Quarterly Report • Jul 13, 2009
Quarterly Report
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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 paragraphs on "Looking ahead‰ and "Outlook‰. 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, PhilipsÊ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking 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 2008 and the "Risk and uncertainties‰ section in our semi-annual financial report for the six months ended June 28, 2009.
Statements regarding market share, including those regarding PhilipsÊ 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.
In presenting and discussing the Philips GroupÊs 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 2008.
In presenting the Philips GroupÊs 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 observable market data does not exist, we estimated the fair values using appropriate valuation models. 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 2008 financial statements. Independent valuations may have been obtained to support managementÊs determination of fair values.
"In line with earlier guidance, we did not see a material improvement in consumer or professional markets in the past three months. However, while the pressure on our top line persisted, we are reporting a positive net income and improved underlying profitability over the quarter.
During the quarter we started to see the positive impact of our strict cost management on our results, while continuing to focus on making Philips more efficient. I'm especially pleased that our rigorous focus on cash is increasingly paying off, highlighted by the fact that cash inflow from operations in the second quarter more than doubled due to lower working capital requirements. At the same time we continued making strategic investments to strengthen our company for the medium and long term.
We remain cautious about the overall economy and the markets we're operating in and will not shy away from implementing further cost measures where needed. We do, however, expect our comparative performance to be
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 ÂWet op het Financieel ToezichtÊ
better in the second half of 2009 than in the first half of the year as our costsaving programs have an increasing impact on our earnings. On the same basis, there could be some early sequential improvement in comparable sales as well.
We will continue to do everything necessary to come out of this recession as a stronger, more agile company and a leader in our field.''
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2008 | 2009 | |
| Sales | 6,463 | 5,230 |
| EBITA | 396 | 118 |
| as a % of sales | 6.1 | 2.3 |
| EBIT | 303 | 8 |
| as a % of sales | 4.7 | 0.2 |
| Financial income and expenses | 516 | (3) |
| Income taxes | (84) | 15 |
| Results equity-accounted investees | 3 | 25 |
| Income (loss) from continuing operations | 738 | 45 |
| Discontinued operations | (3) | - |
| Net income (loss) | 735 | 45 |
| Attribution of net income (loss) | ||
| Net income (loss) - stockholders | 732 | 44 |
| Net income - minority interests | 3 | 1 |
| Net income (loss) - stockholders | ||
| per common share (in euros) - basic | 0.72 | 0.05 |
| in millions of euros unless otherwise stated | ||||
|---|---|---|---|---|
| Q2 | Q2 | % change | ||
| 2008 | 2009 | nominal | compa rable |
|
| Healthcare | 1,800 | 1,872 | 4 | (5) |
| Consumer Lifestyle | 2,720 | 1,735 | (36) | (30) |
| Lighting | 1,806 | 1,550 | (14) | (18) |
| I&EB | 103 | 42 | (59) | (60) |
| GM&S | 34 | 31 | (9) | (2) |
| Philips Group | 6,463 | 5,230 | (19) | (19) |
in millions of euros unless otherwise stated
| Q2 | Q2 | % change | ||
|---|---|---|---|---|
| 2008 | 2009 | nominal | compa rable |
|
| Western Europe North America |
2,280 1,941 |
1,775 1,664 |
(22) (14) |
(20) (16) |
| Other mature markets | 326 | 290 | (11) | (17) |
| Total mature markets | 4,547 | 3,729 | (18) | (18) |
| Emerging markets | 1,916 | 1,501 | (22) | (22) |
| Philips Group | 6,463 | 5,230 | (19) | (19) |
| EBITA in millions of euros |
||
|---|---|---|
| Q2 | Q2 | |
| 2008 | 2009 | |
| Healthcare | 188 | 158 |
| Consumer Lifestyle | 39 | (4) |
| Lighting | 207 | (17) |
| Innovation & Emerging Businesses | (40) | (69) |
| Group Management & Services | 2 | 50 |
| Philips Group | 396 | 118 |
| as a % of sales | ||
|---|---|---|
| Q2 | Q2 | |
| 2008 | 2009 | |
| Healthcare | 10.4 | 8.4 |
| Consumer Lifestyle | 1.4 | (0.2) |
| Lighting | 11.5 | (1.1) |
| Innovation & Emerging Businesses | (38.8) | (164.3) |
| Group Management & Services | 5.9 | 161.3 |
| Philips Group | 6.1 | 2.3 |
| Q2 | Q2 | |
|---|---|---|
| 2008 | 2009 | |
| Healthcare | (35) | (24) |
| Consumer Lifestyle | (70) | (30) |
| Lighting | (19) | (82) |
| Innovation & Emerging Businesses | - | (8) |
| Group Management & Services | (1) | (4) |
| Philips Group | (125) | (148) |
| in millions of euros unless otherwise stated | ||
|---|---|---|
| Q2 | Q2 | |
| 2008 | 2009 | |
| Healthcare | 133 | 93 |
| Consumer Lifestyle | 35 | (9) |
| Lighting | 173 | (57) |
| Innovation & Emerging Businesses | (40) | (69) |
| Group Management & Services | 2 | 50 |
| Philips Group | 303 | 8 |
| as a % of sales | 4.7 | 0.2 |
| Financial income and expenses in millions of euros |
||
|---|---|---|
| Q2 2008 |
Q2 2009 |
|
| Net interest expenses | (27) | (57) |
| TSMC sale of securities | 863 | - |
| NXP impairment | (299) | - |
| Toppoly impairment | (31) | - |
| TPV option fair-value adjustment | 5 | 14 |
| Other | 5 | 40 |
| 516 | (3) |
| Results relating to equity-accounted investees | |
|---|---|
| in millions of euros |
| Q2 2008 |
Q2 2009 |
|
|---|---|---|
| TPV value adjustment | - | 25 |
| Other | 3 | - |
| 3 | 25 |
• Following recovery of the TPV share price, the accumulated value adjustment of the shareholding in TPV recognized in December 2008 was partially reversed by EUR 25 million.
| Q2 | Q2 |
|---|---|
| 2008 | 2009 |
| 4,000 | |
| - | |
| 4,755 | 4,000 |
| (5) | 251 |
| 191 | 446 |
| (196) | (195) |
| (54) | (55) |
| 1,222 | 65 |
| (1,116) | 6 |
| (1,602) | (44) |
| (698) | (634) |
| (12) | - |
| 2,490 | 3,589 |
| 94 | - |
| 2,396 | 3,589 |
| 4,657 98 |
* Capital expenditures on property, plant and equipment only
Gross capital expenditures (PPE*)
• Operating activities led to a cash inflow of EUR 446 million, compared to an inflow of EUR 191 million in Q2 2008. The increase of EUR 255 million was largely driven by lower working capital requirements (EUR 431 million higher inflow from improved working capital management in all categories), partly offset by lower cash earnings.
• Gross capital expenditures for property, plant and equipment were EUR 38 million lower than in Q2 2008, especially at Lighting and Healthcare, reflecting the impact on investments of our continuing focus on asset management.
* of which discontinued operations 5,252 end of Q2 2008
in millions of euros unless otherwise stated
| Q2 2008 |
Q2 2009 |
|
|---|---|---|
| Sales Sales growth |
1,800 | 1,872 |
| % nominal % comparable |
11 3 |
4 (5) |
| EBITA as a % of sales |
188 10.4 |
158 8.4 |
| EBIT as a % of sales |
133 7.4 |
93 5.0 |
| Net operating capital (NOC) | 8,290 | 8,738 |
| Number of employees (FTEs) | 35,087 | 35,094 |
Sales
Net operating capital increased by EUR 448 million compared to Q2 2008, mainly due to US dollar currency effects.
