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Annual Report 2012
Financial, social and environmental performance
Accelerate!
Progress in delivering
our full potential

Table of contents

  • Page 1
    Annual Report 2012 Financial, social and environmental performance Accelerate! Progress in delivering our full potential

  • Page 2
    ... to risk management and business control Risk categories and factors Strategic risks Operational risks Compliance risks Financial risks 8 9 10 Management Supervisory Board Supervisory Board report 10.1 Report of the Corporate Governance and Nomination & Selection Committee 2 Annual Report 2012

  • Page 3
    ...and dividend 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...

  • Page 4
    ...Report Group Management & Services sector has been renamed to Innovation, Group & Services Based on 60 pulse surveys conducted in 2012 9 3.8 6.4 3.3 6.9 0 2008 2009 2010 2011 2012 Equity and EBITA per common share1) in euros 20 15 10 5 0 2008 2009 2010 â- -shareholders' equity per common share...

  • Page 5
    ... 1,030 75 50 25 0 2009 2010 2011 2012 2008 2009 2010 2011 20124) Operating cash ï¬,ows in millions of euros 3,000 2,000 1,000 0 â- -net capital expenditures_â- â- -free cash ï¬,ows â- -operating cash ï¬,ows_--free cash ï¬,ows as a % of sales 1) Green Product sales per sector in millions of...

  • Page 6
    ... greater local relevance in key markets around the world. We will continue to relentlessly drive operational excellence and invest in innovation and sales development to deliver profitable growth." Frans van Houten, CEO Dear stakeholder, Philips is a fantastic company with significant potential...

  • Page 7
    ...our balance sheet, and by the end of the year we had completed 73% of this program. Reï¬,ecting our confidence in Philips' future, we are proposing to the upcoming General Meeting of Shareholders to maintain this year's dividend at EUR 0.75 per common share, in cash or stock. Annual Report 2012 7

  • Page 8
    ... their continuing support. 0.60 0.40 0.20 0 2009 1) 2010 2011 2012 20131) Subject to approval by the 2013 Annual General Meeting of Shareholders Looking ahead - our path to value in 2013 and beyond As we pursue our mission and vision, we are confident that the strategic direction we have...

  • Page 9
    ... statement As a diversified technology company we manage a dynamic portfolio of businesses which we build to global leadership performance. We create value through our capabilities to develop deep understanding of our customers' needs and apply advanced technologies to create innovative solutions...

  • Page 10
    ...7,670 39% 61% 6 4 North America Number of employees: Employees female: Employees male: R&D centers: Manufacturing sites: 26,122 37% 63% 1 42 External recognition Philips and its businesses received a tremendous number and variety of awards and other forms of recognition in 2012. The following are...

  • Page 11
    ... strategic focus 2 - 2 2 Group strategic focus Philips is a technology company with a focus on people's health and well-being. We strive for a balanced portfolio of businesses that have - or can attain - global leadership positions and deliver performance at or above benchmark levels. A number...

  • Page 12
    ... our company mission, vision and guiding statement, the Philips Business System links four elements into a coherent system: Our overall Group Strategy and the resulting portfolio choices and resource allocation. Our five Capabilities, Assets and Positions, Philips' unique strenghts: deep customer...

  • Page 13
    ... two measured through return on invested capital) in conjunction with other financial, operational and strategic key performance indicators. Set in 2011 as part of the Accelerate! program, our midterm financial targets, to be realized by the end of 2013, are: • Comparable sales growth CAGR of...

  • Page 14
    3 Our strategy in action 3 - 3 3 Our strategy in action 14 Annual Report 2012

  • Page 15
    ...needed most. For example, by integrating multi-modality images at the point of treatment, our solutions offer exceptional image clarity and deep insight - opening the door to new clinical procedures for safer, more effective diagnosis and treatment in a number of specialties. Annual Report 2012 15

  • Page 16
    ... of health care," said Gene Saragnese, Executive Vice President and CEO, Philips Imaging Systems. "The combination of innovation leadership, clinical partnership and an entrepreneurial approach has created demand in the market for our disruptive technology. It is what drives us every day to deliver...

  • Page 17
    ... critical care delivery Philips works closely with health systems to improve quality, costs and access to care across multiple patient settings. By leveraging our leadership in healthcare technology, we are transforming critical care for war veterans. In the US, the Veterans Integrated Service...

  • Page 18
    ... products and home monitoring services to support cardiac and elderly care. "This state-of-the-art solution provides a vital layer of service and support in diagnosing and treating high-risk patients," said Mike Mancuso, Executive Vice President and CEO, Philips Patient Care & Clinical Informatics...

  • Page 19
    ...Wal-Mart shoppers. Philips Norelco is the leading brand in the electric shaver market in North America. Continuing to strengthen the business, Male Grooming North America embarked on an end-to-end journey with three key areas of focus: understanding the consumer, partnering with our customer to grow...

  • Page 20
    ..., Market to Order and Order to Cash) to deliver the required end-to-end performance. Make the change happen We design and implement a rigorous transformation plan. Dedicated solution As part of Wal-Mart's 'store of the community' strategy, our team has now developed our first product to address...

  • Page 21
    ... With five regional product creation hubs, we continue to accelerate the introduction of innovations that are tailored to the specific eating habits of cultures around the world. Indeed, since 2010 we have quadrupled the number of launches of locally relevant innovations. Annual Report 2012 21

  • Page 22
    ..., with a market share in excess of 30%. And we are further leveraging Preethi's brand equity, launching Preethi-branded products for the south Indian diaspora across the Middle East and ASEAN, as well as expanding the portfolio in India to include garment care products. 22 Annual Report 2012

  • Page 23
    ... consumers can also personalize light and enjoy limitless applications. In the spirit of Open Innovation, we have opened up the hue app to the developer community, inviting developers to explore the app and come up with yet more innovative new ways to enhance life with light. Annual Report 2012 23

  • Page 24
    3 Our strategy in action 3 - 3 New era, new opportunities Connectivity, interoperability and outstanding light quality are key to opening up new opportunities and business models in the brave new world of digital lighting. Building upon our heritage of over 120 years as a pioneer in lighting, we ...

  • Page 25
    ... is adapted to the way people move and behave, rather than people having to adapt to where the lighting is located. I think this is a good example of technological progress," says Mary-Ann Schreurs, Municipal Executive Councillor for Innovation, Culture and Public Spaces. Annual Report 2012 25

  • Page 26
    ... modules and IP-based connectivity are also opening the door to city services and applications beyond lighting. Inspiring environments Our integrated LED-based lighting solutions also offer exceptional freedom in terms of controlled lighting effects - color, dynamics, brightness, etc. This is...

  • Page 27
    4 Our planet, our partners, our people 4 - 4 4 Our planet, our partners, our people Annual Report 2012 27

  • Page 28
    ... solutions improve the quality of people's lives. We engaged in dialogue with customers, governments, NGOs and media on key challenges facing Africa - the need for energyefficient lighting, mother and child care, women's healthcare - and showcased how our innovations can help address these...

