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Annual Report 2010
Financial, social and environmental performance
simply
making a
difference

Table of contents

  • Page 1
    Annual Report 2010 Financial, social and environmental performance simply making a difference

  • Page 2
    ...otherwise indicated. 9 10 11 Group Management Committee Supervisory Board Supervisory Board report 118 119 120 123 124 129 131 131 133 135 136 137 Our company Vision 2015 - our strategic focus Our strategy in action Professional Healthcare Home Healthcare Healthy Life & Personal Care Home Living...

  • Page 3
    ... The year 2010 Share information Risk management Performance in relation to market indices Philips' acquisitions Financial calendar Investor contact 19 20 Definitions and abbreviations Forward-looking statements and other information 13.12 Independent auditor's report - Group Annual Report 2010...

  • Page 4
    ...non-GAAP information, of this Annual Report For a definition of emerging and mature markets, see chapter 19, Definitions and abbreviations, of this Annual Report 5 5.5 5.5 6.4 6.4 6.9 0 Equity and EBITA per common share1) in euros 2006 2007 2008 2009 2010 â- -shareholders' equity per...

  • Page 5
    ...0 2007 2008 2009 2010 Operating cash ï¬,ows in millions of euros 3,000 2,000 1,000 639 0 (1,000) (2,000) (987) (348) (1.3) 2006 â- -net capital expenditures--â- â- -free cash ï¬,ows â- -operating cash ï¬,ows----free cash ï¬,ows as a % of sales 1) Sales of Green Products as a % of total sales 40...

  • Page 6
    ... implemented a major part of our Vision 2010 strategic plan, rounding out our transformation into a customer-focused, market-driven health and well-being company with a strong brand. We announced our new plan, Vision 2015, setting out the roadmap to growth. And we posted our best earnings margin...

  • Page 7
    ... our attention going forward. In line with our Vision 2015 growth targets, in 2011 we will continue to drive for further outright leadership in NPS in key markets. How did we do against our Management Agenda 2010? Drive performance Drive top-line growth and market share Sales amounted to EUR 25...

  • Page 8
    ... the year we bought NCW Holdings, a leading Chinese designer, manufacturer and distributor of LED and conventional entertainment lighting and lighting control solutions. Leverage Sustainability as an integral part of our strategy In 2010 we increased our Green Product sales to 38% of Group revenues...

  • Page 9
    ... new five-year plan builds upon the achievements of Vision 2010. Through Vision 2010 we transformed Philips into a health and well-being company with a stronger focus on emerging markets. We built a strong, balanced portfolio of businesses, simplified the company in order to capitalize upon market...

  • Page 10
    ...of Vision 2015 Implement strategy • Strengthen and grow in all emerging markets - make China a "home" market • Execute "must win" strategic battles in key business-market combinations • Pursue value-creating acquisitions and invest in growth to strengthen our portfolio 10 Annual Report 2010

  • Page 11
    ... thinking and technology to deliver a better solution. • We ensure our solutions are easy to experience. Our values In a world where complexity increasingly touches every aspect of our daily lives, we will lead in bringing "sense and simplicity" to people Our corporate vision describes what...

  • Page 12
    ... sales and service outlets 118 production sites 7 research laboratories spread over Europe, North America and Asia Employees Manufacturing sites Research laboratories 3 incubators 36,000 registered trademarks 3,900 domain names 63,000 50,000 design rights patent rights 12 Annual Report 2010

  • Page 13
    ... energy usage, we set out to round off the transformation of our company from a high-volume electronics group to a focused, market-driven global player in healthcare, lighting and lifestyle - businesses in which many of today's key challenges intersect. Vision 2015 is an evolution of this strategy...

  • Page 14
    ... of Philips products. Our Vision 2015 aspirations • Comparable sales growth on annual average basis at least 2 percentage points higher than real GDP growth • Reported EBITA margin between 10% and 13% of sales • Growth of EPS at double the rate of comparable annual sales growth • Return on...

  • Page 15
    ... clinical 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. 3.1 Annual Report 2010...

  • Page 16
    ... world, enabling them to share images and data, and to discuss cases in real-time. by Imaging 2.0. This level of collaboration and integration, combined with increased patient focus and improved economic value, is helping clinicians achieve what was unimaginable just a few 16 Annual Report 2010

  • Page 17
    ...Our imaging technology is opening up richer views, so clinicians can perform procedures that are less invasive while delivering the information they need. Host of new innovations At the 96th annual meeting of the Radiological Society of North America (RSNA) in Chicago in November 2010, we launched...

  • Page 18
    ... centers can now benefit from Stroke Navigator, a new clinical decision support tool developed by Philips Research in close cooperation with Philips Healthcare Visicu. As a collaborative tool, it provides contextual forms that allow care providers on both sides to efficiently access and exchange...

  • Page 19
    ... back-end reporting structure in Stroke Navigator to develop its first version of eConsultant. Visicu clients now have the best multiple user software for managing remote stroke care that is integrated into the eICU center and provides for a coordinated tele-stroke network. Annual Report 2010 19

  • Page 20
    ...and home 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. 20 Annual Report...

  • Page 21
    ...movement AutoAlert distinguishes between normal movements and falls by monitoring not just movement but also the associated acceleration and change in height. This ensures that daily activities such as sitting down or walking down stairs are not falsely interpreted as a fall. Annual Report 2010 21

  • Page 22
    ... the night and thereby a healthier sleep. As a global leader in the sleep management market and the treatment of OSA, Philips assists hospitals and clinics across the globe in setting up sleep labs. We provide not only the required equipment, but also the specific training. 22 Annual Report 2010

  • Page 23
    ... platform takes a holistic approach to enhancing consumers' health, addressing the need for mental and physical health and for healthy relationships. Our Personal Care platform addresses consumers' need to look and feel their best, and so helps people feel more confident. Annual Report 2010 23

  • Page 24
    ...few hours of sunlight to look forward to, even on the shortest of days. But imagine living in the Arctic Circle, where almost four months of continuous darkness makes waking in the morning all that much tougher. It is total darkness when you wake up, when you go to work, and when you come home again...

  • Page 25
    ... new, personalized sound options. Svalbard calling the world Designed to raise awareness of the potential of light therapy, the Wake up the town experience wasn't just limited to those living in Longyearbyen. The residents were able to share their experiences with consumers Annual Report 2010 25

  • Page 26
    ... launch onto the key Chinese market in October last year. Road shows featuring 3D movies ensured high impact for thousands of consumers in department stores, while web-based and broadcast marketing initiatives communicated the product benefits to millions more across the country. As always, during...

  • Page 27
    ..., preparation of beverages, cleaning, caring and home comfort. Lifestyle Entertainment is about enjoying entertainment and the little events in everyday life: sharing time with family and friends, having time off from a hectic schedule, and moments of comfort, fun and caring. Annual Report 2010 27

  • Page 28
    3 Our strategy in action 3.4 - 3.4 Making business sense with sustainable TVs As increasing numbers of people demand sustainable products and services, we continue to make simple, but highly effective, green changes to the way we operate. Being a leading global company in health and well-being, we ...

  • Page 29
    ... fact that 60% of the aluminum used in the set is recycled and it's not surprising that the Econova LED TV (42PFL6805) won the prestigious EISA award 'European Green TV 2010-2011'. The remote control is charged via a solar cell, which works even in indoor light conditions. Annual Report 2010 29

  • Page 30
    ... coffee machine is a combination of exclusive design, innovative technology and cutting-edge materials: together they guarantee great-tasting espresso and ease of use. Clearly Philips and Saeco share common values: bringing "sense and simplicity" to the lives of consumers! 30 Annual Report 2010

  • Page 31
    3 Our strategy in action 3.5 - 3.5 3.5 Home Lighting Our innovative home lighting solutions beautify and inspire, empowering consumers to define the ambience in their personal spaces. Lighting can enhance form and function, improve people's sense of well-being and enable them to express their ...

