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Annual Report 2011
Financial, social and environmental performance
Accelerate!
The journey to unlock
our full potential

Table of contents

  • Page 1
    Annual Report 2011 Financial, social and environmental performance Accelerate! The journey to unlock our full potential

  • Page 2
    ... Management report within the meaning of Section 2:391 of the Dutch Civil Code (and related Decrees). 10 Supervisory Board report 96 99 100 105 107 107 109 111 112 113 Our company Our strategic focus Our strategy in action Philips' China journey - a dynamic partnership COPD home care solutions...

  • Page 3
    ... policy Share information Philips' rating Performance in relation to market indices Philips' acquisitions Financial calendar Investor contact 18 19 Definitions and abbreviations Forward-looking statements and other information 12.12 Independent auditor's report - Group Annual Report 2011...

  • Page 4
    ... (11.0) 2010 2011 Financial table all amounts in millions of euros unless otherwise stated 2009 Sales EBITA1) as a % of sales EBIT1) as a % of sales Net income (loss) per common share in euros - basic - diluted Net operating capital1) Free cash ï¬,ows1) Shareholders' equity Employees at December...

  • Page 5
    ...2008 2009 2010 2011 2008 Operating cash ï¬,ows in millions of euros 3,000 2,000 1,000 0 (783) (1,000) (2,000) 2007 3.1 648 1,431 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
    ..., and so make Philips an even stronger company capable of bringing meaningful innovations to market for many years to come. Together with my colleagues on the Executive Committee - our new leadership team, spanning businesses, markets and functions - I am honored to lead 6 Annual Report 2011

  • Page 7
    ... to transfer our Television business to a joint venture with TPV, in which we will hold a 30% stake. This joint venture will leverage the strengths of both companies to improve the position of Philips Television in the market, and will enable us to focus on expanding leadership positions in health...

  • Page 8
    ... kitchen appliances companies Preethi (India) and Povos (China) in 2011. This will ensure we are better placed to harvest local consumer insights and match our competitors' time-to-market. One of the key drivers of our Accelerate! journey is the strengthening of our 'end-to-end customer value chain...

  • Page 9
    ... in September 2011 to mark 120 years of Philips, our innovation and design capabilities are rightly world-renowned, and we hold strong technology and intellectual property positions. In 2011 we also secured our highest-ever placing (41st) on the annual Interbrand ranking of the world's most valuable...

  • Page 10
    ... sustainable profitable growth - always in compliance with Philips General Business Principles. At Philips, we strive to make the world healthier and more sustainable through innovation. Our goal is to improve the lives of 3 billion people a year by 2025. We will be the 10 Annual Report 2011

  • Page 11
    ... with sales and service outlets 124 production sites 9 research laboratories spread over Europe, North America and Asia Employees Manufacturing sites Research laboratories 3 incubators 39,000 registered trademarks 4,400 domain names 70,000 54,000 design rights patent rights Annual Report 2011...

  • Page 12
    ... leadership in innovation, an absolute focus on the customer, local market relevance, and operational excellence, while costs need to be at least in line with our competitors. We aim to create value through a deep understanding of our businesses and markets and by building sustainable competitive...

  • Page 13
    ... focuses on innovative ways of using light to enhance people's lives where they live and work - at home, at school, at work, in shops and public places, as well as on the road. Recognizing how resource conservation and climate protection will play an increasingly significant part in human health...

  • Page 14
    3 Our strategy in action 3 - 3 3 Our strategy in action 14 Annual Report 2011

  • Page 15
    ... ability and opportunity to help China improve the health and well-being of its people. Starting in 2007, our China Team worked with China's medical community and government to identify the country's primary needs and develop innovative technology solutions to meet their Annual Report 2011 15

  • Page 16
    ... with customers got us to our goal of becoming one of the imaging technology leaders in China. "The Center for Biomedical Imaging Research at Tsinghua University chose Philips 3T Achieva TX as its main research scanner," says Chun Yuan, Ph.D, the Center's Director. "With the help of many different...

  • Page 17
    ... help patients avoid inconvenient waits for deliveries and better manage their time and therapy. COPD patients deserve solutions to address the health and quality of life challenges they face every day. Philips is leading the way in providing those solutions. Home oxygen treatments designed for the...

  • Page 18
    ... delivery - and home monitoring services to support cardiac and elderly care. We work together with our 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. 18 Annual Report 2011

  • Page 19
    ... 3 - 3 Global leadership through local relevance With four regional product creation hubs leveraging the 2011 acquisitions of Preethi (India) and Povos (China), we are accelerating delivery of innovations that tap into the specific eating habits of different cultures around the world. It's said...

  • Page 20
    ... the run-up to the New Year celebrations. Localizing the product in time for this had an immediate positive effect on sales and market share. Consumers are increasingly looking for solutions that help them to maintain and improve their health and well-being and that of their families. By combining...

  • Page 21
    ...dental professionals put in our products to improve their patients' oral health. Today, we are expanding geographically into new markets, covering more price points and new channels. We are also expanding our portfolio through acquisitions and innovation to address more consumer needs, including new...

  • Page 22
    ... will drive growth by investing in innovation, branding and our relationships with dental professionals. We will expand into new channels such as online and pharmacies, and we will leverage Philips' global market capabilities and make value-adding acquisitions. In 2010, for instance, we acquired the...

  • Page 23
    ... can maximize these savings by adopting energyefficient LED lighting. Currently, lighting accounts for 19% of global electricity production. Around two thirds is based on energy-wasting technologies developed before 1970. A full switch to the latest LED lighting could lead Annual Report 2011 23

  • Page 24
    ...ciency imperative, the LED lighting revolution and the increasing focus on application-based lighting solutions. In our endeavor to fulfill the needs of our customers in the outdoor, office, industry, retail, hospitality, entertainment, healthcare, automotive and home segments, we are delivering...

  • Page 25
    3 Our strategy in action 3 - 3 Customer-centric innovation shaping the future of motoring In the growth market of Daytime Running Lights, our Automotive business has shown it's got what it takes to Accelerate! - by teaming up with its OEM and after-market customers, addressing their needs, and ...

  • Page 26
    ... sales opportunity. It is expected that by 2015 40% of the European car park will be equipped with DRL (today 13%). As well as selling to OEMs for build-in, we offer LEDbased DRL solutions for cars already on the road, enabling drivers to benefit from the safety of DRL right now. Our LED Daylight...

  • Page 27
    4 Our planet, our partners, our people 4 - 4 4 Our planet, our partners, our people Annual Report 2011 27

  • Page 28
    .... Our sustainability performance in 2011 also led to us regaining our sector and super-sector leadership in the Dow Jones Sustainability Index. Recognition of leadership Green Products and Green Innovation In 2011 we continued our drive for Green Products - new products that are significantly...

  • Page 29
    ... program. We are committed to develop, promote and market more energyefficient solutions for people in all markets. We address this challenge with our Green Products and Green Innovation. We also seek to facilitate new solutions that will drive responsible energy practices, and have long focused...