  • Page 29
    ... charge mobile devices. Providing clinical training In support of UN Millennium Development Goals 4 and 5, which aim to reduce child mortality rates and improve maternal health, we also used the roadshow to deliver clinical education on baby resuscitation, fetal monitoring and clinical ultrasound...

  • Page 30
    ... electronics companies and their suppliers. Consistent recognition In 2012, the Dutch Association of Investors for Sustainable Development (VBDO) once again recognized our efforts in responsible supply chain management. VBDO ranked Philips the top performer among 40 of the largest publicly-listed...

  • Page 31
    ... Goals (MDGs). We engage with our suppliers to encourage them to meet sound environmental and ethical standards, as well as to provide working conditions for their employees that reï¬,ect both the Philips General Business Principles and the Electronic Industry Citizenship Coalition (EICC) Code...

  • Page 32
    ... drives performance - one that is focused on results and characterized by honest dialogues, fact-based conclusions and fast action. This will enable us to adapt quickly to changing market conditions and outpace the competition. executives have participated in the Accelerate! Leadership Program. This...

  • Page 33
    ...- 4 system for executives to reï¬,ect line-of-sight accountability and aligned it with the key performance indicators of our Accelerate! mid-term 2013 financial targets. At the same time, we are augmenting our talent management initiatives and focusing on the development of a learning organization...

  • Page 34
    ...! transformation program, we achieved 4% comparable sales growth and improved our net income, capital efficiency and free cash ï¬,ow. The results in 2012 demonstrate momentum on our path towards our Accelerate! mid-term 2013 financial targets." Ron Wirahadiraksa, CFO 34 Annual Report 2012

  • Page 35
    ... 2011, due to higher cash ï¬,ow from operating activities, higher proceeds from divestments, and lower outï¬,ows related to acquisitions of new businesses. 5.1.1 Sales The composition of sales growth in percentage terms in 2012, compared to 2011, is presented in the table below. Annual Report 2012...

  • Page 36
    ... in 2012. 2012 included EUR 194 million in restructuring and acquisition-related charges, compared to EUR 54 million of restructuring charges in 2011. The year-on-year increase was mainly attributable to restructuring activities and higher expenses aimed at supporting a higher level of sales. In...

  • Page 37
    ... realized across all businesses, largely as a result of higher sales and reduced expenses resulting from cost-saving programs. Restructuring and acquisition-related charges totaled EUR 134 million, compared to EUR 20 million in 2011. Marketing Philips' total 2012 marketing expenses approximated EUR...

  • Page 38
    ... design initiatives. Research and development expenses per sector in millions of euros 2010 Healthcare 698 282 355 158 1,493 2011 740 313 409 148 1,610 2012 803 301 453 253 1,810 â- -in value----as a % of sales 4.2 938 3.6 890 5.1.5 Consumer Lifestyle Lighting Innovation, Group & Services Philips...

  • Page 39
    ...and were mainly driven by our change program Accelerate!. Restructuring projects at Lighting centered on Luminaires businesses and Light Sources & Electronics, the largest of which took place in the Netherlands, Brazil and in the US. Innovation, Group & Services restructuring projects focused on the...

  • Page 40
    ... joint venture. The European Commission imposed fines in relation to alleged violations of competition rules in the CathodeRay Tube industry. Philips recorded a total charge of EUR 509 million, of which EUR 313 million is directly related to Philips and therefore recorded in Income from Operations...

  • Page 41
    ... operations The Television business's long-term strategic partnership agreement with TPV was signed on April 1, 2012. The results related to the Television business are reported under Discontinued operations in the Consolidated statements of income and Consolidated statements of cash ï¬,ows. In 2012...

  • Page 42
    ... sales performance at Consumer Lifestyle and Healthcare. Net cash ï¬,ow from operating activities amounted to EUR 2,198 million in 2012, compared to EUR 768 million in 2011. The year-on-year improvement was largely attributable to lower working capital outï¬,ows, mainly related to accounts payable...

  • Page 43
    ...(2,395) 2008 2009 2010 2011 2012 Acquisitions and financial assets The net cash impact of acquisitions of businesses and financial assets in 2012 was a total of EUR 426 million, mainly related to the acquisition of Indal. The EUR 167 million outï¬,ow for financial assets mainly relates to loans...

  • Page 44
    ... share transactions, an outï¬,ow on net capital expenditures of EUR 475 million, a EUR 426 million outï¬,ow for acquisitions of businesses and financial assets, a EUR 255 million outï¬,ow for the cash dividend payout, and a EUR 256 million outï¬,ow related to discontinued operations. In 2011, cash...

  • Page 45
    ..., of this Annual Report Includes cash inï¬,ow for derivatives, partly offset by unfavorable currency effect Acquisitions of businesses and financial assets include the acquisitions of Indal and the venture with TPV Treasury share transaction Dividend Discontinued operations 2012 5.1.19 Debt...

  • Page 46
    ... of 2012, the Company held 28.7 million shares in treasury to cover the future delivery of shares (2011: 33.6 million shares). This was in connection with the 52.3 million rights outstanding at the end of 2012 (2011: 47.1 million rights) under the Company's long-term incentive plan and convertible...

  • Page 47
    ...of the Company. Further details will be given in the agenda for the General Meeting of Shareholders, to be held on May 3, 2013. total Long-term debt2) Finance lease obligations Short-term debt Operating leases Derivative liabilities Interest on debt3) Purchase obligations4) Trade and other payables...

  • Page 48
    ... Improving people's lives The creation of Philips products and solutions that directly support the curative or preventive side of people's health was one of the key objectives of our EcoVision5 program with a target of 500 million lives improved in 2015. By year-end 2012, we were already at a level...

  • Page 49
    ... with 2011. With the appointment of Deborah DiSanzo as CEO of Philips Healthcare, Philips now has two women on its Executive Committee. The nomination in 2012 of Neelam Dhawan, Managing Director of HP India, as the second female member of the Supervisory Board, also reconfirms the company's ongoing...

  • Page 50
    ...Innovation, Group & Services Continuing operations Discontinued operations 36,253 14,095 53,888 11,929 116,165 3,610 119,775 2011 37,955 18,291 53,168 12,474 121,888 3,353 125,241 2012 37,460 18,911 50,224 11,492 118,087 âˆ' 118,087 43 57 Management Executives 5.2.4 Employment The total number...

  • Page 51
    ... China, India, Africa and Russia, for which there have been some 13,500 enrollments to date. number of enrollments 2008 Core Curriculum programs 2009 2010 2011 2012 As 2012 was a year of continued focus on leadership development in our key emerging markets, we introduced new programs supporting...

