 42nd place on...

  • Page 65
    ... and the responsibility for managing Corporate Technologies. Research and development expenses in millions of euros 2,000 5.9 1,495 5.8 1,556 6.0 1,601 â- -in value----as a % of sales 6.7 1,777 7.0 1,631 20 15 1,500 1,000 10 500 5 0 2005 2006 2007 2008 2009 0 Philips Annual Report 2009 65

  • Page 66
    ... and supply chain activities. It covers non-product-related purchasing through the dedicated shared service Philips General Purchasing, and bill-of-material purchasing leveraged for Philips via commodity teams working across the sectors. Employment The total number of employees of the Philips Group...

  • Page 67
    ... Group Management & Services 11,586 Employees per market cluster in FTEs at year-end 2007 Healthcare 34,296 2008 36,966 31,336 2,119 70,421 50,977 121,398 âˆ' 121,398 2009 35,496 27,069 3,095 65,660 50,264 115,924 âˆ' 115,924 Western Europe North America Other mature markets Total mature markets...

  • Page 68
    ..., and EUR 39 million outï¬,ow related to derivatives and securities, partly offset by EUR 802 million inï¬,ows received mostly from the sale of other non-current financial assets (mainly LG Display and Pace Micro Technology). 2008 cash ï¬,ows from investing activities resulted in a net outï¬,ow of...

  • Page 69
    ... of EUR 39 million. Cash ï¬,ows from discontinued operations In 2008, EUR 37 million cash was used by discontinued operations, the majority of which related to tax payments in connection with the 2006 sale of Philips' majority stake in the Semiconductors business. Philips Annual Report 2009 69

  • Page 70
    .... Stockholders' equity declined by EUR 6,197 million in 2008 to EUR 15,544 million at December 31, 2008. The decrease was mainly attributable to share repurchase programs for capital reduction purposes, as well as the hedging of long-term incentive and employee stock 70 Philips Annual Report 2009

  • Page 71
    ... to total changes in comprehensive income, net of tax. The decrease was partially offset by EUR 123 million related to re-issuance of treasury stock and net share-based compensation plans. The number of outstanding common shares of Royal Philips Electronics at December 31, 2009 was 927 million (2008...

  • Page 72
    ... Philips was EUR 14 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, 2009 and 2008. 72 Philips Annual Report...

  • Page 73
    ... of euros total amounts committed Businessrelated guarantees1) Creditrelated guarantees less than 1 year 1-5 years after 5 years 342 205 78 59 42 384 18 223 7 85 17 76 1) For comparability purposes, restated to properly reï¬,ect external guarantees only Philips Annual Report 2009 73

  • Page 74
    ... performance in manufacturing, we will evaluate new targets as part of our new Chemicals Management program introduction later in 2010. 4.3.3 EcoVision4 With our latest environmental action program, EcoVision4, we have committed to realize the following by 2012: 74 Philips Annual Report 2009

  • Page 75
    ...2007 2008 2009 20 23 31 Consumer Lifestyle 1,915 4.3.6 Green Innovations In 2009 Philips invested more than EUR 400 million in Green Innovations - the Research & Development spend related to the development of new generations of Green Products and Green Technologies. Philips Healthcare innovation...

  • Page 76
    ...0 2005 2006 2007 2008 2009 â- -logistics--â- -business travel â- -non-industrial operations--â- -manufacturing Equally important is the insight we gained into ways we can improve. We continue to place emphasis on connecting all of our people with the long-term ambition of Philips, supported by the...

  • Page 77
    ... One Philips Ethics Line. • Employees are more strongly encouraged to first discuss issues with management. • Indication of preference for more specific grievance channels if available. Updated global privacy framework 6 5 3 0 2005 2006 2007 2008 2009 Overall, the 593 Philips executives...

  • Page 78
    ... in 2009. Philips remains focused on improving working conditions and environmental performance in its supply chain. Recognizing that this is a huge challenge requiring industry-wide effort, we continue to be active in the Electronic Industry Citizenship Coalition (EICC), whose members share the...

  • Page 79
    .... EICC members stated in February 2009 that mineral extraction and transport activities that fuel conï¬,ict are not acceptable. Philips participates in the EICC Extractives Work Group, which initiated an industry project in April 2009 to develop supply chain transparency, with a particular focus on...

  • Page 80
    ...the Supervisory Board. A proposal will be submitted to the 2010 Annual General Meeting of Shareholders to declare a dividend of EUR 0.70 per common share, in cash or in shares at the option of the shareholder, against the net income for 2009 and the retained earnings of the Company. Such dividend is...

  • Page 81
    ...are confident that 2010 will represent another solid step towards this target. Naturally, the magnitude of the improvement over the full year is dependent - in part at least - on the developments in the global economy. Amsterdam, February 22, 2010 Board of Management Philips Annual Report 2009 81

  • Page 82
    ... of Corporate Staff departments and senior sector executives together form the Group Management Committee. In 2009, the activities related to Innovation & Emerging Businesses were reported under Group Management & Services. Through these businesses, Philips aims to invest 82 Philips Annual Report...

  • Page 83
    ...,189 Employees per operating sector 2009 in FTEs at year-end For a reconciliation to the most directly comparable GAAP measures, see chapter 14, Reconciliation of non-GAAP information, of this Annual Report. Healthcare 34,296 Lighting 51,653 Sales per operating sector 20091) in millions of euros...

  • Page 84
    ... business and controlling cost." Steve Rusckowski, CEO Philips Healthcare Healthcare challenges present major opportunities in the long term Addressing the care cycle - our unique differentiator Home healthcare is a core part of our healthcare strategy Improved market leadership in core businesses...

  • Page 85
    ...and children's medical ventures • Home Healthcare Solutions - sleep management and respiratory care, medical alert services, remote cardiac services, remote patient management • Healthcare Informatics - healthcare informatics, patient monitoring systems and image management services • Customer...