Illustrating the success of our Brilliance iCT 256 slice CT, Philips expects to mark its 100th global installation in Q3.
in millions of euros unless otherwise stated
| Q2 2008 |
Q2 2009 |
|
|---|---|---|
| Sales | 2,720 | 1,735 |
| of which Television | 1,292 | 587 |
| Sales growth | ||
| % nominal | (0) | (36) |
| % comparable | 7 | (30) |
| Sales growth excl. Television % nominal % comparable |
(7) 2 |
(20) (19) |
| EBITA | 39 | (4) |
| of which Television | (117) | (99) |
| as a % of sales | 1.4 | (0.2) |
| EBIT | 35 | (9) |
| of which Television | (117) | (99) |
| as a % of sales | 1.3 | (0.5) |
| Net operating capital (NOC) | 1,658 | 903 |
| of which Television | 56 | (338) |
| Number of employees (FTEs) | 21,480 | 17,018 |
| of which Television | 6,856 | 4,955 |
EBITA
Net operating capital declined by EUR 755 million due to both lower sales as well as structural improvements in all elements of working capital management.
Philips reached an agreement to acquire Saeco International Group S.p.A., a leading espresso machine maker controlled by PAI partners. Closing of this acquisition requires certain regulatory approvals and is expected in Q3.
in millions of euros unless otherwise stated
| Q2 2008 |
Q2 2009 |
|
|---|---|---|
| Sales Sales growth |
1,806 | 1,550 |
| % nominal | 19 | (14) |
| % comparable | 7 | (18) |
| EBITA | 207 | (17) |
| as a % of sales | 11.5 | (1.1) |
| EBIT | 173 | (57) |
| as a % of sales | 9.6 | (3.7) |
| Net operating capital (NOC) | 6,319 | 5,676 |
| Number of employees (FTEs) | 59,969 | 51,627 |
Compared to Q2 2008, net operating capital decreased due to currency effects and lower working capital.
In Q3 the sector will continue to implement measures to reduce its fixed cost base. Restructuring and acquisitionrelated charges of up to EUR 50 million are expected.
in millions of euros unless otherwise stated
| Q2 2008 |
Q2 2009 |
|
|---|---|---|
| Sales Sales growth |
103 | 42 |
| % nominal % comparable |
(6) 8 |
(59) (60) |
| EBITA Technologies / Incubators EBITA others |
(35) (5) |
(56) (13) |
| EBITA | (40) | (69) |
| EBIT | (40) | (69) |
| Net operating capital (NOC) | 217 | 167 |
| Number of employees (FTEs) | 5,534 | 5,358 |
EBITA included EUR 8 million restructuring charges. Excluding this impact, losses were EUR 20 million higher year-over-year, largely due to a reduction in IP income.
In the second half of 2009, corporate spending on Research is expected to total EUR 55 million on a run-rate basis, with higher spending anticipated in Q3.
in millions of euros unless otherwise stated
| Q2 2008 |
Q2 2009 |
|
|---|---|---|
| Sales Sales growth |
34 | 31 |
| % nominal % comparable |
(29) (27) |
(9) (2) |
| EBITA Corporate & Regional Costs EBITA Brand Campaign EBITA Service Units, Pensions and Other |
(38) (14) 54 |
(20) (10) 80 |
| EBITA | 2 | 50 |
| EBIT | 2 | 50 |
| Net operating capital (NOC) | 1,006 | (3,680) |
| Number of employees (FTEs) | 5,814 | 6,926 |
The 1,112 increase in headcount was due to a reallocation of IT resources and finance operations to centralized service units.
Brand campaign expenditures are expected to total EUR 25 million for the remainder of the year, with spending skewed towards Q3.
Despite some markets showing signs that the decline in demand is bottoming out, we remain cautious about our sales level for the rest of 2009.
Consequently, we will continue to bring costs and capacity in line with current demand levels. Already-announced initiatives are progressing as planned and are expected to have an even more visible impact in the second half of the year. As a result, we expect our comparative performance in the remainder of the year to be better than in the first half. We will also continue to progress the strategic agenda in all three of our main businesses.
We remain confident that Philips will come out of the current economic downturn as a simpler, leaner, more flexible company, even better placed to lead in the Health & Wellbeing domain.
Amsterdam, July 13, 2009 Board of Management
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 3.
The semi-annual financial report for the six months ended June 28, 2009 consists of the condensed consolidated semi-annual financial statements, the semi-annual management report and responsibility statement by the Company's Board of Management. The information in this semi-annual 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, 2008.
The Board of Management of the Company hereby declares that to the best of their knowledge, the semi-annual 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).
Amsterdam, July 13, 2009 Board of Management
Gottfried Dutiné Andrea Ragnetti
Gerard Kleisterlee Pierre-Jean Sivignon Rudy Provoost Steve Rusckowski
in millions of euros unless otherwise stated
| January-June | ||
|---|---|---|
| 2008 | 2009 | |
| Sales | 12,428 | 10,305 |
| EBITA | 661 | 44 |
| as a % of sales | 5.3 | 0.4 |
| EBIT | 490 | (178) |
| as a % of sales | 3.9 | (1.7) |
| Financial income and expenses | 635 | (44) |
| Income tax expense | (142) | 186 |
| Results equity-accounted investees | 62 | 24 |
| Income (loss) from continuing operations | 1,045 | (12) |
| Discontinued operations | (16) | - |
| Net income (loss) | 1,029 | (12) |
| Attribution of net income (loss) | ||
| Net income (loss) - stockholders | 1,026 | (15) |
| Net income - minority interests | 3 | 3 |
| Net income (loss) - stockholders | ||
| Per common share (in euros) - basic | 1.00 | (0.02) |
in millions of euros unless otherwise stated
| January-June | % change | ||||
|---|---|---|---|---|---|
| 2008 | 2009 | nominal | compa rable |
||
| Healthcare | 3,274 | 3,613 | 10 | (3) | |
| Consumer Lifestyle | 5,322 | 3,491 | (34) | (28) | |
| Lighting | 3,577 | 3,054 | (15) | (19) | |
| I&EB | 182 | 83 | (54) | (55) | |
| GM&S | 73 | 64 | (12) | (8) | |
| Philips Group | 12,428 | 10,305 | (17) | (18) |
| in millions of euros | ||
|---|---|---|
| January-June | ||
| 2008 | 2009 | |
| Healthcare | 319 | 233 |
| Consumer Lifestyle | 108 | (50) |
| Lighting | 412 | (10) |
| Innovation & Emerging Businesses | (107) | (132) |
| Group Management & Services | (71) | 3 |
| Philips Group | 661 | 44 |
| as a % of sales | ||
|---|---|---|
| January-June | ||
| 2008 | 2009 | |
| Healthcare | 9.7 | 6.4 |
| Consumer Lifestyle | 2.0 | (1.4) |
| Lighting | 11.5 | (0.3) |
| Innovation & Emerging Businesses | (58.8) | (159.0) |
| Group Management & Services | (97.3) | 4.7 |
| Philips Group | 5.3 | 0.4 |
• EBITA improved by EUR 74 million compared to the first half of 2008 due to lower Corporate overhead costs, EUR 57 million insurance recoveries and gains from legal settlements. Corporate overhead cost went down by EUR 18 million. Last year's earnings were supported by a EUR 39 million gain on a real estate deal.
In our Annual Report 2008 we have 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.