  • Page 52
    ... The Philips General Business Principles (GBP) govern Philips' business decisions and actions throughout the world, applying equally to corporate actions and the behavior of individual employees. They incorporate the fundamental principles within Philips for doing business. 52 Annual Report 2012

  • Page 53
    ... provide a safe working environment for their workers, to treat workers with respect, and to work in an environmentally sound way. Our programs are designed to engage and support our suppliers on a shared journey towards continuous improvement in supply chain sustainability. Annual Report 2012 53

  • Page 54
    ... introduced in 2011, which place more focus on capacity building programs to realize structural improvements. As in previous years, the majority of the audits in 2012 were done in China. The total number of full-scope audits carried out since we started the program in 2005 is now close to 2,000...

  • Page 55
    ... number of initial and continual conformance audits 2,000 273 1,500 277 365 150 0 2005 2006 2007 2008 2009 2010 2011 2012 total 166 360 212 159 1,962 supplier sustainability experts in China, India and Brazil organized classroom trainings, regularly visited suppliers for on-site consultancy...

  • Page 56
    .... Our goal is to improve the lives of 3 billion people a year by 2025. The main elements of the EcoVision program are Green Product sales Improving people's lives Green Innovation Green Operations Health & Safety Employee Engagement Supplier Sustainability In this environmental performance section...

  • Page 57
    ... in Green Product sales at the Personal Care, Domestic Appliances, Health & Wellness and Coffee businesses. Lighting At Lighting, we strive to make the world healthier and more sustainable through energy-efficient lighting solutions. In 2012 Lighting invested EUR 325 million to Annual Report 2012...

  • Page 58
    ... sales 10,000 22.0 4,771 2,970 274 1,527 2008 30.7 6,163 3,393 979 1,791 2009 36.2 8,069 4,376 39.0 8,805 4,571 5,000 1,557 2,136 2010 1,571 2,663 2011 1,888 3,610 Philips Group Innovation invested EUR 38 million in Green Innovations, spread over projects focused on global challenges related...

  • Page 59
    ... compared to 2011), due to a significant increase in reporting sites (acquisitions). In 2012, CO2 emissions from non-industrial sites decreased 9%, partly because of our continued focus on the most efficient use of facility space, for instance with our Work Place Innovation program (which enables...

  • Page 60
    ... the Televsion activities and organizational changes in all sectors. Total waste in kilotonnes 2008 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Philips Group 8.2 28.0 77.3 0.1 113.6 2009 8.2 20.1 69.3 0.1 97.7 2010 11.2 23.2 70.1 0.1 104.6 2011 9.3 19.6 65.1 âˆ' 94.0 2012 10...

  • Page 61
    ... Royal Philips Electronics gives the Board of Management the power to determine what portion of the net income shall be retained by way of reserve, subject to the approval of the Supervisory Board. A proposal will be submitted to the 2013 Annual General Meeting of Shareholders to declare a dividend...

  • Page 62
    ... in our allocation of capital, and we will complete our share buy-back program in the course of 2013. We remain confident in our ability to further improve our operational and financial performance, enabling us to achieve our Accelerate! mid-term 2013 financial targets. 62 Annual Report 2012

  • Page 63
    ... centers. Furthermore, country management organization supports the creation of value, connecting Philips with key stakeholders, especially our employees, customers, government and society. The sector also includes pensions. Executive Committee Innovation, Group & Services Members of the Board...

  • Page 64
    ...,788 For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report Sales per operating sector 2012 in millions of euros Cash used for acquisitions per operating sector 2010-2012 in millions of euros Healthcare 160...

  • Page 65
    ...innovation, raise customer service and improve value creation." Deborah DiSanzo, CEO Philips Healthcare • The spiraling cost of managing health care for the world's aging population presents a major challenge to society. • The global demand for care delivery is increasing - which in turn places...

  • Page 66
    ... solutions and services that connect and empower patients, their providers and support network for the more efficient and productive delivery of care. We are also developing new products in growth geographies to make state-of-the-art technology affordable and accessible to these markets while...

  • Page 67
    ...Child Center, where mothers and their newborn babies are kept together for fully integrated treatment and nursing care. Progress against targets The Annual Report 2011 set out a number of key targets for Philips Healthcare in 2012 that are steps towards achieving our Accelerate! mid-term 2013 goals...

  • Page 68
    ...strategic alliances in Saudi Arabia and Abu Dhabi. In addition, we extended our innovative telehealth solution to provide remote critical care in India, and continued to expand our solutions in imaging, patient monitoring and clinical informatics for price-sensitive markets, such as Brazil and China...

  • Page 69
    ... behind Customer Services • Implement our end-to-end customer relationship management solution across the global Philips Healthcare organization • Create a high-performance organization as measured by ongoing employee surveys and business results • Institutionalize our end-to-end operating...

  • Page 70
    ... in attractive growth geographies. • Announced start of Television joint venture named TP Vision, ensuring the future of the Philips brand in Television. • January 2013 announcement of agreement to transfer Audio, Video, Multimedia and Accessories businesses to Funai. 70 Annual Report 2012

  • Page 71
    ... development and delivery through operational excellence. We plan, resource and manage performance by Business Market Combination (BMC). Our operating model stimulates entrepreneurship and speed by ensuring clear accountability and by moving decisions closer to our customers and markets. In 2012...

  • Page 72
    ... product offerings, with leadership in key markets strengthened through local relevance. In Coffee, a new, long-term agreement with DE Master Blenders has further strengthened the Senseo business. Progress against targets The Annual Report 2011 set out a number of key targets for Philips Consumer...

  • Page 73
    ... charges, mainly related to intangible assets in Health & Wellness and Domestic Appliances. Net operating capital increased from EUR 884 million in 2011 to EUR 1,217 million in 2012, primarily due to a reduction in the accounts payable balance related to the former Television business in Consumer...

  • Page 74
    ... 1) 2009 2010 2011 2012 For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report 6.2.6 2013 priorities In 2013 Philips Consumer Lifestyle will continue to progress on the following imperatives designed to...

  • Page 75
    ... Rondolat, CEO Philips Lighting • The lighting industry is undergoing a radical transformation. • The lighting market is large and attractive, driven by major trends. • Strategy based on four priorities to maximize growth, improve performance and expand leadership. Annual Report 2012 75

  • Page 76
    ...on a compound annual basis. The majority of the growth will come from LEDbased solutions and applications - heading towards a 45% share by 2015 - and from growth geographies. In 2011 the lighting industry as a whole was recovering from the global economic developments in 2010. In 2012, however, this...

  • Page 77
    ...-using Products (EuP) and Energy Performance of Buildings (EPBD) directives. With regard to sourcing, please refer to section 14.5, Supplier indicators, of this Annual Report. Total sales by business 2012 as a % Automotive 9 Lumileds 5 Professional Lighting Solutions 29 Light Sources & Electronics...