  • Page 30
    ... 100 electronics suppliers in China to support innovative workforce management practices, sustainability and better business performance. The goal is to improve working conditions of more than 500,000 employees in the electronics sector. The first phase of the program started in November 2011, with...

  • Page 31
    ... the Philips General Business Principles and the Electronic Industry Citizenship Coalition (EICC) Code of Conduct. We continue to focus on effective partnering with non-governmental organizations to support common goals that also drive our business. Also, for the second year running we worked with...

  • Page 32
    ... Philips employees are the key enabler for making a difference, both within the company and to the lives of people we touch with our meaningful innovations and community programs. Through the Accelerate! program, Philips is addressing structural change, focusing on execution, reducing overhead costs...

  • Page 33
    ... business, we make our core competencies available to make a difference in people's lives. New volunteering program in the USA In 2011 we also launched a new employee volunteer program in North America called "Philips Cares: giving back to our communities". Philips Cares utilizes an online portal...

  • Page 34
    ... 5 5 Group performance "2011 was a challenging year in terms of Philips' financial performance. The macro-economic developments and the weakness of the Western European markets further impacted this. Despite the challenges we achieved 4% comparable sales growth - at the lower end of our mid-term...

  • Page 35
    ...and analysis Prior years results and cash ï¬,ows have been restated to reï¬,ect the effect of classifying the Television business as discontinued operations in 2011. • Management summary Key data in millions of euros unless otherwise stated 2009 Sales EBITA1) as a % of sales EBIT 1) 2010 22,287...

  • Page 36
    ... 9,096 million, or 40.8% of sales, in 2010. Gross margin in 2011 was impacted by a EUR 128 million charge related to the impairment of customer relationships and brand names in Consumer Luminaires, as well as raw material price increases. Gross margin in 2011 included EUR 53 million in restructuring...

  • Page 37
    ... in 2010. The year-on-year decrease was mainly driven by goodwill impairments of EUR 1,355 million, lower gross margin percentages in Lighting and Consumer Lifestyle, and lower EBIT in Group Management & Services. Amortization of intangibles, excluding software, capitalized product development and...

  • Page 38
    ... net charges totaling EUR 1,572 million for restructuring and related asset impairments. The annual impairment test led to selected adjustments of pre-recession business cases as well as an adjustment of the discount rate across Philips, leading to a EUR 1,355 million impairment of goodwill. In...

  • Page 39
    ... 15 million lower than in 2010, mainly as a result of lower average outstanding debt. Sale of securities in millions of euros 2009 2010 2011 Income taxes Income taxes amounted to EUR 283 million, despite losses incurred for the year, mainly due to goodwill impairment losses, which are largely non...

  • Page 40
    ... services. Within Consumer Lifestyle, Philips completed two acquisitions that underline the importance Philips attaches to building business creation capabilities in growth geographies. In India, we acquired the assets of the Preethi business, a leading kitchen appliances company in India. In China...

  • Page 41
    ... 2011 in FTEs at year-end 7.5 4.8 0 (4.4) (9.2) (15) 2009 1) (7.5) (11.0) 2010 2011 Group Management & Services 12,474 Healthcare 37,955 For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report Sales...

  • Page 42
    ... from growing businesses within Healthcare. Growth geographies headcount increased by 5,208, mainly as a result of acquisitions in Consumer Lifestyle. Employees per sector in FTEs at year-end 2009 Healthcare1) Consumer Lifestyle Lighting Group Management & Services Discontinued operations 34,525...

  • Page 43
    ...of classifying the Television business as discontinued operations in 2011. Condensed consolidated statements of cash ï¬,ows for the years ended December 31, 2009, 2010 and 2011 are presented below: Condensed consolidated cash ï¬,ow statements1) 2009 Cash ï¬,ows from operating activities: Net income...

  • Page 44
    .... In 2010, a total of EUR 241 million cash was used for acquisitions, mainly Discus, NCW and medSage Technologies. 5.2.3 Financing Condensed consolidated balance sheets for the years 2009, 2010 and 2011 are presented below: Condensed consolidated balance sheet information1) 2009 Intangible assets...

  • Page 45
    ... from consolidation and currency effects led to an increase of EUR 59 million. Net debt to group equity Philips ended 2011 in a net debt position (cash and cash equivalents, net of debt) of EUR 713 million, compared to a net cash position of EUR 1,175 million at the end of 2010. Annual Report 2011...

  • Page 46
    ... to shareholders in 2010 reduced equity by EUR 304 million. The decrease was partially offset by a EUR 111 million increase related to delivery of treasury shares and net share-based compensation plans. The number of outstanding common shares of Royal Philips Electronics at December 31, 2011 was...

  • Page 47
    ... as trade payables and will settle the liabilities in line with the original payment terms of the related invoices. 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...

  • Page 48
    ... 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, 2010 and 2011. Expiration per period 2011 in millions of euros total amounts committed...

  • Page 49
    ...Customer Service, Operations and Purchasing. Collectively, they represent around 61,000 Philips employees and are responsible for sourcing, manufacturing and delivering products and solutions. Management of shortages and management of commodity price increases The recovery of the global economy led...

  • Page 50
    ... generally lower demand ahead. Supply achieved 4.9% savings on the Bill of Material (BOM) and 5.2% savings on Non Product Related (NPR) purchasing. Forecast reliability and sales/operational planning processes have improved, for both the short and longer term, resulting in reduced risk. Increased...

  • Page 51
    ... from its earliest days. In 1998, we launched our first EcoVision program and set sustainability targets focused on our own operations and products. We also started to focus on sustainability in our supply chain in 2003. Later programs included enhanced Manufacturing, Green Innovation and Carbon...

  • Page 52
    ... for over 60% of the total spend on Green Innovation and also contributes to over 50% of Philips Green Product sales. The focus is on developing new energy-efficient lighting solutions, further enhancing current Green Products and driving toward technological breakthroughs, such as solid-state...

  • Page 53
    ... reduction actions. Total emissions in the supply chain were estimated at 5.6 million tons. 0 2007 2008 2009 2010 2011 Equally important is the insight we gained into ways in which we can improve. For 2012, the focus will be put on improving the engagement level within customer facing functions...

  • Page 54
    ... Sales, Customer Services, IT, HRM, Supply Management and Finance. Moreover, we had over 30,000 employees participating in various ethics and compliance related training sessions. Our ï¬,agship leadership development programs for our talent pool are run in collaboration with leading business schools...

  • Page 55
    ...a shared journey towards leadership in sustainability. Our suppliers 0.50 0.25 0 2007 5.4.4 2008 2009 2010 2011 General Business Principles The Philips General Business Principles (GBP) govern Philips' business decisions and actions throughout the world, applying equally to corporate actions...

  • Page 56
    ...were done in China, representing a major part of our supply base. The total number of full scope audits conducted since we started the program in 2005 now exceeds 1,800. This number includes repeated audits, since we execute a full scope audit at our risk suppliers every 3 years. The most frequently...

