Earnings Release • Jul 18, 2011
Earnings Release
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Philips delivers 4% growth in second quarter; management team takes next steps to improve growth and performance trajectory
Healthcare sales are up 8%, with strong growth and a healthy order book.
Consumer Lifestyle sales declined by 2%; the businesses except Lifestyle Entertainment delivered double-digit growth on aggregate. Investments for growth, lower license income and a decline at Lifestyle Entertainment lowered second-quarter results.
Lighting sales are up by 4%, with LED-based sales growing 21% year-on-year, while traditional lighting declined. The profitability of the sector was broadly impacted by tempered sales growth and margin pressure, as well as higher incremental investments in sales and marketing.
EUR 1.4 billion impairment has resulted from the annual review of business projections and discount rates,
Key initiatives have been launched to implement the Philips Business System and step up resourcing for growth, granular strategy execution, value delivery to customers, and to adapt the culture and reward system. Initiatives include a EUR 500 million cost reduction program which is expected to be margin-accretive from 2013 onwards, as well as investments in market penetration and innovation of around EUR 200 million a year.
New Executive Committee has been formed.
The large majority of Philips businesses have the right fundamentals for profitable organic growth. A growing share of one-third of Group revenue is generated in growth markets.
Mid-term performance goals have been established:
A EUR 2 billion share buy-back program is being launched, reflecting our confidence to step up profitable growth.
"Our second-quarter results were impacted by near-term operational challenges, weaker markets and a significant impairment charge. We are taking necessary steps to improve performance and we are confident in the prospects of our portfolio.
Healthcare performed strongly, improving earnings and growing comparable sales by 8% over last year. In Consumer Lifestyle, we are encouraged by growth in all businesses, excluding Lifestyle Entertainment, though investments in growth affected earnings in the quarter. Lighting sales grew 4% comparably, with our LED portfolio up a strong 21%. However, Lighting results in the quarter were disappointing.
We are addressing our operational issues, while investing for growth and instilling a new culture of entrepreneurship and accountability. We have strengthened our executive leadership and rolled out a comprehensive performance improvement and change program, Accelerate! In addition to growth initiatives, this includes a cost reduction program of EUR 500 million to improve our operating model and pave the way for profitable growth.
Given our confidence to grow organically, complemented with bolt-on acquisitions, we are launching a EUR 2 billion share buy-back program. This will also address the efficiency of our balance sheet.
We do not expect a material performance improvement in the near term as operational risks and issues remain, and also considering the current uncertain economic environment. However, we are pleased to give clarity on our mid-term trajectory ahead of plan, reflecting our ambitions for the future."
Frans van Houten, President and CEO of Royal Philips Electronics
Please refer to page 18 of this press release for more information about forward-looking statements, third-party market share data, use of non-GAAP information and use of fair-value measurements.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Sales | 5,346 | 5,213 |
| EBITA | 506 | 370 |
| as a % of sales | 9.5 | 7.1 |
| EBIT | 384 | (1,123) |
| as a % of sales | 7.2 | (21.5) |
| Financial income and expenses | (70) | (75) |
| Income taxes | (85) | (46) |
| Results investments in associates | 11 | (4) |
| Income (loss) from continuing operations | 240 | (1,248) |
| Discontinued operations | 22 | (97) |
| Net income (loss) | 262 | (1,345) |
| Net income (loss) - shareholders per common share (in euros) - basic |
0.28 | (1.39) |
in millions of euros unless otherwise stated
| Q2 | Q2 | % change | ||
|---|---|---|---|---|
| 2010 | 2011 | nominal comparable | ||
| Healthcare | 2,068 | 2,080 | 1 | 8 |
| Consumer Lifestyle |
1,338 | 1,293 | (3) | (2) |
| Lighting | 1,859 | 1,777 | (4) | 4 |
| GM&S | 81 | 63 | (22) | 27 |
| Philips Group | 5,346 | 5,213 | (2) | 4 |
| in millions of euros unless otherwise stated | ||||
|---|---|---|---|---|
| Q21) | Q2 | % change | ||
| 2010 | 2011 | nominal comparable | ||
| Western Europe | 1,531 | 1,446 | (6) | (4) |
| North America | 1,745 | 1,627 | (7) | 4 |
| Other mature markets | 365 | 405 | 11 | 12 |
| Total mature markets | 3,641 | 3,478 | (4) | 2 |
| Growth markets | 1,705 | 1,735 | 2 | 9 |
Philips Group 5,346 5,213 (2) 4
1) Revised to reflect an adjusted market cluster allocation
in millions of euros
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Healthcare | 216 | 276 |
| Consumer Lifestyle | 168 | 60 |
| Lighting | 210 | 101 |
| Group Management & Services |
(88) | (67) |
| Philips Group | 506 | 370 |
as a % of sales
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Healthcare | 10.4 | 13.3 |
| Consumer Lifestyle | 12.6 | 4.6 |
| Lighting | 11.3 | 5.7 |
| Group Management & Services |
− | − |
| Philips Group | 9.5 | 7.1 |
in millions of euros
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Healthcare | (46) | 1 |
| Consumer Lifestyle | (7) | (13) |
| Lighting | (37) | (14) |
| Group Management & Services |
− | 2 |
| Philips Group | (90) | (24) |
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Healthcare | 148 | (611) |
| Consumer Lifestyle | 160 | 24 |
| Lighting | 166 | (470) |
| Group Management & Services |
(90) | (66) |
| Philips Group | 384 | (1,123) |
| as a % of sales | 7.2 | (21.5) |
| in millions of euros | ||
|---|---|---|
| Q2 | Q2 | |
| 2010 | 2011 | |
| Net interest expenses | (64) | (48) |
| NXP arrangement | − | 4 |
| Other | (6) | (31) |
| (70) | (75) |
in millions of euros
| Q2 | Q2 |
|---|---|
| 2010 | 2011 |
| 4,388 | 4,772 |
| 299 | (210) |
| 497 | 39 |
| (198) | (249) |
| (21) | (136) |
| (14) | 36 |
| 19 | 45 |
| (296) | (259) |
| 69 | (841) |
| 49 | (147) |
| 4,493 | 3,260 |
in millions of euros
• The balance of financial income and expenses showed a deficit that was EUR 5 million higherthan in Q2 2010, as a fair-value gain on the option related to NXP and lower interest expense due to lower debt were offset by higher interest expense related to tax positions and value adjustments in respect of available-for-sale financial assets.
• Operating activities led to a cash inflow of EUR 39 million, compared to an inflow of EUR 497 million in Q2 2010. The year-on-year decrease was largely due to EUR 310 million higher working capital outflow related to higher vendor payments.
in millions of euros
as a % of moving annual total sales
1) Excludes discontinued operations for both inventories and sales figures. Inventories excluding discontinued operations are disclosed in quarterly statistics.
• Gross capital expenditures on property, plant and equipment were EUR 26 million higherthan in Q2 2010, mainly due to higher investments at Lighting and Consumer Lifestyle.
1) Number of employees excludes discontinued operations. Discontinued operations, comprising the Television business, employed at end of Q2 2010 4,516, at end of Q1 2011 3,560 and at end of Q2 2011 3,506.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Sales | 2,068 | 2,080 |
| Sales growth | ||
| % nominal | 10 | 1 |
| % comparable | 4 | 8 |
| EBITA | 216 | 276 |
| as a % of sales | 10.4 | 13.3 |
| EBIT | 148 | (611) |
| as a % of sales | 7.2 | (29.4) |
| Net operating capital (NOC) | 9,545 | 7,534 |
| Number of employees (FTEs) | 34,344 | 36,469 |
in millions of euros
EBITA
• Compared to Q2 2010, the number of employees increased by 2,125, mainly permanent personnel, mostly in growth markets, as well as from acquisitions.
• On June 27, Philips announced it has agreed to acquire the mammography equipment product line of Sectra AB. Through this acquisition, Philips will broaden its Women's Health product portfolio with a unique digital mammography solution that delivers high-quality breast images while reducing the exposure to X-ray radiation for women by up to 50% compared to other digital mammography systems.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Sales | 1,338 | 1,293 |
| Sales growth | ||
| % nominal | 16 | (3) |
| % comparable | 6 | (2) |
| EBITA | 168 | 60 |
| as a % of sales | 12.6 | 4.6 |
| EBIT | 160 | 24 |
| as a % of sales | 12.0 | 1.9 |
| Net operating capital (NOC) | 1,055 | 1,463 |
| Number of employees (FTEs) | 13,892 | 17,026 |
in millions of euros
• On July 11, Philips announced that it has agreed to acquire Povos Electric Appliance (Shanghai) Co., Ltd., a leading kitchen appliance company in China. The acquisition, which is subject to confirmatory due diligence and other customary closing conditions, underlines the importance Philips attaches to building business creation capabilities in growth markets.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Sales | 1,859 | 1,777 |
| Sales growth | ||
| % nominal | 20 | (4) |
| % comparable | 13 | 4 |
| EBITA | 210 | 101 |
| as a % of sales | 11.3 | 5.7 |
| EBIT | 166 | (470) |
| as a % of sales | 8.9 | (26.4) |
| Net operating capital (NOC) | 5,934 | 5,021 |
| Number of employees (FTEs) | 52,031 | 54,728 |
in millions of euros
EBITA
• The number of employees increased by 2,697, a large majority of which is from an increase in temporary labor.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Sales | 81 | 63 |
| Sales growth | ||
| % nominal | 11 | (22) |
| % comparable | 11 | 27 |
| EBITA Corporate Technologies | (22) | 2 |
| EBITA Corporate & Regional Costs | (35) | (28) |
| EBITA Pensions | (9) | (13) |
| EBITA Service Units and Other | (22) | (28) |
| EBITA | (88) | (67) |
| EBIT | (90) | (66) |
| Net operating capital (NOC) | (2,460)1) | (2,716) |
| Number of employees (FTEs) | 11,807 | 12,128 |
1) Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale
in millions of euros
EBITA
in millions of euros
• Philips entered into a patent license agreement with Cooper Industries relating to Philips' LED systems and controls patent portfolio. This agreement is part of Philips' LED Luminaire and Retrofit Bulb licensing program.
| Q2 | Q2 | |
|---|---|---|
| 2010 | 2011 | |
| Television EBITA | (7) | (74) |
| Former Television net costs allocated to CL | 13 | 17 |
| Former Television net costs allocated to GM&S | 16 | 15 |
| Eliminated amortization other Television intangibles |
(1) | (1) |
| Write-down to fair value less costs to sell | (85) | |
| EBIT discontinued operations | 21 | (128) |
| Financial income and expenses | (1) | − |
| Income taxes | 2 | 31 |
| Net income (loss) of discontinued operations | 22 | (97) |
| Number of employees (FTEs) | 4,516 | 3,506 |
Cash flow reporting of discontinued operations has been updated to reflect operational result reporting. New insights have led to an immaterial update on the cash flow and income statements and to a reclassification of certain net operating capital elements.