  • Page 78
    ...Green Operations 2015 program, we are on track to meet our commitments to reduce Lighting's environmental footprint. By using renewable energy and implementing energy-saving programs in our major operational sites, we have already reduced our carbon footprint by 23%. Currently 78% of our total waste...

  • Page 79
    ... in 2011 to EUR 339 million, mainly attributable to lower working capital outï¬,ows, partly offset by higher outï¬,ows for acquisitions. 6.3.6 Sales and net operating capital in billions of euros 10 8 6 4 2 0 2008 2009 2010 5.7 7.4 5.1 6.5 5.5 7.6 â- -Sales----NOC 5.0 7.6 4.6 8.4 2011 2012 EBIT...

  • Page 80
    ...programs, country and regional management costs, and costs of pension and other postretirement benefit plans, as well as Group Innovation and New Venture Integration. Additionally, the global shared business services for purchasing, finance, human resources, IT, real estate and supply are reported...

  • Page 81
    ...intellectual property development, to improve time-to-market efficiency, and to increase innovation effectiveness via focused research and development activities. In addition, PGI opens up new value spaces beyond current sector scope or focus (Emerging Business Areas, EBAs), manages the EBA-related...

  • Page 82
    ..., it has since developed into a product development center (including mechanical, electronics, and supply chain capabilities). Several Healthcare businesses have also located business organizations focusing on growth geographies at PIC. 6.4.2 2012 financial performance Key data in millions of...

  • Page 83
    ... in payables and provisions due to legal and environmental matters. Cash ï¬,ows before financing activities improved from an outï¬,ow of EUR 1,295 million in 2011 to an outï¬,ow of EUR 1,044 million, mainly attributable to higher cash inï¬,ows from the sale of fixed assets. Annual Report 2012 83

  • Page 84
    ... below the main risks known to Philips and summarized them in four categories: Strategic risks, Operational risks, Compliance risks, and Financial risks. Risk management forms an integral part of the business planning and review cycle. The company's risk and control policy is designed to provide...

  • Page 85
    ... monitoring of its control environment. The findings of management's evaluation are reported to the Executive Committee and the Supervisory Board quarterly. As part of the Annual Report process, management's accountability for business controls is enforced through the formal issuance of a Statement...

  • Page 86
    ... Company has published its Financial Code of Ethics within the investor section of its website located at www.philips.com. No changes have been made to the Code of Ethics since its adoption and no waivers have been granted therefrom to the officers mentioned above in 2012. 86 Annual Report 2012

  • Page 87
    ... program Innovation process Supply chain IT People Product liability Reputation Compliance Legal Market practices Regulatory General business principle Internal controls Data privacy / Product security Financial Treasury Tax Pensions Accounting and reporting Corporate Governance Philips...

  • Page 88
    ... developments in end-user preferences and localize the portfolio in order to stay competitive. If Philips fails to achieve this, then could have a material adverse effect on growth ambitions financial condition and operating result. Philips may not control joint ventures or associated companies...

  • Page 89
    ... of development efforts, market acceptance, Philips' 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 90
    ... to replace a supplier that is not able to meet its demand. Shortages or delays could materially harm its business. Most of Philips' activities are conducted outside of the Netherlands, and international operations bring challenges. For example, production and procurement of products and parts in...

  • Page 91
    ...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 Annual Report 2012...

  • Page 92
    ... and safety laws. Privacy and product safety and security issues may arise, especially with respect to remote access or monitoring of patient data or loss of data on our customers' systems, although Philips Healthcare contractually limits liability, where permitted. Philips operates in a highly...

  • Page 93
    ... 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 make estimates on discount rates, inï¬,ation, longetivity and expected rates of compensation...

  • Page 94
    ... reporting risk areas identified within Philips following the risk assessment are: • complex accounting for sales-related accruals, warranty provisions, tax assets and liabilities, pension benefits, and business combinations • complex sales transactions relating to multi-element deliveries...

  • Page 95
    ... external reporting of Koninklijke Philips Electronics N.V. and is answerable to shareholders at the Annual General Meeting of Shareholders. Pursuant to the two-tier corporate structure, the Board of Management is accountable for its performance to a separate and independent Supervisory Board. The...

  • Page 96
    8 Management 8 - 8 From top to bottom, from left to right: Frans van Houten, Eric Coutinho, Pieter Nota, Deborah DiSanzo, Jim Andrew, Ronald de Jong, Ron Wirahadiraksa, Eric Rondolat, Carole Wainaina, Patrick Kung 96 Annual Report 2012

  • Page 97
    ... chapter 10, Supervisory Board report, of this Annual Report. J. van der Veer Chairman Chairman of Corporate Governance and Nomination & Selection Committee Member of the Supervisory Board since 2009; first term expires in 2013. Former Chief Executive and currently Non-Executive Director of Royal...

  • Page 98
    9 Supervisory Board 9 - 9 From top to bottom, from left to right: J. van der Veer, H. von Prondzynski, N. Dhawan, E. Kist, J. Tai, C.J.A. van Lede, C.A. Poon, J.J. Schiro 98 Annual Report 2012

  • Page 99
    ... of the new Long-Term Incentive Plan. The Supervisory Board currently consists of eight members. The Supervisory Board aims for an appropriate combination of knowledge and experience among its members in relation to the global and multi-product character of Philips' businesses. Consequently, the...

  • Page 100
    ...the relationship with the Board of Management and Executive Committee was also discussed. Changes Supervisory Board and committees 2012 • Mr Thompson has relinquished his position as a member of the Supervisory Board as from the closing of the 2012 General Meeting of Shareholders. • Mr Kist has...

  • Page 101
    ... newly adopted Dutch Bill on Management and Supervision effective January 1, 2013 and the Dutch Bill on Corporate Governance which is expected to enter into force on July 1, 2013. It also discussed possible agenda items for the upcoming 2013 General Meeting of Shareholders. Annual Report 2012 101

  • Page 102
    ... the goals behind the policy is to focus on improving the performance of the company and enhance the value of the Philips Group. Consequently, the remuneration package includes a variable part in the form of an annual cash incentive and a long-term incentive consisting of restricted share rights and...

  • Page 103
    ...of the annual base salary for members of the Board of Management and for the CEO it is 160% of the annual base salary. To support the new performance culture, the Annual Incentive plan of 2012 is based on (financial) targets at 'own level' and 'group' level results (line-of-sight). The pay-outs are...

  • Page 104
    ...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 105
    ...-Term Incentive Plan (LTIP) has been designed to take this transformation forward. The main rationale behind this is the desire to stronger link pay and performance. The main characteristics of the new LTIP for the members of the Board of Management are performance shares with 3 Annual Report 2012...

  • Page 106
    ... mandatory share ownership. As mentioned already in the 2011 Annual Report, a onetime special Long-Term Incentive grant was made to a group of key employees below the level of Board of Management in January 2012 and the Supervisory Board contemplated introducing the Accelerate! Grant for the members...