  • Page 32
    ... Lighting - expressing who we are and how we feel LEDs provide a palette of millions of colors or a thousand shades of white light and dynamic effects that conventional lighting cannot match in terms of scene-setting and ambiance. Our LED-based home lighting solutions enable 32 Annual Report 2010

  • Page 33
    ...' Our innovative LED-based home lighting solutions are designed to beautify and inspire, while empowering people to define their personal environments through design and style. The result? A completely new experience of light. Life at home will never be the same again. Annual Report 2010 33

  • Page 34
    ... Lighting Technology Center. Fending off the competition This breakthrough lamp first came to prominence at the end of 2009, when it was named as the 3rd best invention of the year by TIME Magazine. "With the ï¬,ick of a switch, Philips may have just dramatically lowered America's electric...

  • Page 35
    ...the needs of our customers in the office, outdoor, industry, retail, hospitality, entertainment, healthcare and automotive segments, we are delivering new, responsible forms of lighting - customer-centric, simplicity-led innovations that enhance people's experience of light. Annual Report 2010 35

  • Page 36
    ... School. The cool-white high-intensity light in the Energy scene was used in the morning and after lunch to give the children a boost. The standard light levels in the Standard scene were used for regular classroom activities. For more challenging tasks, the Concentration 36 Annual Report 2010

  • Page 37
    ..., the combination of intelligent lighting controls and the latest low-energy light sources is helping to save as much as 80% of the electricity used by the old system. With budgets everywhere under tremendous pressure, this is potentially very good news for all schools. Annual Report 2010 37

  • Page 38
    ... and cost of energy, while also disturbing the balance of nature through artificial light, pollution and waste. In the emerging markets, we are seeing a rapid expansion of the number of conurbations with 20 million or more inhabitants. Safer, more attractive urban spaces Quite simply, light helps...

  • Page 39
    ... our lighting solutions, powered by innovative technologies such as LED, can create more value, more beauty, more safety and more visibility - and yet can do so with less consumed power and less environmental impact. City authorities could, for example, save around EUR 3 billion in energy costs and...

  • Page 40
    ... 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. 4.1 40 Annual Report 2010

  • Page 41
    ... how our solar-powered LED lighting and innovative medical solutions can improve life for millions of people in Africa. Our journey took us to 15 cities in nine countries, clocking up a total of 9,000 km. On the way, we hosted a number of Lighting and Healthcare events and roundtable discussions...

  • Page 42
    ... opportunities in Africa for innovation, solution supply, and knowledge sharing. We want to provide meaningful lighting and healthcare solutions across the continent," says Gottfried Dutiné, Global Head of Markets & Innovation, and member of the Board of Management. 42 Annual Report 2010

  • Page 43
    ...our ecological footprint we are maintaining our focus on overall environmental performance improvement, driven by our EcoVision programs. Working with stakeholders, we aim to share expertise and co-create innovative solutions that will make a difference to future generations. Annual Report 2010 43

  • Page 44
    ... one of the key objectives of our Vision 2015 strategic plan - a goal we pursue systematically through our EcoVision programs. In the EcoVision5 program, leadership is profiled with three Key Performance Indicators (KPIs), which track our activities in the areas of Green and Social Innovation, the...

  • Page 45
    ... innovations can be found throughout this report, such as solar-powered LED lighting, EnduraLED and the Econova LED TV. Greening our operations With energy, waste, water and emission reduction as performance indicators, we drive a reduction of our environmental footprint in our operations. Philips...

  • Page 46
    ... developing these markets requires tailor-made solutions, a different approach to marketing and distribution, and multi-sector partnerships. Multi-stakeholder engagement is needed to improve working conditions in the supply chain - another important contribution towards the MDGs. 46 Annual Report...

  • Page 47
    ... 2004 and promotes an industry code of conduct for global supply chains to improve working and environmental conditions. Today, it includes more than 50 global electronics companies and their suppliers. Another initiative in which we are involved is the Dutch Sustainable Trade Initiative (IDH). IDH...

  • Page 48
    ..., and management and workers of companies in the supply chain. It aims to identify needs related to a number of key themes, including workplace health and safety and communication between workers and management, and to implement improvement plans, using available best practices. Transparency...

  • Page 49
    ... them to share our commitment to sustainability. This includes 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...

  • Page 50
    ... our global supply base to help us achieve our EcoVision5 and other sustainability objectives as defined in Vision 2015," says Sonny Kwok, Head of Supplier Sustainability. Supplier Sustainability and the road to Vision 2015 In October 2010 our Purchasing Leadership Board made a strategic change...

  • Page 51
    ... being addressed and remedial action taken. Repeat recognition In recognition of our efforts in the area of responsible supply chain management, the Dutch Association of Investors for Sustainable Development (VBDO) ranked us first among the forty largest publicly-listed Dutch Annual Report 2010...

  • Page 52
    ..., our people 4.5 - 4.5 4.5 Working at Philips To become an even more market-driven and people-centric company, we have been working to increase organizational effectiveness and simplify our structure. We believe it is important that employees are engaged - that they feel part of a team, know their...

  • Page 53
    ... of our core values, so in 2010 we launched 'Grow with Philips', a program that opens up more opportunities for change and growth. We have always sought to develop our employees' skills, so that they can maximize and reach their potential and increase their contribution to the company's success. We...

  • Page 54
    ... our people develop and reach their potential are part of our global activities in the area of corporate social responsibility. In the Netherlands, for instance, we have for many years played a pioneering role with our national Vocational Qualification Program (CV) and the Philips Employment Scheme...

  • Page 55
    ... 4.6 4.6 Working in our communities We at Philips have long been active in the communities where we live and work. Initiatives around the world bring "sense and simplicity" to people's health and wellbeing in a number of local projects. SimplyHealthy@Schools is the global community program we have...

  • Page 56
    ... lighting and educate children on energy efficiency. In 2010, we expanded the program into 38 countries, reaching almost 63,000 students, going to over 660 schools and actively involving more than 3,500 employees from around the world on the ground and many thousands more online. 56 Annual Report...

  • Page 57
    ...with such fun and meaningful activities. Philips really cares about a sustainable society and contributes with real action." To be continued...The program's success means it will be continued and expanded in 2011 to include more schools, extra activities and countries such as South Africa, Botswana...

  • Page 58
    ...in all sectors, notably Lighting. Within Lighting, growth in automotive and LED markets was strong, partly mitigated by limited growth at Professional Luminaires due to weak construction markets in the US and Western Europe; Healthcare sales grew 4%, supported by 6% growth in 58 Annual Report 2010

  • Page 59
    ... mature markets grew 1%. Emerging markets accounted for 33% of total sales, up from 30% in 2009. We continued to invest in strategically aligned, highgrowth companies to strengthen our portfolio. In 2010, we completed 11 acquisitions, contributing to all three sectors, notably Discus Holdings in...

  • Page 60
    ... by 6% growth at Patient Care & Clinical Informatics, Home Healthcare Solutions, and Customer Services. Sales at Imaging Systems were broadly in line with 2009, as growth in emerging markets was largely offset by lower sales in North America. Consumer Lifestyle reported sales of EUR 8,906 million...

  • Page 61
    ... and acquisition-related charges, the year-on-year improvement was mainly driven by higher sales and a higher gross margin percentage in each of the operating sectors, and lower costs in Group Management & Services. Amortization of intangibles, excluding software and capitalized product development...

