-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E57+A0uZXQ9AeKExCLDPBpOV32t72mJpP1H4TSTANBtfRZ+Tv+6YyXY/VYidonHW o9EahX2eEOtLVQUzmdP0WA== 0000950123-01-501898.txt : 20010509 0000950123-01-501898.hdr.sgml : 20010509 ACCESSION NUMBER: 0000950123-01-501898 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KONINKLIJKE PHILIPS ELECTRONICS NV CENTRAL INDEX KEY: 0000313216 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] STATE OF INCORPORATION: P7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: SEC FILE NUMBER: 001-05146-01 FILM NUMBER: 1623620 BUSINESS ADDRESS: STREET 1: REMBRANDT TOWER AMSTELPLEIN 1 STREET 2: 1096 HA AMSTERDAM CITY: THE NETHERLANDS MAIL ADDRESS: STREET 1: REMBRANDT TOWER AMSTELPLEIN 1 STREET 2: 1096 HA AMSTERDAM CITY: THE NETHERLANDS FORMER COMPANY: FORMER CONFORMED NAME: PHILIPS ELECTRONICS N V DATE OF NAME CHANGE: 19930727 20-F 1 u43961e20-f.txt KONINKLIJKE PHILIPS ELECTRONICS N.V. 1 ------------------------------------------------------------------- As filed with the Securities and Exchange Commission on May 7, 2001 ------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark one) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 [ x ] OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] For the fiscal year ended December 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 2-20193 KONINKLIJKE PHILIPS ELECTRONICS N.V. (Exact name of Registrant as specified in charter) THE NETHERLANDS (Jurisdiction of incorporation or organization) REMBRANDT TOWER, AMSTELPLEIN 1, 1096 HA AMSTERDAM, THE NETHERLANDS (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered COMMON SHARES - PAR VALUE NEW YORK STOCK EXCHANGE EURO (EUR) 0.20 PER SHARE Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: COMMON SHARES - PAR VALUE EURO (EUR) 0.20 PER SHARE (Title of class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: Class Outstanding at December 31, 2000 KONINKLIJKE PHILIPS ELECTRONICS N.V. Priority Shares par value EUR 500 per share 10 shares Common Shares par value EUR 0.20 per share 1,283,894,733 shares Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18 X ------ ----- Name and address of person authorized to receive notices and communications from the Securities and Exchange Commission: RICHARD C. MORRISSEY SULLIVAN & CROMWELL ST. OLAVE'S HOUSE 9A IRONMONGER LANE LONDON EC2V 8EY, UNITED KINGDOM 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS 3 Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3 Item 3. KEY INFORMATION 4 Item 4. INFORMATION ON THE COMPANY 10 Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 17 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 17 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 19 Item 8. FINANCIAL INFORMATION 20 Item 9. THE OFFER AND LISTING 20 Item 10. ADDITIONAL INFORMATION 21 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 22 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 22 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 22 Item 17. FINANCIAL STATEMENTS 22 Item 18. FINANCIAL STATEMENTS 22 Item 19. EXHIBITS 23
2 3 In this report amounts are expressed in euros ("euros" or "EUR") or in US dollars ("dollars", "US $" or "$"). INTRODUCTION In order to utilize the "Safe Harbor" provisions of the United States Private Securities Litigation Reform Act of 1995, Philips is providing the following cautionary statement. 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, among other statements, certain statements in Item 4 "Information on the Company" with regard to management objectives, market trends, market standing, product volumes and business risks, the statements in Item 8 "Financial Information" relating to legal proceedings, the statements in Item 5 "Operating and Financial Review and Prospects" with regard to Management's medium term performance objectives over the next 3-5 years under the heading "outlook" and trends in results of operations, margins, overall market trends, risk management, exchange rates and Item 11 "Quantitative and Qualitative Disclosures about Market Risks" are forward-looking in nature. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, levels of consumer and business spending in major economies, changes in consumer tastes and preferences, the levels of marketing and promotional expenditures by Philips and its competitors, raw materials and employee costs, changes in future exchange and interest rates (in particular, changes in the euro and the US dollar can materially affect results), changes in tax rates and future business combinations, acquisitions or dispositions and the rate of technological changes. Market share estimates contained in this report are based on outside sources such as specialized research institutes, industry and dealer panels, etc. in combination with management estimates. Specific portions of Philips' Annual Report 2000 to Shareholders are incorporated by reference in this report on Form 20-F to the extent noted herein. Philips' Annual Report for 2000 comprises 2 separate booklets entitled "Management Report" and "Financial Statements". Philips' First Quarterly Report 2001 is also incorporated herein by reference in this report on Form 20-F. ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 3 4 ITEM 3. KEY INFORMATION SELECTED FINANCIAL DATA I. IN ACCORDANCE WITH DUTCH GAAP * ** Beginning in 1999, Philips' consolidated financial statements are reported in euros. Previously presented financial statements denominated in Dutch guilders have been translated into euros using the irrevocably fixed conversion rate applicable since January 1, 1999 for all periods presented (EUR 1 = NLG 2.20371). Management believes that the data denominated in euros reflects the same trends as previously reported. Philips' financial data may not be comparable to other companies that also report in euros if those other companies previously reported in a currency other than the Dutch guilder. Certain reclassifications have been made to conform prior-year's data to the current presentation.
(Millions, except per share data) 2000 (a) 2000 (b) 1999 (b) 1998 (b) 1997 1996 US $ EUR EUR EUR EUR EUR - --------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: 35,253 Sales 37,862 31,459 30,459 29,658 27,094 3,986 Income from operations 4,281 1,751 685 1,714 422 1,851 Financial income and expenses-net 1,988 32 (312) (319) (404) 8,940 Income from continuing operations 9,602 1,804 541 1,231 126 - Extraordinary (expenses) income - (5) 458 1,108 (596) - Discontinued operations - - 5,054 263 202 8,940 Net income (loss) 9,602 1,799 6,053 2,602 (268) WEIGHTED AVERAGE NUMBER OF SHARES (IN 1,312,859 THOUSANDS) 1,312,859 1,378,041 1,440,224 1,397,590 1,367,391 (2000: EUR 0.20 par value; 1999: EUR 1 par value; 1996 up to and including 1998: NLG 10 par value): BASIC EARNINGS PER COMMON SHARE (c) 6.81 Income from continuing operations 7.31 1.31 0.38 0.88 0.09 6.81 Net income (loss) 7.31 1.31 4.20 1.86 (0.20) DILUTED EARNINGS PER COMMON SHARE (c) (d) 6.74 Income from continuing operations 7.24 1.30 0.37 0.86 0.09 6.74 Net income (loss) 7.24 1.30 4.17 1.83 (0.20) BALANCE SHEET DATA: 517 Working capital 555 1,124 1,170 1,900 610 35,885 Total assets 38,541 29,784 28,153 23,322 21,907 1,623 Short-term debt 1,743 577 801 821 2,446 2,127 Long-term debt 2,284 2,737 2,786 3,209 3,409 902 Short-term provisions (e) 969 1,056 966 938 879 2,348 Long-term provisions (e) 2,522 2,062 2,019 2,313 2,541 437 Minority interests 469 333 242 559 279 20,238 Stockholders' equity (net assets) 21,736 14,757 14,560 9,154 6,585 245 Capital stock 263 339 1,672 1,655 1,600 CASH FLOW DATA: Net cash provided by operating 2,789 Activities 2,996 1,913 2,140 3,210 911 551 Cash flow before financing activities 592 (1,921) 699 3,255 (925) Net cash (used for) provided by (1,897) Financing activities (2,038) (2,606) (814) (2,661) 777 Cash (used for) provided by (1,346) continuing operations (1,446) (4,527) (115) 594 (148)
4 5 I. IN ACCORDANCE WITH DUTCH GAAP (continued) * **
2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- KEY RATIOS: Income from operations: - - as a % of sales 11.3 5.6 2.2 5.8 1.6 - - as a % of net operating capital (RONA) 35.7 17.5 6.5 16.4 4.2 Turnover rate of net operating capital 3.16 3.14 2.91 2.84 2.70 Inventories as a % of sales 13.9 14.5 14.0 15.2 16.0 Outstanding trade receivables (in months' sales) 1.5 1.4 1.3 1.3 1.3 Income from continuing operations: - - as a % of stockholders' equity (ROE) 53.5 12.6 5.1 15.9 1.9 Net debt to group equity ratio 12:88 6:94 (f) 21:79 42:58
DEFINITIONS: Working capital : Current assets excluding cash and cash equivalents and securities less current liabilities Net operating capital : Intangible assets (excluding goodwill unconsolidated companies), property, plant and equipment, non-current receivables and current assets excluding cash and cash equivalents, securities and deferred tax positions, after deduction of provisions and other liabilities RONA : Income from operations as a % of average net operating capital ROE : Income from continuing operations as a % of average stockholders' equity Net debt : Long-term and short-term debt net of cash and cash equivalents Average number of outstanding shares : Weighted average number of outstanding common shares based on monthly positions during the reporting year (a) For the convenience of the reader, the euro amounts have been converted into US dollars at the exchange rate used for balance sheet purposes at December 31, 2000 (US $ 1 = EUR 1.074). (b) Income from continuing operations in these years were impacted by a number of significant one-time gains/losses. Excluding these incidental items, income from continuing operations in 2000 totaled EUR 2,564 million (1999: EUR 1,557 million, 1998: EUR 916 million) or EUR 1.95 per common share (1999: EUR 1.13, 1998: EUR 0.64). Reference is made to page 45 ("Income from continuing operations excluding one-time gains") of the 2000 Annual Report -Management Report. (c) Previously reported figures restated for 4-for-1 stock split. (d) See Note 9 of "Notes to the Consolidated Financial Statements" on page 33 of the 2000 Annual Report -Financial Statements- incorporated herein by reference for a discussion of net income (loss) per common share on a diluted basis. (e) Includes provision for pensions, severance payments, restructurings and taxes among other items; see Note 18 of "Notes to the Consolidated Financial Statements" on page 38 of the 2000 Annual Report -Financial Statements- incorporated herein by reference. (f) Not meaningful: net cash in 1998 exceeded the debt level. * 1997 and prior years have been restated to reflect the sale of PolyGram N.V. in 1998 and to present the Philips Group accounts on a continuing basis. ** The consolidated financial data have been prepared in euros. Amounts previously reported in Dutch guilders are now reported in euros using the irrevocably fixed conversion rate which became effective on January 1, 1999 (EUR 1= NLG 2.20371). 5 6 II. APPROXIMATE AMOUNTS IN ACCORDANCE WITH US GAAP * (a) (See Note 28 of "Notes to Consolidated Financial Statements" on pages 54 through 58 of the 2000 Annual Report -Financial Statements- incorporated herein by reference.)
(Millions, except per share data) ------------------------------------------------------ 2000 (b) 2000 1999 1998 1997 1996 US $ EUR EUR EUR EUR EUR - -------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: 8,917 Income (loss) from continuing operations 9,577 1,595 1,025 2,500 (519) - Discontinued operations - - 4,891 233 176 - Extraordinary items, net - (5) (16) (43) - Cumulative effect of a change in accounting for 79 derivative instruments and hedging activities, net 85 - - - - 8,996 Net income (loss) in accordance with US GAAP 9,662 1,590 5,900 2,690 (343) BASIC EARNINGS PER COMMON SHARE (2000: EUR 0.20 par value; 1999: EUR 1 par value; 1996 up to and including 1998 NLG 10 par value): 6.80 Income (loss) from continuing operations 7.30 1.16 0.71 1.79 (0.38) 6.85 Net income (loss) 7.36 1.15 4.10 1.93 (0.25) DILUTED EARNINGS PER COMMON SHARE: 6.72 Income (loss) from continuing operations 7.22 1.15 0.70 1.76 (0.38) 6.78 Net income (loss) 7.28 1.15 4.06 1.89 (0.25) BALANCE SHEET DATA: 21,142 Stockholders' equity 22,707 16,708 14,456 9,220 6,598 36,801 Total assets 39,524 31,385 28,009 23,194 21,677
(a) Under US GAAP, divestitures which cannot be regarded as discontinued segments of businesses must be included in income from continuing operations. Under Dutch GAAP, prior to 1999, certain material transactions such as disposals of lines of activities, including closures of substantial production facilities or substantial results from disposals of interests in unconsolidated companies, were accounted for as extraordinary items, whereas under US GAAP these would have been recorded in income from operations. (b) For the convenience of the reader, the euro amounts have been converted into US dollars at the exchange rate used for balance sheet purposes at December 31, 2000 (US $ 1 = EUR 1.074). * The consolidated financial data have been prepared in euros. Amounts previously reported in Dutch guilders are now reported in euros using the irrevocably fixed conversion rate which became effective on January 1, 1999 (EUR 1 = NLG 2.20371). 6 7 III. CASH DIVIDENDS AND DISTRIBUTIONS PAID PER COMMON SHARE The following table sets forth in euros the gross dividends paid on the Common Shares in the financial years indicated (from prior-year profit distribution) and such amounts as converted into US dollars and paid to holders of Shares of New York Registry (all amounts after the 4-for-1 stock split):
2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------ - - In EUR 0.30 0.25 0.23 0.18 0.18 - - In US $ 0.29 0.27 0.24 0.21 0.24
The adoption of the dividend proposal by the General Meeting of Shareholders on March 29, 2001, resulted in a total dividend payment in the year 2001 of EUR 462 million (EUR 0.36 per Common Share). The dollar equivalent (US $ 0.32) of the 2000 profit distribution of EUR 0.36 - approved by the Annual General Meeting of Shareholders on March 29, 2001 - payed to shareholders in the year 2001, was calculated at the euro/dollar rate of the official Amsterdam daily fixing rate (transfer rate) on the date fixed and announced for that purpose by the Company. The dollar equivalents of the prior year profit distributions paid to shareholders have been calculated at the euro/dollar rate of the official Amsterdam daily fixing rate (transfer rate) on the date fixed and announced for that purpose by the Company. IV. EXCHANGE RATES US $ : EUR Beginning in 1999, Philips' consolidated financial statements are reported in euros. Previously presented financial statements denominated in Dutch guilders have been translated into euros using the irrevocably fixed conversion rate applicable since January 1, 1999 for all periods presented (EUR 1 = NLG 2.20371). Management believes that the consolidated financial statements reported in euros reflect the same trends as previously reported. Expression of these historical amounts in euros does not eliminate or alter any translation effect that existed when they were originally reported in Dutch guilders. The consolidated financial statements may not be comparable with those of other companies that are also reporting in euros if other companies restated their financial statements from a currency other than the Dutch guilder. The following two tables set forth, for the periods and dates indicated, certain information concerning the exchange rate for US dollars into euros based on the Noon Buying Rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"). The years prior to 1999 have been converted into euros using the irrevocably fixed conversion rate which became effective on January 1, 1999 (EUR 1 = NLG 2.20371):
Calendar period Period End Average (1) High Low - --------------------------------------------------------------------------------------------------- (EUR per US $ 1) ------------------------------------------------------------------------- 1996 0.7837 0.7634 0.7968 0.7295 1997 0.9202 0.8887 0.9610 0.7850 1998 0.8517 0.8996 0.9479 0.8232 1999 0.9930 0.9455 0.9984 0.8466 2000 1.0652 1.0881 1.2092 0.9676 2001 (through April 17) 1.1346 1.1072 1.1371 1.0488
(1) The average of the Noon Buying Rates on the last day of each month during the period.
Highest Lowest rate rate - ---------------------------------------------------------------------------- October 2000 1.2089 1.1399 November 2000 1.1933 1.1456 December 2000 1.1403 1.0608 January 2001 1.0883 1.0484 February 2001 1.1063 1.0622 March 2001 1.1406 1.0715 April 2001 (through April 17) 1.1346 1.1072
May 3, 2001 = 1.1247 7 8 IV. EXCHANGE RATES US $ : EUR (continued) Philips publishes its financial statements in euros while a substantial portion of its assets, earnings and sales are denominated in other currencies. Philips conducts its business in more than 50 different currencies. Unless otherwise stated, for the convenience of the reader the translations of euros into dollars appearing in this report have been made based on the balance sheet rate on December 31, 2000 (US $ 1 = EUR 1.074). This rate is not materially different from the Noon Buying Rate on such date (US $ 1 = EUR 1.065). The following table sets out the exchange rate for US dollars into euros applicable for translation of Philips' financial statements for the periods specified.
2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------- - - Rate at December 31, (as reported) 1.0740 0.9914 0.8576 0.9166 0.7896 - - Average rate (a) 1.0858 0.9392 0.8985 0.8849 0.7669 - - Highest rate 1.2089 0.9987 0.9484 0.9620 0.7987 - - Lowest rate 0.9675 0.8460 0.8213 0.7850 0.7306
(a) The average rates are the accumulated average rates based on daily quotations. RISK FACTORS This section describes some of the risks that could affect Philips' businesses. The factors below should be considered in connection with any forward-looking statements in Philips' 20-F Report and the cautionary statements contained in "Introduction" on page 3. Forward-looking statements can be identified generally as those containing words such as "anticipates", "assumes", "believes", "estimates", "expects", "should", "will", "will likely result", "forecast", "outlook", "projects" or similar expressions. From time to time, Philips may also provide oral or written forward-looking statements in other materials Philips releases to the public. The risks below are not the only ones that Philips faces - some risks are not yet known to Philips and some that Philips does not currently believe to be material could later turn out to be material. All of these risks could materially affect Philips' business, its revenues, operating income, net income, net assets and liquidity and capital resources. Philips is a global company, which means that it is affected by economic developments in all regions of the world. PHILIPS' STRATEGY CALLS FOR ACQUISITIONS IN A NUMBER OF ITS CORE BUSINESSES AND, THEREFORE, PHILIPS FACES THE RISKS AND UNCERTAINTIES TYPICAL OF ACQUISITIONS. Philips has identified and is implementing a strategy that is designed to make Philips a world leader (i.e. among the top three competitors) in each of its businesses. Philips will continue to implement this strategy through acquisitions, as well as through internal growth. Accordingly, Philips' growth strategy depends to a large degree on the availability of suitable acquisition candidates, on the obtaining of regulatory approval and on Philips' skills in assimilating them into the group structure. Potential difficulties inherent in merges and acquisitions, such as delays in implementation or unexpected costs or liabilities, as well as the risk of not realising operating benefits or synergies from completed transactions, may adversely affect Philips' results. PHILIPS' SUCCESS DEPENDS UPON RECRUITING AND RETAINING KEY PERSONNEL. Growth areas like Semiconductors and Components require talented people with specific technical key competencies for the realization of their plans. The ability to recruit and retain quality staff, for which there is an increasing demand in the market, is a critical success factor. PHILIPS FACES STRONG COMPETITION IN MOST OF ITS BUSINESSES. IN PARTICULAR, THE CONSUMER ELECTRONICS INDUSTRY IS PRONE TO VIGOROUS PRICE DRIVEN COMPETITION DURING PERIODS OF DEPRESSED DEMAND. THIS COMPETITION CAN SOMETIMES PUSH PRICES TO UNPROFITABLE LEVELS, WHICH COULD AFFECT PHILIPS' FINANCIAL RESULTS. Most businesses in which Philips is engaged, including consumer electronics, broadband networks and electronic components, are intensely competitive. Accordingly, Philips continually faces challenges from its competitors, including rapid technological change, evolving standards, short product life cycles and price erosion. In particular, the production of electronic components for televisions and other audiovisual products carries high fixed costs which do not vary with output levels. In other words, these production costs do not decrease when the number of units produced decreases. As a result, most component makers must maintain a minimum sales volume to cover their fixed costs. When demand for their products falls, component makers often try to boost sales volume by lowering prices so that they can continue to cover their fixed costs. When many producers resort to such tactics, prices tend to fall. This tendency is encouraged during economically depressed periods as consumer will tend to be more price sensitive. Price driven competition will result in reduction of profit margins and, in some cases, losses. 8 9 RISK FACTORS (continued) PRODUCTS IN THE SEMICONDUCTOR INDUSTRY ARE TYPICALLY SUBJECT TO CYCLICAL MARKET FORCES WHICH MAY ADVERSELY AFFECT FUTURE RESULTS OF OPERATIONS IN PHILIPS' BUSINESS UNIT SEMICONDUCTORS. The semiconductor industry is highly cyclical and subject to rapid technological change and has been subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity. Likewise, the semiconductor industry also periodically experiences increased demand and production capacity constraints. As a result, Philips' Semiconductors may experience substantial period-to-period fluctuations in future results of operations due to general industry conditions, overall economic conditions or other factors. IF PHILIPS FAILS TO PROTECT ITS PROPRIETARY INTELLECTUAL PROPERTY OR FACES A CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, PHILIPS MAY LOSE ITS INTELLECTUAL PROPERTY RIGHTS AND BE LIABLE FOR SIGNIFICANT DAMAGES. Philips' success depends on its ability to obtain and retain patents, license and other intellectual property rights covering its products and its design and manufacturing processes. The process of seeking intellectual property protection can be long and expensive. Patents may not be granted on currently pending or future applications or may not be of sufficient scope or strength to provide Philips with meaningful protection or commercial advantage. In addition, effective copyright and trade secret protection may be unavailable or limited in some countries, and Philips' trade secrets may be vulnerable to disclosure or misappropriation by employees, contractors and others. Competitors and other third parties may also develop technologies that are protected by patents and other intellectual property rights. These technologies may therefore either be unavailable to Philips or be made available to Philips only on unfavorable terms and conditions. Litigation, which could drain Philips financial and management resources, may be necessary to enforce Philips' patents or other intellectual property rights or to defend against claims of infringement of intellectual property rights brought against Philips by third parties. CURRENCY FLUCTUATIONS MAY HAVE A HARMFUL IMPACT ON PHILIPS' FINANCIAL RESULTS. Philips has a structural currency mismatch between costs and revenues, as a substantial proportion of its production, administration and research and development costs is denominated in euro, while a substantial proportion of its revenues is denominated in US dollars. Consequently, fluctuations in the US dollar against the euro can have a material impact on Philips' financial results. In particular, a relatively stronger US dollar during any reporting period will improve Philips income, while a weaker US dollar will worsen it. PHILIPS MAY NOT BE ABLE TO INTRODUCE NEW PRODUCTS OR MAKE INNOVATIONS TO PHILIPS' EXISTING PRODUCTS QUICKLY ENOUGH TO RESPOND TO TECHNOLOGICAL CHANGES OR EVOLVING STANDARDS IN PHILIPS' CORE BUSINESSES. FAILURE TO DO SO WOULD CAUSE PHILIPS' COMPETITIVENESS AND RESULTS OF OPERATIONS TO SUFFER. Some of Philips' core businesses are concentrated in industries where technological innovation is the key competitive factor. Product innovations, technological advancements and improved products in Philips' business segments, such as consumer electronics, semiconductors, medical systems and components, may render some of its current products obsolete and/or cause them to suffer from significant reductions in value. As a result, Philips may experience a significant adverse impact on the value of its inventory, products and existing technology and may have difficulty selling these products, which would harm its results of operations. In addition, Philips continually faces the challenge to develop and create viable innovative new products. The ability to introduce product innovations is particularly difficult because commitments to developing new products, or upgrading existing products, must be made well in advance of sales. Philips must therefore anticipate both future demand and technology that will be available to supply this demand. If Philips is unable to do so, Philips will not be able to compete in new market or product sectors and would be reliant on older, less-marketable products and technology. This could adversely affect Philips' financial results and growth prospects in its building block businesses. THE POSSIBLE BENEFITS AVAILABLE THROUGH JOINT VENTURES MAY BE DIFFICULT TO ACHIEVE OR MAY PROVE TO BE LESS VALUABLE THAN PHILIPS HAD ESTIMATED. IN ADDITION, PHILIPS MAY FACE PROBLEMS RELATED TO CONFLICTS OF INTERESTS, LOSS OF CONTROL OVER CASH FLOWS AND LOSS OF PROPRIETARY TECHNOLOGIES BY PARTICIPATING IN JOINT VENTURES. In areas with major technological investments, like Semiconductors, Components and Consumer Communications, Philips continues to build on partnerships to share the high financial risks. Management of this growing number of strategic alliances is a risk area in itself. 9 10 ITEM 4. INFORMATION ON THE COMPANY THE STRUCTURE OF THE PHILIPS GROUP The following information is important for understanding the structure of the Philips group ("Philips" or the "Group"). Koninklijke Philips Electronics N.V. (the "Company" or "Royal Philips Electronics") is the parent company of Philips. Its shares are listed on the stock markets of Euronext Amsterdam, the New York Stock Exchange, the London Stock Exchange and several other stock exchanges. The Company was incorporated as a limited partnership with the name Philips & Co under the laws of the Netherlands on May 15, 1891. This limited partnership was converted to the limited liability company N.V. Philips' Gloeilampenfabrieken on September 11, 1912. On May 6, 1994, the name was changed to Philips Electronics N.V., and on April 1, 1998 the name was changed to Koninklijke Philips Electronics N.V. The management of the Company is entrusted to the Board of Management under the supervision of the Supervisory Board. The Group Management Committee, consisting of the members of the Board of Management, certain chairmen of product divisions and certain key officers, is the highest consultative body to ensure that business issues and practices are shared across Philips and to define and implement common policies. Members of the Board of Management and the Supervisory Board are appointed by the Annual General Meeting of Shareholders on the recommendation of the Supervisory Board and the Meeting of Priority Shareholders. See Item 7: "Major Shareholders and Related Party Transactions". The other members of the Group Management Committee are appointed by the Supervisory Board. The general management of Philips' worldwide operations has been historically centered in Eindhoven, the Netherlands. However, in the first half of 1998 the Board of Management moved to Amsterdam, the Netherlands. The activities of the Philips group are organized in product divisions, which are responsible for the worldwide business policy. Philips has more than 180 production sites in over 35 countries and sales and service outlets in approximately 150 countries. Philips, a high growth technology company, delivers products, systems and services in the fields of lighting, consumer electronics, domestic appliances and personal care, components, semiconductors and medical systems. Since 1996, Philips has made significant progress in a strategic review of its portfolio of businesses. It has reduced the number of businesses to approximately 80 and the number of divisions from 12 to 6, bringing more transparency, accountability and focus to its operations. At present, Philips is focusing on strengthening its existing core businesses, through selected acquisitions, and through disposal of businesses that are underperforming or not essential from a strategic viewpoint. Royal Philips Electronics has its corporate seat in Eindhoven, the Netherlands and is registered under number 17001910 at the Commercial Register of the Chamber of Commerce and Industry in Eindhoven, the Netherlands. The executive offices of the Company are located at the Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, the Netherlands, telephone 31 (0)20 59 77 777. BUSINESS OF PHILIPS Since it started its activities in 1891, Philips has grown from a small incandescent lamp factory to a widely diversified multinational group of companies, engaged primarily in the manufacture and distribution of electronic and electrical products, systems and equipment, as well as information technology services. In the last five years, Philips was engaged in a continuing process of reviewing its portfolio of businesses, which started in the course of 1996, comprising more than 100 businesses at that time. At present, rather than acquiring businesses in new areas, Philips is focusing on the strengthening of its existing core activities, including through the use of selected acquisitions, and the disposal of activities that are under-performing and not essential from a strategic viewpoint. A few examples of these disposals are the sale of Philips' 75% equity interest in PolyGram N.V., the disposition of Philips' conventional (non-ceramic) Passive Components business group, the divestment of the Advanced Ceramics & Modules and General System Components business groups, the sale of Philips Car Systems, the reduction of Philips' involvement in the German consumer electronics company Grundig AG, the streamlining of Philips' media portfolio, the divestiture of the data communication activities (for a further description see "Product Sectors and Principal Products"), and the merger of Origin with Atos, see pages 18 through 21 of the 2000 Annual Report -Financial Statements, which are incorporated by reference herein. In addition to streamlining its portfolio of businesses and management, Philips engaged in a comprehensive review of its strategy and portfolio, involving the focus on high growth technology businesses. In consequence, as of January 1, 2000, Philips has grouped together the relevant operations of Sound & Vision, Philips Consumer Communications and Business Electronics into a single Consumer Electronics organization. Given that the technologies of TV, audio, telecommunications and computing are increasingly converging, these combinations are appropriate. It is expected that they will capitalize on the strength of the Philips brand and make new business generation easier, market intelligence more coordinated and time-to-market shorter. Besides Consumer Electronics, there are other very important building blocks that make up the Company. The Semiconductors and Components divisions play a crucial role, both as internal suppliers and through their leading positions in the external market. The capital expenditures required in this field place considerable demands on management in terms of ensuring adequate returns by means of flexible and cost-effective operations. 10 11 BUSINESS OF PHILIPS (continued) The other building blocks include the Lighting division, a world leader with relatively consistent returns and cash flow in which Philips will continue to invest, Medical Systems and Domestic Appliances and Personal Care. The Company has recently invested in the extension of Medical Systems' business scope. In the case of Domestic Appliances and Personal Care, Philips wishes to see this division grow in the personal care field by offering new functionalities and an enhanced emotional appeal to the consumer. The acquisition of Optiva Corporation on October 1, 2000 was in pursuit of this strategy. In the area of information technology services, Philips has merged its Origin activities in a new company Atos Origin as of the first of October 2000. Philips encounters aggressive and able competition worldwide in virtually all of Philips' business activities. Competitors range from some of the world's largest companies offering a full range of products to small firms specializing in certain segments of the market. In many instances, the competitive climate is characterized by rapidly changing technology that requires continuing research and development commitments and by capital-intensive needs to meet customer requirements. Also, the competitive landscape is changing as a result of increased alliances between competitors. RECENT DEVELOPMENTS AGILENT The European Commission has approved the takeover by Philips of the healthcare division of Agilent Technologies. The transaction was expected to be completed in May 2001. See also page 20 of the 2000 Annual Report -Financial Statements (Agilent). PRODUCT SECTORS AND PRINCIPAL PRODUCTS In order to improve financial transparency to Philips' shareholders and the financial community at large, the Board decided in 2000 that separate results will be published for all divisions. As a consequence, the following 9 segments are distinguished: Lighting, Consumer Electronics, Domestic Appliances and Personal Care, Components, Semiconductors, Medical Systems, Origin (deconsolidated from October 1, 2000 onwards), Miscellaneous and Unallocated. For a description of the changes, and data related to aggregate sales, segment revenues and income from operations, see Note 29: "Information relating to product sectors and geographic areas" on pages 58 through 63 of the 2000 Annual Report, Financial Statements, and page 63 of the Management Report, incorporated herein by reference. For a discussion of revenues and income from operations of the product sectors, see Item 5: "Operating and Financial Review and Prospects". For a discussion of recent acquisitions and alliances, see also "Cooperative Business Activities and Unconsolidated Companies" under Item 4. LIGHTING Philips has been engaged in the lighting business since 1891 and is a leader in the world market for lighting products with recognized expertise in the development and manufacture of lighting products. A wide variety of applications is served by a full range of incandescent and halogen lamps, compact and normal fluorescent lamps, automotive lamps, high-intensity gas-discharge and special lamps, QL induction lamps, fixtures, ballasts, lighting electronics and batteries. Lighting products are manufactured in facilities worldwide. Philips' worldwide presence in the lighting market has given it a strong international position in lighting projects, both in design and full-scale turn key project installation. These activities require sophisticated expertise and help Philips to maintain its leading position in the professional lighting market. Philips Lighting worldwide consists of five integrally responsible businesses: Lamps, Luminaires, Automotive, Lighting Electronics & Gear, and Batteries. Each of these is given complete control over all its processes. Philips Lighting is focusing more on Special Lighting (which includes applications such as digital data projection, stage and theatre, infrared for industrial use, and ultraviolet for solaria and air/water disinfection) to exploit the opportunities it offers for growth. Due to the OEM (Original Equipment Manufacturer) and innovation character of this business, it has been combined with Automotive. Philips' Lighting's policy of leadership in innovation continues to bring rewards in the marketplace. Philips is the market leader in Xenon headlamps, which were introduced in 1997 and are achieving increasing penetration in the upper end of the market. Providing superb illumination of the road, these lamps dramatically improve road safety and driver comfort. Philips' position as a supplier of headlights to the car industry is very strong in Japan, where Philips is the market leader, and Philips is rapidly establishing a full global presence in this field. Another innovation is the UHP (Ultra High Power) lamp which is applied in LCD projectors of leading companies for applications such as business presentations and large-screen consumer TVs. UHP will also increase the application possibilities of fiber-optic lighting. Philips Lighting's new PowerLife battery gives more power and longer life than conventional alkaline batteries. Advanced graphite technology is the key to PowerLife's success in answering consumer demand for batteries which perform better in "high-drain" products. 11 12 PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued) The battery marketing and sales activities of Philips will be transferred (Mid 2001) from Lighting to Consumer Electronics. In response to the greater demand for more efficient light sources and lighting systems, Philips has emphasized among other things the development of more energy-efficient lighting products and projects. In addition to the TL5 system, these include a range of electronic compact fluorescent lamps, Lighting Management Systems, as well as QL induction lamps, which are increasingly being used in general lighting applications. In the US, consumer demand for longer-lasting light bulbs has been met for the first time with a five-year, or 6000 hour, guarantee on the Philips Marathon TM compact fluorescent lamp range. In recent years Philips Lighting has completed a number of strategic acquisitions and joint ventures, seeking to strengthen its presence in what have been the faster-growing areas of the world, such as the Asia-Pacific region and Eastern Europe. The most recent acquisitions include, in Poland, the Farel Mazury luminaire operation and Polam Pabianice, which promises new opportunities for Philips Lighting's automotive business in Europe. In 1997, Philips and Hewlett-Packard established a joint venture company, LumiLeds Lighting B.V., for the development, manufacture and marketing of LED-based lighting products. This joint venture (now with Agilent Technologies, formerly part of HP) was significantly extended in 1999. As part of its re-branding project, BP has awarded LumiLeds a global contract to supply ChipStrip edge-lighting systems for over 20,000 of its service stations. In the lighting controls business, growth is boosted by the acquisition of ECS, the UK market leader. In the year 2000, a stake was acquired in Metrolight, an Israeli company with a leading position in HID (High Intensity Discharge) ballasts. Besides the ongoing investments in portfolio and product innovation, Philips Lighting focuses on innovative ways of doing business. In the field of e-business, they concentrated initially on commercial sell-side activities. In particular: information delivery/exchange (public websites, CD-ROM catalogues and interactive training material); online communities (interaction with end-users and influencers); and extranet order management with trading partners. As of December 31, 2000, they are increasingly pursuing buy-side activities (through exchange and buy-side e-marketplaces), where great opportunities exist to drive costs out of the organization and the full value chain. Regarding the management and improvement of key processes, Philips Lighting has been building on the significant progress made over the past two years in BEST (Business Excellence through Speed and Teamwork). In its drive for breakthrough improvement, especially cycle time reduction, Philips Lighting is mobilizing trained process improvement experts who apply, and facilitate others in the use of, leading-edge improvement tools and methodologies. CONSUMER ELECTRONICS This segment markets a wide range of products in the following areas: video products (consumer TV, institutional TV, VCR, TV-VCR, DVD Video), audio products (audio systems, portable products, speaker systems, DVD recording), computer monitors (CRT and LCD based), consumer communications (mobile phones, cordless digital phones, fax), remote control systems, set top boxes, broadband networks, business communications systems and speech processing. This wide range of products is grouped into Mainstream Consumer Electronics (audio/video, monitors), Consumer Communications (phones, faxes), Digital Networks (set-top boxes, broadband networks) and Specialty Products (speaker systems, accessories, institutional TV). In the course of 2001 a number of the activities listed under Specialty Products will be repositioned in other Philips business segments. As the world number 3 consumer electronics company, Philips enjoys a leading market position in many Mainstream CE product categories such as television and video, audio, DVD, and PC monitors. Philips plays a leading role in the development of flatscreen and widescreen television sets featuring the 16:9 format and remains at the forefront of trends in the TV viewing experience. They continue to maintain a world-renowned reputation for excellence in TV, a fact emphasized by its flagship 32-inch Widescreen TV being named European TV of the Year 2000-2001 by the European Imaging and Sound Association. The application of high-end display technologies and award-winning digital performance enhancements enabled to combine attractive design with the best available picture and sound quality. As Philips' televisions set the benchmark for TV viewing, its PC monitors share Philips' display-centric strengths. For both professional and leisure use, Philips monitors deliver sharp, bright images, and with the growth of PC-delivered imaging and video, new technologies provide the sharpest reproduction of still and moving images available today on a PC monitor. Seizing the opportunities offered by the Internet is an integral part of Philips' product strategy. They have introduced a range of web-enabled products including an MP3 player and a family of audio products capable of playing back high-capacity CDs containing MP3 files. Their PC peripherals group has also created a range of award-winning web-enabled PC video cameras. Philips markets audio systems, portable audio products, speakers and accessories under the Philips name, as well as high-end audio products and systems under the Marantz brand. Philips was one of the `founding fathers' of CD technology. Building on its strengths in cross-compatible optical storage technologies such as CD and DVD, they are developing the next-generation audio disc - Super Audio CD. Printed Circuits Board Assembly is a separate business cluster within Consumer Electronics. As a contract manufacturer, it focuses on manufacturing, assembling and supplying printed circuit boards and related added-value services to Philips businesses, enabling them to concentrate on their own core competencies. This business allows Philips to gain economies of scale and to leverage its position in the supply chain. Digital Networks is a leading supplier in digital broadcasting systems and set-top boxes for digital television, Internet TV and personal TV. These TV-top products are rapidly evolving into multimedia home gateways, and Digital Networks is in the vanguard of technology advances that will transform the set-top boxes of today into the intelligent multimedia entertainment products of tomorrow. 