  • Page 107
    ... members of the Executive Committee and all other employees for their continued contribution during the year. February 25, 2013 The Supervisory Board Financial statements 2012 The financial statements of Koninklijke Philips Electronics N.V. for 2012, as presented by the Board of Management, have...

  • Page 108
    ... significant differences between the Company's corporate governance structure and the New York Stock 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...

  • Page 109
    ... 2003, Philips adopted a Long-Term Incentive Plan ('LTI 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 LTI Plan was approved...

  • Page 110
    ... in performing its management tasks and setting the direction of the Group's business, including (a) achievement of the Company's objectives, (b) corporate strategy and the risks inherent in the business activities, (c) the structure and operation of the internal risk management and control systems...

  • Page 111
    ... covers general financial and legal affairs, financial reporting by the Company, any specific aspects that are unique to the Company and its business activities, and the responsibilities of a Supervisory Board member. Any need for further training or education of members will be reviewed annually...

  • Page 112
    ... Company's website. Main powers of the General Meeting of Shareholders All outstanding shares carry voting rights. The main powers of the General Meeting of Shareholders are to appoint, suspend and dismiss members of the Board of Management and of the Supervisory Board, to adopt the annual accounts...

  • Page 113
    ... 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 and dividends (the level and purpose...

  • Page 114
    ...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 115
    ... that are addressed to the Board of Management and the Supervisory Board. The full text of the Dutch Corporate Governance Code can be found at the website of the Monitoring Commission Corporate Governance Code (www.commissiecorporategovernance.nl). February 25, 2013 Annual Report 2012 115

  • Page 116
    ... Balance sheets before appropriation of results Statements of income Statement of changes in equity Notes Independent auditor's report - Company 14 14.1 14.2 14.3 14.4 14.5 14.6 14.7 Sustainability statements Economic indicators EcoVision Green Operations General Business Principles Supplier...

  • Page 117
    ... statements A B C D E F G H I Investments in affiliated companies Other non-current financial assets Receivables Shareholders' equity Long-term debt and short-term debt Other current liabilities Net income Employees Contingent liabilities 183 183 183 184 185 185 185 185 185 Annual Report 2012...

  • Page 118
    ... 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 statements and Company...

  • Page 119
    ... 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, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows, and changes in equity for...

  • Page 120
    ... statements of income Consolidated statements of income of the Philips Group for the years ended December 31 2010 Sales Cost of sales Gross margin Selling expenses General and administrative expenses Research and development expenses Impairment of goodwill Other business income Other business...

  • Page 121
    ... Revaluation reserve: Release revaluation reserve Reclassification into retained earnings Currency translation differences: Net current period change, before tax Income tax on net current period change Reclassification adjustment for (loss)gain realized Non-controlling interests Available-for-sale...

  • Page 122
    ...- Accounts receivable - net - Accounts receivable from related parties - Other current receivables 4,584 19 225 4,828 4,334 13 238 4,585 43 3,834 12,528 29,079 5 Assets classified as held for sale 551 3,147 12,893 29,395 34 Cash and cash equivalents Total current assets 122 Annual Report 2012

  • Page 123
    ...notes payable: - Trade creditors - Accounts payable to related parties 3,340 6 3,346 2,835 4 2,839 3,171 837 27 1,555 9,955 22 Accrued liabilities 20 25 29 Short-term provisions 5 Liabilities directly associated with assets held for sale 3,026 787 61 1,047 9,784 23 Other current liabilities Total...

  • Page 124
    ...26 (1,291) 515 231 31 2011 2012 Cash ï¬,ows from investing activities Purchase of intangible assets Proceeds from sale of intangible assets Expenditures on development assets Capital expenditures on property, plant and equipment Proceeds from disposals of property, plant and equipment (53) âˆ' (220...

  • Page 125
    ... to the Consolidated statements of cash ï¬,ows 2010 2011 2012 Net cash paid during the year for: Pensions Interest Income taxes (474) (226) (206) (639) (231) (582) (610) (239) (359) Net gain on sale of assets: Cash proceeds from the sale of assets Book value of these assets Deferred results on...

  • Page 126
    ... equity group equity Balance as of Jan. 1, 2010 927,457 194 15,912 102 (461) (1,187) 14,560 49 14,609 Total comprehensive income (loss) Dividend distributed Non-controlling interests movement Purchase of treasury shares Re-issuance of treasury shares Share-based compensation plans Income...

  • Page 127
    ... by sector and main country Sectors sales including intercompany research and development expenses income from operations income from operations as a % of sales cash ï¬,ow before financing activities sales 2012 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Inter-sector...

  • Page 128
    ...financial 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) capital expenditures 2012 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services 11...

  • Page 129
    ... 2010 Netherlands United States China Germany Japan France India Other countries 661 6,430 1,864 1,436 856 1,134 596 9,310 22,287 Assets classified as held for sale 1,109 9,693 785 282 568 100 81 2,760 15,378 120 15,498 1) The sales are reported based on country of destination Annual Report 2012...

  • Page 130
    .... Transaction costs, other than 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. In particular, with respect to contingent consideration 130 Annual Report 2012

  • Page 131
    ...the same line item as they relate in the Statement of income. However, the results ensuing from ï¬,uctuations in foreign currency exchange rates with respect to accounts receivables, accounts payables and intercompany current accounts are credited or debited to Cost of sales. Non-monetary assets and...

  • Page 132
    ... using the straight-line method over the useful life of the asset. Depreciation of special tooling is generally also based on the straightline method. Gains and losses on the sale of property, plant and equipment are included in other business income. Costs related to 132 Annual Report 2012

  • Page 133
    ... independent from other cash ï¬,ows and this is the 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...

  • Page 134
    ... in the Statement of income except for reversals of impairment of available-for-sale equity securities, which are recognized in other comprehensive income. Employee benefit accounting A defined-contribution plan is a post-employment benefit plan under which an entity pays fixed contributions...

  • Page 135
    ...temporary differences when they reverse, based on the laws that have been enacted or substantially-enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legallyenforceable right to offset current tax liabilities and assets, and they relate to income taxes levied...

  • Page 136
    ... 1, 2012. The accounting policy changes have no impact on Earnings per share, the Consolidated balance sheets, Consolidated statements of cash ï¬,ows and Consolidated statement of changes in equity. • Warranty costs previously reported in Selling expenses have been reclassified to Cost of Sales...

  • Page 137
    ... December 31, 2011 2010 Statements of cash ï¬,ows Operating: Increase in receivables and other current assets Operating: Increase (decrease) in accounts payable, accrued and other liabilities (84) 2011 (26) 84 26 • In 2012 it was noted that intercompany profit elimination on property, plant...

  • Page 138
    ... venture, which is an arrangement in which the parties have rights to the net assets, will be equityaccounted. The currently applied accounting policy by the Company already means that jointly controlled entities are being accounted for using the equity method. The adoption therefore does not have...

