Philips 2010 Annual Report Download - page 70

5 Group performance 5.2.8 - 5.2.9
70 Annual Report 2010
5.2.9 Cash obligations
Contractual cash obligations
Presented below is a summary of the Group’s contractual
cash obligations and commitments at December 31, 2010.
Contractual cash obligations at December 31, 2010
in millions of euros
payments due by period
total
less
than 1
year 1-3 years 3-5 years after 5 years
Long-term debt1) 3,808 1,111 493 254 1,950
Finance lease
obligations1) 178 44 65 29 40
Short-term debt1,2) 686 686 − − −
Operating leases1) 640 173 234 123 110
Derivative assets
and liabilities1) 472 47 374 51 −
Interest on debt3) 1,596 161 207 190 1,038
Trade and other
payables4) 3,691 3,691 − − −
11,071 5,913 1,373 647 3,138
1) Short-term debt, long-term debt, lease obligations and derivatives are included
in the Company’s consolidated balance sheet
2) Excluding current portion of long-term debt
3) Approximately 45% of the debt bears interest at a floating rate. Interest on debt
has been estimated based upon average rates in 2010
4) Excluding derivatives, shown separately
Philips has no material commitments for capital
expenditures.
On December 1, 2009, Philips entered into an
outsourcing agreement to acquire IT services from T-
Systems GmbH over a period of 5 years at a total cost of
approximately EUR 300 million. The agreement, which is
effective January 1, 2010, provides that penalties may be
charged to the Company if Philips terminates the
agreement prior to its expiration. The termination
penalties range from EUR 40 million if the agreement is
cancelled within 12 months to EUR 6 million if the
agreement is cancelled within 36 months.
Additionally, Philips has a number of commercial
agreements, such as supply agreements, which provide
that certain penalties may be charged to the Company if it
does not fulfill its commitments.
Certain Philips suppliers factor their trade receivables
from Philips with third parties through supplier finance
arrangements. At December 31, 2010 approximately EUR
330 million of the Philips accounts payables were known
to have been sold onward under such arrangements
whereby Philips confirms invoices. Philips continues to
recognize these liabilities as trade payables and will settle
the liabilities in line with the original payment terms of the
related invoices.
The estimated total purchase obligations as of December
31, 2010, amount to EUR 365 million. This amount can be
split in EUR 324 million with a payment due in less than 1
year, EUR 17 million due in 1-3 years, EUR 6 million due in
3-5 years and EUR 18 million due in more than 5 years.
As part of the recovery plan for the UK pension fund,
Philips Electronics UK has committed to a contingent cash
contribution scheme as a back-up for liability savings to
the UK fund to be realized through a member choice
program. If this member choice program fails to deliver
part or all of the expected liability savings with 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.
Other cash commitments
The Company and its subsidiaries sponsor pension plans
in many countries in accordance with legal requirements,
customs and the local situation in the countries involved.
Additionally, certain postretirement benefits are provided
in certain countries. The Company is reviewing the future
funding of the existing regulatory deficits in pension plans
in the US and UK. Refer to note 28 for a discussion of the
plans and expected cash outflows.
The company had EUR 226 million restructuring-related
provisions by the end of 2010, of which EUR 177 million is
expected to result in cash outflows in 2011. Refer to
note 19 for details of restructuring provisions and
potential cash flow impact for 2010 and further.
A proposal will be submitted to the General Meeting of
Shareholders to pay a dividend of EUR 0.75 per common
share (up to EUR 710 million), in cash or shares at the
option of the shareholder, against the net income for 2010
of the Company.
Guarantees
Philips’ policy is to provide guarantees and other letters of
support only in writing. Philips does not provide other
forms of support. At the end of 2010, the total fair value of
guarantees recognized by Philips in other non-current
liabilities was EUR 9 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 2010.