  • Page 62
    ... to note 8. Restructuring and related charges in millions of euros 2008 2009 2010 5.1.5 at reduction of the fixed cost structure, mainly impacting Imaging Systems (Netherlands), Home Healthcare Solutions and Patient Care & Clinical Informatics (various locations in the US). Other restructuring...

  • Page 63
    ... to EUR 14 million in 2010, mainly due to the sale of our remaining stake in TPV Technology. In 2009, following recovery of the TPV share price, the accumulated value adjustment of the shareholding in TPV recognized in 2008 was reversed by EUR 55 million. The company's participation in income of EUR...

  • Page 64
    ..., manufacturer and distributor of LED and conventional entertainment lighting and lighting control solutions for global markets. 5.1.11 Divestments In 2010, Philips divested 9.4% of the shares in TPV Technology Ltd (TPV). The TPV shares were sold to CEIC Lrd, a Hong Kong-based technology company...

  • Page 65
    ... by headcount reduction from organizational right-sizing projects. Emerging market headcount increased by 3,195, mainly from increases at Lighting to support higher factory production. Employees per sector in FTEs at year-end 2008 Healthcare 35,551 17,145 57,367 11,335 121,398 2009 34,296 18,389 51...

  • Page 66
    ... payment, partly offset by higher working capital requirements. Condensed consolidated statements of cash ï¬,ows for the years ended December 31, 2008, 2009 and 2010 are presented below: Condensed consolidated cash ï¬,ow statements1) in millions of euros 2008 Cash ï¬,ows from operating activities...

  • Page 67
    ... medSage Technologies (EUR 14 million). In 2009, a total of EUR 300 million cash was used for acquisitions, mainly Saeco (EUR 171 million), Dynalite (EUR 31 million) and Traxtal (EUR 18 million). 5.2.3 Financing Condensed consolidated balance sheets for the years 2008, 2009 and 2010 are presented...

  • Page 68
    ... compensation plans. Shareholders' equity declined by EUR 949 million in 2009 to EUR 14,595 million at December 31, 2009. The decrease was mainly as a result of a EUR 404 million reduction from total comprehensive income. The dividend payment to shareholders in 2009 further 68 Annual Report 2010

  • Page 69
    ...818) 3,445 The fair value of the Company's available-for-sale financial assets, based on quoted market prices at December 31, 2010, amounted to EUR 270 million. Philips disposed 9.4% of the shareholdings in TPV technology in 2010 as the main listed investments in associates, and reclassified the...

  • Page 70
    ... a net present value of GBP 250 million, Philips Electronics UK will pay cash contributions into the UK pension fund to make up for the difference during the years 2015 and 2022. No cash (further) payments will be made under the scheme when the UK pension fund is fully funded. total Long-term debt1...

  • Page 71
    ... of the 100 best global brands. Philips' total 2010 marketing expenses approximated EUR 934 million, a 16% increase compared to 2009. The additional spend was primarily to support the company's marketing strategy of more focused growth in emerging and other strategic markets. In line with this, the...

  • Page 72
    ... professional audiences in both Lighting and Healthcare. Going forward, the company will continue to drive its online marketing efforts with the use of new enabling technologies and communication platforms and leveraging the platform as a sales enabler. In 2010, Philips' online sales reached EUR 570...

  • Page 73
    ...that every part of the value chain works seamlessly together to benefit our customers and our company. The Supply organization encompasses three focused functions: Commercial and Service Supply Chain, Operations, and Purchasing. Collectively, they comprise approximately 58,000 Philips employees and...

  • Page 74
    ... Lighting sector, and • driving sustainability in the supply chain, including suppliers of recent acquisitions, through our Supplier Sustainability Involvement Program. In the company's Vision 2015, that was launched in 2010, "Lead in Sustainability" has been identified as a strategic objective...

  • Page 75
    ... Entertainment and Personal Care businesses to launch products which are completely free of these substances. Another result of Consumer Lifestyle's Green Innovation activities is, for example, the award-winning Econova LED TV. Operational carbon footprint and energy efficiency In 2010, we took...

  • Page 76
    ... the high-performance score of 70%. Employee Engagement Index % favorable 80 69 60 61 64 68 75 â- -logistics--â- -business travel â- -non-industrial operations--â- -manufacturing 40 247 664 143 20 0 2006 2007 2008 2009 2010 Operational energy efficiency in terajoules per million euro sales...

  • Page 77
    ... businesses and functions to focus on their key priorities. The second important driver of our learning strategy is providing employees with free and unlimited access to a wide range of online learning options to drive their personal development and growth. Participation in these priority programs...

  • Page 78
    ...0.44 0.25 0 2006 2007 2008 2009 2010 China 207 5.4.5 Supplier performance The trend in outsourcing manufacturing activities continued in 2010, in addition to the increased focus on emerging countries. This implies an increased effort in managing our impact on our supply chain, as this impact is...

  • Page 79
    ... number of share dividend rights entitled to one new common share will be determined based on the volume weighted average price of all traded common shares Koninklijke Philips Electronics N.V. at Euronext Amsterdam on 27, 28 and 29 April 2011. The Company will calculate the number of share dividend...

  • Page 80
    ...The balance sheet presented in this report, as part of the Company financial statements for the period ended December 31, 2010, is before dividend, which is subject to shareholder approval after year-end. 5.6 Outlook 2011 will be a year of progress on our way to achieve the Vision 2015 objectives...

  • Page 81
    ... Care • Audio & Video Multimedia • Domestic Appliances • Health & Wellness • Accessories Lamps • Consumer Luminaires • Professional Luminaires • Lighting • Electronics and Controls • Automotive Lighting • Packaged LEDs • LED solutions Corporate Technologies • Overhead Cost...

  • Page 82
    ... to the most directly comparable GAAP measures, see chapter 16, Reconciliation of non-GAAP information, of this Annual Report. Consumer Lifestyle 639 Sales, EBIT and EBITA 2010 in millions of euros unless otherwise stated sales Healthcare Consumer Lifestyle Lighting GM&S Philips Group 8,601 8,906...

  • Page 83
    ... 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 Introduction The future of healthcare is one of the most pressing global...

  • Page 84
    ... by combining our clinical expertise with human insights to develop innovations that ultimately help to improve the quality of people's lives. We believe that we are well positioned for the long term as global healthcare needs will continue to increase and our care cycle approach will drive towards...

  • Page 85
    ... and North America. Philips Healthcare employs approximately 35,500 employees worldwide. With regard to sourcing, please refer to sub-section 5.3.3, Supply management, of this Annual Report. 6.1.4 Progress against targets The Annual Report 2009 set out a number of key targets for Philips Healthcare...

  • Page 86
    ...ficant 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. In 2010, we invested EUR 60 million in Green Innovation and the share of Green Product sales increased from 23% in 2009 to...

  • Page 87
    ...an active role in developing environmental legislation, such as EU legislation on chemical substances (RoHS and REACH), EcoDesign of products (e.g. energy efficiency; EuP directive) and electronic waste (WEEE). 6.1.5 Key data in millions of euros 2008 Sales Sales growth 7,649 2009 7,839 2010 8,601...

  • Page 88
    ..., of this Annual Report. Implement strategy • Advance towards global leadership position in Imaging Systems • Grow Home Healthcare • Grow best-in-class clinical decision support, patient care and clinical informatics solution business • Grow in emerging markets faster than competition...

  • Page 89
    ...key categories and markets to ignite top-line growth." Pieter Nota, CEO Philips Consumer Lifestyle â,¬ 8.9 billion sales 7.2% EBITA as a % of sales â,¬ 404 million cash ï¬,ows before financing activities Lifestyle can benefit by delivering health and well-being solutions with advanced technology...