  • Page 139
    ... to income from continuing operations and cash ï¬,ow from continuing operations only. Notes to the Consolidated financial statements of the Philips Group Notes Employee benefit expenses 2010 2011 2012 Salaries and wages Pension costs Other social security and similar charges: - Required by law...

  • Page 140
    ... on disposal of business was mainly due to sale of industrial sites. In 2012, results of disposal of fixed assets was mainly due to the transfer of its 50% ownership of Senseo trademark to Sara Lee and sale of real estate assets of the High Tech Campus in Eindhoven, The Netherlands. For further...

  • Page 141
    ... tax expense are as follows: 2010 2011 2012 Weighted average statutory income tax rate 26.6 55.4 25.8 Tax rate effect of: Changes related to: Netherlands Foreign Income before taxes of continuing operations 952 1,001 1,953 244 (753) (509) (158) 942 784 - utilization of previously reserved...

  • Page 142
    12 Group financial statements 12.11 - 12.11 Deferred tax assets and liabilities Net 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 2012 and 2011 respectively are as follows:...

  • Page 143
    ... implementation of the transfer pricing directives. 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...

  • Page 144
    ...the Television business included in the Consolidated statements of income as discontinued operations. Balance as of January 1, 2012 Changes: Acquisitions/Additions Sales/Redemption Reclassifications Share in income Impairments Dividends declared Translation and exchange rate differences Balance as...

  • Page 145
    ...as of April 2012. The deferral of the gain relates to the finance lease element in the sale and lease-back arrangement part of the deal. In 2012, Philips divested several industrial sites in sector Lighting, the Speech Processing business in Consumer Lifestyle and a minor service activity in sector...

  • Page 146
    ... acquisition involved a cash consideration of EUR 210 million and has been accounted for using the acquisition method. By the end of July 2012, Indal was fully owned by Philips. Measured on a yearly basis, the aggregated impact of this acquisition on Group Sales, Income from operations, Net income...

  • Page 147
    ... 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 148
    ... Change in book value: Capital expenditures Assets available for use Acquisitions Disposals and sales Depreciation Impairments Transfer to assets classified as held for sale Reclassifications Translation differences Total changes Balance as of December 31, 2011: Cost Accumulated depreciation Book...

  • Page 149
    ...the value in use. Key assumptions used in the impairment tests for the units in the table above were sales growth rates, income from operations and the rates used for discounting the projected cash ï¬,ows. These cash ï¬,ow Respiratory Care & Sleep Management 210 400 30.0 Annual Report 2012 149

  • Page 150
    ...the assumptions as set out above. Based on the annual impairment test, it was noted that the headroom for the cash-generating unit Home Monitoring was EUR 49 million. An increase of 140 points in pre-tax discounting rate, a 250 basis points decline in the compound long-term sales growth rate or a 20...

  • Page 151
    ... intangible assets is specified in note 1, Income from operations. The impairment charges in 2012 for other intangibles mainly relates to brand names in Professional Lighting Solutions. As part of the rationalization of the go-to-market model in Professional Lighting Solutions, the Company decided...

  • Page 152
    ... dividends and the proceeds from any sale of shares. From the date of the transaction the NXP shares are an integral part of the plan assets of the UK Pension Fund. The purchase agreement with the UK Pension Fund includes an arrangement that may entitle Philips to a cash payment from the UK Pension...

  • Page 153
    ... to the General Meeting of Shareholders to pay a dividend of EUR 0.75 per common share, in cash or shares at the option of the shareholder, from the 2012 net income and retained earnings. Limitations in the distribution of shareholders' equity Pursuant to Dutch law, limitations exist relating to the...

  • Page 154
    ... from investing activities, and free cash ï¬,ow, being net cash from operating activities minus net capital expenditures, are presented separately to facilitate the reader's understanding of the Company's funding requirements. NOC composition 2010 2011 2012 Intangible assets Property, plant and...

  • Page 155
    ... years: 2013 2014 2015 2016 2017 Total Corresponding amount of previous year 251 305 33 19 11 619 1,177 Short-term debt 2011 2012 Short-term bank borrowings Other short-term loans Current portion of long-term debt 422 21 139 582 533 25 251 809 During 2012, the weighted average interest rate on...

  • Page 156
    ... and Coffee (mainly Italy). • Restructuring projects at Lighting centered on Luminaires businesses and Light Sources & Electronics, the largest of which took place in the Netherlands, Belgium and in various locations in the US. • Innovation, Group & Services restructuring projects focused on the...

  • Page 157
    ... in respect of outstanding litigations totaling EUR 238 million (2011: EUR 101 million) and provision for possible taxes/social security of EUR 28 million (2011: EUR 22 million). The reclassification of EUR 67 million in 2012 relates mainly to provision for rights of return. The liability was...

  • Page 158
    ... 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 2012 totaled EUR 35 million (2011: EUR 16 million). The increase in 2012 is related...

  • Page 159
    ... amounted to less than EUR 1 million. The following table outlines the total outstanding off-balance sheet creditrelated guarantees and business-related guarantees provided by Philips for the benefit of unconsolidated companies and third parties as at December 31, 2012. Annual Report 2012 159

  • Page 160
    ... on the Company and LG Electronics, Inc. The Company intends to appeal the European Commission's decision. In total a payable of EUR 509 million has been recognized (under other current liabilities). The amount of EUR 313 million has been recorded in the Innovation, Group & Services sector. 50...

  • Page 161
    ...-related derivatives is part of cash ï¬,ow from operating activities. During 2012, there was no cash ï¬,ow in relation to these derivatives (2011: EUR nil million; 2010: EUR nil million). 27 Proceeds from non-current financial assets In 2011, the sale of Philips' interest in TCL Corporation...

  • Page 162
    ... 860 2011 Netherlands other total Netherlands other 2012 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 163
    ...-specified risk constraints. The long-term rate of return on total plan assets is expected to be 5.4% per annum, based on expected long-term returns on debt securities, equity securities and real estate of 4.5%, 9.0% and 8% respectively. Philips Pension Fund in the Netherlands On November 13, 2007...

  • Page 164
    ... plans is recognized in the following line items in the Consolidated statements of income: 2010 2011 2012 Cost of sales Selling expenses General and administrative expenses Research and development expenses 6 12 (120) (3) (105) 8 7 3 âˆ' 18 (3) 9 (41) (3) (38) Discount rate Rate of compensation...

  • Page 165
    ...(2) âˆ' âˆ' 16 1 12 (27) âˆ' âˆ' (14) Historical data 2008 2009 2010 2011 2012 Amounts recognized in the Consolidated statements of comprehensive income: 2010 2011 2012 Present value of definedbenefit obligations Fair value of plan assets Surplus Experience adjustments in % on: - defined-bene...