For the remainder of 2009, we see in particular the following principal risks and uncertainties:
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 to June | |||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| Sales | 6,463 | 5,230 | 12,428 | 10,305 |
| Cost of sales | (4,299) | (3,440) | (8,298) | (6,873) |
| Gross margin | 2,164 | 1,790 | 4,130 | 3,432 |
| Selling expenses | (1,284) | (1,201) | (2,426) | (2,398) |
| General and administrative expenses | (247) | (234) | (483) | (468) |
| Research and development expenses | (419) | (384) | (806) | (789) |
| Other business income | 119 | 56 | 127 | 64 |
| Other business expenses | (30) | (19) | (52) | (19) |
| Income (loss) from operations | 303 | 8 | 490 | (178) |
| Financial income | 929 | 76 | 1,145 | 173 |
| Financial expenses | (413) | (79) | (510) | (217) |
| Income (loss) before taxes | 819 | 5 | 1,125 | (222) |
| Income taxes | (84) | 15 | (142) | 186 |
| Income (loss) after taxes | 735 | 20 | 983 | (36) |
| Results relating to equity-accounted investees | 3 | 25 | 62 | 24 |
| Income (loss) from continuing operations | 738 | 45 | 1,045 | (12) |
| Discontinued operations - net of income taxes | (3) | - | (16) | - |
| Net income (loss) for the period | 735 | 45 | 1,029 | (12) |
| Attribution of net income (loss) for the period | ||||
| Net income (loss) attributable to stockholders | 732 | 44 | 1,026 | (15) |
| Net loss attributable to minority interests | 3 | 1 | 3 | 3 |
| Weighted average number of common shares outstanding (after deduction | ||||
| of treasury stock) during the period (in thousands): | ||||
| • basic | 1,011,602 | 925,244 | 1,030,017 | 924,271 |
| • diluted | 1,019,561 | 927,918 | 1,039,126 | 926,413 |
| Net income (loss) attributable to stockholders | ||||
| per common share in euros: | ||||
| • basic | 0.72 | 0.05 | 1.00 | (0.02) |
| • diluted | 0.72 | 0.05 | 0.99 | (0.02) 1) |
| Ratios | ||||
| Gross margin as a % of sales | 33.5 | 34.2 | 33.2 | 33.3 |
| Selling expenses as a % of sales | (19.9) | (23.0) | (19.5) | (23.3) |
| G&A expenses as a % of sales | (3.8) | (4.5) | (3.9) | (4.5) |
| R&D expenses as a % of sales | (6.5) | (7.3) | (6.5) | (7.7) |
| EBIT or Income (loss) from operations | 303 | 8 | 490 | (178) |
| as a % of sales | 4.7 | 0.2 | 3.9 | (1.7) |
| EBITA | 396 | 118 | 661 | 44 |
| as a % of sales | 6.1 | 2.3 | 5.3 | 0.4 |
1) the incremental shares from assumed conversion are not taken into account as the effect would be antidilutive.
all amounts in millions of euros unless otherwise stated
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| Net income (loss) for the period: | 735 | 45 | 1,029 | (12) |
| Other comprehensive income: | ||||
| Actuarial losses on pension plans: | ||||
| Net current period change, before tax | - | (2,381) | - | (2,381) |
| Income tax on net current period change | - | 613 | - | 613 |
| Revaluation reserve: | ||||
| Release revaluation reserve | (4) | (2) | (8) | (6) |
| Reclassification into retained earnings | 4 | 2 | 8 | 6 |
| Currency translation differences: | ||||
| Net current period change, before tax | (13) | (137) | (410) | 53 |
| Income tax on net current period change | 2 | - | 3 | (1) |
| Reclassification into loss | 7 | - | 10 | - |
| Available-for-sale securities: | ||||
| Net current period change | (105) | 55 | 428 | 204 |
| Reclassification into income | (872) | (51) | (1,046) | (123) |
| Cash flow hedges: | ||||
| Net current period change, before tax | 36 | (8) | 41 | (18) |
| Income tax on net current period change | 2 | (5) | 2 | (14) |
| Reclassification into (income) loss | (40) | 29 | (50) | 55 |
| Other comprehensive income for the period | (983) | (1,885) | (1,022) | (1,612) |
| Total comprehensive income for the period | (248) | (1,840) | 7 | (1,624) |
| Total comprehensive income attributable to: | ||||
| Stockholders | (251) | (1,835) | 12 | (1,622) |
| Minority interests | 3 | (5) | (5) | (2) |
in millions of euros unless otherwise stated
| June 29, 2008 |
December 31, 2008 |
June 28, 2009 |
|
|---|---|---|---|
| Current assets: | |||
| Cash and cash equivalents | 2,396 | 3,620 | 3,589 |
| Receivables | 4,835 | 4,289 | 3,796 |
| Current assets of discontinued operations | 170 | - | - |
| Inventories | 3,780 | 3,371 | 3,216 |
| Other current assets Total current assets |
690 11,871 |
749 12,029 |
643 11,244 |
| Non-current assets: Investments in equity-accounted investees |
256 | 293 | 245 |
| Other non-current financial assets | 2,871 | 1,331 | 822 |
| Non-current receivables | 78 | 47 | 80 |
| Non-current assets of discontinued operations | 122 | - | - |
| Other non-current assets | 2,786 | 1,906 | 59 |
| Deferred tax assets | 827 | 931 | 1,365 |
| Property, plant and equipment | 3,437 | 3,496 | 3,423 |
| Intangible assets excluding goodwill | 4,452 | 4,477 | 4,358 |
| Goodwill | 7,055 | 7,280 | 7,449 |
| Total assets | 33,755 | 31,790 | 29,045 |
| Current liabilities: | |||
| Accounts and notes payable | 2,978 | 2,992 | 2,560 |
| Current liabilities of discontinued operations | 38 | - | - |
| Accrued liabilities | 2,829 | 3,634 | 3,217 |
| Short-term provisions | 409 | 1,043 | 1,057 |
| Other current liabilities | 443 | 522 | 465 |
| Short-term debt | 763 | 722 | 684 |
| Total current liabilities | 7,460 | 8,913 | 7,983 |
| Non-current liabilities: | |||
| Long-term debt | 3,178 | 3,466 | 3,745 |
| Long-term provisions | 1,997 | 1,794 | 1,853 |
| Deferred tax liabilities | 1,025 | 584 | 149 |
| Non-current liabilities of discontinued operations | 27 | - | - |
| Other non-current liabilities | 966 | 1,440 | 1,943 |
| Total liabilities | 14,653 | 16,197 | 15,673 |
| Minority interests * | 122 | 49 | 47 |
| Stockholders' equity | 18,980 | 15,544 | 13,325 |
| Total liabilities and equity | 33,755 | 31,790 | 29,045 |
| Number of common shares outstanding (after deduction of treasury stock) at the end of period (in thousands) |
983,963 | 922,982 | 926,041 |
| Ratios | |||
| Stockholders' equity per common share in euros | 19.29 | 16.84 | 14.39 |
| Inventories as a % of sales | 13.9 | 12.8 | 13.3 |
| Net debt : group equity | 7:93 | 4:96 | 6:94 |
| Net operating capital | 17,490 | 14,069 | 11,804 |
| Employees at end of period | 133,136 | 121,398 | 116,023 |
| of which discontinued operations | 5,252 | - | - |
* of which discontinued operations EUR 73 million end of June 2008
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| Cash flows from operating activities: Net income (loss) attributable to stockholders |
732 | 44 | 1,026 | (15) |
| Loss discontinued operations | 3 | - | 16 | - |
| Minority interests | 3 | 1 | 3 | 3 |
| Adjustments to reconcile net income to net cash provided by (used for) | ||||
| operating activities: | ||||
| Depreciation and amortization | 327 | 346 | 621 | 678 |
| (Reversal) of impairment of goodwill, equity-accounted investees and | ||||