  • Page 90
    ... active in our four value spaces in health and wellbeing: Healthy Life, Personal Care, Home Living and Lifestyle Entertainment, complemented by Accessories. This portfolio is aligned with our brand equity and enables us to provide our retail customers with a highly relevant 90 Annual Report 2010

  • Page 91
    ... managed our credit and risk, including significantly reducing overdue customer payments. There was an increase in the number of suppliers using supplier finance, which reduced total cost in the supply chain. As part of Philips' drive to harmonize supplier terms, we improved overall payment terms...

  • Page 92
    ... Care businesses to launch products which are completely free of these substances. We launched the Econova LED TV, Europe's greenest LED TV, with a solar remote control. Named "European Green TV 2010-2011" by the European Imaging & Sound Association (EISA), the Econova LED TV addresses people...

  • Page 93
    ... in 2009 in all businesses, notably Domestic Appliances and Television. EBIT amounted to EUR 595 million, or 6.7% of sales, which included EUR 44 million of amortization charges, mainly related to amortization of intangible fixed assets at Health & Wellness and Domestic Appliances. Net operating...

  • Page 94
    ... strategy • Grow Personal Care, Health & Wellness, Domestic Appliances and Coffee businesses • Continue to strengthen Television business and manage it towards profitability • Maintain position in Audio & Video Multimedia and Accessories while driving growth in selected business/ market...

  • Page 95
    ... solutions, consumers, businesses and national and municipal authorities demand highly adaptable lighting solutions which they can use to • Lighting industry undergoing a radical transformation • Important global trends underpinning strategy • Winning in LED Introduction A number of global...

  • Page 96
    ... innovative strength to create systems and solutions that are truly customer-centric. Between now and 2015, we expect the value of the global lighting market to grow by 7% on a compound annual basis, assuming global economic growth (GDP) of around 4%. The majority of the value will be in LED-based...

  • Page 97
    ... Energyusing Products (EuP) and Energy Performance of Buildings (EPBD) directives. With regard to sourcing, please refer to sub-section 5.3.3, Supply management, of this Annual Report. Progress against targets The Annual Report 2009 set out a number of key targets for Philips Lighting in 2010. The...

  • Page 98
    ... stakeholders, e.g. at Light + Building 2010 and our Capital Markets Day. In 2010 we invested EUR 230 million in Green Innovation, compared to EUR 185 million in 2009. The energy efficiency of our total product portfolio improved by 9%. 6.3.5 2010 financial performance Sales amounted to EUR...

  • Page 99
    ... innovation cycles - Better time-to-market - Seamless strategy/design/marketing/technology cooperation • "Resource to win" through strategic workforce planning and by enhancing diversity, talent and competency management 9 6 2.8 5.7 6 3 3 0 2006 2007 2008 2009 2010 0 Annual Report 2010...

  • Page 100
    ... Win in LED-powered lighting solutions, focusing on: - Professional applications in Outdoor, Retail, Office, and specific local priorities - Philips brand expansion in consumer lighting • Deliver on our EcoVision sustainability ambitions • Strengthen emerging markets 100 Annual Report 2010

  • Page 101
    ...% of employees located in emerging markets shared business services for purchasing, finance, human resources, IT, real estate and supply are reported in this sector. 6.4.1 Philips' performance by market cluster is based on the following: • Emerging markets, including key markets in China, India...

  • Page 102
    ...for our open innovation approach, supporting customers both inside and outside Philips through new technologies, new business ideas, consultancy and new product development and introduction services. Applied Technologies is an active player in solutions for the healthcare sector and energy solutions...

  • Page 103
    ...charges in our global service units. Net operating capital declined to negative EUR 3.3 billion, mainly attributable to lower prepaid pension cost related to the pension plan in Netherlands, which is no longer recognized as an asset. 1) 2) For a reconciliation to the most directly comparable GAAP...

  • Page 104
    ... in section 7.2, Risk categories and factors, of this Annual Report. 7.1 Our approach to risk management and business control Risk management forms an integral part of the business planning and review cycle. The company's risk and control policy is designed to provide reasonable assurance that...

  • Page 105
    ..., 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, refer to www.philips.com/gbp). In January 2010 an updated and...

  • Page 106
    ... sales and marketing employees. • Inventory of dealers/agents/distributors: risk-based, sector-specific processes have been developed for inventorying current agents and distributors, including contracts (terms of agreement) and policies for commission payment and supervision thereof. The global...

  • Page 107
    ... Strategic Operational Compliance Financial • Macroeconomic changes • Changes in industry/market • Acquisitions • Intellectual property rights • Brand promise • Growth emerging markets • Innovation process • Value chain • People • Information technology • Business...

  • Page 108
    ... 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 operations...

  • Page 109
    ... of development efforts, market acceptance, Philips's ability to manage the risks associated with new products and production ramp-up issues, the availability of products in the right quantities and at appropriate costs to meet anticipated demand, and the risk that new products and services may...

  • Page 110
    ...attraction and retention of talented employees in sales and marketing, research and development, finance and general management, as well as of highly specialized technical personnel, especially in transferring technologies to low-cost countries, is critical to Philips' success. This is particularly...

  • Page 111
    ... market uncertainty regarding the reliability of the data presented 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...

  • Page 112
    ... compensate for or pass on its increased costs to customers, such price increases could have an adverse impact on its financial condition and operating results. Credit risk of counterparties that have outstanding payment obligations creates exposure for Philips, particularly in relation to accounts...

  • Page 113
    ... defined-benefit pension plans in a number of countries. The funded status and the cost of maintaining these plans are inï¬,uenced by financial market and demographic developments, creating volatility in Philips' financials. The majority of employees in Europe and North America are covered by de...

  • Page 114
    ... a strategic allocation to global equity markets. As a result the Funded Status of the Dutch plan is sensitive to changes in equity prices. For the UK pension plan, the interest rate and inï¬,ation expectation sensitivity of the Funded Status is opposite to the sensitivity in the other countries...

  • Page 115
    ... plans are book reserved and therefore the German pension plans are only partially funded. As a result, most of the DBO sensitivity directly translates into Funded Status sensitivity. The NPPC basically consists of three components: Service Cost (SC), Interest Cost (IC) and Expected Return on Assets...

  • Page 116
    ...and member of the Board of Management 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...

  • Page 117
    ... Vice-President and Global Head of Markets & Innovation Member of the Board of Management since April 2002 and member of the Group Management Committee since February 2002 Corporate responsibilities: Areas and Countries, Emerging Markets, Government Relations, Technology Management Steve Rusckowski...

  • Page 118
    ... of the GMC and Chief Information Officer since September 2007 and Global Head of Purchasing since September 2008 Corporate responsibilities: Information Technology, Purchasing Marc de Jong 1961, Dutch Member of the GMC since April 2009 and General Manager of Professional Luminaires since April...

  • Page 119
    ... are published on the Company's website. For details on the activities of the Supervisory Board, see chapter 11, Supervisory Board report, of this Annual Report. J-M. Hessels 1942, Dutch** *** Chairman Member of the Supervisory Board since 1999; third term expires in 2011. Chairman of Corporate...

  • Page 120
    ... team and major customers and business partners in New Delhi, India, where they discussed, among other things, the performance and set-up of the Company's activities in India and the local strategy going forward. Six regular meetings were held in 2010. All members were frequently present at the...

  • Page 121
    ... CFO of the Company was discussed by the Supervisory Board. In December the Supervisory Board discussed the management agenda 2011, the Annual Operating Plan 2011, the operational performance of the TV business and received an update on supply management within the Company. Other discussion topics...

  • Page 122
    ... appointed as member of the Group Management Committee as from October 1, 2010. Changes and reappointments Supervisory Board 2011 • Mr Hessels will resign as Chairman and member of the Supervisory Board as from the closing of the 2011 General Meeting of Shareholders. • The Supervisory Board has...

