Philips 2014 Annual Report Download - page 162

Group nancial statements 12.9 27 28
162 Annual Report 2014
The decision by the jury is part of extensive litigation,
which started in 2009, between Masimo and Philips
involving several claims and counterclaims related to a
large number of patents in the eld of pulse oximetry.
The lawsuit led by Masimo alleges that certain Philips
products infringe certain Masimo patents. In response
to these claims, Philips led its answer and
counterclaims alleging infringement of a number of
Philips’ patents and violation of US antitrust laws and
patent misuse by Masimo. The Court has decided to
handle the litigation in several phases, the rst phase of
which was tried in September 2014. The October 2014
decision by the jury is associated with this rst phase of
the litigation. Philips intends to pursue all avenues of
appeal of this verdict at both the District and Appellate
courts in the US.
Due to the considerable uncertainty associated with
the next phases of this litigation, including the impact
of the appeals thereon, the Company has concluded
that, on the basis of current knowledge, potential losses
cannot be reliably estimated with respect to the
remaining phases of the litigation. The outcome of the
litigation could have a materially adverse eect on the
company’s consolidated nancial position, results of
operations and cash ows.
27 Related-party transactions
In the normal course of business, Philips purchases and
sells goods and services from/to various related parties
in which Philips typically holds a 50% or less equity
interest and has signicant inuence. These
transactions are generally conducted with terms
comparable to transactions with third parties.
Philips Group
Related-party transactions in millions of EUR
2012 - 2014
2012 2013 2014
Sales of goods and services 288 305 215
Purchases of goods and services 130 143 85
Receivables from related parties 13 39 14
Payables to related parties 4 4 4
Non-recourse nancing of third-party receivables
provided by an associate amounted to EUR 103 million
in 2014 (2013: EUR 84 million; 2012: EUR 52 million).
In light of the composition of the Executive Committee,
the Company considers the members of the Executive
Committee and the Supervisory board to be the key
management personnel as dened in IAS 24 ‘Related
parties’.
For remuneration details of the Executive Committee,
the Board of Management and the Supervisory Board
see note 29, Information on remuneration.
For employee benet plans see note 20, Post-
employment benets.
28 Share-based compensation
The purpose of the share-based compensation plans is
to align the interests of management with those of
shareholders by providing incentives to improve the
Company’s performance on a long-term basis, thereby
increasing shareholder value.
The Company has the following plans:
•performance shares: rights to receive common shares
in the future based on performance and service
conditions;
•restricted shares: rights to receive common shares in
the future based on a service condition;
• Options on its common shares, including the 2012
and 2013 Accelerate! grant.
Since 2013 the Board of Management and other
members of the Executive Committee, executives and
certain selected employees are granted performance
shares. Restricted shares are granted only to new
employees or certain selected employees. Prior to 2013
restricted shares and options were granted to members
of the Board of Management and other members of the
Executive Committee, executives and certain selected
employees.
Furthermore, as part of the Accelerate! program, the
Company has granted options (Accelerate! options)
and restricted shares (Accelerate! shares). These
Accelerate! options and shares were granted to a group
of approximately 500 key employees below the level
of Board of Management in January 2012 and to the
Board of Management in January 2013. On January 28,
2014 the Supervisory Board resolved that all
performance targets under the Accelerate! program,
which were based on the 2013 mid-term nancial
targets have been met. Accelerate! shares fully vested
at December 31, 2013.
Share-based compensation costs were EUR 85 million
(2013: EUR 104 million, 2012: EUR 80 million). The
amount recognized as an expense is adjusted for
forfeiture. USD-denominated performance shares,
restricted shares and options are granted to employees
in the United States only.
Performance shares
The performance is measured over a three-year
performance period. The performance shares have two
performance conditions, relative Total Shareholders’
Return compared to a peer group of 21 companies and
adjusted Earnings Per Share growth. The performance
shares vest three years after the grant date. The number
of performance shares that will vest is dependent on
achieving the two performance conditions, which are
equally weighted, and provided that the grantee is still
employed with the Company.