| other non-current financial assets | 299 | (25) | 299 | 24 |
| Net gain on sale of assets | (930) | (51) | (1,110) | (124) |
| Income from equity-accounted investees | (5) | - | (71) | (1) |
| Dividends received from equity-accounted investees | 3 | 5 | 60 | 34 |
| (Increase) decrease in working capital: | (184) | 229 | (1,191) | (96) |
| (Increase) decrease in receivables and other current assets | (14) | 98 | (244) | 621 |
| (Increase) decrease in inventories | (95) | 108 | (440) | 224 |
| Increase (decrease) in accounts payable, accreued and other liabilities | (75) | 23 | (507) | (941) |
| Increase in non-current receivables/other assets/ | ||||
| other liabilities | (98) | (123) | (33) | (402) |
| (Decrease) increase in provisions | (49) | 32 | (49) | 25 |
| Other items | 90 | (12) | 106 | 14 |
| Net cash provided by (used for) operating activities | 191 | 446 | (323) | 140 |
| Cash flows from investing activities: | ||||
| Purchase of intangible assets | (36) | (22) | (64) | (45) |
| Expenditures on development assets | (50) | (52) | (110) | (86) |
| Capital expenditures on property, plant and equipment | (178) | (140) | (326) | (252) |
| Proceeds from disposals of property, plant and equipment | 68 | 19 | 72 | 27 |
| Cash from (to) derivatives | 71 | (12) | 255 | (10) |
| Purchase of other non-current financial assets | - | - | - | (6) |
| Proceeds, disposal of from other non-current financial assets | 1,151 | 77 | 1,888 | 706 |
| Purchase of businesses, net of cash acquired | (54) | (55) | (5,267) | (90) |
| Net cash provided by (used for) investing activities | 972 | (185) | (3,552) | 244 |
| Cash flows from financing activities: | ||||
| (Decrease) increase in short-term debt | (34) | (59) | 2 | (98) |
| Principal payments on long-term debt | (1,569) | (13) | (1,706) | (24) |
| Proceeds from issuance of long-term debt | 7 | 26 | 2,067 | 289 |
| Treasury stock transactions | (1,116) | 6 | (2,083) | 15 |
| Dividend paid | (698) | (634) | (698) | (634) |
| Net cash used for financing activities | (3,410) | (674) | (2,418) | (452) |
| Net cash used for continuing operations | (2,247) | (413) | (6,293) | (68) |
| Cash flows from discontinued operations: | ||||
| Net cash used for operating activities | (11) | - | (32) | - |
| Net cash used for investing activities | (1) | - | (1) | - |
| Net cash used for discontinued operations | (12) | - | (33) | - |
| Net cash used for continuing and discontinued | ||||
| operations | (2,259) | (413) | (6,326) | (68) |
| Effect of change in exchange rates on cash positions | (6) | 2 | (61) | 37 |
| Cash and cash equivalents at beginning of period | 4,755 | 4,000 | 8,877 | 3,620 |
| Cash and cash equivalents at end of period | 2,490 | 3,589 | 2,490 | 3,589 |
| Less cash of discontinued operations at end of period | 94 | - | 94 | - |
| Cash of continuing operations at end of period | 2,396 | 3,589 | 2,396 | 3,589 |
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.
| Ratio Cash flows before financing activities |
1,163 | 261 | (3,875) | 384 |
|---|---|---|---|---|
| Net cash paid during the period for | ||||
| - Pensions | (91) | (98) | (176) | (204) |
| - Interest | (120) | (62) | (78) | (136) |
| - Income taxes | (55) | (34) | (208) | (108) |
| ments of changes in equity Consolidated state all amounts in millions of euros |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January to June 2009 | ||||||||||||
| other reserves | ||||||||||||
| stock common |
capital in excess | retained revaluation | currency differences translation |
unrealized gain (loss) on available-for- sale securities |
fair value of changes in |
total | treasury shares at |
stockholders' total |
minority | total | ||
| January-June 2009 | of par value | earnings | reserve | cash flow hedges | cost | equity | interests | equity | ||||
| Balance as of December 31, 2008 | 194 | - | 17,101 | 117 | (527) | (25) | (28) | (580) | (1,288) | 15,544 | 49 | 15,593 |
| Total comprehensive income | - | (1,777) | (6) | 57 | 81 | 23 | 161 | (1,622) | (2) | (1,624) | ||
| Re-issuance of treasury stock Dividend distributed |
(35) | (647) (21) |
71 | (647) 15 |
(647) 15 |
|||||||
| Income tax share-based compensation plans Share-based compensation plans |
35 | - | - 35 |
- 35 |
||||||||
| - | - | (668) | 71 | (597) | (597) | |||||||
| Balance as of June 28, 2009 | 194 | - | 14,656 | 111 | (470) | 56 | (5) | (419) | (1,217) | 13,325 | 47 | 13,372 |
| January-June 2008 | ||||||||||||
| Balance as of December 31, 2007 | 228 | - | 22,998 | 133 | (613) | 1,183 | 28 | 598 | (2,216) | 21,741 | 127 | 21,868 |
| Total comprehensive income | 1,034 | (8) | (389) | (618) | (7) | (1,014) | 12 | (5) | 7 | |||
| Dividend distributed | (720) | (720) | (720) | |||||||||
| Cancellation of treasury stock | (19) | (2,591) | 2,610 | - | - | |||||||
| Re-issuance of treasury stock Purchase of treasury shares |
(23) | (45) | (2,113) 105 |
(2,113) 37 |
(2,113) 37 |
|||||||
| Share-based compensation plans | 51 | 51 | 51 | |||||||||
| Income tax share-based compensation plans | (28) | (28) | (28) | |||||||||
| (19) | - | (3,356) | 602 | (2,773) | - | (2,773) | ||||||
| Balance as of June 29, 2008 | 209 | - | 20,676 | 125 | (1,002) | 565 | 21 | (416) | (1,614) | 18,980 | 122 | 19,102 |
all amounts in millions of euros unless otherwise stated
| 2nd quarter | ||||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | |||||
| sales | income from operations | sales | income from operations | |||
| amount | as % of | amount | as % of | |||
| sales | sales | |||||
| Healthcare | 1,800 | 133 | 7.4 | 1,872 | 93 | 5.0 |
| Consumer Lifestyle * | 2,720 | 35 | 1.3 | 1,735 | (9) | (0.5) |
| Lighting | 1,806 | 173 | 9.6 | 1,550 | (57) | (3.7) |
| Innovation & Emerging Businesses | 103 | (40) | (38.8) | 42 | (69) | (164.3) |
| Group Management & Services | 34 | 2 | 5.9 | 31 | 50 | 161.3 |
| 6,463 | 303 | 4.7 | 5,230 | 8 | 0.2 | |
| * of which Television | 1,292 | (117) | (9.1) | 587 | (99) | (16.9) |
| January to June | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2009 | |||||||
| sales | income from operations | income from operations | ||||||
| amount | as % of | amount | as % of | |||||
| sales | sales | |||||||
| Healthcare | 3,274 | 224 | 6.8 | 3,613 | 101 | 2.8 | ||
| Consumer Lifestyle * | 5,322 | 100 | 1.9 | 3,491 | (59) | (1.7) | ||
| Lighting | 3,577 | 344 | 9.6 | 3,054 | (91) | (3.0) | ||
| Innovation & Emerging Businesses | 182 | (107) | (58.8) | 83 | (132) | (159.0) | ||
| Group Management & Services | 73 | (71) | (97.3) | 64 | 3 | 4.7 | ||
| 12,428 | 490 | 3.9 | 10,305 | (178) | (1.7) | |||
| * of which Television | 2,459 | (210) | (8.5) | 1,270 | (182) | (14.3) |
all amounts in millions of euros
| sales | total assets | ||||
|---|---|---|---|---|---|
| January to June | June 29, | June 28, | |||
| 2008 | 2009 | 2008 | 2009 | ||
| Healthcare | 3,274 | 3,613 | 10,502 | 11,183 | |