12 13 PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued) Digital Networks also focuses on enabling technologies in the areas of secure networked entertainment, developing and producing software and systems that enable digital broadcasting and Internet distribution of audio, visual and other digital content. They also intend to lead the convergence of broadcast and Internet, positioning Philips prominently in the enabling technologies that will facilitate new forms of home entertainment, information and communication. In 2000, Digital Networks strengthened its global position in set-top boxes, in the process concluding major deals with, among others, Canal+ (Europe-wide), DirecTV (USA), AOL TV (USA), News Corp (Latin America), Premiere World (Germany), UPC (Netherlands) and DigiTurk (Turkey). The year 2000 also saw the first products in areas like MPEG4-based internet video, secure Internet streaming and video watermarking. Furthermore, an agreement was signed with AT&T to supply, as from 2001, Philips TriMedia based high-end cable boxes supporting MPEG4 (Motion Picture Expert Group) video streaming, HAVi (Home Audio Video interoperability) home networking and hard-disk-based personal TV. Digital Networks has also developed set-top box software for the MHP (Multimedia Home Platform) enhanced broadcast standard. In September 2000, an agreement was signed with Liberate, a leading supplier of set-top box software, to incorporate the Philips MHP software in the Liberate offering. Philips Consumer Communications (PCC) groups together the wireless, wired, fax and business communication activities, offering a comprehensive product portfolio including cellular phones, digital cordless phones and fax machines, as well as enterprise telephone systems On October 1, 1997 Philips (60%) and Lucent Technologies (40%) formed a joint venture for mobile communications comprising the Philips Consumer Communications business and the Lucent Consumer Products division. Despite ambitious plans for break-even results in the second half of 1998, PCC continued to incur substantial losses and consequently the joint venture was dissolved on September 27, 1998. Ambitions for the remaining activities have been scaled back and the product offering streamlined. PCC aims to play a leading role in the explosive market growth of wireless communications. This will be achieved by building on its technology base in wireless communications and related areas within the Philips Group, and by building on Philips' expertise in the convergence of communications and consumer electronics. PCC's ambitions are to expand its worldwide GSM market position, while actively preparing for the next generation of digital mobile phones based on UMTS, which will provide consumers voice, data and multimedia service. PCC's growth ambitions and the entry into the Mobile Internet age require an active partnering model. Since 1999, PCC has embarked on numerous partnerships with innovative players such as Phone.com for WAP browser technology, AU systems for Bluetooth software technology, and M@gic4 for enhanced messaging systems. Other partnerships are envisaged to strengthen PCC's position in the wireless domain and in the entertainment-related area. In the home telephone market, PCC focuses on the digital cordless standard DECT and aims to consolidate its European No. 2 position. In 2000 PCC expanded its product portfolio and introduced the award-winning Zenia, the first DECT phone with voice recognition. The fax market remains strong in Europe, and PCC intends to maintain its No. 1 position, by continuously bringing new technologies to the market, such as access to the Internet, resulting in a complete range of Internet Fax Appliances. DOMESTIC APPLIANCES AND PERSONAL CARE Philips Domestic Appliances and Personal Care develops, manufactures and markets a wide range of products in the field of male shaving, body beauty and health, dental care, home environment care, and food and beverage preparation. The sector has a strong global presence in many product categories and is the world leader in electric shaving and No. 2 in dental care and ironing. Philips produces the Philishave, a dry shaver which is based on the Philips-invented rotary shaving technique. The division has leading positions in dry shaving in Europe, Latin America, the United States and China. In October 2000, Philips acquired Optiva Corporation, the Seattle, USA based manufacturer of the Sonicare R.sonic toothbrush and the number one in the U.S. power toothbrush market. By this acquisition, Philips Domestic Appliances and Personal Care division builds on its existing position in dental care products, becoming the number two global player. Other personal care products include female depilatory products, skin care, hair care, fitness and sun care products. Philips provides products for all stages of food and beverage preparation, such as mixers, blenders, food processors and kitchen machines, toasters, coffee makers, deep fryers, table-top cooking and general kitchen appliances. Philips manufactures and markets vacuum cleaners, irons, air cleaners and heating appliances. Domestic appliances and personal care products are sold under the Philips brand and other brand names. Philips has long been successful on the US market under the brand name Norelco and will continue to use this brand name for the male shaving and grooming products. To further boost growth, Philips introduced the Philips brand name in the U.S. in 1998, with the initial focus on body beauty and health. In 2000, together with the US retail chain Target, the Essence food and beverage range was launched under the Philips brand. COMPONENTS Philips Components aims to be an industry shaper in displays, optical storage, connectivity and imaging and sensing. Philips Components is one of the true global powerhouses, creating systems solutions for Philips Consumer Electronics and other top OEMs. The division focuses on select markets such as digital consumer electronics, mobile telecom, automotive infotainment and PC-related. 13 14 PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued) Having gone through a transformation through its 'focus on value' strategy, the division has streamlined its portfolio and built its strategy around four key areas: displays, storage, connectivity, and imaging and sensing. The business develops innovative modules that combine key elements of these areas, providing integrated solutions and driving technological convergence. In cooperation with Philips Semiconductors, 'smart modules' are being developed, which merge technological architecture and software, adding value to the end product. An integrated market approach has been established, and the migration to low-cost manufacturing centers has been accelerated. Based upon the current market outlook, excluding the CRT (Cathode Ray Tubes) business to be merged with LG Electronics of Korea in a 50/50 joint venture, the division aims to achieve a +25% growth rate through both organic growth and alliances and acquisitions. In 1997 a majority shareholding was established in Hua Fei Colour Display Systems Co. Ltd. in Hua Fei, China; the financials of this joint venture have been consolidated as from January 1, 1997. On April 1, 1998, Philips increased its ownership in Hosiden and Philips Display Corp., a joint venture in Japan for the development, production and sale of active matrix LCDs, from 50% to 80%. As from the same date, Hosiden and Philips Display Corp. has been reported as a consolidated company. In August 2000, Philips purchased the remaining 20 percent of Hosiden shares. The name of the wholly owned Philips company has been changed to Philips Components Kobe K.K. with effect from August 31, 2000. Substantial investments in digital-age technologies have been made, e.g. in a flat display joint venture with LG Electronics of Korea (LG.Philips LCD) in 1999, helping to fuel dynamic growth. The division is a world leader in display technology and in large LCD displays (through LG.Philips LCD), color picture tubes for TVs and mobile displays. In November 2000 Philips Components signed a Letter of Intent to combine its forces with LG Electronics of South Korea in a new company for CRTs that is designated to promote leadership in the display technology market. The aim of this move is to ensure the lowest possible cost base in the maturing CRT market and to achieve significant synergies. Recent innovation in CRTs has led to flatter, slimmer and higher-resolution products, including the revolutionary Cybertube, which gives a picture so sharp that it is almost three-dimensional. In optical storage Philips Components is a leading innovator in CD and DVD formats for the information technology and consumer electronics markets. The division will be introducing new products at an increasing pace in 2001, including a 16+ speed CD-RW drive and a DVD+RW video, the latter together with Philips Consumer Electronics. In addition, Philips Components is building a position in connectivity modules (wired and wireless), supported by its current global No. 3 position in RF tuners. In the last quarter of 2000, Philips Components moved its divisional headquarters from Eindhoven to Sunnyvale, California. The relocation is a reflection of Philips Components' commitment to being at the heart of new digital technologies, and close to many of its key customers. SEMICONDUCTORS Philips Semiconductors is one of the technological leaders of the semiconductor industry. Ranked among the top vendors, the division is a leader in complex systems for consumer electronics, telecommunications, automotive and computer peripherals and networking. Additionally it is a volume manufacturer of semiconductors for multi-market products. The consumer segment, in which Philips has a strong presence with products such as TV chipsets and set-top boxes, offers opportunities for a new generation of digital applications, for connectivity with many devices in the home and for new, simple user interfaces. Philips' Nexperia DVP (Digital Video Processing) platform offers the ability to capitalize on this revolution in the home. In 2000, the first Nexperia platforms were delivered, a revolutionary new concept in the design and delivery of complex systems that help customers bring products to market much faster. The first platform, for digital video applications in set-top boxes, gained support from many industry players, including AT&T, UPC, Acer, Microsoft, Samsung and Philips' Consumer Electronics division. Combined with the Nexperia platform, Philips semiconductors will continue to invest in key technologies and capabilities that will drive the digital revolution forward. These include identification and security, power management, connectivity, wired and wireless communications (such as Bluetooth) and user interface design. There are Philips chips in 80% of all mobile phones. Future opportunities lie ahead in the race to the third generation of mobile phones that network operators are looking to introduce in the next few years. In the Automotive sector, Philips is a leading supplier of semiconductors for in-car entertainment systems' and is leading the way in developing the new generation of digital in-car entertainment and information systems, as well as in-vehicle networking systems. Philips Semiconductors is a founding member of the FlexRay consortium with Daimler Chrysler, BMW and Motorola, which is expected to revolutionize car electronics of the near future. In the PC computing segment there was continued strong demand for solutions for working across platforms: connecting peripherals (printers, cameras, scanners, etc.) to PC systems; audio, video and connectivity solutions for multimedia; and driver and control solutions for displays. In 2000 Philips Semiconductors also launched into the networking market with a number of key technologies. The division has 17 manufacturing facilities throughout the world, located in Europe, the United States and Asia, producing more than 80 million semiconductor chips per day. Investments during 2000 in the amount of EUR 1.6 billion boosted manufacturing capacity by 40% during the year. Manufacturing investment during 2000 included the purchase of IBM's operational MiCRUS wafer fab in New York State and the ramp-up of a state-of-the-art venture facility in Singapore. 14 15 PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued) MEDICAL SYSTEMS Philips Medical Systems is one of the world's leading suppliers of diagnostic imaging equipment with clear no. 1 or 2 positions in many of the world's main markets. The product portfolio includes x-ray, magnetic resonance, ultrasound, computed tomography, nuclear medicine, positron emission tomography, radiation therapy planning, imaging IT systems and related services. Philips Medical Systems, already the world leader in certain modalities, has significantly strengthened its position in the field of diagnostic imaging with the acquisition of ATL Ultrasound as of October 1, 1998. This company is one of the leaders in ultrasound imaging systems - one of the fastest growing sectors of the market - and the clear leader in all-digital ultrasound systems. In ultrasound, the subsidiary ATL has brought SonoCT realtime compound imaging to all major applications of ultrasound and united it with other advanced capabilities such as 3D, bringing the benefits of numerous powerful technologies together. In addition to organic growth, Philips Medical Systems is constantly looking for opportunities to strenghten their product and technology portfolio as well as their geographical presence through acquisitions and alliances. In December 2000, Philips Medical Systems acquired approximately a 90% shareholding in ADAC Laboratories, based in Milpitas, California. ADAC Laboratories , a worldwide market leader in nuclear medicine, positron emission tomography - one of the fastest-growing market segments - and radiation therapy planning -, thus completing the range of modalities. Furthermore, subject to customary regulatory approvals, agreement was reached in November 2000 to buy the Healthcare Solutions Group (HSG) of Agilent Technologies Inc., whose products are not only complementary to the existing portfolio in cardiology, but also will enable the Company to enter in exciting new markets. In the past year, investments were made in SHL Telemedicine, the leading company in cardiac home service, with whom a joint venture will be started in Europe in 2001. As a result of these moves, Philips Medical Systems aims to distribute medical technology across all clinical settings, from hospitals and clinical centers to people at work, at home and on the move. In imaging IT, the offerings have been expanded by acquiring the Cardiologica software suite, an advanced information system that makes all patient data available from every point of care. This system is part of HeartCare, the dynamic portfolio of cardiovascular imaging modalities, connectivity solutions and support services that maximize patient care and workflow efficiency. In the course of 2000 a range of new customer support products was introduced, aimed at better cost control for healthcare providers. For instance, Philips Medical Systems is capable of offering transcription services that reduce overall reporting costs through the acquisition of the majority of shares in MedQuist Inc. of the United Sates, a provider of outsourced medical record translation services. ORIGIN Origin is a global IT service company delivering systems and a full range of services that facilitate total business solutions for clients. It is represented in more than 30 countries. In October 2000, Philips sold its 98% interest in Origin to Atos and received a 48.7% interest in Atos Origin. As a result of the merger, as from October 1, 2000, Philips no longer consolidated Origin as a separate division but will include its share of Atos origin's earnings in results relating to unconsolidated companies beginning January 1, 2001, with a delay of three months. MISCELLANEOUS This sector comprises not only various ancillary businesses, including Philips Enabling Technologies Group (formerly Philips Machinefabrieken), FEI Company, Assembleon (formerly Electronic Manufacturing Technology), Philips Research, Centre for Industrial Technology, Corporate Intellectual Property and Philips Design. Philips Enabling Technologies Group manufactures customer-specific machinery, tools and precision components for high-quality professional equipment. In 2000, Philips Machinefabrieken changed its name to Philips Enabling Technologies Group, a more accurate expression of the unit's competencies and the competitive environment in which it operates, i.e. at the interface of high technology and precision manufacturing. The unit's strategic focus is to continuously enhance its technical capabilities in order to provide full-fledged co-creation support to high-tech customers wishing to focus on their core competencies and thus wishing to subcontract their manufacturing activities. Philips Enabling Technologies Group seeks to build strategic alliances with clients in carefully selected market segments that offer high growth potential, e.g. front- and back-end semiconductor equipment, aerospace engine and airframe parts, and plastic parts for the electronics and automotive industries. Assembleon (formerly Electronic Manufacturing Technology) is a leading manufacturer of SMT `production-on-demand' assembly equipment and support software. As of January 1, 2001, Assembleon has been made an independent unit within the Philips Group with a view to a possible stock market flotation in the course of 2001. Philips' Centre for Industrial Technology (CFT) supports the Group's businesses in their business and product creation processes and with the design and realization of advanced process technologies and innovative production equipment. On the basis of its specific expertise, CFT contributes, as a strategic partner, to the profitability of the businesses by creating a competitive edge in speed and quality of innovation and in world-class manufacturing. Philips Design is one of the largest design studios in the world and works according to its proprietary High Design process, a human-focused, multi-disciplinary, research-based approach whose purpose is to provide clients with competitive and sustainable solutions, also in the field of e-Design. The quality of Philips Design's work is internationally recognized, as witnessed by the dozens of design awards that it wins every year for its product and interface design solutions. Philips Design's visionary projects, explorations of future lifestyles aimed at supporting the creation of preferable solutions for consumers, have also received international recognition (e.g. the Gold Industrial Excellence Award of the Industrial Designers Society of America for the Culinary Art project in 2000). 15 16 PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued) Philips' policy in the field of intellectual property is to add value by protecting and leveraging the innovations resulting from its substantial R&D investments. In 2000, about one new patent application was filed for every million euro spent on R&D, which shows the high level of innovation within the Philips R&D organization. Through these new patent filings, Philips has secured solid positions in fields such as set-top boxes, digital video, in-home networking, internet applications and other product areas. Although many of Philips' patents and licenses are significant, none is individually material to Philips' business as a whole. Philips has a strong Intellectual Property Right position consisting of approximately 65,000 patent rights. In 2000, Philips filed almost 2,100 new patent applications, up 35% from 1999. Although many of Philips' patents and licenses are significant, none is individually material to Philips' business as a whole. Patent protection is extremely important to Philips' operations. It spends significant resources to protect its intellectual property rights and intellectual property licenses. Reference is also made to the 2000 Annual Report - -Financial Statements-, page 22 (research and development) and -Management Report- pages 43, 59 and 60. RESEARCH AND DEVELOPMENT Management believes that a sustained strong performance in the field of research and development activities is of the utmost importance to strengthen Philips' competitiveness in its various markets and to open up new markets. Philips Research's mission is to generate value for the Company through technology-based innovations. By focussing not only on technical aspects, but also on the business development side of the innovation process, they are constantly improving the portfolio of Research projects. The launch of new Research activities in China, India and Belgium has further established Philips Research as one of the world's major global industrial research laboratories. With facilities in three continents and about 3,000 staff, Philips Research is at the forefront in developing new technologies for innovative products and is thus `shaping the future'. Research innovations incorporated in consumer products include various applications of optical storage technology, for example CD-RW. Philips continues to play a major role in the further development of standards and technology for CD applications. Research contributions to the Components and Semiconductors businesses include the transfer of polymer LED technology to Components, which has in the meantime resulted in the first product introductions. Semiconductors has achieved a large market share in RF power modules based on bipolar transistor technology developed by Research. COOPERATIVE BUSINESS ACTIVITIES AND UNCONSOLIDATED COMPANIES The information set forth under the heading "Cooperative business activities and unconsolidated companies" on pages 60 and 61 of the 2000 Annual Report -Management Report- of the Company, is incorporated herein by reference. ORGANIZATIONAL STRUCTURE Information concerning Philips' significant subsidiaries is incorporated by reference from Exhibit 8 to this Annual Report on Form 20-F. PROPERTY, PLANT AND EQUIPMENT Philips' manufacturing facilities, warehouses and office facilities are mostly located in the Netherlands, the rest of Europe, the Far East and the United States and Canada. These plants are generally in good condition and adequate for the manufacturing requirements of Philips. The geographic allocation of assets employed as shown in Note 29: "Information relating to product sectors and geographic areas" on pages 58 through 63 of the 2000 Annual Report -Financial Statements- and incorporated herein by reference is generally indicative of the location of manufacturing facilities. 16 17 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The information required by this Item is incorporated by reference herein on pages 44 through 73 of the 2000 Annual Report -Management Report ("Operating and Financial Review and Prospects"). OPERATING RESULTS The information required by this Item is incorporated by reference herein on pages 44 through 60 of the 2000 Annual Report - Management Report ("Operating and Financial Review and Prospects"). The Issuer's First Quarterly Report 2001, which forms Exhibit 10 (b) (2) to this annual report on Form 20-F is incorporated herein by reference and contains a description of results since December 31, 2000, as well as describing the Company's views about its financial performance and operating plans for 2001. The statements under the "Outlook" section of the First Quarterly Report supplements those statements made in the Issuer's Annual Report - Management Report on page 73 under the heading Outlook. In addition, the Outlook section of the Annual Report - Management Report on page 73 contains the Company's current performance objectives for the medium term. The performance objectives are not necessarily forecasts and management would seek to meet these objectives over a 3-5 year period. These performance objectives and statements concerning results and events in 2001 are subject to a number of factors set forth under the heading "Introduction" and Item 3 - "Risk Factors" that could cause actual results and developments to differ materially from those expressed or implied under the Outlook section of the Annual Report or the Outlook section of the First Quarterly Report 2001. COOPERATIVE BUSINESS ACTIVITIES AND UNCONSOLIDATED COMPANIES The information required by this Item is incorporated by reference herein on pages 60 and 61 of the 2000 Annual Report - Management Report ("Operating and Financial Review and Prospects"). LIQUIDITY AND CAPITAL RESOURCES The information required by this Item is incorporated by reference herein on pages 61 through 65 of the 2000 Annual Report - Management Report ("Operating and Financial Review and Prospects"). Philips believes it has adequate financial resources for financing working capital needs. RESEARCH AND DEVELOPMENT For information required by this Item, reference is made to the separate section "Research and Development" as part of the business description under Item 4. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The information required by this Item is incorporated by reference herein on page 23 and pages 70 through 76 of the 2000 Annual Report -Financial Statements, and pages 74 through 78 of the Annual Report -Management Report. DIRECTORS AND SENIOR MANAGEMENT At the General Meeting of Shareholders on March 29, 2001, Mr W. Hilger retired from the Supervisory Board. At the same meeting, Messrs L.C. van Wachem and L. Schweitzer were re-elected by the General Meeting of Shareholders as member of the Supervisory Board. Mr A. Baan retired as Executive Vice-President and member of the Board of Management on March 30, 2001. On April 30, 2001, Mr C. Boonstra retired as President/CEO of the Company and Chairman of the Board of Management. Mr G.J. Kleisterlee is elected as per the same date as his successor by the General Meeting of Shareholders. On May 1, 2001, Mr A. Huijser, member of the Group Management and head of Corporate Research, became Chief Technology Officer. As per the same date, Mr D. Hamill became Chief Executive Officer of Philips Lighting, succeeding Mr J. Whybrow, and was appointed a member of the Group Management Committee. COMPENSATION For information on the remuneration of the Board of Management and the Supervisory Board, required by this Item, see page 23 for the aggregate amounts and pages 70 through 74 for individually named members of the 2000 Annual Report - -Financial Statements- incorporated herein by reference. The aggregate direct remuneration paid in 2000 to, or for the benefit of, the members of the Supervisory Board, the Board of Management, the Group Management Committee and 48 officers in the Netherlands, taken as a group, was as follows: Aggregate direct remuneration: EUR 25,382,261. Due to the negative net periodic pension cost as a result of the funded status of the Dutch Philips Pensionfund, no contribution to retirement plans was paid in 2000. 17 18 SHARE OWNERSHIP
number of shares ------------------------------ as of as of April 17, December 31, 2001 2000 --------- ------------ L.C. van Wachem 17,848 17,848 L. Schweitzer 1,070 1,070 C. Boonstra 54,320 54,320 G.J. Kleisterlee 27,200 -
Mr L.C. van Wachem is also Chairman of the Board of the Dr. A.F. Philips Stichting. Messrs W. de Kleuver, J-M. Hessels and K.A.L.H. van Miert are also member of the Board of the Dr. A.F. Philips Stichting. As per April 30, 2001 Mr G.J. Kleisterlee, has succeeded Mr C. Boonstra as President of the Company, as a consequence of which Mr Kleisterlee has succeeded Mr Boonstra as member of the Dr. A.F. Philips Stichting and as a member of the Stichting Preferente Aandelen Philips. BOARD PRACTICES The employment agreements of the members of the Board of Management, other than Mr Kleisterlee, are entered into for a definite period of time. Their employment agreements provide that if their employment is terminated, other than for a compelling reason, prior to the expiration of the term of their respective agreement, they will be entitled to receive a once only payment equal to twice their annual salary. As Mr Kleisterlee's employment agreement with Philips is for an indefinite duration, any benefit payable to him on termination will be determined under Dutch law, in the same manner as other employees of Philips who are employed for an indefinite duration. Exhibit number 4 contains the form of contract used for members of the Board of Management. EMPLOYEES The information set forth under the heading "Employment" on page 51 of the 2000 Annual Report -Management Report- and "Employees" on page 23 of the Financial Statements of the Company, is incorporated herein by reference.
Employees by product sector 2000 1999 1998 - --------------------------------------------------------------------------------- Lighting 47,124 47,453 48,997 Consumer Electronics 45,421 47,238 50,378 DAP 10,111 9,737 9,393 Components 41,160 41,709 42,613 Semiconductors 35,304 29,952 26,583 Medical Systems 19,358 11,297 11,561 Origin - 16,690 16,948 Miscellaneous 14,684 16,066 20,107 Unallocated 6,267 6,732 7,106 - --------------------------------------------------------------------------------- Total 219,429 226,874 233,686
Employees by geographic area 2000 1999 1998 - --------------------------------------------------------------------------------- Netherlands 35,262 43,153 44,476 Europe (excl. Netherlands) 69,733 73,592 73,770 USA and Canada 33,173 26,919 25,941 Latin America 18,882 19,079 22,663 Africa 811 740 782 Asia 60,776 62,264 64,882 Australia and New Zealand 792 1,127 1,172 - --------------------------------------------------------------------------------- Total 219,429 226,874 233,686
18 19 STOCK OPTIONS During 2000, 14,923,294 stock options to purchase Common Shares of Koninklijke Philips Electronics N.V. were issued. In 2000 6,012,732 options were exercised and 995,893 initially allocated options were forfeited due to resignations/dismissals prior to vesting. From December 31, 2000 to April 17, 2001, 7,585,450 stock options were newly issued, 932,101 stock options were exercised and 469,381 initially allocated options were forfeited. As of April 17, 2001, the number of shares issuable upon exercise of stock options outstanding was 35,144,425 (December 31, 2000: 28,960,457 stock options). For a discussion of the options and the employee debentures, see also Note 22: "Long-term debt", Note 25: "Stockholders' equity" and Note 26: "Stock-based compensation" of "Notes to the Consolidated Financial Statements" on pages 42 through 49 of the 2000 Annual Report -Financial Statements- incorporated herein by reference. For information specified in this Item for individually named directors and officers, see pages 70 through 74 of the 2000 Annual Report -Financial Statements- incorporated herein by reference. The following table provides more detailed information about the stock options outstanding at April 17, 2001:
options outstanding options exercisable -------------------------------------------------------- -------------------------------- number exercise weighted average number weighted outstanding price per remaining exercisable average at April 17, share contractual life at April 17, exercise 2001 (years) 2001 price per share - -------------------------------------------------------------------------------------------------------------------------- Fixed option plans: (price in (price in EUR) EUR) 1996 80,000 6.61 0.5 80,000 6.61 1997 1,927,700 9.19-19.43 1.0 1,927,700 12.80 1998 2,145,800 16.45-21.02 1.9 2,033,800 16.81 1999 3,864,400 15.76-23.01 2.9 - - 2000 3,420,750 42.03-53.75 8.9 - - 2001 2,775,950 37.60 9.8 - - (price in US$) (price in US$) 1998 1,538,299 12.94-23.59 7.0 1,411,635 17.58 1999 2,372,862 21.98-35.34 8.1 753,281 25.08 2000 3,568,597 36.65-49.71 9.0 - - 2001 1,427,225 34.50 9.8 - - ---------- --------- 23,121,583 6,206,416 ========== ========= Variable plans: (price in (price in EUR) EUR) 2000 3,419,350 42.03-53.75 8.9 - - 2001 2,775,950 37.60 9.8 - - (price in (price in US$) US$) 1993 - 1994 230,918 2.75-6.89 1.8 230,918 2.92 1995 - 1997 1,301,572 7.50-14.20 3.8 1,301,572 7.80 2000 3,718,727 36.65-49.71 9.0 - - 2001 576,325 34.50 9.8 - - ---------- --------- 12,022,842 1,532,490 ========== =========
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS MAJOR SHAREHOLDERS As of April 17, 2001, no person is known to the Company to be the owner of more than 5% of its Common Shares. The Common Shares are held by shareholders worldwide in bearer and registered form. Outside the United States, shares are held primarily in bearer form. As of April 17, 2001, approximately 87% of the Common Shares were held in bearer form. In the United States shares are held primarily in the form of registered Shares of New York Registry (Shares of New York Registry) for which Citibank, N.A., 111 Wall Street, New York, New York 10043 is the transfer agent and registrar. As of April 17, 2001, approximately 13% of the total number of outstanding Common Shares were represented by Shares of New York Registry issued in the name of approximately 1,392 holders of record. Only bearer shares are traded on the stock market of Euronext Amsterdam and other European stock exchanges. Only Shares of New York Registry are traded on the New York Stock Exchange. Bearer shares and registered shares may be exchanged for each other. Since certain shares are held by brokers and other nominees, these numbers may not be representative of the actual number of United States beneficial holders or the number of Shares of New York Registry beneficially held by US residents. 19 20 RELATED PARTY TRANSACTIONS MERGER OF PHILIPS DISPLAY COMPONENTS WITH LG'S DISPLAY COMPONENTS ACTIVITIES Philips and LG Electronics of South Korea announced in November 2000 the signing of a letter of intent pursuant to which the companies expect to merge their respective cathode ray tube (CRT) businesses into a new 50-50 joint venture company. The transaction is expected to close in 2001 and is subject to customary regulatory approvals. Upon the closing of the transaction, LG will receive USD 1.1 billion from the new company to address the difference in the valuation of the contributed businesses. Under the terms of the letter of intent, LG and Philips will share equal control of the joint venture. ITEM 8. FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See Item 18 " Financial Statements". LEGAL PROCEEDINGS Philips is involved in proceedings concerning environmental problems including proceedings relating to the closure of discontinued chemical operations and the clean-up of various sites, including Superfund sites, in the United States. The potential costs related to these proceedings and the possible impact thereof on future operations are uncertain. However, based on current information, management does not believe that the outcome of these matters or other litigation incidental to its extensive international operations and involving, among other matters, competition issues and commercial transactions, will result in a liability which would have a material effect on the consolidated financial position and results of operations of Philips at December 31, 2000. SIGNIFICANT CHANGES Philips' First Quarterly Report 2001 is incorporated by reference herein. ITEM 9. THE OFFER AND LISTING The Common Shares of the Company are listed on the stock market of Euronext Amsterdam, on six other European stock exchanges and on the New York Stock Exchange. The principal markets for the Common Shares are the Amsterdam, New York and London Stock Exchanges. The following table shows the high and low sales prices of the Common Shares on the stock market of Euronext Amsterdam as reported in the Official Price List and the high and low sales prices on the New York Stock Exchange (after 4-for-1 stock split):
EURONEXT NEW YORK AMSTERDAM (EUR) STOCK EXCHANGE (US $) ----------------------------------- ---------------------------------- High Low High Low - -------------------------------------------------------------------------------------------------------------------------- 1996 8.05 5.16 10.75 7.25 1997 20.28 7.71 22.25 9.75 1998 23.18 9.03 25.75 10.50 1999 33.75 14.14 34.13 16.38 2000 58.30 30.39 54.13 31.00 1999 1st quarter 19.13 14.14 20.13 16.38 2nd quarter 24.28 17.95 25.25 19.50 3rd quarter 27.44 21.50 27.63 22.80 4th quarter 33.75 21.28 34.13 22.88 2000 1st quarter 54.50 30.39 53.67 32.99 2nd quarter 56.75 36.70 55.15 37.50 3rd quarter 58.30 44.11 55.80 40.00 4th quarter 49.35 34.13 43.31 31.00 October 2000 49.35 38.30 43.31 33.50 November 2000 48.15 36.74 41.06 31.00 December 2000 47.18 34.13 41.38 31.13 January 2001 45.95 34.15 42.63 31.88 February 2001 41.40 34.22 38.59 31.13 March 2001 39.99 27.72 37.05 24.65 April 2001 34.40 27.11 30.95 24.59
20 21 ITEM 10. ADDITIONAL INFORMATION MEMORANDUM AND ARTICLES OF ASSOCIATION For a general description of Philips' Articles of Association see pages 4 through 7 of Philips' Form S-8 filed with the SEC on June 13, 2000, file number 333-39204, which is incorporated by reference herein. EXCHANGE CONTROLS There are currently no limitations, either under the laws of the Netherlands or in the Articles of Association of the Company, to the rights of non-residents to hold or vote Common Shares of the Company. Cash dividends payable in Dutch guilders on Netherlands registered shares and bearer shares may be officially transferred from the Netherlands and converted into any other currency without Dutch legal restrictions, except that for statistical purposes such payments and transactions must be reported to the Dutch Central Bank, and furthermore, no payments, including dividend payments, may be made to jurisdictions subject to sanctions adopted by the government of the Netherlands and implementing resolutions of the Security Council of the United Nations. The Articles of Association of the Company provide that cash distributions on Shares of New York Registry shall be paid in US dollars, converted at the rate of exchange on the stock market of Euronext Amsterdam at the close of business on the day fixed and announced for that purpose by the Board of Management in accordance with the Company's Articles of Association. TAXATION The statements below are only a summary of the present Netherlands tax laws and the Tax Convention of December 18, 1992 between the United States of America and the Kingdom of the Netherlands (the US Tax Treaty) and are not to be read as extending by implication to matters not specifically referred to herein. As to individual tax consequences, investors in the Common Shares should consult their own tax advisors. WITHHOLDING TAX In general, a dividend distributed by a company resident in the Netherlands (such as the Company) is subject to a withholding tax imposed by the Netherlands at a rate of 25%. Stock dividends paid out of the Company's paid-in share premium recognized for Netherlands tax purposes are not subject to the above mentioned withholding tax. Pursuant to the provisions of the US Tax Treaty, dividends paid by the Company to a shareholder who is a resident of the United States (as defined in the US Tax Treaty), are generally eligible for a reduction in the rate of Dutch withholding tax to 15%, unless (i) the beneficial owner of the dividends carries on business in the Netherlands through a permanent establishment, or performs independent personal services in the Netherlands from a fixed base, and the Common Shares form part of the business property of such permanent establishment or pertain to such fixed base, or (ii) the beneficial owner of the dividends is not entitled to the benefits of the US Tax Treaty under the "treaty-shopping" provisions thereof. Dividends paid to qualifying exempt US pension trusts and qualifying exempt US organizations are exempt from Dutch withholding tax under the US Tax Treaty. However, for qualifying exempt US organizations no exemption at source upon payment of the dividend can be applied for; such exempt US organizations should apply for a refund of the 25% withholding tax. The gross amount (including the withheld amount) of dividends distributed on Common Shares will be dividend income to the US shareholder, not eligible for the dividends received deduction generally allowed to corporations. However, subject to certain conditions and limitations, the Dutch withholding tax will be treated as a foreign income tax that is eligible for credit against the shareholders' US income taxes. CAPITAL GAINS Capital gains upon the sale or exchange of Common Shares by a non-resident individual or by a non-resident corporation of the Netherlands are exempt from Dutch income tax, corporation tax or withholding tax, unless (i) such gains are effectively connected with a permanent establishment in the Netherlands of the shareholders' trade or business or (ii) are derived from a direct, indirect or deemed substantial participation in the share capital of a company (such substantial participation not being a business asset). In general, an individual has a substantial participation if he holds either directly or indirectly and either independently or jointly with his spouse or steady partner, at least 5% of the total issued share capital or particular class of shares of a company. For determining a substantial participation, other shares held by close relatives are taken into account. The same applies to options to buy shares. A deemed substantial participation amongst others exists if (part of) a substantial participation has been disposed of, or is deemed to have been disposed of, on a non-recognition basis. Under the US Tax Treaty however, the Netherlands may only tax a capital gain derived from a substantial participation if the alienator has been a resident of the Netherlands at any time during the five-year period preceding the alienation, and owned at the time of alienation either alone or together with his relatives, at least 25% of any class of shares. NET WEALTH TAX As of January 1st, 2001, for foreign shareholders no net wealth tax is levied in the Netherlands. 21 22 ESTATE AND GIFT TAXES No estate, inheritance or gift taxes are imposed by the Netherlands on the transfer of Common Shares if, at the time of the death of the shareholder or the transfer of the Common Shares (as the case may be), such shareholder or transferor is not a resident of the Netherlands, unless such Common Shares are attributable to a permanent establishment or permanent representative of the shareholder in the Netherlands. Inheritance or gift taxes (as the case may be) are due, however, if such shareholder or transferor: (a) has Dutch nationality and has been a resident of the Netherlands at any time during the ten years preceding the time of the death or transfer; or (b) has no Dutch nationality but has been a resident of the Netherlands at any time during the twelve months preceding the time of transfer (for Netherlands gift taxes only). DOCUMENTS ON DISPLAY It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC's public reference room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information required by this Item is incorporated by reference herein on pages 65 through 68 of the 2000 Annual Report -Management Report. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. ITEM 17. FINANCIAL STATEMENTS Not applicable. ITEM 18. FINANCIAL STATEMENTS The following portions of the Company's 2000 Annual Report -Financial Statements- as set forth on pages 3 through 63 are incorporated herein by reference and constitute the Company's response to this Item: "Accounting policies" "Consolidated statements of income of the Philips Group" "Consolidated balance sheets of the Philips Group" "Consolidated statements of cash flows of the Philips Group" "Consolidated statements of changes in stockholders' equity of the Philips Group" "Notes to the consolidated financial statements of the Philips Group" Schedules: Schedules are omitted as they are either not required or not applicable. 22 23 ITEM 19. EXHIBITS INDEX OF EXHIBITS Exhibit 1 Articles of Association, as amended, dated as of August 1, 2000, English translation. Exhibit 2 (b) (1) The total amount of long-term debt securities of the Registrant and its subsidiaries authorized under any one instrument does not exceed 10% of the total assets of Philips and its subsidiaries on a consolidated basis. Philips agrees to furnish copies of any or all such instruments to the Securities and Exchange Commission upon request. Exhibit 4 Material contracts Exhibit 8 List of Significant Subsidiaries. Exhibit 10 (a) Independent auditors' report and consent of the independent auditors. Exhibit 10 (b) (1) The 2000 Annual Report to Shareholders of the Company, consisting of the Management Report and Financial Statements, which is furnished to the Securities and Exchange Commission for information only and is not filed except for such specific portions that are expressly incorporated by reference in this report on Form 20-F. Exhibit 10 (b) (2) Philips' First Quarterly Report 2001, which is incorporated by reference in this report on Form 20-F. 23 24 The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. KONINKLIJKE PHILIPS ELECTRONICS N.V. /s/ G.J. Kleisterlee /s/ J.H.M. Hommen - --------------------- -------------------------- G.J. Kleisterlee J.H.M. Hommen (President, Chairman (Executive Vice-President, of the Board of Management and Member of the Board of the Group Management Committee) Management and the Group Management Committee, and Chief Financial Officer) Registrant Date: May 7, 2001 EXHIBIT INDEX
Exhibit Number Description of Exhibit - -------------- ---------------------- 1 Articles of Association, as amended, dated as of August 1, 2000, English translation. 2 (b) (1) The total amount of long-term debt securities of the Registrant and its subsidiaries authorized under any one instrument does not exceed 10% of the total assets of Philips and its subsidiaries on a consolidated basis. Philips agrees to furnish copies of any or all such instruments to the Securities and Exchange Commission upon request. 4 Material contracts 8 List of Significant Subsidiaries. 10 (a) Independent auditors' report and consent of the independent auditors. 10 (b) (1) The 2000 Annual Report to Shareholders of the Company, consisting of the Management Report and Financial Statements, which is furnished to the Securities and Exchange Commission for information only and is not filed except for such specific portions that are expressly incorporated by reference in this report on Form 20-F. 10 (b) (2) Philips' First Quarterly Report 2001, which is incorporated by reference in this report on Form 20-F.
