Edgar Filing: KONINKLIJKE PHILIPS ELECTRONICS NV

Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

January 31, 2012

KONINKLIJKE PHILIPS ELECTRONICS N.V.

(Exact name of registrant as specified in its charter)

Royal Philips Electronics

(Translation of registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(7): ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

Name and address of person authorized to receive notices

and communications from the Securities and Exchange Commission:

E.P. Coutinho

Koninklijke Philips Electronics N.V.

Amstelplein 2

1096 BC Amsterdam – The Netherlands

This report comprises a copy of the Quarterly Report of the Philips Group for the three months ended December 31, 2011 and the following press release:

- “Fourth Quarter and Annual Results 2011”, dated January 30, 2012.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 31st day of January 2012.

KONINKLIJKE PHILIPS ELECTRONICS N.V.

/s/ E.P. Coutinho

(General Secretary)

Q4 2011 Quarterly report

Philips reports fourth-quarter sales of EUR 6.7 billion;

EBITA of EUR 503 million

•

Comparable sales up 3%, led by 7% growth at Lighting

•

Growth geographies sales up 12% on a comparable basis

•

EBITA of 7.5% of sales

•

Net income from continuing operations at EUR 112 million

•

Free cash flow of EUR 961 million

•

Proposed dividend stable at EUR 0.75 per share

Q4 financials: Year-on-year revenue increased across all operating sectors. EBITA margin declined from 14.1% in Q4 2010 to 7.5% in Q4 2011.

Healthcare comparable sales were 3% higher year-on-year. Comparable equipment order intake grew 3% year-on-year. Equipment orders in growth geographies grew by 17%. Results were impacted by weakness in the European markets, postponed deliveries of existing orders, as well as increased investments in new product innovation and sales channels.

Consumer Lifestyle sales increased 1% on a comparable basis. At an aggregate level, the three growth businesses – Personal Care, Health & Wellness, and Domestic Appliances – achieved a high single-digit comparable sales increase compared to the fourth quarter of 2010. The sector growth rate was impacted by a comparable sales decline at Lifestyle Entertainment. Reported EBITA margin for the quarter was 10%.

Lighting comparable sales increased 7% year-on-year, driven by double-digit sales growth at Lamps and Automotive. LED-based sales grew 37% compared to Q4 2010, now representing 18% of total Lighting sales. Sales in growth geographies increased by 21% in the quarter. Results were impacted by pricing, inventory reduction measures, and operational issues. As part of the turnaround plan, most brands for Consumer Luminaires products will be re-branded as Philips, which resulted in a value adjustment of commercial and brand-related assets leading to a charge of EUR 128 million.

Working capital reductions in the sectors amounted to more than EUR 500 million in the quarter, contributing to a free cash inflow of EUR 961 million in the fourth quarter.

The company completed 35% of its EUR 2 billion share buy-back program since the start of the program in July 2011. Taking into consideration the volatility of the financial markets, Philips has decided to extend the timing of the program until the end of Q2 2013.

Moving forward on Accelerate!, Philips’ change and performance improvement program

Philips is seeing the initial signs of the Accelerate! program positively impacting sales growth in difficult market circumstances. Importantly, the company has attracted key talent for critical positions across the company.

In addition, as part of the company’s efforts to improve its end-to-end processes, inventory as a percentage of sales decreased to 16.1% from 18.2% in Q3 2011, representing a comparable decrease of EUR 585 million, which is an improvement compared to the decrease in inventory seen in the same period last year.

The actions to deliver on the overhead cost reduction program are on track, and the first planned cost savings were realized in the quarter.

The annual incentive system for the executives has been changed to reflect line-of-sight accountability and is now fully aligned with the key performance indicators of the 2013 mid-term financial targets.

CEO quote:

“Our fourth quarter results were impacted by weak European sales, postponement in deliveries of existing orders in our Healthcare sector, and inventory correction actions and other operational issues in our Lighting business. These issues were partially offset by solid results in our Consumer Lifestyle growth businesses, which benefited from the early adoption of the Accelerate! change and performance improvement program. In addition, we delivered strong free cash flow as a result of our work to reduce working capital.

We are cautious about 2012 given the uncertainty in the global economy, and Europe in particular. In addition, we expect our 2012 results to be affected by the previously communicated restructuring charges and one-time investments aimed at improving our business performance trajectory, as part of the multi-year Accelerate! program. Excluding these additional charges, we expect the underlying operating margins and capital efficiency in the sectors to improve in the latter part of 2012.

While we are concerned about the economic environment, all of us at Philips are fully committed to improve our operational performance to achieve our mid-term (2013) financial targets.

Frans van Houten, CEO of Royal Philips Electronics

Please refer to page 17 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.

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Philips Group

Net income

in millions of euros unless otherwise stated


	Q4			Q4
	2010			2011
Sales		6,495			6,712
EBITA		913			503
as a % of sales		14.1			7.5
EBIT		796			262
as a % of sales		12.3			3.9
Financial income (expenses)		(62	)		(71	)
Income taxes		(227	)		(79	)
Results investments in associates		(4	)		—
Net income from continuing operations		503			112
Discontinued operations		(38	)		(272	)
Net income (loss)		465			(160	)

Net income - shareholders per common share (in euros) - basic		0.49			(0.17	)

Sales by sector

in millions of euros unless otherwise stated


	Q4		Q4					% change
	2010		2011		nominal			comparable
Healthcare		2,642		2,724		3			3
Consumer Lifestyle		1,791		1,849		3			1
Lighting		1,975		2,072		5			7
GM&S		87		67		(23	)		7

Philips Group		6,495		6,712		3			3

Sales per geographic cluster

in millions of euros unless otherwise stated


	Q4¹⁾		Q4					% change
	2010		2011		nominal			comparable
Western Europe		2,034		1,909		(6	)		(5	)
North America		1,978		2,049		4			3
Other mature geographies		454		514		13			9

Total mature geographies		4,466		4,472		—			—
Growth geographies		2,029		2,240		10			12

Philips Group		6,495		6,712		3			3

¹⁾	Revised to reflect an adjusted geographic cluster allocation

Net income

•

Net income amounted to an after-tax loss of EUR 160 million, a decline of EUR 625 million compared to Q4 2010, largely attributable to lower earnings, and a higher loss from discontinued operations which includes an after-tax loss of EUR 272 million related to the Television business.

•

Financial expense was EUR 9 million higher year-on-year, mainly due to higher interest expense.

•

EBITA decreased by EUR 410 million to 7.5% of sales, due to lower earnings, mainly at Lighting, Healthcare and GM&S. Excluding EUR 79 million of restructuring and acquisition-related charges and pension plan changes, EBITA amounted to EUR 582 million, or 8.7% of sales.

Sales per sector

•

Group sales amounted to EUR 6,712 million, an increase of 3% from Q4 2010, both on a nominal and a comparable basis.

•

Healthcare sales improved by 3% compared to Q4 2010. Mid-single-digit sales growth at Customer Services, Home Healthcare Solutions and Patient Care & Clinical Informatics was tempered by flat sales at Imaging Systems.

•

Consumer Lifestyle sales improved by 1% compared to Q4 2010. Growth at Health & Wellness, Domestic Appliances and Personal Care was offset by a sales decline at Lifestyle Entertainment.

•

Lighting sales grew by 7% compared to Q4 2010, driven by double-digit sales growth at Lamps and Automotive. Professional Luminaires, Lighting Systems & Controls and Consumer Luminaires reported moderate sales growth, whereas Lumileds showed a decline in sales.