| Consumer Lifestyle | 5,322 | 3,491 | 4,375 | 3,137 | |
| Lighting | 3,577 | 3,054 | 7,673 | 7,100 | |
| Innovation & Emerging Businesses | 182 | 83 | 538 | 400 | |
| Group Management & Services | 73 | 64 | 10,375 | 7,225 | |
| 12,428 | 10,305 | 33,463 | 29,045 | ||
| Discontinued operations | 292 | - | |||
| 33,755 | 29,045 |
| long-lived assets * | sales | |||
|---|---|---|---|---|
| June 28, | June 29, | January to June | ||
| 2008 | 2009 | 2008 | ||
| 10,213 | 10,310 | 3,049 | 3,284 | |
| 318 | 839 | 921 | ||
| 193 | 780 | 852 | ||
| 126 | 650 | 803 | ||
| 707 | 314 | 535 | ||
| 1,285 | 1,448 | 400 | 498 | |
| 2,340 | 1,842 | 4,273 | 5,535 | |
| 15,230 | 14,944 | 10,305 | 12,428 |
* Includes property, plant and equipment and intangible assets
| Specification of pension costs | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2nd quarter | ||||||||
| 2008 | 2009 | |||||||
| Netherlands | other | total | Netherlands | other | total | |||
| Costs of defined-benefit plans (pensions) | ||||||||
| Service cost | 34 | 21 | 55 | 27 | 22 | 49 | ||
| Interest cost on the defined-benefit obligation | 131 | 97 | 228 | 133 | 100 | 233 | ||
| Expected return on plan assets | (192) | (98) | (290) | (189) | (86) | (275) | ||
| Prior service cost | - | 4 | 4 | - | 1 | 1 | ||
| Net periodic cost (income) | (27) | 24 | (3) | (29) | 37 | 8 | ||
| Costs of defined-contribution plans | ||||||||
| Costs | 1 | 24 | 25 | 1 | 29 | 30 | ||
| Total | 1 | 24 | 25 | 1 | 29 | 30 | ||
| Costs of defined-benefit plans (retiree medical) | ||||||||
| Service cost | - | 1 | 1 | - | 1 | 1 | ||
| Interest cost on the defined-benefit obligation | - | 8 | 8 | - | 9 | 9 | ||
| Prior service cost | - | 2 | 2 | - | - | - | ||
| Net periodic cost | - | 11 | 11 | - | 10 | 10 |
| January to June | ||||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | |||||
| Netherlands | other | total | Netherlands | other | total | |
| Costs of defined-benefit plans (pensions) | ||||||
| Service cost | 68 | 44 | 112 | 54 | 44 | 98 |
| Interest cost on the defined-benefit obligation | 262 | 197 | 459 | 266 | 201 | 467 |
| Expected return on plan assets | (384) | (196) | (580) | (379) | (173) | (552) |
| Prior service cost | - | 5 | 5 | - | 2 | 2 |
| Net periodic cost (income) | (54) | 50 | (4) | (59) | 74 | 15 |
| Costs of defined-contribution plans | ||||||
| Costs | 2 | 46 | 48 | 3 | 53 | 56 |
| Total | 2 | 46 | 48 | 3 | 53 | 56 |
| Costs of defined-benefit plans (retiree medical) | ||||||
| Service cost | - | 2 | 2 | - | 1 | 1 |
| Interest cost on the defined-benefit obligation | - | 17 | 17 | - | 18 | 18 |
| Prior service cost | - | 2 | 2 | - | - | - |
| Net periodic cost | - | 21 | 21 | - | 19 | 19 |
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 | |||||||
|---|---|---|---|---|---|---|---|---|
| com- | consol- | com- | consol | |||||
| parable | currency | idation | nominal | parable | currency | idation | nominal | |
| growth | effects | changes | growth | growth | effects | changes | growth | |
| 2009 versus 2008 | ||||||||
| Healthcare | (4.8) | 8.3 | 0.5 | 4.0 | (3.4) | 7.7 | 6.1 | 10.4 |
| Consumer Lifestyle | (29.9) | 0.8 | (7.1) | (36.2) | (27.6) | 0.3 | (7.1) | (34.4) |
| Lighting | (18.3) | 3.9 | 0.2 | (14.2) | (18.5) | 3.0 | 0.9 | (14.6) |
| I&EB | (59.5) | 0.4 | (0.1) | (59.2) | (54.9) | 0.6 | (0.1) | (54.4) |
| GM&S | (2.0) | (6.8) | - | (8.8) | (7.7) | (4.6) | - | (12.3) |
| Philips Group | (19.2) | 3.5 | (3.4) | (19.1) | (18.2) | 2.8 | (1.7) | (17.1) |
| Philips | Consumer | |||||
|---|---|---|---|---|---|---|
| Group | Healthcare | Lifestyle | Lighting | I&EB | GM&S | |
| January to June 2009 | ||||||
| EBITA | 44 | 233 | (50) | (10) | (132) | 3 |
| Amortization of intangibles * | (222) | (132) | (9) | (81) | - | - |
| Impairment of goodwill | - | - | - | - | - | - |
| Income from operations (or EBIT) | (178) | 101 | (59) | (91) | (132) | 3 |
| January to June 2008 | ||||||
| EBITA | 661 | 319 | 108 | 412 | (107) | (71) |
| Amortization of intangibles * | (171) | (95) | (8) | (68) | - | - |
| Impairment of goodwill | - | - | - | - | - | - |
| Income from operations (or EBIT) | 490 | 224 | 100 | 344 | (107) | (71) |
* Excluding amortization of software and product development
| Composition of net debt and group equity | ||
|---|---|---|
| June 29, | June 28, | |
| 2008 | 2009 | |
| Long-term debt | 3,178 | 3,745 |
| Short-term debt | 763 | 684 |
| Total debt | 3,941 | 4,429 |
| Cash and cash equivalents | 2,396 | 3,589 |
| Net debt (total debt less cash and cash equivalents) | 1,545 | 840 |
| Minority interests | 122 | 47 |
| Stockholders' equity | 18,980 | 13,325 |
| Group equity | 19,102 | 13,372 |
| Net debt and group equity | 20,647 | 14,212 |
| Net debt divided by net debt and group equity (in %) | 7 | 6 |
| Group equity divided by net debt and group equity (in %) | 93 | 94 |
all amounts in millions of euros unless otherwise stated
| Net operating capital to total assets | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Consumer | |||||||||
| Philips Group | Healthcare | Lifestyle | Lighting | I&EB | GM&S | ||||
| June 28, 2009 | |||||||||
| Net operating capital (NOC) | 11,804 | 8,738 | 903 | 5,676 | 167 | (3,680) | |||
| Exclude liabilities comprised in NOC: | |||||||||
| - payables/liabilities | 8,185 | 2,019 | 1,872 | 1,116 | 150 | 3,028 | |||
| - intercompany accounts | - | 48 | 59 | 44 | (9) | (142) | |||
| - provisions | 2,910 | 305 | 301 | 251 | 30 | 2,023 | |||
| Include assets not comprised in NOC: | |||||||||
| - investments in equity-accounted investees | 245 | 73 | 2 | 13 | 62 | 95 | |||
| - other current financial assets | 125 | - | - | - | - | 125 | |||
| - other non-current financial assets | 822 | - | - | - | - | 822 | |||
| - deferred tax assets | 1,365 | - | - | - | - | 1,365 | |||
| - liquid assets | 3,589 | - | - | - | - | 3,589 | |||
| Total assets of continuing operations | 29,045 | 11,183 | 3,137 | 7,100 | 400 | 7,225 | |||
| Assets of discontinued operations | - | ||||||||
| Total assets | 29,045 | ||||||||
| June 29, 2008 | |||||||||
| Net operating capital (NOC) | 17,490 | 8,290 | 1,658 | 6,319 | 217 | 1,006 | |||
| Exclude liabilities comprised in NOC: | |||||||||
| - payables/liabilities | 7,216 | 1,869 | 2,366 | 1,154 | 218 | 1,609 | |||
| - intercompany accounts | - | 28 | 80 | 33 | (7) | (134) | |||
| - provisions | 2,407 | 260 | 269 | 157 | 29 | 1,692 | |||
| Include assets not comprised in NOC: | |||||||||
| - investments in equity-accounted investees | 256 | 55 | 2 | 10 | 81 | 108 | |||
| - other non-current financial assets | 2,871 | - | - | - | - | 2,871 | |||
| - deferred tax assets | 827 | - | - | - | - | 827 | |||
| - liquid assets | 2,396 | - | - | - | - | 2,396 | |||
| Total assets of continuing operations | 33,463 | 10,502 | 4,375 | 7,673 | 538 | 10,375 | |||
| Assets of discontinued operations | 292 | ||||||||
| Total assets | 33,755 |