  • Page 123
    ... members, reviews the corporate governance principles applicable to the Company and the selection criteria and appointment procedures for the Board of Management, the Group Management Committee and the Supervisory Board and advises the Supervisory Board thereon. Furthermore, it supervises the policy...

  • Page 124
    ... share rights and stock options. Philips has short-term and long-term incentives, the latter predominantly linked to Philips' long-term strategy. The policy does not encourage inappropriate risk-taking. The performance targets for the members of the Board of Management are determined annually...

  • Page 125
    ... Governance Code). Further information on the performance targets is given in the chapters on the Annual Incentive and the Long-Term Incentive Plan respectively. 11.2.2 Share Ownership To further align the interests of the members of the Board of Management and shareholders, restricted share rights...

  • Page 126
    ...The actual number of stock options and restricted share rights to be granted to the board members is performance-related and depends on the ranking of Philips in the Total Shareholder Return (TSR) peer group and the realization of the team targets of the Board of Management. The peer group comprises...

  • Page 127
    ... on Philips' share performance over the period December 2006 - December 2009, Philips ranked 9th in its peer group. In 2010, members of the Board of Management were granted 276,000 stock options and 69,000 restricted share rights under the LTIP (excluding 20% premium shares deferred for a three-year...

  • Page 128
    11 Supervisory Board report 11.2.6 - 11.2.9 Restricted share rights in euros number of restricted grant date share rights G.J. Kleisterlee 2007 2008 2009 2010 P-J. Sivignon 2007 2008 2009 2010 G.H.A. Dutiné 2007 2008 2009 2010 R.S. Provoost 2007 2008 2009 2010 S.H. Rusckowski 2007 2008 2009 2010 ...

  • Page 129
    ...Board, the Audit Committee in 2010 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 130
    ... and monitoring of internal controls. It also discussed risk management, tax issues, IT strategy, litigation and related provisions, environmental exposures and financing and liquidity of the company, dividend, pensions (including the developments at the Philips Pension Fund in the Netherlands and...

  • Page 131
    ... Exchange corporate governance standards is published 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 Dutch Corporate Governance Code of December 10, 2008...

  • Page 132
    ...Long-Term Incentive Plan ('LTIP' or the 'Plan'), lastly amended by the 2009 General Meeting of Shareholders, 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. This Plan...

  • Page 133
    ... The actual number of long-term incentives (both stock options and restricted shares rights) that are to be granted to the members of the Board of Management will be determined by the Supervisory Board and depends on the achievement of the set team targets in the areas of responsibility monitored by...

  • Page 134
    ... members is published on the Company's website. Individual data on the members of the Supervisory Board are published in the Annual Report, and updated on the Company's website. After their appointment, all members of the Supervisory Board shall follow an introductory program, which covers general...

  • Page 135
    ... and the General Business Principles (GBP). It reviews the Company's annual and interim financial statements, including non-financial information, prior to publication and advises the Supervisory Board on the adequacy and appropriateness of internal control policies and internal audit programs and...

  • Page 136
    ... Channel Philips was one of the key companies in the establishment of the Shareholders Communication Channel, a project of Euronext Amsterdam, banks in the Netherlands and several major Dutch companies to simplify contacts between a participating company and shareholders that hold their shares...

  • Page 137
    ...the Annual General Meeting of Shareholders, Philips elaborates its financial results during (public) conference calls, which are broadly accessible. It publishes informative annual, semi-annual and quarterly reports and press releases, and informs investors via its extensive website. The Company is...

  • Page 138
    ... with the governmental decree of December 10, 2009, the Company fully complies with the Dutch Corporate Governance Code and applies all its principles and best practice provisions that are addressed to the Board of Management and the Supervisory Board, with the temporary exception of provision II...

  • Page 139
    ...Consolidated statements of changes in equity 13.9 Information by sector and main country 13.10 Significant accounting policies 13.11 Notes 13.12 Independent auditor's report - Group 14 14.1 14.2 14.3 14.4 14.5 Company financial statements Balance sheets before appropriation of results Statements...

  • Page 140
    ... compensation Related-party transactions Information on remuneration Fair value of financial assets and liabilities Details of treasury risks Subsequent events A B C D E F G H I J K Investments in affiliated companies Other non-current financial assets Receivables Shareholders' equity Long-term...

  • Page 141
    ...other information, of this Annual Report for more information about forward-looking statements, third-party market share data, fair value information, and revisions and reclassifications. The Board of Management of the Company hereby declares that, to the best of our knowledge, the Group financial...

  • Page 142
    ... in the Annual Report on Form 20-F. KPMG ACCOUNTANTS N.V. Amsterdam, February 17, 2011 13.3 Auditors' report on internal control over financial reporting Report of Independent Registered Public Accounting Firm To the Supervisory Board and Shareholders of Koninklijke Philips Electronics N.V.: We...

  • Page 143
    ... of euros unless otherwise stated Consolidated statements of income (including earnings per share) of the Philips Group for the years ended December 31 2008 2009 2010 Sales Cost of sales 26,385 (17,938) 23,189 (15,110) 25,419 (15,873) Gross margin 8,447 8,079 9,546 Selling expenses General...

  • Page 144
    ... per share 2008 2009 2010 Weighted average number of common shares outstanding (after deduction of treasury shares) during the year Plus incremental shares from assumed conversions of: Options and restricted share rights Convertible debentures Dilutive potential common shares Adjusted weighted...

  • Page 145
    ...of comprehensive income in millions of euros unless otherwise stated Consolidated statements of comprehensive income of the Philips Group for the years ended December 31 2008 2009 2010 Net income (loss) Other comprehensive income: Actuarial gains (losses) on pension plans: Net current period change...

  • Page 146
    ... from related parties - Other current receivables 3,669 14 219 3,902 4,104 20 231 4,355 5,833 14,597 32,269 33 Cash and cash equivalents Total current assets 4,386 11,909 30,527 The accompanying notes are an integral part of these consolidated financial statements 146 Annual Report 2010

  • Page 147
    ...,078,784 shares (2009: 972,411,769 shares) Capital in excess of par value Retained earnings Revaluation reserve Other reserves Treasury shares, at cost 39,572,400 shares (2009: 44,954,677 shares) 194 âˆ' 15,947 102 (461) (1,187) 14,595 Non-controlling interests Group equity Non-current liabilities...

  • Page 148
    ... of long-term debt Treasury shares transaction Dividends paid Net cash used for financing activities 18 (1,726) 2,088 (3,257) (698) (3,575) (201) (51) 312 29 (634) (545) 143 (79) 71 65 (296) (96) Net cash (used for) provided by continuing operations (5,181) 781 1,358 148 Annual Report 2010

  • Page 149
    ... of cash ï¬,ows 2008 2009 2010 Net cash paid during the year for: Pensions Interest Income taxes (379) (123) (352) (422) (244) (197) (474) (226) (206) Net gain on sale of assets: Cash proceeds from the sale of assets Book value of these assets Deferred results on sale and leaseback transactions...

  • Page 150
    ... in equity of the Philips Group outstanding number of shares in thousands capital in excess of par value treasury shares at cost non-controlling interests1) common share retained earnings revaluation reserve other reserves shareholders' equity group equity Balance as of Jan. 1, 2008 1,064...

  • Page 151
    ... the following businesses - Imaging Systems, Home Healthcare Solutions, Patient Care & Clinical Informatics, and Customer Services. Consumer Lifestyle: Consists of the following businesses - Television, Personal Care, Audio & Video Multimedia, Domestic Appliances, Accessories, Health & Wellness, and...