Please refer to the Adjusted statements chapter for the changed comparatives of cash flows.
• A reconciliation between the results of the former Television business and its current representation is included in the table on this page.
The Company will start a share repurchase program of up to EUR 2 billion to be executed during the next 12 months.The maximum number of shares that will be repurchased under this program depends on the development in the share price during the course of the program. Subject to approval by the Annual General Meeting of Shareholders, to be held in April 2012, all shares repurchased under this program will be cancelled, resulting in a reduction of Philips' outstanding share capital. Due to Dutch tax legislation, EUR 1.7 billion of this new share repurchase program will be free of withholding tax while the remaining part is subject to Dutch withholding tax.
Philips will start this repurchase program as of today and will enter into subsequent discretionary management agreements with one or more banks to repurchase Philips shares within the limits ofrelevant laws and regulations(in particular EC Regulation 2273/2003) and Philips' articles of association. All transactions under this program will be published on Philips' website (www.philips.com/investor) on a weekly basis.
Philips has strengthened its executive management team by establishing an Executive Committee. The Executive Committee comprises of the current Board of Management members and five experienced leaders, allowing functions, businesses and markets to be represented at the highest level in our company. Together the team will optimize the performance of the company and seize growth opportunities. As a result, the Group Management Committee will be disbanded.
This decision is in line with Philips' increased focus on markets, with Ronald de Jong being Chief Market Leader and Patrick Kung representing the fast-growing Chinese market. Furthermore, as innovation plays an essentialrole in making a difference for our customers and winning in the market, it is vital that Philips' innovation portfolio is represented in Philips' Executive Committee, together with other functions.
President and Chief Executive Officer Royal Philips Electronics Acting Chief Executive Officer Philips Lighting Chairman of the Board of Management
Executive Vice-President and Chief Financial Officer Royal Philips Electronics Acting Chief Financial Officer Philips Lighting Member of the Board of Management
Executive Vice-President and Chief Executive Officer Philips Healthcare Member of the Board of Management
Executive Vice-President and Chief Executive Officer Philips Consumer Lifestyle Member of the Board of Management
Executive Vice-President Member of the Board of Management
Executive Vice-President Royal Philips Electronics and Chief Innovation Officer Member of the Board of Management
Executive Vice-President Royal Philips Electronics Chief Market Leader
Executive Vice-President Royal Philips Electronics CEO Greater China
Executive Vice-President Royal Philips Electronics Global Head of Human Resources Management
Executive Vice-President Royal Philips Electronics Chief Strategy Officer
Executive Vice-President Royal Philips Electronics Chief Legal Officer
* Rudy Provoost will leave Philips as of September 30, 2011.
** Gottfried Dutiné will retire from Philips as of December 31, 2011.
*** Carole Wainaina will join Philips as of September 1, 2011. She will succeed Hayko Kroese, the current Global Head of Human Resource Management.
**** In the course of 2011, Jim Andrew will also take over the innovation portfolio from Gottfried Dutiné.
This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items, in particular the sector sections "Miscellaneous". Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.
These factors include but are not limited to domestic and global economic and business conditions, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips' actual future results may differ materially from the plans, goals and expectations set forth in such forwardlooking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2010 and the "Risk and uncertainties" section in our semi-annual financial report for the six months ended July 3, 2011.
Statements regarding market share, including those regarding Philips' competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.
Use of non-GAAP information In presenting and discussing the Philips Group's financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found in our Annual Report 2010.
In presenting the Philips Group's financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data do not exist, we estimated the fair values using appropriate valuation models and unobservable inputs. They require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our 2010 financial statements. Independent valuations may have been obtained to support management's determination of fair-values.
All amounts in millions of euros unless otherwise stated; data included are unaudited. Financial reporting is in accordance with IFRS, unless otherwise stated. This document comprises regulated information within the meaning of the Dutch Financial Markets Supervision Act 'Wet op het Financieel Toezicht'.
This report contains the semi-annual financial report of Koninklijke Philips Electronics N.V. ('the Company'), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (the Philips Group) are described in note 4.
The semi-annual financial report for the six months ended July 3, 2011 consists of the condensed consolidated semiannual financial statements, the semi-annual management report and responsibility statement by the Company's Board of Management. The information in this semiannual financial report is unaudited.
The condensed consolidated semi-annual financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's consolidated IFRS financial statements for the year ended December 31, 2010.
The Board of Management of the Company hereby declares that to the best of their knowledge, the semiannual financial statements, which have been prepared in accordance with the applicable financial reporting standards for interim financial reporting, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and the semi-annual management report gives a fair review of the information required pursuant to section 5:25d(8)/(9) of the Dutch Financial Markets Supervision Act (Wet op het Financieel toezicht).
Gottfried Dutiné Pieter Nota
Frans van Houten Ron Wirahadiraksa Rudy Provoost Steve Rusckowski
in millions of euros unless otherwise stated
| January-June | ||
|---|---|---|
| 2010 | 2011 | |
| Sales | 10,323 | 10,468 |
| EBITA | 999 | 809 |
| as a % of sales | 9.7 | 7.7 |
| EBIT | 763 | (804) |
| as a % of sales | 7.4 | (7.7) |
| Financial income and expenses | (139) | (76) |
| Income taxes | (209) | (140) |
| Results investments in associates | 18 | 2 |
| Income (loss) from continuing operations | 433 | (1,018) |
| Discontinued operations | 30 | (189) |
| Net income (loss) | 463 | (1,207) |
| Net income (loss) - shareholders per common share (in euros) - basic |
0.49 | (1.26) |
in millions of euros unless otherwise stated
| January-June | % change | ||||
|---|---|---|---|---|---|
| 2010 | 2011 | nominal comparable | |||
| Healthcare | 3,889 | 4,051 | 4 | 6 | |
| Consumer Lifestyle |
2,580 | 2,593 | 1 | (1) | |
| Lighting | 3,669 | 3,680 | − | 5 | |
| GM&S | 185 | 144 | (22) | 4 | |
| Philips Group | 10,323 | 10,468 | 1 | 4 |
in millions of euros
| January-June | |
|---|---|
| 2010 | 2011 |
| 382 | 475 |
| 336 | 179 |
| 455 | 294 |
| (139) | |
| 999 | 809 |
| (174) |
as a % of sales
| January-June | ||
|---|---|---|
| 2010 | 2011 | |
| Healthcare | 9.8 | 11.7 |
| Consumer Lifestyle | 13.0 | 6.9 |
| Lighting | 12.4 | 8.0 |
| Group Management & Services |
− | − |
| Philips Group | 9.7 | 7.7 |
• EBITA amounted to a net cost of EUR 139 million, a cost decrease of EUR 35 million year-on-year, driven by higher license revenues, lower expenses at Research and gains on real estate transactions.
In our Annual Report 2010 we extensively described certain risk categories and risk factors which could have a material adverse effect on our financial position and results. Those risk categories and risk factors are deemed incorporated and repeated in this report by reference.
Additional risks not known to us, or currently believed not to be material, could later turn out to have a material impact on our businesses, objectives, revenues, income, assets, liquidity or capital resources.