  • Page 86
    ... significant strategic investments in our industrial footprint in emerging markets in order to drive growth by better serving local customers and to reduce our overall cost position. Progress against targets The Annual Report 2008 set out a number of key targets for Philips Healthcare in 2009. The...

  • Page 87
    ... of the main focus areas for our long-term growth plans. 5.2.6 2009 financial performance Sales in 2009 amounted to EUR 7,839 million, 2% higher than in 2008 on a nominal basis, largely thanks to the contributions from acquired companies (Respironics fullyear sales) and growth at Customer Services...

  • Page 88
    ... in the Energy-using Products Directive through a Self-Regulatory Initiative for imaging equipment. 5.2.8 3,000 1,692 0 2005 2006 2007 2008 2009 1,704 1,767 1,961 1,941 Strategy and 2010 objectives Philips Healthcare will continue to play an important role in the realization of Philips' strategic...

  • Page 89
    ...showed that we are serious about growth." Andrea Ragnetti, CEO Philips Consumer Lifestyle Stringent cost management helps cushion impact of global downturn Acquisition of Saeco brings global leadership position in coffee appliances Four strategic platforms identified, all with growth drivers Even...

  • Page 90
    ... the sales organizations to operate with shorter lines of communication with the sector's six businesses. This also promotes customer-centricity in day-to-day operations. In 2009 the sector consisted of the following areas of business: • Television - experience television (including the 2009 Aurea...

  • Page 91
    ...and experiences. As part of this strategic shift, Philips and TPV Technology concluded a brand licensing agreement for Philips' PC monitors business that came into effect in the second quarter of 2009. Total sales by business 2009 as a % Shaving & Beauty 13 Health & Wellness 6 Domestic Appliances...

  • Page 92
    ... 22%. Adjusted for unfavorable currency effects of 1% and portfolio changes, mainly the divestment of Television in North America and the sale of Set-Top Boxes in 2008 as well as the acquisition of Saeco and sale of IT Monitors in 2009, comparable sales declined 17%. 92 Philips Annual Report 2009

  • Page 93
    ... in both North America and Western Europe. Sales in key emerging markets suffered doubledigit declines, impacted by lower sales in China, India and Latin America. Sales in other emerging markets were below last year's level due to lower sales in nearly all countries. Green Product sales totaled EUR...

  • Page 94
    ...India and China through managerial focus and investment • Accelerate excellence in key strategic capabilities: leadership, professional endorsement, new channels, online, category management and new business models • Drive profitable growth through Green Products 94 Philips Annual Report 2009

  • Page 95
    ... sales â,¬ 591 million cash ï¬,ows before financing activities "2009 was a very challenging, but also a very encouraging year. We got our hands around our cost structure, we drove good cash ï¬,ow, and, more than ever, the customer was at the center of our activities." Rudy Provoost, CEO Philips...

  • Page 96
    ... availability of credit and weaker spending on public infrastructure projects and partly because of reduced general consumer spending. Though we saw the most profound impact of the recession in the automotive and construction sectors, other business segments have 96 Philips Annual Report 2009

  • Page 97
    ... Electronics and our Automotive Lighting businesses are again more consolidated. Chinese companies are entering Western markets with energysaving solutions, and there are a range of companies active 5.4.6 Progress against targets The Annual Report 2008 set out a number of key targets for Philips...

  • Page 98
    ... and controls available to third parties via a licensing program in order to foster industry growth. Philips reached license agreements with several lighting peers including Acuity and Zumtobel in 2009; a similar agreement with Osram has been in place since 2008. 98 Philips Annual Report 2009

  • Page 99
    ...this Annual Report. Drive performance • Drive our performance through capturing growth while managing cost and cash • Win with customers in key markets • Improve our relative position in emerging markets, especially China, India and Latin America Sales per market cluster in millions of euros...

  • Page 100
    ... one reporting segment: Group Management & Services. Group Management & Services comprises the activities of the corporate center including Philips' global management and sustainability programs, country and regional management costs, and costs of pension and other postretirement benefit plans, as...

  • Page 101
    ...globe. Corporate Technologies actively participates in 'open innovation' through relationships with academic and industrial partners, as well as via European and regional projects, in order to improve innovation efficiency and share the related financial exposure. The High Tech Campus in Eindhoven...

  • Page 102
    ... final asbestos payments in 2009 and cash receipts related to the sale of shares in TSMC and LG Display in 2008. Key data in millions of euros 2007 Sales Sales growth % increase (decrease), nominal % increase (decrease), comparable1) EBITA Corporate Technologies1) EBITA Corporate & regional costs1...

  • Page 103
    ...IT/Supply) and sector level (Healthcare, Lighting, Consumer Lifestyle, Group Management & Services) meet quarterly to address weaknesses in the business control infrastructure as reported by internal and external auditors or revealed by self-assessment of management, Philips Annual Report 2009 103

  • Page 104
    ... determining the desired company-wide internal audit planning as approved by the Audit Committee of the Supervisory Board. An in- depth description of Philips' corporate governance structure can be found in chapter 10, Corporate governance, of this Annual Report. Strategic risks Operational risks...

  • Page 105
    ... the GBP, a set of directives has been published, which are applicable to all employees. There are also separate directives which apply to specific categories of employees (e.g. the Supply Management Code of Ethics and Financial Code of Ethics www.philips.com/gbp). At the end of 2009 an updated and...

  • Page 106
    ... Communication & investor relations • Sales & marketing • Value chain • People • Information technology • Business disruption • Physical assets • Legal • Regulatory • Ethics • Supplier • Treasury • Accounting and reporting • Pensions • Tax Corporate Governance Philips...

  • Page 107
    ... international capital and credit markets. Economic and political uncertainty may have a material adverse impact on Philips' financial condition or results of operations and can also make Philips' budgeting and forecasting more difficult. Philips may encounter difficulty in planning and managing...

  • Page 108
    ... investments in the reshaping of the Group into a more market-driven company focusing on delivering advanced and easy-to-use products and easy relationships with Philips for its customers. The brand promise of "sense and simplicity" is important for both external and internal development. If Philips...