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| Cash flows provided by (used for) operating activities | 191 | 446 | (323) | 140 |
| Cash flows provided by (used for) investing activities | 972 | (185) | (3,552) | 244 |
| Cash flows before financing activities | 1,163 | 261 | (3,875) | 384 |
| Cash flows provided by (used for) operating activities | 191 | 446 | (323) | 140 |
| Net capital expenditures | (196) | (195) | (428) | (356) |
| Free cash flows | (5) | 251 | (751) | (216) |
| 2008 | 2009 | |||||||
|---|---|---|---|---|---|---|---|---|
| 1st | 2nd | 3rd | 4th | 1st | 2nd | 3rd | 4th | |
| quarter | quarter | quarter | quarter | quarter | quarter | quarter | quarter | |
| Sales | 5,965 | 6,463 | 6,334 | 7,623 | 5,075 | 5,230 | ||
| % increase | 1 | 7 | (2) | (9) | (15) | (19) | ||
| EBITA | 265 | 396 | 57 | 26 | (74) | 118 | ||
| as a % of sales | 4.4 | 6.1 | 0.9 | 0.3 | (1.5) | 2.3 | ||
| EBIT | 187 | 303 | (133) | (303) | (186) | 8 | ||
| as a % of sales | 3.1 | 4.7 | (2.1) | (4.0) | (3.7) | 0.2 | ||
| Net income (loss) - stockholders | 294 | 732 | 57 | (1,174) | (59) | 44 | ||
| per common share in euros | 0.28 | 0.72 | 0.06 | (1.26) | (0.06) | 0.05 |
| January- | January- | January- | January- | January- January- | January- | January | ||
|---|---|---|---|---|---|---|---|---|
| March | June September December | March | June September | December | ||||
| Sales | 5,965 | 12,428 | 18,762 | 26,385 | 5,075 | 10,305 | ||
| % increase | 1 | 4 | 2 | (2) | (15) | (17) | ||
| EBITA | 265 | 661 | 718 | 744 | (74) | 44 | ||
| as a % of sales | 4.4 | 5.3 | 3.8 | 2.8 | (1.5) | 0.4 | ||
| EBIT | 187 | 490 | 357 | 54 | (186) | (178) | ||
| as a % of sales | 3.1 | 3.9 | 1.9 | 0.2 | (3.7) | (1.7) | ||
| Net income (loss) - stockholders | 294 | 1,026 | 1,083 | (91) | (59) | (15) | ||
| per common share in euros | 0.28 | 1.00 | 1.07 | (0.09) | (0.06) | (0.02) | ||
| Net income (loss) from continuing operations as a % of |
||||||||
| stockholders' equity (ROE) | 6.2 | 10.8 | 7.8 | (0.5) | (1.7) | (0.2) | ||
| period ended 2008 | period ended 2009 | |||||||
| Inventories as a % of sales | 13.6 | 13.9 | 15.1 | 12.8 | 13.1 | 13.3 | ||
| Net debt : group equity ratio | 4:96 | 7:93 | 8:92 | 4:96 | 3:97 | 6:94 | ||
| Total employees (in thousands) | 134 | 133 | 128 | 121 | 116 | 116 | ||
| of which discontinued operations | 6 | 5 | - | - | - | - |
Information also available on Internet, address: www.investor.philips.com
Printed in the Netherlands
| 31 | Significant accounting policies |
|---|---|
| 31 | Estimates |
| 31 | Segment information |
| 32 | Seasonality |
| 32 | Acquisitions and divestments |
| 32 | Other non-current financial assets |
| 33 | Income taxes |
| 33 | Property, plant and equipment |
| 33 | Goodwill |
| 33 | Intangible assets |
| 34 | StockholdersÊ equity (number of shares, dividends) |
| 34 | Long-term debt |
| 34 | Share-based compensation |
| 34 | Restructuring |
| 34 | Contingent liabilities |
| 35 | Related-party transactions |
| 36 | Provisions |
| 36 | Pensions |
| 36 | Inventories |
| 36 | Equity-accounted investees |
| 36 | Subsequent events |
The semi-annual financial statements have been prepared in accordance with IAS 34 ÂInterim Financial ReportingÊ as adopted by the European Union. The significant accounting policies applied in these semi-annual financial statements are consistent with those applied in the CompanyÊs consolidated IFRS financial statements for the year ended December 31, 2008, except as described in Note 1.
The significant accounting policies applied in these semi-annual financial statements are consistent with those applied in the Company's consolidated IFRS financial statements for the year ended December 31, 2008, except for the adoption of the following new standards, amendments to standards and interpretations, which have been adopted as relevant to the Company for the first time:
The amendments to IAS 1 mainly concern the presentation of changes in equity, in which changes as a result of the transaction with shareholders should be presented separately and for which a different format of the overview of the changes in equity can be selected. Furthermore, where restatements have occurred, an opening balance sheet of the corresponding period is presented. Philips has chosen to present all non-owner changes in equity in two statements (a separate income statement and a statement of comprehensive income). This Standard is applicable to the Company as of January 1, 2009.
The amendments to IFRS 7 include:
The amendments establish a three-level input hierarchy for making fair value measurements:
The amendments are applicable to Philips as of January 1, 2009 and only impact the disclosure of fair value.
IFRIC 13 addresses recognition and measurement of the obligation to provide free or discounted goods or services in the future. This interpretation is applicable to the Company from January 1, 2009 but did not have a material impact on the Company as this interpretation is consistent with the existing policies of the Company.
Other Standards & Interpretations effective from January 1, 2009 did not have a material impact on the company.
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 that applied to consolidated financial statements as at and for the year ended December 31, 2008 except for the following:
Pension liabilities are estimated, based on actuarial assumptions established to anticipate future events. Actuarial assumptions for material plans (e.g. discount rate and expected long-term inflation) were based on the opening assumptions but adjusted for significant market fluctuations since the previous year 2008.
The Company performs its annual impairment test in the second quarter of each year. The test consists of an evaluation of goodwill, intangible assets with indefinite useful life and intangible assets that are not yet available for use. The determination of whether these assets are recoverable is based on management's estimate of future cash flows directly attributable to these assets or the smallest cashgenerating unit to which they belong. Cash flows are discounted based on the weighted average cost of capital that is determined for each of the cash-generating units. For further details, please refer to note 9.
Philips' activities are organized on a sector basis, with each operating sector – Healthcare, Lighting and Consumer Lifestyle – being responsible for the management of its business worldwide.
The following sectors are included in the tables: Healthcare, Consumer Lifestyle, Lighting, Innovation & Emerging Businesses (I&EB) and Group Management & Services (GM&S). A short description of these sectors is as follows:
Consumer Lifestyle: Consists of the following businesses Television, Shaving & Beauty, Audio & Video Multimedia, Domestic Appliances, Peripherals & Accessories, Health & Wellness, and Licenses.