  • Page 152
    ... and and intangible amortization2) assets total assets net operating capital total liabilities accounts excl. debt1) receivable, net tangible and intangible assets capital expenditures 2010 Healthcare Consumer Lifestyle of which Television Lighting Group Management & Services 11,962 3,858 893...

  • Page 153
    ...1,747 1,691 1,077 606 11,184 26,385 The sales are reported based on country of destination. 1) Amounts of 2009 revised to reï¬,ect an adjusted country allocation 2) Amounts of 2008 revised to reï¬,ect an adjusted country allocation 1,392 9,959 302 378 143 97 479 2,503 15,253 Annual Report 2010 153

  • Page 154
    ... those associated with the issue of debt or equity securities, that the Company incurred in connection with business combinations were capitalized as part of the cost of the acquisition. Loss of control Upon the loss of control, the Company derecognizes the assets and liabilities of the subsidiary...

  • Page 155
    ... performance. Reportable segments comprise the operating sectors: Healthcare, Consumer Lifestyle, Lighting, and the business Television which is part of Consumer Lifestyle. Segment accounting policies are the same as the accounting policies as applied to the Group. Earnings per share The Company...

  • Page 156
    ... the actuarial present value of the obligation for postemployment benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets. Actuarial gains and losses arise mainly from changes...

  • Page 157
    ... not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The group's investment in associates includes goodwill identified on acquisition...

  • Page 158
    ... lives. Intangible assets acquired as part of a business combination are capitalized at their acquisition-date fair value. 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...

  • Page 159
    ... any asset, including goodwill, that forms part of the carrying amount of the investment in associates. Share capital Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the Company purchases the...

  • Page 160
    ... Company on January 1, 2012. The change in accounting policy impacts disclosures only. Improvements to IFRSs 2010 In May 2010, the IASB issued 'Improvements to IFRSs 2010', a collection of amendments to seven International Financial Reporting Standards, as part of its program of annual improvements...

  • Page 161
    ... plans. See note 28 for further information on pension costs. For remuneration details of the members of the Board of Management and the Supervisory Board, see note 31. The results on the disposal of businesses in 2008 are mainly related to the sale of the Set-Top Boxes and Connectivity Solutions...

  • Page 162
    ...the disposal of financial assets, including a EUR 69 million gain from the sale of remaining shares in LG Display, and a EUR 48 million gain from the sale of remaining shares in Pace Micro Technology. During 2009, Philips had a net EUR 20 million fair value gain mainly related to the revaluation of...

  • Page 163
    ... on the sale of securities and other non-taxable income, and incidental tax benefits, which were partly offset by non-tax-deductible costs, new losses carried forward not expected to be realized, and income tax expenses due to tax provisions for uncertain tax positions. Annual Report 2010 163

  • Page 164
    ...relate to the following balance sheet captions and tax loss carryforwards (including tax credit carryforwards), of which the movements during the years 2010 and 2009, respectively are as follows: December 31, 2009 recognized in income acquisitions/ divestments December 31, 2010 recognized in equity...

  • Page 165
    ... intercompany loan policy has been reviewed and adjusted, which has led to a lower intercompany interest rate. As a consequence the related deferred tax asset became recoverable. At December 31, 2010, operating loss carryforwards expire as follows: 2016/ 2020 25 unlimited 3,358 Total 4,452 2011 14...

  • Page 166
    4 13 Group financial statements 13.11 - 13.11 Tax uncertainties on general service agreements and specific allocation contracts Due to the centralization of certain activities in a limited number of countries (such as research and development, centralized IT, corporate functions and head office...

  • Page 167
    .... These acquisitions involved an aggregated purchase price of EUR 235 million and have been accounted for using the acquisition method. Measured on an annualized basis, the aggregated impact of the 11 acquisitions on group Sales, Income from operations, Net income and Net income per common share (on...

  • Page 168
    ...in the North American luminaires market. Philips paid a total net cash consideration of EUR 1,894 million. This amount included the cost of 331,627 shares previously acquired in August 2007, the pay-off of certain debt and the settlement of outstanding stock options. The net 168 Annual Report 2010

  • Page 169
    ... 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 of the Healthcare sector. Annual Report 2010...

  • Page 170
    ...Philips completed the sale of its Set-Top Boxes (STB) and Connectivity Solutions (CS) activities to the 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. Philips...

  • Page 171
    ... and construction in progress 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 of December 31...

  • Page 172
    ... the total book value of goodwill for the Group at December 31, 2010. The amounts allocated are presented below. Last year's amounts are based on the revised 2010 structure for the Healthcare sector: 2009 2010 Compound sales growth rate is the annualized steady growth rate over the forecast period...

  • Page 173
    ... value. The goodwill allocated to Home Monitoring at December 31, 2010 amounts to EUR 450 million. Please refer to section 13.9, Information by sector and main country, of this Annual Report for a specification of goodwill by sector. Changes in book value: Additions Acquisitions and purchase price...

  • Page 174
    ... Company's investments in available-for-sale financial assets mainly consists of investments in common stock of companies in various industries. Main investments in available-for-sale financial assets consist of: 2009 number of shares carrying value NXP TPO Displays Chimei Innolux TCL Corporation...

  • Page 175
    ... receivable, net, is set out below: 2009 2010 current overdue 1-30 days overdue 31-180 days overdue > 180 days 3,075 307 241 46 3,669 3,439 297 283 85 4,104 A large part of overdue trade accounts receivable relates to public sector customers with slow payment approval processes. The allowance...

  • Page 176
    ... and under restricted share programs and employee share purchase programs, and (ii) capital reduction purposes, are accounted for as a reduction of shareholders' equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed from...

  • Page 177
    ... 670 16 1,154 1,840 During 2010, the weighted average interest rate on the bank borrowings was 8.5% (2009: 8.1%). In the Netherlands, the Company issued personnel debentures with a 5-year right of conversion into common shares of Royal Philips Electronics. Convertible personnel debentures may not...

  • Page 178
    ...(Netherlands), Home Healthcare Solutions and Clinical Care Systems (various locations in the US). • Consumer Lifestyle restructuring projects focused on Television (primarily Belgium and France), Peripherals & Accessories (mainly Technology & Development in the Netherlands) and Domestic Appliances...

  • Page 179
    ... 2008 The decrease in the accrued pension costs is mainly attributable to the funding of the UK plan. See also note 28. Please refer to note 3 for a specification on the income tax payable. 21 Accrued liabilities Accrued liabilities are summarized as follows: 2009 2010 Personnel-related costs...

  • Page 180
    ... 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. Operating lease payments under sale-and-leaseback arrangements for 2010 totaled EUR 16 million (2009: EUR 17 million). The...

  • Page 181
    ... antitrust and unfair 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...

  • Page 182
    ...Pace Micro Technology in exchange for the transfer of the Company's Set-Top Boxes and Connectivity Solutions activities, which represented a value of EUR 74 million at the date of the closing of that transaction. The Pace shares were sold on April 17, 2009. In August 2008, Philips transferred its 69...

  • Page 183
    ... of pension benefits expected to be paid in the future, in part due to a change in 2009 Netherlands other total Netherlands other 2010 total Defined-benefit obligation at the beginning of year Service cost Interest cost Employee contributions Actuarial losses Plan amendments Acquisitions...

  • Page 184
    ...13.11 2009 Netherlands other total Netherlands other 2010 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 contributions Acquisitions Divestments Settlements Benefits paid Exchange rate...

  • Page 185
    ... number of salaried employees. The total cost of these plans amounted to EUR 118 million (2009: EUR 107 million, 2008: EUR 96 million). In 2010, the defined-contribution cost includes contributions to multi-employer plans of EUR 6 million (2009: EUR 5 million; 2008: EUR 4 million). Annual Report...