Sales per geographic cluster

•

Sales in the mature geographies were flat compared to Q4 2010. Growth at Healthcare was offset by declines at Consumer Lifestyle and Lighting.

•

Growth geographies delivered 12% sales growth compared to Q4 2010, across all sectors.

Q4 2011 Quarterly report 3

EBITA

in millions of euros


	Q4			Q4
	2010			2011
Healthcare		522			409
Consumer Lifestyle		210			184
Lighting		198			41
Group Management & Services		(17	)		(131	)

Philips Group		913			503

EBITA

as a % of sales


	Q4			Q4
	2010			2011
Healthcare		19.8			15.0
Consumer Lifestyle		11.7			10.0
Lighting		10.0			2.0
Group Management & Services		(19.5	)		(195.5	)

Philips Group		14.1			7.5

Restructuring and acquisition-related charges

in millions of euros


	Q4			Q4
	2010			2011
Healthcare		4			(21	)
Consumer Lifestyle		(3	)		(18	)
Lighting		(34	)		(36	)
Group Management & Services		(5	)		(25	)

Philips Group		(38	)		(100	)

EBIT

in millions of euros unless otherwise stated


	Q4			Q4
	2010			2011
Healthcare		459			359
Consumer Lifestyle		198			167
Lighting		156			(130	)
Group Management & Services		(17	)		(134	)

Philips Group		796			262
as a % of sales		12.3			3.9

Earnings

•

EBITA amounted to EUR 503 million, a decrease of EUR 410 million compared to Q4 2010. Restructuring and acquisition-related charges of EUR 100 million were recorded, EUR 62 million higher than in Q4 2010. Excluding these charges, EBITA amounted to EUR 603 million, or 9.0% of sales.

•

Healthcare EBITA was EUR 409 million, compared to EUR 522 million in Q4 2010. Lower earnings were a result of market weakness in Europe, delivery postponements, as well as continued investments in innovation and sales channels and one-time charges. Restructuring and acquisition-related charges were EUR 25 million higher than in Q4 2010.

•

Consumer Lifestyle EBITA amounted to EUR 184 million, a decrease of EUR 26 million compared to Q4 2010, mainly due to a decline in operating results at Lifestyle Entertainment, investments in innovation, advertising and promotion, as well as one-time charges. Restructuring and acquisition-related charges were EUR 15 million higher than in Q4 2010.

•

Lighting EBITA amounted to EUR 41 million, compared to EUR 198 million in Q4 2010. Lower earnings were mainly due to continued operational issues at Consumer Luminaires and Lumileds, macroeconomic factors impacting consumer lighting businesses, and one-time charges mainly related to slow-moving inventories. Restructuring and acquisition-related charges were EUR 2 million higher than in Q4 2010.

•

GM&S EBITA declined by EUR 114 million to a loss of EUR 131 million. Earnings were mainly impacted by a EUR 21 million favorable pension plan change. Q4 2010 earnings were favorably impacted by a EUR 83 million pension plan change.

•

EBIT amounted to EUR 262 million, a decrease of EUR 534 million compared to Q4 2010, mainly as a result of lower earnings at Healthcare and Lighting, as well as a value adjustment of commercial and brand-related assets at Lighting.

4 Q4 2011 Quarterly report

Financial income and expenses

in millions of euros


	Q4			Q4
	2010			2011
Net interest expenses		(49	)		(58	)
NXP value adjustment		—			2
Other		(13	)		(15	)

		(62	)		(71	)

Cash balance

in millions of euros


	Q4			Q4
	2010			2011
Beginning cash balance		4,385			2,339
Free cash flow		1,152			961
Net cash flow from operating activities		1,366			1,207
Net capital expenditures		(214	)		(246	)
Acquisitions of businesses		(155	)		(243	)
Other cash flow from investing activities		94			(22	)
Treasury shares transactions		9			(208	)
Changes in debt/other		164			181
Net cash flow discontinued operations		184			139

Ending balance		5,833			3,147

Cash flows from operating activities

in millions of euros

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Financial income and expenses

•

Financial income and expenses amounted to a net expense of EUR 71 million. This represents an increase of EUR 9 million year-on-year, due to higher interest expenses.

Cash balance

•

The Group cash balance increased in the quarter to EUR 3,147 million, mainly due to a EUR 961 million free cash inflow and a EUR 181 million change in debt, partly offset by EUR 243 million cash outflow related to the acquisition of Povos Electric Appliance (Shanghai) Co. Ltd. (Povos) and EUR 208 million of treasury share transactions related to the announced share buy-back. In Q4 2010 the cash balance increased by EUR 1,448 million, ending at EUR 5,833 million, mainly as a result of EUR 1,152 million free cash inflow, EUR 164 million of changes in debt/other and EUR 184 million cash inflow from discontinued operations, partly offset by EUR 155 million outflow for acquisitions.

Cash flows from operating activities

•

Operating activities resulted in a cash inflow of EUR 1,207 million, compared to an inflow of EUR 1,366 million in Q4 2010. The year-on-year decrease was largely due to a EUR 391 million decline in earnings and a EUR 210 million decrease in other non-current assets/ liabilities, partly offset by EUR 191 million lower working capital requirements and EUR 151 million higher provisions.

Q4 2011 Quarterly report 5

Gross capital expenditures¹⁾

in millions of euros

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¹⁾	Capital expenditures on property, plant and equipment only

Inventories

as a % of moving annual total sales

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¹⁾	Excludes discontinued operations for both inventories and sales figures Inventories excluding discontinued operations are disclosed in quarterly statistics.

Net debt and group equity

in billions of euros

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Gross capital expenditure

•

Gross capital expenditures on property, plant and equipment were EUR 29 million higher than in Q4 2010. Increases at Healthcare and Consumer Lifestyle were partly offset by lower expenditures at Lighting.

Inventories

•

Inventories as a percentage of sales came to 16.1%, 0.4 percentage points higher than in Q4 2010, representing a EUR 129 million increase year-on-year, mainly centered on Healthcare.

•

Inventory value at the end of Q4 2011 was EUR 3.6 billion, a decrease of EUR 449 million in the quarter, attributable to all sectors.

Net debt and group equity

•

At the end of Q4 2011, Philips had net debt of EUR 0.7 billion, compared to a net cash position of EUR 1.2 billion at the end of Q4 2010. During the quarter, the net debt position decreased by EUR 0.5 billion, mainly due to EUR 1.0 billion of free cash flow, partially offset by cash outflows for share buy-backs and acquisitions.

•

Group equity decreased by EUR 0.5 billion in the quarter to EUR 12.4 billion. The decrease was largely a result of treasury share transactions, lower net income due to discontinued operations and currency translation effects.

6 Q4 2011 Quarterly report

Number of employees

in FTEs

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¹⁾	Number of employees excludes discontinued operations. Discontinued operations, comprising the Television business, employed at end of Q4 2010 3,610 at end of Q3 2011 3,636 and at end of Q4 2011 3,353

²⁾	Adjusted to reflect a change of employees reported in the Healthcare sector

Employees

•

The number of employees increased by 634 in the quarter, with 1,861 attributable to acquisitions, partially offset by employee reductions at Consumer Lifestyle and Lighting.

•

Compared to Q4 2010, the number of employees increased by 5,723. This increase includes 4,759 employees from acquisitions and a reduction of 479 employees from divestments. The remaining increases were mainly at Healthcare, primarily in North America.