  • Page 57
    ... net income for the financial year 2010 has been retained by way of reserve. The balance sheet presented in this report, as part of the Company financial statements for the period ended December 31, 2011, is before appropriation of the result for the financial year 2011. Annual Report 2011 57

  • Page 58
    ...and one-time investments aimed at improving our business performance trajectory, as part of the multi-year Accelerate! program. Excluding these additional charges, we anticipate that underlying operating margins and capital efficiency will improve in the latter part of 2012. 58 Annual Report 2011

  • Page 59
    ...'Group'). The Company is managed by the members of the Board of Management and Executive Committee under the supervision of the Supervisory Board. The Executive Committee operates under the chairmanship of the Chief Executive Officer and shares responsibility for the deployment of Philips' strategy...

  • Page 60
    ... euros Lighting 445 Employees per operating sector 2011 in FTEs at year-end Healthcare 37,955 Lighting 53,168 Healthcare 1,145 Consumer Lifestyle 472 For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report...

  • Page 61
    ...6.1.1 6.1 Healthcare "2011 presented an increasingly challenging economic environment. We managed to achieve sales growth in every quarter for the second consecutive year because our strategy to fuel growth - with targeted investments in innovation and business development - worked. As we further...

  • Page 62
    ...management, hospital respiratory systems, and ventilation. • Home Healthcare Solutions: sleep management and respiratory care, medical alert services, remote cardiac services, and remote patient management. • Customer Services: consultancy, site planning and project management, clinical services...

  • Page 63
    ... times and shorter hospital stays. The investment strengthens Philips' position as a leader in cardiology. Progress against targets The Annual Report 2010 outlined a number of key targets for Philips Healthcare in 2011. In the course of the year, reï¬,ecting the evolving business reality and the...

  • Page 64
    ... in Japan is part of Philips' multi-year international growth strategy for its home monitoring business under which Philips plans to continue introducing the Lifeline service in new markets in future. Philips also aims to enter the sleep therapy and respiratory care home markets in China in the near...

  • Page 65
    .... Sales at Healthcare are generally higher in the second half of the year largely due to the timing of new product availability and customers attempting to spend their annual budgeted allowances before the end of the year. Key data Executing operational excellence initiatives to increase margin and...

  • Page 66
    ... of the Home Healthcare Solutions business • Executing operational excellence initiatives to increase margin and time-to-market • Deliver on EcoVision sustainability commitments 2011 Revised to reï¬,ect an adjusted geographic cluster allocation Sales and net operating capital in billions...

  • Page 67
    ... and growth • Achieved strong sales growth in the Personal Care, Health & Wellness and Domestic Appliance businesses combined and increased overall market share • Signed agreement to transfer Television business into a joint venture with TPV Technology • Significantly stepped up investment...

  • Page 68
    ... creation through category development and delivery through operational excellence. We plan, resource and manage performance by Business/ Market Combination. Our operating model stimulates entrepreneurship and speed by ensuring clear accountability and by moving decisions closer to our customers...

  • Page 69
    ... have increased the proportion of the Chinese kitchen appliances market we address from 15% to 95%. 6.2.5 Progress against targets The Annual Report 2010 set out a number of key targets for Philips Consumer Lifestyle in 2011. In the course of the year, reï¬,ecting the evolving business reality and...

  • Page 70
    ... and China, primarily in our Personal Care business. Growth geographies' share of sector sales increased from 38% in 2010 to 42% in 2011. EBITA decreased from EUR 718 million, or 12.4% of sales, in 2010 to EUR 472 million, or 8.1% of sales, in 2011. Restructuring and acquisition-related charges...

  • Page 71
    ...Address Lifestyle Entertainment portfolio and execute turnaround plan • Continued growth investment in core businesses towards global category leadership • Regional business creation; leverage acquisitions in China and India • Deliver on EcoVision sustainability commitments Annual Report 2011...

  • Page 72
    ... customer intimacy, time-to-market, and end-to-end business excellence." Frans van Houten, acting CEO Philips Lighting • Lighting industry undergoing a radical transformation • Important global trends underpinning strategy • Winning in LED 6.3.1 Lighting landscape We are witnessing a number...

  • Page 73
    ...: car headlights, car signaling, interior • Lumileds: packaged LEDs Simply enhancing life with light Philips Lighting enhances life with light through innovative lighting solutions. We believe that by focusing on what people really need and leveraging our expertise with a Annual Report 2011 73

  • Page 74
    ... - 6.3.4 Total sales by business 2011 as a % Lighting Systems & Controls 14 6.3.4 With regard to sourcing, please refer to sub-section 5.3.3, Supply management, of this Annual Report. Progress against targets The Annual Report 2010 set out a number of key targets for Philips Lighting in 2011. In...

  • Page 75
    ... (COP17) in Durban, South Africa, we were recognized along with The Climate Group for our solar-driven LED street-lighting project in China's Guiyang community. 2011 financial performance Sales amounted to EUR 7,638 million, a nominal increase of 1% compared to 2010, mainly driven by growth in our...

  • Page 76
    ... 1) 2008 2009 2010 2011 For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report Strategy and 2012 objectives In 2012 Philips Lighting will continue to progress on the following key trajectories designed...

  • Page 77
    ...shared business services for purchasing, finance, human resources, IT, real estate and supply are reported in this sector. As of January 1, 2012, Corporate Technologies, New Venture Integration and Design will be merged to create a new entity within Group Management & Services, called Philips Group...

  • Page 78
    ... sectors and the other departments within Corporate Technologies. IP&S is a leading industrial IP organization providing world-class IP solutions to Philips' businesses to support their growth, competitiveness and profitability. Philips' IP portfolio currently consists of 78 Annual Report 2011

  • Page 79
    ... affiliated companies. Situated at the High Tech Campus Eindhoven, Philips Innovation Services is an innovation hub supporting Philips' long-term commitment to Open Innovation. 6.4.4 Philips Design Philips Design partners with the Philips businesses, technology groups and corporate functions to...

  • Page 80
    ... from sales of investments. Key data in millions of euros 2009 Sales Sales growth % increase (decrease), nominal % increase (decrease), comparable1) EBITA Corporate Technologies EBITA Corporate & Regional costs EBITA Pensions EBITA Service Units and other EBITA1) EBIT1) Net operating capital (NOC...

  • Page 81
    ... company-wide internal audit planning as approved by the Audit Committee of the Supervisory Board. An indepth description of Philips' corporate governance structure can be found in chapter 11, Corporate governance, of this Annual Report. Philips Business Control Framework The Philips Business...

  • Page 82
    ..., are reported to the Board of Management/Executive Committee via the Quarterly Certification Statement process. Philips General Business Principles The Philips General Business Principles (GBP) govern Philips' business decisions and actions throughout the world, applying to corporate actions and...

  • Page 83
    ... and principal accounting officer), and to the heads of the Corporate Control, Corporate Treasury, Corporate Fiscal and Corporate Internal Audit departments of the Company. The Company has published its Financial Code of Ethics within the investor section of its website located at www.philips.com...

  • Page 84
    ... ‡3HQVLRQV ‡7D[ Corporate Governance Philips Business Control Framework Philips General Business Principles Taking risks is an inherent part of entrepreneurial behavior. A structured risk management process encourages management to take risks in a controlled manner. In order to provide...