  • Page 186
    ... returns on plan assets Rate of compensation increase 5.3% 5.9% 6.0% 6.8% 5.0% 5.7% 5.7% 6.5% Present value of funded obligations at end of year Present value of unfunded obligations at end of year âˆ' 295 âˆ' 297 * 3.4% * 4.1% Funded status Unrecognized prior-service cost Net balances...

  • Page 187
    ... share rights) to members of the Board of Management and other members of the Group Management Committee, Philips executives and certain selected employees. The purpose of the share-based compensation plans is to align the interests of management with those of shareholders by providing incentives...

  • Page 188
    ... result of stock option exercises totaled approximately EUR 2 million, nil and EUR 3 million, in 2010, 2009, and 2008, respectively. Restricted shares plans The Company issues restricted share rights that vest in equal annual installments over a three-year period, starting one year after the date of...

  • Page 189
    ...purchases and sells goods and services from/to various related parties in which Philips typically holds a 50% or less equity interest and has significant inï¬,uence. These transactions are generally conducted with terms comparable to transactions with third parties. 2008 2009 2010 Restricted share...

  • Page 190
    ...gures Remuneration costs relate to period January 1 - March 31, 2008. As Mr Van Deursen was born before January 1, 1950 he continued to be a member of the final pay plan with a pensionable age of 60. No further accrual took place Annual incentive figure relates to period of board membership April...

  • Page 191
    ... 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, 2010 awarded 2010 released 2010 December 31, 20101) potential premium shares G.J. Kleisterlee P-J. Sivignon...

  • Page 192
    ... 38,403 38,400 âˆ' 49,2001,2) 16,2501,2) 26,4061) 8,6671) 24,0031) 24,0031) 30,006 39,600 38,403 38,400 40,800 1) 2) Awarded before date of appointment as a member of the Board of Management (Partly) sign-on grant 192 Annual Report 2010

  • Page 193
    ...282 Awarded before date of appointment as a member of the Board of Management Awarded under US stock option plan See note 29 for further information on stock options and restricted share rights. The accumulated annual pension entitlements and the pension costs of individual members of the Board of...

  • Page 194
    ...-continental travel total 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. Number of shares1) December 31, 2009 December 31...

  • Page 195
    ... - 13.11 32 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 presented are not necessarily indicative of the amounts that will...

  • Page 196
    ... 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 197
    ... 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 198
    ..., specialized in customized energy-efficient lighting solutions for the office, industry and retail segments. Acquisition of Preethi business On January 24, 2011, Philips announced that it has agreed to acquire the assets of the Preethi business, a kitchen appliances company in India. Upon closing...

  • Page 199
    ... 2010 which are part of the financial statements of Koninklijke Philips Electronics N.V., Eindhoven, the Netherlands, and comprise the consolidated balance sheet as at December 31, 2010, the consolidated statements of income, comprehensive income, cash ï¬,ows and changes in equity for the year...

  • Page 200
    ... in section 13.10, Significant accounting policies, of this Annual Report. Subsidiaries are accounted for using the net equity value in these Company financial statements. Presentation of Company financial statements The structure of the Company balance sheets is aligned with the Consolidated...

  • Page 201
    ... period amounts have been adjusted to reï¬,ect changes in the presentation of intercompany positions with group companies Prior period insignificant amounts have been reclassified due to new insights in line with accounting policies Prepared before appropriation of results Annual Report 2010 201

  • Page 202
    ... Statement of changes in equity of Koninklijke Philips Electronics N.V. in millions of euros unless otherwise stated legal reserves outstanding number of shares in thousands availablefor-sale financial assets common shares capital in excess of par value revaluation cash ï¬,ow hedges treasury...

  • Page 203
    ... 15, 2010. Investments in available-for-sale financial assets The Company's investments in available-for-sale financial assets mainly consists of investments in common stock of companies in various industries. During 2010, Philips reduced its shareholding portfolio of available-forsale financial...

  • Page 204
    ... and under restricted share programs and employee share purchase programs, and (ii) capital reduction purposes, are accounted for as a reduction of shareholders' equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed from...

  • Page 205
    ..., specialized in customized energy-efficient lighting solutions for the office, industry and retail segments. Acquisition of Preethi business On January 24, 2011, Philips announced that it has agreed to acquire the assets of the Preethi business, a kitchen appliances company in India. Upon closing...

  • Page 206
    ... Supervisory Board and Shareholders of Koninklijke Philips Electronics N.V.: Report on the Company financial statements We have audited the accompanying Company financial statements 2010 which are part of the financial statements of Koninklijke Philips Electronics N.V., Eindhoven, the Netherlands...

  • Page 207
    ... in a series of cross-industry meetings. Another activity related to the Vision 2050 project was Philips Research's participation in the National Health Service Low Carbon Healthcare dialog in London. Different types of care providers, care purchasers, community representatives, and many other...

  • Page 208
    .../solutions. This is a dynamic process, as we continuously monitor the world around us. Based on this, we develop our policies and programs. Reference1) Societal - Aging population in developed world chapter 2, Vision 2015 - our strategic focus, of this Annual Report section 3.2, Home Healthcare...

  • Page 209
    ...: double global collection and recycling amounts and recycled materials in products compared to 2009). In order to continue our efforts to improve our environmental performance in manufacturing, we developed in 2010 our new Green Manufacturing 2015 program, succeeding EcoVision III. We report on the...

  • Page 210
    ... 2009, mainly caused by the increase in employees. Please refer to note 1 for more information. in millions of euros 2008 2009 2010 Total salaries and wages 5,094 5,075 5,190 Dividend to shareholders amounted to EUR 650 million, comparable to 2009. in millions of euros 2008 2009 2010 Dividend...

  • Page 211
    ...) free products. In relation to these developments, Philips has launched the Econova TV, which is the first PVC/BFR free TV in the world, and uses LED technology allowing very low energy consumption, achieving "A+" EU-energy label too. Additionally, this TV has won the EISA Best Green TV 2010/2011...

  • Page 212
    ... per million euro sales 1.29 1.31 1.35 1.26 15.4 Scope 1 Scope 2 Scope 3 Total Philips Group 449 717 991 2,157 474 701 969 2,144 440 663 834 1,937 427 470 911 1,808 Green Manufacturing 2015 In 2010, we decided to group all activities related to improving the environmental performance of our...

  • Page 213
    ... 304 430 61 28 823 287 451 54 24 816 290 320 33 25 668 Total energy consumption in manufacturing in terajoules 2007 2008 2009 2010 Total 1) From energy Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group 1,602 1,451 12,119 35 15,207 1,612 1,521 11,435 34 14,602...

  • Page 214
    ...2007 2008 2009 2010 Other hazardous substances Total Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group 7.9 40.4 79.2 0.1 127.6 8.2 28.0 77.3 0.1 113.6 8.2 20.1 69.3 0.1 97.7 11.2 23.2 70.0 0.1 104.5 Lead and lead compounds The decrease in 2010 was mainly related...

  • Page 215
    ...2008 2009 2010 The EEI improved seven points to 75% in 2010 compared with 2009, five points ahead of our target of 70% for 2010 and exceeding the external high performance norm. The target for 2011 is 75% favorable (High-Performance norm). In the coming years, we will continue to review and update...

  • Page 216
    ... reports submitted relating to alleged violations of the General Business Principles (GBP), compared with 318 reports in 2009, 360 in 2008 and 389 in 2007. There was hardly a change in - Right to organize - Working hours Legal Business Integrity Supply management Other Total Treatment of employees...

  • Page 217
    ...compared to four complaints in 2009 and five in 2008. As such, the number of complaints relating to purchasing employees who allegedly did not adhere to the Philips Supply Management Code of Ethics was about half the number reported in the years prior to 2008. The category Other Lastly, allegations...