Q4 2011 Quarterly report 7

Healthcare

Key data

in millions of euros unless otherwise stated


	Q4			Q4
	2010			2011
Sales		2,642			2,724
Sales growth
% nominal		10			3
% comparable		2			3
EBITA		522			409
as a % of sales		19.8			15.0
EBIT		459			359
as a % of sales		17.4			13.2
Net operating capital (NOC)		8,908			8,418
Number of employees (FTEs)		36,253	¹⁾		37,955

¹⁾	Adjusted to reflect a change of reported employees

Sales

in millions of euros

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EBITA

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Business highlights

•

Philips signed a partnership agreement with Farrar Park Hospital of Singapore to provide its new hospital with workflow consulting, hospital equipment planning, project management, procurement services as well as exclusively supplying multi-modality Philips equipment. This is the largest multi-modality solution project for the company’s ASEAN region.

•

Resulting from Philips’ continuous investments in innovation, the company has received 510(k) clearance from the Food and Drug Administration (FDA) to market its whole-body PET/MR imaging system, the Ingenuity TF PET/MR, and its HeartNavigator interventional tool in the US. In addition, the company has introduced the next-generation mammography solution, Philips MicroDose, in the US.

•

Delivering on its commitment to provide tailor-made solutions, Philips signed a multi-year strategic partnership agreement with Baptist Health South Florida whereby Philips will provide a comprehensive Radiology and Cardiovascular Image Management System and a Cardiovascular Information System solution across their six hospitals and 19 outpatient centers.

•

Facilitating aging populations to live independently, Philips has expanded its Lifeline personal emergency response service to Japan. The intended approach is to sign up customers through referrals from healthcare providers and via sales at large stores, like retail giant Aeon Co.

•

Demonstrating the clinical benefits and significant cost- saving of remote patient monitoring, the UK Department of Health released the initial results of the largest randomized, controlled trial of telecare and telehealth in the world to date. Philips had provided its telehealth technology and expertise to the study.

Financial performance

•

Currency-comparable equipment order intake grew 3% year-on-year. Equipment order growth was seen at Imaging Systems, while Patient Care & Clinical Informatics orders were flat compared to Q4 2010. Equipment orders in total mature markets decreased by 3% compared to Q4 2010, with orders in Europe down 14%, while orders in North America grew at 4%. Equipment orders in growth geographies grew by 17%.

8 Q4 2011 Quarterly report

•

Comparable sales were 3% higher year-on-year, with mid-single-digit growth at Customer Services, Home Healthcare Solutions and Patient Care & Clinical Informatics tempered by flat sales growth at Imaging Systems. From a regional perspective, comparable sales in North America grew 6%. Sales in growth geographies grew 5%, while sales growth in mature geographies was 2%.

•

EBITA for Q4 2011 was EUR 409 million, or 15.0% of sales, compared to EUR 522 million, or 19.8% of sales, in Q4 2010. Market weakness in Europe led to postponement of deliveries and affected margin improvement plans for Imaging Systems. In addition, investments in innovation and sales channels to drive growth, as well as one-time charges, resulted in lower earnings at Imaging Systems, Patient Care & Clinical Informatics and Home Healthcare Solutions. Excluding restructuring and acquisition-related charges, EBITA was EUR 430 million, or 15.8% of sales, compared to EUR 518 million, or 19.6% of sales, in Q4 2010.

•

Net operating capital decreased by EUR 490 million to EUR 8.4 billion, partly due to currency impact, partly due to impairment taken in Q2 2011.

•

Compared to Q4 2010 the number of employees increased by 1,702, largely driven by an increase in commercial and industrial employees.

Miscellaneous

•

Restructuring and acquisition-related charges in Q1 2012 are expected to total approximately EUR 15 million.

Q4 2011 Quarterly report 9

Consumer Lifestyle*

*	Excluding Television

Key data

in millions of euros unless otherwise stated


	Q4			Q4
	2010			2011
Sales		1,791			1,849
Sales growth
% nominal		(2	)		3
% comparable		(6	)		1
EBITA		210			184
as a % of sales		11.7			10.0
EBIT		198			167
as a % of sales		11.1			9.0
Net operating capital (NOC)		911			887
Number of employees (FTEs)		14,095			18,291

Sales

in millions of euros

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EBITA

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¹⁾	Revised to reflect a Television net costs re-allocation to GM&S

Business highlights

•

Philips completed the acquisition of Povos, a leading kitchen appliance company in China, significantly stepping up its position in the market and enhancing its local and global business creation capabilities.

•

Since the launch of the Sonicare AirFloss in key geographies, Philips Oral Healthcare has substantially increased its share of the electrical interdental cleaning market.

•

Philips continued the expansion of its Mother and Childcare business in China with the launch of its first range of bottles to be developed and manufactured by Philips AVENT in China for the Chinese market.

•

Philips introduced the Philips SENSEO Viva Café Eco, a sustainable coffee appliance that is made from 50% recycled plastic.

Financial performance

•

Sales increased 3% nominally year-on-year and 1% on a comparable basis. Strong double-digit comparable growth at Health & Wellness and mid-single-digit growth at Domestic Appliances and Personal Care were largely offset by a double-digit decline at Lifestyle Entertainment. License revenue was broadly in line with Q4 2010.

•

Regionally, double-digit growth in China, India and Latin America was tempered by a mid-single-digit decline in Europe.

•

EBITA includes EUR 6 million (EUR 9 million in Q4 2010) of net costs formerly reported as part of the Television business in Consumer Lifestyle.

•

EBITA was EUR 26 million lower compared to Q4 2010, which was attributable to a decline in operating results at Lifestyle Entertainment, investments in innovation, advertising and promotion, as well as one- time charges and higher restructuring and acquisition- related charges. Growth businesses in aggregate registered double-digit profitability and Lifestyle Entertainment mid-single-digit profitability. Excluding restructuring and acquisition-related charges of EUR 3 million in Q4 2010 and EUR 18 million in Q4 2011, EBITA declined from 11.9% to 10.9%.

10 Q4 2011 Quarterly report

•

Compared to Q4 2010, the number of employees increased by 4,196, largely due to the acquisitions of Preethi and Povos.

Miscellaneous

•

Restructuring and acquisition-related charges in Q1 2012 are expected to total approximately EUR 15 million.

Q4 2011 Quarterly report 11

Lighting

Key data

in millions of euros unless otherwise stated


	Q4 2010		Q4 2011
Sales		1,975		2,072
Sales growth
% nominal		7		5
% comparable		—		7
EBITA		198		41
as a % of sales		10.0		2.0
EBIT		156		(130	)
as a % of sales		7.9		(6.3	)
Net operating capital (NOC)		5,561		5,020
Number of employees (FTEs)		53,888		53,168

Sales

in millions of euros

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EBITA

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Business highlights

•

Philips continues to strengthen its consumer lighting leadership position in China and India. Investments are being made in its brand and further expansion of its branded retail presence to fuel growth and increase brand preference. In 2011, more than 600 branded stores and shops were opened.

•

The successful introduction of Philips StyliD Performance LED accent lighting for retail applications, one of Philips’ new innovations, contributed to the strong growth in professional LED lighting solutions in Europe.

•

Philips will sell 200,000 MASTER LED lamps to professional users in South Africa. The combined potential CO2 saving per year is estimated to be 60,000 tons, with energy cost savings of EUR 4 million per year. This equals EUR 20 savings per lamp.