  • Page 85
    ... to rapidly adjust its business models, or if circumstances arise, such as pricing actions by competitors, then growth ambitions, financial condition and operating results could be affected materially. Acquisitions could expose Philips to integration risks and challenge management in continuing to...

  • Page 86
    ...through outsourcing. These processes may result in increased dependency. Although Philips works closely with its suppliers to avoid supply-related problems, there can be no assurance that it will not encounter supply problems in the future or that it will be able to replace a 86 Annual Report 2011

  • Page 87
    ... on its business. The 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...

  • Page 88
    ... developments, which may limit the realization of business opportunities or impair Philips' local investments. Philips' increased focus on the healthcare sector increases its exposure to highly regulated markets, where obtaining clearances or approvals for new products is of great 88 Annual Report...

  • Page 89
    ...-compliance with the Philips General Business Principles, in particular anti-bribery provisions. This risk is heightened in growth geographies as corporate governance systems, including information structures and the monitoring of ethical standards, are less developed in growth geographies compared...

  • Page 90
    ...nance and IT operations to third-party service providers Processes and controls related to the identified critical risk areas will be subject to a more detailed set of requirements in terms of control documentation and control evaluation (monitoring) by Sector and Functional management due to their...

  • Page 91
    ... developments, creating volatility in Philips' financials. The majority of employees in Europe and North America are covered by defined-benefit pension plans. The accounting for defined-benefit pension plans requires management to determine discount rates, expected rates of compensation...

  • Page 92
    ...Procedure of the Board of Management and Executive Committee are published on the Company's website (www.philips.com/investor). Corporate governance A full description of the Company's corporate governance structure is published in chapter 11, Corporate governance, of this Annual Report. Frans van...

  • Page 93
    8 Management 8 - 8 From top to bottom, from left to right: Frans van Houten, Ron Wirahadiraksa, Jim Andrew, Pieter Nota, Steve Rusckowski, Eric Coutinho, Patrick Kung, Ronald de Jong, Carole Wainaina Annual Report 2011 93

  • Page 94
    ... Board since 2007; second term expires in 2015 Former member of the Corporate Executive Committee of the F. HofmannLa Roche Group and former CEO of Roche Diagnostics, currently Chairman of the Supervisory Board of HTL Strefa. Member of the Supervisory Boards of various private and listed companies...

  • Page 95
    9 Supervisory Board 9 - 9 From top to bottom, from left to right: J.M. Thompson, J. van der Veer, C.J.A. van Lede, J. Tai, E. Kist, H. von Prondzynski, C.A. Poon, J.J. Schiro Annual Report 2011 95

  • Page 96
    ..., the Supervisory Board discussed the capital and financing structure of the Philips Group and possibility to launch a share buyback program, the progress made in forming the TV joint venture, elements of the Accelerate! program and the Philips General Business Principles. In 2011, 10 meetings...

  • Page 97
    ... EUR 800 million cost-savings program which forms part of the Accelerate! program • the governance and financial position of Philips' major pension funds Composition and evaluation of the Supervisory Board The Supervisory Board currently consists of eight members. The Supervisory Board aims for...

  • Page 98
    ... Committee as per April 26, 2012. * Subject to approval of (re)appointment by the General Meeting of Shareholders ** Ms Dhawan has held various positions in sales and marketing at leading Indian IT companies and currently is the Managing Director of Hewlett-Packard India 98 Annual Report 2011

  • Page 99
    ...individual appointments of the members of the Executive Committee. The Committee further discussed developments in the area of corporate governance and relevant legislative changes. It also discussed possible agenda items for the upcoming 2012 General Meeting of Shareholders. Annual Report 2011 99

  • Page 100
    ...chapters on the Annual Incentive and the Long-Term Incentive Plan respectively. 10.2.2 Contracts of employment The main elements of the contracts of the members of the Board of Management are made public no later than the date of the notice convening the General Meeting of Shareholders at which the...

  • Page 101
    ...of Management 2011' forms an integral part of the Group financial statements, please refer to note 32, Information on remuneration. 10.2.4 Base salary The salaries of the members of the Board of Management have been increased in line with the policy for other employees on the yearly review date in...

  • Page 102
    ... 2) Reference date for board membership is December 31, 2011 Period March 31 - December 31, 2011 10.2.6 Long-Term Incentive Plan The LTIP consists of a mix of stock options and restricted share rights. It aims to align the interests of the participating employees with the shareholders' interests...

  • Page 103
    ...member of the Board of Management Restricted share rights in euros originally granted number of restricted grant date share rights F.A. van Houten R.H. Wirahadiraksa 2010 2011 2008 2009 2010 2011 G.H.A. Dutiné 2008 2009 2010 2011 P.A.J. Nota S.H. Rusckowski 2010 2011 2008 2009 2010 2011 1) number...

  • Page 104
    ... 62.5. The plan does not require employee contributions. For more details, see note 32, Information on remuneration. 10.2.8 10.2.10 2012 Annual Incentive To support the strategic direction of the Company the financial targets for the Annual Incentive 2012 have been set in line with our (mid-term...

  • Page 105
    ... Committee The Audit Committee, currently consisting of four members, assists the Supervisory Board in fulfilling its supervisory responsibilities for the integrity of the Company's financial statements, the financial reporting process, the system of internal business controls and risk management...

  • Page 106
    10 Supervisory Board report 10.3 - 10.3 Finally, we would like to express our thanks to the members of the Executive Committee and all other employees for their continued contribution during the year. February 23, 2012 The Supervisory Board 106 Annual Report 2011

  • Page 107
    ... relations policy, has strengthened the accountability of its executive management and its independent supervisory directors, and has increased the rights and powers of shareholders and the communication with investors. The Company is required to comply with, inter alia, Dutch Corporate Governance...

  • Page 108
    ...31, 2011. In 2003, Philips adopted a 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, Philips executives and other key employees. This...

  • Page 109
    ... 12, Group financial statements, of this Annual Report, pursuant to requirements of Dutch civil and securities laws. 11.2 Supervisory Board Introduction The Supervisory Board supervises the policies of the Board of Management and Executive Committee and the general course of affairs of Philips and...

  • Page 110
    ... once a year, the main risks of the business, and the result of the assessment of the structure and operation of the internal risk management and control systems, as well as any significant changes thereto. The members of the Executive Committee attend meetings of the Supervisory Board except in...

  • Page 111
    .... In reviewing the Company's annual and interim statements, including non-financial information, and advising the Supervisory Board on internal control policies and internal audit programs, the Audit Committee reviews matters relating to accounting policies and compliance with accounting standards...

  • Page 112
    ... Code within the framework of the articles of association and Dutch law and in the manner as described in this corporate governance report. The Board of Management and Supervisory Board are also accountable, at the Annual General Meeting of Shareholders, for the policy on the additions to reserves...

  • Page 113
    ... of the Supervisory Board, for the quality and completeness of such publicly disclosed financial reports. The annual financial statements are presented for discussion and adoption to the Annual General Meeting of Shareholders, to be convened subsequently. Philips, under US securities regulations...