  • Page 109
    ... in information technology (IT) could result in ineffective or inefficient business management. IT outsourcing and off-shoring strategies could result in complexities in service delivery and contract management. Furthermore, we observe a global increase in IT security threats and higher levels of...

  • Page 110
    ... and could have a negative impact on the Philips share price. The reliability of revenue and expenditure data is key for steering the business and for managing top-line and bottom-line growth. The long lifecycle of healthcare sales, from order acceptance to accepted installation, together with the...

  • Page 111
    ... interest rate risk particularly in relation to its long-term debt position; this risk can take the form of either fair value or cash ï¬,ow risk. Failure to effectively hedge this risk can impact Philips' financial results. Philips is exposed to equity price risk through holdings in publicly listed...

  • Page 112
    .... Philips is exposed to a number of different tax uncertainties which could result in double taxation, penalties and interest payments. These include, amongst others, transfer pricing uncertainties on internal crossborder deliveries of goods and services, tax uncertainties related to acquisitions...

  • Page 113
    ... debt and deposits • Translation exposure of foreign-currency-denominated equity invested in consolidated companies • Translation exposure to equity interests in nonfunctional-currency equity-accounted investees and available-for-sale financial assets. It is Philips' policy that significant...

  • Page 114
    ... shareholder in several publicly listed companies, including TCL Corporation and TPV Technology Ltd. As a result, Philips is exposed to potential financial loss through movements in their share prices. The aggregate equity price exposure of publicly listed investments in its main available-for-sale...

  • Page 115
    ... of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap including reducing payment terms, cash on delivery, pre-payments and pledges on assets. Philips invests available cash and...

  • Page 116
    ...funds, developments in financial markets and changes in life expectancy may have significant effects on the Funded Status and net periodic pension costs (NPPC) of Philips' pension plans. The pension plans in Germany, the Netherlands, the UK and the US cover approximately 95% of the Company's total...

  • Page 117
    ...status on a local valuation basis and not the lower value of the accounting liabilities as reported by the Company. Although an LDI strategy has been implemented in the US, this plan shows the highest sensitivity to interest rates. The aggregate Funded Status is least sensitive to changes in the in...

  • Page 118
    ...-at-Risk in millions of euros 200 150 100 50 0 (50) â- -Netherlands--â- -United Kingdom--â- -United States â- -Germany--â- -diversification----total risk Tax uncertainties on general service agreements and specific allocation contracts 2008 2009 The differences between the first and second...

  • Page 119
    ... countries. The same applies to the specific allocation contracts. Tax uncertainties due to disentanglements and acquisitions When a subsidiary of Philips is disentangled, or a new company is acquired, related tax uncertainties arise. Philips creates merger and acquisition (M&A) teams for these...

  • Page 120
    7 Investor information 7 - 7.1 7 Investor information The Philips investment proposition Our strategy Philips' strategy is to become the leading company in Health and Well-being. We believe that a steadily growing demand for healthcare, a healthy lifestyle and energyefficient lighting solutions ...

  • Page 121
    ..., or EUR 0.09 per common share, in 2008. (928) (875) (682) (5.0) (10.0) 2007 2008 2009 For a reconciliation to the most directly comparable GAAP measures, see chapter 14, Reconciliation of non-GAAP information, of this Annual Report 7.2.3 Dividend policy Our aim is to sustainably grow...

  • Page 122
    ... yield % is as of December 31 of previous year. In cash or shares, subject to approval by the 2010 Annual General Meeting of Shareholders. 2) record date payment date March 29, 2010 March 31, 2010 March 29, 2010 March 31, 2010 April 28, 2010 April 28, 2010 122 Philips Annual Report 2009

  • Page 123
    ... America 42 30 20 Western Europe 56 10 1) 0 2005 7.3.2 Split based on identified shares in shareholder identification 2006 2007 2008 2009 Share capital structure During 2009, Philips' issued share capital remained at a level of 972 million common shares. The basic shares outstanding...

  • Page 124
    ... details on the share repurchase programs can be found on the Investor Relations website. For more information see the section 10.1, Corporate governance of the Philips Group, of this Annual Report. In 2008 the Company started the procedure for the cancellation of Philips shares acquired pursuant to...

  • Page 125
    7 Investor information 7.5 - 7.5 7.5 Performance in relation to market indices Euronext Amsterdam Share price development in Amsterdam, 2009 (in euros) PHIA High Low Average Average daily volume* Jan 15.26 12.61 14.03 9.52 Feb 16.05 12.58 14.34 9.49 Mar 12.74 10.95 11.99 11....

  • Page 126
    ... care by adding body temperature management Lighting Electronics Adds to portfolio of intelligent light and energy management solutions Domestic Appliances Expand in high-growth, high-margin espresso market with strong products range Asset transaction Acquisitions announced in 2008 March 26, 2008...

  • Page 127
    ... amounts, percentages and ratios are not directly comparable. General data Sales Percentage increase over previous year Income (loss) from continuing operations Discontinued operations Net income (loss) Free cash ï¬,ow Turnover rate of net operating capital Total employees at year-end (in thousands...

  • Page 128
    ... assets/equity-accounted investees Non-current receivables/assets Property, plant and equipment Intangible assets Total assets Property, plant and equipment: Capital expenditures for the year Depreciation for the year Capital expenditures : depreciation Inventories as a % of sales Outstanding trade...

  • Page 129
    ... Investor information 7.8 - 7.8 Key figures per share Sales per common share EBITA per common share - diluted Income (loss) from continuing operations per share Dividend paid per common share Total shareholder return per common share Stockholders' equity per common share Price/earnings ratio Share...

  • Page 130
    ... and the Group Management Committee since June 2005 Corporate responsibilities: Control, Corporate Investments, Fiscal, Information Technology, Investor Relations, Mergers & Acquisitions, New Venture Integration, Pensions, Real Estate, Supply Management, Treasury 130 Philips Annual Report 2009

  • Page 131
    ...of the Group Management Committee since August 2003 and CEO of Philips Lighting since April 2008 Corporate responsibilities: Lighting Sector, Sales Leadership Board, Sustainability 1957, American Steve Rusckowski Executive Vice-President and Chief Executive Officer of Philips Healthcare Member of...