•

Philips Strand Lighting is installing a major dimming and control system for a conference center in Doha, Qatar. The system controls the lighting in over 400 meeting and exhibition spaces.

Financial performance

•

Comparable sales were 7% higher year-on-year, mainly driven by double-digit sales growth at Lamps and Automotive, and mid-single-digit sales growth at Professional Luminaires, partly offset by a sales decrease at Lumileds. Sales growth of 21% was delivered in growth geographies.

•

LED-based sales grew 37% compared to Q4 2010, and now represent 18% of total Lighting sales.

•

EBITA, excluding restructuring and acquisition-related charges of EUR 36 million (Q4 2010: EUR 34 million), was EUR 77 million, or 3.7% of sales (Q4 2010: EUR 232 million, or 11.7% of sales).

12 Q4 2011 Quarterly report

•

The year-on-year EBITA decrease was mainly due to continued operational issues at Consumer Luminaires and Lumileds as well as macroeconomic factors which impacted pricing in our consumer lighting businesses. In addition, incidental charges, primarily relating to the disposal of slow-moving inventories, as well as adjustments in production volumes, further affected profitability.

•

EBIT decreased by EUR 286 million compared to Q4 2010 and was impacted by a EUR 128 million charge as a result of a value adjustment of commercial and brand-related assets at Consumer Luminaires.

•

Net operating capital decreased by EUR 541 million to EUR 5,020 million, mainly due to the Q2 2011 goodwil impairment and Q4 2011 value adjustment of intangible assets.

Miscellaneous

•

Restructuring and acquisition-related charges in Q1 2012 are expected to total approximately EUR 60 million.

•

On January 9, 2012, Philips completed the purchase of all outstanding shares of Indal Group, a Spanish professional luminaires company. With this acquisition, Philips will further strengthen its position and fuel growth in European outdoor lighting solutions.

Q4 2011 Quarterly report 13

Group Management & Services

Key data

in millions of euros unless otherwise stated


	Q4 2010			Q4 2011
Sales		87			67
Sales growth
% nominal		(19	)		(23	)
% comparable		(20	)		7
EBITA Corporate Technologies		(25	)		(18	)
EBITA Corporate & Regional Costs		(44	)		(62	)
EBITA Pensions		91			16
EBITA Service Units and Other		(39	)		(67	)

EBITA		(17	)		(131	)
EBIT		(17	)		(134	)
Net operating capital (NOC)		(3,429	)¹⁾		(3,898	)
Number of employees (FTEs)		11,929			12,474

¹⁾	Revised to reflect a property, plant and equipment reclassification to assets classified as held for sale

Sales

in millions of euros

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EBITA

in millions of euros

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Business highlights

•

For the year 2011, Philips received a record number of 99 key design awards from the world’s top design organizations, including 10 prestigious “GOOD DESIGN 2011” awards. This unprecedented annual result confirms our recognized leadership in design.

•

The jury of ‘China’s Most Successful Design Awards’ honored Philips with nine awards for successful designs in the Chinese market. Philips winners include the Fidelio Docking Speaker, our GreenVision LED-based road-lighting solution and a Gold award for the HD Camcorder CAM300.

•

Philips acquired a minority stake in IPXI Holdings, the world’s first financial exchange marketplace for intellectual property. IPXI is an innovative channel for royalty-bearing IP licensing to third parties, adding to the current revenue potential.

•

At the World Climate Summit in Durban, South Africa, Philips was awarded the 2011 Gigaton Award by the non-profit organization The Carbon War Room, for our EcoDesign product design process.

Financial performance

•

Sales decreased from EUR 87 million in Q4 2010 to EUR 67 million in Q4 2011, mainly due to the divestment of Assembléon.

•

EBITA showed a net cost of EUR 131 million, a cost increase of EUR 114 million year-on-year.

•

Corporate & Regional Costs were EUR 18 million higher than in Q4 2010, attributable to EUR 8 million in restructuring charges and investments related to the Accelerate! program.

•

In Pensions, EBITA was positively impacted by a EUR 21 million pension plan change gain in the current quarter, and a EUR 83 million pension plan change gain in Q4 2010.

•

Service Units and Other EBITA included EUR 17 million of additional restructuring charges compared to Q4 2010.

•

EBITA included EUR 25 million (EUR 19 million in Q4 2010) of net costs formerly reported as part of the Television business in Consumer Lifestyle.

•

Net operating capital decreased EUR 469 million, mainly due to pensions, financial hedging instruments held at corporate level, and lower tangible fixed assets.

14 Q4 2011 Quarterly report

•

Compared to Q4 2010, the number of employees increased by 545, primarily due to internal transfers from sectors to Group activities, partially offset by the divestment of Assembléon.

Miscellaneous

•

Restructuring charges in 2012 are expected to total approximately EUR 70 million.

•

IP royalty income to be reclassified from Consumer Lifestyle is expected to contribute approximately EUR 180 million to sales, with an EBITA impact of EUR 150 million, in 2012.

•

Stranded costs in 2012 are expected to total approximately EUR 40 million.

•

Accelerate! investments are expected to total approximately EUR 150 million in 2012.

•

Excluding the above items, the cost level of Group Management & Services is expected to be around EUR 230 million for the full year 2012.

Q4 2011 Quarterly report 15

Additional information on the Television business

in millions of euros unless otherwise stated


	Q4 2010			Q4 2011
Television EBITA		(67	)		(84	)

Former Television net costs allocated to CL		9			6
Former Television net costs allocated to

GM&S		19			25

Eliminated amortization other Television intangibles		(2	)		—

Deal-related costs		—			(272	)

EBIT discontinued operations		(41	)		(325	)

Financial income and expenses		—			(1	)
Income taxes		3			54

Net income (loss) of discontinued operations		(38	)		(272	)

Number of employees (FTEs)		3,610			3,353

•

In conjunction with the announcement of the Television 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. Consequently, Television sales are no longer reported in the Consumer Lifestyle and Group operational financials. Prior-period comparative figures have been restated accordingly.

•

Group net income includes an after-tax loss of EUR 272 million pertaining to the Television business, which includes EUR 272 million of costs related to disentanglement cost and value adjustments to assets.

•

The applicable net operating capital of the Television business which is to be transferred to the partnership is reported under Assets and Liabilities classified as held for sale in the consolidated balance sheets as of the end of the first quarter of 2011.

•

The EBITA of Consumer Lifestyle includes EUR 6 million of net costs formerly reported under the Television business, and the EBITA of Group Management & Services includes EUR 25 million of net costs formerly reported as part of the Television business.

•

Management has used estimates in the calculation of net income. Final results could differ from the amounts presented.

16 Q4 2011 Quarterly report

Forward-looking statements

Forward-looking statements

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 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 2010 and the “Risk and uncertainties” section in our semi-annual financial report for the six months ended July 3, 2011.

Third-party market share data

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.

Use of fair-value measurements

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’.

Q4 2011 Quarterly report 17

Full-year highlights

The year 2011

•

Sales for the full year 2011 EUR 22.6 billion, or 4% comparable growth.

•

Comparable growth in growth geographies at 11%.

•

EBITA for the year ended at EUR 1,680 million, or 7.4% of sales, compared to EUR 2,562 million, or 11.5% of sales, in 2010.

•

Full-year 2011 EBIT was negative EUR 269 million, compared to EUR 2,080 million in 2010, largely due to impairment charges in Q2 2011 and lower operational earnings across all sectors.