24 EX-1 2 u43961ex1.txt ARTICLES OF ASSOCIATION 1 EXHIBIT 1 ARTICLES OF ASSOCIATION OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) AS LAST AMENDED ON AUGUST 1, 2000, PURSUANT TO THE RESOLUTION OF THE GENERAL MEETING OF SHAREHOLDERS HELD ON MAY 29, 2000. TRANSLATION OF THE ORIGINAL AND AUTHENTIC DUTCH TEXT. NAME AND SEAT ARTICLE 1 1. The name of the Company is: Koninklijke Philips Electronics N.V. 2. The Company is authorized to act as "Royal Philips Electronics". 3. Its registered office is situated in Eindhoven. OBJECTS ARTICLE 2 2 The objects of the Company are to establish, participate in, administer and finance legal entities, companies and other legal forms for the purpose of the manufacture and trading of electrical, electronic, mechanical or chemical products, the development and exploitation of technical and other expertise, including software, or for the purpose of other activities, and to do everything pertaining thereto or connected therewith, all this in the widest sense, as may also be conducive to the proper continuity of the collectivity of business undertakings, in the Netherlands and abroad, which are carried on by the Company and the companies in which it directly or indirectly participates. SHARE CAPITAL, SHARES, SHAREHOLDERS, SHARE CERTIFICATES AND SHARE REGISTER ARTICLE 3 1. The share capital of the Company is one billion and three hundred million euros (EUR 1,300,000,000), divided into ten priority shares of five hundred euros (EUR 500) each, in these articles of association henceforth referred to as "priority shares", three billion two hundred fifty million common shares of twenty euro cents (EUR 0.20) each, in these articles of association henceforth referred to as "common shares", and three billion two hundred fourty-nine million nine hundred seventy-five thousand preference shares of twenty euro cents (EUR 0.20) each, in these articles of association henceforth referred to as "preference shares." 2. Unless otherwise stated, the term "shares" in these articles shall refer equally to priority, common and preference shares. ARTICLE 4 1. The Board of Management shall have the power to issue common shares if and insofar as the Board of Management has been designated by the General Meeting of Shareholders as the authorized body for this purpose. Such a designation shall only take place for a specific period of no more than five years and may not be extended by more than five years on each occasion. The Board of Management requires the approval of the Supervisory Board and of the meeting of priority shareholders for such an issue. 2. If a designation as referred to in clause 1 is not in force, the General Meeting of Shareholders shall have the power, upon the proposal of the Board of Management - which proposal must be approved by the Supervisory Board and by the meeting of priority shareholders - to resolve to issue common shares. 3. In the event of a common share issue in return for a cash consideration, holders of common shares shall have a pre-emption right in proportion to the number of common shares which they own. The Board of Management shall have the power to restrict or exclude the pre-emption right accruing to these shareholders, if and insofar as the Board of Management has also been designated by the General Meeting of Shareholders for this purpose as the authorized body for the period of such designation. The provisions in the second and third sentences of clause 1 shall apply accordingly. 4. If a designation as referred to in clause 3 is not in force, the General Meeting of Shareholders shall have the power, upon the proposal of the Board of Management - which proposal must be approved by the Supervisory Board and by the meeting of priority shareholders - to restrict or exclude the pre-emption right accruing to shareholders. 5. A resolution of the General Meeting of Shareholders in accordance with clauses 3 and 4 of this article requires a majority of at least two-thirds of the votes cast if less than half of the issued share capital is 3 represented at the meeting. 6. Clauses 1 and 2 of this article apply mutatis mutandis to an issue of preference shares. An option to take preference shares was granted on 19 June 1989 to the Stichting Preferente Aandelen Philips under the power vested in the Board of Management at that time in the articles of association. 7. In order for resolutions of the General Meeting of Shareholders to issue shares or to designate the Board of Management, as referred to in clauses 1, 2 and 6, to be valid, a prior or simultaneous resolution granting approval is required from each group of holders of shares of the same type whose rights are affected by the issue. 8. The preceding clauses of this article shall apply accordingly mutatis mutandis to the granting of rights to take shares, but shall not apply to the issue of shares to someone who exercises a previously acquired right to take shares. The Board of Management shall have the power to issue such shares. 9. The issue price shall not be fixed below par, subject to deviations which the law permits in this respect. The common and priority shares shall be fully paid up when they are taken. At least a quarter of the nominal amount shall be paid on preference shares when they are taken. Further payment on the preference shares shall be made within one month after the Board of Management, subject to the approval of the Supervisory Board and the meeting of priority shareholders, has made a corresponding request in writing to the shareholders concerned. ARTICLE 5 1. Any acquisition by the Company of shares in its capital which are not fully paid up shall be null and void. 2. The Company may acquire, for valuable consideration, common shares in its own share capital if and insofar as: a. its shareholders' equity less the purchase price of the common shares is not less than is laid down in the relevant statutory provisions; b. the nominal amount of the shares in its capital which the Company acquires, holds or holds as pledgee, or which are held by a subsidiary, is not more than one-tenth of the issued share capital; and c. the General Meeting of Shareholders has authorized the Board of Management to acquire such shares, which authorization may be given for no more than 18 months on each occasion. Shares thus acquired may again be disposed of. The Board of Management shall not acquire shares in the Company's own share capital as referred to above - if an authorization as referred to above is in force - or dispose of such shares without the approval of the Supervisory Board. 3. The Board of Management shall have the power, without the authorization referred to in clause 2 but with the approval of the Supervisory Board, to acquire on behalf of the Company shares in its own share capital as referred to above in order to transfer the shares to employees of the Company or of a group company, in pursuance of a rule applying to them. 4. No voting right attaches to own shares referred to above. These shares shall not rank for the purpose of determining any majority or for deciding whether a specific proportion of the issued share capital is represented at a general meeting of shareholders. 5. Upon the proposal of the Board of Management - which proposal must have the 4 prior approval of the Supervisory Board and the meeting of priority shareholders - the General Meeting of Shareholders shall have the power to resolve, having regard to the provisions of Section 99 of Book 2 of the Netherlands Civil Code, to reduce the issued share capital: - by a cancellation of common shares acquired by the Company in its own share capital; - by a reduction of the nominal amount of the shares by amendment of the articles of association, with partial repayment on those shares; - by a cancellation of preference shares, with repayment on the said preference shares; or - by a release from the obligation to make further payment on the preference shares upon implementation of a resolution to reduce the nominal amount of such shares. It shall be indicated in this resolution whether and, if so, to what extent this relates to common shares, to all or only to certain preference shares or - insofar as this is permitted - to all shares, and rules shall be drawn up for the implementation of the resolution. A partial repayment or release from the obligation to make further payment must be made proportionally to all shares concerned. ARTICLE 6 1. Priority shares and preference shares shall be registered. Common shares shall, at the option of the shareholder, be either in bearer or registered form, as specified in the following clauses. 2. Where a share belongs to more than one person in any form of joint ownership, or where limited rights in rem attach to any share, the Company is entitled to require those concerned to designate in writing one person to exercise the rights attached to the share. 3. The expression "shareholder", as used in these articles, shall, if the ownership of a share is vested in more than one person, mean the joint holders of such share, without prejudice, however, to the provisions of clause 2 of this article. The expression "person", as used in these articles, shall include a body corporate. 4. Share certificates for bearer shares consist of a main part with a dividend sheet not consisting of separate dividend coupons. Such dividend sheets shall be issued solely to "depositaries" who have been admitted to the Centre for Securities Administration in Amsterdam and who are bound by the regulations that apply to such depositaries. Share certificates for bearer shares shall be available for such numbers, which may be subject to change, as the Board of Management may determine. 5. Registered shares shall be available: - in the form of an entry in the share register without issue of a share certificate; shares of this type are referred to in these articles as Type I shares; - and - should the Board of Management so decide - in the form of an entry in the share register with issue of a certificate, which certificate shall consist of a main part without 5 dividend sheet; shares of this type and share certificates of this type for common shares are referred to in these articles as Type II shares and share certificates, these being available for such numbers, which may be subject to change, as the Board of Management may determine. 6. The form in which share certificates are issued shall be determined by the Board of Management. 7. The forms of share specified in clauses 4 and 5 may, on conditions to be determined by the Company, be converted into other forms referred to in the respective clauses. ARTICLE 7 1. In respect of registered shares a register shall be kept by or on behalf of the Company, which register shall be regularly updated and, in the form the Board of Management will decide, may, in whole or in part, be maintained in more than one copy and at more than one place. At least one copy will be maintained at the office of the Company. 2. Each shareholder's name and address, the number and type of shares registered in his name, the date on which registered shares were acquired, the date of acknowledgement and/or service upon the Company of the instrument of transfer, the amounts paid thereon and such further data as the Board of Management shall deem desirable, whether at the request of a shareholder or not, shall be entered in the register. The names and addresses of persons who have a right of usufruct or pledge in respect of those shares, the date on which they acquired such a right, the date of acknowledgement or service upon the Company of the instrument of transfer, as well as the other data required by law, shall also be entered in the register. 3. Upon request, a shareholder shall be given free of charge an extract from the register in respect of the shares registered in his name. ARTICLE 8 1. Upon a written request from a person entitled to such certificates, missing or damaged common share certificates, or parts thereof, may be replaced by new certificates, or by duplicates bearing the same numbers and/or letters, provided that the applicant proves his title and, in so far as applicable, his loss to the satisfaction of the Board of Management, and further subject to such conditions as the Board of Management may deem fit. 2. In appropriate cases, at its own discretion, the Board of Management may stipulate that the identifying numbers and/or letters of missing documents be published three times, at intervals of at least one month, in at least three newspapers to be indicated by the Board of Management, announcing the application made; in such a case new certificates or duplicates may not be issued until six months have expired since the last publication, always provided that the original documents have not been produced and shown to the Board of Management before that time. 3. The issue of new certificates or duplicates shall render the original document invalid. 4. The issue of new certificates or duplicates for shares may in appropriate cases, at the discretion of the Board of Management, be published in newspapers to be indicated by the Board of Management. ARTICLE 9 6 1. The transfer of a registered share, including: - the allotment of registered shares in the event of a judicial partition and division of any form of community of property or interests; - the transfer of a registered share as a consequence of a judgement execution; - the creation of limited rights in rem on a registered share shall require an appropriate instrument of transfer that has to meet the conditions stipulated by the Company and for which a model will be available for shareholders at no costs, as well as an acknowledgement. This acknowledgement may be made; - in the instrument of transfer; or - by a certificate with an officially recorded, or otherwise fixed, date containing the acknowledgement on the instrument of transfer or of a copy or extract thereof authenticated by a civil law notary or by the transferor. If a Type II share certificate has been issued, the share certificate is also required to be handed over to the Company for the purpose of the share transfer. In this case the acknowledgement may be made by making an annotation on the share certificate or by replacing the certificate with a new one in the name of the transferee. In the case of preference shares which have not been paid up in full, the acknowledgement may be made only if there is an instrument of transfer with an officially recorded, or otherwise fixed, date. When preference shares which have not been paid up in full are transferred, the date of transfer shall be entered in the register. 2. The transfer of priority shares is subject to the provisions of article 10, as well as to those of the preceding clause. PRIORITY SHARES ARTICLE 10 1. Without prejudice to the provisions of article 9, the transfer of priority shares is subject to the conditions stated in the following clauses of this article. 2. A priority share may only be transferred to a nominee nominated by the meeting of priority shareholders, and upon payment of the nominal value of such share, with interest at the rate of four per cent per annum - or such lower rate as the statutory interest rate will be at the beginning of the relevant financial year - as from the beginning of the current financial year until the date of the transfer. 3. A holder of a priority share wishing to transfer such share shall notify the Board of Management of such intention by registered letter. The Board of Management shall as soon as possible bring the contents of such notification to the notice of the Chairman of the Supervisory Board and of the holders of priority shares. In that event the Chairman of the Supervisory Board shall convene a meeting of priority shareholders, which shall be held within a month after receipt of the notification referred to above and which shall propose a nominee. 4. However, the holder of a priority share who, by registered letter addressed to the Board of Management, has requested the proposal of a nominee in 7 accordance with the provisions of the preceding clause shall be free to transfer the share offered by him, if after a period of three months after receipt of such notification the meeting of priority shareholders has not proposed a nominee or no nominee has agreed to acquire the share. 5. In the event of transfer of any priority share upon the death of the holder thereof or for any other reason, those who acquire the share shall, by registered letter addressed to the Board of Management, offer such share for transfer to a nominee to be proposed by the meeting of priority shareholders. In that event the provisions of clauses 3 and 4 of this article shall apply mutatis mutandis. In such a case the Company shall be irrevocably authorized on behalf of the successor or successors in title to effect the transfer to such nominee and to receive the payments on his or their behalf. Until the transfer of the priority share has taken place in the prescribed manner and is entered in the priority share register, no vote may be cast in respect of such priority share at the meeting of priority shareholders. 6. The provisions of clause 5 of this article shall apply mutatis mutandis to a holder of priority shares who has been adjudicated bankrupt or granted a moratorium of payments or placed in the care of a guardian, or is unable for any other reason to dispose freely of his property. 7. The transfer of a priority share shall be entered in the priority share register. BOARD OF MANAGEMENT ARTICLE 11 1. The Company shall be managed by a Board of Management, consisting of at least three members, under the supervision of a Supervisory Board. The Chairman of the Board of Management shall be President of the Company. The other members shall be Executive Vice-Presidents[FN 1] of the Company. With due observance of the minimum of three, the number of members shall be decided by the meeting of priority shareholders in consultation with the Supervisory Board. - ---------- [FN 1] In the original Dutch version of these articles of associates the term "Vice-President" is used. 2. Members of the Board of Management, as well as the Chairman of the Board of Management and President of the Company, shall be appointed by the General Meeting of Shareholders from a binding list of two nominees for each vacancy to be filled, drawn up by the Supervisory Board in agreement with the meeting of priority shareholders. Votes in respect of persons who have not been so nominated shall be invalid. In the event of an equality of votes, the nominee who is placed first on the list shall be appointed. 3. The list of nominees shall be deposited for inspection by shareholders at the office of the Company and at a bank at Amsterdam to be specified in the notice convening the general meeting at which the appointments are to be made, as from the date of serving the said notice until the close of that meeting. 4. The list of nominees referred to in clause 2 of this article may be deprived of its binding character by a resolution adopted at a general meeting of shareholders by a majority of at least two-thirds of the votes cast, representing more than one half of the issued share capital. In that event a new binding list shall be submitted to a subsequent general meeting of shareholders, with due observance of the provisions of the preceding clauses of this article. Should such a second list also be deprived of its binding character in the manner provided for in the first sentence, the 8 General Meeting of Shareholders shall be free to appoint. 5. Should the number of members of the Board of Management fall below three, the powers of the Board of Management shall remain intact. In such a case a general meeting of shareholders shall be held at the earliest opportunity to fill the vacancies on the Board of Management. 6. Without prejudice to the provisions of clause 2 of this article, a proposal to make appointments to the Board of Management may only be placed on the agenda of the general meeting of shareholders by the Board of Management and only in consultation with the meeting of priority shareholders and the Supervisory Board. ARTICLE 12 1. Members of the Board of Management may be suspended or removed by the General Meeting of Shareholders. A resolution to suspend or remove a member of the Board of Management, other than a resolution proposed by the Board of Management, the Supervisory Board or the meeting of priority shareholders, may only be adopted by a majority of at least two-thirds of the votes cast, representing more than half of the issued share capital. The provisions of Section 120 (3) of Book 2 of the Civil Code shall not apply. 2. The members of the Board of Management may be suspended from office by the Supervisory Board either collectively or individually. Within three months of such suspension a general meeting of shareholders shall be held to decide whether the suspension shall be cancelled or upheld. The person so suspended shall be entitled to be heard at the meeting. ARTICLE 13 1. Two members of the Board of Management may jointly represent the Company at law and otherwise. a. The Board of Management may authorize each of its members separately to represent the Company within the limits defined in the authorization. b. The authority of a member of the Board of Management to represent the company does not cease to exist where there is a conflict of interest with the company, unless a legal act between the company and a director himself is involved, in which case, without prejudice to the provisions of the last sentence of Section 146 of Book 2 of the Civil Code, the other members of the Board of Management shall have the authority to represent the Company with regard to that legal act. ARTICLE 14 1. The Board of Management shall have the power to enter into contracts as specified in Section 94 (1) of Book 2 of the Civil Code. 2. The Board of Management may grant powers of attorney to persons, whether or not in the service of the Company, to represent the Company and may thereby determine the scope of such powers of attorney and the titles of such persons. ARTICLE 15 Subject to the approval of the Supervisory Board, the Board of Management shall draw up Standing Orders, regulating, inter alia, the mode of convening its meetings and the internal procedure at such meetings. 9 ARTICLE 16 1. Without prejudice to the provisions made elsewhere in these articles, resolutions of the Board of Management concerning the following matters shall be subject to the approval of the Supervisory Board: a. issue of shares in the Company, restricting or excluding the pre-emption right in the event of an issue of shares, acquisition of shares in the capital of the Company and the disposal of shares thus acquired; issue of debentures chargeable to the Company; b. cooperation in the issue of certificates of shares in the Company; c. application for quotation or for withdrawal of the quotation of the securities referred to under a. and b. in the price list of any stock exchange; d. long-term cooperation, directly or indirectly, with another company or body corporate, and the discontinuation of such cooperation, if the said cooperation or discontinuation thereof is of fundamental significance; e. taking a direct or indirect participation in the share capital of another company, the value of which is at least equal to the amount of one quarter of the issued share capital plus the reserves of the Company, as shown by its balance sheet and explanatory notes, and any fundamental change in the scale of such participation; f. any investment involving expenditure equal to at least one quarter of the issued share capital plus the reserves of the Company, as shown by its balance sheet and explanatory notes; g. a proposal to amend the articles of association; h. a proposal to dissolve the Company or for a legal merger of the Company; i. a petition for bankruptcy or for a moratorium of payments; j. a proposal to reduce the issued share capital. 2. The Supervisory Board may grant the approvals required in accordance with this article either for a specific legal act, or for a group of such legal acts. ARTICLE 17 Without prejudice to the statutory provisions, absence or inability to act of members of the Board of Management is regulated in the Standing Orders of the Board of Management. ARTICLE 18 The remuneration and other terms of employment of the members of the Board of Management shall be fixed by the Supervisory Board upon the proposal of the President of the Company. SUPERVISORY BOARD ARTICLE 19 1. The Supervisory Board shall be responsible for supervising the policy pursued by the Board of Management and the general course of affairs in the group of companies within the Netherlands and abroad, of which the Company forms part. The Supervisory Board shall assist the Board of Management with advice relating to the general policy aspects connected with the activities 10 of the Company and of the group of companies associated with it. 2. The Board of Management shall provide the Supervisory Board in due time with such information as the Supervisory Board needs for the performance of its duties and shall regularly report on the course of business of the Philips Group. ARTICLE 20 1. The members of the Supervisory Board shall be appointed and may be removed by the General Meeting of Shareholders. The Supervisory Board shall consist of at least five members. 2. Members of the Supervisory Board shall be appointed by the General Meeting of Shareholders from a binding list of two nominees for each vacancy to be filled, drawn up by the Supervisory Board in agreement with the meeting of priority shareholders. Votes in respect of persons who have not been so nominated shall be invalid. In the event of an equality of votes, the person who is placed first on the list shall be appointed. A list of nominees shall be deposited for inspection by shareholders at the office of the Company and at a bank in Amsterdam to be specified in the notice convening the general meeting on whose agenda the proposed appointment has been placed, as from the date on which the said notice is served until the close of that meeting. Without prejudice to the provisions of the first sentence and in compliance with Section 142 (3) of Book 2 of the Civil Code, a proposal to appoint a member of the Supervisory Board may only be placed on the agenda of the general meeting by the Supervisory Board, though only in consultation with the Board of Management and the meeting of priority shareholders. Persons as referred to in Sections 142 (4) and 160 of Book 2 of the Civil Code shall not be appointed. 3. The list of nominees referred to in clause 2 of this article may be deprived of its binding character by a resolution adopted at a general meeting of shareholders by a majority of at least two-thirds of the votes cast, representing more than one half of the issued share capital. In that event, a new binding list shall be submitted to a subsequent general meeting of shareholders with due observance of the provisions of the preceding clauses of this article. Should such a second list also be deprived of its binding character in the manner provided for in the first sentence, the General Meeting of Shareholders shall then be free to appoint. 4. A member of the Supervisory Board shall retire at the end of the next general meeting of shareholders held after a period of four years following his appointment. Should a member of the Supervisory Board reach the age of 72 in any financial year, he shall retire at the end of the ordinary general meeting of shareholders held in that financial year. After having held office for the first period of four years, members of the Supervisory Board are eligible for reelection only twice for a full period of four years. In specific cases the Supervisory Board and the meeting of priority shareholders may resolve to deviate from this provision. The Supervisory Board may establish a rotation schedule. 5. A resolution to suspend or remove a member of the Supervisory Board, other than a resolution proposed by the Supervisory Board or the meeting of priority shareholders, may only be adopted by a majority of at least two-thirds of the votes cast, representing more than half of the issued share capital. The provisions of Section 120 (3) of Book 2 of the Civil Code shall not apply. ARTICLE 21 1. The members of the Supervisory Board shall appoint from their number a Chairman, a Vice-Chairman and a Secretary. 11 2. The Supervisory Board may appoint one of its members to be a Delegate Member and in so doing determine the period of such appointment. Without prejudice to the duties and responsibilities of the Supervisory Board and of its members, the Delegate Member shall, on behalf of the Supervisory Board, maintain more frequent contact with the Board of Management with regard to the general course of affairs within the scope of article 20 of these articles of association. In so doing, the Delegate Member of the Supervisory Board shall assist the Board of Management with advice. 3. Without prejudice to the duty and responsibility of the Supervisory Board as such, the latter body may resolve to have certain tasks performed or prepared and certain powers exercised or prepared by a commission from their number. Such a resolution shall specify the chairman and the secretary thereof and in what manner and how frequently such commission shall render account to the Supervisory Board as such. ARTICLE 22 1. The Supervisory Board may adopt resolutions by absolute majority of the votes cast at a meeting attended by at least one-third of its members. The Supervisory Board may adopt resolutions in writing outside a meeting provided that the proposals for such resolutions have been sent in writing to all members and no member is opposed to this method of adopting a resolution, and provided that in such a case more than half of the members declare themselves in favour of the proposals. 2. Minutes shall be kept of the proceedings of the Supervisory Board, which in any case shall include the resolutions adopted by the meeting. In the event that the resolutions are adopted outside a meeting, as referred to in the second sentence of the preceding clause, the resolutions so adopted shall be recorded in writing by the Secretary. Such record shall be signed by the Chairman and the Secretary. 3. A certificate signed by two members to the effect that the Supervisory Board has adopted a particular resolution shall constitute evidence of such a resolution in dealings with third parties. 4. The members of the Board of Management shall, if so invited by the Supervisory Board, attend the meetings of the Supervisory Board. ARTICLE 23 1. The Supervisory Board shall draw up Standing Orders regulating the mode of convening its meetings and the internal procedure at such meetings. ARTICLE 24 1. Upon a proposal made by the Supervisory Board, the General Meeting of Shareholders shall determine the remuneration of the members of the Supervisory Board, which shall consist of a fixed yearly amount. 2. The Supervisory Board may grant an additional remuneration to be borne by the Company to its Chairman, to a Delegate Member or to members who pursuant to a resolution of the Supervisory Board have been designated to perform certain functions or activities of the Supervisory Board. GENERAL MEETINGS OF SHAREHOLDERS ARTICLE 25 12 1. The ordinary general meeting of shareholders shall be held each year not later than 30 June and, at the Board of Management's option, at Eindhoven, at Amsterdam, at The Hague or at Rotterdam; the notice convening the meeting shall inform the shareholders accordingly. Extraordinary general meetings of shareholders shall be held as often as deemed necessary by the Supervisory Board or the Board of Management, and must be held if the meeting of priority shareholders or one or more shareholders jointly representing at least one-tenth of the issued share capital make a written request to that effect to the Supervisory Board and the Board of Management, specifying in detail the business to be dealt with. If the Board of Management fails to comply with a request as referred to in the preceding clause in such a manner that the general meeting of shareholders can be held within six weeks after the request, the persons making the request may be authorized by the President of the District Court at `s - Hertogenbosch to convene the meeting themselves. 2. The general meeting of shareholders will in any case deal with and deliberate on the following: a. the Company's annual report, including at least: - the Board of Management's report; - the annual accounts with explanation and appendices; - the Supervisory Board's report; this being without prejudice to the possibility of a deferment granted to the Board of Management, as provided in Section 101 of Book 2 of the Civil Code. b. proposals placed on the agenda by the Supervisory Board, the meeting of priority shareholders, the Board of Management or shareholders in accordance with the provisions of these articles; c. the filling of vacancies on the Board of Management and/or the Supervisory Board in accordance with the provisions of these articles. ARTICLE 26 1. The notice convening a general meeting shall be published in the form of an advertisement which in the Netherlands shall be inserted in at least one national daily newspaper and, at the Board of Management's option, in one or more foreign newspapers. In addition, holders of registered shares shall be notified by letter that the meeting is being convened. 2. The notice convening the meeting shall be issued by the Board of Management. In the case envisaged in the third paragraph of clause 1 of the preceding article, the notice shall be issued by the shareholders therein specified, subject to the relevant provisions of Section 111 of Book 2 of the Civil Code. 3. The notice convening the meeting shall be issued no later than on the fifteenth day prior to the meeting. 4. Without prejudice to what is provided in this respect elsewhere in these articles, the agenda shall contain such business as may be placed thereon by the Board of Management, the Supervisory Board or the meeting of priority shareholders. Furthermore the agenda shall contain such business as one or more shareholders representing at least one-hundredth of the issued share capital have requested the Supervisory Board and the Board of 13 Management to place on the agenda, at least 60 days before the date of the meeting. The Supervisory Board and the Board of Management may resolve not to place such business proposed by shareholders on the agenda if they are of the opinion that such request would be detrimental to the serious interests of the Company. The meeting shall not adopt resolutions on matters other than those which have been placed on the agenda. 5. Without prejudice to the provisions of Sections 99 and 123 of Book 2 of the Civil Code, the notice convening the meeting shall either mention the business on the agenda or state that the agenda is open to inspection by shareholders at the office of the Company and at a specified bank at Amsterdam. ARTICLE 27 1. All shareholders are entitled, without prejudice to the provisions of article 6, clause 2, to attend the general meeting of shareholders, to address the meeting and, subject to the provisions of Section 118 (7) of Book 2 of the Civil Code, to vote. 2. In order to exercise the rights mentioned in clause 1 of this article, the holders of bearer share certificates shall deposit their share certificates prior to the meeting at the office of the Company or at one of the banks or other establishments to be indicated in the notice, at least one of which shall be a depositary as mentioned in article 6, clause 4, situated at Amsterdam. The notice shall also mention the last day on which this can be done. The deposit shall be made in return for a card of admission to the meeting. 3. In order to exercise the rights mentioned in clause 1 of this article, the holders of registered common shares shall notify the Company in writing of their intention to do so no later than on the day and at the place mentioned in the notice convening the meeting, and also - insofar as Type II common shares are concerned - stating the identifying number of the common share certificate. They may only exercise the said rights at the meeting for the common shares registered in their name both on the day referred to above and on the day of the meeting. 4. In order to exercise the rights mentioned in clause 1 of this article, the holders of preference shares shall notify the Company of their intention to do so no later than on the day prior to the meeting. They may exercise the said rights at the meeting only for the shares registered in their name on the day of the meeting. 5. The Company shall send a card of admission to the meeting to holders of registered shares who have notified the Company of their intention in accordance with the provisions of the two preceding clauses. 6. Shareholders, usufructuaries and pledgees who are entitled to attend a general meeting may be represented by proxies with written authority. Without prejudice to the provisions of the preceding clauses of this article, the written authorization must be deposited not later than at the time and at the place indicated in this article. ARTICLE 28 With regard to the exercise of the rights referred to in the preceding article, the Company is entitled to regard as correct the statements regarding the depositing of share certificates and/or the granting of authorizations by shareholders, and regarding the quantities to which the deposits and/or authorizations relate, which are made to it in due time by the institutions designated for that purpose in the notice convening the meeting. 14 ARTICLE 29 1. General meetings of shareholders shall be presided over by the Chairman of the Supervisory Board or by any other person nominated by the Supervisory Board. The Chairman may restrict the time for which shareholders may speak, if he considers this to be desirable with a view to the orderly conduct of the meeting. 2. The resolutions adopted at a general meeting of shareholders shall be recorded by a civil law notary. Such record shall be co-signed by the Chairman of the meeting. The latter shall ensure that a summary account is made of the business transacted at the meeting. ARTICLE 30 1. Unless otherwise stated in these articles, resolutions shall be adopted by absolute majority of votes. Blank and invalid votes shall not be counted. The Chairman shall decide on the method of voting, including the possibility of voting by acclamation. In the event of voting by acclamation, the votes against will be recorded if a request to this effect is made. 2. Except as provided in article 11, clause 2 and article 20, clause 2, in the event of an equality of votes the relevant proposal shall be deemed to have been rejected. ARTICLE 31 Each common share and each preference share shall entitle to one (1) vote. Each priority share shall entitle to two thousand five hundred (2500) votes. ARTICLE 32 1. Separate meetings of holders of preference shares shall be held as often as a resolution of the meeting of holders of preference shares is required by statutory provisions or these articles of association, and further as often as the Board of Management, the Supervisory Board or the meeting of priority shareholders deems this necessary, and must be held if one or more holders of preference shares representing at least one-tenth of the capital issued in the form of preference shares make a written request to that effect to the Board of Management, specifying in detail the business to be dealt with. 2. A meeting of holders of preference shares shall be convened no later than on the fifteenth day prior to the meeting by a letter addressed to the persons entitled to attend this meeting. 3. Meetings of holders of preference shares shall be held at Eindhoven, at Amsterdam, at The Hague or at Rotterdam. The notice convening the meeting shall inform the holders of preference shares in respect thereof. Articles 27 to 31 inclusive shall apply accordingly to meetings of holders of preference shares. 4. At a meeting of holders of preference shares at which the whole of the capital issued in the form of preference shares is represented, valid resolutions may be adopted, provided that the vote is unanimous, even if the provisions governing the place of the meeting, the manner in which it is convened, the period of notice and the specification in the notice of the business to be dealt with have not been observed. ARTICLE 33 Separate meetings of holders of common shares shall be held as often as a resolution of the meeting of holders of common shares is required by statutory provisions or these articles of association. The provisions of article 25, 15 clause 1 and articles 26 to 31 inclusive shall apply accordingly to such a meeting. MEETINGS OF PRIORITY SHAREHOLDERS ARTICLE 34 1. Meetings of priority shareholders shall be held on the proposal of the Board of Management. They shall be held at a place to be indicated by the Chairman of the Board of Management. 2. Meetings of priority shareholders must be held if holders of priority shares representing at least two-fifths of the issued priority share capital make a written request to that effect to the Board of Management, specifying in detail the business to be dealt with. If the meeting is not convened within fourteen days after a request made by priority shareholders, those shareholders shall be entitled to convene the meeting themselves. 3. Meetings shall be convened by notice to every holder of a priority share. A meeting shall not be deemed to be invalid by reason of a notice not having been received or not received in due time, unless it cannot be shown that the notice was indeed dispatched. The notices shall be issued by the Chairman of the Board of Management or, in the case provided in clause 2, by the priority shareholders referred to therein. Notices shall be served at least eight days prior to the meeting. 4. A meeting at which three-fifths of the priority share capital is represented shall be exempted from all periods of notice and formalities concerning the convening of the meeting. 5. The meeting of priority shareholders may adopt resolutions in writing provided that the proposals for such resolutions have been sent in writing to all holders of priority shares and no holder is opposed to this method of adopting a resolution. 6. A certificate signed by the holder(s) of at least half of the priority shares to the effect that the meeting of priority shareholders has adopted a particular resolution shall constitute evidence of such a resolution in dealings with third parties. 7. The consent of the meeting is required if a priority shareholder wishes to be represented at the meeting by a proxy. REPORT OF THE BOARD OF MANAGEMENT, ANNUAL ACCOUNTS AND DISTRIBUTIONS ARTICLE 35 1. The financial year shall be identical with the calendar year. 2. Without prejudice to the provisions of article 25, clause 2, the Board of Management shall, within four months after the close of each financial year, submit to the Supervisory Board annual accounts consisting of a balance sheet as at 31 December of the preceding year and a profit and loss account in respect of the financial year then ended, with the explanatory notes thereto. 3. With the approval of the Supervisory Board and the meeting of priority shareholders, the Board of Management shall have the power to determine what portion of the profit - the positive balance of the profit and loss account - shall be retained by way of reserve. Not available for retention 16 in this way are amounts needed for (a) the formation of legally required reserves and/or (b) distributions as referred to in clauses 1 to 3 of article 37. 4. The Supervisory Board shall cause the annual accounts to be examined by a registered accountant designated for that purpose by the Company in compliance with the provisions of Section 393 of Book 2 of the Civil Code and shall report to the General Meeting of Shareholders on the annual accounts. If the General Meeting of Shareholders does not designate such a registered accountant, the Supervisory Board, and in default thereof, the Board of Management, shall have the power to do so. Such a designation may be made for an indefinite period. 