Television: contained within the Consumer Lifestyle sector, Television results are reported separately due to the large impact the results have on Consumer Lifestyle and the Philips Group.
Reportable segments for the purposes of the segmental disclosures required by IAS 34 Interim Financial Statements are: Healthcare, Consumer Lifestyle, Lighting and Television.
Significant segment information can be found on page 24 and 25 for sector results and page 27 and 28 for a reconciliation of non-GAAP performance measures.
The Group's sales are impacted by seasonal fluctuations, particularly driven by Consumer Lifestyle and Healthcare, typically resulting in higher revenues and earnings in the second half-year results. At Consumer Lifestyle, sales and earnings are usually much higher in the second half-year, largely due to higher consumer spending in the second half-year driven by the holiday season. At Healthcare, sales are higher in the second half-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.
For the 12 months ended June 28, 2009, Healthcare, Consumer Lifestyle and Lighting had revenues of EUR 7,987 million, EUR 9,057 million and EUR 6,838 million respectively (12 months ended June 29, 2008: EUR 6,856 million, EUR 12,931 million and EUR 6,852 million respectively) and reported income from operations of EUR 521 million, a loss of EUR 33 million and a loss of EUR 411 million respectively (12 months ended June 29, 2008: EUR 729 million, EUR 770 million and EUR 706 million respectively).
During the first six months of 2009, Philips entered into a number of acquisitions and completed several divestments. These acquisitions and divestments, both individually and in the aggregate, were deemed immaterial in respect of IFRS disclosure requirements.
The acquisitions, which involve an aggregated purchase price of EUR 99 million, have been accounted for using the purchase method of accounting.
The changes during 2009 are as follows:
in millions of euros
| total | |
|---|---|
| Balance as of Dec 31, 2008 | 1,331 |
| Changes: | |
| Reclassifications | 27 |
| Acquisitions / Additions | 7 |
| Sales / redemptions / reductions | (719) |
| Value adjustments / impairments | 168 |
| Translation and exchange differences | 8 |
| Balance as of June 28, 2009 | 822 |
During the first six months of 2009, Philips reduced its shareholding portfolio of available-for-sale securities by selling its entire interest in LG Display and Pace Micro Technology (Pace).
On March 11, 2009, Philips sold 47,225,000 shares of common stock in LG Display to financial institutions in a capital markets transaction. This transaction represented 13.2% of LG Display's issued share capital. The transaction resulted in a gain of EUR 69 million, reported under Financial income and expenses.
On April 17, 2009, Philips sold 50,701,049 shares of common stock in Pace Micro Technology (Pace) to financial institutions in a capital markets transaction. This transaction represented 17% of Pace's issued share capital. The transaction resulted in a gain of EUR 48 million, reported under Financial income and expenses.
The major cost-method investment as of December 31, 2008 relates to NXP, for an amount of EUR 255 million. The Company holds 19.8% of the common shares in NXP.
Triggered by the deteriorating economic environment of the semiconductor industry in general and the weakening financial performance of NXP specifically, Philips performed impairment reviews on the carrying value of the investment in NXP during the first six months of 2009. During that period, impairment charges were recognized in the amount of EUR 48 million, which is presented in Financial income and expenses.
The impairment was calculated consistent with the methodology outlined in our Annual Report 2008. The inputs to the calculation are based on Level 3 of the fair value hierarchy under IFRS 7. In accordance with IAS 39, Financial Instruments: Recognition and Measurement, paragraph 66, if there is objective evidence that an impairment loss has been incurred for an unquoted equity investment carried at cost, the amount of the impairment loss is measured as the difference between the carrying amount of the investment and the present value of the estimated discounted future cash flows.
Taking into account certain market considerations and the range of estimates of fair value, management determined that the best estimate of fair value for the NXP investment was EUR 207 million at June 28, 2009. However, as noted above, the fair value used for impairment purposes represents an estimate; actual fair value of this interest could materially differ from that estimate.
The lower income tax expense was mainly due to EUR 95 million of net tax benefits, including the recognition of a deferred tax asset for Lumileds and a number of tax settlements, partly offset by additional liabilities for uncertain tax positions.
The changes in deferred tax assets and deferred tax liabilities are mainly related to the pension valuation.
During the first six months ended June 28, 2009 there were no significant movements in property, plant and equipment. The additions of EUR 252 million (six months ended June 29, 2008: EUR 692 million) was more than offset by depreciation charges of EUR 324 million (six months ended June 29, 2008: EUR 277 million).
| Goodwill | |
|---|---|
| in millions of euros | |
| total | |
| Book value as of December 31, 2008 | 7,280 |
| Changes in book value: Acquisitions |
64 |
| Impairments | - |
| Translation differences | 105 |
| Book value as of June 28, 2009 | 7,449 |
Respironics, Professional Luminaires and Lumileds (which was impaired in 2008) remain most sensitive to fluctuations in the key assumptions used in the impairment tests as set out below.
The key assumptions used in the annual impairment test performed in Q2 were growth of sales and gross margin, together with the rates used for discounting the forecast cash flows. Sales and gross margin growth are based on management's internal forecasts that cover an initial period of no more than five years and then are extrapolated with stable or declining growth rates, after which a terminal value is calculated, for which growth rates are capped. The pre-tax discount rates are determined for each cashgenerating unit (typically one level below sector level) and in the annual test ranged from 8.9% to 14.5% (2008: 9.4% to 15.6%). The cash-generating units to which a significant part of goodwill is allocated are Respironics, Professional Luminaires, and Imaging Systems, for which the pre-tax discount rates were 11.1%, 12.7%, and 9.7% (2008: 12.2%, 14.0% and 10.5%) respectively. The growth rate cap applied to the terminal value was 2.7% (2008: 2.7%).
The sensitivity analysis undertaken provided the following results: The fair value of Respironics is 4% above its carrying value, but an increase of 20 basis points in the discount rate or a reduction of 6% in the terminal value of the cash-generating unit would cause its value to fall to the level of its carrying value.
The fair value of Professional Luminaires is 16% above its carrying value, but an increase of 80 basis points in the discount rate or a reduction of 20% in the terminal value of the cash-generating unit would cause its value to fall to the level of its carrying value. The fair value of Lumileds is 3% above its carrying value, but an increase of 10 basis points in the discount rate or a reduction of 4% in the terminal value of the cash-generating unit would cause its value to fall to the level of its carrying value.
| Intangible assets | ||
|---|---|---|
| in millions of euros | |
|---|---|
| total | |
| Book value as of December 31, 2008 | 4,477 |
| Changes in book value: | |
| Additions | 131 |
| Acquisitions | 20 |
| Amortization/deductions | (348) |
| Impairment losses | (5) |
| Translation differences | 76 |
| Other | 7 |
| Total changes | (119) |
| Book value as of June 28, 2009 | 4,358 |
In 2009 EUR 0.70 per common share was distributed from retained earnings to the shareholders.
During the first six months of 2009 a total of 3,058,945 treasury shares were delivered as a result of stock option exercises, restricted share deliveries and other employee-related share plans. No treasury shares were acquired in this period. On June 28, 2009 the total number of treasury shares amounted to 46,370,968, which were purchased at an average price of EUR 26.24 per share.
The major change in the retained earnings relates to pensions, as described in Note 18.
At June 28, 2009 total long-term debt was EUR 3,745 million, which included a EUR 250 million floating-rate bilateral loan drawn during January 2009. Total remaining long-term debt mainly consisted of outstanding public bonds for an amount of EUR 3,319 million, previously issued mostly in USD or EUR. The weighted average interest rate of the total EUR and USD bonds was 5.83% at June 28, 2009.
Share-based compensation expense amounted to EUR 35 million and EUR 35 million in the first six months of 2009 and 2008 respectively.