•

Net income declined to negative EUR 1,291 million, compared to EUR 1,452 million in 2010, as a result of goodwill impairment charges, lower earnings, and a loss from discontinued operations mainly related to disentanglement costs for the Television business.

•

Cash flows from operating activities amounted to EUR 836 million, compared to EUR 2,121 million in 2010.

in millions of euros unless otherwise stated


	January to December
	2010			2011
Sales		22,287			22,579
EBITA		2,562			1,680
as a % of sales		11.5			7.4
EBIT		2,080			(269	)
as a % of sales		9.3			(1.2	)
Financial income and expenses		(121	)		(240	)
Income taxes		(499	)		(283	)
Results investments in associates		18			16
Net income (loss) from continuing operations		1,478			(776	)
Discontinued operations		(26	)		(515	)
Net income (loss)		1,452			(1,291	)

Net income (loss) - shareholders per common share (in euros) - basic		1.54			(1.36	)

Performance of the Group

•

Sales for the full year 2011 amounted to EUR 22.6 billion, or 4% comparable growth. Comparable sales growth was driven by a 6% increase at Lighting and 5% growth at Healthcare, while Consumer Lifestyle sales were in line with the prior year. Comparable growth was attributable to an 11% increase in growth geographies, while mature geographies saw modest 1% growth.

•

EBITA for the year ended at EUR 1,680 million, or 7.4% of sales, compared to EUR 2,562 million in 2010, on lower earnings in all sectors, notably Lighting (EUR 424 million lower) and Consumer Lifestyle (EUR 246 million lower). The EBITA decline was mainly attributable to lower gross margin and higher investments in selling as well as research and development. Excluding restructuring charges, acquisition-related charges and pension plan changes of EUR 142 million, EBITA was EUR 1,822 million, or 8.1% of sales, compared to EUR 2,646 million, or 11.9% of sales, in 2010.

•

EBIT for the year 2011 was negative EUR 269 million, compared to EUR 2,080 million in the prior year, largely due to impairment charges in Q2 2011 and lower operational earnings across all sectors.

•

Financial income and expenses showed a net financial expense of EUR 240 million, EUR 119 million higher year-on-year, mainly due to 2010’s favorable impact of the EUR 154 million gain on the sale of the remaining stake in NXP versus 2011’s financial income from the sale of securities of EUR 51 million, mainly related to the sale of the remaining shares in TCL, and EUR 34 million of impairment charges, mainly related to shareholdings in TPV.

•

A tax charge of EUR 283 million was recorded despite losses incurred for the year, mainly due to impairment charges which are largely non-tax-deductible. The tax charge is EUR 216 million lower than in 2010 due to lower taxable earnings, partly offset by higher incidental tax expenses.

•

Cash flows from operating activities amounted to EUR 836 million, compared to EUR 2,121 million in 2010, due to lower cash earnings and higher working capital, mainly related to accounts payable, partly offset by lower inventories and an increase in provisions.

•

Net operating capital, at EUR 10,427 million, decreased by EUR 1,524 million compared to the 2010 level, largely as a result of lower intangible assets due to goodwill impairment in Q2 2011 and higher provisions.

18 Q4 2011 Quarterly report

Proposed distribution

Proposed distribution to shareholders

A proposal will be submitted to the General Meeting of Shareholders to declare a distribution of EUR 0.75 per common share (up to EUR 695 million), in cash or shares at the option of the shareholder, against the retained earnings. Further details will be given in the agenda for the General Meeting of Shareholders, to be held on April 26, 2012.

Q4 2011 Quarterly report 19

Consolidated statements of income

all amounts in millions of euros unless otherwise stated


	4th quarter						January-December
	2010			2011			2010			2011
Sales		6,495			6,712			22,287			22,579
Cost of sales		(3,832	)		(4,301	)		(13,191	)		(13,932	)

Gross margin		2,663			2,411			9,096			8,647

Selling expenses		(1,368	)		(1,510	)		(4,876	)		(5,160	)
General and administrative expenses		(140	)		(207	)		(713	)		(841	)
Research and development expenses		(387	)		(449	)		(1,493	)		(1,610	)
Impairment of goodwill		—			—			—			(1,355	)
Other business income		44			29			93			125
Other business expenses		(16	)		(12	)		(27	)		(75	)

Income (loss) from operations		796			262			2,080			(269	)

Financial income		13			(6	)		214			112
Financial expenses		(75	)		(65	)		(335	)		(352	)

Income (loss) before taxes		734			191			1,959			(509	)

Income tax expense		(227	)		(79	)		(499	)		(283	)

Income (loss) after taxes		507			112			1,460			(792	)

Results relating to investments in associates		(4	)		—			18			16

Net income (loss) from continuing operations		503			112			1,478			(776	)

Discontinued operations - net of income tax		(38	)		(272	)		(26	)		(515	)

Net income (loss)		465			(160	)		1,452			(1,291	)

Attribution of net income for the period
Net income (loss) attributable to shareholders		463			(162	)		1,446			(1,295	)
Net income attributable to non-controlling interests		2			2			6			4

Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands):
- basic		946,951	¹⁾		936,476			940,528	¹⁾		951,647
- diluted		953,604	¹⁾		939,194			948,392	¹⁾		956,130

Net income (loss) attributable to shareholders per common share in euros:
- basic		0.49			(0.17	)		1.54			(1.36	)
- diluted²⁾		0.49			(0.17	)		1.52			(1.36	)

Ratios
Gross margin as a % of sales		41.0			35.9			40.8			38.3
Selling expenses as a % of sales		(21.1	)		(22.5	)		(21.9	)		(22.9	)
G&A expenses as a % of sales		(2.2	)		(3.1	)		(3.2	)		(3.7	)
R&D expenses as a % of sales		(6.0	)		(6.7	)		(6.7	)		(7.1	)

EBIT		796			262			2,080			(269	)
as a % of sales		12.3			3.9			9.3			(1.2	)

EBITA		913			503			2,562			1,680
as a % of sales		14.1			7.5			11.5			7.4

The year 2010 is restated to present the Television business as discontinued operations

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

20 Q4 2011 Quarterly report

Consolidated balance sheets

in millions of euros unless otherwise stated


	December 31,		December 31,
	2010		2011
Non-current assets:
Property, plant and equipment		3,145		3,014
Goodwill		8,035		7,016
Intangible assets excluding goodwill		4,198		3,996
Non-current receivables		88		127
Investments in associates		181		203
Other non-current financial assets		479		346
Deferred tax assets		1,351		1,713
Other non-current assets		75		71

Total non-current assets		17,552		16,486

Current assets:
Inventories - net		3,865		3,625
Other current financial assets		5		—
Other current assets		348		351
Derivative financial assets		112		229
Income tax receivable		79		162
Receivables		4,355		4,415
Assets classified as held for sale		120		551
Cash and cash equivalents		5,833		3,147

Total current assets		14,717		12,480

Total assets		32,269		28,966

Shareholders’ equity		15,046		12,355
Non-controlling interests		46		34

Group equity		15,092		12,389

Non-current liabilities:
Long-term debt		2,818		3,278
Long-term provisions		1,716		1,880
Deferred tax liabilities		171		77
Other non-current liabilities		1,714		1,999

Total non-current liabilities		6,419		7,234

Current liabilities:
Short-term debt		1,840		582
Derivative financial liabilities		564		744
Income tax payable		291		191
Accounts and notes payable		3,691		3,346
Accrued liabilities		2,995		3,026
Short-term provisions		623		759
Liabilities directly associated with assets held for sale		—		61
Other current liabilities		754		634

Total current liabilities		10,758		9,343

Total liabilities and group equity		32,269		28,966

Q4 2011 Quarterly report 21


	December 31,			December 31,
	2010			2011
Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)		946,506			926,095

Ratios
Shareholders’ equity per common share in euros		15.90			13.34
Inventories as a % of sales¹⁾		15.7			16.1
Net debt : group equity		(8):108			5:95
Net operating capital		11,951			10,427

Employees at end of period		119,775	²⁾		125,241
of which discontinued operations		3,610			3,353

¹⁾	Excludes discontinued operations for both inventories and sales figures. Inventories excluding discontinued operations are disclosed in quarterly statistics.