  • Page 132
    ...since September 2008 Corporate responsibilities: Information Technology, Purchasing 1962, Dutch Hayko Kroese Member of the GMC since February 2007; responsible for Human Resources Management since 2007 Corporate responsibilities: Human Resources Management 1955, Dutch Eric Coutinho Member of the...

  • Page 133
    ... Directors of INSEAD and Senior Advisor JP Morgan Plc 1942, Dutch** J.J. Schiro Member of the Supervisory Board since 2005; second term expires in 2013 Former CEO of Zurich Financial Services and Chairman of the Group Management Board. Also serves on various boards of private and listed companies...

  • Page 134
    ..., Corporate governance, of this Annual Report. During 2009 the Supervisory Board devoted considerable time to discussing the Company's strategy and discussed the performance and strategy of the three sectors in detail with the respective management teams, especially during a half day business update...

  • Page 135
    ...of nine members. The Supervisory Board aims for an appropriate combination of knowledge and experience among its members in relation to the global and multi-product character of Philips' businesses. Consequently, the Supervisory Board aims for an appropriate level of Philips Annual Report 2009 135

  • Page 136
    9 Supervisory Board report 9.1 - 9.2 Changes Supervisory Board 2010 • Sir Richard Greenbury will resign as a member of the Supervisory Board as from the closing of the 2010 General Meeting of Shareholders. 9.2 Changes Board of Management and Group Management Committee 2009 • Mr Sivignon has ...

  • Page 137
    ... share rights and stock options. The performance targets are predominantly linked to Philips' long-term strategy. The performance targets for the members of the Board of Management are determined annually at the beginning of the year. The Supervisory Board determines whether performance conditions...

  • Page 138
    ... of the Board of Management. Costs related to stock option and restricted share right grants are taken Remuneration costs Board of Management 20091) in euros base salary G.J. Kleisterlee P-J. Sivignon G.H.A. Dutiné R.S. Provoost A. Ragnetti S.H. Rusckowski 1) 2) 3) by the Company over a number of...

  • Page 139
    ..., salaries of the members of the Board of Management have not been increased on the yearly review date in April 2009. Philips has applied a restrictive policy for all employees. The stock option plan vests three years after grant, dependent on employment upon the vesting date. The exercise price is...

  • Page 140
    ... the market. It keeps a watching brief on the continuing alignment between Philips' strategic objectives and the remuneration policy for the Board of Management. 9.3.9 Additional arrangements In addition to the main conditions of employment, a number of additional arrangements apply to members of...

  • Page 141
    ...Board, the Audit Committee in 2009 reviewed the Company's annual and interim financial statements, including non-financial information, prior to publication thereof. It also assessed in its quarterly meetings the adequacy and appropriateness of internal control policies and internal audit programs...

  • Page 142
    ... retained earnings of the Company. Finally, we would like to express our thanks to the members of the Board of Management, the Group Management Committee and all other employees for their continued contribution during the year. February 22, 2010 The Supervisory Board 142 Philips Annual Report 2009

  • Page 143
    ... on the Company's website (www.philips.com/investor). In this report, the Company addresses its overall corporate governance structure and states to what extent it applies the provisions of the revised Dutch Corporate Governance Code of December 10, 2008 applicable to the financial year 2009 (the...

  • Page 144
    ... are outstanding as per December 31, 2009. In 2003, Philips adopted a Long-Term Incentive Plan ('LTIP' or the 'Plan') consisting of a mix of restricted shares rights and stock options for members of the Board of Management, the Group Management Committee, Philips executives and other key employees...

  • Page 145
    ...actual number of stock options and restricted share rights that is (unconditionally) granted. Members of the Board of Management hold shares in the Company for the purpose of long-term investment and are required to refrain from short-term transactions in Philips securities. According to the Philips...

  • Page 146
    ...31, 2009. Shares or rights to shares shall not be granted to a Supervisory Board member. In accordance with the Rules of Procedure of the Supervisory Board, any shares in the Company held by a Supervisory Board member are long-term investments. The Supervisory Board has adopted a policy on ownership...

  • Page 147
    ...powers of the General Meeting of Shareholders All outstanding shares carry voting rights. The main powers of the General Meeting of Shareholders are to appoint, suspend and dismiss members of the Board of Management and of the Supervisory Board, to adopt the annual accounts, declare dividends and to...

  • Page 148
    ... date in connection with the execution of share repurchase programs for capital reduction programs. In addition, the 2009 General Meeting of Shareholders resolved to authorize the Board of Management, subject to the approval of the Supervisory Board, to issue shares or grant rights to acquire shares...

  • Page 149
    ...by the Supervisory Board, are in place for the preparation and publication of the Annual Report, the annual accounts, the quarterly figures and ad hoc financial information. As from 2003, the internal assurance process for business risk assessment has been strengthened and the review frequency has...

  • Page 150
    ...be paid by the Company to parties for the carrying-out of research for analysts' reports or for the production or publication of analysts' reports, with the exception of credit-rating agencies. Major shareholders and other information for shareholders The Dutch Financial Markets Supervision Act (Wet...

  • Page 151
    ...comprehensive income Consolidated balance sheets Consolidated statements of cash ï¬,ows Consolidated statements of changes in equity Information by sector and main country Significant accounting policies Notes Auditor's report - Group 153 153 153 154 154 155 157 158 160 162 163 166 172 208 209 209...

  • Page 152
    ...term debt Long-term debt Other non-current liabilities Contractual obligations Contingent liabilities Stockholders' equity Cash from (used for) derivatives and securities Proceeds from other non-current financial assets Assets in lieu of cash from sale of businesses Related-party transactions Share...

  • Page 153
    ... Act The Board of Management of Koninklijke Philips Electronics N.V. (the Company) is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the US Securities Exchange Act). Internal control over...