  • Page 114
    .... Each year the Company organizes Philips Capital Market Days and participates in several broker conferences, announced in advance on the Company's website and by means of press releases. Shareholders can follow in real time, by means of webcasting or telephone lines, the meetings and presentations...

  • Page 115
    ....6 Consolidated balance sheets 12.7 Consolidated statements of cash ï¬,ows 12.8 Consolidated statements of changes in equity 12.9 Information by sector and main country 12.10 Significant accounting policies 12.11 Notes 12.12 Independent auditor's report - Group 13 13.1 13.2 13.3 13.4 13.5 Company...

  • Page 116
    ... Contingent liabilities Cash from (used for) derivatives and securities Proceeds from non-current financial assets Assets in lieu of cash from sale of businesses Pensions and other postretirement benefits Share-based compensation Related-party transactions Information on remuneration Fair value of...

  • Page 117
    ... hereafter. Board of Management February 23, 2012 form the Management report within the meaning of section 2:391 of the Dutch Civil Code (and related Decrees). The sections Group performance and Sector performance provide an extensive analysis of the developments during the financial year 2011 and...

  • Page 118
    ... accordance with the 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, 2011 and 2010, and the related consolidated statements of income, comprehensive income, changes...

  • Page 119
    ... stated Consolidated statements of income Consolidated statements of income of the Philips Group for the years ended December 31 2009 Sales Cost of sales Gross margin Selling expenses General and administrative expenses Research and development expenses Impairment of goodwill Other business income...

  • Page 120
    ...(loss) attributable to: Shareholders Non-controlling interests The years 2009 and 2010 are restated to present the Television business as discontinued operations. The accompanying notes are an integral part of these consolidated financial statements (404) 13 630 6 (1,768) 4 120 Annual Report 2011

  • Page 121
    12 Group financial statements 12.6 - 12.6 12.6 in millions of euros unless otherwise stated Consolidated balance sheets of the Philips Group as of December 31 Consolidated balance sheets Assets 2010 Non-current assets 2011 8 24 Property, plant and equipment: - At cost - Less accumulated ...

  • Page 122
    ...payable: - Trade creditors - Accounts payable to related parties 3,686 5 3,691 3,340 6 3,346 3,026 759 61 634 9,343 22 Accrued liabilities 20 25 29 Short-term provisions 5 Liabilities directly associated with assets held for sale 2,995 623 âˆ' 754 10,758 23 Other current liabilities Total current...

  • Page 123
    ... - 12.7 12.7 in millions of euros Consolidated statements of cash ï¬,ows Consolidated statements of cash ï¬,ows of the Philips Group for the years ended December 31 2009 Cash ï¬,ows from operating activities Net (loss) income Loss from discontinued operations Adjustments to reconcile net income...

  • Page 124
    ...Treasury shares transaction: Shares acquired Exercise of stock options âˆ' 29 âˆ' 65 (751) 80 The years 2009 and 2010 are restated to present the Television business as discontinued operations. The accompanying notes are an integral part of these consolidated financial statements. For a number of...

  • Page 125
    ... equity Consolidated statements of changes in equity of the Philips Group outstanding number of shares in thousands capital in excess of par value âˆ' treasury shares at cost non-controlling interests common share retained earnings revaluation reserve other reserves shareholders' equity group...

  • Page 126
    ... benefit costs not directly allocated to the other sectors. Transactions between the sectors mainly relate to services provided by the sector Group Management & Services to the other sectors. The pricing of such transactions is determined on an arm's length principle. 126 Annual Report 2011

  • Page 127
    ...nancial statements 12.9 - 12.9 Sectors total assets net operating capital total liabilities current accounts excl. debt receivable, net tangible and intangible assets depreciation and amortization1,2) capital expenditures1) 2011 Healthcare Consumer Lifestyle Lighting Group Management & Services 11...

  • Page 128
    ...684 14,775 The years 2009 and 2010 are restated to present the Television business as discontinued operations The sales are reported based on country of destination Revised to reï¬,ect a property, plant and equipment reclassification to assets classified as held for sale 128 Annual Report 2011

  • Page 129
    ...euros, which is the Company's presentation currency. On February 23, 2012, the Board of Management authorized the Consolidated financial statements for issue. The Consolidated financial statements as presented in this report are subject to the adoption by the Annual General Meeting of Shareholders...

  • Page 130
    ... translated to euro at exchange rates at the reporting date. The income and expenses of foreign operations, are translated to euro at exchange rates at the dates of the transactions. Foreign currency differences arising on translation of foreign operations into the group's presentation currency are...

  • Page 131
    ... if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company-documented risk management or investment strategy. Attributable transaction costs are recognized in the Statement of income as incurred. Financial assets at fair...

  • Page 132
    ... lowest level at which goodwill is monitored by the Board of Management. The Company performed and completed annual impairment tests in the same quarter of all years presented in the Consolidated Statements of income. A goodwill impairment loss is recognized in the Statement of income whenever and...

  • Page 133
    ...vesting period on a straight-line basis, taking into account expected forfeitures. The Company uses the Black-Scholes optionpricing model to determine the fair value of equity instruments. The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in...

  • Page 134
    ... in the Statement of cash ï¬,ow and Statement of income. Upon classification of a disposal group as held for sale the Company may agree with the buyer to retain certain assets and liabilities (e.g. accounts receivable), in which case such items are not presented as part 134 Annual Report 2011

  • Page 135
    ... the Company). The Board of Management decides how to allocate resources and assesses performance. Reportable segments comprise the operating sectors: Healthcare, Consumer Lifestyle, Lighting, and, until 2011, the Television business which was part of Consumer Lifestyle. Segment accounting policies...

  • Page 136
    ...changes in measurement and reporting of expected returns on plan assets (and interest costs), which is currently reported under income from operations. The revised standard requires interest income or expense to be calculated on the net balance recognized, with the rate used to discount the defined...

  • Page 137
    ... Supervisory Board, see note 32, Information on remuneration. Employees The average number of employees by category is summarized as follows (in FTEs): 20091) 20101) 2011 Notes to the Consolidated financial statements of the Philips Group 1 Income from operations For information related to Sales...

  • Page 138
    ... provided in 2011 is 4.6% of the total fees The percentage of services provided in 2011 is 5.2% of the total fees This table 'Fees KPMG' forms an integral part of the Company Financial Statements, please refer to note J, Audit fees. Impairment of goodwill In 2011, goodwill has been impaired in the...

  • Page 139
    12 Group financial statements 12.11 - 12.11 3 Display. Total financial expense was EUR 387 million, including impairment charges amounting to EUR 58 million mainly from shareholdings in NXP, and EUR 15 million of accretion expenses mainly associated with discounted asbestos and environmental ...

  • Page 140
    ... deferred tax assets relate to the following balance sheet captions and tax loss carryforwards (including tax credit carryforwards), of which the movements during the years 2011 and 2010 respectively are as follows: December 31, 2010 recognized in income recognized in equity 58 âˆ' 19 acquisitions...