all amounts in millions of euros unless otherwise stated
| 2nd quarter | January-June | |||||
|---|---|---|---|---|---|---|
| 2010 | 2011 | 2010 | 2011 | |||
| Sales | 5,346 | 5,213 | 10,323 | 10,468 | ||
| Cost of sales | (3,188) | (3,170) | (6,117) | (6,300) | ||
| Gross margin | 2,158 | 2,043 | 4,206 | 4,168 | ||
| Selling expenses | (1,178) | (1,230) | (2,305) | (2,448) | ||
| General and administrative expenses | (225) | (223) | (414) | (433) | ||
| Research and development expenses | (380) | (381) | (736) | (770) | ||
| Impairment of goodwill | − | (1,355) | − | (1,355) | ||
| Other business income | 11 | 38 | 20 | 59 | ||
| Other business expenses | (2) | (15) | (8) | (25) | ||
| Income (loss) from operations | 384 | (1,123) | 763 | (804) | ||
| Financial income | 17 | 15 | 28 | 106 | ||
| Financial expenses | (87) | (90) | (167) | (182) | ||
| Income (loss) before taxes | 314 | (1,198) | 624 | (880) | ||
| Income tax expense | (85) | (46) | (209) | (140) | ||
| Income (loss) after taxes | 229 | (1,244) | 415 | (1,020) | ||
| Results relating to investments in associates | 11 | (4) | 18 | 2 | ||
| Net income (loss) from continuing operations | 240 | (1,248) | 433 | (1,018) | ||
| Discontinued operations - net of income tax | 22 | (97) | 30 | (189) | ||
| Net income (loss) | 262 | (1,345) | 463 | (1,207) | ||
| Attribution of net income for the period | ||||||
| Net income (loss) attributable to shareholders | 259 | (1,344) | 459 | (1,207) | ||
| Net income (loss) attributable to non-controlling interests | 3 | (1) | 4 | − | ||
| Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands): |
||||||
| - basic | 940,3571) | 964,027 | 934,3811) | 955,448 | ||
| - diluted | 949,3751) | 970,402 | 942,4841) | 962,791 | ||
| Net income (loss) attributable to shareholders per common share in euros: | ||||||
| - basic | 0.28 | (1.39) | 0.49 | (1.26) | ||
| - diluted2) | 0.27 | (1.39) | 0.49 | (1.26) | ||
| Ratios | ||||||
| Gross margin as a % of sales | 40.4 | 39.2 | 40.7 | 39.8 | ||
| Selling expenses as a % of sales | (22.0) | (23.6) | (22.3) | (23.4) | ||
| G&A expenses as a % of sales | (4.2) | (4.3) | (4.0) | (4.1) | ||
| R&D expenses as a % of sales | (7.1) | (7.3) | (7.1) | (7.4) | ||
| EBIT | 384 | (1,123) | 763 | (804) | ||
| as a % of sales | 7.2 | (21.5) | 7.4 | (7.7) | ||
| EBITA | 506 | 370 | 999 | 809 | ||
| as a % of sales | 9.5 | 7.1 | 9.7 | 7.7 |
1) Adjusted to make 2010 comparable for the bonus shares (667 thousand) issued in April 2011
2) The incremental shares from assumed conversion are not taken into account in the periods for which there is a loss attributable to shareholders, as the effect would be antidilutive
all amounts in millions of euros
| 2nd quarter | January-June | ||||
|---|---|---|---|---|---|
| 2010 | 2011 | 2010 | 2011 | ||
| Net income (loss) for the period: | 262 | (1,345) | 463 | (1,207) | |
| Other comprehensive income: | |||||
| Actuarial losses on pension plans: | |||||
| Net current period change, before tax | − | − | − | − | |
| Income tax on net current period change | − | (1) | (4) | (3) | |
| Revaluation reserve: | |||||
| Release revaluation reserve | (4) | (4) | (8) | (8) | |
| Reclassification into retained earnings | 4 | 4 | 8 | 8 | |
| Currency translation differences: | |||||
| Net current period change, before tax | 568 | (112) | 954 | (451) | |
| Income tax on net current period change | (5) | − | (9) | 3 | |
| Reclassification adjustment for (income) loss realized | 0 | 3 | (2) | 3 | |
| Available-for-sale financial assets: | |||||
| Net current period change | (47) | (19) | 1 | (42) | |
| Income tax on net current period change | − | 13 | − | 13 | |
| Reclassification adjustment for (income) loss realized | (4) | 11 | (4) | (47) | |
| Cash flow hedges: | |||||
| Net current period change, before tax | (34) | (15) | (44) | (23) | |
| Income tax on net current period change | 9 | 3 | 11 | 2 | |
| Reclassification adjustment for (income) loss realized | (1) | 1 | (4) | 6 | |
| Other comprehensive (income) loss for the period | 486 | (116) | 899 | (539) | |
| Total comprehensive income (loss) for the period | 748 | (1,461) | 1,362 | (1,746) | |
| Total comprehensive income (loss) attributable to: | |||||
| Shareholders | 745 | (1,460) | 1,358 | (1,746) | |
| Non-controlling interests | 3 | (1) | 4 | − |
in millions of euros unless otherwise stated
| July 4, | December 31, | July 3, | |
|---|---|---|---|
| 2010 | 2010 | 2011 | |
| Non-current assets: | |||
| Property, plant and equipment | 3,4211) | 3,1451) | 2,866 |
| Goodwill | 8,589 | 8,035 | 6,180 |
| Intangible assets excluding goodwill | 4,612 | 4,198 | 3,796 |
| Non-current receivables | 104 | 88 | 102 |
| Investments in associates | 191 | 181 | 164 |
| Other non-current financial assets | 764 | 479 | 367 |
| Deferred tax assets | 1,390 | 1,351 | 1,304 |
| Other non-current assets | 1,714 | 75 | 210 |
| Total non-current assets | 20,785 | 17,552 | 14,989 |
| Current assets: | |||
| Inventories - net | 3,928 | 3,865 | 3,760 |
| Other current financial assets | 195 | 5 | 3 |
| Other current assets | 398 | 348 | 419 |
| Derivative financial assets | 238 | 112 | 137 |
| Income tax receivable | 85 | 79 | 108 |
| Receivables | 4,183 | 4,355 | 3,850 |
| Assets classified as held for sale | 9 1) |
1201) | 614 |
| Cash and cash equivalents | 4,493 | 5,833 | 3,260 |
| Total current assets | 13,529 | 14,717 | 12,151 |
| Total assets | 34,314 | 32,269 | 27,140 |
| Shareholders' equity | 15,736 | 15,046 | 13,086 |
| Non-controlling interests | 61 15,797 |
46 15,092 |
30 13,116 |
| Group equity | |||
| Non-current liabilities: | |||
| Long-term debt | 3,053 | 2,818 | 2,703 |
| Long-term provisions | 1,803 | 1,716 | 1,687 |
| Deferred tax liabilities | 519 | 171 | 55 |
| Other non-current liabilities | 2,307 | 1,714 | 1,616 |
| Total non-current liabilities | 7,682 | 6,419 | 6,061 |
| Current liabilities: | |||
| Short-term debt | 1,746 | 1,840 | 713 |
| Derivative financial liabilities | 1,049 | 564 | 310 |
| Income tax payable | 279 | 291 | 206 |
| Accounts and notes payable | 3,462 | 3,691 | 2,585 |
| Accrued liabilities | 2,804 | 2,995 | 2,601 |
| Short-term provisions | 732 | 623 | 527 |
| Liabilities directly associated with assets held for sale | − | − | 427 |
| Other current liabilities | 763 | 754 | 594 |
| Total current liabilities | 10,835 | 10,758 | 7,963 |
| Total liabilities and group equity | 34,314 | 32,269 | 27,140 |
| July 4, | December 31, | July 3, | |
|---|---|---|---|
| 2010 | 2010 | 2011 | |
| Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands) |
945,312 | 946,506 | 972,436 |
| Ratios | |||
| Shareholders' equity per common share in euros | 16.65 | 15.90 | 13.46 |
| Inventories as a % of sales2) | 16.8 | 15.6 | 16.8 |
| Net debt : group equity | 2:98 | (8):108 | 1:99 |
| Net operating capital | 14,0741) | 11,9511) | 11,302 |
| Employees at end of period | 116,590 | 119,001 | 123,857 |
| of which discontinued operations | 4,516 | 3,610 | 3,506 |
1) Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale
2) Excludes discontinued operations for both inventories and sales figures. Inventories excluding discontinued operations are disclosed in quarterly statistics.
all amounts in millions of euros
| 2nd quarter | January to June | ||||
|---|---|---|---|---|---|
| 2010 | 2011 | 2010 | 2011 | ||
| Cash flows from operating activities: | |||||
| Net income (loss) | 262 | (1,345) | 463 | (1,207) | |
| (Income) loss from discontinued operations | (22) | 97 | (30) | 189 | |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||||
| Depreciation and amortization | 336 | 351 | 657 | 671 | |
| Impairment of goodwill and other non-current financial assets | 4 | 1,366 | 4 | 1,366 | |
| Net gain on sale of assets | (8) | (9) | (14) | (64) | |
| (Income) loss from investments in associates | (14) | 4 | (16) | (2) | |
| Dividends received from investments in associates | 5 | 7 | 13 | 23 | |
| Dividends paid to non-controlling interests | − | (1) | (1) | (1) | |
| Increase (decrease) in working capital: | 97 | (213) | (163) | (1,060) | |
| Decrease (increase) in receivables and other current assets | (5) | (41) | 5 | 33 | |
| Increase in inventories | (209) | (255) | (428) | (453) | |
| Increase (decrease) in accounts payable, accrued and other liabilities | 311 | 83 | 260 | (640) | |
| Increase in non-current receivables, other assets and other liabilities | (57) | (145) | (151) | (275) | |
| Decrease in provisions | (17) | (34) | (55) | (81) | |
| Other items | (89) | (39) | (121) | 6 | |
| Net cash provided by (used for) operating activities | 497 | 39 | 586 | (435) | |
| Cash flows from investing activities: | |||||
| Purchase of intangible assets | (18) | (17) | (26) | (65) | |
| Expenditures on development assets | (48) | (69) | (92) | (119) | |
| Capital expenditures on property, plant and equipment | (158) | (184) | (281) | (345) | |
| Proceeds from disposals of property, plant and equipment | 26 | 21 | 47 | 56 | |
| Cash from (to) derivatives and securities | (19) | 34 | (41) | 52 | |
| Purchase of other non-current financial assets | (6) | − | (12) | (6) | |
| Proceeds from other non-current financial assets | 11 | 2 | 14 | 89 | |
| Purchase of businesses, net of cash acquired | (21) | (132) | (24) | (190) | |
| Proceeds from sale of interests in businesses, net of cash disposed of | − | (4) | 98 | − | |
| Net cash used forinvesting activities | (233) | (349) | (317) | (528) | |
| Cash flows from financing activities: | |||||
| Proceeds from issuance of (payments on) short-term debt | 11 | (189) | 23 | (71) | |
| Principal payments on long-term debt | (24) | (768) | (37) | (1,053) | |
| Proceeds from issuance of long-term debt | 19 | 97 | 29 | 121 | |
| Treasury shares transactions | 19 | 45 | 43 | 62 | |
| Dividends paid | (296) | (259) | (296) | (259) | |
| Net cash used for financing activities | (271) | (1,074) | (238) | (1,200) | |
| Net cash (used for) provided by continuing operations | (7) | (1,384) | 31 | (2,163) | |
| Cash flow from discontinued operations: | |||||
| Net cash provided by (used for) operating activities | 66 | (128) | 4 | (348) | |
| Net cash used for investing activities | (17) | (19) | (42) | (45) | |
| Net cash provided by (used for) discontinued operations | 49 | (147) | (38) | (393) | |
| Net cash provided by (used for) continuing and discontinued operations | 42 | (1,531) | (7) | (2,556) | |
| 2nd quarter | January to June | ||||
|---|---|---|---|---|---|
| 2010 | 2011 | 2010 | 2011 | ||
| Effect of change in exchange rates on cash and cash equivalent | 63 | 19 | 114 | (17) | |
| Cash and cash equivalents at the beginning of the period | 4,388 | 4,772 | 4,386 | 5,833 | |
| Cash and cash equivalents at the end of the period | 4,493 | 3,260 | 4,493 | 3,260 | |
| Ratio | |||||
| Cash flows before financing activities | 264 | (310) | 269 | (963) | |
| Net cash paid during the period for | |||||
| Pensions | (105) | (132) | (220) | (365) | |
| Interest | (62) | (58) | (138) | (136) | |
| Income taxes | (47) | (96) | (108) | (281) |
For a number of reasons, principally the effects of translation differences, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items.