²⁾	Adjusted to reflect a change of employees reported in the Healthcare sector

22 Q4 2011 Quarterly report

Consolidated statements of cash flows

all amounts in millions of euros


	4th quarter						January-December
	2010			2011			2010			2011
Cash flows from operating activities:
Net income (loss)		465			(160	)		1,452			(1,291	)
Loss from discontinued operations		38			272			26			515
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		361			475			1,356			1,456
Impairment of goodwill and other non-current financial assets		(1	)		5			5			1,387
Net gain on sale of assets		(23	)		(4	)		(204	)		(88	)
(Income) loss from investments in associates		3			2			(18	)		(14	)
Dividends received from investments in associates		5			21			19			44
Dividends paid to non-controlling interests		(3	)		(3	)		(4	)		(4	)
(Increase) decrease in working capital:		485			676			16			(679	)
Increase in receivables and other current assets		(132	)		(184	)		(241	)		(339	)
Decrease (increase) in inventories		256			569			(498	)		(81	)
Increase (decrease) in accounts payable, accrued and other liabilities		361			291			755			(259	)
Decrease (increase) in non-current receivables, other assets and other liabilities		24			(186	)		(297	)		(596	)
(Decrease) increase in provisions		(65	)		86			(211	)		6
Other items		77			23			(19	)		100

Net cash provided by operating activities		1,366			1,207			2,121			836

Cash flows from investing activities:
Purchase of intangible assets		(36	)		(28	)		(80	)		(116	)
Expenditures on development assets		(56	)		(63	)		(193	)		(231	)
Capital expenditures on property, plant and equipment		(174	)		(203	)		(621	)		(725	)
Proceeds from disposals of property, plant and equipment		52			48			129			128
Cash from (to) derivatives and securities		8			(9	)		(25	)		26
Purchase of other non-current financial assets		—			(13	)		(16	)		(43	)
Proceeds from other non-current financial assets		86			—			268			87
Purchase of businesses, net of cash acquired		(170	)		(255	)		(225	)		(509	)
Proceeds from sale of interests in businesses net of cash disposed of		15			12			117			19

Net cash used for investing activities		(275	)		(511	)		(646	)		(1,364	)

Cash flows from financing activities:
Proceeds from issuance of (payments on) short-term debt		119			(35	)		143			(217	)
Principal payments on long-term debt		(20	)		(21	)		(78	)		(1,097	)
Proceeds from issuance of long-term debt		26			234			71			457
Treasury shares transactions		9			(208	)		65			(671	)
Dividends paid		—			—			(296	)		(259	)

Net cash provided by (used for) financing activities		134			(30	)		(95	)		(1,787	)

Net cash provided by (used for) continuing operations		1,225			666			1,380			(2,315	)

Cash flow from discontinued operations:
Net cash provided by (used for) operating activities		191			168			34			(270	)
Net cash used for investing activities		(7	)		(29	)		(56	)		(94	)

Net cash provided by (used for) discontinued operations		184			139			(22	)		(364	)

Net cash provided by (used for) continuing and discontinued operations		1,409			805			1,358			(2,679	)

Q4 2011 Quarterly report 23


	4th quarter						January-December
	2010			2011			2010			2011
Effect of change in exchange rates on cash and cash equivalents		39			3			89			(7	)
Cash and cash equivalents at the beginning of the period		4,385			2,339			4,386			5,833

Cash and cash equivalents at the end of the period		5,833			3,147			5,833			3,147

Ratio
Cash flows before financing activities		1,091			696			1,475			(528	)

Net cash paid during the period for
Pensions		(132	)		(140	)		(474	)		(639	)
Interest		(10	)		(31	)		(226	)		(231	)
Income taxes		(13	)		(125	)		(206	)		(582	)

The year 2010 is restated to present the Television business as discontinued operations. 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.

24 Q4 2011 Quarterly report

Consolidated statement of changes in equity

in millions of euros


	other reserves
	common shares		capital in excess of par value			retained earnings			revaluation reserve			currency translation differences			unrealized gain (loss) on available- for- sale financial assets			changes in fair value of cash flow hedges			total			treasury shares at cost			total shareholders’ equity			non-controlling interests			total equity
January-December 2011

Balance as of December 31, 2010		197		354			15,416			86			(65	)		139			(5	)		69			(1,076	)		15,046			46			15,092

Net income							(1,295	)																				(1,295	)		4			(1,291	)
Net current period change							(431	)		(16	)		69			(68	)		(31	)		(30	)					(477	)					(477	)
Reclassifications into income							—						3			(26	)		27			4						4						4

Total comprehensive income							(1,726	)		(16	)		72			(94	)		(4	)		(26	)					(1,768	)		4			(1,764	)

Dividend distributed		5		443			(711	)																				(263	)					(263	)
Movement non-controlling interest							(5	)																				(5	)		(16	)		(21	)
Purchase of treasury shares							(51	)¹⁾																	(700	)		(751	)					(751	)
Re-issuance of treasury shares				(34	)		(6	)																	86			46						46
Share-based compensation plans				56																								56						56
Income tax share-based compensation plans				(6	)																							(6	)					(6	)

		5		459			(773	)																	(614	)		(923	)		(16	)		(939	)

Balance as of December 31, 2011		202		813			12,917			70			7			45			(9	)		43			(1,690	)		12,355			34			12,389

¹⁾	Tax payment related to purchase of treasury shares

Q4 2011 Quarterly report 25

Sectors

all amounts in millions of euros unless otherwise stated

Sales and income (loss) from operations


	4th quarter
			2010							2011
			income from operations							income from operations
	sales		amount			as a % of sales		sales		amount			as a % of sales
Healthcare		2,642		459			17.4		2,724		359			13.2
Consumer Lifestyle		1,791		198			11.1		1,849		167			9.0
Lighting		1,975		156			7.9		2,072		(130	)		(6.3	)
Group Management & Services		87		(17	)		—		67		(134	)		—

		6,495		796			12.3		6,712		262			3.9

Sales and income (loss) from operations


	January-December
			2010							2011
			income from operations							income from operations
	sales		amount			as a % of sales		sales		amount			as a % of sales
Healthcare		8,601		922			10.7		8,852		93			1.1
Consumer Lifestyle		5,775		679			11.8		5,823		392			6.7
Lighting		7,552		695			9.2		7,638		(362	)		(4.7	)
Group Management & Services		359		(216	)		—		266		(392	)		—

		22,287		2,080			9.3		22,579		(269	)		(1.2	)