  • Page 141
    ... 36 million (2010: EUR 34 million). At December 31, 2011, operating loss carryforwards expire as follows: Total 4,600 2012 11 2013 8 2014 21 2015 26 2016 31 2017/ 2021 21 later 930 unlimited 3,552 The Company also has tax credit carryforwards of EUR 120 million, which are available to offset future...

  • Page 142
    ... operation. Therefore in accordance with IFRS 5, the results directly related to the Television business and to be discontinued from a Philips perspective, are reported under discontinued operations in the Consolidated statements of income and cash ï¬,ow reported in the 142 Annual Report 2011

  • Page 143
    ...in the Consolidated statements of income as discontinued operations. 2009 2010 2011 The following table presents the assets and liabilities of the Television business, classified as held for sale and liabilities directly associated with assets held for sale in the Consolidated balance sheets. 2011...

  • Page 144
    ... price of EUR 498 million and have been accounted for using the acquisition method. Measured on an annualized basis, the aggregated impact of the six acquisitions on group Sales, Income from operations (excluding charges related to goodwill impairment), Net income and Net income per common share...

  • Page 145
    ...contributed sales of EUR 143 million and a loss from operations of EUR 18 million. Pro forma disclosures on acquisitions The following table presents the 2009 year-to-date unaudited proforma results of Philips, assuming Saeco had been consolidated as of January 1, 2009: Net assets acquired includes...

  • Page 146
    ... value Change in book value: Capital expenditures Assets available for use Acquisitions Disposals and sales Depreciation Impairments Transfer to assets classified as held for sale Translation differences Total changes Balance as of December 31, 2010: Cost Accumulated depreciation Book value 2,273...

  • Page 147
    ...an insignificant effect on depreciation in current and future years. The sales growth rates and margins used to estimate cash ï¬,ows are based on past performance, external market growth assumptions and industry long-term growth averages. Adjusted income from operations in all units is expected to...

  • Page 148
    10 12 Group financial statements 12.11 - 12.11 Respiratory Care & Sleep Management The annual impairment test resulted in EUR 450 million impairment. This was mainly as a consequence of a weaker market outlook, lower profitability projections from increasing investments and price competition, as...

  • Page 149
    12 Group financial statements 12.11 - 12.11 other intangible assets product development software total Other intangible assets consist of: December 31, 2010 gross accumulated amortization gross December 31, 2011 accumulated amortization Balance as of January 1, 2010: Cost Accumulated ...

  • Page 150
    ...the risks, the stock price of NXP, the current progress and the long-term nature of the recovery plan of the UK Pension Fund. The change in fair value until December 31, 2011 is reported under value adjustments in the table above and also recognized in Financial income. The expected useful lives of...

  • Page 151
    ... to acquire (de facto) control of the Company, the General Meeting of Shareholders in 1989 adopted amendments to the Company's articles of association that allow the Board of Management and the Supervisory Board to issue (rights to acquire) preference shares to a third party. As of December 31, 2011...

  • Page 152
    ...of EUR 52 million (2010: EUR 139 million). In general, gains related to currency translation differences, availablefor-sale financial assets and cash ï¬,ow hedges cannot be distributed as part of shareholders' equity as they form part of the legal reserves protected under Dutch law. By their nature...

  • Page 153
    ... portion of long-term debt 670 16 1,154 1,840 422 21 139 582 During 2011, the weighted average interest rate on the bank borrowings was 10.5% (2010: 8.5%). In the Netherlands, the Company issued personnel debentures with a 5-year right of conversion into common shares of Royal Philips Electronics...

  • Page 154
    ... centered on Lamps. The largest restructuring projects were in the 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...

  • Page 155
    ...are presented, including their short-term portion Long-term operating lease commitments totaled EUR 1,017 million. These leases expire at various dates during the next 20 years. The longterm operating leases are mainly related to the rental of buildings. A number of these leases originate from sale...

  • Page 156
    ... 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, 2011. Expiration per period in millions of euros businessrelated credit-related guarantees guarantees total 2011 Total...

  • Page 157
    ... Philips group companies were named as defendants in over 50 class action antitrust complaints filed in various federal district courts in the United States. These actions allege anticompetitive conduct by manufacturers of CRTs and seek treble damages on behalf of direct and indirect purchasers...

  • Page 158
    ... amounts recognized in the Consolidated balance sheets. 28 Assets in lieu of cash from sale of businesses In 2011, the Company entered into four transactions with different venture capital partners where certain incubator activities were transferred in exchange for shares in separately established...

  • Page 159
    ... other total Netherlands other 2011 total Defined-benefit obligation at the beginning of year Service cost Interest cost Employee contributions Actuarial losses Plan amendments Acquisitions Divestments Settlements Curtailments Reclassifications Benefits paid Exchange rate differences...

  • Page 160
    ...by the Philips Group. Pension expense of defined-benefit plans recognized in the Consolidated statements of income: 2009 Netherlands other total Netherlands other 2010 total Netherlands other 2011 total Service cost Interest cost on the defined-benefit obligation Expected return on plan assets...

  • Page 161
    ...: 2010 Netherlands other Netherlands 2011 other Total recognized in net periodic pension cost and Consolidated statements of comprehensive income Actual return on plan assets 1,050 1,218 1,859 1,807 668 1,740 Discount rate Rate of compensation increase 4.7% 5.3% 3.9% 4.4% The pension...

  • Page 162
    ... Consolidated statements of income: 2009 2010 2011 30 Share-based compensation The Company has granted stock options on its common shares and rights to receive common shares in the future (restricted share rights) to members of the Board of Management and other members of the Executive Committee...

  • Page 163
    ...multipliers which are based on the relative Total Shareholder Return of Philips in comparison with a peer group of 11 multinationals. USD-denominated stock options and restricted share rights are granted to employees in the United States only. Share-based compensation expense was EUR 56 million (EUR...

  • Page 164
    ... 2011, 2010, and 2009, 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 grant. If the grantee still holds the shares after three years from the delivery date, Philips...

  • Page 165
    ... the applicable accounting principles. In 2011, no (additional) pension benefits were granted to former members of the Board of Management. Out of the total remuneration costs in 2011, an amount of EUR 3,311,748 relates to stock options and restricted share rights (2010: EUR 3,242,191, 2009: EUR...

  • Page 166
    12 Group financial statements 12.11 - 12.11 Remuneration costs of individual members of the Board of Management in euros salary annual incentive1) pension cost other compensation2) 2011 F.A. van Houten (Apr. - Dec.) R.H. Wirahadiraksa (Apr. - Dec.) G.H.A. Dutiné P.A.J. Nota (Apr. - Dec.) S.H. ...

  • Page 167
    12 Group financial statements 12.11 - 12.11 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, 2011 awarded 2011 released 2011 ...

  • Page 168
    ... on stock options and restricted share rights as well sub-section 10.2.6, Long-Term Incentive Plan, of this Annual Report The accumulated annual pension entitlements and the pension costs of individual members of the Board of Management are as follows (in euros): accumulated annual pension as...

  • Page 169
    .... 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, 2010 December 31, 2011 J. van...