5. The Board of Management shall then have the annual report drawn up, as provided in article 25. Sufficient copies of the annual report shall be made available to the shareholders from the day on which the annual general meeting of shareholders is convened until the close of that meeting. ARTICLE 36 Adoption by the General Meeting of Shareholders of the annual accounts, as referred to in article 39 and without any express reservation made by the General Meeting of Shareholders, shall have the effect of fully discharging the Board of Management and the Supervisory Board from liability for the performance of their respective duties in the financial year concerned. ARTICLE 37 1. From the profit shown in the annual accounts adopted by the General Meeting of Shareholders, the percentage mentioned below of the amount required to be paid from time to time in the course of the financial year concerned on the preference shares shall, as far as possible and in compliance with the provisions of Section 105 (2) of Book 2 of the Civil Code, first be distributed on those shares. The dividend on the preference shares shall only be distributed for the number of days that such shares were actually outstanding in the financial year concerned. 2. The percentage referred to in clause 1 shall be equal to the Average Main Refinancing Rates during the financial year for which the distribution is made, plus two percent (2%). Average Main Refinancing Rate shall be understood to mean the average value on each individual day during the financial year for which the distribution is made of the Main Refinancing Rates prevailing on such day. Main Refinancing Rate shall be understood to mean the rate of the Main Refinancing Operation as determined and published from time to time by the European Central Bank. 3. If the profit for a financial year is declared and one or more preference shares have been withdrawn or preference shares have been fully repaid in that financial year, those persons who according to the register referred to in article 7 were holders of preference shares at the time of the said withdrawal or repayment shall have an inalienable right to a distribution of profit as described below. The profit which, if possible, shall be distributed to the said persons shall be equal to the amount of the distribution to which they would have been entitled under the provisions of clause 1 if they had still been holders of the aforementioned preference shares at the time when the profit was declared, this being calculated on the basis of the period for which they were holders of preference shares in the said financial year, a part of a month being counted as a full month. With regard to an alteration to the provisions of this clause, the proviso referred to in Section 122 of Book 2 of the Civil Code is made. 4. From the profit that remains after the application of clause 3 of article 35 and clauses 1 to 3 inclusive of this article, an amount of 20 euros (euros 20) shall first be distributed on every priority share. The profit 17 that remains thereafter shall be at the disposal of the General Meeting of Shareholders, which is empowered to withhold distribution in whole or in part or to make a distribution in whole or in part to holders of common shares in proportion to their holdings of common shares. ARTICLE 38 1. Upon the proposal of the Board of Management, which proposal shall have received the prior approval of the Supervisory Board and of the meeting of priority shareholders, the General Meeting of Shareholders shall be entitled to resolve to make distributions charged to the "other reserves" shown in the annual accounts or charged to "share premium account". 2. Upon the proposal of the Board of Management, which proposal shall have received the prior approval of the Supervisory Board and of the meeting of priority shareholders, the General Meeting of Shareholders shall be entitled to make distributions to shareholders under article 37, article 38, clause 1 and article 39 in the form of the issue of common shares. ARTICLE 39 At its own discretion and having regard to the statutory provisions relating thereto, the Board of Management, with the prior approval of the Supervisory Board and of the meeting of priority shareholders, may distribute from the profits for the current financial year one or more interim dividends on the shares before the annual accounts for any financial year have been approved and adopted at a general meeting. ARTICLE 40 1. The Board of Management determines for various types of shares on what dates and in what form distributions will be payable. Notices relating to such distributions shall in the Netherlands be given in at least one national daily newspaper, and abroad in at least one daily newspaper appearing in each of those countries where, on the application of the Company, the Company's shares have been admitted for official quotation, and further in such manner as the Board of Management may deem desirable. The provisions of this article shall apply accordingly in the event of a share issue with pre-emption subscription rights. 2. Cash distributions in respect of shares for which Type II share certificates are outstanding shall, if such distributions are made payable only outside the Netherlands, be paid in the currency of the country concerned, converted at the rate of exchange on the Amsterdam Stock Exchange at the close of business on a date to be fixed and announced by the Board of Management. This date may not be set earlier than the day before the date on which the distribution is declared and not later than the date which has been fixed for the shares concerned in accordance with the provisions of clause 3. 3. With regard to the provisions of article 6, clause 2 and of article 7, the person entitled to any distribution on registered shares shall be the person in whose name the share is registered - or, in the case of limited rights in rem, the person whose right appears well-founded - at the date to be determined for that purpose by the Board of Management in respect of the distribution for each of the different types of shares. 4. A person entitled to a distribution on a bearer share for which a share certificate is outstanding shall, in order to exercise his right to such distribution, arrange for the dividend sheet 18 appertaining to that share to be in the safekeeping of a depositary as mentioned in article 6, clause 4, at such a time as shall be specified by the Board of Management. In respect of distributions referred to herein, the Company shall have discharged its liability to the persons entitled thereto by making these distributions available to the depositary referred to in article 6, clause 4 or to one or more third parties designated by the latter and the Company, in favour of the persons in whose name the dividend sheets were held by the depositaries at the aforementioned time. 5. Rights of payment of distributions in cash shall lapse if such distributions are not claimed within five years following the day after the date on which they were made available. 6. In the case of a distribution in shares, any shares not claimed within a period to be determined by the Board of Management shall be sold for the account of the persons entitled to the distribution who failed to claim the shares. These persons are entitled only to the net proceeds in cash of such a sale. This entitlement will be forfeited if the proceeds are not claimed within five years following the day after the date on which the distribution in shares was made payable. 7. In the case of a distribution in the form of shares on registered shares, those shares shall be added to the share register. A Type II share certificate for a nominal amount equal to the number of shares added to the register shall be issued to holders of Type II shares, without prejudice to the provisions of article 6, clause 4. 8. The Board of Management may, for reasons which it considers sufficient, and subject to such conditions as it may consider necessary, rule that the provisions of clause 1, second paragraph and clause 4 of this article shall not apply. AMENDMENT OF ARTICLES OF ASSOCIATION AND DISSOLUTION ARTICLE 41 1. A resolution to amend the articles of association or to dissolve the Company shall be valid only provided that: a. the consent of the Supervisory Board and of the meeting of priority shareholders has been or will be obtained; b. the consent of the meeting of priority shareholders is given at a meeting at which more than half the issued priority share capital is represented and by at least three-fourth of the votes cast; if this requirement is not complied with, a further meeting shall be held within four weeks thereof, at which, irrespective of the priority share capital represented, the resolution can be adopted by at least three-fourth of the votes cast; c. the full proposals have been deposited for inspection by shareholders at the office of the Company and at a bank at Amsterdam specified in the notice convening the general meeting of shareholders, as from the day on which the said notice is served until the close of that meeting; d. the resolution is adopted at a general meeting of shareholders at which more than half of the issued share capital is represented and by at least three-fourth of the votes cast; if the requisite share capital is not represented at a meeting called for that purpose, a 19 further meeting shall be convened, to be held within four weeks of the first meeting, at which, irrespective of the share capital represented, the resolution can be adopted by at least three-fourth of the votes cast. 2. Where a resolution as referred to in the preceding clause of this article is submitted by the Board of Management, the General Meeting of Shareholders may, notwithstanding the provisions of clause 1 d., resolve by absolute majority of votes to amend the articles of association or to dissolve the Company, without more than half of the issued capital having to be represented. ARTICLE 42 Should the Company be dissolved, the liquidation and apportionment shall be effected by the Board of Management in compliance with the relevant provisions of Book 2 of the Civil Code and, insofar as they are not inconsistent with the latter, the articles of association. In adopting a resolution to dissolve the Company, the General Meeting of Shareholders may approve the payment of a remuneration to the liquidators. ARTICLE 43 From the balance of the liquidation, a distribution shall first be made on every preference share to the amount paid thereon, then on every priority share to the nominal amount thereof, and the residue thereafter shall be distributed on the common shares. TRANSITIONAL PROVISIONS ARTICLE 44 Rights attached to common shares outstanding upon this amendment of the articles of association (August 1, 2000) may not be exercised so long as these common shares have not been converted into common shares with a nominal value of twenty euro cents (EUR 0.20) in accordance with this notarial deed, and, as far as applicable, in compliance with the amendments of the articles of association of May 6, 1994, May 29, 1999 and April 17, 2000. Upon conversion the shareholder is entitled to the payment of dividends insofar as this right has not lapsed under the provisions of article 40, clause 5 of these articles of association. EX-4 3 u43961ex4.txt MATERIAL CONTRACTS 1 EXHIBIT 4 [Place/Date] [Name] [Address] Dear [Name], We have pleasure in notifying you herewith of the terms of employment and other arrangements that apply to you with effect from your appointment as of [Date] as a member of the Board of Management and [Title] of Koninklijke Philips Electronics N.V. ("Company"). 1. COMMENCEMENT OF EMPLOYMENT You will enter the employment of Philips as a member of the Board of Management and Executive Vice-President with effect from [Date]. [If applicable: The Contract of Employment between you and Philips, dated [Date], will cease to exist as of [Date]]. The terms and conditions stated in this letter agreement and its annexes replace all terms and conditions laid down in previous employment agreements and all oral and written understandings reached with you and any company belonging to the Philips Group. 2. DURATION OF EMPLOYMENT A The Contract of Employment ("Contract") with the Company connected with your membership of the Board of Management shall be entered into for a period of five years commencing on [Date] and shall terminate ipso jure, without any notice being required, on [Date]. B No later than six months before [Date] the parties will discuss a possible extension of the Contract for a period to be agreed upon. If applicable, the parties will do the same each six months prior to any possible future expiration date of the Contract. The Contract will not be extended for any period following the first day of the month in which you have reached the age of 62. 1 2 [Name] [Date] C Both parties shall have the right to terminate this agreement before [Date] or before any later expiration date as indicated above against the end of a calender month by giving the other party no less than six months prior written notice. D If the Contract is terminated at the request of the Company before [Date] or before any other expiration date if the contract has been renewed, other than for a compelling reason ("dringende reden") within the meaning of Dutch labour law, or if the Company does not wish to renew the Contract per [Date], I agree with you already now that in that case you shall be entitled to an once-only payment as mentioned under 2.F. by way of compensation. E If the Company does not wish to renew the Contract, after this has already been renewed once or more, you shall be entitled to as many times your monthly salary as mentioned in paragraph 3 as you still have months to serve before reaching the age of 62, with a maximum of the amount of the once-only payment as mentioned under 2.F. F The once-only payment as referred to under 2 sub D and E shall be equal to the balance between the amount of twice your annual salary as mentioned in paragraph 3 and the total amount of industrial disability payments (if any) made to you by the Company under paragraph 10 in the period of three years immediately preceding the effective date of the termination of the Contract. G In case of termination of the Contract you will resign per the effective date of the termination of the Contract as member of the Board of Management. 3. SALARY Your annual salary as of [Date] shall amount to NLG [amount] (gross), to be paid in 12 monthly instalments. On the proposal of the President, the Supervisory Board on the advice of the Remuneration Committee will decide each year at its November/December meeting whether this salary should be increased. You shall be informed in writing, on behalf of the Supervisory Board, of any salary increases awarded to you in this way. The increased salary will then replace the sum mentioned above. 2 3 [Name] [Date] 4. BONUS In addition to the salary referred to under 3., you shall be eligible each year for a bonus. This bonus shall be determined annually by the Supervisory Board on the proposal of the President and on the advice of the Remuneration Committee. The bonus to be awarded relates to the preceding financial year and is based on criteria to be determined annually on the proposal of the President. You shall be notified in writing of these bonus targets. The maximum bonus attainable by you shall amount to 50% of your annual salary as mentioned under 3. 5. PENSION RIGHTS You are entitled to a pension in conformity with the conditions contained in the Pension Regulations of the Stichting Philips Pensioenfonds (Annex E.), on the understanding that in your case - from a pension build up point of view - the pensionable age is 60, with the conditions being adjusted accordingly. As members of the Board of Management may remain in employment up to the age of 62, they will postpone their claim on payment of pensions to the age of 62, as provided for in the Pension Fund by-laws. The gross basis is your annual gross salary, as mentioned under clause 3. hereof. The 10% increase in the gross basis as laid down in article 3 of the by-laws of Philips Pension Fund does not apply to members of the Board of Management. In addition to your statutory retirement pension entitlement, the Supervisory Board has the firm intention to grant you a supplementary pension, as expressed in the enclosed letter (Annex B.). 6. ADDITIONAL PENSION PLAN Separately from the pension plan referred to under 5., you shall be given the opportunity to participate in an additional pension plan in the form of a so- called "C policy" which the Company has taken out with the insurance company Nationale-Nederlanden N.V. of Rotterdam. You may allocate your bonus or a part thereof, up to the maximum amounts permitted, for this purpose. The appended pension letter (Annex C.) states the conditions attached to this pension plan. 3 4 [Name] [Date] 7. STOCK OPTIONS The Supervisory Board on the advice of the Remuneration Committee can decide by discretion to grant Philips Electronics stock options to members of the Board of Management on a year to year basis. You, as a member of the Board of Management, are in principle eligible to participate in such plan. For [Year] the maximum number of stock options for a member of the Board of Management is set at [number]. You have already been informed on the grant of the [number] stock options to you. The conditions of the stock options have to be decided each year by the Supervisory Board. 8. ACCIDENT INSURANCE You will be covered by a 24-hours accident insurance policy. The maximum sum insured is NLG 2,000,000. Details of this arrangement are given in Annex F. 9. OTHER ARRANGEMENTS In addition to the main conditions of employment contained in this letter, a number of additional arrangements shall apply to you. These additional arrangements are contained in Annex A. 10. INDUSTRIAL DISABILITY For a maximum period of 3 years from the start of disablement, but at the very latest up to the end of the Contract, the balance between your annual salary at the start of the total disablement and the aggregate amount of any statutory allowances distributed because of your total disablement, together with allowances distributed for the same reason by the pension fund as referred to under 5. of this letter, will - subject to your compliance with Company's directives - be paid by the Company. The Company shall not be bound to the aforesaid obligation upon your having a claim on third parties in respect of your disablement. 4 5 [Name] [Date] 10. INDUSTRIAL DISABILITY (CONTINUED) Upon surrender to the Company by you of such a claim - insofar as it relates to loss of salary - an amount equal to the aforesaid balance shall - but for no longer than the period stated in the previous paragraph - be paid by the Company in advance. However, should this policy change, the new policy will apply in full to you. No concessions will be made if the new policy is less favourable than the present policy. 11. GENERAL TERMS OF EMPLOYMENT OF PHILIPS Annex D. contains the General Terms of Employment of the Philips Group, which also apply to you. As evidence of your approval of the contents of the General Terms of Employment, Annex D. will be signed by you. 12. RULES GOVERNING INTERNAL AND EXTERNAL DIRECTORSHIPS For the rules with respect to directorships, which may be amended from time to time, we refer to Annex G. 13. RULES OF CONDUCT GOVERNING INSIDE INFORMATION Philips' Rules of Conduct with respect to inside information, which may be amended from time to time, are applicable to you (Annex H.). We also refer to the enclosed letters from Mr D.G. Eustace (Annex I.) as well as to the letter from Mr J.A.J. Schmitz dated 13 February 1998 (Annex J.). 14. APPLICABLE LAW All terms of the Employment and this Contract are governed by the laws of the Netherlands. You and we irrevocably agree that any legal suit, action or proceeding arising out or based upon this Contract or the terms of your Employment or the transactions contemplated hereby may be instituted in any court in the Netherlands and irrevocably waive any objection which you or we may now or hereinafter have to the laying of venue of any such proceeding, and irrevocably submit to the exclusive jurisdiction of such courts in personam, generally and unconditionally with respect to any suit, action or proceeding. 5 6 [Name] [Date] If you agree to these proposals, you are requested to sign both the enclosed copy of this letter and Annex D. and return them to Mr R.W. Vermeer, Philips International B.V., Corporate HRM / Management Conditions and Remuneration, Building VP-1, P.O. Box 218, 5600 MD Eindhoven, Netherlands. Needless to say, you may contact Mr Vermeer if you require further information about these arrangements. Looking forward to receiving your reply, we remain With kind regards, [Name] (Chairman Supervisory Board) AGREED AND SIGNED [Name] Enclosures: - ---------- A. Other arrangements B. Letter regarding supplementary pension C. C-policy D. General Terms and Conditions E. By-laws of the Philips Pension Fund F. Accident Insurance G. Rules governing Internal and External Directorships H. Rules governing Inside Information I. Letters of Mr D.G. Eustace dated 15 April 1997, 5 April 1996 and 6 September 1995 J. Letter of Mr J.A.J. Schmitz dated 13 February 1998 6 EX-8 4 u43961ex8.txt LIST OF SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 8 LIST OF SIGNIFICANT SUBSIDIARIES Philips Electronics Nederland B.V., Eindhoven, the Netherlands (100%) Philips Electronics North America Corporation, Delaware, United States of America (100%) Philips Beteiligungs-GmbH, Hamburg, Germany (100%) Compagnie Francaise Philips, Suresnes, France (100%) Philips UK Limited, Croydon, United Kingdom (100%) EX-10.A 5 u43961ex10-a.txt INDEPENDENT AUDITORS' REPORT AND CONSENT 1 EXHIBIT 10 (a) INDEPENDENT AUDITORS' REPORT ---------------------------- TO THE SUPERVISORY BOARD AND BOARD OF MANAGEMENT OF KONINKLIJKE PHILIPS ELECTRONICS N.V. We have audited the consolidated financial statements of Koninklijke Philips Electronics N.V. (`Royal Philips Electronics') and subsidiaries as listed in Item 18 of Form 20F, included herein. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the Netherlands and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Royal Philips Electronics and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with generally accepted accounting principles in the Netherlands. Generally accepted accounting principles in the Netherlands vary in certain significant respects from generally accepted accounting principles in the United States. Application of accounting principles generally accepted in the United States of America would have affected results of operations for each of the years in the three-year period ended December 31, 2000 and shareholders' equity as of December 31, 2000 and 1999 to the extent summarized in Note 28 to the Consolidated Financial Statements. As discussed in the accounting policies note to the financial statements, the Company changed its method of accounting for derivative financial instruments and hedging activities as of January 1, 2000. Eindhoven, The Netherlands /s/ KPMG Accountants N.V. ------------------------- February 6, 2001 KPMG ACCOUNTANTS N.V. CONSENT OF THE INDEPENDENT AUDITORS ----------------------------------- TO THE SUPERVISORY BOARD AND BOARD OF MANAGEMENT OF KONINKLIJKE PHILIPS ELECTRONICS N.V. We consent to incorporation by reference in the registration statements on Form S-8 (No. 33-65972, No. 33-80027, No. 333-91287, No. 333-91289, and No. 333-39204) and in the registration statement on Form F-3 (No. 333-4582) of Koninklijke Philips Electronics N.V. (`Royal Philips Electronics') of our report dated February 6, 2001, relating to the consolidated balance sheets of Royal Philips Electronics and subsidiaries as of December 31, 2000 and 1999, and the consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2000, included in the December 31, 2000 annual report on Form 20-F of Royal Philips Electronics. Our report refers to a change in the Company's method of accounting for derivative financial instruments and hedging activities. Eindhoven, The Netherlands /s/ KPMG Accounts N.V. ------------------------- May 7, 2001 KPMG ACCOUNTANTS N.V. EX-10.B.1 6 u43961ex10-b_1.txt 2000 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 10 (b) (1) ANNUAL REPORT TO SHAREHOLDERS FOR 2000 -------------------------------------- Note: the Annual Report to Shareholders for 2000, consisting of the Management Report and the Financial Statements, is furnished to the Securities and Exchange Commission for information only and is not filed except for such specific portions that are expressly incorporated by reference in this report on Form 20-F. 2 ANNUAL REPORT 2000 MANAGEMENT REPORT [Philips Logo] PHILIPS [Pages 1 through 41 intentionally omitted.] MISCELLANEOUS A sustained strong performance in the field of R&D is of the utmost importance to strengthen Philips' competitiveness in its various markets and to open up new markets. Philips Research's mission is to generate value for the Company through technology-based innovations. By focusing not only on technical aspects,but also on the business development side of the innovation process,we are constantly improving our portfolio of Research projects. The launch of new Research activities in China,India and Belgium has further established Philips Research as one of the world's major global industrial research laboratories. With facilities in three continents and over 3,000 staff,Philips Research is at the forefront in developing new technologies for innovative products and is thus `shaping the future'. Research innovations incorporated in consumer products include various applications of optical storage technology,for example CD-RW. Philips continues to play a major role in the further development of standards and technology for CD applications. Research contributions to the Components and Semiconductors businesses include the transfer of Polymer LED technology to Components, which has in the meantime resulted in the first product introductions. Semiconductors has achieved a large market share in RF power modules based on bipolar transistor technology developed by Research. PARTNERS IN INNOVATION Dr Dago de Leeuw and his colleagues from Philips Research have succeeded in making a 64-by-64-pixel display in which each pixel is turned on and off by a switch based on plastic electronics. This is a major step towards the realization of flexible displays made in plastic. Reloadable flexible displays may even replace the daily newspaper one day. [Picture of Dr Dago de Leeuw] 42 Miscellaneous 3 Patents have a significant commercial value. One of the ways Philips realizes this value is by granting other companies licenses to use our patents in return for payment of royalties. By exploiting every licensing opportunity, Philips is generating a considerable amount of annual royalty income. Recent innovations in optical storage, as found in the Super Audio CD, DVD and DVD-RW players shown here, for example, represent a potential source of substantial revenues over the coming years. [Picture of Super Audio CD, DVD and DVD-RW players] Other recent market successes based on Research innovations include Philips' low-mercury Alto lamp technology and, in the medical field, software enabling real-time interventional and cardiac magnetic resonance imaging. Philips' policy in the field of intellectual property rights is to add value by protecting and leveraging the innovations resulting from its substantial R&D investments. Today, the Company has a patent portfolio of about 65,000 patent rights, and we are stepping up our efforts to enlarge and strengthen this portfolio. In 2000, Philips filed almost 2,100 new patent applications, up 35% on the previous year. Currently about 1 new patent application is filed for every million euros spent on R&D, which shows the high level of innovation within the Philips R&D organization. Through these new patent filings, Philips has secured solid positions in fields such as set-top boxes, digital video, in-home networking, internet applications and other product areas. In 2000, Philips' licensing activity generated substantially higher royalty income compared with the previous year, mainly due to higher royalty income from our optical recording, digital video and semiconductor patent portfolios. Philips' Centre for Industrial Technology (CFT) supports the Group's businesses in their business and product creation processes and with the design and realization of advanced process technologies and innovative production equipment. On the basis of its specific expertise, CFT contributes, as a strategic partner, to the profitability of the businesses by creating a competitive edge in speed and quality of innovation and in world-class manufacturing. In 2000, Philips Machinefabrieken changed its name to Philips Enabling Technologies Group, a more accurate expression of the unit's competencies and the competitive environment in which it operates, i.e. at the interface of high technology and precision manufacturing. The unit's strategic focus is to continuously enhance its technical capabilities in order to provide full-fledged co-creation support to high-tech customers wishing to focus on their core competencies and thus wishing to subcontract their manufacturing activities. Philips Enabling Technologies Group seeks to build strategic alliances with clients in carefully selected market segments that offer high growth potential, e.g. front- and back-end semiconductor equipment, aerospace engine and airframe parts, and plastic parts for the electronics and automotive industries. Assembleon (formerly Electronic Manufacturing Technology) is a leading manufacturer of SMT 'production-on-demand' assembly equipment and support software. As of January 1, 2001, Assembleon has been made an independent unit within the Philips Group with a view to a possible stock market flotation in the course of 2001. Philips Design is one of the largest design studios in the world and works according to its proprietary High Design process, a human-focused, multi-disciplinary, research-based approach whose purpose is to provide clients with competitive and sustainable solutions, also in the field of e-design. The quality of Philips Design's work is internationally recognized, as witnessed by the dozens of design awards that it wins every year for its product and interface design solutions. Philips Design's visionary projects, explorations of future lifestyles aimed at supporting the creation of preferable solutions for consumers, have also received international recognition (e.g. the Gold Industrial Excellence Award of the Industrial Designers Society of America for the Culinary Art project in 2000). 43 4 OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion is based on the consolidated financial statements and should be read in conjunction with those statements and the other financial information. The consolidated financial statements were prepared in accordance with generally accepted accounting principles in the Netherlands (Dutch GAAP). These accounting principles differ in some respects from generally accepted accounting principles in the United States (US GAAP), which are discussed in note 28 to the consolidated financial statements. Because of the significant goodwill and other intangibles associated with the Company's acquisitions, management believes income from operations excluding amortization charges for goodwill and other intangibles arising from acquisitions (Ebita) is an appropriate additional measure of operating performance. However, the reader should know that this measurement is not a substitute for operating income, net income, cash flows and other measures of financial performance as defined by Dutch or US GAAP and may be defined differently by other companies. In the income statement and sector reporting, this supplemental financial information is presented separately and will be referred to as Ebita. Beginning in 1999, Philips' consolidated financial statements are reported in euros. The previously presented financial statements for 1998, denominated in Dutch guilders, have been translated into euros using the irrevocably fixed conversion rate applicable since January 1, 1999 (EUR 1 = NLG 2.20371). Management believes that the data denominated in euros reflect the same trends as previously reported. Philips' financial data may not be comparable to those of other companies that also report in euros if these other companies previously reported in a currency other than the Dutch guilder. From 2000 onwards, Philips has extended the sector reporting to nine sectors in order to improve the financial transparency of the Company. Consumer Electronics and Domestic Appliances and Personal Care (DAP), formerly part of Consumer Products, are shown separately, as is Medical Systems, which previously was part of Professional. Both DAP and Medical Systems now constitute sectors of their own. Additionally, revenues and income from operations are presented separately for the business groups within Consumer Electronics. As part of an ongoing process of making Philips' financial reporting more transparent and to provide better insight into the Company's earnings capacity, financial position and cash flows, accounting changes and new accounting pronouncements have been implemented in 2000, as outlined below: o Beginning in 2000, for Dutch GAAP purposes, product development and process development costs have been excluded from inventories. Such costs had previously been excluded from inventories for US GAAP. o For both Dutch GAAP and US GAAP, Philips has applied the Statement of Financial Accounting Standards No. 133 (SFAS No. 133) effective January 1, 2000, and SFAS No. 138 since June 30, 2000. These statements require an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The statements also prescribe the accounting for changes in the fair value of derivative instruments (gains and losses) and the timing when such changes must be recognized in earnings. o Effective January 1, 2000, Philips has applied SEC Staff Accounting Bulletin No. 101 (SAB 101),which provides detailed criteria for revenue recognition, for both Dutch GAAP and US GAAP. These criteria did not materially impact sales and revenue recognition. - -- THE YEAR 2000 o Income from continuing operations: EUR 9,602 million (EUR 7.31 per common share) -- excluding one-time gains, EUR 2,564 million (EUR 1.95 per common share) o Sales growth: 20% o Income from operations: EUR 4,281 million, 11.3% of sales -- excluding one-time gains, EUR 2,900 million, 7.7% of sales o Ebita: EUR 4,623 million, 12.2% of sales o Strong performance at Semiconductors, much improved results at Components o Good overall performance across the sectors o RONA: 35.7% -- excluding one-time gains, 24.2% o Cash flow from operating activities: EUR 2,996 million - -- SUMMARY The year 2000 was a record year in almost every respect. Aided by favorable economic conditions worldwide and a strong US dollar, the Company benefited from strong demand for its products, especially components and semiconductors. Total sales were up by 20%, and the overall profitability of continuing operations improved further, enabling the Company to meet the targeted objective of 24% return on net assets. Net income from continuing operations amounted to EUR 9,602 million -- excluding one-time gains, EUR 2,564 million. The Company had a strong cash flow from operations of EUR 2,996 million and enjoys a healthy balance sheet with only 12% net debt. Sales in 2000 totaled EUR 37,862 million, an increase of 20% over 1999. Exchange rate developments had a favorable effect of 9%, which was partially offset by a price erosion of 5%. The sales increase in 2000 mainly reflected an upturn in Semiconductors, Components and Medical Systems, which achieved 55%, 22% and 22% growth respectively during this period. Sales growth diminished in the second half of the year, but still amounted to a respectable 15% in the fourth quarter. 44 Operating and Financial Review and Prospects 5 Income from continuing operations in 2000 improved to an all-time high of EUR 9,602 million (EUR 7.31 per common share), compared with EUR 1,804 million (EUR 1.31 per common share) in 1999 and EUR 541 million (EUR 0.38 per common share) in 1998. The 2000 results were favorably impacted by a number of significant one-time gains, which are presented in the table below. INCOME FROM CONTINUING OPERATIONS EXCLUDING ONE-TIME GAINS
amounts in millions of euros (unless otherwise stated) 1998 1999 2000 ------ ------ ------ As published 541 1,804 9,602 per common share 0.38 1.31 7.31 Affecting income from operations: Atos Origin merger gain 1,072 Gain on sale of AC&M, net of taxes 247 Sale of Conventional Passive Components, net of taxes 130 Dissolution of Lucent joint venture (375) Affecting financial income and expenses: Sale of JDS Uniphase shares 117 1,207 Seagram/Vivendi share exchange gain, net of hedge settlement and taxes 1,115 Affecting results relating to unconsolidated companies: Sale of ASML shares 2,595 Beltone/Great Nordic share exchange gain 122 Gains related to TSMC's equity transactions* 680 Excluding significant one-time gains 916 1,557 2,564 per common share 0.64 1.13 1.95
* Represents gain recorded in conjunction with issuance of shares by TSMC at a price in excess of the per share carrying value recognized by Philips. Excluding these incidental items, income from continuing operations totaled EUR 2,564 million (EUR 1.95 per common share) in 2000, which is EUR 1,007 million higher than income of EUR 1,557 million (EUR 1.13 per common share) in 1999, which in turn was EUR 641 million higher than income of EUR 916 million (EUR 0.64 per common share) in 1998. The results for 2000 include an especially strong contribution from Semiconductors and Components, whose income doubled over prior-year levels. Lighting and Domestic Appliances and Personal Care delivered record results. The 2000 results benefited from a good performance by Taiwan Semiconductor Manufacturing Company (TSMC), an unconsolidated company. The return on net assets (RONA) rose to 35.7% in 2000, compared to 17.5% in 1999 and 6.5% in 1998. Excluding significant one-time gains, RONA for 2000, 1999 and 1998 was 24.2%, 15.8% and 10.1% respectively. The increase was primarily attributable to improved profitability. Cash flows from operating activities totaled EUR 2,996 million, compared with EUR 1,913 million in 1999 and EUR 2,140 million in 1998. The increase in cash provided by operating activities is attributable to the increased profitability of the Company, partially offset by higher working capital requirements of the Company's growing businesses. In 2000 net cash used for investing activities totaled EUR 2,404 million, compared to EUR 3,834 million in 1999 and EUR 1,441 million in 1998. Proceeds from the sale of businesses that no longer fit within the Company's strategy, which totaled EUR 3,586 million, and cash generated from the sale of securities, an amount of EUR 848 million, were used to fund the Company's expansion by means of the purchase of businesses for an amount of EUR 3,209 million, particularly in the Medical Systems and Domestic Appliances and Personal Care sectors. Furthermore, the increased cash requirements compared to the last two years were attributable to a higher level of capital expenditure, particularly at Semiconductors and Components. The net cash used for financing activities in 2000 totaled EUR 2,038 million, compared to EUR 2,606 million in 1999. Both years included cash repayments to shareholders of EUR 1,673 million and EUR 1,490 million respectively from the share reduction programs. The cash requirements in 1998 came to EUR 814 million. 45 6 Group performance in the respective quarters of the years 2000 and 1999:
amounts in millions of euros unless otherwise stated 2000 --------------------------------- 1st 2nd 3rd 4th quarter quarter quarter quarter ------- ------- ------- ------- Sales 8,329 9,155 9,371 11,007 Income from operations 663 724 945 1,949 - - excluding one-time gains 663 724 636 877 Income from continuing 1,140 3,604 2,066 2,792 operations - - excluding one-time gains 614 698 647 605 Per common share* 0.86 2.71 1.58 2.16 - - excluding one-time gains 0.46 0.53 0.49 0.47 ----- ------ ----- ------
* after 4-for-1 stock split
amounts in millions of euros unless otherwise stated 1999 ------------------------------------ 1st 2nd 3rd 4th quarter quarter quarter quarter ------- ------- ------- ------- Sales 6,837 7,298 7,744 9,580 Income from operations 549 319 352 531 - - excluding one-time gains 380 319 352 531 Income from continuing 469 274 374 687 operations - - excluding one-time gains 339 244 331 643 Per common share* 0.32 0.20 0.28 0.51 - - excluding one-time gains 0.23 0.18 0.25 0.47 ------ ----- ----- ------
* after 4-for-1 stock split GROUP SALES AND INCOME FROM OPERATIONS
amounts in millions of euros 1998 1999 2000 ------- ------ ------ Sales 30,459 31,459 37,862 % nominal increase 3 3 20 Ebita 943 1,966 4,623 as a % of sales 3.1 6.2 12.2 Income from operations 685 1,751 4,281 as a % of sales 2.2 5.6 11.3 ------ ------ ------
7 Sales in 2000 grew to EUR 37,862 million, 20% higher than the EUR 31,459 million in 1999, which in turn was 3% higher than the EUR 30,459 million in 1998. The growth was particularly strong at Semiconductors (55%), Components (22%) and Medical Systems (22%). Currency fluctuations, primarily the strong appreciation of the US dollar (16%) against the euro, had a positive effect of 9% on nominal sales. Various changes in consolidation had, on balance, a neutral effect. Positive effects came from the consolidation of, among others, MiCRUS, MedQuist and Optiva Corporation. Deconsolidations related mainly to Advanced Ceramics & Modules (AC&M) as of July 1 and Origin as of October 1, 2000. Excluding these effects, sales growth in 2000 was 11%, comprised of 16% volume growth partially offset by 5% price erosion. SALES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- in billions of euros 27.1 29.7 30.5 31.5 37.9 % growth 7 9 3 3 20
Geographically, sales growth in 2000 was strong in all regions, in particular in Asia Pacific. Sales in Asia accelerated strongly and ended 29% above the year before, with all sectors contributing, especially Semiconductors. The sharp upturn in Europe (16%) was driven by Semiconductors, Components and Consumer Electronics. In addition, Latin America recorded substantial positive growth, recovering from the weak sales in the years before. The recovery is headed by Brazil, benefiting from the upturn in economic conditions in that country. North America recorded a 21% increase in sales, attributable to the strong rise of the US dollar and the new acquisitions in the region. In 1999, sales were 3% higher than in 1998. Changes in exchange rates, particularly those of the US dollar and the Japanese yen against the euro, had a positive effect of 2% on nominal sales. Changes in consolidation had an unfavorable effect of 2%, primarily attributable to the divestment of the non-ceramic activities of Passive Components and a significant proportion of the 46 Operating and Financial Review and Prospects 8 Miscellaneous sector's activities. Positive effects came from the consolidation of VLSI, Construlita de Queretaro and Voice Control Systems. Income from operations in 2000 totaled EUR 4,281 million, or 11.3% of sales, as compared to EUR 1,751 million, or 5.6% of sales, and EUR 685 million, or 2.2% of sales, in 1999 and 1998 respectively. The largest increase in income from operations was realized by Semiconductors, whose results more than doubled compared to 1999, reflecting the strong upturn in the market, which started in the second half of 1999. Moreover, overall price erosion decreased significantly, while improved efficiency and cost control had a positive impact on income. In addition, reduced pension costs had a positive effect of EUR 403 million on income. All other sectors, except Origin, contributed to this year's operational result improvement. Included in income were one-time gains of EUR 309 million related to the sale of the AC&M business and a gain of EUR 1,072 million related to the exchange of Origin shares into Atos Origin shares. INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- as a % of net operating 4.2 16.4 6.5 17.5 35.7 capital (RONA)