  • Page 218
    ..., ways to structurally address the rootcauses and appropriate performance indicators to monitor the resolution process. More information on the Supplier Sustainability Involvement Program, the EICC Code of Conduct and audit approach can be found at www.philips.com/suppliers. 218 Annual Report 2010

  • Page 219
    ...âˆ' 20 4 40 8 âˆ' 4 15 âˆ' 37 11 7 16 12 5 34 3 1 2 Management system Company commitment Management accountability Legal and customer requirements Risk assessment and management Performance objectives Training Communication Worker feedback and participation Audits and assessments Corrective action...

  • Page 220
    ... over 65 companies in the Electronics and Information and Communications Technology industries who have come together in the EICC-GeSI Extractives Work Group to positively inï¬,uence the social and environmental conditions in the metals extractives supply chain. In 2010 the research commissioned...

  • Page 221
    ... processes for data management, assessing the appropriateness of the accounting policies used, assessing the data collection and reporting process at a limited number of sites and evaluating the overall presentation of sustainability information within our scope. We have also reviewed, to the extent...

  • Page 222
    ... brands, products, and/or services Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures Location of organization's headquarters chapter 12, Corporate governance chapter 1, Our company chapter 2, Vision 2015 - our strategic focus...

  • Page 223
    ... for the report section 11.3, Report of the Audit Committee chapter 12, Corporate governance section 12.2, Supervisory Board section 12.4, Logistics of the General Meeting of Shareholders chapter 15, Sustainability statements section 15.7, Independent assurance report Annual Report 2010 223

  • Page 224
    ... 1, Our company chapter 2, Vision 2015 - our strategic focus section 4.5, Working at Philips section 4.6, Working in our communities section 7.1, Our approach to risk management and business control section 15.5, Social indicators chapter 11, Supervisory Board report chapter 12, Corporate governance...

  • Page 225
    ... Economic performance EC1 description Disclosure on management approach on economic aspects Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers...

  • Page 226
    ... section 15.2, EcoVision5 section 15.4, Green Manufacturing 2015 EN27 Compliance EN28 Monetary value of significant fines and total section 15.4, Green Manufacturing 2015 number of non-monetary sanctions for noncompliance with environmental laws and regulations 226 Annual Report 2010

  • Page 227
    ...Occupational health and safety LA7 Rates of injury, occupational diseases, lost section 15.5, Social indicators days, and absenteeism, and number of work- No work related fatalities in 2010 related fatalities by region Education, training, counseling, prevention, and risk-control programs in place...

  • Page 228
    ... development and lobbying SO2 Ethics SO3 SO4 Public policy Compliance SO5 SO8 Monetary value of significant fines and total section 13.11, Notes number of non-monetary sanctions for non- section 15.4, Green Manufacturing 2015 compliance with laws and regulations profile disclosure Product...

  • Page 229
    ..., results relating to investments in associates, income taxes, financial income and expenses, amortization and impairment on intangible assets (excluding software and capitalized product development). The Company believes that an understanding of the Philips Group's financial condition is enhanced...

  • Page 230
    ...(11.1) (30.5) (12.1) 2008 versus 2007 Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group 5.6 (8.9) 3.1 (25.8) (2.7) (4.5) (2.8) (3.8) (0.8) (3.3) 14.1 (5.2) 17.2 (7.1) 4.5 15.2 (16.9) 16.5 (33.7) (1.5) Sales growth composition per market cluster in % comparable growth...

  • Page 231
    ...of non-GAAP information 16 - 16 Composition of net debt to group equity 2008 Long-term debt Short-term debt Total debt Cash and cash equivalents Net debt (cash) (total debt less cash and cash equivalents) Shareholders' equity Non-controlling interests Group equity Net debt and group equity Net debt...

  • Page 232
    ... to total assets Consumer Lifestyle Group Management & Services Philips Group Healthcare Lighting 2010 Net operating capital (NOC) Eliminate liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include assets not comprised in NOC: - investments in associates...

  • Page 233
    ..., 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) 20061...

  • Page 234
    ... in associates 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 receivables, in days...

  • Page 235
    ... - 17 Key figures per share Sales per common share EBITA per common share - diluted Income (loss) from continuing operations per share Dividend distributed per common share Total shareholder return per common share Shareholders' equity per common share Price/earnings ratio Share price at year-end...

  • Page 236
    ... double the rate of comparable annual sales growth • Return on invested capital at least 4 percentage points above weighted average cost of capital Sustainability 18.1 The Philips investment proposition Our strategy Philips is a leading company in health and well-being. The year 2010 was a signi...

  • Page 237
    ... companies all over the world to further strengthen our portfolio, and have product propositions which are relevant for local markets. The year 2010 saw us making two acquisitions each in China and Brazil. In 2010, 'Lead in Sustainability' became one of the key objectives of our Vision 2015 program...

  • Page 238
    ... the dividend payout for the year. For 2010, the key exclusions used to arrive at continuing net income are the gain on the sale of shares in NXP and TPV, the curtailment in the UK Pension Fund, and restructuring and post-acquisition charges. â- -net income ----net income per share in euros...

  • Page 239
    ... to 39.6 million shares, of which 37.7 million are held by Philips to cover long-term incentive and employee stock purchase plans. The Dutch Financial Markets Supervision Act (Wet op het financieel toezicht) imposes a duty to disclose percentage holdings in the capital and/or voting rights in the...

  • Page 240
    ... of this program in 2006. Philips planned to execute the remaining EUR 1.6 billion via a program using a second trading line on Euronext Amsterdam, which started on January 22, 2007. Through this second trading line EUR 0.8 billion worth of shares were purchased in 2007. 240 Annual Report 2010

  • Page 241
    ... Philips has a structured risk management process in place that recognizes different risk categories at Strategic, Operational, Compliance and Financial level. A more extensive explanation is published in chapter 7, Risk management, of this Annual Report. Philips' rating Philips' existing long-term...

  • Page 242
    18 Investor Relations 18.5 - 18.5 18.5 Performance in relation to market indices Euronext Amsterdam Share price development in Amsterdam, 2010 (in euros) PHIA High Low Average Average daily volume* Jan 22.33 20.34 21.25 8.25 Feb 22.31 20.98 21.60 7.46 Mar 25.28 22.26 23.80 6.84 ...

  • Page 243
    ...procedures Broaden offering in emergency care by adding body temperature management Adds to portfolio of intelligent light and energy management solutions Domestic Appliances Expand in high-growth, high-margin espresso market with strong product range 1) Asset transaction Annual Report 2010 243

  • Page 244
    ... incorporates major parts of this Annual Report) is filed electronically with the US Securities and Exchange Commission. 1) Subject to final confirmation 18.8 Investor contact Shareholder services Holders of shares listed on Euronext Philips offers a dynamic print manager that facilitates...

  • Page 245
    ... by the Board of Management for the Annual General Meeting of Shareholders, will be entitled to participate in and vote at the meeting. How to reach us Investor Relations contact Royal Philips Electronics Breitner Center, HBT 11-8 P.O. Box 77900, 1070 MX Amsterdam, Netherlands Telephone: +31...

  • Page 246
    ... Definitions of key terms (including abbreviations) Bill of Materials check (BOMcheck) BOMcheck (Bill of Materials check) is an industry wide IT tool for suppliers to the electronic industry to provide environmental information on the products they provide to their customers. Brominated ï¬,ame...

  • Page 247
    ... 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 items such as restructuring and acquisition-related charges etc. plus salaries and wages (including pension costs and other social security...

  • Page 248
    ... to, domestic and global economic and business conditions, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes...

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