  • Page 154
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Koninklijke Philips Electronics N.V. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, comprehensive income, changes in equity, and cash...

  • Page 155
    ... earnings per share) of the Philips Group for the years ended December 31 2007 2008 2009 Sales Cost of sales 26,793 (17,603) 26,385 (17,938) 23,189 (15,110) Gross margin 9,190 8,447 8,079 Selling expenses General and administrative expenses Research and development expenses Impairment...

  • Page 156
    11 Group financial statements 11.5 - 11.5 Earnings per share 2007 2008 2009 Weighted average number of common shares outstanding (after deduction of treasury stock) during the year Plus incremental shares from assumed conversions of: Options and restricted share rights Convertible debentures ...

  • Page 157
    ... integral part of these consolidated financial statements. 1) The 2008 currency translation differences for the actuarial gains (losses) on pension plans have been reclassified from actuarial gains (losses) included in other reserves to currency translation differences Philips Annual Report 2009...

  • Page 158
    ... of euros unless otherwise stated Consolidated balance sheets of the Philips Group as of December 31 Consolidated balance sheets Assets 2008 2009 Current assets Cash and cash equivalents 3,620 4,386 7 29 Receivables: - Accounts receivable - net - Accounts receivable from related parties...

  • Page 159
    ... and equity 2008 2009 Current liabilities 29 Accounts and notes payable: - Trade creditors - Accounts payable to related parties 2,880 112 2,992 2,775 95 2,870 3,134 716 703 627 16 Accrued liabilities 17 18 24 Short-term provisions 19 Other current liabilities 20 21 Short-term debt Total current...

  • Page 160
    ...545 4,873 138 7 (91) (3) (1) 410 âˆ' 14 2008 2009 Cash ï¬,ows from investing activities Purchase of intangible assets Expenditures on development assets Capital expenditures on property, plant and equipment Proceeds from disposals of property, plant and equipment (118) (233) (658) 81 385 (17) 4,105...

  • Page 161
    ... Non-cash investing and financing information 28 Assets received in lieu of cash from the sale of businesses: Shares/share options/convertible bonds âˆ' 148 âˆ' Conversion of convertible personnel debentures 38 9 3 Treasury stock transactions Shares acquired Exercise of stock options (1,609...

  • Page 162
    ... of euros unless otherwise stated Consolidated statements of changes in equity of the Philips Group outstanding number of shares in thousands capital in excess of par value treasury total stockholders' minority inshares at equity terests2) cost common stock retained revaluation earnings1) reserve...

  • Page 163
    ... of euros Information by sector and main country Information by sector and main country Sectors impairment of property, plant income from and equipment and intangible income from operations as a operations % of sales assets results relating to equity-accounted investees research and development...

  • Page 164
    ...10 - 11.10 Sectors net operating capital total liabilities excl. debt tangible and intangible assets capital expenditures depreciation of property, plant and equipment1) total assets 2009 Healthcare Consumer Lifestyle of which Television Lighting Group Management & Services 10,969 3,286 599 6,748...

  • Page 165
    11 Group financial statements 11.10 - 11.10 Main countries net operating capital tangible and intangible assets capital expenditures depreciation of property, plant and equipment2) sales 1) total assets 1) 2009 Netherlands United States Germany France United Kingdom China Other countries 871 ...

  • Page 166
    ... at the date of exchange, plus costs directly attributable to the business combination, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Company's share of the identifiable net assets of the subsidiary acquired is recognized...

  • Page 167
    ... present value of any reductions in future contributions or any future refunds, in accordance with IFRIC Interpretation 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. For the Company's major plans, a full discount rate curve of high-quality corporate...

  • Page 168
    ...continuing involvement. Long-term receivables are initially recognized at their present value using an appropriate interest rate. Any discount is amortized to income over the life of the receivable using the effective yield. Investments in equity-accounted investees Investments in companies in which...

  • Page 169
    ...lives. The Company expenses all research costs as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized as an intangible asset if the product or process is...

  • Page 170
    .... Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company's share of the net identifiable assets of the acquired subsidiary/equity-accounted investee at the date of acquisition. Goodwill is measured at cost less accumulated impairment losses. In...

  • Page 171
    ... Assets' The amendment is part of the IASB's annual improvements project published in April 2009 and the Company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business...

  • Page 172
    ... and, accordingly, the investment is accounted for under Other non-current financial assets. Philips and NXP have continuing relationships through shared research and development activities and through license agreements. Additionally, through the purchase of semiconductor products for the Consumer...

  • Page 173
    ... 1, 2009 to the date of acquisition. Assets and liabilities Goodwill Other intangible assets Property, plant and equipment Working capital Deferred tax assets Provisions Cash âˆ' 182 94 43 31 (32) 14 332 80 74 41 38 40 (48) 14 239 2008 During 2008, Philips entered into a number of acquisitions and...

  • Page 174
    ... care to the existing Philips business. This acquisition formed a solid foundation for the Home Healthcare Solutions business of the Company. Philips acquired Respironics' shares for a net cash consideration of EUR 3,196 million. As of the acquisition date, Respironics is consolidated as part...

  • Page 175
    ... 21, 2008, Philips completed the sale of its Set-Top Boxes (STB) and Connectivity Solutions (CS) activities to UK-based technology provider Pace Micro Technology (Pace). Philips received 64.5 million Pace shares, representing a 21.6% shareholding, with a market value of EUR 74 million at that date...

  • Page 176
    ... European manufacturer of home luminaires. Philips acquired 100% of the shares of PLI from CVC Capital Partners, a private equity investment company, at a net cash consideration of EUR 561 million paid upon completion of the transaction. As of the date of acquisition, PLI is consolidated as part of...