in millions of euros
| other reserves | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| com mon shares |
capital in ex cess of par val ue |
re tained earn ings |
revalu ation re serve |
curren cy transla tion dif feren ces |
unreal ized gain (loss) on available for-sale financial assets |
changes in fair value of cash flow hedges |
total | treas ury shares at cost |
total share hold ers' equity |
non con trolling inter ests |
total equity |
|
| January-June 2011 | ||||||||||||
| Balance as of December 31, 2010 | 197 | 354 | 15,416 | 86 | (65) | 139 | (5) | 69 | (1,076) 15,046 | 46 | 15,092 | |
| Total comprehensive income | (1,202) | (8) | (445) | (76) | (15) | (536) | (1,746) | − | (1,746) | |||
| Dividend distributed | 5 | 443 | (711) | (263) | (263) | |||||||
| Movement non-controlling interest | (5) | (5) | (16) | (21) | ||||||||
| Re-issuance of treasury shares | (32) | (2) | 63 | 29 | 29 | |||||||
| Share-based compensation plans | 28 | 28 | 28 | |||||||||
| Income tax share-based compensation plans |
(3) | (3) | (3) | |||||||||
| 5 | 436 | (718) | 63 | (214) | (16) | (230) | ||||||
| Balance as of July 3, 2011 | 202 | 790 | 13,496 | 78 | (510) | 63 | (20) | (467) | (1,013) 13,086 | 30 | 13,116 | |
| January-June 2010 | ||||||||||||
| Balance as of December 31, 2009 | 194 | - | 15,947 | 102 | (591) | 120 | 10 | (461) | (1,187) 14,595 | 49 | 14,644 | |
| Total comprehensive income | 463 | (8) | 943 | (3) | (37) | 903 | 1,358 | 4 | 1,362 | |||
| Dividend distributed | 3 | 343 | (650) | (304) | (304) | |||||||
| Movement non-controlling interest | 8 | 8 | ||||||||||
| Re-issuance of treasury shares | (46) | 8 | 86 | 48 | 48 | |||||||
| Share-based compensation plans | 29 | 29 | 29 | |||||||||
| Income tax share-based compensation plans |
10 | 10 | 10 | |||||||||
| 3 | 336 | (642) | 86 | (217) | 8 | (209) | ||||||
| Balance as of July 4, 2010 | 197 | 336 | 15,768 | 94 | 352 | 117 | (27) | 442 | (1,101) 15,736 | 61 | 15,797 |
all amounts in millions of euros unless otherwise stated
| 2nd quarter | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | ||||||||||
| sales including inter company |
sales | income from operations | sales including inter company |
sales | income from operations | |||||
| amount | as a % of sales |
amount | as a % of sales |
|||||||
| Healthcare | 2,072 | 2,068 | 148 | 7.2 | 2,083 | 2,080 | (611) | (29.4) | ||
| Consumer Lifestyle | 1,342 | 1,338 | 160 | 12.0 | 1,296 | 1,293 | 24 | 1.9 | ||
| Lighting | 1,864 | 1,859 | 166 | 8.9 | 1,779 | 1,777 | (470) | (26.4) | ||
| Group Management & Services | 123 | 81 | (90) | − | 126 | 63 | (66) | − | ||
| Inter-sector eliminations | (55) | (71) | ||||||||
| 5,346 | 5,346 | 384 | 7.2 | 5,213 | 5,213 | (1,123) | (21.5) |
| January to June | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | |||||||||||
| sales including inter company |
sales | income from operations | sales including inter company |
sales | income from operations | ||||||
| amount | as a % of sales |
amount | as a % of sales |
||||||||
| Healthcare | 3,896 | 3,889 | 251 | 6.5 | 4,058 | 4,051 | (473) | (11.7) | |||
| Consumer Lifestyle | 2,587 | 2,580 | 320 | 12.4 | 2,598 | 2,593 | 129 | 5.0 | |||
| Lighting | 3,676 | 3,669 | 370 | 10.1 | 3,683 | 3,680 | (318) | (8.6) | |||
| Group Management & Services | 265 | 185 | (178) | − | 267 | 144 | (142) | − | |||
| Inter-sector eliminations | (101) | (138) | |||||||||
| 10,323 | 10,323 | 763 | 7.4 | 10,468 | 10,468 | (804) | (7.7) |
in millions of euros
| sales | total assets | |||
|---|---|---|---|---|
| January to June | July 4, | July 3, | ||
| 2010 | 2011 | 2010 | 2011 | |
| Healthcare | 3,889 | 4,051 | 12,550 | 10,297 |
| Consumer Lifestyle | 2,580 | 2,593 | 3,904 | 3,325 |
| Lighting | 3,669 | 3,680 | 7,766 | 6,644 |
| Group Management & Services | 185 | 144 | 10,094 | 6,260 |
| 10,323 | 10,468 | 34,305 | 26,526 | |
| Assets classified as held for sale | 9 1) |
614 | ||
| 34,314 | 27,140 |
1) Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale
| sales | tangible and intangible assets1) | |||
|---|---|---|---|---|
| January to June | July 4, | July 3, | ||
| 20102) | 2011 | 20102,3) | 2011 | |
| Netherlands | 328 | 329 | 1,206 | 920 |
| United States | 3,061 | 2,998 | 10,671 | 7,967 |
| China | 874 | 939 | 824 | 733 |
| Germany | 637 | 641 | 286 | 169 |
| France | 534 | 478 | 117 | 93 |
| Japan | 423 | 427 | 570 | 556 |
| Brazil | 298 | 336 | 140 | 18 |
| Other countries | 4,168 | 4,320 | 2,809 | 2,386 |
| 10,323 | 10,468 | 16,622 | 12,842 |
1) Includes property, plant and equipment, intangible assets excluding goodwill, and goodwill
2) Revised to reflect an adjusted country allocation
3) Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale
in millions of euros
| 2nd quarter | ||||||
|---|---|---|---|---|---|---|
| 2010 | 2011 | |||||
| Netherlands | other | total | Netherlands | other | total | |
| Costs of defined-benefit plans (pensions) | ||||||
| Service cost | 23 | 21 | 44 | 32 | 17 | 49 |
| Interest cost on the defined-benefit obligation | 131 | 110 | 241 | 139 | 99 | 238 |
| Expected return on plan assets | (186) | (93) | (279) | (179) | (96) | (275) |
| Prior service cost | − | (1) | (1) | − | 1 | 1 |
| Curtailments | − | − | − | − | (15) | (15) |
| Net periodic cost (income) | (32) | 37 | 5 | (8) | 6 | (2) |
| of which discontinued operations | − | − | − | 1 | 1 | 2 |
| Costs of defined-contribution plans | 2 | 29 | 31 | 2 | 24 | 26 |
| of which discontinued operations | − | 1 | 1 | − | − | − |
| Costs of defined-benefit plans (retiree medical) |
||||||
| Service cost | − | − | − | − | 1 | 1 |
| Interest cost on the defined-benefit obligation | − | 6 | 6 | − | 4 | 4 |
| Prior service cost | − | (1) | (1) | − | (1) | (1) |
| Net periodic cost | − | 5 | 5 | − | 4 | 4 |
| of which discontinued operations | − | − | − | − | − | − |
| January to June | ||||||
|---|---|---|---|---|---|---|
| 2010 | 2011 | |||||
| Netherlands | other | total | Netherlands | other | total | |
| Costs of defined-benefit plans (pensions) | ||||||
| Service cost | 46 | 39 | 85 | 64 | 36 | 100 |
| Interest cost on the defined-benefit obligation | 261 | 211 | 472 | 278 | 201 | 479 |
| Expected return on plan assets | (372) | (176) | (548) | (357) | (193) | (550) |
| Prior service cost | − | (1) | (1) | − | 1 | 1 |
| Curtailments | − | − | − | − | (15) | (15) |
| Net periodic cost (income) | (65) | 73 | 8 | (15) | 30 | 15 |
| of which discontinued operations | 1 | − | 1 | 2 | 1 | 3 |
| Costs of defined-contribution plans | 4 | 58 | 62 | 4 | 57 | 61 |
| of which discontinued operations | − | 2 | 2 | − | 1 | 1 |
| Costs of defined-benefit plans (retiree medical) |
||||||
| Service cost | − | 1 | 1 | − | 1 | 1 |
| Interest cost on the defined-benefit obligation | − | 11 | 11 | − | 9 | 9 |
| Prior service cost | − | (2) | (2) | − | (2) | (2) |
| Net periodic cost | − | 10 | 10 | − | 8 | 8 |
| of which discontinued operations | − | − | − | − | − | − |
all amounts in millions of euros unless otherwise stated.