  • Page 170
    ... market rates plus Philips' spread for the particular tenors of the borrowing arrangement. Accrued interest is not within the carrying amount or estimated fair value of debt. December 31, 2010 carrying amount Financial assets Carried at fair value: Available-for-sale financial assets - non-current...

  • Page 171
    ... fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and...

  • Page 172
    ... on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of onbalance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under costs...

  • Page 173
    ... 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 financial assets amounted to approximately EUR 110 million at yearend 2011 (2010...

  • Page 174
    ... managed. As a rule Philips only selects insurance companies with a S&P credit rating of at least A-. Throughout the year the counterparty risk is monitored on a regular basis. To lower exposures and to avoid potential losses, Philips has a worldwide Risk Engineering program in place. The main focus...

  • Page 175
    ...cant accounting policies and other explanatory information as included in section 12.4 to 12.11. Management's responsibility The Board of Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting...

  • Page 176
    ...ficant 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 balance sheets in order to...

  • Page 177
    13 Company financial statements 13.1 - 13.1 13.1 Balance sheets before appropriation of results Balance sheets of Koninklijke Philips Electronics N.V. as of December 31 in millions of euros 2010 2011 Assets Non-current assets: Property, plant and equipment Intangible assets 1 38 21,060 38 109 21...

  • Page 178
    ... number of shares in thousands legal reserves availablefor-sale financial assets common shares capital in excess of par value revaluation cash ï¬,ow hedges affiliated companies currency translation retained differences earnings net income treasury shares at cost shareholders' equity...

  • Page 179
    ... control of the Company, the General Meeting of Shareholders in 1989 adopted amendments to the Company's articles of association that allow the Board of Management and the Supervisory Board to issue (rights to acquire) preference shares to a third party. As of December 31, 2011, no preference shares...

  • Page 180
    ... order to reduce share capital, the following transactions took place in 2011 (there were no transactions to reduce share capital in 2011): 2010 1,851,998 EUR 25 million 2011 Shares acquired Average market price Amount paid Reduction of capital stock Total shares in treasury at year-end Total cost...

  • Page 181
    ...filiated companies. H Employees The number of persons employed by the Company at year-end 2011 was 9 (2010: 11) and included the members of the Board of Management and certain leaders from functions, businesses and markets, together referred to as the Executive Committee. Annual Report 2011 181

  • Page 182
    ... Dutch Civil Code. Amsterdam, The Netherlands February 23, 2012 KPMG ACCOUNTANTS N.V. M.A. Soeting RA Independent auditor's report - Company Independent auditor's report To the Supervisory Board and Shareholders of Koninklijke Philips Electronics N.V.: Report on the Company financial statements We...

  • Page 183
    ...linking green areas and thereby increasing biodiversity. The partner companies will also share best practices on closing the materials loop, supply chain sustainability, and processes. This is especially important in view of increasing risks concerning the prices and availability of new and recycled...

  • Page 184
    ...control or inï¬,uence we can have on an issue through our operations and products/solutions. This is a dynamic process, as we continuously monitor the world around us. We develop our policies and programs based on our findings. The results have been reviewed and approved by the Sustainability Board...

  • Page 185
    ...for some parts of the Leadership KPI models. There is therefore an inherent uncertainty in our calculations. The figures reported are Philips' best possible estimate. As our insight increases, we may enhance the methodology in the future. Environmental data are measured for manufacturing sites with...

  • Page 186
    ... on a halfyearly basis. The focus is on reporting work-related injuries, which predominantly occur in manufacturing operations. The annual number of cases leading to at least one lost workday is reported per 100 FTEs (full-time equivalents). General Business Principles Alleged GBP violations are...

  • Page 187
    ... R&D spend related to the development of new generations of Green Products and Green Technologies. We intend to invest a cumulative EUR 2 billion over the coming five years. Green Product sales in millions of euros unless otherwise stated 2009 2010 2011 Philips Group as a % of total sales 6,163...

  • Page 188
    ... Lighting's Light & Health Venture, in close collaboration with Philips Research are developing innovative LED-based solutions. By understanding how blue light affects many human biological and physiological processes, and applying our expertise in LED and textile technology, Philips created the...

  • Page 189
    ...purpose. The other sectors use water mainly for domestic purposes. Water intake in thousands m3 2007 2008 2009 2010 2011 Total energy consumption in manufacturing in terajoules 2007 2008 2009 2010 2011 Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group 369 485 3,350...

  • Page 190
    ... specific manufacturing and maintenance processes at sites in Healthcare and Consumer Lifestyle. Hazardous substances Targets have been set on a selected number of hazardous substances. ISO 14001 certification as a % of all reporting organizations 2007 2008 2009 2010 2011 Philips Group 90 95...

  • Page 191
    ... 50 57 57 57 Female Male Philips Group 13 10 11 0 Staff 1) Professionals Management Executives Left to right: 2009, 2010 and 2011 Developing our people Employees across the world can access detailed information about our Global Learning Curricula and register for courses online via our Global...

  • Page 192
    ... programs. Participation in these programs was comparable to 2010. Training spend Our training spend in 2011 amounted to EUR 58 million, about 10% less than in 2010. Health and Safety Philips strives for an injury-free and illness-free work environment, with a sharp focus on decreasing the number...

  • Page 193
    ... 2008 2009 2010 2011 Health & Safety Treatment of employees - Collective bargaining - Discrimination - Employee development - Employee privacy - Employee relations - Respectful treatment - Remuneration - Right to organize - Working hours Legal Business Integrity Supply management Other Total 10...

  • Page 194
    ...with working weeks exceeding 60 hours, and 89 cases where workers were not provided with one day off per week. In these cases we require suppliers to submit a corrective action plan taking into account factors like employee turnover, seasonality, workforce size, shift structure, productivity, demand...

  • Page 195
    ... audits 2011 Workers employed at sites audited in 2011 151 92 59 155,099 Asia excl. China 24 16 8 8,785 LATAM 34 26 8 8,406 412 EMEA 3 3 Total 212 137 75 172,702 Labor Freely Chosen Employment Child labor avoidance /young worker management Working hours Wages and Benefits Humane Treatment...

  • Page 196
    .... The program will work with over 100 electronics suppliers in China to support innovative workforce management practices, sustainability and better business performance. The goal is to improve the working conditions of more than 500,000 employees in the electronics sector. The program formally...

  • Page 197
    ... included reviewing systems and processes for data management, assessing the appropriateness of the accounting policies used, assessing the design and existence of data collection and reporting process at a limited number of sites and evaluating the overall presentation of sustainability information...

  • Page 198
    ... Date of most recent previous report Reporting cycle Contact point for questions regarding the report or its contents Process for defining report content cross-reference1) Performance highlights chapter 12, Group financial statements section 17.6, Financial calendar section 17.7, Investor contact...

  • Page 199
    ...an executive officer section 11.2, Supervisory Board For organizations that have a unitary board Not relevant for Philips, see chapter 11, Corporate governance structure, state the number of members of the highest governance body that are independent and/or non-executive members Annual Report 2011...