26 Q4 2011 Quarterly report

Sectors and main countries

in millions of euros


Sales and total assets


	sales				total assets
	January-December				December 31,			December 31,
	2010		2011		2010			2011
Healthcare		8,601		8,852		11,962			11,591
Consumer Lifestyle		5,775		5,823		3,858			3,616
Lighting		7,552		7,638		7,379			6,771
Group Management & Services		359		266		8,950			6,437

		22,287		22,579		32,149			28,415
Assets classified as held for sale						120	¹⁾		551

						32,269			28,966

¹⁾	Revised to reflect a property, plant and equipment reclassification to assets classified as held for sale


Sales and tangible and intangible assets


	sales				tangible and intangible assets¹⁾
	January-December				December 31,		December 31,
	2010²⁾		2011		2010^2,3⁾		2011
Netherlands		661		691		1,109		908
United States		6,430		6,373		9,693		8,473
China		1,864		2,102		785		1,126
Germany		1,436		1,431		282		252
France		1,134		1,046		100		97
Japan		856		911		568		618
Brazil		654		694		148		119
Other countries		9,252		9,331		2,693		2,433

		22,287		22,579		15,378		14,026

¹⁾	Includes property, plant and equipment, intangible assets excluding goodwill, and goodwill

²⁾	Revised to reflect an adjusted country allocation

³⁾	Revised to reflect a property, plant and equipment reclassification to assets classified as held for sale

Q4 2011 Quarterly report 27

Pension costs

in millions of euros

Specification of pension costs


	4th quarter
	2010									2011
	Netherlands			other			total			Netherlands			other			total
Costs of defined-benefit plans (pensions)
Service cost		23			18			41			32			18			50
Interest cost on the defined-benefit obligation		130			105			235			139			101			240
Expected return on plan assets		(186	)		(86	)		(272	)		(178	)		(98	)		(276	)
Curtailments		—			(1	)		(1	)		—			(3	)		(3	)
Settlements		—			(6	)		(6	)		—			(1	)		(1	)
Prior service cost		—			(83	)		(83	)		—			(22	)		(22	)
Other		1			1			2			(1	)		1			—

Net periodic cost (income)		(32	)		(52	)		(84	)		(8	)		(4	)		(12	)
of which discontinued operations		—			—			—			—			(1	)		(1	)

Costs of defined-contribution plans		1			26			27			1			29			30
of which discontinued operations		—			1			1			—			1			1

Costs of defined-benefit plans (retiree medical)
Service cost		—			1			1			—			—			—
Interest cost on the defined-benefit obligation		—			5			5			—			4			4
Curtailment		—			(9	)		(9	)		—			—			—

Net periodic cost		—			(3	)		(3	)		—			4			4

Specification of pension costs


	January-December
	2010									2011
	Netherlands			other			total			Netherlands			other			total
Costs of defined-benefit plans (pensions)
Service cost		92			77			169			127			73			200
Interest cost on the defined-benefit obligation		521			418			939			557			404			961
Expected return on plan assets		(743	)		(344	)		(1,087	)		(713	)		(389	)		(1,102	)
Curtailment		—			(1	)		(1	)		—			(18	)		(18	)
Settlement		—			(6	)		(6	)		—			(1	)		(1	)
Prior service cost		—			(119	)		(119	)		—			(20	)		(20	)
Other		1			1			2			(1	)		1			—

Net periodic cost (income)		(129	)		26			(103	)		(30	)		50			20
of which discontinued operations		2			—			2			2			—			2

Costs of defined-contribution plans		7			111			118			7			116			123
of which discontinued operations		—			4			4			—			3			3

Costs of defined-benefit plans (retiree medical)
Service cost		—			2			2			—			1			1
Interest cost on the defined-benefit obligation		—			20			20			—			17			17
Prior service cost		—			(2	)		(2	)		—			(2	)		(2	)
Curtailment		—			(9	)		(9	)		—			—			—

Net periodic cost		—			11			11			—			16			16

28 Q4 2011 Quarterly report

Reconciliation of non-GAAP performance measures

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.

Sales growth composition (in %)


	4th quarter											January-December
	comparable growth		currency effects			consolidation changes			nominal growth			comparable growth			currency effects			consolidation changes			nominal growth
2011 versus 2010
Healthcare		2.5		0.4			0.2			3.1			5.3			(2.5	)		0.1			2.9
Consumer Lifestyle		0.6		(0.5	)		3.1			3.2			(0.1	)		(1.7	)		2.6			0.8
Lighting		7.2		(0.5	)		(1.8	)		4.9			6.1			(2.3	)		(2.7	)		1.1
GM&S		7.0		1.1			(31.1	)		(23.0	)		2.4			—			(28.3	)		(25.9	)

Philips Group		3.4		(0.1	)		—			3.3			4.1			(2.2	)		(0.6	)		1.3

EBITA (or Adjusted income from operations) to Income from operations (or EBIT)


	Philips Group			Healthcare			Consumer Lifestyle			Lighting			GM&S
January to December 2011
EBITA (or Adjusted income from operations)		1,680			1,145			472			445			(382	)
Amortization of intangibles¹⁾		(594	)		(228	)		(80	)		(276	)		(10	)
Impairment of goodwill		(1,355	)		(824	)		—			(531	)		—

Income from operations (or EBIT)		(269	)		93			392			(362	)		(392	)

January to December 2010
EBITA (or Adjusted income from operations)		2,562			1,186			718			869			(211	)
Amortization of intangibles¹⁾		(482	)		(264	)		(39	)		(174	)		(5	)

Income from operations (or EBIT)		2,080			922			679			695			(216	)

¹⁾	Excluding amortization of software and product development

Composition of net debt to group equity


	December 31, 2010			December 31, 2011
Long-term debt		2,818			3,278
Short-term debt		1,840			582

Total debt		4,658			3,860
Cash and cash equivalents		5,833			3,147

Net debt (cash) (total debt less cash and cash equivalents)		(1,175	)		713

Shareholders’ equity		15,046			12,355
Non-controlling interests		46			34

Group equity		15,092			12,389

Net debt and group equity		13,917			13,102

Net debt divided by net debt and group equity (in %)		(8	)		5
Group equity divided by net debt and group equity (in %)		108			95

Q4 2011 Quarterly report 29

Reconciliation of non-GAAP performance measures (continued)

all amounts in millions of euros

Net operating capital to total assets


	Philips Group		Healthcare		Consumer Lifestyle		Lighting		GM&S
December 31, 2011
Net operating capital (NOC)		10,427		8,418		887		5,020		(3,898	)
Exclude liabilities comprised in NOC:
- payables/liabilities		9,940		2,697		2,081		1,450		3,712
- intercompany accounts		—		103		87		51		(241	)
- provisions		2,639		287		558		227		1,567
Include assets not comprised in NOC:
- investments in associates		203		86		3		23		91
- other current financial assets		—		—		—		—		—
- other non-current financial assets		346		—		—		—		346
- deferred tax assets		1,713		—		—		—		1,713
- cash and cash equivalents		3,147		—		—		—		3,147

		28,415		11,591		3,616		6,771		6,437
Assets classified as held for sale		551

Total assets		28,966

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

¹⁾	Revised to reflect a property, plant and equipment reclassification to assets classified as held for sale

30 Q4 2011 Quarterly report

Reconciliation of non-GAAP performance measures (continued)

all amounts in millions of euros

Composition of cash flows


	4th quarter						January-December
	2010			2011			2010			2011
Cash flows provided by operating activities		1,366			1,207			2,121			836
Cash flows used for investing activities		(275	)		(511	)		(646	)		(1,364	)

Cash flows before financing activities		1,091			696			1,475			(528	)

Cash flows provided by operating activities		1,366			1,207			2,121			836

Purchase of intangible assets		(36	)		(28	)		(80	)		(116	)
Expenditures on development assets		(56	)		(63	)		(193	)		(231	)
Capital expenditures on property, plant and equipment		(174	)		(203	)		(621	)		(725	)
Proceeds from disposals of property, plant and equipment		52			48			129			128

Net capital expenditures		(214	)		(246	)		(765	)		(944	)

Free cash flows		1,152			961			1,356			(108	)

Q4 2011 Quarterly report 31

Restatement impact of 2012 accounting changes on 2011 figures

As of 2012, we will implement the following three accounting policy changes.

