Philips 2009 Annual Report Download - page 195

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: EUR 16 million,
2007: EUR 14 million).
The remaining minimum payments are as follows:
2010 17
2011 16
2012 16
2013 16
2014 16
Thereafter 61
24 Contingent liabilities
Guarantees
Philips’ policy is to provide guarantees and other letters of support only
in writing. Philips does not stand by other forms of support. At the end
of 2009, the total fair value of guarantees recognized by 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.
Expiration per period
in millions of euros
business-
related
guarantees1)
credit-related
guarantees total
2009
Total amounts committed 266 42 308
Less than 1 year 134 31 165
1-5 years 70 5 75
After 5 years 62 6 68
2008
Total amounts committed 342 42 384
Less than 1 year 205 18 223
1-5 years 78 7 85
After 5 years 59 17 76
1) For comparability purposes, the 2008 numbers were restated to properly
reflect external guarantees only.
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
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, results of operations and
cash flows.
Provided below are disclosures of the more significant cases:
Asbestos
Over the past decade, judicial proceedings were 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.
These proceedings involved allegations of personal injury from alleged
exposure to asbestos distributed by THAN. THAN’s businesses,
including those which gave rise to these alleged liabilities, were
completely sold in 1984 and its ongoing operations were not material to
its parent, Philips Electronics North America Corporation (PENAC), or
the Company.
In previous years, certain of the asserted claims were settled;
additionally various other alternatives for resolving pending and future
claims were explored. In the fourth quarter of 2008, after having
received the required support from representatives of the then current
claimants and from a court appointed representative of future
claimants, THAN filed a prepackaged plan of reorganization (the Plan) in
the US Bankruptcy Court for the Southern District of New York. The
Plan became effective on November 30, 2009, after having been
approved by the Bankruptcy Court (May) and the US District Court for
the Southern District of New York (October). Under the terms and
conditions of the Plan, an Asbestos Personal Injury Trust (the Trust)
was established in accordance with section 524(g) of the Bankruptcy
Code to assume, liquidate and satisfy all THAN-related asbestos
liabilities. The Trust has been funded with USD 900 million (EUR 597
million) contributed by PENAC and THAN. Additionally, under the
Plan, PENAC has forgiven certain debt of THAN, assumed certain
liabilities from THAN, and transferred its ownership interest in THAN
to a trust associated with the Asbestos Personal Injury Trust. Pursuant
to the Plan, the Bankruptcy Court issued a permanent injunction that
directs to the Trust all claims alleging personal injury or death from
exposure to asbestos distributed by THAN and bars all related litigation
against THAN, its affiliates (including PENAC and the Company) and
certain third parties.
In connection with these matters, a credit to income from operations in
the amount of EUR 1 million was recorded in 2009 (2008: EUR 353
million, 2007: EUR 4 million). As of December 31, 2009, all PENAC
obligations related to THAN’s asbestos liabilities were fully settled. At
December 31, 2008, the recorded provision for loss contingencies with
respect to asbestos product liability amounted to EUR 624
million. During 2009, costs of EUR 9 million were incurred with respect
to litigation, claims administration, insurance recoveries, and
bankruptcy-related matters (2008: EUR 24 million; 2007: EUR 27
million).
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 2009 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 65 million were recognized in 2009 (EUR 89 million
was recognized in 2008 and EUR 16 million was recognized in 2007).
Insurers paid EUR 21 million in 2009 (EUR 113 million was paid in 2008
and EUR 27 million was paid in 2007) for asbestos-related defense and
indemnity costs. At December 31, 2009, the recorded receivable from
insurance carriers, for which settlement agreements have been
reached, amounted to EUR 81 million (EUR 34 million at December 31,
2008), 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.
LG Display
Civil litigation
On December 11, 2006, LG Display Co. Ltd (formerly LG Philips LCD
Co. Ltd.), a company in which the Company then held a minority
common stock interest, announced that officials from the Korean Fair
Trade Commission had visited the offices of LG Display and that it had
received a subpoena from the United States Department of Justice
11 Group financial statements 11.12 - 11.12 24
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