  • Page 177
    ... to EUR 94 million, EUR 78 million and EUR 111 million in 2009, 2008, and 2007, respectively. See note 30 for further information on share-based compensation. For remuneration details of the members of the Board of Management and the Supervisory Board, see note 31. Philips Annual Report 2009 177

  • Page 178
    ...of Group sales 2007: EUR 1,601 million, 6.0% of Group sales). For information related to Research and development expenses on a sector basis, see section 11.10, Information by sector and main country, of this Annual Report. Impairment of goodwill In 2009, no goodwill impairment charges were recorded...

  • Page 179
    ... taxes in various foreign jurisdictions. The statutory income tax rates vary from 10.0% to 40.7%, which causes a difference between the weighted average statutory income tax rate and the Netherlands' statutory income tax rate of 25.5%. (2008: 25.5%; 2007: 25.5%). Philips Annual Report 2009 179

  • Page 180
    ... and foreign currency translation differences which were recognized in equity. December 31, 2007 recognized in income recognized in equity acquisitions/ deconsolidations other December 31, 2008 Intangible assets Property, plant and equipment Inventories Prepaid pension costs Other receivables...

  • Page 181
    ... 133 1 (132) (1) 81 2 (118) (1) 6 Investments in equity-accounted investees Results relating to investments in equity-accounted investees 2007 2008 2009 Deferred tax assets are recognized for temporary differences, unused tax losses, and unused tax credits to the extent that realization of the...

  • Page 182
    ... as per December 31, 2008 was based on the stock price of TPV as of that date on the Hong Kong Stock Exchange. In 2007, the voluntary support of social plans for employees impacted by the bankruptcy of certain activities of LG.Philips Displays (formerly a leading CRT manufacturer) amounted to EUR 22...

  • Page 183
    ... shares of TPV until the maturity date of September 5, 2010. Healthcare Consumer Lifestyle Lighting Group Management & Services 1,586 1,235 874 118 3,813 1,571 1,096 909 93 3,669 The aging analysis of accounts receivable, net, is set out below: 2008 2009 10 Other non-current financial assets...

  • Page 184
    ...-sale financial assets consist of investments in common stock of companies in various industries and in the bond within the convertible bond issued by CBAY. Main investments in available-for-sale financial assets consist of: 2008 number of shares carrying value 2009 number of shares carrying value...

  • Page 185
    ...machinery and installations other equipment total Balance as of January 1, 2009: Cost Accumulated depreciation Book value Change in book value: Capital expenditures Assets available for use Acquisitions Disposals and sales Depreciation Impairments Translation differences Total changes Balance as...

  • Page 186
    ... The additions for 2009 contain internally generated assets of EUR 188 million and EUR 76 million for product development and software, respectively (2008: EUR 154 million, EUR 96 million). The acquisitions through business combinations in 2009 consist of the acquired intangible assets of Saeco for...

  • Page 187
    ... to EUR 38 million (2008: EUR 33 million). Key assumptions used in the annual (performed in the second quarter) and trigger-based impairment tests of both 2008 and 2009, for the businesses in the table above, were sales growth rates and the rates used for discounting the projected cash ï¬,ows...

  • Page 188
    ... Netherlands, Belgium, Poland and various locations in the US. • In Group Management & Services restructuring projects focused on reducing the fixed cost structure of Corporate Research Technologies, Philips Information Technology, Philips Design, and Corporate Overheads. In 2009, restructuring...

  • Page 189
    ... Oss plant in the Netherlands, from mass manufacturing to competence center, and the closure of ï¬,uorescent lamp-based LCD backlighting activities. • Within Group Management & Services: the US country organization headquarters were moved from New York to Andover. Philips Annual Report 2009 189

  • Page 190
    ...2008 Netherlands other total Netherlands other 2009 total Fair value of plan assets at beginning of year Expected return on plan assets Actuarial gains and (losses) on plan assets Employee contributions Employer...pre tax): EUR 1,767 million (2008: EUR 1,026 million). 190 Philips Annual Report 2009

  • Page 191
    ... constraints. The long-term rate of return on total plan assets is expected to be 5.7% per annum, based on expected long-term returns on debt securities, equity securities and real estate of 4.5%, 9.0% and 8.0%, respectively. Philips Pension Fund in the Netherlands On November 13, 2007, various of...

  • Page 192
    ... ended December 31: 2008 Netherlands other Netherlands 2009 other Funded status Unrecognized prior-service cost Net balances (353) 1 (352) (295) (22) (317) Discount rate Expected returns on plan assets Rate of compensation increase 4.8% 5.7% 5.6% 6.4% 5.3% 5.9% 6.0% 6.8% Classification...

  • Page 193
    ...Discount rate Compensation increase (where applicable) 8.5% âˆ' 9.7% âˆ' During 2009, the weighted average interest rate on the bank borrowings was 8.1% (2008: 8.6%). In the Netherlands, the Company issued personnel debentures with a 5-year right of conversion into common shares of Royal Philips...

  • Page 194
    ...as follows: 2008 2009 Accrued pension costs Income tax payable Asset retirement obligations Other tax liability Other liabilities 932 1 20 452 35 1,440 1,307 1 25 486 110 1,929 In January 2009, Philips drew upon a EUR 250 million 5-year ï¬,oating rate long-term loan for general business purposes...

  • Page 195
    11 Group financial statements 11.12 - 11.12 24 The long-term operating leases are mainly related to the rental of buildings. A number of these leases originate from sale-and-leaseback arrangements. Operating lease payments under sale-and-leaseback arrangements for 2009 totaled EUR 17 million (2008...

  • Page 196
    ... competition laws, on behalf of indirect purchasers of such panels and products. On November 5, 2007 and September 10, 2008, the Company and certain other companies within the Philips group companies that were named as defendants in various of the original complaints entered into agreements with...

  • Page 197
    ... A total of EUR 35 million cash was paid with respect to foreign exchange derivative contracts related to financing activities (2008: EUR 337 million inï¬,ow; 2007: EUR 385 million inï¬,ow) with the remaining EUR 4 million used to attain a short-term convertible note. Philips Annual Report 2009...