  • Page 166
    ...are no outstanding options which contain non-market performance conditions. The fair value of the Company's 2012, 2011 and 2010 option grants was estimated using a Black-Scholes option valuation model and the following weighted average assumptions: 2010 2011 2012 Discount rate Compensation increase...

  • Page 167
    ... 2012, 2011, and 2010 was approximately EUR 3 million, EUR 1 million and EUR 6 million, respectively. The aggregate intrinsic value in the tables and text above represents the total pre-tax intrinsic value (the difference between the Company's closing share price on the last trading day of 2012...

  • Page 168
    ... the Company on the respective delivery dates. Excludes 20% additional (premium) shares that may be received if shares delivered under the restricted share rights plan are not sold for a three-year period At December 31, 2012, a total of EUR 35 million of unrecognized compensation costs relate to...

  • Page 169
    ...2012, the Company considered the members of the Executive Committee and the Supervisory board to be the key management personnel as defined in IAS 24 'Related parties'. In 2010 and 2011, the Company considered the members of the Board of Management and the Supervisory board to be the key management...

  • Page 170
    ...of the Executive Committee 2012 in euros Salary Annual incentive1) Stock options2) Restricted share rights2) Pension costs Other compensation3) 1) 5,640,090 4,839,949 1,194,444 2,615,653 2,054,516 2,240,460 2) 3) The annual incentives are related to the performance in the year reported which are...

  • Page 171
    ... costs, of this Annual Report. 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, 2012 awarded 2012 released 2012 December 31...

  • Page 172
    ... before date of appointment as a member of the Board of Management See note 30, Share-based compensation for further information on stock options and restricted share rights as well sub-section 10.2.7, Long-Term Incentive Plan, of this Annual Report. The accumulated annual pension entitlements...

  • Page 173
    ... Members of the Supervisory Board and of the Board of Management are not allowed to hold any interests in derivative Philips securities. 33 Fair value of financial assets and liabilities The estimated fair value of financial instruments has been determined by the Company using available market...

  • Page 174
    ... 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 175
    ... and long term basis. Corporate Treasury invests surplus cash in money market deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due. The rating of the Company's debt by major rating services may improve or deteriorate. As a result, Philips...

  • Page 176
    ... income related to net investment hedges in 2012 was EUR 14 million. Philips does not currently hedge the foreign exchange exposure arising from equity interests in non-functional-currency investments in associates and available-for-sale financial assets. Interest rate risk Interest rate...

  • Page 177
    ... publicly listed companies, including Chimei Innolux, Shenyang Neusoft Corporation Ltd, 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 in its main available-for-sale financial assets...

  • Page 178
    ... supporting staff will transfer from the joint venture to a new development center of Philips in Shenyang. Financial details of the proposed transaction were not disclosed. The signing of the definitive agreements and subsequent closing is expected to take place before the end of 2013. The closing...

  • Page 179
    ...nancial statements 2012 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, 2012, the consolidated statements of income, comprehensive income, cash ï¬,ows and changes in equity...

  • Page 180
    ...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 181
    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 2011 2012 Assets Non-current assets: Property, plant and equipment Intangible assets 1 19 19,543 âˆ' 148 ...

  • Page 182
    ... 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 Balance as of January 1, 2012 926...

  • Page 183
    ... dividends and the proceeds from any sale of shares. From the date of the transaction the NXP shares are an integral part of the plan assets of the UK Pension Fund. The purchase agreement with the UK Pension Fund includes an arrangement that may entitle Philips to a cash payment from the UK Pension...

  • Page 184
    ...and share plans: 2011 2012 Dividend distribution A proposal will be submitted to the 2013 General Meeting of Shareholders to pay a dividend of EUR 0.75 per common share, in cash or shares at the option of the shareholder, from the 2012 net income and retained earnings of the Company. Legal reserves...

  • Page 185
    ...years: 2013 2014 2015 2016 2017 614 250 864 Corresponding amount previous year 1,823 H Employees The number of persons employed by the Company at year-end 2012 was 10 (2011: 9) and included the members of the Board of Management and certain leaders from functions, businesses and markets, together...

  • Page 186
    ... supporting staff will transfer from the joint venture to a new development center of Philips in Shenyang. Financial details of the proposed transaction were not disclosed. The signing of the definitive agreements and subsequent closing is expected to take place before the end of 2013. The closing...

  • Page 187
    ...Manufacturers (AHAM) and Healthcare Plastics Recycling Council (HPRC). In 2011, a multi-stakeholder project with the Sustainable Trade Initiative (IDH), a number of NGOs, and electronic companies was started. The program focuses on improving working circumstances in the electronics industry in China...

  • Page 188
    ...develop our policies and programs based on our findings. The results have been reviewed and approved by the Sustainability Board. Key material issues Reference1) Environmental - Climate change section 4.1, The power to make a difference, of this Annual Report section 5.3, Environmental performance...

  • Page 189
    ... this Annual Report All of our programs are guided by the Philips General Business Principles, which provide the framework for all of our business decisions and actions. Scope of sustainability reporting Our sustainability performance reporting encompasses the consolidated Philips Group activities...

  • Page 190
    ...fic financial statements and notes in this report. Distribution of direct economic benefits in millions of euros 2010 2011 2012 Suppliers: goods and services Employees: salaries and wages Shareholders: distribution from retained earnings Government: corporate income taxes Capital providers: net...

  • Page 191
    ...EcoVision program, includes key performance indicators in relation to Green Product sales, Improving people's lives, Green Innovation, Green Operations, Health & Safety, Employee Engagement and Supplier Sustainability. Improving people's lives Philips products and solutions that directly can support...

  • Page 192
    ...reductions in CO2 emissions due to changes in the industrial footprint. Total carbon emissions in manufacturing per sector in kilotonnes CO2-equivalent 2008 2009 2010 2011 2012 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Philips Group 120 70 633 2 825 118 53 644 1 816 57...

  • Page 193
    ...374 reports submitted in 2012 relating to alleged violations of the General Business Principles (GBP), compared to 269 in 2011. We see a considerable increase in number of complaints reported, which can be attributed mainly to an increase in number of complaints in North America, which accounted for...

  • Page 194
    ...party visits the supplier's site for several man-days to hold interviews with workers and management, do a factory tour, and review documentation. Based on purchasing spend, production country and type of business, Philips selects suppliers for inclusion in the audit and supplier development program...

  • Page 195
    ... 60 hours, and 88 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 planning, etc. Management...

  • Page 196
    ...suppliers audited in 2012) China No. of audits Initial audits Continued conformance audits Average number of non-compliance per audit Workers employed at sites audited Labor Freely Chosen Employment1) Child labor avoidance /young worker management2) Working hours Wages and Benefits Humane Treatment...

  • Page 197
    ... work with over 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 program was formally kicked off end 2011...

  • Page 198
    ...-free smelters for all four metals become available, Philips plans to direct its supply chain towards these smelters. See www.conï¬,ictfreesmelter.org for more details. For more details, see www.philips.com/suppliers and the published Philips position paper on Conï¬,ict Minerals. 198 Annual Report...