Income from operations in 1999 was EUR 1,751 million, or 5.6% of sales, and was favorably impacted by EUR 169 million income from the divestment of Conventional Passive Components. Furthermore, income was positively influenced by the capitalization of IT software (EUR 200 million). The largest increase in income from operations was realized by PCC, whose results improved significantly in 1999. Compared to 1998, overall wage costs decreased by 2% in 1999, reflecting the reduction in the average number of personnel and lower pension costs. Income from operations in 1998 totaled EUR 685 million, or 2.2% of sales. In addition to the acquisition-related charges for ATL Ultrasound and Active Impulse Systems, 1998 income was adversely affected by the operational losses at PCC and the special charges in connection with the dissolution of the PCC joint venture with Lucent Technologies. On a geographic basis, income from operations in 2000 improved in all regions. Europe, Asia Pacific and North America showed strong increases in income, driven by the favorable developments at Semiconductors. North America was also positively influenced by the strong US dollar. Furthermore, income in Europe increased due to the reduced pension costs in the Netherlands, while both Europe and Asia Pacific were positively affected by the non-cash gain from the sale of Origin and the sale of the AC&M business. Latin America became profitable again, fully reflecting the higher activity level at Components. INCOME FROM OPERATIONS PER GEOGRAPHIC AREA
in millions of euros 1998 1999 2000 ------ ------ ------ Europe 1,084 1,124 3,246 USA and Canada (473) 82 186 Latin America (205) (41) 59 Africa (1) 1 3 Asia Pacific 280 585 787 ------ ------ ------ 685 1,751 4,281 ====== ====== ======
The year-to-year comparisons of income from operations are impacted by the amortization of goodwill and intangibles and the write-off of in-process R&D resulting from recent acquisitions in the USA, such as MedQuist, ADAC and Optiva in 2000, VLSI Technology, VCS and FEI/Micrion in 1999 and ATL Ultrasound in 1998. Moreover, comparisons are affected by the write-down of tangible fixed assets at PCC in 1998. Amortization charges in 2000 arising from acquisitions related to MedQuist (EUR 47 million), ADAC (EUR 44 million), ATL Ultrasound (EUR 48 million), VLSI (EUR 99 million), MiCRUS (EUR 2 million), VCS (EUR 44 million), FEI/Micrion (EUR 7 million), Optiva (EUR 4 million) and a number of smaller items in various sectors totaling EUR 47 million. 47 9 Income from operations in 2000, excluding amortization charges arising from acquisitions (Ebita), totaled EUR 4,623 million compared to EUR 1,966 million in 1999 and EUR 943 million in 1998. RESTRUCTURING The competitive environment in which Philips organizations operate requires rapid adjustments in organizational structure, product portfolio and customer orientation. The main loss-making operations that have been restructured recently or are still in the process of being restructured are: o the PCC operations following the dissolution of the joint venture with Lucent; o the HAPD activities in Japan; o the Germany and Taiwan locations of Display Components. Businesses that have been sold in the last three years include AC&M, Philips Projects, Semiconductors' Complex Programmable Logic Devices, Conventional Passive Components, Consumer Electronics' retail and rental operations in Australia, and sundry activities such as Philips Hearing Technologies, parts of Philips' Plastics and Metalware Factories, PolyGram and Airpax. Restructuring charges recorded against income from operations in 2000 totaled EUR 157 million, consisting of EUR 203 million for various new projects partly offset by releases of provisions totaling EUR 46 million due to lower expenditures as a result of the completion of restructuring projects. The most significant new projects in 2000 were: o closure of the large-screen operations of HAPD in Kobe, Japan (EUR 45 million); o discontinuation of the 66-FS picture tube production in Aachen, Germany (EUR 16 million); o lay-offs in Display Components in Dapon and Chupei, Taiwan (EUR 29 million); o closure of Research test facilities in the Netherlands (EUR 21 million); o transfer of Mainstream CE's audio/video operations from Singapore to China (EUR 19 million). In 1999, overall net restructuring charges totaled EUR 45 million, consisting of EUR 123 million for various projects in the sectors Lighting, Components, Consumer Electronics and Miscellaneous partly offset by releases of EUR 78 million. Individually, these projects were not of material significance, the largest being the restructuring of the Flat Panel Display activities at Waalre in the Netherlands (EUR 38 million). In 1998, total restructuring charges, mainly relating to the Consumer Electronics, Components and Lighting sectors, amounted to EUR 349 million, partly offset by some minor releases. Total restructuring charges in 2000, 1999 and 1998 can be specified as follows:
amounts in millions of euros 1998 1999 2000 ----- ----- ----- Personnel lay-off costs 124 71 125 Write-down of inventories 134 4 10 Write-down of fixed assets 58 36 42 Other costs 33 12 26 --- --- --- 349 123 203 === === ===
In 2000, releases of surplus restructuring provisions totaled EUR 46 million. The releases were primarily related to Consumer Electronics, Lighting, Components, Origin, Semiconductors and Miscellaneous. The releases were caused by reduced severance requirements, due to the transfer of employees scheduled to be laid-off to other positions within the Company, and by changes in restructuring plans. In 1999, releases amounted to EUR 78 million, for Lighting, Consumer Electronics and Components. Total lay-offs as a result of new projects were projected at approximately 5,000 terminations, of which 3,900 relate to direct labor and 1,100 to indirect labor (total planned lay-offs in 1999 approximately 1,500 persons, and in 1998 approximately 4,000 persons). The actual number of lay-offs effected during 2000 totaled approximately 5,100. 48 Operating and Financial Review and Prospects 10 Inventory write-off charges in 2000 primarily related to Consumer Electronics. Charges for write-downs of fixed assets mainly occurred in Consumer Electronics and Miscellaneous. In 1999, fixed-asset write-downs were primarily in Components, Lighting and Miscellaneous, while in 1998 they largely related to Components. Other charges mainly reflect the costs involved in the cancellation of various contracts (building leases, car leases etc.). In general, restructuring plans lead to cash outlays in the year in which they are recognized or in the following year, and are financed from the normal cash flow from operations. Management believes that in the future the Company's earnings will benefit from the restructuring plans by approximately EUR 170 million per year, as a result of reduced salaries and wages, higher efficiencies in production processes, as well as lower depreciation costs. For further details on restructuring charges, see note 2 to the consolidated financial statements. Financial income and expenses amounted to income of EUR 1,988 million in 2000 and EUR 32 million in 1999, compared to expenses of EUR 312 million in 1998. Beginning in 1999, the interest component of pension expense is no longer included in financial income and expenses, but included in pension cost, which is part of income from operations. This accounts for a positive variance in financing costs of EUR 62 million in 1999. Net interest expenses amounted to EUR 167 million in 2000, compared with EUR 129 million in 1999 and EUR 244 million in 1998. The net interest expenses were higher, mainly as a result of the higher net debt level of the Group. The lower net interest expenses in 1999 reflected the impact of the net cash position (cash exceeded debt) that prevailed during the first half of 1999 as a result of the cash proceeds from the sale of PolyGram at the end of 1998. Financial income in each of the years includes gains from the sale of marketable securities. During the year 2000 the Company sold a portion of the JDS Uniphase shares that were received upon the sale of Philips Optoelectronics in the middle of 1998. The income from the sale amounted to EUR 1,207 million, net of USD hedge. Moreover, Seagram shares were exchanged for Vivendi Universal shares. The shares in Seagram were obtained upon the sale of Philips' 75% stake in PolyGram in 1998. The income from the exchange of Seagram shares amounted to EUR 966 million, net of US dollar hedge. In 1999 a gain of EUR 117 million was realized on the sale of a portion of the JDS Uniphase shares. In addition, in 2000 dividends totaling EUR 32 million were received on the Seagram shares, while in 1999 EUR 28 million was received. The foreign exchange losses in 2000 amounted to a loss of EUR 86 million, which was mainly related to hedging costs of intercompany loans. By contrast, in 1999 a gain of EUR 7 million was reported. In 1998 a loss of EUR 40 million was incurred. Income tax charges totaled EUR 570 million in 2000, compared to EUR 336 million in 1999 and EUR 41 million in 1998. This corresponds to an effective tax rate in 2000 of 9%, down from 19% in 1999 and 11% in 1998. The lower effective tax rate in 2000 primarily resulted from the tax-exempt proceeds from the sale of various securities (tax effect of 13%). The Company expects the tax rate to go up to approximately 25% next year. Results relating to unconsolidated companies in 2000 totaled EUR 3,970 million, compared to EUR 409 million in 1999 and EUR 39 million in 1998. Income in 2000 was favorably impacted by a number of incidental items. In June, a substantial portion of the ASM Lithography Holding N.V. (ASML) shares was sold, resulting in a gain of EUR 2,595 million, while in the same month Philips' 33% interest in Beltone Electronics was exchanged for GN Great Nordic shares, resulting in a transaction gain of EUR 122 million. In 2000, several equity transactions by Taiwan Semiconductor Manufacturing Company (TSMC) resulted in a net gain of EUR 680 million. Excluding these items, results relating to unconsolidated companies amounted to EUR 573 million, which was considerably higher than the previous year, primarily due to TSMC's performance in the favorable semiconductor market. LG.Philips LCD Co. contributed to income for the full year in 2000, compared with only six months in 1999. The share in income of ASML during the first five months 49 11 of 2000 was significantly higher than in the previous full year, reflecting ASML's profitable situation. These income improvements were partly offset by our share in the losses of Systems on Silicon Manufacturing Company (SSMC) due to the high costs of ramping-up the factory, running-in expenses at LumiLeds and increased funding requirements of NavTech. Income in 1999 was considerably higher than in 1998 and was positively influenced by the significant contribution from LG.Philips LCD Co. and improving TSMC results, which reflected TSMC's capacity increase and the upturn in the semiconductor industry in 1999. ASML reported a 31% increase in earnings in 1999, reflecting a particularly strong second half of the year. Finally, funding costs incurred at NavTech were substantially in line with 1998, excluding the one-time gain from the sale of a portion of the NavTech shares to a consortium of investors in the first quarter of 1999. In 1998, the results of TSMC and ASML were disappointing, due to the global slowing in the semiconductor industry and the crisis in Asia. The share of third-party minority interests in the income of Group companies amounted to EUR 67 million in 2000, compared with EUR 52 million in 1999. The increase is fully attributable to the improved results of FEI Co. and the China operations, partly offset by losses of HAPD absorbed by third-party shareholders. In 1998 third-party shareholders absorbed EUR 170 million of the net losses incurred by Group companies. This was substantially related to Lucent Technologies' share in the losses of the PCC joint venture. - -- NET INCOME Income from continuing operations was EUR 9,602 million in 2000 (EUR 7.31 per common share), compared to EUR 1,804 million (EUR 1.31 per common share) in 1999 and EUR 541 million (EUR 0.38 per common share) in 1998. Income from discontinued operations in 1998 represents Philips' 75% share in the operations of PolyGram through December 10, 1998 and amounted to EUR 210 million, net of applicable income taxes. Philips sold its shares in PolyGram to The Seagram Company on December 10, 1998. In connection with this sale, a gain of EUR 4,844 million, free of taxes, was recognized in 1998. There were no extraordinary items in 2000, whereas a loss of EUR 5 million was recorded in 1999 and a net gain of EUR 458 million in 1998. The extraordinary losses in 1999 relate entirely to premiums paid for the early redemption of long-term debentures. Major items in 1998 were the sale of Philips Car Systems at a net gain of EUR 379 million and Philips Optoelectronics at a net gain of EUR 78 million. Net income in 2000 amounted to EUR 9,602 million (EUR 7.31 per common share) compared to EUR 1,799 million (EUR 1.31 per common share) in 1999. Net income for 1998, including EUR 5,054 million relating to the discontinued PolyGram operation and its related sale, totaled EUR 6,053 million (EUR 4.20 per common share). - -- US GAAP The Group financial statements have been prepared in accordance with Dutch GAAP, which differs in certain respects from US GAAP. Income from continuing operations determined in accordance with US GAAP was EUR 9,577 million in 2000, compared with EUR 1,595 million in 1999 and EUR 1,025 million in 1998. These aggregate amounts correspond to basic earnings per common share of EUR 7.30 in 2000, EUR 1.16 in 1999 and EUR 0.71 in 1998. Diluted earnings per common share amounted to EUR 7.22 in 2000, EUR 1.15 in 1999 and EUR 0.70 in 1998. Please refer to note 28 to the consolidated financial statements for a description of the primary differences between Dutch GAAP and US GAAP and the earnings per common share information. - -- DIVIDEND A proposal will be submitted to the General Meeting of Shareholders to declare a dividend of EUR 0.36 per common share (compared with the EUR 0.30 dividend per common share paid in 2000, reflecting the 1999 profit distribution). The balance sheet presented in this report, as part of the consolidated financial 50 Operating and Financial Review and Prospects 12 statements for the period ended December 31, 2000, is before profit distribution which is subject to shareholder approval after year-end. Adoption of the dividend proposal by the General Meeting of Shareholders will result in a total dividend payment in the year 2001 of EUR 462 million (compared with EUR 399 million in 2000). - -- EMPLOYMENT The number of employees at the end of 2000 totaled 219,429, which is 7,445 lower than the position at the end of 1999. The reduction is principally attributable to consolidation changes, reflecting a total decrease of 10,621 employees. The most significant divestment was that of Origin, involving a reduction of 15,906 employees. In addition, the headcount was reduced by 3,258 following the divestment of AC&M. Various acquisitions added 10,065 persons to the Company's payroll, the most important being MedQuist (6,742), MiCRUS (950), ADAC (1,031) and Optiva (739). After adjustment for these consolidation changes, the headcount increased by 3,176 persons. Of this number, the strongest increases occurred at Semiconductors (4,285) and Components (1,499), while the main reductions took place in the Miscellaneous activities (967) and at DAP (816). Geographically, the headcount increased in Europe, Asia Pacific and Latin America, while falling in North America. SALES PER EMPLOYEE*
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in thousands of euros 107 119 124 143 171
*excluding Origin - -- SALES AND INCOME FROM OPERATIONS PER SECTOR As indicated in the introduction to the Operating and Financial Review and Prospects, the following sectors are reported in 2000: Lighting, Consumer Electronics, DAP, Components, Semiconductors, Medical Systems, Miscellaneous, Unallocated and Origin (for nine months only). For a comprehensive business description of the various sectors, please refer to the relevant section in the consolidated financial statements (note 29). For the convenience of the reader, the following comments on the business performance per product sector are preceded by a table which includes certain primary performance indicators for the respective years. Sales growth, as mentioned in the performance indicators and comments, consists of the nominal changes in sales (comparison of year-to-year euro amounts). Further sector information is provided in the notes to the consolidated financial statements. SALES PER SECTOR
Cons. Semi- Med Lighting Electronics DAP Components conductors Systems Origins Miscellaneous -------- ----------- --- ---------- ---------- ------- ------- ------------- % per sector 13 39 5 12 16 8 2 5 % change from 1999 11 18 18 22 55 22 (32) 16
LIGHTING amounts in millions of euros
1998 1999 2000 ------ ------ ------- Sales 4,453 4,548 5,052 % nominal increase (decrease) (2) 2 11 Ebita 601 609 677 as a % of sales 13.5 13.4 13.4 Income from operations 595 602 668 as a % of sales 13.4 13.2 13.2
Sales in the Lighting sector increased by 11% in 2000. Currency movements had a positive impact of 8% on sales. Volume growth was 6%, which was partly countered by increased price erosion (4%), particularly in Europe and North America. Geographically, sales growth was most apparent in Asia Pacific, Eastern Europe and Latin America. The 51 13 growth in North America is entirely attributable to the steep increase in the value of the US dollar. The strongest sales growth was achieved by the Automotive business, which significantly outperformed the market as a result of successful product innovation. LIGHTING SALES
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in billions of euros 4.0 4.5 4.5 4.5 5.1
Income from operations of EUR 668 million in 2000 represents an improvement of almost 11% compared to 1999 and was mainly the result of the strong sales growth, slightly offset by a net restructuring charge of EUR 17 million. The largest income improvement was realized by the Lamps business, especially in Europe. The Automotive & Special Lighting business also contributed to the positive trend. LIGHTING INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in millions of euros 319 522 595 602 668 as a % of sales 7.9 11.5 13.4 13.2 13.2
Sales in 1999 increased by 2% to EUR 4,548 million. Currency movements had a positive impact of 1% on nominal sales. Volume growth was 4%, partly offset by 3% price erosion. Overall growth was strong in Asia, while lower sales were posted in Latin America and Eastern Europe, caused by the weak economic conditions in these regions. Income from operations in 1999 improved marginally to EUR 602 million from EUR 595 million in 1998. The 1999 figure was impacted by restructurings in both Europe and Latin America. Excluding restructuring costs and incidental items, the income improvement was due to slightly higher sales volume and the positive effects of prior restructuring actions and cost efficiencies. CONSUMER ELECTRONICS
amounts in millions of euros 1998 1999 2000 ------ ------ ------ Sales 12,364 12,436 14,683 % nominal increase 10 1 18 Ebita (443) 276 420 as a % of sales (3.6) 2.2 2.9 Income from operations (447) 258 374 as a % of sales (3.6) 2.1 2.5
14 Details for two years per product division, established since January 1, 2000, are presented in the following table:
amounts in millions of euros 2000 -------------------------------------------- sales ebita income as a % (loss) of sales from operations ------ ------ ---------- --------- Mainstream CE 8,851 161 161 1.8 Digital Networks 845 (107) (107) (12.7) Consumer Communications 2,207 1 1 0.0 Specialty Products 2,220 54 8 0.4 Licenses 560 311 311 55.5 Consumer Electronics 14,683 420 374 2.5
amounts in millions of euros 1999 ------------------------------------------- sales ebita income as a % (loss) of sales from operations ------ ------ ---------- -------- Mainstream CE 7,932 97 97 1.2 Digital Networks 578 (86) (86) (14.9) Consumer Communications 1,740 (52) (53) (3.0) Specialty Products 1,801 54 38 2.1 Licenses 385 263 262 68.1 Consumer Electronics 12,436 276 258 2.1
52 Operating and Financial Review and Prospects 15 Sales in the Consumer Electronics sector totaled EUR 14,683 million in 2000, an increase of 18% on the year before. Changes in consolidation had a minor negative effect of 1%, while currency movements had a positive effect of 9% on nominal sales. Sales volume increased by 18%, partly offset by an average price decrease of 8%. The downward trend in prices eased somewhat compared with the year before, when prices ended 12% lower. The improvement is particularly related to more favorable market conditions for monitors. Digital Networks and Consumer Communications recorded the strongest sales increase. Geographically, sales increased most strongly in Asia Pacific and Europe, while sales in Latin America rebounded to solid positive growth. Sales of Mainstream CE's products were edged up by Consumer TV, in particular in the upmarket segment, branded monitors, especially flat panel monitors, and DVD Video, whose sales more than doubled. Digital Networks recorded sharply higher sales, benefiting from the strong demand for set-top boxes. Sales growth in Europe was primarily strong in satellite set-top boxes. In addition, sales increased in the USA in Internet TV/Personal TV and satellite set-top boxes as a result of the start of deliveries to America Online (AOL) and DirecTV. The substantial rise in Consumer Communications is led by significant growth of GSM sales in Europe and Asia Pacific, reaching more than 13 million handsets in 2000. In addition, sales in Fax and DECT increased strongly. Sales growth in Specialty Products was driven by Remote Control Systems, Speaker Systems and Broadband Networks. CONSUMER ELECTRONICS SALES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- in billions of euros 9.0 11.2 12.4 12.4 14.7
Sales in 1999 increased by 1% to EUR 12,436 million. Changes in consolidation relating to the dissolution of the PCC joint venture with Lucent reduced sales by 6%. Currency movements had a positive impact of 1%. Volume growth was 18%, partly offset by 12% price erosion. Overall, growth was particularly strong in North America and Asia. High sales in PC peripherals, particularly in Monitors, contributed to the increase. Income from operations in 2000 in the sector Consumer Electronics increased to EUR 374 million, or 2.5% of sales, up from EUR 258 million in 1999. The considerable increase was mainly attributable to the turnaround to a break-even situation at Consumer Communications, due to higher GSM volume, new product introductions resulting in a more favorable mix, and tight cost control. License income increased, mainly due to the higher number of licenses in new programs. However, license income in the fourth quarter of 2000 was reduced by non-recurring items. From June 2001 onwards, income will be negatively impacted due to the expiring CD-Audio patents in Europe and Asia Pacific. This is expected to be partly compensated by higher income from CD-R/RW and DVD. Income at Mainstream CE benefited from the higher sales level, especially in the Monitor business, and tight cost control. At Digital Networks, the positive contribution from certain satellite applications was more than offset by large start-up costs in the cable segment and in new technologies for the delivery of electronic content, both focused on the North American market. The decrease in income from operations for Specialty Products primarily resulted 53 16 from charges related to the impairment of identified intangibles and goodwill related to Voice Control Systems. CONSUMER ELECTRONICS INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in millions of euros (48) 137 (447) 258 374 as a % of sales (0.5) 1.2 (3.6) 2.1 2.5
The significant improvement in income from operations in 1999 compared with 1998 was primarily attributable to a significant improvement in PCC's operating performance. The improvement was aided by cost reductions and new product offerings. DOMESTIC APPLIANCES AND PERSONAL CARE
amounts in millions of euros 1998 1999 2000 ------ ------ ------ Sales 1,746 1,791 2,107 % nominal increase (decrease) (4) 3 18 Ebita 200 221 292 as a % of sales 11.5 12.3 13.9 Income from operations 199 220 287 as a % of sales 11.4 12.3 13.6
Sales in the DAP sector in 2000 totaled EUR 2,107 million, representing 18% growth. Currency movements had a strong positive impact of 8% on nominal sales. Consolidation changes had a positive effect of 4%. Volume growth, at 8%, was partly countered by an average price decrease of 2%. The sales growth is mostly attributable to sustained strong growth of the Male Shaving and Grooming business in all regions, reinforcing global market leadership. The Food and Beverage and Home Environment Care businesses also achieved strong increases, mainly related to substantially higher sales in Asia Pacific. Sales at Oral Health Care were favorably impacted by the acquisition of Optiva Corporation in October 2000. Geographically, sales increased strongly in Europe, both Western and Eastern, and in North America. In addition, sales in the Asia Pacific region rebounded from the economic downturn in the years before, ending 32% higher than in 1999. DAP SALES
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in billions of euros 1.7 1.8 1.7 1.8 2.1
Income from operations increased by approximately 30%, driven by successful product introductions, favorable currency developments and portfolio rationalization in 2000. Growth came primarily from Male Shaving and Grooming and the success of Quadra Action. Food and Beverage improved its profitability significantly as a consequence of portfolio rationalization and strict cost control. Excluding the amortization of intangible assets, goodwill and certain other acquisition-related charges, Optiva contributed positively to the income of the sector. DAP INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in millions of euros 123 233 199 220 287 as a % of sales 7.5 12.8 11.4 12.3 13.6
54 Operating and Financial Review and Prospects 17 Sales in 1999 increased by 3% to EUR 1,791 million. Currency movements and consolidation changes were neutral. Volume growth, at 4%, was partly offset by 2% average lower prices. The increase in sales was mainly attributable to a strong performance of the Male Shaving and Grooming business in all regions. Income from operations in 1999 improved, benefiting from the positive effect of prior-year restructurings and new product introductions. Additional positive effects arose from stricter cost controls and lower incidental costs. The income improvement was primarily attributable to stronger results in Male Shaving and Grooming and Food Preparation. COMPONENTS
amounts in millions of euros 1998 1999 2000 ----- ------ ------ Sales 3,814 3,754 4,562 % nominal increase (decrease) 4 (2) 22 Segment revenues 5,259 5,325 6,332 Ebita 46 289 570 as a % of sales 1.2 7.7 12.5 as a % of segment revenues 0.9 5.4 9.0 Income from operations 44 286 569 as a % of sales 1.2 7.6 12.5 as a % of segment revenues 0.8 5.4 9.0
As a result of the high level of sales of products and services to other product sectors, income from operations is also expressed as a percentage of segment revenues. Segment revenues are the total of sales to third parties and intersegment sales. Sales in the Components sector in 2000 totaled EUR 4,562 million, a sharp rise (22%) on the year before. Changes in consolidation had a negative effect of 5%, particularly related to the divestment of AC&M as of July 1, 2000. Currency movements had a positive effect of 13% on nominal sales. Volume growth was 20%, partially offset by a 6% reduction in average selling prices. Price pressure in 2000 eased compared with the year earlier as a result of improved balance between the supply and demand for monitor tubes. The larger part of the sector's growth was realized in Optical Storage, whose sales were more than 80% higher than the year before. In addition, strong growth was realized by Flat Display Systems, notably Mobile Display Systems, whose components are used in mobile phones and other mobile applications. Geographically, the main growth was realized in Europe, Latin America and North America. Segment revenues were 19% higher than in the previous year. COMPONENTS SALES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- intersegment sales in billions of euros 1.5 1.4 1.4 1.6 1.8 sales in billions of euros 2.9 3.7 3.8 3.8 4.6
Income from operations almost doubled from 1999's EUR 286 million to EUR 569 million. In 2000 the divestment of AC&M had a positive effect of EUR 309 million, which was partly offset by the EUR 78 million net restructuring charges related to Display Components and Flat Display Systems. Income in 1999 was positively impacted by the EUR 169 million gain on the divestment of Conventional Passive Components, partly offset by the restructuring charges of EUR 38 million in relation to the Active Matrix Liquid Crystal Displays business. Excluding restructuring charges, all businesses except Flat Display Systems improved their performance in 2000, with Optical Storage posting a major improvement, especially in the first half of the year. COMPONENTS INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- in millions of euros 316 255 44 286 569 as a % of segment revenues 7.3 5.0 0.8 5.4 9.0
55 18 Sales in 1999 declined by 2% to less than EUR 3.8 billion. Consolidation changes, notably the sales of Conventional Passive Components at the end of 1998, reduced sales by 9%, while currency fluctuations had a positive effect of 4%. Volume growth of 13% was for the most part offset by the average price decrease of 10%. The division's sales increased strongly in Asia Pacific and North America. Segment revenues in 1999 were 5% higher than in the previous year. Income from operations in 1999 improved substantially to EUR 286 million, up from EUR 44 million a year earlier. Disregarding the gains from the sale of participations, largely the EUR 169 million gain on the sale of the Conventional Passive Components business, and restructuring charges for the Flat Display business in both years, income in 1999 improved. Various product groups, particularly Flat Display Systems, accounted for the increase in income from operations. The results of the HAPD joint venture steadily improved to reach break-even during the second half of the year. SEMICONDUCTORS
amounts in millions of euros 1998 1999 2000 ----- ----- ----- Sales 3,212 3,796 5,879 % nominal increase 2 18 55 Segment revenues 3,963 4,557 6,812 Ebita 769 716 1,451 as a % of sales 23.9 18.9 24.7 as a % of segment revenues 19.4 15.7 21.3 Income from operations 765 614 1,346 as a % of sales 23.8 16.2 22.9 as a % of segment revenues 19.3 13.5 19.8
As a result of the high level of sales of products and services to other product sectors,income from operations is also expressed as a percentage of segment revenues. Segment revenues are the total of sales to third parties and intersegment sales. Sales in the Semiconductors sector in 2000 came to EUR 5,879 million, an increase of 55% over 1999. Through the acquisition of MiCRUS as of June 1, 2000, sales increased by 3%. In addition, 2000 contains the full-year sales of VLSI, compared to seven months in 1999 (a positive effect of 8%). Furthermore, currency movements had a substantial positive effect of 14% on nominal sales. Volume growth was 33%, while average prices decreased by 3%. Price erosion was substantially lower than in the previous year, reflecting strongly improved markets. All regions contributed to the large sales increase. All businesses improved due to the steep overall growth, most predominantly Telecom Terminals and Emerging Businesses. Segment revenues increased by 49% in 2000 compared to the previous year. SEMICONDUCTORS SALES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- intersegment sales in billions of euros 0.5 0.6 0.8 0.8 0.9 sales in billions of euros 2.5 3.1 3.2 3.8 5.9
Income from operations in 2000 was more than double the 1999 amount and totaled EUR 1,346 million. The main reason for the improvement was the substantially higher sales level due to the general upturn in the industry, which led to shortages in the market during the year. The acquisition of MiCRUS increased capacity. Income in all businesses benefited from strong sales. The VLSI acquisition was successfully integrated into the existing businesses. SEMICONDUCTORS INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ---- ---- ---- ---- ----- in millions of euros 363 771 765 614 1,346 as a % of segment revenues 11.8 20.3 19.3 13.5 19.8
56 Operating and Financial Review and Prospects 19 Sales in 1999 increased by 18% to EUR 3.8 billion. The consolidation of VLSI from June 1, 1999 had a positive effect of 10% on nominal sales, while fluctuations in exchange rates had a positive effect of 3%. Volume growth was 14%, partly offset by 9% price erosion. The first half of 1999 was negatively affected by the global crisis in the semiconductor industry, in addition to the economic crisis in Asia. The sector saw a strong upturn in the second half, following the recovery in the market. Full-year income from operations in 1999 was significantly below 1998, entirely due to the acquisition of VLSI. The consolidation of VLSI as from June 1 had an unfavorable impact on the income of this sector of EUR 201 million, due to VLSI's acquisition-related charges and operational losses. MEDICAL SYSTEMS
amounts in millions of euros 1998 1999 2000 ----- ----- ----- Sales 1,950 2,493 3,031 % nominal increase 11 28 22 Ebita 152 219 308 as a % of sales 7.8 8.8 10.2 Income from operations (49) 181 169 as a % of sales (2.5) 7.3 5.6
Sales in the Medical Systems sector in 2000 totaled EUR 3,031 million, representing 22% growth. The acquisition of MedQuist as of July 1, 2000 lifted sales by 8%. In addition, currency movements had a positive effect of 10% on nominal sales. Volume growth was 7%, while prices decreased by, on average, 3%. Sales growth was particularly strong in Asia Pacific and North America. In product terms, the main growth areas are magnetic resonance, cardio/vascular, ultrasound and the customer support business. Order intake in 2000 increased, clearly exceeding the market trend. The order intake was particularly strong in North America and Asia Pacific and in the product areas magnetic resonance, computed tomography, ultrasound and imaging IT. MEDICAL SYSTEMS SALES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- in billions of euros 1.7 1.8 2.0 2.5 3.0
Income from operations in 2000 amounted to EUR 169 million, compared to EUR 181 million in 1999. The acquisition of ADAC resulted in a fourth-quarter charge of EUR 44 million for the write-off of the in-process R&D obtained in this strategic acquisition. Excluding amortization of goodwill and other identified intangible assets related to the acquisitions of MedQuist and ADAC in 2000 and ATL Ultrasound in 1998, income was EUR 308 million, which was a EUR 89 million improvement over 1999. In addition to the positive contribution of MedQuist, North America in particular contributed to this improvement, partly due to the strong US dollar. Income from operations of ATL Ultrasound improved over 1999, despite the negative effects of the strong US dollar due to ATL's US-based production facilities. Income performance in Eastern Europe was weak due to a lower sales level. MEDICAL SYSTEMS INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- in millions of euros 145 147 (49) 181 169 as a % of sales 8.5 8.4 (2.5) 7.3 5.6
Sales in 1999 increased by 28% to EUR 2,493 million, exceeding the market trend. The acquisition of ATL in 57 20 1998 had a substantial positive impact on sales growth (16%). Currency movements had a 3% positive impact on nominal sales. Sales growth was particularly strong in Western Europe and Asia Pacific. Income from operations in 1999 improved significantly compared to 1998, which had been negatively affected by fourth-quarter charges of EUR 233 million for the write-off of in-process R&D obtained in the strategic acquisition of ATL Ultrasound and other acquisition-related charges. Income in 1999 benefited from a strong sales performance and stricter cost control, especially in Western Europe and Asia Pacific. ATL Ultrasound made a significant positive contribution to income in 1999 (excluding acquisition-related charges). ORIGIN
amounts in millions of euros 1998 1999 2000* ------ ------ ------- Sales 1,059 1,056 717 % nominal increase (decrease) 25 0 (32) Segment revenues 1,654 1,735 1,164 Ebita 77 125 1,089** as a % of sales 7.3 11.8 . as a % of segment revenues 4.7 7.2 93.6 Income from operations 59 97 1,063** as a % of sales 5.6 9.2 . as a % of segment revenues 3.6 5.6 91.3
As a result of the high level of sales of products and services to other product sectors,income from operations is also expressed as a percentage of segment revenues. Segment revenues are the total of sales to third parties and intersegment sales. * Due to the Atos Origin merger,the financial data relating to Origin have been included in the consolidated Philips accounts of 2000 for nine months until October 1. With effect from that date the Philips share in the results relating to the merged activities of Atos Origin will be included in the results relating to unconsolidated companies as from January 1,2001 on a three-month delayed basis due to Atos Origin's different reporting cycle. ** Includes gain of EUR 1,072 million related to the Atos Origin merger Sales in the Origin sector have been consolidated for only nine months in 2000 and totaled EUR 717 million. Sales from January 1 through the moment of divestment, September 30, were 12% lower than in the corresponding period of the year before. The reduction in sales was due to the reduced market demand in the IT industry following the Y2K investment boom, as customers were hesitant in defining their future IT plans, especially in the field of e-business. ORIGIN SALES
1996 1997 1998 1999 2000* ---- ---- ---- ---- ----- intersegment sales in billions of euros 0.5 0.5 0.6 0.7 0.4 sales in billions of euros 0.7 0.8 1.1 1.1 0.7 *nine months only
21 Income from operations for the first nine months of 2000 amounted to a loss of EUR 9 million, compared to a profit of EUR 97 million the previous year. In October, the Origin shares were exchanged for a participation in Atos Origin. This resulted in a onetime gain of EUR 1,072 million. Sales in 1999 totaled EUR 1,056 million, virtually unchanged from the year earlier. The strong growth in the first half of the year turned into negative growth in the second half, because of lower IT expenditures by companies in anticipation of the millennium. Income from operations increased in 1999, reflecting improved capacity utilization and cost efficiency resulting from headcount reductions and cost-saving measures. MISCELLANEOUS
amounts in millions of euros 1998 1999 2000 ----- ----- ----- Sales 1,861 1,585 1,831 % nominal increase (decrease) (30) (15) 16 Ebita (67) (78) (105) as a % of sales (3.6) (4.9) (5.7) Income from operations (82) (94) (113) as a % of sales (4.4) (5.9) (6.2)
This sector comprises various activities and businesses from the former Professional sector, such as FEI 58 Operating and Financial Review and Prospects 22 Company, Electronic Manufacturing Technology (EMT) and Analytical, as well as activities not belonging to a product division such as Philips Research, Corporate Intellectual Property, Philips Centre for Industrial Technology, Philips Enabling Technologies Group (formerly Philips Machinefabrieken) and Philips Design. Sales in the Miscellaneous sector in 2000 totaled EUR 1,831 million, representing a 16% increase over 1999. Changes in consolidation had a downward effect of 4%, while the appreciation of currencies had a positive effect of 8%. Sales growth was particularly strong at EMT, FEI and Philips Enabling Technologies Group. Geographically, Asia recorded the most significant sales growth. MISCELLANEOUS SALES
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in billions of euros 4.6 2.7 1.9 1.6 1.8
Income from operations in 2000 amounted to a loss of EUR 113 million, or 6.2% of sales, compared to a loss of EUR 94 million, or 5.9% of sales, in 1999. Total income in 2000 benefited from higher pension credits compared to the previous year. The income of the Miscellaneous activities was affected by provisions for disentanglement costs related to the sale of Philips Projects and for restructuring at Philips Research. Strong results were achieved by the former Business Electronics businesses EMT and FEI. EMT (renamed Assembleon) is in the process of evaluating the scope for a public offering in the course of 2001. MISCELLANEOUS INCOME FROM OPERATIONS
1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ in millions of euros (339) 39 (82) (94) (113) as a % of sales (7.3) 1.5 (4.4) (5.9) (6.2)
Income from operations in 1999 amounted to a loss of EUR 94 million, or 5.9% of sales, compared to a loss of EUR 82 million, or 4.4% of sales, in 1998. This was primarily due to Philips Enabling Technologies Group posting lower income in 1999 as a consequence of the divestment of certain activities, higher costs incurred for the aviation project, and investments in software. Total income was partly compensated by higher income of FEI and EMT, compared to 1998. - -- UNALLOCATED Costs -- net of revenues -- not allocated to a specific product sector comprise the costs of the corporate center -- including the Company's initial funding of e-business and global brand management costs -- as well as country and regional overhead costs. Income from operations amounted to a loss of EUR 82 million in 2000 compared to losses of EUR 413 million and EUR 399 million in 1999 and 1998 respectively. In 2000, income was positively impacted by a reduction in pension costs of EUR 406 million, compared to EUR 124 million in 1999 and EUR 53 million in 1998. Other incidental items had a negative impact of EUR 40 million. In 1999 these items accounted for a negative impact of EUR 61 million, while in 1998 other incidental items resulted in a gain of EUR 26 million. - -- RESEARCH AND DEVELOPMENT Continuous efforts to sustain a strong performance in the field of R&D are of the utmost importance to strengthen Philips' competitiveness in its various markets. The launch of new research activities in 59 23 China, India and Belgium has further established Philips Research as one of the world's major global industrial research laboratories with expenditures for R&D activities in 2000 amounting to EUR 2,766 million, representing 7.3% of sales, compared to EUR 2,284 million, or 7.3% of sales, in 1999 and EUR 2,048 million, or 6.7% of sales, in 1998. RESEARCH AND DEVELOPMENT EXPENDITURES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- as a % of sales 6.8 6.2 6.7 7.3 7.3