Certain non-GAAP financial measures are presented when discussing the Philips Group's performance. In the following tables, a reconciliation to the most directly comparable IFRS performance measure is made.
| 2nd quarter | January to June | |||||||
|---|---|---|---|---|---|---|---|---|
| comparable growth |
currency effects |
consolid ation changes |
nominal growth |
comparable growth |
currency effects |
consolid ation changes |
nominal growth |
|
| 2011 versus 2010 | ||||||||
| Healthcare | 7.5 | (6.9) | − | 0.6 | 6.1 | (1.8) | (0.1) | 4.2 |
| Consumer Lifestyle | (1.7) | (4.3) | 2.6 | (3.4) | (0.9) | (0.9) | 2.3 | 0.5 |
| Lighting | 3.7 | (5.9) | (2.2) | (4.4) | 4.7 | (1.2) | (3.2) | 0.3 |
| GM&S | 27.3 | (0.2) | (49.3) | (22.2) | 4.2 | 0.5 | (26.9) | (22.2) |
| Philips Group | 4.0 | (5.8) | (0.7) | (2.5) | 3.8 | (1.4) | (1.0) | 1.4 |
| Philips Group | Healthcare | Consumer Lifestyle |
Lighting | GM&S | |
|---|---|---|---|---|---|
| January to June 2011 | |||||
| EBITA (or Adjusted income from operations) | 809 | 475 | 179 | 294 | (139) |
| Amortization of intangibles1) | (258) | (124) | (50) | (81) | (3) |
| Impairment of goodwill | (1,355) | (824) | − | (531) | − |
| Income from operations (or EBIT) | (804) | (473) | 129 | (318) | (142) |
| January to June 2010 | |||||
| EBITA (or Adjusted income from operations) | 999 | 382 | 336 | 455 | (174) |
| Amortization of intangibles1) | (236) | (131) | (16) | (85) | (4) |
| Income from operations (or EBIT) | 763 | 251 | 320 | 370 | (178) |
1) Excluding amortization of software and product development
| July 4, | December 31, | July 3, | |
|---|---|---|---|
| 2010 | 2010 | 2011 | |
| Long-term debt | 3,053 | 2,818 | 2,703 |
| Short-term debt | 1,746 | 1,840 | 713 |
| Total debt | 4,799 | 4,658 | 3,416 |
| Cash and cash equivalents | 4,493 | 5,833 | 3,260 |
| Net debt (cash) (total debt less cash and cash equivalents) | 306 | (1,175) | 156 |
| Shareholders' equity | 15,736 | 15,046 | 13,086 |
| Non-controlling interests | 61 | 46 | 30 |
| Group equity | 15,797 | 15,092 | 13,116 |
| Net debt and group equity | 16,103 | 13,917 | 13,272 |
| Net debt divided by net debt and group equity (in %) | 2 | (8) | 1 |
| Group equity divided by net debt and group equity (in %) | 98 | 108 | 99 |
all amounts in millions of euros
| Philips Group | Healthcare | Consumer Lifestyle |
Lighting | GM&S | |
|---|---|---|---|---|---|
| July 3, 2011 | |||||
| Net operating capital (NOC) | 11,302 | 7,534 | 1,463 | 5,021 | (2,716) |
| Exclude liabilities comprised in NOC: | |||||
| - payables/liabilities |
7,912 | 2,363 | 1,445 | 1,330 | 2,774 |
| - intercompany accounts |
− | 73 | 109 | 51 | (233) |
| - provisions |
2,214 | 255 | 308 | 221 | 1,430 |
| Include assets not comprised in NOC: | |||||
| - investments in associates |
164 | 72 | − | 21 | 71 |
| - other current financial assets |
3 | − | − | − | 3 |
| - other non-current financial assets |
367 | − | − | − | 367 |
| - deferred tax assets |
1,304 | − | − | − | 1,304 |
| - cash and cash equivalents |
3,260 | − | − | − | 3,260 |
| 26,526 | 10,297 | 3,325 | 6,644 | 6,260 | |
| Assets classified as held for sale | 614 | ||||
| Total assets | 27,140 | ||||
| December 31, 2010 | |||||
| Net operating capital (NOC) | 11,951 | 8,908 | 911 | 5,561 | (3,429)1) |
| Exclude liabilities comprised in NOC: | |||||
| - payables/liabilities |
10,009 | 2,603 | 2,509 | 1,485 | 3,412 |
| - intercompany accounts |
− | 54 | 95 | 68 | (217) |
| - provisions |
2,339 | 321 | 342 | 247 | 1,429 |
| Include assets not comprised in NOC: | |||||
| - investments in associates |
181 | 76 | 1 | 18 | 86 |
| - other current financial assets |
6 | − | − | − | 6 |
| - other non-current financial assets |
479 | − | − | − | 479 |
| - deferred tax assets |
1,351 | − | − | − | 1,351 |
| - cash and cash equivalents |
5,833 | − | − | − | 5,833 |
| 32,149 | 11,962 | 3,858 | 7,379 | 8,950 | |
| Assets classified as held for sale1) | 120 | ||||
| Total assets | 32,269 | ||||
| July 4, 2010 | |||||
| Net operating capital (NOC) | 14,074 | 9,545 | 1,055 | 5,934 | (2,460)1) |
| Exclude liabilities comprised in NOC: | |||||
| - payables/liabilities |
10,664 | 2,521 | 2,358 | 1,443 | 4,342 |
| - intercompany accounts |
− | 49 | 94 | 76 | (219) |
| - provisions |
2,535 | 355 | 396 | 290 | 1,494 |
| Include assets not comprised in NOC: | |||||
| - investments in associates |
191 | 80 | 1 | 23 | 87 |
| - other current financial assets |
194 | − | − | − | 194 |
| - other non-current financial assets |
764 | − | − | − | 764 |
| - deferred tax assets |
1,390 | − | − | − | 1,390 |
| - cash and cash equivalents |
4,493 | − | − | − | 4,493 |
| 34,305 | 12,550 | 3,904 | 7,766 | 10,085 | |
| Assets classified as held for sale1) | 9 | ||||
| Total assets | 34,314 |
1) Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale
all amounts in millions of euros
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2010 | 2011 | 2010 | 2011 | |
| Cash flows provided by (used for) operating activities | 497 | 39 | 586 | (435) |
| Cash flows used for investing activities | (233) | (349) | (317) | (528) |
| Cash flows before financing activities | 264 | (310) | 269 | (963) |
| Cash flows provided by (used for) operating activities | 497 | 39 | 586 | (435) |
| Purchase of intangible assets | (18) | (17) | (26) | (65) |
| Expenditures on development assets | (48) | (69) | (92) | (119) |
| Capital expenditures on property, plant and equipment | (158) | (184) | (281) | (345) |
| Proceeds from disposals of property, plant and equipment | 26 | 21 | 47 | 56 |
| Net capital expenditures | (198) | (249) | (352) | (473) |
| Free cash flows | 299 | (210) | 234 | (908) |
all amounts in millions of euros unless otherwise stated
| 2010 | 2011 | |||||||
|---|---|---|---|---|---|---|---|---|
| 1st quarter |
2nd quarter |
3rd quarter |
4th quarter |
1st quarter |
2nd quarter |
3rd quarter |
4th quarter |
|
| Sales | 4,977 | 5,346 | 5,455 | 6,491 | 5,255 | 5,213 | ||
| % increase | 13 | 15 | 12 | 5 | 6 | (2) | ||
| EBITA | 493 | 506 | 646 | 917 | 439 | 370 | ||
| as a % of sales | 9.9 | 9.5 | 11.8 | 14.1 | 8.4 | 7.1 | ||
| EBIT | 379 | 384 | 517 | 800 | 319 | (1,123) | ||
| as a % of sales | 7.6 | 7.2 | 9.5 | 12.3 | 6.1 | (21.5) | ||
| Net income (loss) | 201 | 262 | 524 | 465 | 138 | (1,345) | ||
| Net income (loss) - shareholders per | ||||||||
| common share in euros - basic | 0.22 | 0.28 | 0.55 | 0.49 | 0.14 | (1.39) | ||
| January | January | January | January | January | January | January | January | |
| March | June | September | December | March | June | September | December | |
| Sales | 4,977 | 10,323 | 15,778 | 22,269 | 5,255 | 10,468 | ||
| % increase | 13 | 14 | 14 | 11 | 6 | 1 | ||
| EBITA | 493 | 999 | 1,645 | 2,562 | 439 | 809 | ||
| as a % of sales | 9.9 | 9.7 | 10.4 | 11.5 | 8.4 | 7.7 | ||
| EBIT | 379 | 763 | 1,280 | 2,080 | 319 | (804) | ||
| as a % of sales | 7.6 | 7.4 | 8.1 | 9.3 | 6.1 | (7.7) | ||
| Net income (loss) | 201 | 463 | 987 | 1,452 | 138 | (1,207) | ||
| Net income (loss) - shareholders per | ||||||||
| common share in euros - basic | 0.22 | 0.49 | 1.05 | 1.54 | 0.14 | (1.26) | ||
| Net income (loss) from continuing | ||||||||
| operations as a % of shareholders' equity | 5.6 | 6.3 | 9.1 | 9.8 | 6.6 | (14.8) | ||
| period ended 2010 | period ended 2011 | |||||||
| Inventories as a % of sales1) | 15.1 | 16.8 | 16.7 | 15.6 | 15.6 | 16.8 | ||
| Inventories excluding discontinued | ||||||||
| operations | 3,116 | 3,587 | 3,666 | 3,479 | 3,528 | 3,760 | ||
| Net debt : group equity ratio | 1:99 | 2:98 | 1:99 | (8):108 | (3):103 | 1:99 | ||
| Total employees (in thousands) | 116 | 117 | 118 | 119 | 121 | 124 | ||
| of which discontinued operations | 5 | 5 | 4 | 4 | 4 | 4 | ||
1) Excludes discontinued operations for both inventories and sales figures
Information also available on Internet, address: www.philips.com/investorrelations
The cash flow reporting of discontinued operations from the press release on the first quarter of 2011 has been adjusted to reflect operational result reporting of the Television business.