  • Page 199
    ...the Supervisory Board of Koninklijke Philips Electronics N.V. (further 'Philips') to provide assurance on the information in the chapter Sustainability statements in the Annual Report 2012 including the information referred to in the sections Social performance and Environmental performance (further...

  • Page 200
    ...17.7, Investor contact chapter 1, Our company chapter 6, Sector performance 2.4 2.5 2.6 2.7 chapter 11, Corporate governance Performance highlights 2.8 2.9 Performance highlights section 17.2, Share information section 17.5, Philips' acquisitions note 5, Discontinued operations and other assets...

  • Page 201
    ...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 2012...

  • Page 202
    ...Our company chapter 2, Group strategic focus section 7.1, Our approach to risk management and business control chapter 10, Supervisory Board report chapter 11, Corporate governance section 11.1, Board of Management section 11.2, Supervisory Board section 11.3, General Meeting of Shareholders section...

  • Page 203
    ...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 204
    ... EN20 EN21 EN22 EN23 EN26 Total number and volume of significant spills section 14.3, Green Operations Initiatives to mitigate environmental impacts section 4.1, The power to make a difference of products and services, and extent of section 5.2, Social performance impact mitigation section 14...

  • Page 205
    ... 9, Supervisory Board LA14 See also www.philips.com/gbp profile disclosure Human rights description Disclosure on management approach to human rights cross-reference1) section 14.4, General Business Principles section 14.5, Supplier indicators section 5.1, Financial performance Investment...

  • Page 206
    ... 14.4, General Business Principles chapter 14, Sustainability statements Monetary value of significant fines and total section 12.11, Notes number of non-monetary sanctions for non- section 14.3, Green Operations compliance with laws and regulations profile disclosure Product responsibility...

  • Page 207
    ...to non-controlling interests holders, 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...

  • Page 208
    ...(0.2) (0.6) (4.0) (1.5) 7.7 (1.6) 7.7 1.3 2010 versus 2009 Western Europe North America Other mature geographies Total mature geographies Growth geographies Philips Group (1.5) 1.5 12.6 1.2 13.6 4.8 1.2 5.8 14.5 4.3 9.3 5.6 0.7 âˆ' 3.2 0.6 0.3 0.5 0.4 7.3 30.3 6.1 23.2 10.9 208 Annual Report 2012

  • Page 209
    ...activities Cash ï¬,ows from operating activities Net capital expenditures: Purchase of intangible assets Proceeds from sale of intangible assets Expenditures on development assets Capital expenditures on property, plant and equipment Proceeds from disposals of property, plant and equipment Free cash...

  • Page 210
    15 Reconciliation of non-GAAP information 15 - 15 NOC composition 2008 2009 2010 2011 2012 Intangible assets Property, plant and equipment Remaining assets Provisions Other liabilities Net operating capital 11,757 3,496 10,784 (2,894) (9,131) 14,012 11,523 3,252 9,316 (2,498) (8,992) 12,601 12,...

  • Page 211
    ... 15 - 15 Net operating capital to total assets Philips Group Healthcare Consumer Lifestyle Lighting Innovation, Group & Services 2012 Net operating capital (NOC) Eliminate liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include assets not comprised in NOC...

  • Page 212
    ...2008 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...

  • Page 213
    ... 29,079 Financial structure 2008 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...

  • Page 214
    ... share: Income (loss) from continuing 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...

  • Page 215
    ...submitted to the 2013 Annual General Meeting of Shareholders to declare a dividend of EUR 0.75 per common share (up to EUR 685 million), in cash or in shares at the option of the shareholder, against the net income for 2012 and the reserve retained earnings of the Company. Shareholders will be given...

  • Page 216
    17 Investor Relations 17.1 - 17.1 2013 after close of trading, the 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 of Koninklijke Philips Electronics N.V. at Euronext Amsterdam on 29, 30 and ...

  • Page 217
    ... 28.7 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 Company when such holding reaches...

  • Page 218
    ... the end of Q2 2013. By the end of 2012, Philips has completed 73% of the EUR 2 billion 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...

  • Page 219
    ..., 2012 September, 2012 October, 2012 November, 2012 December, 2012 3,004,358 3,849,302 3,757,005 2,421,544 8,222,700 6,738,465 2,970,187 2,413,941 3,051,738 5,369,200 2,718,375 2,353,817 average price paid per share in EUR total number of shares purchased as part of publicly announced programs...

  • Page 220
    ... 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 2008 2009 1st quarter 2nd quarter 3rd quarter 4th quarter 2010 1st quarter 2nd quarter 3rd quarter 4th quarter 2011 1st...

  • Page 221
    ...20.05 3.88 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec New York Stock Exchange Share price development in New York in US dollars PHG 2012 High Low Average Average daily volume1) 2011 High Low Average Average daily volume1) 1) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 21.47 18...

  • Page 222
    ... Philips Amsterdam closing share price 200 TSR peer group Share listings Ticker code No. of shares issued at Dec. 31, 2012 No. of shares outstanding issued at Dec. 31, 2012 Market capitalization at year-end 2012 Industry classification MSCI: Capital Goods ICB: Diversified Industrials1) Members...

  • Page 223
    ...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...

  • Page 224
    ...led electronically with the US Securities and Exchange Commission. International direct investment program Philips offers a dividend reinvestment and direct stock purchase plan designed for the US market. This program provides existing shareholders and interested investors 224 Annual Report 2012

  • Page 225
    ...persons who on April 5, 2013 hold shares in the Company and are registered as such in one of the registers designated by the Board of Management for the Annual General Meeting of Shareholders will be entitled to participate in and vote at the meeting. Investor relations activities From time to time...

  • Page 226
    ...www.philips.com/sustainability E-mail: [email protected] Corporate Communications contact Royal Philips Electronics Breitner Center, HBT 19 P.O. Box 77900 1070 MX Amsterdam, Netherlands Telephone: +31-20-59 77411 E-mail: [email protected] 226 Annual Report 2012

  • Page 227
    ... worldwide. GRI's core goals include the mainstreaming of disclosure on environmental, social and governance performance. Green Innovation Green Innovation comprise all R&D activities directly contributing to the development of Green Products or Green Technologies. Annual Report 2012 227

  • Page 228
    ... community to work together towards a common end - making sure that human development reaches everyone, everywhere. Goals include for example eradicating extreme poverty and hunger, achieving universal primary education and ensuring environmental sustainability. Net debt : group equity ratio The...

  • Page 229
    ... Return on equity (ROE) Income from 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...

  • Page 230
    ... statements of the Company. The introduction to the chapter Group financial statements sets out which parts of this Annual Report form the management report within the meaning of Section 2:391 of the Dutch Civil Code (and related Decrees). Analysis of 2011 compared to 2010 The analysis of the 2011...

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