- -- COOPERATIVE BUSINESS ACTIVITIES AND UNCONSOLIDATED COMPANIES Philips has engaged from time to time in cooperative activities with other companies. Philips' principal cooperative business activities and participations, and the main changes therein, are set out below. Taiwan Semiconductor Manufacturing Company Limited (TSMC) is a semiconductor foundry operation in which Philips currently holds 22.5% of the total number of outstanding common shares. Additionally, the Company has purchased redeemable preferred shares, bringing its total holding in TSMC to approximately 30%. The principal reasons for this shareholding are to secure a strategic supply of wafers and the ability to limit capital expenditures. During 2000, Philips' interest was diluted by 3.5%, due to various share issues by TSMC, primarily in conjunction with two acquisitions. Since the price received for the shares issued was in excess of the per common share book value recognized by Philips, this resulted in a one-time gain of EUR 680 million. As a result of the aforementioned acquisitions, for each of the next five years Philips' results for TSMC, based on Philips' accounting policies, will include a EUR 76 million charge for amortization of goodwill per year. Operating income in 2000 increased significantly, compared to 1999, due to the ongoing favorable market situation in the semiconductor business. Systems on Silicon Manufacturing Company (SSMC) is a Singapore-based wafer fabrication firm established by Philips (48%), TSMC (32%) and the Economic Development Board of Singapore (20%) to secure a strategic supply of wafers, diversify loading risks and limit capital expenditures. A USD 1.2 billion wafer fab (MOS-5), construction of which started in 1999, is in the ramping-up phase, and the first wafers were produced in the third quarter. A large number of key technical personnel has been trained at Philips' facilities in the Netherlands and at TSMC in Taiwan. Philips is entitled to 60% of the fab output of 0.25 micron wafers. Atos Origin started on October 1, 2000, when Origin was merged with Atos of France. The merger has created a leader in end-to-end business and e-business solutions. The company is operational in 30 countries and employs 27,000 people. Philips holds a 48.7% stake in Atos Origin. Within two years Philips intends to reduce its stake in the combined entity to below 35%. Philips has also received two tranches of stock warrants, each representing approximately 2.4 million Atos Origin shares, which may be exercised only on certain conditions subject to the development of the Atos Origin share price. Origin's operating results over the first nine months of 2000 (pre-merger) have been consolidated in the Philips accounts, whereas Philips' share in the results of Atos Origin will be included in results relating to unconsolidated companies on a delayed basis of three months from January 1, 2001 onwards. Additionally, based on Philips' accounting policies, Philips' results for Atos Origin will include a charge of approximately EUR 80 million for amortization of goodwill per year. In the People's Republic of China, Philips currently has a large number of operational business alliances that engage in manufacturing and marketing activities. Generally, these companies are not wholly owned; most of them are consolidated. Philips, which is one 60 Operating and Financial Review and Prospects 24 of the larger private employers, currently employs more than 20,000 people in China and approximately 5,000 people in Hong Kong. Philips is active in a wide range of activities, but has particularly strengthened its position in display components, flat panel displays, cellular phones and shavers, while maintaining strong positions in CD, energy-saving lamps and monitors. All product divisions in China are profitable and posted considerable sales growth in 2000. Navigation Technologies Corporation (NavTech) of the USA is a 50.5% shareholding that is engaged in the development of software databases for digital maps to be used for car navigation purposes. NavTech is planning to go public in the course of 2001. LG.Philips LCD Co is a 50/50 manufacturing joint venture with LG Electronics of South Korea, and the world's second-largest supplier of active matrix liquid crystal displays. This joint venture has enabled Philips to become a leading company in the area of active matrix LCDs, a display technology that is rapidly migrating from notebook displays to desktop monitors and in the near future to other areas, such as TV. As a consequence, the Company believes this business has potential for fast growth. The capacity of the two existing fabs at Kumi has been expanded, while a third facility became fully operational in 2000. A fourth facility is under construction and is expected to become fully operational in the year 2001. At yearend 2000, the joint venture employed approximately 3,500 people. In the LumiLeds Lighting 50/50 joint venture, Philips and Hewlett Packard/Agilent have the complementary strengths and positions to successfully develop the market for LED-based lighting products. Both companies have expanded the scope of their existing activities. Both parties hold equal shares in the venture, whose product portfolio has been extended from LED traffic signal products to a variety of other applications, including automotive, signalling, contour lighting and signs, illumination and LCD backlighting, demonstrating both parties' confidence in the new technology. At year-end 2000, the worldwide operations, located in California, Malaysia and the Netherlands, involved about 600 employees. LG Electronics and Philips Display Components. In November 2000, Philips announced the intended merger of its CRT business with that of LG Electronics of South Korea in a 50/50 joint venture, that is expected to create the world leader in this line of business. Both companies will be able to combine complementary strengths and create strong synergy potential in the mature CRT display market. The joint venture will employ 36,000 people worldwide. - -- CORPORATE VENTURING In order to exploit the opportunities in terms of new technology, time to market and return on investment, Philips has started a program to identify promising start-up companies in the technology 'fashion' centers in the USA, Israel and Europe. Around the world, a team of specialists identify start-up companies that are active in areas of strategic importance to Philips. If there is a clear strategic match and the financial underpinning of the company in question is sound, a business arrangement and an equity stake are considered. The corporate venturing program is focused on a limited number of strategic clusters, including display technologies, storage solutions, (in-home) networking, value-added services for consumer electronics devices, personal health monitoring and digital rights management. By year-end 2000 the corporate venturing portfolio comprised some 25 companies in which Philips has both a minority stake and a business relationship. - -- CASH FLOWS The cash flow from operating activities in 2000 of EUR 2,996 million exceeded the levels generated in the preceding two years (EUR 1,913 million and EUR 2,140 million in 1999 and 1998 respectively). Changes in working capital reduced the year 2000's cash flow from operations by EUR 1,069 million, as a result of increases in the amounts of capital invested in inventories and increased accounts receivable, partly offset by higher accounts payable. Higher working capital should be seen against the background of the increased sales level. In 1999 the working capital requirements amounted to EUR 469 million. 61 25 Expressed as a percentage of sales, inventories at the end of 2000 were 13.9% of sales, compared to 14.5% a year earlier and 14.0% at the end of 1998. Outstanding trade receivables at year-end 2000 were the equivalent of 1.5 months' sales, compared to 1.4 months' at the end of 1999 and 1.3 months' a year earlier. INVENTORIES
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- as a % of sales 16.0 15.2 14.0 14.5 13.9
Cash flow from investing activities in 2000 required EUR 2,404 million, compared with EUR 3,834 million in 1999. In 1998 these activities resulted in a cash outflow of EUR 1,441 million. During the year 2000, Philips invested EUR 3,209 million in businesses operating in strategic areas where Philips wants to improve its global market position. The investments included the purchase of a majority interest of 71% in MedQuist (EUR 1,339 million), the acquisition of Optiva (EUR 291 million), payments for the acquisition of MiCRUS (EUR 228 million), the purchase of ADAC (EUR 437 million), the purchase of 3.5% redeemable preferred shares in TSMC (EUR 458 million), and investments in a number of smaller corporate venturing (EUR 126 million) and other businesses (EUR 330 million). Moreover, Philips invested EUR 505 million in the purchase of 7.5% redeemable preferred shares in LG Electronics, which are classified under other non-current financial assets. The divestment of Philips' AC&M business yielded a net amount of EUR 658 million in cash. A positive cash flow of EUR 2,710 million was generated by the sale of 16.51% of the shares in ASM Lithography. Furthermore, an amount of EUR 1,272 million was generated by the sale of a portion of the JDS Uniphase shares, one tranche of EUR 550 million in the first quarter of 2000 and one tranche of EUR 722 million in the third quarter of the year. During 1999, the Company's investment in businesses amounted to EUR 2,993 million. These investments included the purchase of VLSI Technology of the USA (EUR 976 million) and of a 50% share in LG. Philips LCD Co. of Korea (EUR 1,496 million), as well as the acquisition of an additional 10% of the shares in Origin (EUR 124 million) and of a number of smaller businesses (EUR 397 million). The largest divestment, that of Philips' Conventional Passive Components business, yielded a net amount of EUR 323 million in cash. Additionally, the sale of a minority interest in Navigation Technologies (NavTech) generated a positive cash flow of EUR 98 million. Furthermore, EUR 158 million was generated by the sale of a portion of the JDS Uniphase shares. In 1998, the net cash outflow from acquisitions and divestments was EUR 111 million, primarily resulting from the acquisitions of ATL Ultrasound and Active Impulse Systems, partially offset by the sale of Philips Car Systems. It should be noted that the 1998 sale of Philips' 75% stake in PolyGram was accounted for as a discontinued operation, which is not reported in the investment activities section. Gross capital spending on property, plant and equipment of EUR 3,170 million in 2000 exceeded the spending in the two preceding years (EUR 1,662 million and EUR 1,634 million in 1999 and 1998 respectively). The ratio of gross investments to depreciation was 1.8, compared to 1.1 in 1999 and 1.0 in 1998, reflecting the effect of Philips' policy of increasing capital expenditures to shape the Company for the future. 62 Operating and Financial Review and Prospects 26 CAPITAL EXPENDITURES: DEPRECIATION
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- [Description to come] 1.5 1.1 1.0 1.1 1.8
CAPITAL EXPENDITURES PER GEOGRAPHIC AREA
in millions of euros 1998 1999 2000 ------ ------ ------ Europe 977 926 1,466 USA and Canada 158 246 573 Latin America 74 62 133 Africa 4 2 2 Asia Pacific 421 426 996 ------ ------ ------ 1,634 1,662 3,170 ====== ====== ======
As a result of the items mentioned above, the cash flow before financing activities was positive EUR 592 million in 2000, compared with negative EUR 1,921 million in 1999 and positive EUR 699 million in 1998. In 2000, the net cash flow used for financing activities amounted to EUR 2,038 million, of which EUR 1,673 million was used for a 3% share reduction program. Additionally, EUR 612 million was used to repay interest-bearing debt and EUR 399 million was used for the payment of dividends to Philips shareholders. Furthermore, treasury stock transactions required EUR 578 million. In 1999, the net cash flow used for financing activities was EUR 2,606 million, of which EUR 1,490 million was used for the 8% share reduction program. Additionally, EUR 717 million was used to repay interest-bearing debt and EUR 361 million was used for the payment of dividends to Philips shareholders in 1999. An amount of EUR 38 million net cash was used for treasury stock transactions. In 1998, the larger part of the net cash flow used for financing activities of EUR 814 million was used to repay interest-bearing debt (EUR 445 million) and for dividend payments (EUR 326 million). - -- FINANCING Total debt outstanding at the end of 2000 was EUR 4,027 million, compared with EUR 3,314 million at year-end 1999 and EUR 3,587 million at the end of 1998. In 2000, long-term debt decreased by EUR 453 million to EUR 2,284 million. This decrease is the result of new borrowings of EUR 203 million, repayments totaling EUR 325 million and reclassification of long-term debt into short-term debt for an amount of EUR 377 million, offset by currency, consolidation and other effects of EUR 46 million. In 1999, long-term debt was reduced by EUR 49 million to EUR 2,737 million. The reduction was the result of net repayments totaling EUR 460 million, offset by currency, consolidation and other effects of EUR 411 million. Philips had two 'putable' US dollar bonds outstanding at year-end 2000 for a total amount of EUR 288 million. The investors may require repayment at one specific month during the lifetime of the respective bonds. Assuming that investors require payment at the relevant put dates, the average remaining tenor of the long-term debt was 5.9 years, compared to 5.4 years in 1999. However, assuming that the 'putable' bonds will be repaid at maturity, the average remaining tenor at the end of 2000 was 8.4 years, compared to 7.4 years at the end of 1999. Long-term debt as a proportion of the total debt at the end of 2000 was 57%, compared to 83% at the end of 1999. At the end of 2000 the Group had long-term committed and undrawn credit lines available of USD 2.5 billion, unchanged from a year earlier. The USD 2.5 billion committed credit line is a multi-currency revolving standby credit facility, which was signed in July 1996 and will expire in July 2003. Short-term debt increased by EUR 1,166 million in 2000 to EUR 1,743 million at year-end. This increase was due to new net borrowings of EUR 734 million, the reclassification of long-term debt to short-term debt for an amount of EUR 377 million, and an increase of EUR 55 million as a result of currency and consolidation effects. 63 27 The cash position was reduced by EUR 1,242 million in 2000 to EUR 1,089 million at year-end. This reduction was mainly related to the increased level of capital expenditures and to the investments in MedQuist, Optiva, ADAC, SSMC and redeemable preferred stock in LG Electronics and TSMC, as well as the 3% share reduction program and the settlement of US dollar hedges related to securities. The currency and consolidation changes caused a EUR 204 million increase. The EUR 4,222 million decrease in the cash position in 1999 was to a large extent related to the investments in VLSI, LG.Philips LCD Co. and Origin, as well as an 8% share reduction program. The Company had a net debt position (debt, net of cash and cash equivalents) of EUR 2,938 million at the end of 2000. The net debt position at the end of 1999 amounted to EUR 983 million. This compares to a net cash position, with cash exceeding total debt, of EUR 2,966 million, following the sale of PolyGram at the end of 1998. The net debt to group equity ratio amounted to 12:88 at the end of 2000, compared to a ratio of 6:94 at the end of 1999. The net cash position rendered this ratio meaningless in 1998. 5-YEAR RELATIVE PERFORMANCE: PHILIPS AND AEX base 100 = Jan 2, 1996
Date Philips AEX Date Philips AEX Date Philips AEX - --------- ------- ------ --------- ------- ------ --------- ------- ------ 2-Jan-96 100.00 100.00 22-Apr-96 97.32 111.53 9-Aug-96 88.93 110.80 3-Jan-96 101.68 100.84 23-Apr-96 96.31 111.51 12-Aug-96 89.26 110.91 4-Jan-96 103.69 101.18 24-Apr-96 98.32 111.84 13-Aug-96 87.92 110.95 5-Jan-96 104.36 100.47 25-Apr-96 97.65 111.33 14-Aug-96 88.93 112.03 8-Jan-96 106.38 101.69 26-Apr-96 95.64 111.71 15-Aug-96 89.26 112.56 9-Jan-96 102.01 101.14 29-Apr-96 95.64 111.99 16-Aug-96 89.26 113.25 10-Jan-96 100.67 100.80 30-Apr-96 96.31 112.21 19-Aug-96 88.93 114.23 11-Jan-96 104.70 100.72 1-May-96 96.64 112.73 20-Aug-96 89.93 112.97 12-Jan-96 104.36 101.53 2-May-96 95.97 111.90 21-Aug-96 89.93 114.08 15-Jan-96 102.35 101.32 3-May-96 96.31 113.04 22-Aug-96 92.28 113.22 16-Jan-96 105.03 101.88 6-May-96 96.64 112.99 23-Aug-96 91.28 112.31 17-Jan-96 103.36 101.97 7-May-96 95.97 111.37 26-Aug-96 90.94 113.16 18-Jan-96 103.02 101.96 8-May-96 96.64 112.20 27-Aug-96 91.95 113.76 19-Jan-96 104.03 102.69 9-May-96 95.30 112.05 28-Aug-96 91.95 112.86 22-Jan-96 104.70 102.66 10-May-96 95.30 112.20 29-Aug-96 91.28 111.26 23-Jan-96 103.36 101.93 13-May-96 95.64 112.65 30-Aug-96 90.94 112.06 24-Jan-96 108.05 102.72 14-May-96 94.63 112.86 3-Sep-96 89.93 111.26 25-Jan-96 107.05 102.58 15-May-96 96.31 111.91 4-Sep-96 89.60 111.90 26-Jan-96 107.38 102.27 16-May-96 95.64 112.71 5-Sep-96 88.93 111.68 29-Jan-96 107.05 102.09 17-May-96 95.30 113.45 6-Sep-96 89.26 111.74 30-Jan-96 106.71 101.51 20-May-96 95.97 113.34 9-Sep-96 88.93 113.41 31-Jan-96 107.72 101.64 21-May-96 95.30 113.84 10-Sep-96 88.59 113.53 1-Feb-96 107.38 101.72 22-May-96 95.64 113.94 11-Sep-96 89.26 113.49 2-Feb-96 108.39 101.89 23-May-96 95.30 114.71 12-Sep-96 88.59 114.07 5-Feb-96 111.74 100.63 24-May-96 95.64 114.43 13-Sep-96 88.59 114.30 6-Feb-96 111.74 101.51 28-May-96 94.29 114.09 16-Sep-96 89.26 114.73 7-Feb-96 110.07 101.93 29-May-96 93.62 115.11 17-Sep-96 91.61 113.94 8-Feb-96 110.74 101.31 30-May-96 94.29 114.93 18-Sep-96 91.95 113.71 9-Feb-96 108.05 101.36 31-May-96 94.29 114.82 19-Sep-96 93.62 113.85 12-Feb-96 108.39 101.68 3-Jun-96 93.29 115.24 20-Sep-96 93.96 114.23 13-Feb-96 106.04 102.98 4-Jun-96 94.29 115.45 23-Sep-96 95.30 114.23 14-Feb-96 107.05 103.13 5-Jun-96 94.63 114.19 24-Sep-96 96.98 113.88 15-Feb-96 107.38 103.21 6-Jun-96 94.29 115.16 25-Sep-96 99.33 115.22 16-Feb-96 108.39 102.69 7-Jun-96 93.62 115.13 26-Sep-96 97.65 115.37 20-Feb-96 108.72 101.51 10-Jun-96 93.29 115.01 27-Sep-96 96.31 115.48 21-Feb-96 112.08 100.89 11-Jun-96 93.29 113.39 30-Sep-96 96.31 116.50 22-Feb-96 114.77 101.76 12-Jun-96 93.29 112.73 1-Oct-96 96.64 116.50 23-Feb-96 114.43 102.48 13-Jun-96 92.28 113.29 2-Oct-96 95.97 117.50 26-Feb-96 113.76 103.10 14-Jun-96 92.62 113.87 3-Oct-96 95.64 117.44 27-Feb-96 113.76 102.43 17-Jun-96 92.28 112.69 4-Oct-96 96.98 118.11 28-Feb-96 113.09 102.50 18-Jun-96 90.94 112.04 7-Oct-96 97.32 118.62 29-Feb-96 111.07 103.55 19-Jun-96 90.27 111.89 8-Oct-96 98.32 118.96 1-Mar-96 111.41 103.63 20-Jun-96 89.60 111.96 9-Oct-96 100.67 118.70 4-Mar-96 111.07 104.31 21-Jun-96 87.25 112.38 10-Oct-96 100.34 118.00 5-Mar-96 111.41 104.81 24-Jun-96 85.57 112.97 11-Oct-96 101.68 118.57 6-Mar-96 110.40 104.83 25-Jun-96 85.23 112.37 14-Oct-96 98.99 118.91 7-Mar-96 108.05 104.64 26-Jun-96 85.23 113.14 15-Oct-96 96.31 119.63 8-Mar-96 104.03 104.87 27-Jun-96 87.25 113.08 16-Oct-96 95.30 119.23 11-Mar-96 106.04 103.85 28-Jun-96 87.58 112.97 17-Oct-96 95.30 119.08 12-Mar-96 105.71 102.51 1-Jul-96 87.92 113.14 18-Oct-96 94.63 120.01 13-Mar-96 105.71 103.01 2-Jul-96 87.58 113.67 21-Oct-96 92.62 119.62 14-Mar-96 107.05 103.86 3-Jul-96 87.58 112.86 22-Oct-96 91.61 119.76 15-Mar-96 107.05 105.11 5-Jul-96 85.23 111.96 23-Oct-96 88.59 117.84 18-Mar-96 109.40 105.04 8-Jul-96 86.24 112.42 24-Oct-96 94.29 118.16 19-Mar-96 110.07 105.97 9-Jul-96 87.58 111.97 25-Oct-96 97.99 119.17 20-Mar-96 108.39 106.60 10-Jul-96 86.58 110.93 28-Oct-96 95.64 119.37 21-Mar-96 107.38 106.56 11-Jul-96 84.23 110.45 29-Oct-96 93.96 117.47 22-Mar-96 108.39 106.46 12-Jul-96 82.89 108.88 30-Oct-96 93.29 116.53 25-Mar-96 95.97 106.66 15-Jul-96 78.52 106.67 31-Oct-96 94.63 116.51 26-Mar-96 96.31 106.51 16-Jul-96 81.21 106.44 1-Nov-96 95.64 117.38 27-Mar-96 95.30 106.13 17-Jul-96 82.21 106.90 4-Nov-96 95.30 117.38 28-Mar-96 97.65 106.84 18-Jul-96 83.22 107.84 5-Nov-96 94.97 118.33 29-Mar-96 97.65 106.39 19-Jul-96 83.22 106.13 6-Nov-96 95.97 119.02 1-Apr-96 95.64 107.35 22-Jul-96 80.20 106.09 7-Nov-96 96.64 118.85 2-Apr-96 96.98 108.49 23-Jul-96 79.87 103.55 8-Nov-96 96.64 119.68 3-Apr-96 96.64 108.53 24-Jul-96 78.57 105.73 11-Nov-96 97.65 120.57 4-Apr-96 95.97 107.90 25-Jul-96 83.22 105.24 12-Nov-96 97.65 120.67 8-Apr-96 94.63 108.42 26-Jul-96 81.54 106.19 13-Nov-96 97.65 121.56 9-Apr-96 93.96 108.45 29-Jul-96 82.21 106.31 14-Nov-96 98.66 122.14 10-Apr-96 93.29 110.00 30-Jul-96 85.57 108.18 15-Nov-96 99.33 122.95 11-Apr-96 94.63 109.70 31-Jul-96 88.93 109.05 18-Nov-96 98.99 123.18 12-Apr-96 94.29 109.42 1-Aug-96 89.60 111.15 19-Nov-96 101.01 123.06 15-Apr-96 96.31 110.86 2-Aug-96 89.93 111.08 20-Nov-96 101.01 122.48 16-Apr-96 97.65 110.70 5-Aug-96 87.58 110.61 21-Nov-96 101.34 122.82 17-Apr-96 96.64 110.19 6-Aug-96 88.26 111.75 22-Nov-96 104.36 124.28 18-Apr-96 98.66 109.76 7-Aug-96 89.26 111.10 25-Nov-96 103.69 125.85 19-Apr-96 98.32 110.38 8-Aug-96 88.59 110.95 26-Nov-96 108.39 126.63
28
Date Philips AEX Date Philips AEX Date Philips AEX - --------- ------- ------ --------- ------- ------ --------- ------- ------ 27-Nov-96 106.38 124.87 21-Mar-97 116.78 143.43 14-Jul-97 198.66 191.46 29-Nov-96 109.06 126.05 24-Mar-97 114.77 146.86 15-Jul-97 201.85 191.66 2-Dec-96 107.05 127.43 25-Mar-97 118.46 144.42 16-Jul-97 211.58 194.91 3-Dec-96 107.72 126.65 26-Mar-97 122.48 146.97 17-Jul-97 208.56 192.51 4-Dec-96 107.05 128.50 27-Mar-97 122.15 148.29 18-Jul-97 204.03 190.17 5-Dec-96 107.38 127.37 31-Mar-97 119.13 149.62 21-Jul-97 195.97 188.06 6-Dec-96 105.71 126.90 1-Apr-97 119.13 143.08 22-Jul-97 203.69 193.97 9-Dec-96 106.71 124.44 2-Apr-97 116.11 143.07 23-Jul-97 211.24 199.60 10-Dec-96 105.71 125.98 3-Apr-97 117.79 141.77 24-Jul-97 224.16 198.94 11-Dec-96 102.68 125.66 4-Apr-97 121.48 143.05 25-Jul-97 223.32 199.71 12-Dec-96 104.36 123.29 7-Apr-97 122.82 146.92 28-Jul-97 217.45 200.49 13-Dec-96 104.36 123.46 8-Apr-97 124.83 146.92 29-Jul-97 214.26 196.87 16-Dec-96 104.36 122.50 9-Apr-97 123.82 149.16 30-Jul-97 220.47 196.94 17-Dec-96 105.03 124.41 10-Apr-97 122.82 148.10 31-Jul-97 219.63 198.56 18-Dec-96 105.71 123.77 11-Apr-97 118.12 146.27 1-Aug-97 214.26 198.03 19-Dec-96 107.72 124.88 14-Apr-97 121.48 144.62 4-Aug-97 214.77 197.75 20-Dec-96 107.38 126.31 15-Apr-97 123.15 148.69 5-Aug-97 211.75 197.80 23-Dec-96 107.72 127.76 16-Apr-97 123.15 147.32 6-Aug-97 216.61 200.49 24-Dec-96 107.72 128.23 17-Apr-97 125.17 149.35 7-Aug-97 219.13 204.14 27-Dec-96 107.72 128.01 18-Apr-97 125.84 149.78 8-Aug-97 215.77 201.15 30-Dec-96 107.05 129.05 21-Apr-97 126.85 150.42 11-Aug-97 210.07 196.48 31-Dec-96 107.38 130.89 22-Apr-97 127.85 151.18 12-Aug-97 206.38 197.56 2-Jan-97 105.71 128.10 23-Apr-97 134.56 153.25 13-Aug-97 202.52 188.95 3-Jan-97 107.38 130.43 24-Apr-97 135.91 154.10 14-Aug-97 203.02 188.92 6-Jan-97 106.71 131.82 25-Apr-97 134.90 151.97 15-Aug-97 191.61 180.60 7-Jan-97 106.71 130.90 28-Apr-97 137.25 151.39 18-Aug-97 198.32 185.26 8-Jan-97 109.06 131.72 29-Apr-97 141.95 154.14 19-Aug-97 198.15 191.31 9-Jan-97 110.74 131.27 30-Apr-97 143.62 154.14 20-Aug-97 207.72 193.79 10-Jan-97 111.74 130.58 1-May-97 147.32 156.03 21-Aug-97 204.03 191.88 13-Jan-97 111.41 131.81 2-May-97 149.66 155.80 22-Aug-97 199.33 185.45 14-Jan-97 111.74 132.83 5-May-97 148.99 157.41 25-Aug-97 199.16 186.21 15-Jan-97 111.74 133.61 6-May-97 145.64 157.85 26-Aug-97 196.98 182.42 16-Jan-97 115.77 135.20 7-May-97 144.63 156.69 27-Aug-97 198.15 183.21 17-Jan-97 114.43 135.30 9-May-97 149.33 157.66 28-Aug-97 194.30 177.14 20-Jan-97 113.09 136.02 12-May-97 149.33 159.13 29-Aug-97 192.28 175.33 21-Jan-97 112.42 135.76 13-May-97 150.67 158.72 2-Sep-97 205.20 186.82 22-Jan-97 109.73 137.57 14-May-97 152.69 160.90 3-Sep-97 209.90 187.51 23-Jan-97 109.06 138.32 15-May-97 154.70 160.53 4-Sep-97 207.55 185.02 24-Jan-97 108.39 136.64 16-May-97 154.70 160.39 5-Sep-97 204.87 185.06 27-Jan-97 108.39 137.81 19-May-97 155.37 159.00 8-Sep-97 203.19 182.78 28-Jan-97 107.38 137.95 20-May-97 156.71 162.33 9-Sep-97 201.68 180.75 29-Jan-97 106.71 135.82 21-May-97 157.05 161.71 10-Sep-97 195.47 177.20 30-Jan-97 106.71 136.32 22-May-97 155.37 162.34 11-Sep-97 195.13 172.85 31-Jan-97 107.38 136.44 23-May-97 156.38 164.00 12-Sep-97 200.17 174.61 3-Feb-97 111.07 136.25 27-May-97 154.03 162.78 15-Sep-97 198.83 175.57 4-Feb-97 110.40 137.35 28-May-97 152.01 162.54 16-Sep-97 200.00 178.12 5-Feb-97 108.72 139.22 29-May-97 153.36 162.47 17-Sep-97 203.69 181.35 6-Feb-97 108.05 138.77 30-May-97 150.34 159.71 18-Sep-97 202.01 182.29 7-Feb-97 108.72 140.18 2-Jun-97 153.69 163.05 19-Sep-97 201.01 181.55 10-Feb-97 107.05 140.34 3-Jun-97 155.03 163.96 22-Sep-97 207.05 183.84 11-Feb-97 105.37 141.09 4-Jun-97 161.74 165.00 23-Sep-97 207.38 183.58 12-Feb-97 110.74 142.47 5-Jun-97 164.43 165.72 24-Sep-97 210.57 182.77 13-Feb-97 115.44 143.87 6-Jun-97 164.09 166.47 25-Sep-97 213.42 182.64 14-Feb-97 112.75 145.28 9-Jun-97 163.42 167.46 26-Sep-97 214.93 182.64 18-Feb-97 117.11 147.81 10-Jun-97 162.75 167.75 29-Sep-97 218.62 182.73 19-Feb-97 119.80 148.50 11-Jun-97 158.72 167.02 30-Sep-97 225.50 185.77 20-Feb-97 117.11 149.07 12-Jun-97 161.07 169.49 1-Oct-97 237.92 190.58 21-Feb-97 117.45 148.15 13-Jun-97 162.75 170.84 2-Oct-97 233.05 189.86 24-Feb-97 118.12 147.19 16-Jun-97 169.80 171.63 3-Oct-97 236.24 194.52 25-Feb-97 119.80 148.11 17-Jun-97 177.85 171.06 6-Oct-97 232.89 194.21 26-Feb-97 121.14 151.48 18-Jun-97 186.91 171.46 7-Oct-97 229.53 191.95 27-Feb-97 122.48 151.54 19-Jun-97 185.23 171.46 8-Oct-97 228.19 190.83 28-Feb-97 120.81 150.87 20-Jun-97 185.23 174.10 9-Oct-97 229.53 184.99 3-Mar-97 121.81 148.91 23-Jun-97 185.23 173.83 10-Oct-97 222.48 183.30 4-Mar-97 125.84 148.67 24-Jun-97 188.93 173.87 13-Oct-97 222.65 189.45 5-Mar-97 130.54 152.13 25-Jun-97 194.63 175.97 14-Oct-97 222.15 188.82 6-Mar-97 127.52 152.50 26-Jun-97 192.28 175.80 15-Oct-97 221.81 186.50 7-Mar-97 126.51 154.40 27-Jun-97 194.30 175.76 16-Oct-97 217.78 184.16 10-Mar-97 125.84 154.46 30-Jun-97 192.95 173.97 17-Oct-97 215.60 182.66 11-Mar-97 126.85 155.47 1-Jul-97 189.26 175.94 20-Oct-97 219.80 183.22 12-Mar-97 123.82 156.33 2-Jul-97 188.09 177.49 21-Oct-97 231.21 186.28 13-Mar-97 119.13 153.34 3-Jul-97 192.95 181.14 22-Oct-97 230.66 184.85 14-Mar-97 120.47 153.06 7-Jul-97 198.32 185.54 23-Oct-97 218.12 178.18 17-Mar-97 120.13 154.68 8-Jul-97 197.15 185.37 24-Oct-97 215.10 179.98 18-Mar-97 119.80 152.13 9-Jul-97 196.31 188.87 27-Oct-97 195.13 173.89 19-Mar-97 120.13 149.77 10-Jul-97 199.33 186.72 28-Oct-97 208.72 168.77 20-Mar-97 115.10 148.42 11-Jul-97 199.50 189.10 29-Oct-97 211.41 177.57
29
Date Philips AEX Date Philips AEX Date Philips AEX - --------- ------- ------ --------- ------- ------ --------- ------- ------ 30-Oct-97 205.03 172.73 24-Feb-98 209.73 209.53 15-Jun-98 224.16 234.68 31-Oct-97 210.40 173.57 25-Feb-98 208.56 211.16 16-Jun-98 228.86 237.23 3-Nov-97 215.94 178.25 26-Feb-98 211.41 214.16 17-Jun-98 237.75 234.45 4-Nov-97 211.24 175.46 27-Feb-98 209.06 215.58 18-Jun-98 234.06 232.79 5-Nov-97 217.11 177.40 2-Mar-98 211.07 216.12 19-Jun-98 230.37 231.05 6-Nov-97 213.76 175.69 3-Mar-98 204.19 220.04 22-Jun-98 234.23 234.33 7-Nov-97 209.56 171.47 4-Mar-98 203.36 217.93 23-Jun-98 224.16 233.25 10-Nov-97 203.52 173.06 5-Mar-98 195.47 217.01 24-Jun-98 232.38 237.42 11-Nov-97 203.02 172.79 6-Mar-98 196.81 214.17 25-Jun-98 230.37 238.73 12-Nov-97 189.26 170.53 9-Mar-98 202.52 219.87 26-Jun-98 224.66 241.87 13-Nov-97 185.23 171.02 10-Mar-98 202.68 221.92 29-Jun-98 221.31 242.37 14-Nov-97 186.58 172.05 11-Mar-98 202.18 220.85 30-Jun-98 227.85 246.66 17-Nov-97 190.94 177.09 12-Mar-98 200.67 221.62 1-Jul-98 238.59 248.17 18-Nov-97 191.61 177.69 13-Mar-98 202.68 219.95 2-Jul-98 235.57 251.04 19-Nov-97 190.10 175.82 16-Mar-98 200.67 223.89 6-Jul-98 235.07 250.73 20-Nov-97 193.46 178.68 17-Mar-98 195.64 225.51 7-Jul-98 236.24 251.54 21-Nov-97 197.15 181.45 18-Mar-98 193.29 226.03 8-Jul-98 237.25 254.39 24-Nov-97 184.56 176.77 19-Mar-98 192.11 223.22 9-Jul-98 232.05 253.93 25-Nov-97 180.20 175.92 20-Mar-98 193.29 222.46 10-Jul-98 230.87 252.09 26-Nov-97 181.21 178.17 23-Mar-98 193.96 226.35 13-Jul-98 235.74 256.05 28-Nov-97 179.87 178.04 24-Mar-98 199.66 226.74 14-Jul-98 242.45 260.18 1-Dec-97 189.09 183.77 25-Mar-98 205.37 228.20 15-Jul-98 251.34 260.98 2-Dec-97 181.04 184.50 26-Mar-98 205.70 230.44 16-Jul-98 252.01 258.91 3-Dec-97 175.50 183.64 27-Mar-98 203.36 227.99 17-Jul-98 243.96 262.10 4-Dec-97 179.36 185.51 30-Mar-98 198.99 230.36 20-Jul-98 237.75 265.66 5-Dec-97 180.20 185.87 31-Mar-98 197.15 227.97 21-Jul-98 230.87 264.63 8-Dec-97 181.88 187.08 1-Apr-98 197.32 227.45 22-Jul-98 232.21 262.07 9-Dec-97 180.03 186.58 2-Apr-98 195.64 230.74 23-Jul-98 221.31 258.47 10-Dec-97 171.81 183.81 3-Apr-98 190.94 232.82 24-Jul-98 216.78 256.86 11-Dec-97 161.07 178.40 6-Apr-98 196.98 234.66 27-Jul-98 216.44 253.11 12-Dec-97 149.33 179.25 7-Apr-98 193.12 239.39 28-Jul-98 217.45 253.20 15-Dec-97 151.01 179.46 8-Apr-98 198.66 235.51 29-Jul-98 220.81 251.37 16-Dec-97 152.52 182.69 9-Apr-98 200.17 235.24 30-Jul-98 223.49 251.93 17-Dec-97 160.24 184.71 13-Apr-98 202.85 236.02 31-Jul-98 219.30 248.23 18-Dec-97 160.40 183.25 14-Apr-98 206.21 237.23 3-Aug-98 217.95 242.42 19-Dec-97 158.39 177.59 15-Apr-98 206.04 237.73 4-Aug-98 215.27 244.76 22-Dec-97 162.42 178.67 16-Apr-98 201.85 233.64 5-Aug-98 219.46 239.64 23-Dec-97 155.70 177.04 17-Apr-98 201.51 234.59 6-Aug-98 222.82 234.82 24-Dec-97 159.56 177.76 20-Apr-98 213.59 238.55 7-Aug-98 220.97 238.15 29-Dec-97 161.41 183.39 21-Apr-98 223.32 239.88 10-Aug-98 214.60 235.77 30-Dec-97 163.42 184.49 22-Apr-98 244.46 239.60 11-Aug-98 207.05 227.16 31-Dec-97 162.42 184.49 23-Apr-98 240.10 236.56 12-Aug-98 210.23 232.07 2-Jan-98 164.09 187.18 24-Apr-98 242.28 235.59 13-Aug-98 206.21 231.31 5-Jan-98 170.13 189.63 27-Apr-98 239.26 223.73 14-Aug-98 206.21 233.17 6-Jan-98 165.10 187.84 28-Apr-98 236.91 227.92 17-Aug-98 209.40 230.81 7-Jan-98 166.61 188.21 29-Apr-98 237.75 227.69 18-Aug-98 219.30 239.26 8-Jan-98 164.26 186.86 30-Apr-98 241.95 227.69 19-Aug-98 220.30 242.30 9-Jan-98 153.52 184.52 1-May-98 255.54 239.85 20-Aug-98 211.41 239.80 12-Jan-98 153.52 180.10 4-May-98 252.01 241.75 21-Aug-98 204.36 233.12 13-Jan-98 156.38 184.06 5-May-98 258.05 237.13 24-Aug-98 197.48 229.45 14-Jan-98 158.39 186.49 6-May-98 261.74 234.98 25-Aug-98 194.97 234.87 15-Jan-98 155.87 186.12 7-May-98 257.72 230.87 26-Aug-98 189.26 228.89 16-Jan-98 163.76 189.41 8-May-98 259.73 235.03 27-Aug-98 177.18 223.90 20-Jan-98 172.32 192.47 11-May-98 264.93 238.74 28-Aug-98 178.02 220.78 21-Jan-98 169.80 191.91 12-May-98 265.60 235.59 31-Aug-98 160.91 219.41 22-Jan-98 166.28 189.61 13-May-98 263.25 237.05 1-Sep-98 169.97 215.70 23-Jan-98 166.95 188.43 14-May-98 270.81 235.06 2-Sep-98 170.64 222.17 26-Jan-98 170.80 189.29 15-May-98 269.80 236.00 3-Sep-98 169.13 216.02 27-Jan-98 171.98 189.70 18-May-98 261.24 232.53 4-Sep-98 161.91 216.60 28-Jan-98 178.19 191.78 19-May-98 272.82 237.74 8-Sep-98 174.50 221.24 29-Jan-98 182.05 193.10 20-May-98 267.45 241.14 9-Sep-98 169.80 217.39 30-Jan-98 178.86 193.17 21-May-98 267.28 241.18 10-Sep-98 163.25 206.23 2-Feb-98 184.40 194.90 22-May-98 264.60 246.31 11-Sep-98 164.43 204.03 3-Feb-98 182.55 193.94 26-May-98 262.08 245.72 14-Sep-98 160.40 208.72 4-Feb-98 175.84 192.38 27-May-98 255.03 241.95 15-Sep-98 158.56 204.89 5-Feb-98 181.38 194.78 28-May-98 254.36 240.02 16-Sep-98 157.05 207.44 6-Feb-98 182.55 196.27 29-May-98 255.37 242.00 17-Sep-98 142.79 199.41 9-Feb-98 176.01 196.67 1-Jun-98 253.02 242.40 18-Sep-98 136.91 193.76 10-Feb-98 179.53 195.89 2-Jun-98 248.83 243.85 21-Sep-98 123.49 182.26 11-Feb-98 184.06 197.81 3-Jun-98 245.30 240.94 22-Sep-98 129.03 190.59 12-Feb-98 197.32 196.48 4-Jun-98 247.99 242.93 23-Sep-98 143.96 195.99 13-Feb-98 194.80 196.80 5-Jun-98 246.98 244.98 24-Sep-98 135.57 195.74 17-Feb-98 204.87 199.06 8-Jun-98 256.38 243.62 25-Sep-98 142.28 191.39 18-Feb-98 203.02 203.23 9-Jun-98 254.19 243.45 28-Sep-98 143.29 195.74 19-Feb-98 201.68 205.21 10-Jun-98 247.99 242.97 29-Sep-98 145.47 193.42 20-Feb-98 201.85 205.03 11-Jun-98 235.91 236.73 30-Sep-98 143.29 188.63 23-Feb-98 205.37 205.91 12-Jun-98 231.71 233.15 1-Oct-98 136.41 180.92
30
Date Philips AEX Date Philips AEX Date Philips AEX - --------- ------- ------ --------- ------- ------ --------- ------- ------ 2-Oct-98 134.06 171.35 25-Jan-99 215.44 233.77 14-May-99 245.13 242.00 5-Oct-98 130.20 167.46 26-Jan-99 204.70 234.34 17-May-99 244.80 244.83 6-Oct-98 132.21 177.32 27-Jan-99 199.66 236.55 18-May-99 244.30 248.30 7-Oct-98 128.36 173.07 28-Jan-99 197.65 239.83 19-May-99 247.31 251.36 8-Oct-98 122.48 167.13 29-Jan-99 195.47 236.77 20-May-99 239.09 252.38 9-Oct-98 134.23 171.86 1-Feb-99 190.94 240.29 21-May-99 239.26 249.61 12-Oct-98 140.27 181.66 2-Feb-99 192.45 237.08 24-May-99 233.56 249.14 13-Oct-98 141.95 185.28 3-Feb-99 196.31 234.56 25-May-99 227.68 246.13 14-Oct-98 149.33 188.59 4-Feb-99 193.29 236.40 26-May-99 231.54 245.80 15-Oct-98 158.39 190.08 5-Feb-99 190.44 237.78 27-May-99 231.38 246.54 16-Oct-98 156.71 192.38 8-Feb-99 193.96 235.05 28-May-99 231.21 246.16 19-Oct-98 151.34 190.10 9-Feb-99 192.78 230.52 1-Jun-99 242.11 247.66 20-Oct-98 159.23 196.88 10-Feb-99 193.46 228.05 2-Jun-99 238.93 250.98 21-Oct-98 167.62 196.00 11-Feb-99 192.28 230.53 3-Jun-99 237.75 252.09 22-Oct-98 148.32 196.34 12-Feb-99 187.25 232.87 4-Jun-99 238.26 252.96 23-Oct-98 140.77 194.42 16-Feb-99 185.23 232.86 7-Jun-99 242.28 252.17 26-Oct-98 144.13 194.93 17-Feb-99 181.71 232.65 8-Jun-99 252.18 253.08 27-Oct-98 148.83 201.02 18-Feb-99 184.23 228.78 9-Jun-99 253.02 251.09 28-Oct-98 146.14 196.95 19-Feb-99 186.91 227.91 10-Jun-99 255.03 252.50 29-Oct-98 141.95 196.41 22-Feb-99 195.13 230.33 11-Jun-99 254.03 251.69 30-Oct-98 148.32 200.54 23-Feb-99 197.15 235.09 14-Jun-99 249.33 251.60 2-Nov-98 159.23 208.10 24-Feb-99 191.11 238.81 15-Jun-99 249.50 253.96 3-Nov-98 154.36 208.87 25-Feb-99 188.25 239.77 16-Jun-99 254.03 254.89 4-Nov-98 163.59 214.00 26-Feb-99 186.91 237.84 17-Jun-99 254.19 256.32 5-Nov-98 166.61 210.98 1-Mar-99 184.90 238.56 18-Jun-99 251.34 259.30 6-Nov-98 165.94 213.49 2-Mar-99 183.39 234.64 21-Jun-99 256.21 257.05 9-Nov-98 159.23 214.10 3-Mar-99 183.89 234.10 22-Jun-99 261.58 254.48 10-Nov-98 157.21 210.56 4-Mar-99 181.54 231.01 23-Jun-99 262.58 252.36 11-Nov-98 160.40 212.49 5-Mar-99 187.42 229.57 24-Jun-99 261.24 249.92 12-Nov-98 162.42 209.74 8-Mar-99 187.08 235.63 25-Jun-99 259.23 250.84 13-Nov-98 163.93 208.66 9-Mar-99 187.75 233.84 28-Jun-99 261.91 251.66 16-Nov-98 169.46 213.80 10-Mar-99 191.44 232.40 29-Jun-99 266.61 249.72 17-Nov-98 172.32 213.09 11-Mar-99 197.32 231.68 30-Jun-99 270.81 253.84 18-Nov-98 182.22 212.75 12-Mar-99 194.63 234.76 1-Jul-99 267.79 254.54 19-Nov-98 184.06 216.70 15-Mar-99 200.34 237.18 2-Jul-99 268.96 259.00 20-Nov-98 187.08 224.10 16-Mar-99 205.87 238.08 6-Jul-99 273.83 258.65 23-Nov-98 187.75 228.34 17-Mar-99 209.56 240.57 7-Jul-99 272.48 257.65 24-Nov-98 180.03 225.45 18-Mar-99 214.09 240.27 8-Jul-99 270.81 257.55 25-Nov-98 172.48 225.09 19-Mar-99 212.92 239.21 9-Jul-99 272.82 261.15 27-Nov-98 177.01 229.30 22-Mar-99 214.60 243.48 12-Jul-99 264.60 261.80 30-Nov-98 169.97 222.24 23-Mar-99 207.38 242.19 13-Jul-99 273.66 259.05 1-Dec-98 170.47 211.76 24-Mar-99 207.38 237.03 14-Jul-99 284.56 262.26 2-Dec-98 166.78 207.51 25-Mar-99 216.44 233.94 15-Jul-99 292.45 264.47 3-Dec-98 173.99 212.57 26-Mar-99 210.91 237.61 16-Jul-99 290.77 261.93 4-Dec-98 181.88 215.63 29-Mar-99 217.28 233.86 19-Jul-99 294.46 262.03 7-Dec-98 180.70 216.79 30-Mar-99 214.77 237.87 20-Jul-99 278.86 255.97 8-Dec-98 180.54 217.74 31-Mar-99 221.31 237.80 21-Jul-99 278.19 252.63 9-Dec-98 187.25 220.50 1-Apr-99 218.12 238.92 22-Jul-99 254.70 248.96 10-Dec-98 178.36 220.63 5-Apr-99 222.15 237.45 23-Jul-99 259.90 247.60 11-Dec-98 178.19 216.30 6-Apr-99 217.28 238.66 26-Jul-99 255.70 244.09 14-Dec-98 170.47 215.17 7-Apr-99 221.48 241.42 27-Jul-99 263.76 245.37 15-Dec-98 175.67 218.86 8-Apr-99 220.30 239.25 28-Jul-99 268.96 247.49 16-Dec-98 166.44 221.53 9-Apr-99 211.75 239.28 29-Jul-99 268.46 242.98 17-Dec-98 173.49 224.80 12-Apr-99 214.77 238.58 30-Jul-99 271.48 245.97 18-Dec-98 184.23 225.72 13-Apr-99 216.27 240.73 2-Aug-99 266.95 242.18 21-Dec-98 182.22 232.71 14-Apr-99 214.93 241.89 3-Aug-99 264.76 240.26 22-Dec-98 179.53 233.29 15-Apr-99 217.11 241.27 4-Aug-99 260.74 240.59 23-Dec-98 180.37 237.08 16-Apr-99 223.99 244.04 5-Aug-99 259.90 235.40 24-Dec-98 181.21 237.99 19-Apr-99 225.67 248.92 6-Aug-99 254.87 238.11 28-Dec-98 179.03 240.77 20-Apr-99 218.29 244.57 9-Aug-99 253.52 241.80 29-Dec-98 180.20 241.23 21-Apr-99 226.51 247.06 10-Aug-99 247.99 238.86 30-Dec-98 179.70 239.56 22-Apr-99 240.60 249.88 11-Aug-99 259.73 241.11 31-Dec-98 181.71 239.56 23-Apr-99 237.08 249.73 12-Aug-99 262.58 246.21 4-Jan-99 187.92 248.72 26-Apr-99 240.94 251.76 13-Aug-99 272.99 251.16 5-Jan-99 194.97 252.08 27-Apr-99 239.26 255.60 16-Aug-99 269.63 252.05 6-Jan-99 206.38 259.71 28-Apr-99 231.21 255.87 17-Aug-99 273.32 254.98 7-Jan-99 202.01 249.67 29-Apr-99 229.87 255.20 18-Aug-99 266.61 253.68 8-Jan-99 203.52 248.86 30-Apr-99 228.52 255.20 19-Aug-99 267.11 249.42 11-Jan-99 199.33 242.85 3-May-99 236.91 256.20 20-Aug-99 267.62 251.21 12-Jan-99 193.96 238.61 4-May-99 233.05 257.49 23-Aug-99 268.96 254.25 13-Jan-99 187.58 225.73 5-May-99 233.72 253.67 24-Aug-99 277.18 254.80 14-Jan-99 184.73 228.77 6-May-99 231.21 251.22 25-Aug-99 285.40 259.78 15-Jan-99 193.29 235.20 7-May-99 236.58 251.83 26-Aug-99 280.87 260.81 19-Jan-99 199.33 244.24 10-May-99 240.10 250.08 27-Aug-99 280.37 260.26 20-Jan-99 209.23 246.15 11-May-99 243.29 249.08 30-Aug-99 277.68 260.03 21-Jan-99 204.03 241.97 12-May-99 247.99 247.78 31-Aug-99 276.01 254.71 22-Jan-99 207.89 230.82 13-May-99 250.67 245.69 1-Sep-99 276.18 254.67
31
Date Philips AEX Date Philips AEX Date Philips AEX - --------- ------- ------ --------- ------- ------ --------- ------- ------ 2-Sep-99 267.62 251.41 15-Feb-00 458.39 290.28 28-Jul-00 444.30 295.34 3-Sep-99 278.69 257.48 16-Feb-00 452.85 294.00 31-Jul-00 482.55 297.32 7-Sep-99 290.77 261.01 17-Feb-00 429.53 297.23 1-Aug-00 492.62 298.53 8-Sep-99 280.87 259.11 18-Feb-00 433.05 291.54 2-Aug-00 475.17 300.79 9-Sep-99 280.87 261.38 22-Feb-00 463.09 288.94 3-Aug-00 457.72 296.69 10-Sep-99 291.11 263.28 23-Feb-00 483.05 288.02 4-Aug-00 448.32 299.67 13-Sep-99 285.23 261.46 24-Feb-00 481.88 290.36 7-Aug-00 451.01 302.84 14-Sep-99 286.07 259.31 25-Feb-00 503.69 290.81 8-Aug-00 444.30 301.84 15-Sep-99 283.89 259.35 28-Feb-00 502.35 294.82 9-Aug-00 472.48 304.30 16-Sep-99 281.04 256.62 29-Feb-00 514.09 291.25 10-Aug-00 470.47 304.19 17-Sep-99 279.87 254.58 1-Mar-00 542.62 295.59 11-Aug-00 470.47 304.36 20-Sep-99 275.34 256.56 2-Mar-00 530.87 297.53 14-Aug-00 499.33 305.73 21-Sep-99 263.93 251.30 3-Mar-00 556.88 299.29 15-Aug-00 493.29 306.02 22-Sep-99 270.64 251.02 6-Mar-00 545.30 302.81 16-Aug-00 501.34 306.95 23-Sep-99 268.29 251.63 7-Mar-00 514.09 302.68 17-Aug-00 513.42 307.89 24-Sep-99 262.92 246.66 8-Mar-00 517.11 301.34 18-Aug-00 522.82 308.70 27-Sep-99 270.30 250.25 9-Mar-00 528.52 300.25 21-Aug-00 516.78 308.57 28-Sep-99 270.30 246.94 10-Mar-00 520.13 297.28 22-Aug-00 518.12 309.72 29-Sep-99 269.63 246.61 13-Mar-00 509.06 301.08 23-Aug-00 510.74 309.45 30-Sep-99 271.14 243.60 14-Mar-00 491.95 292.82 24-Aug-00 516.78 309.78 1-Oct-99 266.11 239.88 15-Mar-00 468.46 294.21 25-Aug-00 526.17 307.63 4-Oct-99 275.84 243.73 16-Mar-00 483.22 286.58 28-Aug-00 530.87 309.53 5-Oct-99 273.15 246.19 17-Mar-00 469.97 295.19 29-Aug-00 525.50 307.64 6-Oct-99 282.21 246.73 20-Mar-00 479.70 299.10 30-Aug-00 510.74 304.95 7-Oct-99 281.71 247.30 21-Mar-00 496.64 298.87 31-Aug-00 529.53 306.82 8-Oct-99 282.89 246.89 22-Mar-00 489.60 299.29 1-Sep-00 546.98 309.34 11-Oct-99 281.88 249.08 23-Mar-00 477.01 302.29 5-Sep-00 540.27 310.60 12-Oct-99 270.47 247.46 24-Mar-00 483.39 298.98 6-Sep-00 500.00 309.26 13-Oct-99 263.76 245.63 27-Mar-00 488.09 304.13 7-Sep-00 506.71 309.21 14-Oct-99 261.91 243.51 28-Mar-00 496.81 303.53 8-Sep-00 493.96 305.47 15-Oct-99 259.90 239.38 29-Mar-00 487.42 306.12 11-Sep-00 479.87 305.97 18-Oct-99 252.35 235.45 30-Mar-00 464.09 303.80 12-Sep-00 477.85 303.61 19-Oct-99 256.04 239.58 31-Mar-00 459.90 295.67 13-Sep-00 487.92 301.40 20-Oct-99 251.85 242.16 3-Apr-00 428.02 294.70 14-Sep-00 499.33 301.39 21-Oct-99 267.62 239.21 4-Apr-00 423.99 289.64 15-Sep-00 493.96 300.99 22-Oct-99 270.64 244.41 5-Apr-00 416.27 291.84 18-Sep-00 480.54 297.44 25-Oct-99 270.13 243.77 6-Apr-00 457.21 285.04 19-Sep-00 491.95 296.77 26-Oct-99 263.42 245.75 7-Apr-00 482.55 293.07 20-Sep-00 481.88 295.66 27-Oct-99 258.22 245.80 10-Apr-00 453.69 298.73 21-Sep-00 475.84 291.90 28-Oct-99 265.27 252.81 11-Apr-00 435.23 299.04 22-Sep-00 455.70 290.55 29-Oct-99 279.03 254.45 12-Apr-00 401.68 293.96 25-Sep-00 456.38 293.04 1-Nov-99 268.96 253.28 13-Apr-00 416.11 294.26 26-Sep-00 454.36 290.66 2-Nov-99 272.65 253.19 14-Apr-00 400.00 293.80 27-Sep-00 464.43 291.94 3-Nov-99 284.90 257.72 17-Apr-00 425.50 289.47 28-Sep-00 471.14 293.12 4-Nov-99 295.30 260.20 18-Apr-00 447.65 283.84 29-Sep-00 456.38 294.36 5-Nov-99 295.13 259.39 19-Apr-00 473.83 287.65 2-Oct-00 457.05 296.34 8-Nov-99 287.75 259.03 20-Apr-00 478.52 291.09 3-Oct-00 448.32 298.21 9-Nov-99 294.80 259.59 24-Apr-00 455.03 292.78 4-Oct-00 450.34 297.66 10-Nov-99 307.89 261.28 25-Apr-00 491.28 293.38 5-Oct-00 436.24 298.94 11-Nov-99 325.84 264.67 26-Apr-00 474.50 296.51 6-Oct-00 413.42 295.95 12-Nov-99 312.25 262.48 27-Apr-00 479.19 289.20 9-Oct-00 409.40 291.41 15-Nov-99 314.93 266.86 28-Apr-00 479.19 294.30 10-Oct-00 387.25 291.29 16-Nov-99 314.09 268.81 1-May-00 485.23 297.01 24-Oct-00 426.17 300.26 17-Nov-99 312.75 268.56 2-May-00 476.51 299.71 25-Oct-00 395.97 297.66 18-Nov-99 313.09 270.38 3-May-00 459.73 298.06 26-Oct-00 410.07 297.89 19-Nov-99 312.42 270.18 4-May-00 455.70 295.94 27-Oct-00 414.77 299.68 22-Nov-99 305.87 267.68 5-May-00 467.79 298.25 30-Oct-00 408.72 300.63 23-Nov-99 300.67 267.04 8-May-00 459.06 297.63 31-Oct-00 428.86 302.83 24-Nov-99 310.40 266.53 9-May-00 451.01 295.22 1-Nov-00 429.53 304.67 26-Nov-99 327.35 271.44 10-May-00 432.21 292.57 2-Nov-00 430.87 304.15 29-Nov-99 324.16 271.92 11-May-00 452.35 293.16 3-Nov-00 432.89 305.76 30-Nov-99 320.81 267.92 12-May-00 469.13 297.38 6-Nov-00 435.57 307.18 1-Dec-99 335.57 268.13 15-May-00 468.46 296.83 7-Nov-00 422.15 305.80 2-Dec-99 332.38 269.74 16-May-00 482.55 301.16 8-Nov-00 408.72 306.28 3-Dec-99 336.24 274.78 17-May-00 465.77 297.32 9-Nov-00 398.66 303.41 6-Dec-99 344.13 272.21 18-May-00 459.06 297.34 10-Nov-00 370.47 300.14 7-Dec-99 345.30 272.32 19-May-00 440.27 290.32 13-Nov-00 375.17 295.63 8-Dec-99 351.34 271.68 22-May-00 420.81 285.59 14-Nov-00 402.01 302.13 9-Dec-99 359.06 275.03 23-May-00 416.11 286.71 15-Nov-00 404.70 303.29 10-Dec-99 355.37 275.60 24-May-00 418.79 285.88 16-Nov-00 381.21 301.37 13-Dec-99 345.81 277.79 25-May-00 430.20 287.25 17-Nov-00 384.56 302.66 14-Dec-99 334.23 278.40 26-May-00 444.30 287.41 20-Nov-00 355.03 296.33 15-Dec-99 324.83 276.85 30-May-00 471.14 291.79 21-Nov-00 357.05 297.38 16-Dec-99 348.99 279.38 31-May-00 474.50 291.49 11-Oct-00 374.50 283.57 17-Dec-99 353.36 282.44 1-Jun-00 499.33 291.68 12-Oct-00 377.18 285.33 20-Dec-99 344.97 286.35 2-Jun-00 534.23 301.66 13-Oct-00 418.12 285.67 21-Dec-99 351.68 286.39 5-Jun-00 520.13 299.32 16-Oct-00 402.01 286.53 22-Dec-99 355.03 290.86 6-Jun-00 510.07 297.56 17-Oct-00 378.52 284.54 23-Dec-99 357.21 293.29 7-Jun-00 520.13 296.60 18-Oct-00 369.80 281.93 27-Dec-99 356.54 293.88 8-Jun-00 525.50 299.08 19-Oct-00 419.46 288.88 28-Dec-99 353.69 293.85 9-Jun-00 513.42 299.80 20-Oct-00 416.11 291.96 29-Dec-99 352.18 293.01 12-Jun-00 507.38 299.35 23-Oct-00 419.46 295.01 30-Dec-99 358.22 294.77 13-Jun-00 521.48 300.66 22-Nov-00 336.24 290.23 31-Dec-99 362.42 298.76 14-Jun-00 528.86 304.04 24-Nov-00 375.84 288.66 3-Jan-00 378.52 300.55 15-Jun-00 526.17 305.04 27-Nov-00 386.58 293.83 4-Jan-00 355.37 285.79 16-Jun-00 520.13 303.67 28-Nov-00 364.43 296.93 5-Jan-00 366.95 281.36 19-Jun-00 538.93 301.33 29-Nov-00 379.19 294.55 6-Jan-00 343.62 277.76 20-Jun-00 554.36 303.47 30-Nov-00 352.35 294.73 7-Jan-00 365.77 286.95 21-Jun-00 570.80 304.76 1-Dec-00 376.51 289.20 10-Jan-00 373.49 291.52 22-Jun-00 540.27 304.44 4-Dec-00 383.89 293.83 11-Jan-00 375.84 288.76 23-Jun-00 536.24 303.79 5-Dec-00 422.82 288.83 12-Jan-00 388.25 284.07 26-Jun-00 539.26 305.26 6-Dec-00 416.78 294.42 13-Jan-00 399.66 285.77 27-Jun-00 528.52 304.10 7-Dec-00 408.05 293.21 14-Jan-00 412.42 291.73 28-Jun-00 533.89 303.99 8-Dec-00 431.54 292.06 18-Jan-00 410.07 288.22 29-Jun-00 496.98 296.67 11-Dec-00 442.95 292.46 19-Jan-00 399.50 285.94 30-Jun-00 509.73 299.09 12-Dec-00 426.17 295.54 20-Jan-00 414.93 286.92 3-Jul-00 517.11 297.25 13-Dec-00 402.01 293.40 21-Jan-00 406.21 285.44 5-Jul-00 486.91 297.17 14-Dec-00 393.96 290.11 24-Jan-00 403.69 287.25 6-Jul-00 489.93 296.18 15-Dec-00 385.91 284.33 25-Jan-00 416.11 284.80 7-Jul-00 509.73 300.35 18-Dec-00 377.85 277.88 26-Jan-00 408.05 283.62 10-Jul-00 515.77 302.06 19-Dec-00 369.13 281.07 27-Jan-00 400.17 282.50 11-Jul-00 518.79 302.85 20-Dec-00 338.26 284.06 28-Jan-00 396.81 281.43 12-Jul-00 535.24 305.40 21-Dec-00 345.64 277.58 31-Jan-00 396.64 272.49 13-Jul-00 547.65 305.70 22-Dec-00 361.74 276.98 1-Feb-00 403.52 275.54 14-Jul-00 557.38 305.86 26-Dec-00 365.77 278.94 2-Feb-00 415.44 279.96 17-Jul-00 578.19 306.63 27-Dec-00 380.54 282.63 3-Feb-00 452.01 289.05 18-Jul-00 538.93 304.17 28-Dec-00 381.88 285.12 4-Feb-00 446.64 294.11 19-Jul-00 531.54 302.73 29-Dec-00 389.26 283.72 7-Feb-00 443.62 290.31 20-Jul-00 546.98 304.52 2-Jan-01 377.85 282.19 8-Feb-00 469.30 297.09 21-Jul-00 540.27 302.13 3-Jan-01 400.00 280.27 9-Feb-00 465.44 296.87 24-Jul-00 528.86 304.17 4-Jan-01 401.34 284.33 10-Feb-00 487.25 294.26 25-Jul-00 522.82 303.99 5-Jan-01 408.72 282.92 11-Feb-00 466.44 294.88 26-Jul-00 515.44 302.79 8-Jan-01 426.17 280.85 14-Feb-00 467.11 291.33 27-Jul-00 466.44 299.06 9-Jan-01 422.15 281.70