New insights have led to immaterial changes on the comparatives of cash flow and income statements and have led to a reclassification of certain net operating capital elements of the Television business transfer to the long-term strategic partnership with TPV.
The following table presents the adjusted cash flow statements from the press release on the first quarter of 2011.
| Q1 | Q1 | |
|---|---|---|
| 2010 | 2011 | |
| Cash flows from operating activities: | ||
| Net income (loss) | 201 | 138 |
| Gain (loss) on discontinued operations | (8) | 92 |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
||
| Depreciation and amortization | 321 | 320 |
| Net gain on sale of assets | (6) | (55) |
| Income from investments in associates | (2) | (6) |
| Dividends received from investments in associates |
8 | 16 |
| Dividends paid to non-controlling interests | (1) | − |
| Increase in working capital: | (260) | (847) |
| Decrease in receivables and other current assets | 10 | 74 |
| Increase in inventories | (219) | (198) |
| Decrease in accounts payable, accrued and other liabilities |
(51) | (723) |
| Increase in non-current receivables/other assets/ other liabilities |
(94) | (130) |
| Decrease in provisions | (38) | (47) |
| Other items | (32) | 45 |
| Net cash (used for) provided by operating activities | 89 | (474) |
| Cash flows from investing activities: | ||
| Purchase of intangible assets | (8) | (48) |
| Expenditures on development assets | (44) | (50) |
| Capital expenditures on property, plant and equipment |
(123) | (161) |
| Proceeds from disposals of property, plant and equipment |
21 | 35 |
| Cash from (to) derivatives and securities | (22) | 18 |
| Purchase of other non-current financial assets | (6) | (6) |
| Proceeds from other non-current financial assets | 3 | 87 |
| Purchase of businesses, net of cash acquired | (3) | (58) |
| Proceeds from sale of interests in businesses | 98 | 4 |
| Net cash used for investing activities | (84) | (179) |
| Cash flows from financing activities: | ||
| Decrease in short-term debt | 12 | 118 |
| Principal payments on long-term debt | (13) | (285) |
| Proceeds from issuance of long-term debt | 10 | 24 |
| Treasury shares transactions | 24 | 17 |
| Net cash provided by financing activities | 33 | (126) |
| Net increase (decrease) in cash and cash equivalents |
38 | (779) |
| Cash flow from discontinued operations: | ||
| Net cash used for operating activities | (62) | (220) |
| Net cash used for investing activities | (25) | (26) |
| Net cash used for discontinued operations | (87) | (246) |
| Net cash used for continued and discontinued operations |
(49) (1,025) |
| Significant accounting policies 1 |
39 |
|---|---|
| Estimates 2 |
40 |
| Financial risk management 3 |
40 |
| 4 Segment information |
40 |
| Seasonality 5 |
40 |
| Discontinued operations and other assets 6 |
41 |
| classified as held for sale | |
| Acquisitions and divestments 7 |
41 |
| Income taxes 8 |
41 |
| Property, plant and equipment 9 |
41 |
| 10 Goodwill |
42 |
| Intangible assets excluding goodwill 11 |
43 |
| Other non-current financial assets | |
| 12 | 44 |
| Inventories 13 |
44 |
| Shareholders' equity 14 |
44 |
| Short-term and long-term debt 15 |
44 |
| Provisions 16 |
45 |
| 17 Accrued liabilities |
45 |
| Pensions 18 |
45 |
| Contingent liabilities 19 |
45 |
| Related-party transactions 20 |
46 |
| Share-based compensation 21 |
46 |
| Subsequent events 22 |
47 |
all amounts in millions of euros unless otherwise stated
This report contains the semi-annual financial report of Koninklijke Philips Electronics N.V. ('the Company'), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (the Philips Group) are described in note 4.
The semi-annual financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
The significant accounting policies applied in these semiannual financial statements are consistent with those applied in the Company's Consolidated IFRS financial statements as at and for the year ended December 31, 2010, except for the adoption of the following new standards, amendments to standards and interpretations, which have been adopted as relevant for the Company for the first time. These standards and interpretations have no material effect on the Company's semi-annual financial statements; however, some of these standards have affected disclosures.
The following new standards and amendments to existing standards have been published and are mandatory for the Company beginning on or after January 1, 2012 or later periods. The Company has not early adopted these standards.
The revisions to IAS 19 are effective for annual periods beginning on or after January 1, 2013. In general, the amendment no longer allows for deferral of actuarial gains and losses or cost of plan changes, and it introduces significant changesto the recognition and measurement of defined-benefit pension expenses and their presentation in the income statement. Additional disclosure requirements have been added for risks and plan
objectives, and the distinction between short-term and other long-term benefits has been revised. The revisions further clarify the classification of various costsinvolved in benefit plans like expenses and taxes.
1 Significant accounting policies The amendment will have a material impact on income from operations and net income of the Company, resulting from the 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 expected return on plan assets recognized in profit or loss to be calculated based on the rate used to discount the defined benefit obligation. There is no impact on the cash flow statement and the balance sheet, since the Company already applies immediate recognition of actuarial gains and losses.
The standard introduces certain new requirements for classifying and measuring financial assets and liabilities. IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications, those measured at amortized cost and those measured at fair value. The standard, along with proposed expansion of IFRS 9 for classifying and measuring financial liabilities, derecognition of financial instruments, impairment and hedge accounting, will be applicable from January 1, 2013, although entities are permitted to adopt earlier. The Company is currently evaluating the impact that this new standard will have on the Company's Consolidated IFRS financial statements.
IFRS 10 replacesthe consolidation requirementsin SIC-12 Consolidation—Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. IFRS 10 changes the definition of control so the same criteria are applied to all entities to determine control. The revised definition of control focuses on the need to have both power and variable returns before control is present. The new standard includes guidance on control with less than half of the voting rights ('de-facto' control), participating and protective voting rights and agent/principal relationships. This new standard will be applicable from January 1, 2013. The Company is currently evaluating the impact that this new standard will have on the Company's Consolidated IFRS financial statements.
The following new standards or amendments are not expected to have a material impact on the Company:
IFRS 7 'Financial Instruments: Disclosures' and IFRS 13 'Fair Value Measurement' are expected to impact disclosures only.
The preparation of the semi-annual financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated semi-annual financial statements, the significant estimates and judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2010.
The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended December 31, 2010.
Philips' activities are organized on a sector basis, with operating sectors – Healthcare, Consumer Lifestyle and Lighting – each being responsible for the management of its business worldwide, and Group Management & Services (GM&S). A short description of these sectors is as follows:
• Healthcare: consists of the following businesses – Imaging Systems, Home Healthcare Solutions, Patient Care & Clinical Informatics, and Customer Services.
Reportable segments for the purpose of the segmental disclosures required by IAS 34 Interim Financial Statements are: Healthcare, Consumer Lifestyle and Lighting.
Significant segment information can be found in the Sectors, Sectors and main countries and Reconciliation of non-GAAP performance measures sections of this document.
3 Financial risk management 4 Segment information Under normal economic conditions, the Group's sales are impacted by seasonal fluctuations, particularly at Consumer Lifestyle and Healthcare, typically resulting in higher revenues and earnings in the second half-year results. Within Healthcare, sales 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. Within Consumer Lifestyle, sales are generally higher in the second half-year due to the holiday sales. Salesin the Lighting businesses are generally not materially affected by seasonality.
For the 12 months ended July 3, 2011, Healthcare, Consumer Lifestyle and Lighting had revenues of EUR 8,763 million, EUR 5,769 million and EUR 7,563 million respectively (12 months ended July 4, 2010, Healthcare, Consumer Lifestyle and Lighting had revenues of EUR 8,115 million, EUR 5,706 million and EUR 7,161 million respectively) and reported adjusted income from operations of EUR 1,278 million, EUR 560 million and EUR
708 million respectively (12 months ended July 4, 2010: EUR 1,009 million, EUR 693 million and EUR 616 million respectively).
| Television business |
other | total | |
|---|---|---|---|
| July 3, 2011 | |||
| Assets classified as held for sale |
328 | 286 | 614 |
| Liabilities directly associated with assets held |
|||
| for sale | (425) | (2) | (427) |
| Total | (97) | 284 | 187 |
As announced in the press release on the first quarter of 2011, the Television business is reported as discontinued operations as per the end of the first quarter of 2011. The Television business will form a long-term strategic partnership with TPV; the results of the Television business to be carved out are reported under Discontinued operations in the Consolidated statements of income and Consolidated statements of cash flows. Assets classified as held for sale and liabilites directly associated with assets held for sale are reported on the face of the balance sheet as of announcement.