Warranty costs, currently reported in Selling expenses on the income statement, will be reclassified to Cost of sales. The change follows the rationale that warranty costs are an integral part of the sale of goods and services. Amortization of brand name and customer relationship intangible assets currently reported in Cost of sales on the income statement will be reclassified to Selling expenses. This change follows the rationale that the use of brand name and customer relationship intangible assets supports the sales process. The third change relates to intellectual property (IP) policy. Currently, IP royalties on products sold by a sector are allocated to that sector, with the exception of Consumer Lifestyle; At Consumer Lifestyle IP royalties on products no longer sold by the sector are still allocated to it. As of 2012, all IP royalties on products no longer sold by a sector will be allocated to GM&S.

The table below reflects the impact of the accounting changes for the quarters and full year of 2011.

In millions of euros


	2011
	1st quarter			2nd quarter			3rd quarter			4th quarter			Full year
IP royalty income (from CL to GM&S)
Sales		54			48			44			62			208
EBIT		43			39			39			54			175
EBITA		43			39			39			54			175

Amortization of brand name and customer relationship intangible assets¹⁾
Cost of sales		67			69			81			198			415
Selling expenses		(67	)		(69	)		(81	)		(198	)		(415	)

Warranty costs¹⁾
Cost of sales		(80	)		(68	)		(66	)		(114	)		(328	)
Selling expenses		80			68			66			114			328

¹⁾	A positive amount is less costs and a negative amount is additional costs

32 Q4 2011 Quarterly report

Philips quarterly statistics

all amounts in millions of euros unless otherwise stated


	2010								2011
	1st		2nd		3rd		4th		1st		2nd			3rd			4th
	quarter		quarter		quarter		quarter		quarter		quarter			quarter			quarter
Sales		4,982		5,350		5,460		6,495		5,257		5,216			5,394			6,712
% increase		13		15		12		5		6		(3	)		(1	)		3

EBITA		495		507		647		913		438		371			368			503
as a % of sales		9.9		9.5		11.8		14.1		8.3		7.1			6.8			7.5

EBIT		381		385		518		796		319		(1,123	)		273			262
as a % of sales		7.6		7.2		9.5		12.3		6.1		(21.5	)		5.1			3.9

Net income (loss)		201		262		524		465		138		(1,345	)		76			(160	)

Net income (loss) - shareholders per common share in euros basic		0.22		0.28		0.55		0.49		0.14		(1.39	)		0.08			(0.17	)

	January-		January-		January-		January-		January-		January-			January-			January-
	March		June		September		December		March		June			September			December
Sales		4,982		10,332		15,792		22,287		5,257		10,473			15,867			22,579
% increase		13		14		14		11		6		1			0			1

EBITA		495		1,002		1,649		2,562		438		809			1,177			1,680
as a % of sales		9.9		9.7		10.4		11.5		8.3		7.7			7.4			7.4

EBIT		381		766		1,284		2,080		319		(804	)		(531	)		(269	)
as a % of sales		7.6		7.4		8.1		9.3		6.1		(7.7	)		(3.3	)		(1.2	)

Net income (loss)		201		463		987		1,452		138		(1,207	)		(1,131	)		(1,291	)

Net income (loss) - shareholders per common share in euros basic		0.22		0.49		1.05		1.54		0.14		(1.26	)		(1.18	)		(1.36	)

Net income (loss) from continuing operations as a % of shareholders’ equity		5.7		6.3		9.2		9.8		6.6		(14.8	)		(8.8	)		(5.8	)

	period ended 2010								period ended 2011
Inventories as a % of sales¹⁾		15.1		16.9		16.8		15.7		15.7		16.8			18.2			16.1
Inventories excluding discontinued operations		3,128		3,602		3,682		3,496		3,545		3,776			4,074			3,625

Net debt : group equity ratio		1:99		2:98		1:99		(8):108		(3):103		1:99			8:92			5:95

Total employees (in thousands)²⁾		117		117		118		120		122		125			125			125
of which discontinued operations		5		5		4		4		4		4			4			3

¹⁾	Excludes discontinued operations for both inventories and sales figures

²⁾	Adjusted to reflect a change of employees reported in the Healthcare sector for the past periods

Information also available on Internet, address: www.philips.com/investorrelations

Q4 2011 Quarterly report 33

LOGO


© 2011 Koninklijke Philips Electronics N.V.		http://www.philips.com/investorrelations
All rights reserved.

Fourth Quarter and Annual Results 2011

January 30, 2012

Philips reports fourth-quarter sales of EUR 6.7 billion; EBITA of EUR 503 million

•

Comparable sales up 3%, led by 7% growth at Lighting

•

Growth geographies sales up 12% on a comparable basis

•

EBITA of 7.5% of sales

•

Net income from continuing operations at EUR 112 million

•

Free cash flow of EUR 961 million

•

Proposed dividend stable at EUR 0.75 per share

Q4 financials: Year-on-year revenue increased across all operating sectors. EBITA margin declined from 14.1% in Q4 2010 to 7.5% in Q4 2011.

Working capital reductions in the sectors amounted to more than EUR 500 million in the quarter, contributing to a free cash inflow of EUR 961 million in the fourth quarter.

Moving forward on Accelerate!, Philips’ change and performance improvement program

The actions to deliver on the overhead cost reduction program are on track, and the first planned cost savings were realized in the quarter.

CEO quote:

While we are concerned about the economic environment, all of us at Philips are fully committed to improve our operational performance to achieve our mid-term (2013) financial targets.”

Frans van Houten, CEO of Royal Philips Electronics

Click here to view the social media release, complete with downloadable multimedia

For further information, please contact:

Steve Klink

Corporate Communications

Tel: +31 20 5977 415

Email: steve.klink@philips.com

Joost Akkermans

Corporate Communications

Tel: +31 20 5977 406

E-mail: joost.akkermans@philips.com

About Royal Philips Electronics

Royal Philips Electronics of the Netherlands (NYSE: PHG, AEX: PHI) is a diversified health and well-being company, focused on improving people’s lives through timely innovations. As a world leader in

healthcare, lifestyle and lighting, Philips integrates technologies and design into people-centric solutions, based on fundamental customer insights and the brand promise of “sense and simplicity.” Headquartered in the Netherlands, Philips employs approximately 122,000 employees with sales and services in more than 100 countries worldwide. With sales of EUR 22.6 billion in 2011, the company is a market leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as lifestyle products for personal well-being and pleasure with strong leadership positions in male shaving and grooming, portable entertainment and oral healthcare. News from Philips is located at www.philips.com/newscenter.

Forward-looking 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 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 2010 and the “Risk and uncertainties” section in our semi-annual financial report for the six months ended July 3, 2011.

Third-party market share data

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.

Use of fair-value measurements