  • Page 198
    ... in connection with the sale of businesses. In April 2008, the Company acquired 64.5 million shares in Pace Micro Technology (Pace) in exchange for the transfer of the Company's SetTop Boxes and Connectivity Solutions activities, which represented a value of EUR 74 million at the date of the closing...

  • Page 199
    ... information about Philips stock options as of December 31, 2009 and changes during the year: The weighted average grant-date fair value of options granted during 2009, 2008 and 2007 was USD 3.83, USD 7.97 and USD 11.99, respectively. The total intrinsic value of options exercised during 2009, 2008...

  • Page 200
    ...) pension benefits were granted to former members of the Board of Management. In 2009, the members of the Board of Management were granted 259,200 stock options (2008: 259,218 stock options, 2007: 318,132 stock options) and 69,132 restricted share rights (2008: 86,406 restricted share rights; 2007...

  • Page 201
    ..., private use of the company car), then the share is both valued and accounted for here. The method employed by the fiscal authorities in the Netherlands is the starting point for the value stated. Annual incentive figure relates to period January 1 - March 31, 2008. Salary amount and amount under...

  • Page 202
    11 Group financial statements 11.12 - 11.12 The tables below give an overview of the interests of the members of the Board of Management under the restricted share rights plans and the stock option plans of the Company: Number of restricted share rights January 1, 2009 awarded 2009 released 2009 ...

  • Page 203
    ... the exercise price of all options granted to, but not yet exercised by, members of the Board of Management as of July 31, 2000 by EUR 0.21 per common share in connection with the 3% share reduction program effected mid-2000 Awarded under the US stock option plan Philips Annual Report 2009 203

  • Page 204
    ... connection with the 3% share reduction program affected mid-2000 Awarded under US stock option plan See note 30 for further information on stock options and restricted share rights. The total pension charges of the members of the Board of Management in 2009 amount to EUR 787,010 (2008: EUR 725,462...

  • Page 205
    ...35,500 81,000 75,000 74,000 37,500 795,500 Supervisory Board members' and Board of Management members' interests in Philips shares Members of the Supervisory Board and of the Board of Management are not allowed to hold any interests in derivative Philips securities. Philips Annual Report 2009 205

  • Page 206
    ... 145 32 25 102 609 Reference date for board membership is December 31, 2009 32 Fair value of financial assets and liabilities The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methods. The estimates...

  • Page 207
    ... of listed equity investments classified as available-for-sale financial assets, investees and financial assets designated at fair value through profit and loss. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market...

  • Page 208
    ... required by 2:391 sub 4 of the Netherlands Civil Code. Amsterdam, February 22, 2010 KPMG Accountants N.V. M.A. Soeting RA Auditor's report - Group Auditor's report To the Supervisory Board and Shareholders of Koninklijke Philips Electronics N.V.: Report on the consolidated financial statements We...

  • Page 209
    ...: 972,411,769 shares (2008: 972,411,769 shares) Capital in excess of par value Legal reserve: revaluation Legal reserve: available-for-sale financial assets Legal reserve: cash ï¬,ow hedges Legal reserve: affiliated companies Legal reserve: currency translation differences Retained earnings Net...

  • Page 210
    ... millions of euros unless otherwise stated outstanding number of shares in thousands Statement of changes in equity of Koninklijke Philips Electronics N.V. legal reserves availablefor-sale financial assets total stockholders' equity common stock capital in excess of par value revaluation cash...

  • Page 211
    ... of Section 2:392 of the Dutch Civil Code, please refer to section 11.13, Auditor's report Group, of this Annual Report, section 12.6, Auditor's report Company, of this Annual Report, and section 4.4, Proposed distribution to shareholders, of this Annual Report. Philips Annual Report 2009 211

  • Page 212
    ... relate to valuation adjustments on available-for-sale financial assets. loans total Balance as of January 1, 2009 Changes: Transferred to other noncurrent financial assets Acquisitions/additions Sales/redemptions Net income from affiliated companies Dividends received Translation differences...

  • Page 213
    ...movement in unrealized results on available-for-sale financial assets are mainly due to the sale of shares (LG Display and Pace Micro Technology Plc.). The item 'affiliated companies' relates to the 'wettelijke reserve deelnemingen', which is required by Dutch law. Philips Annual Report 2009 213

  • Page 214
    ... companies' of EUR 829 million (2008: EUR 985 million). In general, gains related to available-for-sale financial assets, cash ï¬,ow hedges and currency translation differences cannot be distributed as part of stockholders' equity as they form part of the legal reserves protected under Dutch law...

  • Page 215
    ... Electrical Manufacturers Association (NEMA); Environmental Leadership Council of the Information Technology Industry Council (ELC ITIC); Consumer Electronics Association (CEA); and Association of Home Appliance Manufacturers (AHAM). In 2009 we established a dedicated Professional and Public Affairs...

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    ... versus targets and will continue to do so until each concludes. As we want to remain focused on reducing the environmental footprint of our manufacturing processes, we will evaluate new targets as part of our Chemicals Management program introduction later in 2010. 216 Philips Annual Report 2009

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    ...R&D activities directly contributing to the development of Green Products or Green Technologies. A wide set of additional criteria and boundaries have been defined as the basis for internal and external validation. Environmental data All environmental data from manufacturing operations are reported...

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    ... report. in millions of euros Green Product sales in billions of euros unless otherwise stated 2007 2008 2009 Distribution of direct economic benefits 2009 Philips Group as a % of total sales 5.3 19.8 6.0 22.6 7.1 30.6 Suppliers: goods and services Employees: salaries and wages Shareholders...

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    ... revolution. Our focus continues to be on developing new energy-efficient lighting solutions, further enhancing current Green Products and realizing technological breakthroughs in the area of solid-state lighting. Research Within Corporate Technologies, Philips Research invested about EUR 44...

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    ...2008 2009 Direct CO2 Indirect CO2 Other greenhouse gases1) From glass production Total 1) 326 473 40 30 869 321 465 41 29 856 302 434 61 28 825 283 453 54 24 814 Total energy consumption in manufacturing in terajoules 2006 2007 2008 2009 Healthcare Consumer Lifestyle Lighting Group Management...