The following table summarizes the results of the Television business included in the consolidated statements of income as discontinued operations.
| January - June | ||
|---|---|---|
| 2010 | 2011 | |
| Sales | 1,545 | 1,186 |
| Costs and expenses | (1,516) | (1,304) |
| Write-down to fair value less costs to sell | (85) | |
| Income (loss) before taxes | 29 | (203) |
| Income taxes | 1 | 14 |
| Results from discontinued operations | 30 | (189) |
The following table presentsthe assets and liabilities of the Television business, classified as discontinued operations, in the consolidated balance sheets.
| 708 million respectively (12 months ended July 4, 2010: | July 3, 2011 | ||
|---|---|---|---|
| EUR 1,009 million, EUR 693 million and EUR 616 million | |||
| respectively). | Property, plant and equipment | 44 | |
| Intangible assets including goodwill | |||
| The seasonality comments exclude the Television | Write-down to fair value less costs to sell | (85) | |
| business, which is now reported under discontinued | Inventories | 328 | |
| operations. | Other assets | − | |
| Assets classified as held for sale | 328 | ||
| 6 | Discontinued operations and other assets | ||
| classified as held for sale | Accounts payable | 398 | |
| Provisions | 8 | ||
| Television | Other liabilities | 19 | |
| business other total |
Liabilities directly associated with assets held for sale | 425 |
Other assets classified as held for sale mainly related to property, plant and equipment for an amount of EUR 278 million at July 3, 2011 (December 31, 2010 EUR 120 million).
During the first six months of 2011, Philips entered into four acquisitions. These acquisitions involved an aggregated purchase price of EUR 164 million and have been accounted for using the acquisition method. Measured on a half-yearly basis, the aggregated impact of the four acquisitions on Group Sales, Income from operations, Net income and Net income per common share (on a fully diluted basis) is not material in respect of IFRS 3 disclosure requirements.
Divestments during the first six months of 2011 involved an aggregated consideration of EUR 10 million and were therefore deemed immaterial.
Income tax expense isrecognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pretax income of the interim period. Income tax expense is recorded for the interim period despite a loss incurred mainly due to non-tax-deductible impairment charges.This year's income tax expense is lower compared with 2010, mainly due to lower taxable profits.
During the first six months ended July 3, 2011, there were no significant movements in property, plant and equipment. Apart from currency translation-related differences of EUR 116 million (six months ended July 4,
2010: EUR 243 million), the addition of EUR 346 million (six months ended July 4, 2010: EUR 305 million) was largely offset by depreciation and impairment charges of EUR 308 million (six months ended July 4, 2010: EUR 324 million).
Goodwill is summarized as follows:
| Balance as of December 31, 2010 | |
|---|---|
| Cost | 8,742 |
| Amortization / Impairments | (707) |
| Book value | 8,035 |
| Changes in book value: | |
| Acquisitions | 76 |
| Impairments | (1,355) |
| Transfer to assets classified as held for sale | (5) |
| Translation differences | (571) |
| Balance as of July 3, 2011: | |
| Cost | 8,185 |
| Amortization / Impairments | (2,005) |
| Book value | 6,180 |
During the first six months of 2011 Philips completed four acquisitions, which involved an aggregate goodwill amount of EUR 76 million, mainly related to the acquisition of the India-based kitchen appliances business of Preethi and Optimum Lighting. The goodwill recognized in this transaction is mainly related to synergies expected from the creation of a manufacturing and distribution footprint in India.
For impairment testing, goodwill is allocated to (groups of) cash-generating units (typically one level below sector level), which represent the lowest level at which the goodwill is monitored for internal management purposes.
The goodwill associated with the cash-generating units Respiratory Care & Sleep Management, Professional Luminaires, Imaging Systems, and Patient Care & Clinical Informatics are considered to be significant in comparison to the total book value of goodwill for the Group at July 3, 2011. The amounts associated as of July 3, 2011, are presented in the following table.
| July 3, 2011 | |
|---|---|
| Respiratory Care & Sleep Management | 1,584 |
| Professional Luminaires | 1,093 |
| Imaging Systems | 1,311 |
| Patient Care & Clinical Informatics | 1,219 |
10 Goodwill The basis of the recoverable amount used in the annual (performed in the second quarter) and trigger-based impairment tests is the value in use. Key assumptions used in the impairment tests for the units in the table above were sales growth rates, adjusted income from operations and the rates used for discounting the projected cash flows. These cash flow projections were determined using management's internal forecasts that cover an initial period from 2011 to 2015, which matches the period used for ourstrategic review. Projections were extrapolated with stable or declining growth rates for a period of 5 years, after which a terminal value was calculated. For terminal value calculation, growth rates were capped at a historical long-term average growth rate.
The sales growth rates and margins used to estimate cash flows 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 increase over the projection period as a result of volume growth and cost efficiencies.
Cash flow projections of Respiratory Care & Sleep Management, Professional Luminaires, Imaging Systems, and Patient Care & Clinical Informatics for 2011 were based on the following key assumptions (based on the annual impairment test performed in the second quarter):
| in % | |
|---|---|
| compound sales growth rate1) | ||||
|---|---|---|---|---|
| initial forecast period |
extrapola tion period |
used to calculate terminal value |
pre-tax discount rates |
|
| Respiratory Care & Sleep Management |
7.6 | 5.6 | 2.7 | 11.5 |
| Professional Luminaires |
9.5 | 6.1 | 2.7 | 13.6 |
| Imaging Systems | 7.2 | 4.7 | 2.7 | 11.8 |
| Patient Care & Clinical Informatics |
8.2 | 5.6 | 2.7 | 13.4 |
1) Compound sales growth rate is the annualized steady growth rate over the forecast period
Based on the annual test in 2011 the recoverable amounts for certain cash-generating units were estimated to be lower than the carrying amounts, and therefore impairment was identified as follows:
| Cash-generating unit | reportable segment |
amount of impairment |
|---|---|---|
| Respiratory Care & Sleep Management |
Healthcare | 450 |
| Home Monitoring | Healthcare | 374 |
| Professional Luminaires | Lighting | 304 |
| Consumer Luminaires | Lighting | 227 |
Compared to the previous impairment test, for the four cash-generating units mentioned above, there has been no change in the organization structure which impacts how goodwill is allocated to these cash-generating units.
The annual trigger-based impairment test resulted in EUR 450 million impairment. This was mainly as a consequence of a weaker market outlook, lower profitablity projections from increasing investments and price competitition, as well as an adverse movement in the pretax discount rate.
The pre-tax discount rate applied in the previous projection was 10.2%.
The annual trigger-based impairment test resulted in EUR 374 million impairment. This was mainly as a consequence of lower growth projections, particulary in the US markets, and lower profitability projections based on historical performance.
The pre-tax discount rate applied to the most recent cash flow projection is 11.6%. The pre-tax discount rate applied in the previous projection was 11.1%.
The annual trigger-based impairment test resulted in EUR 304 million impairment, as a consequence of lower growth projections, lower profitability and higher investment levels required.
The pre-tax discount rate applied in the previous projection was 14.0%.
The annual trigger-based impairment test resulted in EUR 227 million impairment. This was mainly as a consequence of lower growth projections on slower than anticipated
recovery of the post-recession market, a slower LED adoption rate and an adverse movement in the pre-tax discount rate.
The pre-tax discount rate applied to the most recent cash flow projection is 12.6%. The pre-tax discount rate applied in the previous projection was 11.8%.
After the impairment charge mentioned above, the estimated recoverable amount for Respiratory Care & Sleep Management, Home Monitoring, Professional Luminaires and Consumer Luminaires equals their respective carrying value. Consequently, any adverse change in key assumptions would, individually, cause a further impairment loss to be recognized.
The results of the annual impairment test of Imaging Systems and Patient Care & Clinical Informatics have indicated that a reasonably possible change in key assumptions would not cause the value in use to fall to the level of the carrying value.
The changes in intangible assets excluding goodwill in 2011 are summarized as follows:
| Book value as of December 31, 2010 | 4,198 |
|---|---|
| Changes in book value: | |
| Additions | 188 |
| Acquisitions | 86 |
| Amortization/deductions | (333) |
| Impairment losses | (30) |
| Transfer to assets classified as held for sale | (42) |
| Translation differences | (271) |
| Total changes | (402) |
| Book value as of July 3, 2011 | 3,796 |
During the first six months of 2011 Philips completed four acquisitions, which involved an aggregate amount of intangible assets of EUR 86 million, of which the majority relates to the acquisition of the India-based kitchen appliances business of Preethi. The intangible assets recognized in this transaction are mainly related to brand names and customer relationships.
The changes in other non-current financial assets in 2011 are as follows:
| Balance as of December 31, 2010 | 479 |
|---|---|
| Changes: | |
| Reclassifications | 2 |
| Acquisitions/additions | 5 |
| Sales/redemptions/reductions | (96) |
| Value adjustments | (8) |
| Impairments | (11) |
| Translation and exchange differences | (4) |
| Balance as of July 3, 2011 | 367 |
Other non-current financial assets mainly consist of available-for-sale financial assets.
On March 10 and March 11, 2011, Philips sold all shares of common stock in TCL Corporation (TCL) to financial institutions in a capital market transaction. This transaction represented 3.84% of TCL's issued share capital. The transaction resulted in a gain of EUR 44 million, reported under Financial income.
On September 7, 2010 Philips sold its entire holding of common shares in NXP Semiconductors B.V. (NXP) to Philips Pension Trustees Limited (herein after referred to as "UK Pension Fund"). As a result of this transaction the UK Pension fund obtained the full legal title and ownership of the NXP shares, including the entitlement to any future 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 Fund on or after September 7, 2014, if the value of the NXP shares hasincreased by this date to a level in excess of a predetermined threshold, which at the time of the transaction was substantially above the transaction price, and the UK Pension Fund is in a surplus (on the regulatory funding basis) on September 7, 2014. The arrangement qualifies as a financial instrument and is reported under Other non-current financial assets. The fair value of the arrangement was estimated to be zero as of December 31, 2010. As of July 3, 2011 management's best estimate of the fair value of the arrangement is EUR 23 million, based on the risks, the stock price of NXP, the current progress and the long-term nature of the recovery plan forthe 2009 deficit of the UK Pension Fund. The change in fair value until July 3, 2011 isreported under value adjustments in the table above and also recognized in Financial income.