During the first six months of 2009 the Company granted 5,643,801 stock option rights on its common shares and 1,485,461 rights to receive common shares in the future (restricted share rights).
A total of 1,924,143 restricted shares were issued to employees, and 44,424 USD-denominated options were exercised at a weighted average exercise price of USD 18.11.
For approximately 3 million unvested performance options the current expectation is that the target will not be met and therefore the charges related to these grants have been reversed in 2009. Under the employee stock purchase plans 1,217,264 shares have been purchased at an average price of EUR 12.85.
For further information on the characteristics of these plans, see the Annual Report 2008, note 33.
In the first six months of 2009, a total charge of EUR 160 million was recorded as a result of restructuring projects, including related asset impairments and inventory write-downs.
The total restructuring program charges in the first six months of 2009 and 2008 are presented by sector as follows:
| in millions of euros | ||
|---|---|---|
| January to June | ||
| 2008 | 2009 | |
| Healthcare | - | 10 |
| Consumer Lifestyle | 19 | 43 |
| Lighting | 65 | 94 |
| I&EB | - | 8 |
| GM&S | 3 | 5 |
| Total | 87 | 160 |
Most of the projects initiated in 2009 were in Lighting and in Consumer Lifestyle. The most significant new projects in Lighting were at Turnhout (Belgium), Roosendaal and Maarheeze (Netherlands). In Consumer Lifestyle the most significant newly initiated project was the move of the Flat TV product introduction center from Bruges (Belgium) to Szekesfehervar (Hungary).
Philips' policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. At June 28, 2009, the total fair value of guarantees recognized on the balance sheet was EUR 13 million (end of 2008: EUR 10 million). Remaining off-balance-sheet business and credit-related guarantees provided to third parties and equity-accounted investees decreased by EUR 79 million during 2009 to EUR 406 million.
The Company and its subsidiaries are subject to environmental laws and regulations. Under these 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. 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 accrues for losses associated with environmental obligations when such losses are probable and reliably estimable.
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 2008. Significant developments regarding legal proceedings that have occurred since the publication of our Annual Report 2008 are described below.
On May 28, 2009, the U.S. Bankruptcy Court for the Southern District of New York, issued an order confirming a Prepackaged Plan of Reorganization (the Plan) of the Company's U.S. subsidiary, TH Agriculture & Nutrition L.L.C. (THAN). THAN had commenced the bankruptcy proceeding on November 24, 2008, with the objective to resolve its pending and future asbestos claims. For the Plan to become effective, the U.S. District Court for the Southern District of New York must affirm the Bankruptcy Court's confirmation of the Plan, which will include resolving an opposition that has been filed in respect of the bankruptcy court's confirmation order. Once effective, the Plan provides for an injunction that will channel all pending and future THAN-related asbestos claims to an asbestos personal injury trust that will assume, liquidate and satisfy all such asbestos liabilities. The trust will be funded with a contribution of USD 900 million (EUR 644 million) by THAN and Philips Electronics North America Corporation (PENAC). Depending on the timing and outcome of the affirmation and appeal process in the U.S. District Court, funding of the asbestos personal injury trust may occur in the second half of 2009.
During the first half of 2009:
As of June 28, 2009, EUR 123 million was jointly held by PENAC and THAN in an insurance settlement proceeds trust for future contribution to the asbestos personal injury trust. Additionally, at June 28, 2009, the recorded receivable from insurance carriers, with which settlement agreements have been reached, amounted to EUR 93 million (EUR 34 million at December 31, 2008).
As previously reported, certain Philips group companies were named as defendants in over 50 class-action antitrust complaints filed in various federal district courts in the United States. These actions allege anticompetitive conduct by manufacturers of CRTs and seek treble damages on behalf of direct and indirect purchasers of CRTs and products incorporating CRTs. These complaints assert claims under federal antitrust law, as well as various state antitrust and unfair competition laws and may involve joint and several liability among the named defendants. These actions have been consolidated by the Judicial Panel for Multidistrict Litigation for pre-trial proceedings in the United States District Court for the Northern District of California.
Consolidated amended complaints were filed by the direct and indirect purchasers on March 16, 2009. On May 19, 2009, motions to dismiss were filed on behalf of all Philips entities in response to both the direct and indirect purchaser actions in the federal class actions pending in the Northern District of California. The motions seek to dismiss all claims against all Philips defendants on various grounds. A separate motion to dismiss was filed on behalf of nearly all defendants seeking to eliminate or limit certain of the claims of the direct and indirect purchasers. There is no definitive schedule for resolution of the motions to dismiss by the court. Discovery on personal jurisdiction and most merits-related issues is likely to be delayed until the resolution of the motions to dismiss. Philips intends to vigorously defend these lawsuits.
On May 28, 2009, the Company received a Statement of Objections from the European Commission. In this document the European Commission alleges that the Company is jointly and severally liable for anticompetitive conduct by LG Display (formerly LG.Philips LCD Co. Ltd.) for the period in which the Company, according to the European Commission, exercised joint control. The Company intends to vigorously oppose this allegation.
The Company sold its remaining shareholding in LG Display on March 11, 2009 and subsequently no longer holds shares in LG Display.
In the normal course of business, Philips purchases and sells goods and services to various related parties in which Philips typically holds a 50% or less equity interest and has significant influence. These transactions are conducted on terms comparable to transactions with third parties. At June 28, 2009, Philips' relatedparty transactions for the year-to-date totaled EUR 19 million (6 months period ended June 29, 2008: EUR 351 million).
On June 28, 2009, provisions amounted to EUR 2,910 million, compared to EUR 2,837 million at year-end 2008. This is an increase of EUR 73 million (2.6%), mainly related to pensions and termination benefits.
In accordance with IAS 34, actuarial gains and losses are reported in the semi-annual report only if there have been significant changes in financial markets. We noticed narrowing credit spreads and a rise in expected inflation. The half-year estimates of gains and losses are limited to the principal plans, i.e. the defined-benefit pension plans in the Netherlands, 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.
The changes in actuarial gains and losses are reported under Other comprehensive income (OCI) and against the respective balance sheet items as presented in the tables below:
| Gross | Tax | Net |
|---|---|---|
| 1,569 | (406) | 1,163 |
| 812 | (207) | 605 |
| 2,381 | (613) | 1,768 |
in millions of euros
| June | |
|---|---|
| 2009 | |
| Other non-current assets | (1,983) |
| Deferred tax assets | 613 |
| Other non-current liabilities | (398) |
| Total | (1,768) |
No actuarial gains and losses were booked for the first half-year of 2008.
The funded status of the principal plans is presented below:
| in millions of euros | ||
|---|---|---|
| December 31, 2008 |
June 28, 2009 |
|
| Funded status of principal plans | 1,815 | 323 |
| Unrecognized prior service cost Unrecognized assets Net balance sheet position |
5 (782) 1,038 |
3 (1,594) (1,268) |
| Classification of net Balance sheet Prepaid under non-current assets Accrued under non-current liabilities |
1,837 (799) |
- (1,268) |
| 1,038 | (1,268) |
On June 28, 2009, net inventories amounted to EUR 3,216 million, compared to EUR 3,371 million at year-end 2008. This is a decrease of EUR 155 million (4.6%). Adjusted for currency effects, this decrease is slightly higher (6.1%).
Results relating to equity-accounted investees include a gain of EUR 25 million on the partial reversal of an impairment charge related to our interest in TPV Technology Limited, which was recognized in December 2008. The reversal is supported by the improving outlook for the flat panel industry, which is also reflected in the recovery of TPV's share price.
Philips reached a binding agreement to acquire Saeco International Group S.p.A., a leading espresso machine manufacturer controlled by PAI partners. Closing of this acquisition requires certain regulatory approvals and is expected in Q3.
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