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    ...: Hazardous substances For hazardous substances targets have been set on a selected number of substances and not for the total, as listed in the table. Water intake 2006 2007 2008 2009 Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group 406 509 3,217 39 4,171 369 485...

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    ... level of employee engagement at Philips. It is a combination of perceptions and attitudes related to employee satisfaction, commitment and advocacy. 80 60 40 20 0 Staff 57 43 27 16 10 Professionals Management Executives Employee Engagement Index 2006 2007 2008 2009 as a % of total executives...

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    ... for courses online via our Global Learning Portal, Learning @ Philips. number of employees participating 2006 2007 2008 2009 Business Integrity Health & Safety Treatment of employees âˆ' Collective bargaining âˆ' Discrimination âˆ' Employee development âˆ' Employee privacy âˆ' Employee relations...

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    ...with the Philips Supply Management Code of Ethics significantly increased during the last two years. In 2009 the number of complaints relating to purchasing employees who allegedly did not adhere to the Philips Supply Management Code of Ethics was, as in 2008, about half the number reported on this...

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    ... out. Global operating structure 2009 saw the embedding of the Philips Supplier Sustainability Involvement Program as a One Philips approach with a single set of standards, processes, training, certifications, resources and one database across sectors. As the majority of risk suppliers continue...

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    ... Board and Shareholders of Koninklijke Philips Electronics N.V.: Introduction We have been engaged by the Supervisory Board of Koninklijke Philips Electronics N.V. to provide limited assurance on the section Sustainability performance in the Annual Report 2009. The Board of Management is responsible...

  • Page 227
    ..., operating companies, subsidiaries, and joint ventures Location of organization's headquarters section 1.1, Our company section 8.1, Board of Management section 1.1, Our company section 1.2, Our strategic focus section 1.2, Our strategic focus 2.4 2.5 section 10.6, Investor Relations Number of...

  • Page 228
    ... Committee section 10.1, Corporate governance of the Philips Group section 10.3, Supervisory Board section 10.5, Logistics of the General Meeting of Shareholders section 13.1, Approach to sustainability reporting section 13.6, Independent assurance report Assurance 228 Philips Annual Report 2009

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    ... structure, state the number of members of the highest governance body that are independent and/or non-executive members Mechanisms for shareholders and employees section 10.1, Corporate governance of the Philips Group to provide recommendations or direction to section 10.2, Board of Management...

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    ... community at significant locations of operation Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, inkind, or pro bono engagement section 3.5, Working at Philips section 4.1.15, Employment section 4.3.8, Social performance...

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    ... areas Energy EN3 EN4 Water Biodiversity EN8 EN11 EN12 Description of significant impacts of activities, section 13.1, Approach to sustainability reporting products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas Total direct and...

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    ... and decent work Employment LA1 LA2 Labor/Management relations LA4 LA5 Total workforce by employment type, employment contract, and region section 13.4, Social indicators section 4.1.15, Employment Total number and rate of employee turnover section 4.1.15, Employment by age group, gender, and...

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    ... and manage the impacts of operations on communities, including entering, operating, and exiting Percentage and total number of business units analyzed for risks related to ethics Percentage of employees trained in organization's anti-corruption policies and procedures Actions taken in response to...

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    ... of the Company's funding requirements. Net capital expenditures comprise of purchase of intangible assets, expenditures on development assets, capital expenditures on property, plant and equipment and proceeds from disposals of property, plant and equipment. 234 Philips Annual Report 2009

  • Page 235
    ... 2009 versus 2008 Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group (2.7) (16.5) (12.6) (30.2) (11.4) 2.6 (0.7) 1.0 (0.1) 0.7 2.6 (5.0) 0.5 (0.2) (1.4) 2.5 (22.2) (11.1) (30.5) (12.1) 2008 versus 2007 Healthcare Consumer Lifestyle Lighting Group Management & Services...

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    14 Reconciliation of non-GAAP information 14 - 14 Composition of net debt to group equity 2007 2008 2009 Long-term debt Short-term debt Total debt Cash and cash equivalents Net debt (cash) (total debt less cash and cash equivalents) 1,213 2,350 3,563 (8,769) (5,206) 3,466 722 4,188 (3,620) 568 ...

  • Page 237
    ... restructuring related costs Acquisition-related charges Curtailment gains Asset impairment and other Adjusted profitability Adjusted profitability as a % of sales 7,263 555 107 662 12,884 792 214 1,006 (196) (35) 44 (46) 895 12.3 (293) (63) 131 (46) 1,277 9.9 Philips Annual Report 2009 237

  • Page 238
    ... to total assets Consumer Lifestyle Group Management & Services Philips Group Healthcare Lighting 2009 Net operating capital (NOC) Eliminate liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include assets not comprised in NOC: - investments in equity...

  • Page 239
    ... Investor contact Shareholder services Holders of shares listed on Euronext Philips offers a dynamic print manager that facilitates the creation of a customized PDF. Non-US shareholders and other non-US interested parties can make inquiries about the Annual Report 2009 to: Royal Philips Electronics...

  • Page 240
    ...the Philips Group, of this Annual Report. Analysts' coverage Philips is covered by almost 40 analysts who frequently issue reports on the company. How to reach us Investor Relations contact Royal Philips Electronics Breitner Center, HBT 11-8 P.O. Box 77900, 1070 MX Amsterdam, Netherlands Telephone...

  • Page 241
    ... (score 0 to 6) from the percentage of customers who are Promoters (score 9 to 10). Productivity: Philips uses Productivity internally and as mentioned in this annual report as a non-financial indicator of efficiency that relates the added value, being income from operations adjusted for certain...

  • Page 242
    ... of the Company. The introduction to the chapter Group financial statements sets out which parts of this Annual Report form the management report within the meaning of Section 2:391 of the Dutch Civil Code (and related Decrees). Reclassifications As of January 2009, the Hospitality business moved...

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