Inventories are summarized as follows:
| December 31, | July 3, | |
|---|---|---|
| 2010 | 2011 | |
| Raw materials and supplies | 1,131 | 1,174 |
| Work in progress | 510 | 624 |
| Finished goods | 2,224 | 1,962 |
| 3,865 | 3,760 |
The amounts recorded above are net of allowances for obsolescence.
On July 3, 2011, the write-down of inventories to net realizable value amounted to EUR 88 million (year-end 2010: EUR 215 million). The write-down is included in cost of sales.
In May 2011, Philips settled a dividend of EUR 0.75 per common share, representing a total value of EUR 711 million. Shareholders could elect for a cash dividend or a share dividend. Around 63% of the shareholders elected for a share dividend, resulting in the issuance of 22,896,661 new common shares. The settlement of the cash dividend involved an amount of EUR 263 million.
As of July 3, 2011, the issued and fully paid share capital consists of 1,008,975,445 common shares, each share having a par value of EUR 0.20.
During the first six months of 2011 a total of 3,033,253 treasury shares were delivered as a result of stock option exercises,restricted share deliveries and other employeerelated share plans. There were no transactions to reduce share capital. On July 3, 2011 the total number of treasury shares amounted to 36,539,147, which were purchased at an average price of EUR 27.71 per share.
At the end of Q2 2011, Philips had total debt of EUR 3,416 million, a decrease of EUR 1,242 million compared to December 31, 2010. Long-term debt was EUR 2,703 million, a decrease of EUR 115 million, and short-term debt was EUR 713 million, a decrease of EUR 1,127 million compared to December 31, 2010. The movement of debt was mainly due to redemptions of USD 350 million and EUR 750 million in public bonds, repayments of other short-term debt and currency translation effects. Total remaining long-term debt mainly consists of outstanding public bonds for a book value of EUR 2,249 million, which were previously issued in USD. The weighted average interest rate of the long-term USD bonds was 6.17% at the end of Q2 2011.
Provisions are summarized as follows:
| December 31, 2010 |
July 3, 2011 |
|||
|---|---|---|---|---|
| long | short | long | short | |
| term | term | term | term | |
| Provisions for defined-benefit plans | 719 | 52 | 703 | 53 |
| Other postretirement benefits | 297 | 21 | 283 | 19 |
| Postemployment benefits and obligatory severance payments |
95 | 21 | 85 | 21 |
| Product warranty | 94 | 254 | 57 | 240 |
| Loss contingencies (environmental remediation and product liability) |
222 | 28 | 218 | 33 |
| Restructuring-related provisions | 49 | 177 | 33 | 109 |
| Other provisions | 240 | 70 | 308 | 52 |
| 1,716 | 623 | 1,687 | 527 |
The reduction of restructuring-related provisions is largely attributable to utilization of the restructuringrelated provisions.
The decrease in accrued liabilities was mainly driven by lower personnel-related accruals totalling EUR 148 million. Additonally, material and other cost-related accruals were EUR 113 million lower compared to the end of 2010.
In accordance with IAS 34, actuarial gains and losses are reported in the semi-annual financial statements only if there have been significant changes in financial markets. In the first six months of 2011 no actuarial gains or losses were recorded as the changes in financial markets during that period were considered not significant. In the first six months of 2010 no actuarial gains and losses were recorded. For the whole of 2010 the combined effect of actuarial gains and losses and IFRIC 14 was a reduction in equity of EUR 1.4 billion net of tax due to unfavorable developments in the second half of the year, including the effect of a newly adopted mortality table in the Netherlands.
The half-year estimates are limited to the principal plans, i.e. the defined-benefit plans in the Netherlands, Germany, the UK and the US, which together represent more than 90% of the defined-benefit pension assets and liabilities for the Group as a whole. Estimated changes in recognized prepaid pension costs are in accordance with IFRIC 14.
16 Provisions Actuarial gains or losses, if any, are reported under Other comprehensive income and against the respective balance sheet items.
Philips' policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. At the end of Q2 2011, the total fair value of guarantees recognized on the balance sheet was EUR 9 million (December 31, 2010: EUR 9 million). Remaining off-balance-sheet business and credit-related guarantees provided to third parties and associates decreased by EUR 22 million during the first half of 2011 to EUR 318 million.
17 Accrued liabilities The Company and its subsidiaries are subject to environmental laws and regulations. Underthese laws, the Company and/or its subsidiaries may be required to remediate the effects of the release or disposal of certain chemicals on the environment. The company accrues for losses associated with environmental obligations when such losses are probable and reliably estimable. Such amounts are recognized on a discounted basis since they reflect the present value of estimated future cash flows.
18 Pensions Provisions for environmental remediation can change significantly due to the emergence of additional information regarding the extent or nature of the contamination, the need to utilize alternative technologies, actions by regulatory authorities and changes in judgments, assumptions, and discount rates.
The Company and/or its subsidiaries have recognized environmental remediation provisions for sites in various countries. In the United States, subsidiaries of the Company have been named as potentially responsible parties in state and federal proceedings for the clean-up of various sites.
The Company and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations and environmental pollution. In respect of antitrust laws, the Company and certain of its (former) group companies are involved in investigations by competition law authorities in several jurisdictions and are engaged in litigation in this respect. Since the ultimate disposition of asserted claims and proceedings and investigations cannot be predicted with certainty, an adverse outcome could have a material adverse effect on the Company's consolidated financial position and consolidated results of operations for a particular period. For certain legal proceedings information required under IAS 37 is not disclosed, if the Company concludes that the disclosure can be expected to prejudice seriously the outcome of the legal proceeding.
For information regarding legal proceedings in which the Company is involved, please refer to our Annual Report 2010. Significant developments regarding legal proceedings that have occurred since the publication of our Annual Report 2010 are described below:
In the U.S. action, the magistrate judge granted certain defendants' motion to strike from the Consolidated Amended Complaint plaintiffs' claims regarding an alleged conspiracy in products containing CRTs. The decision is subject to approval of the U.S. District Court.
Due to the considerable uncertainty associated with these matters, on the basis of current knowledge, the Company has concluded that potential losses cannot be reliably estimated with respect to these matters. An adverse final resolution of these matters could have a materially adverse effect on the Company's consolidated financial position, results of operation and cash flows.
As previously disclosed in the Annual Report 2010, a number of plaintiffs have filed separate, individual actions alleging essentially the same claims asthose asserted in the class actions. During the second quarter, the Company and PENAC were named as defendants in an action brought by Jaco Electronics, Inc. PENAC has also been named as a defendant in an action brought by T-Mobile USA, Inc.
Motorola, Inc. has filed a motion for leave to file a Third Amended Complaint in order to add PENAC and certain unrelated parties as defendants. Various defendants have filed oppositions to Motorola's motion.The court has not yet ruled on whether to allow the Third Amended Complaint to be filed.
Due to the considerable uncertainty associated with these matters, on the basis of current knowledge, the Company has concluded that potential losses cannot be reliably estimated with respect to these matters. An adverse final resolution of this litigation could have a materially adverse effect on the Company's consolidated financial position, results of operations and cash flows.
As previously reported, Philips is conducting a review of certain activities related to the sale of medical equipment for potential violations of the U.S. Foreign Corrupt Practices Act (FCPS) in connection with an indictment issued by authorities in Poland in December 2009 against numerous individuals, including three former employees of Philips Polska Sp.z.o.o. The review has been reported to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and Philips is cooperating with these authorities in connection with the review. The legal proceedings in Poland against the individuals commenced on June 13, 2011 with a preliminary hearing.
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 significant influence. These transactions are generally conducted on terms comparable to transactions with third parties.
Related-party transactions are summarized as follows:
| January-June | |||
|---|---|---|---|
| 2010 | 2011 | ||
| Purchases of goods and services | 151 | 95 | |
| Sales of goods and services | 68 | 50 | |
| Balance outstanding | |||
| July 4, 2010 | July 3, 2011 | ||
| Receivables from related parties | 11 | 15 | |
| Payables to related parties | 13 | 3 |
Share-based compensation expense amounted to EUR 29 million and EUR 29 million in the first six months of 2011 and 2010 respectively.
During the first six months of 2011 the Company granted 6,747,531 stock option rights on its common shares and 1,821,513 rights to receive common shares in the future (restricted share rights).
A total of 1,535,504 restricted shares were issued to employees. 241,211 EUR-denominated options and 705,745 USD-denominated options were exercised at a weighted average exercise price of EUR 18.71 and USD 26.09 respectively.
Under the employee stock purchase plans 706,790 shares have been purchased at an average price of EUR 22.05.
For further information on the characteristics of these plans, please refer to the Annual Report 2010, note 29.
On June 27, 2011, Philips announced that it has agreed to acquire the mammography equipment product line of Sectra AB, a Swedish provider of medical systems and secure communication systems. The closing of the transaction, which is subject to certain contractual and other closing conditions, is expected in the third quarter of 2011.
On June 29, 2011, Philips announced that it has entered into an agreement to acquire Indal, a Spanish professional luminaires company mainly focused on outdoor lighting solutions. The closing of the transaction, which is subject to certain contractual and other closing conditions, is expected in the third quarter of 2011.
On July 11, 2011, Philips announced that it has agreed to acquire Povos Electric Appliance (Shanghai) Co., Ltd., a kitchen appliance company in China. The closing of the transaction, which issubject to confirmatory due diligence and other customary closing conditions, is expected in the fourth quarter of 2011.
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