  • Page 200
    ... and principles Processes for evaluating the highest governance body's own performance chapter 1, Our company chapter 2, Our strategic focus section 7.1, Our approach to risk management and business control section 14.4, Social indicators chapter 10, Supervisory Board report chapter 11, Corporate...

  • Page 201
    ...Disclosure on management approach to 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 and governments Financial implications and...

  • Page 202
    ... consumption by primary source Total water withdrawal by source Location and size of land owned, leased, managed in or adjacent to protected areas and areas of high biodiversity value outside protected areas Description of significant impacts of activities, products and services on biodiversity in...

  • Page 203
    ...file disclosure Human rights description Disclosure on management approach to human rights cross-reference1) section 14.5, General Business Principles section 14.6, Supplier indicators section 14.4, Social indicators Investment and HR1 procurement practices Percentage and total number of signi...

  • Page 204
    ... of any programs and practices that assess 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...

  • Page 205
    ... excluded from impacted prior-year periods. Similarly, when an entity is acquired, relevant sales are excluded from impacted periods. The Company uses the term EBIT and EBITA to evaluate the performance of the Philips Group and its operating sectors. The term EBIT has the same meaning as Income from...

  • Page 206
    15 Reconciliation of non-GAAP information 15 - 15 Sales growth composition per sector in % comparable growth currency effects consolidation changes nominal growth 2011 versus 2010 Healthcare Consumer Lifestyle Lighting Group Management & Services Philips Group 5.3 (0.1) 6.1 2.4 4.1 (2.5) (1.7) ...

  • Page 207
    ...of net debt to group equity 2009 2010 2011 Long-term debt Short-term debt Total debt Cash and cash equivalents Net debt (cash) 1) 3,640 627 4,267 (4,386) (119) 2,818 1,840 4,658 (5,833) (1,175) 3,278 582 3,860 (3,147) 713 Shareholders' equity Non-controlling interests Group equity 14,595 49 14...

  • Page 208
    15 Reconciliation of non-GAAP information 15 - 15 NOC composition 2007 2008 2009 2010 2011 Intangible assets Property, plant and equipment Remaining assets Provisions Other liabilities Net operating capital 6,635 3,194 11,193 (2,403) (7,817) 10,802 11,757 3,496 10,361 (2,837) (8,708) 14,069 11,...

  • Page 209
    ... of non-GAAP information 15 - 15 Net operating capital to total assets Group Management & Services Philips Group Healthcare Consumer Lifestyle Lighting 2011 Net operating capital (NOC) Eliminate liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include...

  • Page 210
    ...Sales % increase over previous year Income from operations (EBIT) (loss) Financial income and expenses - net Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Free cash ï¬,ow Net assets Turnover rate of net operating capital Total employees at year...

  • Page 211
    ...16.1 46 Financial structure Other liabilities Liabilities directly associated with assets held for sale Debt Provisions Total provisions and liabilities Shareholders' equity Non-controlling interests Group equity and liabilities Net debt : group equity ratio Market capitalization at year-end 20071...

  • Page 212
    ... operations Net income (loss) Dividend distributed per common share Total shareholder return per common share Shareholders' equity per common share Price/earnings ratio Share price at year-end Highest closing share price during the year Lowest closing share price during the year Average share price...

  • Page 213
    ...(628) (765) (944) (108) (0.5) 2008 2009 2010 2011 For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report Dividend policy â- -net income ----net income per share in euros We are committed to a stable...

  • Page 214
    ..., for the convenience of the reader the translations of euros into US dollars appearing in this report have been made based on the closing rate Dividend yield % is as of December 31 of previous year Subject to approval by the 2012 Annual General Meeting of Shareholders 214 Annual Report 2011

  • Page 215
    ... shares, of which 33.6 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 Company when...

  • Page 216
    ... of Q2 2013. In 2011, Philips completed 35% of the share buy-back program. Further details on the share repurchase programs can be found on the Investor Relations website. For more information see chapter 11, Corporate governance, of this Annual Report. Impact of share repurchases on share count in...

  • Page 217
    17 Investor Relations 17.2 - 17.3 total number of shares purchased Period January, 2011 February, 2011 March, 2011 April, 2011 May, 2011 June, 2011 July, 2011 August, 2011 September, 2011 October, 2011 November, 2011 December, 2011 âˆ' âˆ' 478 âˆ' 30,957 âˆ' 6,955,000 20,320,770 5,679,001 2,002,076...

  • Page 218
    ... Common Shares on the stock market of Euronext Amsterdam as reported in the Official Price List and the high and low closing sales prices of the New York Registry Shares on the New York Stock Exchange: Euronext Amsterdam (EUR) high 2007 2008 1st quarter 2nd quarter 3rd quarter 4th quarter 2009 1st...

  • Page 219
    ...Investor Relations 17.4 - 17.4 Euronext Amsterdam Share price development in Amsterdam, 2011 in euros...15.32 5.76 Share price development in Amsterdam, 2010 in euros PHIA High Low ...70 New York Stock Exchange Share price development in New York, 2011 in US dollars...shares Annual Report 2011 219

  • Page 220
    17 Investor Relations 17.4 - 17.4 Share listings Ticker code No. of shares issued at Dec. 31, 2011 No. of shares outstanding issued at Dec. 31, 2011 Market capitalization at year-end 2011 Industry classification MSCI: Capital Goods ICB: Consumer Electronics Members of indices AEX, NYSE, DJSI, and ...

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    ...Europe Domestic Appliances Expand product portfolio in China and continue to build business creation capabilities in growth geographies 1) 2) Asset transaction Combined asset transaction / share transaction Acquisitions 2010 / Announcement dates February 11, 2010 February 24, 2010 March 26, 2010...

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    ...ce Breitner Center, HBT 11.03 P.O. Box 77900 1070 MX Amsterdam, Netherlands E-mail: [email protected] Communications concerning share transfers, lost certificates, dividends and change of address should be directed to: The Royal Bank of Scotland N.V. Department Equity Capital Markets HQ3130...

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    ... of Euronext Amsterdam, banks in the Netherlands and several major Dutch companies to simplify contacts between participating companies and their shareholders. Philips will use the Shareholders Communication Channel to distribute the Agenda for this year's Annual General Meeting of Shareholders as...

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    ...www.philips.com/sustainability E-mail: [email protected] Corporate Communications contact Royal Philips Electronics Breitner Center, HBT-18 P.O. Box 77900 1070 MX Amsterdam, Netherlands Telephone: +31-20-59 77914 E-mail: [email protected] 224 Annual Report 2011

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    ... is a combination of perceptions and attitudes related to employee satisfaction, commitment and advocacy. Energy-using Products (EuP) An energy-using product is a product that uses, generates, transfers or measures energy (electricity, gas, fossil fuel). Examples are boilers, computers, televisions...

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    ... continuing operations as a % of average shareholders' equity (calculated on the quarterly balance sheet positions). Turnover rate of net operating capital Sales divided by average net operating capital (calculated on the quarterly balance sheet positions). Waste Electrical and Electronic Equipment...

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    ... 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). Analysis of 2010 compared to 2009 The analysis of the 2010 financial results compared to 2009, and the...

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