32 Stockholders' equity increased by EUR 6,979 million to a level of EUR 21,736 million at year-end 2000. The effect of the net income of EUR 9,602 million in 2000 was partly offset by the 3% share reduction program, which reduced equity by EUR 1,673 million. The currency effects on equity resulted in an increase of EUR 96 million, while the deferred results of financial derivative transactions within equity increased equity by EUR 159 million. Furthermore, equity was reduced by treasury stock transactions of EUR 578 million and by dividend payments of EUR 399 million, related to the profit distribution for the year 1999. As a consequence of a change in accounting policies, product/process development costs, previously included in inventories, have been excluded and charged to equity for an amount of EUR 241 million on January 1, 2000. The EUR 197 million increase in equity in 1999 was mainly due to 1999 net income of EUR 1,799 million, to a large extent offset by an 8% share reduction program (EUR 1,490 million). The number of outstanding common shares of Royal Philips Electronics at December 31, 2000 was 1,284 million (1999: 1,332 million shares -- after stock split) in 2000. 5-YEAR RELATIVE PERFORMANCE: PHILIPS, S&P 100, S&P 500, Soxx base 100 = Jan 3, 1996
Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx - --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ 2-Jan-96 100.00 100.00 100.00 100.00 22-Apr-96 97.32 104.38 105.67 97.08 9-Aug-96 88.93 106.66 108.09 85.24 3-Jan-96 101.68 100.10 100.15 96.01 23-Apr-96 96.31 104.97 106.23 100.24 12-Aug-96 89.26 107.26 109.07 84.82 4-Jan-96 103.69 99.51 99.53 97.39 24-Apr-96 98.32 104.74 106.08 105.01 13-Aug-96 87.92 106.36 108.16 82.40 5-Jan-96 104.36 99.35 99.56 97.17 25-Apr-96 97.65 105.18 106.32 106.00 14-Aug-96 88.93 106.66 108.56 83.71 8-Jan-96 106.38 99.63 99.88 96.39 26-Apr-96 95.64 105.27 106.39 105.25 15-Aug-96 89.26 106.69 108.66 84.25 9-Jan-96 102.01 98.18 98.48 88.96 29-Apr-96 95.64 105.39 106.53 102.47 16-Aug-96 89.26 107.17 108.91 83.33 10-Jan-96 100.67 96.42 96.58 87.58 30-Apr-96 96.31 105.39 106.54 102.09 19-Aug-96 88.93 107.39 108.92 83.19 11-Jan-96 104.70 97.09 97.37 91.63 1-May-96 96.64 105.45 106.49 103.10 20-Aug-96 89.93 107.24 108.81 82.52 12-Jan-96 104.36 96.95 97.15 89.05 2-May-96 95.97 103.65 104.78 104.10 21-Aug-96 89.93 107.14 108.63 84.50 15-Jan-96 102.35 96.63 96.93 82.11 3-May-96 96.31 103.37 104.44 104.97 22-Aug-96 92.28 108.05 109.55 85.78 16-Jan-96 105.03 98.02 98.35 85.53 6-May-96 96.64 103.23 104.36 104.81 23-Aug-96 91.28 107.46 109.01 84.53 17-Jan-96 103.36 97.69 97.82 84.36 7-May-96 95.97 102.82 103.97 102.86 26-Aug-96 90.94 106.95 108.41 83.67 18-Jan-96 103.02 97.99 98.12 85.08 8-May-96 96.64 103.87 105.14 103.46 27-Aug-96 91.95 107.36 108.73 84.53 19-Jan-96 104.03 98.57 98.74 86.13 9-May-96 95.30 103.98 105.13 101.81 28-Aug-96 91.95 107.10 108.41 83.90 22-Jan-96 104.70 98.82 99.01 88.93 10-May-96 95.30 105.05 106.11 101.34 29-Aug-96 91.28 105.91 107.15 84.80 23-Jan-96 103.36 98.72 98.97 88.88 13-May-96 95.64 106.57 107.68 105.95 30-Aug-96 90.94 105.04 106.39 83.94 24-Jan-96 108.05 99.88 100.25 94.72 14-May-96 94.63 107.23 108.51 106.94 3-Sep-96 89.93 105.48 106.93 83.79 25-Jan-96 107.05 99.40 99.79 92.95 15-May-96 96.31 107.20 108.38 105.22 4-Sep-96 89.60 105.62 107.03 83.25 26-Jan-96 107.38 100.14 100.65 93.07 16-May-96 95.64 107.11 108.23 105.51 5-Sep-96 88.93 104.63 105.95 79.56 29-Jan-96 107.05 100.56 101.22 91.40 17-May-96 95.30 107.76 109.07 105.30 6-Sep-96 89.26 105.63 106.93 80.19 30-Jan-96 106.71 101.52 102.20 92.28 20-May-96 95.97 108.44 110.14 104.89 9-Sep-96 88.93 106.93 108.24 79.94 31-Jan-96 107.72 102.46 103.07 92.50 21-May-96 95.30 108.38 109.90 102.05 10-Sep-96 88.59 106.94 108.31 80.07 1-Feb-96 107.38 102.86 103.40 96.16 22-May-96 95.64 109.29 110.74 100.54 11-Sep-96 89.26 107.50 108.82 80.53 2-Feb-96 108.39 102.43 102.93 97.07 23-May-96 95.30 108.90 110.28 99.32 12-Sep-96 88.59 108.12 109.45 81.33 5-Feb-96 111.74 103.33 103.88 102.28 24-May-96 95.64 109.31 110.65 97.89 13-Sep-96 88.59 109.64 111.00 83.23 6-Feb-96 111.74 104.12 104.90 104.58 28-May-96 94.29 108.30 109.82 99.34 16-Sep-96 89.26 110.19 111.57 85.73 7-Feb-96 110.07 104.70 105.62 100.75 29-May-96 93.62 107.60 109.13 97.92 17-Sep-96 91.61 110.02 111.54 90.09 8-Feb-96 110.74 105.69 106.52 99.97 30-May-96 94.29 108.21 109.68 100.41 18-Sep-96 91.95 109.79 111.43 89.15 9-Feb-96 108.05 105.74 106.35 98.89 31-May-96 94.29 107.80 109.17 102.00 19-Sep-96 93.62 110.03 111.61 91.22 12-Feb-96 108.39 106.56 107.24 99.02 3-Jun-96 93.29 107.56 109.01 100.22 20-Sep-96 93.96 110.68 112.44 90.66 13-Feb-96 106.04 106.41 107.05 96.03 4-Jun-96 94.29 108.35 109.68 99.70 23-Sep-96 95.30 110.59 112.23 89.50 14-Feb-96 107.05 105.61 106.43 96.23 5-Jun-96 94.63 109.30 110.55 98.59 24-Sep-96 96.98 110.45 111.80 94.96 15-Feb-96 107.38 104.93 105.48 94.97 6-Jun-96 94.29 108.43 109.57 95.72 25-Sep-96 99.33 110.49 111.81 95.69 16-Feb-96 108.39 104.39 104.85 95.80 7-Jun-96 93.62 108.47 109.84 98.23 26-Sep-96 97.65 110.49 111.79 95.08 20-Feb-96 108.72 103.21 103.85 96.45 10-Jun-96 93.29 108.29 109.60 96.06 27-Sep-96 96.31 110.55 111.71 93.67 21-Feb-96 112.08 104.41 105.33 98.26 11-Jun-96 93.29 108.09 109.41 96.04 30-Sep-96 96.31 110.73 111.83 92.86 22-Feb-96 114.77 106.14 107.19 102.75 12-Jun-96 93.29 107.78 109.13 98.01 1-Oct-96 96.64 111.01 112.18 90.83 23-Feb-96 114.43 106.18 107.25 101.56 13-Jun-96 92.28 107.60 108.92 96.75 2-Oct-96 95.97 111.81 113.06 92.08 26-Feb-96 113.76 104.79 105.73 100.80 14-Jun-96 92.62 107.27 108.54 94.77 3-Oct-96 95.64 111.61 112.97 91.20 27-Feb-96 113.76 104.27 105.31 97.54 17-Jun-96 92.28 107.16 108.52 93.55 4-Oct-96 96.98 113.01 114.40 91.82 28-Feb-96 113.09 103.87 104.94 97.31 18-Jun-96 90.94 106.66 108.06 88.66 7-Oct-96 97.32 113.31 114.82 93.76 29-Feb-96 111.07 103.17 104.27 92.22 19-Jun-96 90.27 106.64 107.92 88.63 8-Oct-96 98.32 112.87 114.33 94.26 1-Mar-96 111.41 103.81 104.94 88.55 20-Jun-96 89.60 106.66 108.10 89.00 9-Oct-96 100.67 112.25 113.66 96.91 4-Mar-96 111.07 104.85 105.75 87.44 21-Jun-96 87.25 107.43 109.19 87.39 10-Oct-96 100.34 111.90 113.26 95.17 5-Mar-96 111.41 105.65 106.64 89.25 24-Jun-96 85.57 107.75 109.41 87.83 11-Oct-96 101.68 112.88 114.45 96.94 6-Mar-96 110.40 105.04 105.94 85.01 25-Jun-96 85.23 107.69 109.36 86.44 14-Oct-96 98.99 113.34 115.04 98.92 7-Mar-96 108.05 105.30 106.28 84.67 26-Jun-96 85.23 107.03 108.70 84.62 15-Oct-96 96.31 113.18 114.98 98.85 8-Mar-96 104.03 102.06 102.96 85.55 27-Jun-96 87.25 107.70 109.34 86.68 16-Oct-96 95.30 113.48 115.36 98.67 11-Mar-96 106.04 103.11 104.23 86.45 28-Jun-96 87.58 108.04 109.42 86.54 17-Oct-96 95.30 113.90 115.85 97.68 12-Mar-96 105.71 102.64 103.81 85.55 1-Jul-96 87.92 108.88 110.48 89.44 18-Oct-96 94.63 114.51 116.60 97.30 13-Mar-96 105.71 102.87 104.11 86.94 2-Jul-96 87.58 108.52 110.02 88.06 21-Oct-96 92.62 114.36 115.98 95.25 14-Mar-96 107.05 103.24 104.66 85.86 3-Jul-96 87.58 108.32 109.54 87.53 22-Oct-96 91.61 113.83 115.58 93.67 15-Mar-96 107.05 103.33 104.89 90.56 5-Jul-96 85.23 105.91 107.03 86.12 23-Oct-96 88.59 113.94 115.75 95.84 18-Mar-96 109.40 105.14 106.74 93.61 8-Jul-96 86.24 105.12 106.24 86.03 24-Oct-96 94.29 113.14 114.63 93.88 19-Mar-96 110.07 104.99 106.59 92.49 9-Jul-96 87.58 105.48 106.46 84.98 25-Oct-96 97.99 112.92 114.35 93.27 20-Mar-96 108.39 104.71 106.13 89.15 10-Jul-96 86.58 105.69 107.04 82.66 28-Oct-96 95.64 112.33 113.79 92.77 21-Mar-96 107.38 104.58 105.99 88.70 11-Jul-96 84.23 104.02 105.26 78.96 29-Oct-96 93.96 113.01 114.34 90.88 22-Mar-96 108.39 104.82 106.18 88.70 12-Jul-96 82.89 104.10 105.36 78.60 30-Oct-96 93.29 112.92 114.16 91.66 25-Mar-96 95.97 104.72 106.03 86.13 15-Jul-96 78.52 101.46 102.42 73.59 31-Oct-96 94.63 113.62 115.03 92.68 26-Mar-96 96.31 105.19 106.55 86.85 16-Jul-96 81.21 101.23 102.35 74.41 1-Nov-96 95.64 113.38 114.82 93.14 27-Mar-96 95.30 104.54 105.78 87.90 17-Jul-96 82.21 102.15 103.48 76.10 4-Nov-96 95.30 113.85 115.49 94.58 28-Mar-96 97.65 104.54 105.86 86.97 18-Jul-96 83.22 103.68 104.82 77.49 5-Nov-96 94.97 115.05 116.52 97.02 29-Mar-96 97.65 103.99 105.14 87.18 19-Jul-96 83.22 102.90 104.21 75.64 6-Nov-96 95.97 116.73 118.36 100.39 1-Apr-96 95.64 105.32 106.59 87.27 22-Jul-96 80.20 102.10 103.28 74.29 7-Nov-96 96.64 117.22 118.98 102.70 2-Apr-96 96.98 105.56 106.94 86.54 23-Jul-96 79.87 100.99 101.85 71.92 8-Nov-96 96.64 117.74 119.60 102.69 3-Apr-96 96.64 105.66 106.98 88.69 24-Jul-96 78.57 100.95 101.89 71.23 11-Nov-96 97.65 117.90 119.85 105.39 4-Apr-96 95.97 105.66 107.06 88.30 25-Jul-96 83.22 101.68 102.75 73.12 12-Nov-96 97.65 117.53 119.45 105.09 8-Apr-96 94.63 103.79 105.13 92.16 26-Jul-96 81.54 102.44 103.59 77.64 13-Nov-96 97.65 117.79 119.62 105.14 9-Apr-96 93.96 103.46 104.83 91.47 29-Jul-96 82.21 101.64 102.63 75.72 14-Nov-96 98.66 118.55 120.28 108.35 10-Apr-96 93.29 102.06 103.35 93.03 30-Jul-96 85.57 102.34 103.40 77.70 15-Nov-96 99.33 118.83 120.41 107.26 11-Apr-96 94.63 101.68 103.06 90.82 31-Jul-96 88.93 103.10 104.15 77.24 18-Nov-96 98.99 118.73 120.24 105.81 12-Apr-96 94.29 102.57 103.98 89.27 1-Aug-96 89.60 104.72 106.01 78.96 19-Nov-96 101.01 119.56 121.07 107.85 15-Apr-96 96.31 103.51 104.84 91.12 2-Aug-96 89.93 106.73 108.08 82.96 20-Nov-96 101.01 119.85 121.40 108.31 16-Apr-96 97.65 103.91 105.39 94.98 5-Aug-96 87.58 106.36 107.74 81.15 21-Nov-96 101.34 119.66 121.11 108.94 17-Apr-96 96.64 103.36 104.79 93.33 6-Aug-96 88.26 106.71 108.24 83.83 22-Nov-96 104.36 120.62 122.19 115.44 18-Apr-96 98.66 103.69 104.98 96.36 7-Aug-96 89.26 107.00 108.56 88.47 25-Nov-96 103.69 121.96 123.69 114.88 19-Apr-96 98.32 103.92 105.17 95.63 8-Aug-96 88.59 106.74 108.26 87.23 26-Nov-96 108.39 121.79 123.58 115.68
33
Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx - --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ 27-Nov-96 106.38 121.63 123.61 118.02 21-Mar-97 116.78 126.32 128.97 128.33 14-Jul-97 198.66 147.95 151.50 172.55 29-Nov-96 109.06 121.96 123.93 117.86 24-Mar-97 114.77 127.41 129.93 127.98 15-Jul-97 201.85 149.14 152.80 178.57 2-Dec-96 107.05 121.88 124.13 121.34 25-Mar-97 118.46 127.12 129.73 131.25 16-Jul-97 211.58 150.89 154.43 182.49 3-Dec-96 107.72 120.55 122.79 121.38 26-Mar-97 122.48 127.35 129.99 138.66 17-Jul-97 208.56 150.08 153.87 179.96 4-Dec-96 107.05 120.04 122.50 121.87 27-Mar-97 122.15 124.67 127.45 135.04 18-Jul-97 204.03 147.46 151.38 173.80 5-Dec-96 107.38 119.92 122.19 120.44 31-Mar-97 119.13 121.97 124.57 133.17 21-Jul-97 195.97 147.08 151.09 170.99 6-Dec-96 105.71 119.15 121.22 120.58 1-Apr-97 119.13 122.38 124.85 131.84 22-Jul-97 203.69 150.46 154.57 176.93 9-Dec-96 106.71 120.79 122.78 124.97 2-Apr-97 116.11 120.84 123.27 130.75 23-Jul-97 211.24 150.88 154.85 180.49 10-Dec-96 105.71 120.43 122.23 122.48 3-Apr-97 117.79 120.88 123.15 133.98 24-Jul-97 224.16 151.48 155.27 181.63 11-Dec-96 102.68 119.33 121.17 124.37 4-Apr-97 121.48 122.10 124.54 141.63 25-Jul-97 223.32 151.24 155.09 178.26 12-Dec-96 104.36 117.49 119.37 124.60 7-Apr-97 122.82 122.78 125.30 144.55 28-Jul-97 217.45 150.86 154.64 177.96 13-Dec-96 104.36 117.38 119.27 122.24 8-Apr-97 124.83 123.42 126.07 147.25 29-Jul-97 214.26 151.80 155.23 175.06 16-Dec-96 104.36 116.15 118.04 117.00 9-Apr-97 123.82 122.53 125.02 143.16 30-Jul-97 220.47 153.41 156.86 179.30 17-Dec-96 105.03 116.97 119.01 117.80 10-Apr-97 122.82 122.17 124.44 138.49 31-Jul-97 219.63 153.74 157.13 181.41 18-Dec-96 105.71 117.85 120.00 121.49 11-Apr-97 118.12 118.84 120.89 135.27 1-Aug-97 214.26 152.58 156.01 186.84 19-Dec-96 107.72 120.14 122.42 122.24 14-Apr-97 121.48 119.82 122.17 133.25 4-Aug-97 214.77 153.09 156.82 191.50 20-Dec-96 107.38 120.64 123.17 120.67 15-Apr-97 123.15 121.59 124.27 130.31 5-Aug-97 211.75 153.43 157.04 196.83 23-Dec-96 107.72 120.33 122.70 119.35 16-Apr-97 123.15 123.01 125.45 129.36 6-Aug-97 216.61 154.71 158.60 195.05 24-Dec-96 107.72 120.99 123.47 120.22 17-Apr-97 125.17 122.72 125.42 132.38 7-Aug-97 219.13 153.24 156.85 193.50 27-Dec-96 107.72 121.92 124.48 121.10 18-Apr-97 125.84 123.46 126.20 130.37 8-Aug-97 215.77 150.39 153.66 189.94 30-Dec-96 107.05 121.45 123.90 120.09 21-Apr-97 126.85 122.50 125.44 128.74 11-Aug-97 210.07 150.95 153.89 186.20 31-Dec-96 107.38 119.33 121.66 119.03 22-Apr-97 127.85 124.79 128.07 131.33 12-Aug-97 206.38 149.26 152.12 185.39 2-Jan-97 105.71 118.73 121.41 118.16 23-Apr-97 134.56 124.63 127.72 133.73 13-Aug-97 202.52 148.54 151.41 188.36 3-Jan-97 107.38 120.51 123.35 124.22 24-Apr-97 135.91 124.24 127.45 134.73 14-Aug-97 203.02 148.98 151.60 189.71 6-Jan-97 106.71 120.45 123.63 124.82 25-Apr-97 134.90 123.30 126.42 130.31 15-Aug-97 191.61 145.12 146.91 185.25 7-Jan-97 106.71 121.35 124.85 127.67 28-Apr-97 137.25 124.52 127.72 133.09 18-Aug-97 198.32 147.00 150.02 188.83 8-Jan-97 109.06 120.57 123.90 127.10 29-Apr-97 141.95 127.92 131.53 138.80 19-Aug-97 198.15 149.18 152.24 195.45 9-Jan-97 110.74 121.61 124.95 126.58 30-Apr-97 143.62 129.10 132.77 140.31 20-Aug-97 207.72 151.33 154.56 199.94 10-Jan-97 111.74 122.36 125.88 128.76 1-May-97 147.32 128.64 131.98 142.89 21-Aug-97 204.03 149.03 151.97 196.69 13-Jan-97 111.41 122.36 125.97 129.71 2-May-97 149.66 130.97 134.41 150.04 22-Aug-97 199.33 148.78 151.56 193.99 14-Jan-97 111.74 123.86 127.47 132.36 5-May-97 148.99 133.76 137.27 155.77 25-Aug-97 199.16 148.24 150.87 195.30 15-Jan-97 111.74 123.60 127.39 131.93 6-May-97 145.64 133.35 137.14 151.23 26-Aug-97 196.98 147.09 149.43 191.62 16-Jan-97 115.77 124.01 127.53 133.16 7-May-97 144.63 131.40 135.00 151.54 27-Aug-97 198.15 147.20 149.60 191.49 17-Jan-97 114.43 125.04 128.79 132.25 9-May-97 149.33 132.87 136.62 156.08 28-Aug-97 194.30 145.58 147.79 187.26 20-Jan-97 113.09 125.13 128.73 132.97 12-May-97 149.33 134.95 139.16 153.02 29-Aug-97 192.28 144.91 146.83 184.86 21-Jan-97 112.42 126.10 129.81 134.05 13-May-97 150.67 134.22 138.38 149.57 2-Sep-97 205.20 149.43 151.79 191.99 22-Jan-97 109.73 126.66 130.32 135.74 14-May-97 152.69 134.69 138.91 151.01 3-Sep-97 209.90 149.48 151.90 190.86 23-Jan-97 109.06 125.27 128.80 136.22 15-May-97 154.70 135.63 139.98 156.50 4-Sep-97 207.55 149.96 152.51 191.25 24-Jan-97 108.39 124.13 127.53 134.11 16-May-97 154.70 133.67 137.31 151.87 5-Sep-97 204.87 149.67 152.33 192.82 27-Jan-97 108.39 123.25 126.60 133.12 19-May-97 155.37 134.24 138.30 151.06 8-Sep-97 203.19 150.02 152.69 188.68 28-Jan-97 107.38 123.25 126.51 133.81 20-May-97 156.71 135.59 139.97 157.35 9-Sep-97 201.68 150.41 153.13 190.04 29-Jan-97 106.71 124.45 128.16 134.39 21-May-97 157.05 135.22 139.63 157.29 10-Sep-97 195.47 148.06 150.66 185.49 30-Jan-97 106.71 126.33 130.06 140.46 22-May-97 155.37 134.63 138.68 155.36 11-Sep-97 195.13 147.02 149.63 187.45 31-Jan-97 107.38 126.65 130.42 143.02 23-May-97 156.38 136.46 140.58 158.47 12-Sep-97 200.17 148.84 151.23 185.95 3-Feb-97 111.07 126.74 130.49 140.99 27-May-97 154.03 136.89 141.20 163.73 15-Sep-97 198.83 148.18 150.10 183.45 4-Feb-97 110.40 127.15 130.97 140.29 28-May-97 152.01 136.49 140.47 162.44 16-Sep-97 200.00 152.34 154.05 189.68 5-Feb-97 108.72 125.38 128.82 134.52 29-May-97 153.36 135.98 139.80 158.03 17-Sep-97 203.69 151.92 153.90 188.62 6-Feb-97 108.05 125.68 128.98 136.29 30-May-97 150.34 136.66 139.70 154.18 18-Sep-97 202.01 152.61 154.27 187.24 7-Feb-97 108.72 127.20 130.46 139.82 2-Jun-97 153.69 136.35 139.74 155.40 19-Sep-97 201.01 153.13 154.86 189.57 10-Feb-97 107.05 126.53 129.31 134.82 3-Jun-97 155.03 136.21 139.72 147.91 22-Sep-97 207.05 153.92 155.78 194.74 11-Feb-97 105.37 127.20 130.16 132.80 4-Jun-97 161.74 135.34 138.63 146.23 23-Sep-97 207.38 153.36 155.42 196.73 12-Feb-97 110.74 129.33 132.34 141.76 5-Jun-97 164.43 135.88 139.04 147.25 24-Sep-97 210.57 152.16 154.20 191.00 13-Feb-97 115.44 130.78 133.70 142.75 6-Jun-97 164.09 138.23 141.46 148.70 25-Sep-97 213.42 151.10 153.09 189.85 14-Feb-97 112.75 130.25 133.05 142.22 9-Jun-97 163.42 139.02 142.35 151.63 26-Sep-97 214.93 152.28 154.39 187.53 18-Feb-97 117.11 131.50 134.10 141.18 10-Jun-97 162.75 139.40 142.54 145.20 29-Sep-97 218.62 153.58 155.76 191.33 19-Feb-97 119.80 130.89 133.62 143.43 11-Jun-97 158.72 140.09 143.28 144.68 30-Sep-97 225.50 152.61 154.42 189.02 20-Feb-97 117.11 129.33 132.14 140.35 12-Jun-97 161.07 142.33 145.36 142.64 1-Oct-97 237.92 153.92 155.73 185.11 21-Feb-97 117.45 129.17 131.97 136.43 13-Jun-97 162.75 143.91 147.00 146.06 2-Oct-97 233.05 154.73 156.36 187.17 24-Feb-97 118.12 130.54 133.30 138.44 16-Jun-97 169.80 144.01 147.42 149.91 3-Oct-97 236.24 155.47 156.85 187.54 25-Feb-97 119.80 130.82 133.71 140.77 17-Jun-97 177.85 144.09 147.50 153.62 6-Oct-97 232.89 156.70 157.93 184.74 26-Feb-97 121.14 129.80 132.58 139.39 18-Jun-97 186.91 143.23 146.51 151.69 7-Oct-97 229.53 158.38 159.92 188.06 27-Feb-97 122.48 128.09 130.65 133.10 19-Jun-97 185.23 144.67 147.68 152.62 8-Oct-97 228.19 156.89 158.66 191.67 28-Feb-97 120.81 127.40 129.87 135.19 20-Jun-97 185.23 144.78 148.11 152.23 9-Oct-97 229.53 156.37 158.05 191.54 3-Mar-97 121.81 128.12 130.58 137.58 23-Jun-97 185.23 141.55 144.78 151.37 10-Oct-97 222.48 155.78 157.27 193.09 4-Mar-97 125.84 127.42 129.60 140.33 24-Jun-97 188.93 144.40 147.96 154.72 13-Oct-97 222.65 155.96 157.54 193.12 5-Mar-97 130.54 129.20 131.58 142.39 25-Jun-97 194.63 143.22 146.36 155.15 14-Oct-97 222.15 156.31 157.51 187.61 6-Mar-97 127.52 128.65 131.18 138.72 26-Jun-97 192.28 142.36 145.50 152.85 15-Oct-97 221.81 155.58 156.42 185.38 7-Mar-97 126.51 129.68 131.85 138.39 27-Jun-97 194.30 142.94 146.00 152.12 16-Oct-97 217.78 153.89 154.49 177.73 10-Mar-97 125.84 131.08 133.08 138.26 30-Jun-97 192.95 142.60 145.52 151.45 17-Oct-97 215.60 152.10 152.92 171.89 11-Mar-97 126.85 130.71 132.80 139.34 1-Jul-97 189.26 143.55 146.74 152.62 20-Oct-97 219.80 153.95 154.78 172.45 12-Mar-97 123.82 129.57 131.56 139.67 2-Jul-97 188.09 145.64 148.90 155.06 21-Oct-97 231.21 156.63 157.68 175.05 13-Mar-97 119.13 127.20 129.58 138.44 3-Jul-97 192.95 147.72 151.01 156.88 22-Oct-97 230.66 156.02 156.85 172.85 14-Mar-97 120.47 127.78 129.66 139.72 7-Jul-97 198.32 146.96 150.46 157.69 23-Oct-97 218.12 153.16 153.52 164.88 17-Mar-97 120.13 128.19 130.48 136.27 8-Jul-97 197.15 148.01 151.62 161.91 24-Oct-97 215.10 151.70 151.51 156.24 18-Mar-97 119.80 127.21 129.82 132.74 9-Jul-97 196.31 146.21 149.61 165.38 27-Oct-97 195.13 141.28 141.13 141.00 19-Mar-97 120.13 126.59 129.29 128.43 10-Jul-97 199.33 147.21 150.43 165.04 28-Oct-97 208.72 148.51 149.27 155.33 20-Mar-97 115.10 126.09 128.91 130.52 11-Jul-97 199.50 147.68 151.00 168.35 29-Oct-97 211.41 148.08 148.61 154.68
34
Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx - --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ 30-Oct-97 205.03 145.58 145.80 144.95 24-Feb-98 209.73 166.02 166.89 153.80 15-Jun-98 224.16 173.51 176.71 115.23 31-Oct-97 210.40 147.35 147.59 149.54 25-Feb-98 208.56 168.01 169.00 161.38 16-Jun-98 228.86 175.21 178.58 120.70 3-Nov-97 215.94 151.27 151.58 158.05 26-Feb-98 211.41 168.94 169.50 163.36 17-Jun-98 237.75 178.36 181.65 116.23 4-Nov-97 211.24 151.56 151.61 160.27 27-Feb-98 209.06 169.05 169.63 156.74 18-Jun-98 234.06 178.24 181.49 118.42 5-Nov-97 217.11 151.88 151.64 161.48 2-Mar-98 211.07 168.79 169.27 150.90 19-Jun-98 230.37 177.32 180.97 116.95 6-Nov-97 213.76 151.12 150.93 154.98 3-Mar-98 204.19 169.48 170.22 149.18 22-Jun-98 234.23 177.73 181.18 121.99 7-Nov-97 209.56 149.42 149.48 152.47 4-Mar-98 203.36 168.73 169.32 152.68 23-Jun-98 224.16 180.35 184.40 125.40 10-Nov-97 203.52 148.39 148.29 147.22 5-Mar-98 195.47 166.75 166.66 142.62 24-Jun-98 232.38 182.51 186.94 128.30 11-Nov-97 203.02 148.82 148.85 145.74 6-Mar-98 196.81 170.07 169.92 145.15 25-Jun-98 230.37 181.93 186.10 125.40 12-Nov-97 189.26 145.95 146.09 137.73 9-Mar-98 202.52 169.53 169.28 139.81 26-Jun-98 224.66 182.56 186.92 124.35 13-Nov-97 185.23 147.67 148.13 142.05 10-Mar-98 202.68 171.45 170.99 142.94 29-Jun-98 221.31 183.41 188.45 123.90 14-Nov-97 186.58 149.56 150.13 145.46 11-Mar-98 202.18 172.13 171.59 144.81 30-Jun-98 227.85 182.66 187.42 121.82 17-Nov-97 190.94 152.43 153.10 151.81 12-Mar-98 200.67 172.36 172.02 146.21 1-Jul-98 238.59 185.03 189.46 125.20 18-Nov-97 191.61 151.15 151.90 147.68 13-Mar-98 202.68 172.15 171.84 146.12 2-Jul-98 235.57 184.69 189.05 121.66 19-Nov-97 190.10 152.17 153.11 146.82 16-Mar-98 200.67 173.87 173.57 147.99 6-Jul-98 235.07 186.45 190.55 121.26 20-Nov-97 193.46 154.49 155.41 154.33 17-Mar-98 195.64 174.06 173.87 145.24 7-Jul-98 236.24 186.02 190.37 126.25 21-Nov-97 197.15 155.15 156.64 152.54 18-Mar-98 193.29 174.88 175.02 144.67 8-Jul-98 237.25 187.90 192.54 128.30 24-Nov-97 184.56 152.51 153.66 145.02 19-Mar-98 192.11 175.56 175.64 145.52 9-Jul-98 232.05 186.64 191.24 126.39 25-Nov-97 180.20 153.18 154.48 145.96 20-Mar-98 193.29 177.08 177.51 141.30 10-Jul-98 230.87 187.57 192.06 126.73 26-Nov-97 181.21 153.31 154.46 143.53 23-Mar-98 193.96 176.49 176.48 142.12 13-Jul-98 235.74 187.71 192.63 127.72 28-Nov-97 179.87 153.92 155.16 143.97 24-Mar-98 199.66 178.12 178.27 142.34 14-Jul-98 242.45 189.71 194.75 126.39 1-Dec-97 189.09 157.04 158.21 151.16 25-Mar-98 205.37 177.52 178.38 145.82 15-Jul-98 251.34 189.26 194.56 135.34 2-Dec-97 181.04 156.54 157.54 141.64 26-Mar-98 205.70 177.34 178.31 147.33 16-Jul-98 252.01 190.74 195.79 136.29 3-Dec-97 175.50 157.36 158.23 142.82 27-Mar-98 203.36 176.48 177.49 147.35 17-Jul-98 243.96 191.19 196.47 131.99 4-Dec-97 179.36 156.77 158.00 140.63 30-Mar-98 198.99 176.18 177.58 145.44 20-Jul-98 237.75 190.76 195.49 128.02 5-Dec-97 180.20 158.49 160.04 144.18 31-Mar-98 197.15 177.49 178.75 147.96 21-Jul-98 230.87 187.69 192.25 129.30 8-Dec-97 181.88 158.26 159.68 146.39 1-Apr-98 197.32 178.52 180.11 153.70 22-Jul-98 232.21 187.53 191.88 125.46 9-Dec-97 180.03 157.20 158.08 140.97 2-Apr-98 195.64 180.43 181.78 153.22 23-Jul-98 221.31 183.61 187.94 124.02 10-Dec-97 171.81 156.23 157.19 137.23 3-Apr-98 190.94 180.87 182.08 151.34 24-Jul-98 216.78 183.78 188.66 123.35 11-Dec-97 161.07 153.84 154.38 128.54 6-Apr-98 196.98 180.66 181.36 149.73 27-Jul-98 216.44 184.83 190.52 124.73 12-Dec-97 149.33 153.59 153.65 122.93 7-Apr-98 193.12 178.75 180.00 143.43 28-Jul-98 217.45 182.08 187.78 125.85 15-Dec-97 151.01 155.20 155.42 125.48 8-Apr-98 198.66 177.48 178.57 143.62 29-Jul-98 220.81 181.27 186.81 123.59 16-Dec-97 152.52 155.95 156.36 126.87 9-Apr-98 200.17 178.93 180.20 142.81 30-Jul-98 223.49 184.13 190.02 127.79 17-Dec-97 160.24 155.55 155.63 126.05 13-Apr-98 202.85 178.77 180.38 142.80 31-Jul-98 219.30 180.54 186.19 126.39 18-Dec-97 160.40 153.90 153.61 125.47 14-Apr-98 206.21 179.75 181.32 146.78 3-Aug-98 217.95 179.21 184.46 126.64 19-Dec-97 158.39 152.53 152.26 132.22 15-Apr-98 206.04 180.32 182.52 152.56 4-Aug-98 215.27 172.72 177.65 122.75 22-Dec-97 162.42 153.64 153.37 133.63 16-Apr-98 201.85 178.53 181.15 149.83 5-Aug-98 219.46 174.22 179.67 124.60 23-Dec-97 155.70 151.29 150.48 128.20 17-Apr-98 201.51 180.87 183.47 149.19 6-Aug-98 222.82 175.54 181.38 130.32 24-Dec-97 159.56 150.26 149.56 127.41 20-Apr-98 213.59 181.02 183.35 153.96 7-Aug-98 220.97 175.51 180.91 133.61 29-Dec-97 161.41 153.59 153.10 128.37 21-Apr-98 223.32 181.51 183.84 155.61 10-Aug-98 214.60 174.49 179.95 130.15 30-Dec-97 163.42 156.40 155.91 129.57 22-Apr-98 244.46 182.13 184.59 160.79 11-Aug-98 207.05 172.21 177.85 125.75 31-Dec-97 162.42 156.34 155.44 130.59 23-Apr-98 240.10 180.37 182.89 157.12 12-Aug-98 210.23 174.67 180.32 128.27 2-Jan-98 164.09 157.08 156.55 136.23 24-Apr-98 242.28 178.48 180.87 159.10 13-Aug-98 206.21 173.17 178.65 125.65 5-Jan-98 170.13 157.41 156.56 138.24 27-Apr-98 239.26 175.04 177.74 154.18 14-Aug-98 206.21 171.21 176.68 125.16 6-Jan-98 165.10 155.72 154.67 134.32 28-Apr-98 236.91 174.81 177.19 154.87 17-Aug-98 209.40 174.58 180.49 130.31 7-Jan-98 166.61 155.30 154.29 129.79 29-Apr-98 237.75 176.34 178.66 155.15 18-Aug-98 219.30 177.40 183.70 133.14 8-Jan-98 164.26 154.02 153.08 130.57 30-Apr-98 241.95 179.10 181.31 156.47 19-Aug-98 220.30 176.90 183.23 127.21 9-Jan-98 153.52 149.45 148.54 123.29 1-May-98 255.54 180.59 183.00 157.03 20-Aug-98 211.41 175.86 182.01 121.59 12-Jan-98 153.52 151.31 150.58 124.10 4-May-98 252.01 180.77 183.13 157.03 21-Aug-98 204.36 174.19 180.54 119.49 13-Jan-98 156.38 153.39 152.42 132.26 5-May-98 258.05 179.71 182.15 157.62 24-Aug-98 197.48 175.30 181.72 119.59 14-Jan-98 158.39 154.32 153.43 131.24 6-May-98 261.74 178.00 180.60 154.98 25-Aug-98 194.97 176.06 182.76 119.24 15-Jan-98 155.87 153.16 152.38 131.01 7-May-98 257.72 176.43 178.78 153.14 26-Aug-98 189.26 174.66 181.42 115.68 16-Jan-98 163.76 154.90 154.13 129.19 8-May-98 259.73 178.52 181.13 156.59 27-Aug-98 177.18 167.96 174.36 107.75 20-Jan-98 172.32 157.65 157.10 135.18 11-May-98 264.93 178.28 181.11 153.43 28-Aug-98 178.02 165.47 171.57 104.50 21-Jan-98 169.80 156.40 155.78 136.14 12-May-98 265.60 179.75 182.90 155.13 31-Aug-98 160.91 154.22 159.15 95.83 22-Jan-98 166.28 155.15 154.53 134.26 13-May-98 263.25 180.25 183.71 154.74 1-Sep-98 169.97 160.18 165.96 101.00 23-Jan-98 166.95 154.27 153.80 134.49 14-May-98 270.81 180.01 183.58 152.15 2-Sep-98 170.64 159.57 164.25 101.06 26-Jan-98 170.80 154.17 154.04 132.90 15-May-98 269.80 178.62 181.98 145.05 3-Sep-98 169.13 158.24 162.67 98.62 27-Jan-98 171.98 156.11 156.09 135.79 18-May-98 261.24 178.15 180.94 145.30 4-Sep-98 161.91 156.89 161.36 98.49 28-Jan-98 178.19 157.47 157.91 142.91 19-May-98 272.82 178.74 181.46 145.65 8-Sep-98 174.50 164.88 169.06 105.79 29-Jan-98 182.05 158.76 159.31 142.53 20-May-98 267.45 180.28 183.30 140.47 9-Sep-98 169.80 162.10 166.44 103.94 30-Jan-98 178.86 157.92 158.43 143.22 21-May-98 267.28 179.57 182.45 136.27 10-Sep-98 163.25 157.91 161.82 100.47 2-Feb-98 184.40 161.31 161.86 147.14 22-May-98 264.60 178.90 182.17 134.52 11-Sep-98 164.43 162.56 166.61 104.78 3-Feb-98 182.55 162.07 162.50 153.01 26-May-98 262.08 176.25 179.58 132.74 14-Sep-98 160.40 165.89 169.54 106.03 4-Feb-98 175.84 162.21 162.67 153.26 27-May-98 255.03 175.96 179.80 132.09 15-Sep-98 158.56 167.17 170.58 104.49 5-Feb-98 181.38 161.67 162.15 147.96 28-May-98 254.36 176.82 180.49 132.63 16-Sep-98 157.05 168.43 171.68 106.05 6-Feb-98 182.55 163.11 163.49 149.50 29-May-98 255.37 175.73 178.80 128.45 17-Sep-98 142.79 164.14 167.07 105.14 9-Feb-98 176.01 162.83 163.10 147.64 1-Jun-98 253.02 175.76 178.30 124.12 18-Sep-98 136.91 164.34 167.38 105.11 10-Feb-98 179.53 164.16 164.68 152.01 2-Jun-98 248.83 176.12 178.76 124.85 21-Sep-98 123.49 164.95 168.07 108.38 11-Feb-98 184.06 164.32 165.02 151.08 3-Jun-98 245.30 174.43 176.79 120.94 22-Sep-98 129.03 165.87 168.19 106.76 12-Feb-98 197.32 164.99 165.77 152.67 4-Jun-98 247.99 176.38 179.34 124.73 23-Sep-98 143.96 171.75 174.20 111.55 13-Feb-98 194.80 164.34 165.18 151.98 5-Jun-98 246.98 179.44 182.43 126.02 24-Sep-98 135.57 167.98 170.56 109.35 17-Feb-98 204.87 164.77 165.48 149.87 8-Jun-98 256.38 179.74 182.68 126.33 25-Sep-98 142.28 168.31 171.10 112.57 18-Feb-98 203.02 166.27 167.00 153.70 9-Jun-98 254.19 180.18 183.19 129.18 28-Sep-98 143.29 168.94 171.76 110.78 19-Feb-98 201.68 165.66 166.39 157.05 10-Jun-98 247.99 179.19 182.43 120.29 29-Sep-98 145.47 169.00 171.99 109.60 20-Feb-98 201.85 166.61 167.19 155.61 11-Jun-98 235.91 176.34 179.74 117.99 30-Sep-98 143.29 163.84 166.65 105.39 23-Feb-98 205.37 167.25 168.04 158.64 12-Jun-98 231.71 177.02 180.67 116.71 1-Oct-98 136.41 158.91 161.80 101.28
35
Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx - --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ 2-Oct-98 134.06 161.52 164.42 100.88 25-Jan-99 215.44 198.79 208.21 193.25 14-May-99 245.13 215.52 227.64 196.72 5-Oct-98 130.20 159.26 162.46 96.47 26-Jan-99 204.70 201.75 211.96 201.72 17-May-99 244.80 215.79 228.15 200.94 6-Oct-98 132.21 158.62 162.29 98.23 27-Jan-99 199.66 200.28 209.99 195.06 18-May-99 244.30 214.80 227.45 204.59 7-Oct-98 128.36 156.38 161.15 94.90 28-Jan-99 197.65 203.85 213.67 201.35 19-May-99 247.31 216.56 229.46 212.66 8-Oct-98 122.48 154.57 159.46 94.07 29-Jan-99 195.47 206.15 216.45 208.27 20-May-99 239.09 215.69 228.19 205.91 9-Oct-98 134.23 158.59 163.48 99.47 1-Feb-99 190.94 205.08 214.83 203.85 21-May-99 239.26 214.31 227.03 202.30 12-Oct-98 140.27 160.73 165.67 106.23 2-Feb-99 192.45 203.31 212.67 199.36 24-May-99 233.56 210.50 222.51 195.68 13-Oct-98 141.95 160.26 164.85 103.18 3-Feb-99 196.31 204.93 214.83 207.34 25-May-99 227.68 206.92 218.81 184.90 14-Oct-98 149.33 161.99 166.20 108.39 4-Feb-99 193.29 201.13 210.31 196.81 26-May-99 231.54 210.20 222.91 188.08 15-Oct-98 158.39 168.75 173.77 112.93 5-Feb-99 190.44 199.67 208.75 191.23 27-May-99 231.38 206.44 218.93 192.11 16-Oct-98 156.71 170.19 176.06 114.41 8-Feb-99 193.96 200.37 210.11 198.25 28-May-99 231.21 209.73 222.60 192.26 19-Oct-98 151.34 171.15 176.56 116.78 9-Feb-99 192.78 195.92 204.98 185.28 1-Jun-99 242.11 208.51 221.10 186.03 20-Oct-98 159.23 171.40 176.51 116.20 10-Feb-99 193.46 197.11 206.98 186.86 2-Jun-99 238.93 208.59 221.60 196.11 21-Oct-98 167.62 172.36 177.69 119.91 11-Feb-99 192.28 202.03 212.33 199.06 3-Jun-99 237.75 209.36 222.27 191.72 22-Oct-98 148.32 173.74 179.43 122.50 12-Feb-99 187.25 198.17 208.23 194.14 4-Jun-99 238.26 213.90 227.25 202.58 23-Oct-98 140.77 172.49 178.37 123.79 16-Feb-99 185.23 200.07 209.45 195.32 7-Jun-99 242.28 214.99 228.51 204.66 26-Oct-98 144.13 172.75 178.38 124.97 17-Feb-99 181.71 197.19 207.05 188.85 8-Jun-99 252.18 212.22 224.91 204.26 27-Oct-98 148.83 171.63 176.58 123.01 18-Feb-99 184.23 199.33 208.92 189.96 9-Jun-99 253.02 212.43 225.55 213.34 28-Oct-98 146.14 172.07 176.80 126.14 19-Feb-99 186.91 199.64 209.64 193.18 10-Jun-99 255.03 209.89 222.93 216.47 29-Oct-98 141.95 174.94 179.79 129.93 22-Feb-99 195.13 204.94 214.69 203.49 11-Jun-99 254.03 208.41 221.32 216.42 30-Oct-98 148.32 177.00 181.48 130.09 23-Feb-99 197.15 204.79 214.76 202.52 14-Jun-99 249.33 208.46 221.79 217.49 2-Nov-98 159.23 179.08 183.87 130.77 24-Feb-99 191.11 201.93 211.21 202.41 15-Jun-99 249.50 209.62 223.19 223.45 3-Nov-98 154.36 178.96 183.94 127.03 25-Feb-99 188.25 200.57 210.64 192.50 16-Jun-99 254.03 214.33 228.77 229.58 4-Nov-98 163.59 180.22 184.88 133.69 26-Feb-99 186.91 199.50 209.00 176.47 17-Jun-99 254.19 215.86 230.61 229.70 5-Nov-98 166.61 182.66 187.56 133.33 1-Mar-99 184.90 199.15 208.88 178.30 18-Jun-99 251.34 216.33 230.99 226.39 6-Nov-98 165.94 183.82 188.88 136.68 2-Mar-99 183.39 197.43 206.63 171.97 21-Jun-99 256.21 217.32 232.31 236.30 9-Nov-98 159.23 182.08 187.10 136.61 3-Mar-99 183.89 197.78 206.83 175.05 22-Jun-99 261.58 215.21 230.01 231.29 10-Nov-98 157.21 181.76 187.03 136.70 4-Mar-99 181.54 200.83 210.63 176.08 23-Jun-99 262.58 214.76 229.34 235.38 11-Nov-98 160.40 180.59 186.07 143.28 5-Mar-99 187.42 205.48 215.96 187.03 24-Jun-99 261.24 211.97 226.72 225.20 12-Nov-98 162.42 180.06 185.36 144.98 8-Mar-99 187.08 206.65 217.33 192.05 25-Jun-99 259.23 211.90 226.87 224.16 13-Nov-98 163.93 181.35 187.32 144.46 9-Mar-99 187.75 206.18 216.61 184.35 28-Jun-99 261.91 214.48 229.73 227.66 16-Nov-98 169.46 182.99 189.10 145.39 10-Mar-99 191.44 207.31 217.78 188.87 29-Jun-99 266.61 217.72 233.71 234.81 17-Nov-98 172.32 183.55 189.57 146.70 11-Mar-99 197.32 209.06 219.63 185.11 30-Jun-99 270.81 221.14 238.09 239.97 18-Nov-98 182.22 184.38 190.82 149.83 12-Mar-99 194.63 208.56 219.09 181.12 1-Jul-99 267.79 222.47 239.78 243.68 19-Nov-98 184.06 185.69 192.17 152.61 15-Mar-99 200.34 210.60 221.53 180.90 2-Jul-99 268.96 224.13 242.08 244.15 20-Nov-98 187.08 187.45 194.32 153.37 16-Mar-99 205.87 210.46 221.59 188.95 6-Jul-99 273.83 223.63 241.40 245.64 23-Nov-98 187.75 191.42 198.72 157.55 17-Mar-99 209.56 209.08 219.97 189.78 7-Jul-99 272.48 224.87 243.25 243.41 24-Nov-98 180.03 190.58 197.87 155.63 18-Mar-99 214.09 212.10 222.80 191.55 8-Jul-99 270.81 224.64 242.76 252.59 25-Nov-98 172.48 191.21 198.60 156.76 19-Mar-99 212.92 209.32 219.71 185.74 9-Jul-99 272.82 226.07 244.31 252.23 27-Nov-98 177.01 192.09 199.68 158.78 22-Mar-99 214.60 208.95 219.52 183.19 12-Jul-99 264.60 225.40 243.96 252.42 30-Nov-98 169.97 187.46 195.07 151.65 23-Mar-99 207.38 203.33 213.56 175.29 13-Jul-99 273.66 224.50 243.26 249.70 1-Dec-98 170.47 189.34 197.14 155.55 24-Mar-99 207.38 204.37 214.78 178.23 14-Jul-99 284.56 225.25 243.87 260.09 2-Dec-98 166.78 188.69 195.63 161.87 25-Mar-99 216.44 207.82 218.84 183.05 15-Jul-99 292.45 227.09 245.66 261.91 3-Dec-98 173.99 185.29 191.67 164.81 26-Mar-99 210.91 206.66 217.54 180.13 16-Jul-99 290.77 228.57 247.99 262.57 4-Dec-98 181.88 189.57 196.07 170.73 29-Mar-99 217.28 211.07 222.88 186.52 19-Jul-99 294.46 226.77 246.05 252.68 7-Dec-98 180.70 191.34 198.10 172.81 30-Mar-99 214.77 209.55 221.70 183.34 20-Jul-99 278.86 221.85 239.96 241.31 8-Dec-98 180.54 190.32 197.41 174.76 31-Mar-99 221.31 207.24 218.52 183.64 21-Jul-99 278.19 222.20 240.05 245.71 9-Dec-98 187.25 190.66 197.39 171.71 1-Apr-99 218.12 208.42 219.65 191.88 22-Jul-99 254.70 219.25 236.88 235.58 10-Dec-98 178.36 187.69 194.05 164.28 5-Apr-99 222.15 212.83 224.70 200.18 23-Jul-99 259.90 218.60 236.20 239.38 11-Dec-98 178.19 187.92 194.22 164.30 6-Apr-99 217.28 212.31 224.84 204.48 26-Jul-99 255.70 217.12 234.18 232.76 14-Dec-98 170.47 183.85 190.15 158.03 7-Apr-99 221.48 213.76 227.40 201.55 27-Jul-99 263.76 219.55 237.08 245.64 15-Dec-98 175.67 187.33 194.71 163.40 8-Apr-99 220.30 216.52 229.64 203.22 28-Jul-99 268.96 219.97 237.60 252.48 16-Dec-98 166.44 187.19 194.37 160.83 9-Apr-99 211.75 217.22 230.27 203.13 29-Jul-99 268.46 216.04 233.33 244.03 17-Dec-98 173.49 190.10 197.25 168.41 12-Apr-99 214.77 218.88 231.66 192.03 30-Jul-99 271.48 214.06 230.93 244.68 18-Dec-98 184.23 191.39 199.34 173.00 13-Apr-99 216.27 217.46 230.31 188.11 2-Aug-99 266.95 213.95 230.60 242.81 21-Dec-98 182.22 193.78 201.48 175.53 14-Apr-99 214.93 214.01 226.07 190.57 3-Aug-99 264.76 213.00 230.34 243.67 22-Dec-98 179.53 193.90 201.50 170.53 15-Apr-99 217.11 213.11 226.30 198.94 4-Aug-99 260.74 210.29 227.88 240.76 23-Dec-98 180.37 197.92 206.32 173.12 16-Apr-99 223.99 212.49 225.98 195.83 5-Aug-99 259.90 211.64 230.22 241.67 24-Dec-98 181.21 197.55 205.79 173.03 19-Apr-99 225.67 207.74 220.65 186.15 6-Aug-99 254.87 209.48 227.83 245.88 28-Dec-98 179.03 197.43 205.49 170.66 20-Apr-99 218.29 210.42 223.76 188.80 9-Aug-99 253.52 209.08 227.02 250.28 29-Dec-98 180.20 200.06 207.44 168.12 21-Apr-99 226.51 215.25 228.69 201.46 10-Aug-99 247.99 206.44 224.88 247.20 30-Dec-98 179.70 198.46 205.26 171.39 22-Apr-99 240.60 218.91 233.20 199.69 11-Aug-99 259.73 209.74 228.60 258.42 31-Dec-98 181.71 198.03 204.14 173.65 23-Apr-99 237.08 218.59 232.32 195.84 12-Aug-99 262.58 209.13 227.47 250.93 4-Jan-99 187.92 197.85 204.44 175.56 26-Apr-99 240.94 219.10 233.19 194.83 13-Aug-99 272.99 213.89 232.80 257.41 5-Jan-99 194.97 200.53 207.98 186.50 27-Apr-99 239.26 219.55 232.98 191.11 16-Aug-99 269.63 214.39 234.10 255.71 6-Jan-99 206.38 204.97 213.25 192.91 28-Apr-99 231.21 217.63 231.11 187.45 17-Aug-99 273.32 216.55 236.33 253.65 7-Jan-99 202.01 204.55 213.85 194.37 29-Apr-99 229.87 216.33 229.66 184.38 18-Aug-99 266.61 214.72 234.24 245.22 8-Jan-99 203.52 205.42 214.95 193.89 30-Apr-99 228.52 215.10 228.34 183.41 19-Aug-99 267.11 213.23 232.46 243.93 11-Jan-99 199.33 203.61 212.72 199.51 3-May-99 236.91 218.23 231.53 188.56 20-Aug-99 267.62 215.33 235.42 247.92 12-Jan-99 193.96 199.69 208.35 192.41 4-May-99 233.05 214.59 227.54 186.29 23-Aug-99 268.96 219.13 239.93 255.75 13-Jan-99 187.58 198.86 207.11 199.81 5-May-99 233.72 217.05 230.61 195.96 24-Aug-99 277.18 219.66 241.16 262.60 14-Jan-99 184.73 195.28 203.07 194.15 6-May-99 231.21 214.59 227.97 188.34 25-Aug-99 285.40 222.61 244.63 261.16 15-Jan-99 193.29 200.29 208.34 199.76 7-May-99 236.58 216.68 230.40 191.68 26-Aug-99 280.87 219.42 241.51 257.81 19-Jan-99 199.33 201.70 210.66 198.93 10-May-99 240.10 215.92 229.11 192.24 27-Aug-99 280.37 217.21 239.27 259.57 20-Jan-99 209.23 202.44 211.57 206.45 11-May-99 243.29 218.39 231.09 195.82 30-Aug-99 277.68 213.30 234.97 257.63 21-Jan-99 204.03 198.99 208.55 197.08 12-May-99 247.99 219.74 232.33 204.49 31-Aug-99 276.01 212.72 233.95 258.55 22-Jan-99 207.89 197.38 206.29 194.55 13-May-99 250.67 220.31 232.94 201.27 1-Sep-99 276.18 214.44 235.97 262.58
36
Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx - --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ 2-Sep-99 267.62 212.51 234.45 264.09 22-Dec-99 355.03 231.34 264.26 346.84 12-Apr-00 401.68 236.36 267.97 514.02 3-Sep-99 278.69 218.65 241.27 277.84 23-Dec-99 357.21 234.94 268.06 344.74 13-Apr-00 416.11 232.07 262.70 500.15 7-Sep-99 290.77 217.56 240.42 279.24 27-Dec-99 356.54 234.74 268.54 348.76 14-Apr-00 400.00 218.54 247.38 441.93 8-Sep-99 280.87 216.54 239.16 274.39 28-Dec-99 353.69 234.83 268.58 346.26 17-Apr-00 425.50 225.77 257.69 500.24 9-Sep-99 280.87 217.11 239.89 276.83 29-Dec-99 352.18 235.76 268.22 347.31 18-Apr-00 447.65 232.24 265.61 521.39 10-Sep-99 291.11 217.75 240.90 279.76 30-Dec-99 358.22 235.93 267.71 344.45 19-Apr-00 473.83 229.97 260.78 501.72 13-Sep-99 285.23 216.54 239.53 270.51 31-Dec-99 362.42 236.70 267.95 349.00 20-Apr-00 478.52 231.11 262.64 507.37 14-Sep-99 286.07 215.28 238.20 284.36 3-Jan-00 378.52 234.44 266.58 353.28 24-Apr-00 455.03 230.35 261.09 492.19 15-Sep-99 283.89 212.33 234.48 271.44 4-Jan-00 355.37 225.45 256.52 340.46 25-Apr-00 491.28 238.02 268.87 536.18 16-Sep-99 281.04 212.41 234.85 273.40 5-Jan-00 366.95 225.88 257.37 336.11 26-Apr-00 474.50 235.37 266.68 525.48 17-Sep-99 279.87 215.14 238.25 279.98 6-Jan-00 343.62 226.10 257.74 331.55 27-Apr-00 479.19 236.00 267.23 562.27 20-Sep-99 275.34 215.15 238.24 277.53 7-Jan-00 365.77 232.22 264.79 342.16 28-Apr-00 479.19 233.99 264.09 580.36 21-Sep-99 263.93 210.65 233.13 269.06 10-Jan-00 373.49 234.82 267.30 367.39 1-May-00 485.23 236.54 267.37 576.61 22-Sep-99 270.64 211.12 233.60 273.49 11-Jan-00 375.84 231.75 265.39 355.21 2-May-00 476.51 233.00 263.36 549.21 23-Sep-99 268.29 206.27 227.87 258.42 12-Jan-00 388.25 230.74 264.53 367.34 3-May-00 459.73 227.97 257.25 530.18 24-Sep-99 262.92 205.78 227.38 255.80 13-Jan-00 399.66 233.54 266.30 371.00 4-May-00 455.70 227.08 255.77 538.77 27-Sep-99 270.30 206.74 228.30 258.99 14-Jan-00 412.42 236.04 269.53 401.16 5-May-00 467.79 230.80 260.16 547.42 28-Sep-99 270.30 206.56 228.28 260.16 18-Jan-00 410.07 234.42 268.91 397.94 8-May-00 459.06 229.43 258.07 518.63 29-Sep-99 269.63 204.34 224.32 256.37 19-Jan-00 399.50 234.55 267.10 398.96 9-May-00 451.01 227.50 256.12 492.39 30-Sep-99 271.14 206.65 227.24 247.21 20-Jan-00 414.93 232.88 264.74 402.50 10-May-00 432.21 222.81 250.06 450.24 1-Oct-99 266.11 206.66 226.54 251.85 21-Jan-00 406.21 232.20 263.54 398.33 11-May-00 452.35 226.80 255.07 478.39 4-Oct-99 275.84 210.17 230.69 263.36 24-Jan-00 403.69 225.79 256.43 390.86 12-May-00 469.13 228.92 257.42 486.50 5-Oct-99 273.15 209.65 230.80 271.80 25-Jan-00 416.11 227.16 259.32 403.97 15-May-00 468.46 233.98 262.44 499.89 6-Oct-99 282.21 213.52 234.83 273.83 26-Jan-00 408.05 226.20 257.80 387.93 16-May-00 482.55 236.18 265.04 518.47 7-Oct-99 281.71 212.27 233.11 262.43 27-Jan-00 400.17 225.31 256.72 385.70 17-May-00 465.77 233.24 261.09 509.08 8-Oct-99 282.89 215.23 236.05 256.05 28-Jan-00 396.81 219.12 249.43 371.02 18-May-00 459.06 231.54 259.16 496.54 11-Oct-99 281.88 215.10 235.82 261.81 31-Jan-00 396.64 224.65 254.91 385.41 19-May-00 440.27 226.66 254.47 470.70 12-Oct-99 270.47 211.53 231.92 259.04 1-Feb-00 403.52 227.04 259.18 397.48 22-May-00 420.81 225.66 252.81 466.94 13-Oct-99 263.76 207.10 226.84 252.45 2-Feb-00 415.44 227.01 258.18 409.13 23-May-00 416.11 221.33 247.58 430.82 14-Oct-99 261.91 206.76 227.12 256.42 3-Feb-00 452.01 229.56 260.89 431.18 24-May-00 418.79 225.39 252.49 453.34 15-Oct-99 259.90 200.96 220.27 253.87 4-Feb-00 446.64 229.47 262.09 429.97 25-May-00 430.20 222.56 249.06 446.66 18-Oct-99 252.35 202.04 221.97 247.27 7-Feb-00 443.62 229.45 261.65 447.29 26-May-00 444.30 222.00 248.77 450.59 19-Oct-99 256.04 203.20 223.15 239.29 8-Feb-00 469.30 232.26 264.36 455.75 30-May-00 471.14 229.16 257.33 500.45 20-Oct-99 251.85 207.73 229.56 245.21 9-Feb-00 465.44 227.43 258.70 447.55 31-May-00 474.50 228.86 257.38 494.57 21-Oct-99 267.62 206.79 228.69 250.45 10-Feb-00 487.25 228.25 259.89 467.15 1-Jun-00 499.33 233.40 262.80 528.67 22-Oct-99 270.64 209.70 231.72 254.49 11-Feb-00 466.44 223.47 254.16 451.85 2-Jun-00 534.23 237.99 267.90 573.48 25-Oct-99 270.13 208.40 230.62 250.78 14-Feb-00 467.11 223.92 255.77 458.54 5-Jun-00 520.13 236.44 267.24 571.11 26-Oct-99 263.42 206.52 229.37 249.43 15-Feb-00 458.39 225.87 257.89 472.67 6-Jun-00 510.07 234.86 264.76 550.91 27-Oct-99 258.22 208.90 231.10 244.49 16-Feb-00 452.85 223.55 254.89 472.52 7-Jun-00 520.13 237.04 267.37 559.54 28-Oct-99 265.27 216.27 238.00 258.90 17-Feb-00 429.53 223.65 254.21 484.84 8-Jun-00 525.50 235.48 265.41 566.00 29-Oct-99 279.03 219.57 242.33 275.33 18-Feb-00 433.05 216.86 246.21 463.61 9-Jun-00 513.42 234.72 263.51 578.97 1-Nov-99 268.96 218.15 240.70 275.17 22-Feb-00 463.09 217.84 247.25 490.36 12-Jun-00 507.38 232.95 261.67 551.93 2-Nov-99 272.65 217.12 239.22 283.12 23-Feb-00 483.05 219.21 248.84 499.05 13-Jun-00 521.48 236.73 266.80 579.81 3-Nov-99 284.90 218.28 240.23 296.08 24-Feb-00 481.88 218.04 247.11 526.90 14-Jun-00 528.86 236.90 267.11 554.85 4-Nov-99 295.30 219.52 241.59 299.10 25-Feb-00 503.69 214.81 243.26 511.20 15-Jun-00 526.17 238.22 269.99 560.98 5-Nov-99 295.13 220.74 242.93 307.71 28-Feb-00 502.35 217.17 245.95 528.25 16-Jun-00 520.13 235.93 266.57 573.76 8-Nov-99 287.75 221.84 244.90 307.27 29-Feb-00 514.09 220.13 249.63 579.78 19-Jun-00 538.93 239.40 271.35 611.69 9-Nov-99 294.80 219.95 242.59 306.70 1-Mar-00 542.62 222.19 251.29 580.63 20-Jun-00 554.36 237.78 269.55 626.48 10-Nov-99 307.89 221.27 243.63 317.42 2-Mar-00 530.87 222.60 253.56 562.69 21-Jun-00 570.80 238.29 270.37 628.74 11-Nov-99 325.84 222.55 245.06 327.07 3-Mar-00 556.88 227.02 258.86 600.03 22-Jun-00 540.27 233.95 265.33 599.52 12-Nov-99 312.25 224.91 247.09 325.00 6-Mar-00 545.30 224.14 254.47 616.10 23-Jun-00 536.24 232.22 263.97 602.97 15-Nov-99 314.93 224.64 246.29 316.72 7-Mar-00 514.09 218.39 247.47 625.99 26-Jun-00 539.26 234.45 266.72 602.62 16-Nov-99 314.09 228.77 251.08 318.81 8-Mar-00 517.11 220.18 250.05 615.30 27-Jun-00 528.52 233.68 265.28 581.01 17-Nov-99 312.75 227.27 250.02 312.63 9-Mar-00 528.52 225.81 255.83 639.10 28-Jun-00 533.89 234.37 266.32 579.58 18-Nov-99 313.09 229.56 253.37 321.77 10-Mar-00 520.13 224.75 253.30 660.16 29-Jun-00 496.98 232.37 263.52 558.84 19-Nov-99 312.42 229.09 253.24 324.02 13-Mar-00 509.06 222.90 251.11 651.92 30-Jun-00 509.73 234.34 267.08 564.95 22-Nov-99 305.87 228.91 254.94 316.66 14-Mar-00 491.95 218.96 246.97 609.19 3-Jul-00 517.11 236.74 269.03 584.96 23-Nov-99 300.67 226.29 252.44 309.18 15-Mar-00 468.46 224.27 253.24 595.08 5-Jul-00 486.91 232.99 264.75 530.42 24-Nov-99 310.40 228.29 254.55 314.82 16-Mar-00 483.22 234.96 264.26 607.85 6-Jul-00 489.93 234.67 266.96 554.34 26-Nov-99 327.35 228.22 254.68 315.93 17-Mar-00 469.97 235.93 265.89 621.57 7-Jul-00 509.73 238.25 271.38 574.81 29-Nov-99 324.16 226.80 253.23 310.83 20-Mar-00 479.70 234.66 265.40 596.12 10-Jul-00 515.77 237.72 270.23 571.04 30-Nov-99 320.81 223.78 249.67 301.86 21-Mar-00 496.64 240.66 272.69 591.68 11-Jul-00 518.79 238.57 270.73 555.80 1-Dec-99 335.57 225.17 252.99 307.55 22-Mar-00 489.60 241.75 273.94 646.22 12-Jul-00 535.24 240.51 272.37 573.99 2-Dec-99 332.38 227.00 254.33 321.60 23-Mar-00 477.01 246.06 281.08 636.58 13-Jul-00 547.65 240.98 273.08 588.96 3-Dec-99 336.24 230.91 259.38 325.70 24-Mar-00 483.39 246.07 281.41 637.76 14-Jul-00 557.38 243.26 275.62 613.79 6-Dec-99 344.13 229.30 257.78 337.74 27-Mar-00 488.09 245.49 280.57 646.65 17-Jul-00 578.19 243.34 276.37 627.30 7-Dec-99 345.30 227.02 255.53 330.66 28-Mar-00 496.81 242.90 277.60 624.71 18-Jul-00 538.93 240.64 272.80 598.24 8-Dec-99 351.34 226.17 254.86 327.05 29-Mar-00 487.42 243.02 279.66 591.34 19-Jul-00 531.54 238.74 271.37 574.81 9-Dec-99 359.06 226.85 255.97 317.87 30-Mar-00 464.09 239.70 275.04 570.29 20-Jul-00 546.98 240.94 274.79 567.73 10-Dec-99 355.37 228.29 258.03 313.37 31-Mar-00 459.90 241.42 275.46 585.44 21-Jul-00 540.27 238.46 271.91 536.21 13-Dec-99 345.81 227.99 257.91 312.58 3-Apr-00 428.02 242.61 277.34 542.31 24-Jul-00 528.86 235.90 268.96 532.64 14-Dec-99 334.23 226.05 256.39 291.26 4-Apr-00 423.99 240.80 274.86 529.47 25-Jul-00 522.82 237.54 271.20 547.00 15-Dec-99 324.83 227.69 259.31 299.95 5-Apr-00 416.27 239.62 272.50 562.10 26-Jul-00 515.44 233.99 267.39 512.28 16-Dec-99 348.99 228.57 260.93 312.33 6-Apr-00 457.21 241.87 275.13 572.90 27-Jul-00 466.44 233.53 268.02 470.53 17-Dec-99 353.36 228.93 261.56 316.69 7-Apr-00 482.55 244.28 277.64 605.94 28-Jul-00 444.30 228.75 262.32 474.18 20-Dec-99 344.97 228.46 260.67 330.54 10-Apr-00 453.69 242.37 276.16 578.44 31-Jul-00 482.55 230.51 264.50 492.30 21-Dec-99 351.68 230.93 263.23 346.19 11-Apr-00 435.23 241.75 276.04 560.68 1-Aug-00 492.62 231.68 264.97 473.46
37
Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx Date Philips S&P500 S&P100 Soxx - --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ --------- ------- ------ ------ ------ 2-Aug-00 475.17 231.78 264.63 472.68 25-Sep-00 456.38 231.83 258.88 436.08 15-Nov-00 404.70 223.90 247.83 354.17 3-Aug-00 457.72 234.01 267.38 470.87 26-Sep-00 454.36 229.92 255.79 431.28 16-Nov-00 381.21 221.08 244.75 334.38 4-Aug-00 448.32 235.68 268.97 456.22 27-Sep-00 464.43 229.82 256.39 428.33 17-Nov-00 384.56 220.34 245.05 332.64 7-Aug-00 451.01 238.32 271.63 472.56 28-Sep-00 471.14 234.93 261.35 446.57 20-Nov-00 355.03 216.30 239.97 327.92 8-Aug-00 444.30 238.88 272.39 470.96 29-Sep-00 456.38 231.42 256.79 421.82 21-Nov-00 357.05 217.06 241.20 312.39 9-Aug-00 472.48 237.28 272.76 477.40 2-Oct-00 457.05 231.38 257.95 412.80 22-Nov-00 336.24 213.03 236.82 307.21 10-Aug-00 470.47 235.25 270.05 466.94 3-Oct-00 448.32 229.80 256.19 402.69 24-Nov-00 375.84 216.16 240.35 334.20 11-Aug-00 470.47 237.11 271.98 472.40 4-Oct-00 450.34 231.07 257.54 427.51 27-Nov-00 386.58 217.32 241.57 311.12 14-Aug-00 499.33 240.29 275.89 508.81 5-Oct-00 436.24 231.39 258.36 412.32 28-Nov-00 364.43 215.24 239.44 285.87 15-Aug-00 493.29 239.14 274.36 525.32 6-Oct-00 413.42 226.99 253.80 395.97 29-Nov-00 379.19 216.19 240.79 285.51 16-Aug-00 501.34 238.40 272.71 531.69 9-Oct-00 409.40 225.87 251.52 389.32 30-Nov-00 352.35 211.84 235.66 265.99 17-Aug-00 513.42 241.02 275.47 550.36 10-Oct-00 387.25 223.45 249.31 349.97 1-Dec-00 376.51 211.88 235.22 266.67 18-Aug-00 522.82 240.32 274.98 562.13 11-Oct-00 374.50 219.84 244.69 349.97 4-Dec-00 383.89 213.45 237.00 273.17 21-Aug-00 516.78 241.57 276.60 550.59 12-Oct-00 377.18 214.23 237.82 341.35 5-Dec-00 422.82 221.76 247.42 300.88 22-Aug-00 518.12 241.35 276.65 556.86 13-Oct-00 418.12 221.38 246.38 375.63 6-Dec-00 416.78 217.72 242.40 287.34 23-Aug-00 510.74 242.61 278.08 573.11 16-Oct-00 402.01 221.45 245.19 353.92 7-Dec-00 408.05 216.45 240.05 282.09 24-Aug-00 516.78 242.99 278.87 576.30 17-Oct-00 378.52 217.48 240.54 321.03 8-Dec-00 431.54 220.69 245.72 316.20 25-Aug-00 526.17 242.69 278.33 566.53 18-Oct-00 369.80 216.22 238.86 320.64 11-Dec-00 442.95 222.35 248.06 338.21 28-Aug-00 530.87 243.92 280.24 561.94 19-Oct-00 419.46 223.73 248.03 375.84 12-Dec-00 426.17 220.90 246.34 317.12 29-Aug-00 525.50 243.24 279.60 560.81 20-Oct-00 416.11 225.05 249.47 372.93 13-Dec-00 402.01 219.10 243.53 296.57 30-Aug-00 510.74 242.07 277.44 553.95 23-Oct-00 419.46 224.86 248.18 385.01 14-Dec-00 393.96 216.02 240.18 293.53 31-Aug-00 529.53 244.50 279.63 571.12 24-Oct-00 426.17 225.24 249.56 354.85 15-Dec-00 385.91 211.39 233.02 286.70 1-Sep-00 546.98 245.00 280.45 565.96 25-Oct-00 395.97 219.89 243.04 329.45 18-Dec-00 377.85 213.09 234.66 288.36 5-Sep-00 540.27 242.79 278.31 555.65 26-Oct-00 410.07 219.81 243.54 349.70 19-Dec-00 369.13 210.33 232.13 285.77 6-Sep-00 500.00 240.40 275.20 523.92 27-Oct-00 414.77 222.25 245.42 339.61 20-Dec-00 338.26 203.75 223.56 267.27 7-Sep-00 506.71 242.06 276.46 542.15 30-Oct-00 408.72 225.33 247.65 348.24 21-Dec-00 345.64 205.38 225.96 265.21 8-Sep-00 493.96 240.76 274.73 515.14 31-Oct-00 428.86 230.28 253.79 367.46 22-Dec-00 361.74 210.39 231.24 290.84 11-Sep-00 479.87 239.92 273.12 510.34 1-Nov-00 429.53 228.96 252.93 353.68 26-Dec-00 365.77 211.88 232.18 286.74 12-Sep-00 477.85 238.75 271.24 489.87 2-Nov-00 430.87 230.10 254.66 362.95 27-Dec-00 380.54 214.09 233.59 299.01 13-Sep-00 487.92 239.22 271.39 498.80 3-Nov-00 432.89 229.84 254.05 366.86 28-Dec-00 381.88 214.94 233.97 298.81 14-Sep-00 499.33 238.57 270.15 497.76 6-Nov-00 435.57 230.73 255.31 369.41 29-Dec-00 389.26 212.70 231.99 285.62 15-Sep-00 493.96 236.14 266.91 482.76 7-Nov-00 422.15 230.68 255.60 354.46 2-Jan-01 377.85 206.74 225.47 282.51 18-Sep-00 480.54 232.71 263.25 471.20 8-Nov-00 408.72 227.04 251.21 329.30 3-Jan-01 400.00 217.09 237.92 331.99 19-Sep-00 491.95 235.19 266.24 509.45 9-Nov-00 398.66 225.56 249.83 331.21 4-Jan-01 401.34 214.80 236.89 323.86 20-Sep-00 481.88 233.81 264.47 510.62 10-Nov-00 370.47 220.06 243.03 309.19 5-Jan-01 408.72 209.17 230.39 305.87 21-Sep-00 475.84 233.44 263.74 487.67 13-Nov-00 375.17 217.69 240.68 322.58 8-Jan-01 426.17 208.76 228.91 314.15 22-Sep-00 455.70 233.39 261.61 458.95 14-Nov-00 402.01 222.79 246.60 340.99 9-Jan-01 422.15 209.56 229.63 312.55
The number of outstanding common shares of Royal Philips Electronics increased due to a 4-for-1 stock split in April 2000. As a result, the par value of common shares was divided by 4 to EUR 0.25. This was followed by a 3% share reduction program that was implemented in the summer of 2000. This share reduction program was accomplished through the conversion of almost all of Philips' surplus paid-in capital into nominal share capital. The resulting adjusted nominal share capital was reduced by making a cash distribution of EUR 1.26 per common share to all Philips' shareholders, which amount equaled 3% of the April 18, 2000 closing price of EUR 42.05 on the stock market of Euronext Amsterdam. Subsequently, 64 Operating and Financial Review and Prospects 38 every 100 outstanding common shares were exchanged for 97 new common shares, each of which has a par value of EUR 0.20. In 1999, the Company also executed an 8% share reduction program in a similar series of steps. The exercise of convertible personnel debentures led to a 0.3 million increase in the number of outstanding shares in 1999 (after stock split). The 14.9 million increase in shares outstanding at December 31, 1998 (after stock split in 2000) was a result of the exercise of Superclub warrants and convertible personnel debentures. At the end of 2000, the Group held 32.2 million shares in treasury to cover the future delivery of shares in conjunction with the 33.6 million conversion and stock option rights outstanding at the end of 2000. At year-end 1999, 24.7 million shares were held in treasury against a 25.7 million rights overhang (both after the stock split in 2000). It is the Company's policy to buy shares on the open market soon after the granting of stock option rights or issuance of convertible personnel debentures. - -- QUANTITATIVE AND QUALITATIVE DISCLOSURES CONCERNING MARKET RISKS RISK MANAGEMENT The Company is exposed to the risk of changes in foreign exchange rates, certain commodity prices and interest rates. To manage these risks, the Company enters into various hedging transactions that have been authorized pursuant to its policies and procedures as described below. The Company is also exposed to two further financial risks, i.e. the credit risk and the country risk inherent in a global business. The Company does not purchase or hold derivative financial instruments for trading purposes. The Company is exposed to other non-financial risks and purchases insurance to hedge these risks where possible. FOREIGN EXCHANGE HEDGING POLICIES The foreign exchange risk of the Company can be divided into five categories, namely: 1) Transaction exposures, such as both existing and forecasted sales and purchases and payables/receivables resulting from such transactions 2) Translation exposure of investments in foreign entities (including results) 3) Exposures of non-functional-currency-denominated debt 4) Exposures of non-functional-currency-denominated marketable securities 5) Competitive exposures Each business is required to define its functional currency consistent with SFAS 'No. 52 Foreign Currency Translation'. The businesses must identify and measure all exposures from material transactions denominated in currencies other than their own functional currency. It is the Company's policy that significant transaction exposures are covered by the businesses. It is the Company's policy not to hedge the translation exposure. Financing of subsidiaries is generally done in the functional currency of the borrowing entity. If the financing currency is not the functional currency of the business, the entity's exposure to foreign exchange risks is, in principle, offset by derivative contracts, unless the use of these contracts is restricted for regulatory reasons. The Company partially hedges the foreign exchange exposure arising from marketable securities that are available for sale. The Company does not hedge foreign currency exposures that may arise from competitors having different reporting currencies than the euro. FOREIGN EXCHANGE FINANCIAL INSTRUMENTS A sensitivity analysis shows the following results. An instantaneous 10% strengthening or weakening of non-euro currencies against the euro from their levels at December 31, 2000, with all other variables held constant, would result in an estimated change in the fair value of the Company's financial instruments of 65 39 EUR 7 million, compared with EUR 425 million in 1999, mainly due to the hedge of the Seagram securities. For the purpose of this analysis, financial instruments consist of debt instruments, liquid assets, securities and derivative financial instruments. The hedges of forecasted sales and purchases account for a part of the sensitivity calculated above. These are concluded to offset the effect of changes in foreign currency related to forecasted transactions by the businesses. These forecasted transactions are not financial instruments and are not yet recorded in the accounts of the Company. The hedges related to these forecasted transactions are cash flow hedges. The results from the hedges currently deferred in equity amount to a loss of EUR 12 million. The changes in the value of these hedges are deferred in equity and released to income when the forecasted transaction affects income. Virtually all transaction hedges that were outstanding at December 31, 2000 were forward foreign exchange contracts that will expire in 2001. The foreign currency risk on outstanding external debt and intercompany loans is covered by foreign currency forward contracts. The changes in the fair value of these derivatives are accounted for in financial income and expenses. The outstanding forward foreign exchange hedges related to securities at December 31, 2000 are fair value hedges and consequently have an offsetting effect on the value of the hedged securities. All hedges related to securities are forward foreign exchange contracts. COMMODITY PRICE RISK HEDGING POLICY The Company is a purchaser of certain base metals such as copper, precious metals and energy. It is the Company's policy to hedge all significant transaction risks. COMMODITY PRICE DERIVATIVES The sensitivity analysis shows the following results. An instantaneous 10% strengthening or weakening of all commodity prices from their levels at December 31, 2000, with all other variables held constant, would result in a change in the fair value of the Company's financial instruments of EUR 4 million compared with EUR 8 million at the end of 1999. The commodity price derivatives that the Company enters into are concluded as cash flow hedges to offset forecasted purchases. These forecasted transactions are not financial instruments and therefore are not recorded in the accounts of the Company. The results of these hedges, currently charged to equity as deferred results, amount to a loss of EUR 1 million. The changes in the value of the hedges of the forecasted transactions are deferred in equity and released to income when the forecasted transaction affects earnings. Virtually all contracts that were outstanding at December 31, 2000 were forward commodity contracts or futures contracts that will expire in 2001. INTEREST-RATE HEDGING POLICY At year-end 2000 the Company had a ratio of fixed-rate debt to total outstanding debt of approximately 48%, compared to 73% one year ago. The Company partially hedges the interest-rate risk inherent in the fixed-rate debt. As of year-end 2000, the Company hedged a notional amount of usd 803 million, compared to current outstanding US dollar-denominated fixed-rate public debt of usd 1,313 million, and none of the euro-denominated debt. INTEREST-RATE CURRENCY DERIVATIVES The interest-rate currency swaps hedge the Company against adverse movements of long-term interest rates and foreign exchange rate movements. Under these hedge contracts the Company receives fixed US dollar interest and pays variable euro interest. These hedges are fair value hedges. In the year 2000 the result on these hedges was a profit of EUR 26 million. As of December 31, 2000 the majority of debt consists of bonds. Of the nominal EUR 2,262 million of bonds outstanding, 12.7% have an embedded put feature, which allows the investor to redeem the bonds prior to their final maturity date. A sensitivity analysis shows the following results. If the long-term interest rates were to decrease instantaneously by 1% from their level of December 31, 66 Operating and Financial Review and Prospects 40 2000, with all other variables (including foreign exchange rates) held constant, the fair value of the long-term debt would increase by EUR 126 million. In this case the fair value of debt including the fair value of related interest-rate swaps would increase by EUR 106 million (compared to EUR 107 million in 1999). This increase is based on the assumption that the 'putable' bonds will be repaid at their final maturity date. If the bondholders required payment at their respective put dates and there was a 1% increase in interest rates, this would reduce the market value of the long-term bonds by EUR 91 million. In this case the fair value of debt including the fair value related to interest-rate currency swaps would decrease by EUR 71 million (compared to EUR 88 million in 1999). CREDIT RISK OF BANK COUNTERPARTIES The Company invests available cash and cash equivalents with various financial institutions. The Company is also exposed to credit risk in the event of non-performance by counterparties with respect to derivative financial instruments. The Company measures on a daily basis the potential loss, should a financial counterparty default. These worst-case scenario losses are monitored and limited by the Company. The Company does not enter into any derivative financial instruments to protect against default of financial counterparties. However, the Company requires all financial counterparties with which it deals in derivative transactions to complete legally enforceable set-off agreements prior to trading and, whenever possible, to have a strong credit rating from Standard & Poor's and Moody's Investor Services. CREDIT RISK OF CUSTOMERS Credit risk represents the loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. As of December 31, 2000 the Company identified 3 customers with significant exposure. This exposure amounts to EUR 291 million and ranges from EUR 50 million to EUR 150 million per customer. To reduce exposure to credit risk, the Company performs ongoing credit evaluations of the financial condition of its customers, but generally does not require collateral and does not enter into derivative transactions to mitigate customer credit risk. COUNTRY RISK The Company is exposed to country risk by the very nature of running a global business. The country risk is defined as the sum of equity of all subsidiaries and associated companies in a country plus cross-border intercompany loans, cross-border guarantees (unless country risk is explicitly excluded in the guarantee), cross-border accounts receivable and cross-border intercompany accounts. The country risk is monitored quarterly. The degree of risk of a country is taken into account when new investments are considered. The Company does not, however, enter into derivative financial instruments to hedge country risk. OTHER INSURABLE RISKS The Philips Group is covered for financial losses by global insurance policies. To reduce risks, Philips has a worldwide property damage and business interruption loss-prevention program in place. Factories are inspected on a regular basis against predefined risk engineering standards. Status information on the existing prevention levels is monitored centrally and presented to financial/ industrial product division management. Inconsistencies with these standards are reported to product division management, and budgets are made available for further improvement of the loss-prevention levels. OTHER MAJOR RISKS In November 2000 the Company purchased 1.3 billion redeemable preferred shares in Taiwan Semiconductor Manufacturing Company (a publicly listed Taiwanese company in which the Philips Group has a substantial shareholding) for 13 billion Taiwanese dollars (EUR 458 million). The preferred shares are redeemable in 2003. The dividend yield on these preferred shares is 3.5%. The preferred shares have the same voting rights as TSMC's common shares. The preferred shares are carried at cost (redemption value) in the accompanying consolidated balance sheet. The redeemable preferred shares result in a concentration of credit risks. 67 41 However, based on historical results the Company is of the opinion that TSMC will have sufficient means to redeem the preferred shares at the redemption date. In December 2000 Philips purchased 32 million convertible redeemable preferred shares in LG Electronics Inc. (LGE) for 544 billion Korean won (EUR 505 million). LGE is a publicly listed Korean company with which Philips already has the LG.Philips LCD Co. joint venture; a new joint venture in the field of CRT business is in the process of being established. The redeemable preferred shares will be redeemed before June 30, 2004, subject to the Korean legal requirement of the existence of sufficient profit and retained earnings available for distribution. The preferred shares are also convertible one year after issuance, at Philips' option, into LGE common stock. The dividend yield on these preferred shares is 7.5%. The preferred shares have no voting rights, unless LGE is in arrears on dividend or redemption payments. The preferred shares are carried at cost (redemption value) in the accompanying consolidated balance sheet. The redeemable preferred shares result in a concentration of credit risk. However, the Company is of the opinion that, out of the existing joint venture with LGE (LG.Philips LCD Co.) and the new joint venture between LGE and Philips Display Components to be established in the course of 2001, sufficient funds will flow to LGE to enable LGE to redeem the preferred shares within the next few years. Earlier repayment is permitted. EURO Philips introduced the euro as its reporting currency on January 1, 1999. The impact of the introduction of the euro on Philips' businesses and on its financial performance has been very limited, because the markets are still dominated by local currencies. Management still believes that in the longer term Philips stands to gain from the introduction of a single European currency. - -- RISK FACTORS Philips is a global company, which means that it is affected by economic developments in all regions of the world. Philips is active in more than 60 different businesses with different risk profiles, which are geared to the business environment in which they operate and the competitive advantage they aim to achieve. Depending on their nature, Philips' businesses are affected by developments in the cyclical semiconductor market, the PC industry, the car industry and the communications industry. The professional Lighting business and Medical Systems also depend on governmental budgets and the developments in real estate investments. The Company is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and credit spreads, which are further described in the section Quantitative and qualitative disclosures concerning market risks. Mismatches between the currencies in which sales are made and the currencies in which expenses are incurred expose the Company's income in the case of structural devaluations or revaluations. The Company has a relatively strong customer base in US dollar and US dollar-related countries as compared to the origin of its production and supply base. It is estimated that a 10% devaluation of the US dollar against the euro would reduce income from operations by more than EUR 100 million. In areas with major technological investments, like Semiconductors, Components and Consumer Communications, Philips continues to build on partnerships to share the high financial risks. Management of this growing number of strategic alliances is a risk area in itself. A common risk area that has priority attention is human resources. Growth areas like Semiconductors and Components require talented people with specific technical key competences for the realization of their plans. The ability to recruit and retain quality staff, for which there is an increasing demand in the market, is a critical success factor. 68 Operating and Financial Review and Prospects 42 - -- CORPORATE GOVERNANCE The Company has consistently improved its corporate governance over the past decade by increasing transparency and accountability to its shareholders through simplification of the corporate structure, by improving the supervision of the Company's policies and activities, and by adopting a culture of best practices. For further information, see pages 70 to 76 of the separate booklet entitled 'Financial Statements'. BUSINESS CONTROLS The Philips Policy on Business Controls is communicated to all levels of management. Key elements are: setting clear policies; issuing clear directives; delegating tasks and responsibilities clearly; carrying out supervision; taking corrective action; and maintaining highly responsive accounting systems including an internal control system (internal accounting controls). The Company's internal control structure follows current thinking and practice in integrating management control over company operations, compliance with legal requirements and the reliability of financial reporting. It makes management responsible for implementing and maintaining effective business controls, including internal financial controls. The effectiveness of these controls is monitored by self-assessment and by audits performed by internal and external auditors. Accountability is enforced through the formal issuance of a Statement on Business Controls by each business unit, resulting, via a cascade process, in a statement by each product division. Audit committees at each of the product divisions ensure adherence to the policy and take corrective action where necessary. They are also involved in determining the desired audit coverage. The entire process is reviewed on a regular basis by the Corporate Audit Committee chaired by the CFO and independently by Corporate Internal Audit. Reports on the functioning of the process are sent to the Board of Management and the Audit Committee of the Supervisory Board. Key focus areas of Internal Audit are business process analysis, business risk analysis, business controls and efficient and effective reporting to management about root causes and solutions to process performance and control gaps. This also includes facilitating business risk assessment workshops. As a consequence of this revised approach, the division of tasks between Internal Audit and external auditors will be changed from 2001 onwards as external auditors will be more directly responsible for and involved in the audit of basic accounting controls of all Philips entities. BUSINESS PRINCIPLES The Philips General Business Principles govern the Company's business decisions and actions throughout the world, applying equally to corporate actions and the behavior of individual employees when on company business. They incorporate the values on which all Philips activity is or should be based, such as business focus, integrity, fair trade, non-discrimination and equal opportunities, and in almost all countries have been translated into the local language. The responsibility for compliance with the Principles rests first and foremost with the management of the business. In every country a Compliance Officer has been appointed, and the Philips Intranet provides information on how to contact the Compliance Officer. The Review Committee General Business Principles supervises the practical implementation. Where appropriate, the Review Committee makes recommendations for additional guidelines. In 2000 the Review Committee met seven times, discussing, among other things, the further implementation of the Principles, the question of how to increase awareness, and reported violations. A number of initiatives have been taken to increase awareness and improve the implementation of the General Business Principles in the Company. For instance, a casebook for dilemma training has been developed and distributed throughout the organization for incorporation in management development courses. Furthermore, following the lead of our US organization, in several countries steps have 69 43 been taken to introduce guaranteed-anonymity hotlines and/or mailboxes for reporting suspected contraventions of the General Business Principles. Considerable efforts are also being devoted to optimizing the periodic reporting on this issue by the Company's product divisions and country organizations. PROXY SOLICITATION Philips is continuously striving to improve relations with its shareholders. For instance, Philips was one of the key companies in the establishment of the Shareholders' Communication Channel -- a pilot project of Euronext Amsterdam, banks in the Netherlands and several major Dutch companies to simplify contacts between a participating company and its shareholders. As in 2000, Philips will use the Shareholders' Communication Channel to distribute its complete Annual Report and the Agenda for the General Meeting of Shareholders in 2001. Following recent amendments to Dutch law enabling proxy solicitation, Philips will implement proxy solicitation in the Netherlands for this year's General Meeting of Shareholders. In view thereof, for the General Meeting of Shareholders on March 29, 2001 a record date for common shares (being March 22, 2001) will apply: those persons who on March 22, 2001 hold common shares in the Company and are registered as such in one of the registers designated by the Board of Management for the General Meeting of Shareholders will be entitled to participate in and vote at the meeting. Philips is convinced of the value of the Shareholders' Communication Channel and will continue to advocate its widespread adoption. In a broader context, Philips is constantly striving to improve its contacts with the financial community at large. - -- ENVIRONMENTAL PERFORMANCE With regard to eco-efficiency, Philips initiated a pragmatic approach in 1994 and defined measurable targets, laid down in four-year action programs. The present program, running from 1998 until 2002, is called EcoVision, and 2000 is the third year that Philips will report in quantitative terms on its environmental progress on a worldwide scale by means of a dedicated Corporate Environmental Report. Under the EcoVision program, Green Flagships, or 'green' star products, are developed. These are products with a better environmental performance than their predecessors or competitors in one or more areas such as weight, energy consumption, packaging and recyclability. The provisional results for 2000 show that 64 Philips products were identified as Green Flagships and 44 were marketed as such. It should be noted that the comparability of the data given below for the reporting period and previous years is affected by changes to the portfolio of reporting units, changes in the methodology for determining certain data, and enhancement of data collection systems. Compared with the reference year 1994, Philips reduced its packaging by 14% in 2000 (9% in 1999 and 5% in 1998), close to the target of 15% packaging reduction by year-end 2000. Compared with the reference year 1994, energy saving improved from 24% in 1998 to 28% in 1999 and 31% in 2000. For industrial waste, savings of 56% were realized in 2000 compared with 43% in 1999 and 27% in 1998. Water consumption was reduced by 45%, compared with 41% in 1999 and 33% in 1998. Of the manufacturing sites, 85% are certified and manage their activities in accordance with the internationally accepted environmental standards ISO 14001 or EMAS (75% in 1999; 52% in 1998). - -- INFORMATION TECHNOLOGY AND E-BUSINESS The basic IT infrastructure for company-wide communication established in 1999 has been further improved in 2000 and enhanced with new services for secure and reliable connections with external business partners and remote access. Using the global communication network, a worldwide facility has been established for the electronic distribution of software for the Philips standard desktop environment. Building on the existing messaging infrastructure, network application services for groupware and knowledge management have been made available to the Philips user community. 70 Operating and Financial Review and Prospects 44 A major challenge for the coming years is to take advantage of the opportunities offered by e-business. Philips has high performance ambitions in this new arena. All Philips businesses and corporate departments have dedicated e-business plans, which cover products, services, processes, people and relationships along the integral business chain. At corporate level a cross-consumer PD cooperation involving Philips Customer Care centers and Corporate IT has been set up to develop and deploy a shared e-business front-end application, a Content Management system and a common consumer database. In general, the main focus area is business-to-business, encompassing the integral business chain from the supply base up to and including retailing. On the market side this means customer- and consumer-centric e-marketing, e-retailing and e-key account management. On the supply base side it means e-procurement and web-enabled supply. Besides business-to-business activities, selected direct-to-consumer sales activities have been developed in various markets around the world. Investments have been made in the common IT infrastructure needed to support e-business, including state-of-the-art connections to the Internet and security services. A certification authority has been designated to authenticate Philips' businesses and their partners in a secure and reliable way so that they can participate in e-business transactions. Tracking developments in markets, economies and society at large, company-wide initiatives have been rolled out to facilitate the required change in business culture, such as an e-business awareness program for some 10,000 staff worldwide, which was completed in the final quarter of 2000. - - HUMAN RESOURCES MANAGEMENT Increasingly competitive labor markets call for a creative response to the challenge of recruiting and retaining top talent. Scarcity of talent occurs in many regions and across disciplines. From a regional perspective, the USA requires specific attention, particularly because of the tense labor market conditions in the Silicon Valley area. From a functional perspective the `war for talent' manifests itself most clearly in the area of technical specialists. Philips has a healthy basis for a strong competitive position on the labor market. The technology base, compelling product portfolio and Company performance attract talented people. This is illustrated by the growing number of people signing up for interviews in our recruitment campaigns at universities across the world. Increasingly, recruitment is conducted through the Internet. A corporate infrastructure, which ties together the various recruitment websites of product divisions and country organizations, has been developed: the Philips Job Market. An analysis has been carried out of the effectiveness of the corporate Management Development architecture. Based on the outcomes, a worldwide program, HR Excellence 2002, has been launched. The objective of this program is to enhance the quality and coherence of the `talent pipeline' to the executive levels in the Company. A new remuneration policy has been established for the 600-plus Philips Executives. This policy ensures the compensation of the Executives according to competitive benchmarks in the various countries. One of the key features is a stock option program, which ties the pay-out to shareholder value creation compared to a set of peer companies. The leadership development efforts for Executives, which started in 1999, have been intensified. For instance, an Executive Coaching program is being rolled out in the Philips Leadership Group. - - BUSINESS EXCELLENCE In 2000 progress was made in rolling out the Business Excellence through Speed and Teamwork (BEST) program throughout the Company. Building upon the achievements already realized in quality assurance, process improvement and customer satisfaction, BEST is giving renewed focus and impetus to the drive towards world-class performance in all processes along the business chain. 71 45 The role of speed is recognized in BEST as the fundamental driver of business excellence. Regarding teamwork, more than 7,000 improvement teams are currently active throughout the Company. Quality improvement competitions in various businesses give a structure to their activities, producing very substantial benefits not only for the Group's businesses and customers, but also in terms of recognition and the opportunities for personal growth and self-fulfilment they offer Philips' employees. Management audits support and reinforce the improvement process by providing cross-business exposure to leadership practice and by ensuring that headquarters clearly define their added value and focus on processes as well as results. 72 Operating and Financial Review and Prospects 46 - - OUTLOOK The Company has formulated its new performance objectives for the medium term: 1. Sales growth of better than 10% average per annum 2. Income from operations to grow from approximately 8% of sales to 10% of sales 3. Growth of earnings per common share of 15% on average per annum 4. Positive cash flow Achieving these results will lead to a return on net assets (RONA) of over 30%. For the year 2001, the Company is observing a slowdown in economic activity in some areas of the world, particularly the USA. Furthermore, the markets for PCs and related products and the telecom markets are showing signs of temporary oversupply. This will cause some of the markets for Philips products to show lower growth and higher price erosion in 2001, certainly in the first half of the year. We will keep capital expenditures below the level of 2000, while we continue to support the high-growth opportunities of our businesses with a focus on Semiconductors, Components and the digital parts of Consumer Electronics. This will be supported by acquisitions, which may temporarily dilute earnings until the synergies can be reached that are foreseen in these transactions. We will continue to improve operational efficiency and devote more attention to closer cooperation between different businesses where this creates synergy advantages for the Company. The total effect of growth and efficiency will keep the number of employees at about the same level. We will continue our approach to further tighten business controls and enhance value-based management. Eindhoven, February 6, 2001 Board of Management Group Management Committee 73 47 Board of Management [Picture of Cor Boonstra] [Picture of Gerard Kleisterlee] [Picture of Jan Hommen] [Picture of Arthur van der Poel] [Picture of John Whybrow] [Picture of Adri Baan] COR BOONSTRA 1938, Dutch President/CEO and Chairman of the Board of Management and the Group Management Committee Member of the Board of Management and the Group Management Committee since June 1994; Chairman and President of the Company since October 1996 GERARD KLEISTERLEE 1946, Dutch Executive Vice-President and Chief Operating Officer Member of the Board of Management since April 2000; Member of the Group Management Committee since January 1999; Chief Operating Officer of the Company and President-elect since September 2000 JAN HOMMEN 1943, Dutch Executive Vice-President and Chief Financial Officer Member of the Board of Management and the Group Management Committee and Chief Financial Officer since March 1997 ADRI BAAN 1942, Dutch Executive Vice-President Member of the Board of Management since May 1998; member of the Group Management Committee since May 1996 ARTHUR VAN DER POEL 1948, Dutch Executive Vice-President Member of the Board of Management since May 1998; member of the Group Management Committee since May 1996; President/CEO of the Semiconductors division since 1996 JOHN WHYBROW 1947, British Executive Vice-President Member of the Board of Management since May 1998; member of the Group Management Committee since April 1995; President/CEO of the Lighting division since 1995 74 Board of Management 48 Group Management Committee The Group Management Committee is composed of the Board of Management and the following senior officers [Picture of Hans Barella] [Picture of Ad Veenhof] [Picture of Guy Demuynck] [Picture of Tjerk Hooghiemstra] [Picture of Ad Huijser] [Picture of Jan Oosterveld] [Picture of Arie Westerlaken] [Picture of Matt Medeiros] AD VEENHOF 1945, Dutch Senior Vice-President Member of the Group Management Committee since January 1996 and President/CEO of the Domestic Appliances and Personal Care division since 1996 HANS BARELLA 1943, Dutch Senior Vice-President Member of the Group Management Committee since March 1997 and President/CEO of the Medical Systems division since 1997 GUY DEMUYNCK 1951, Belgian Senior Vice-President Member of the Group Management Committee since April 2000 and President/CEO of Consumer Electronics Mainstream since 2000 JAN OOSTERVELD 1944, Dutch Senior Vice-President Member of the Group Management Committee since May 1998; responsible for Corporate Strategy since 1997 and for Regions and Countries since 2000 TJERK HOOGHIEMSTRA 1956, Dutch Senior Vice-President Member of the Group Management Committee since April 2000; responsible for Human Resources Management since 2000 AD HUIJSER 1946, Dutch Senior Vice-President Member of the Group Management Committee since April 1999 and CEO of Philips Research since 1998 ARIE WESTERLAKEN 1946, Dutch Senior Vice-President Member of the Group Management Committee since May 1998, Secretary to the Board of Management since 1997 and Chief Legal Officer since 1996 MATT MEDEIROS 1956, American Senior Vice-President Member of the Group Management Committee since November 2000 and President/CEO of the Components division since 2000 75 Group Management Committee 49 Supervisory Board [Picture of L.C.van Wachem] [Picture of K.A.L.H.van Miert] [Picture of W.de Kleuver] [Picture of Sir Richard Greenbury] [Picture of L. Schweitzer] [Picture of W. Hilger] [Picture of J-M.Hessels] L.C.VAN WACHEM 1931, Dutch** *** Chairman Member of the Supervisory Board since 1993; second term expires in 2001 Former Chairman of the Committee of Managing Directors of the Royal Dutch/Shell Group and currently Chairman of the Supervisory Board of Royal Dutch Petroleum Company; also member of the Supervisory Boards of Akzo Nobel, BMW and Bayer, and member of the Board of Directors of IBM, Atco and Zurich Financial Services W.DE KLEUVER 1936, Dutch* *** Vice-Chairman and Secretary Member of the Supervisory Board since 1998; first term expires in 2002 Former Executive Vice-President of Royal Philips Electronics PROF. K.A.L.H.VAN MIERT 1942, Belgian Member of the Supervisory Board since 2000; first term expires in 2004 Former member of the European Commission and currently President of Nyenrode University, member of the Supervisory Board of Wolters Kluwer, member of the Boards of Agfa Gevaert and De Persgroep and member of the Advisory Boards of Goldman Sachs, Rabobank and Swissair. L.SCHWEITZER 1942, French Member of the Supervisory Board since 1997; first term expires in 2001 Chairman and Chief Executive Officer of Renault and member of the Boards of Pechiney, Banque Nationale de Paris and Electricite de France PROF. W.HILGER 1929, German* ** Member of the Supervisory Board since 1990; reaches the statutory age limit in 2001 Former Chairman of the Board of Management of Hoechst and currently member of the Supervisory Boards of Victoria Versicherung and Victoria Lebensversicherung SIR RICHARD GREENBURY 1936, British** Member of the Supervisory Board since 1998; first term expires in 2002 Former Chairman and Chief Executive Officer of Marks & Spencer and director of Lloyds TSB, British Gas, ICI and Zeneca, and currently member of the Boards of Unifi Inc. and the Electronics Boutique Plc. J-M.HESSELS 1942, Dutch* Member of the Supervisory Board since 1999; first term expires in 2003 Former Chief Executive Officer of Royal Vendex KBB and currently Chairman of the Supervisory Board of Euronext and member of the Supervisory Boards of BN.com, Laurus, Schiphol Group and Royal Vopak * Member of the Audit Committee ** Member of the Remuneration Committee *** Member of the Nomination and Selection Committee 76 Supervisory Board 50 Report of the Supervisory Board PROFILE OF THE SUPERVISORY BOARD The Supervisory Board will aim for an adequate combination of knowledge and experience among its members in relation to the global and multi-product character of the business of the Company. Consequently, the Board will aim for an adequate level of experience in marketing, manufacturing, financial, economic, social and legal aspects of international business and government and public administration. The Supervisory Board further aims to have available adequate experience within Philips by having one or two former Philips executives on the Supervisory Board. In the case of vacancies the Supervisory Board will ensure that when such persons are recommended for appointment, these various qualifications are reflected sufficiently. TERM OF APPOINTMENT Members of the Supervisory Board are appointed for a fixed term of four years. In principle, they may be re-elected for two additional terms of four years (for further information, see page 74 of the separate booklet "Financial Statements"). The Supervisory Board met five times in the course of 2000. Except in matters regarding the composition of the Supervisory Board, the Board of Management and the Group Management Committee, as well as the remuneration and performance of members of the Board of Management and the Group Management Committee, the members of the Board of Management and/or the Group Management Committee were present at our meetings to inform us on the course of business, important decisions and the strategy of the Philips Group. A number of important matters, such as major acquisitions, divestitures and alignments, were discussed at length. A two-day meeting was devoted to strategy. The Audit Committee met four times in the presence of the external auditor before the publication of the annual and quarterly results. On behalf of the Supervisory Board and in preparation for our decisions, this committee monitors the effectiveness of internal financial control systems and reviews internal audit programs and their findings. It also reviews the annual and quarterly figures and discusses the scale and scope of the annual audit by the external auditor. Important findings and identified risks are examined thoroughly so that appropriate measures can be taken. The Remuneration Committee met two times. This committee is responsible for preparing resolutions regarding the remuneration of members of the Board of Management and the other members of the Group Management Committee. In addition, it advises the Supervisory Board with regard to the policy to be pursued. The Nomination and Selection Committee held discussions four times, in particular to fill vacancies in the Board of Management and/or the Group Management Committee. COMPOSITION OF THE SUPERVISORY BOARD At the General Meeting of Shareholders on March 30, 2000, Mr C.J. Oort retired from the Supervisory Board as a consequence of reaching the statutory age limit in 2000, while Mr K.A.L.H. van Miert was appointed to the Supervisory Board with effect from April 1, 2000. At the General Meeting of Shareholders on March 29, 2001, Mr W. Hilger will retire from the Supervisory Board. Mr Hilger joined the Supervisory Board in 1990 and has been a member of the Audit Committee (since 1993) and the Remuneration Committee (since 1997). He reaches the statutory age limit this year. We wish to express our gratitude to Mr Hilger for his contribution to the Company during his eleven-year term, an often turbulent period with some difficult years, and we wish him well for the future. In agreement with the Meeting of Priority Shareholders we will propose at the General Meeting of Shareholders on March 29, 2001 to re-elect Messrs L.C. van Wachem and L. Schweitzer, whose present terms end at the 2001 Annual General Meeting of Shareholders. COMPOSITION OF THE BOARD OF MANAGEMENT-GROUP MANAGEMENT COMMITTEE At the General Meeting of Shareholders on March 30, 2000, Mr G.J. Kleisterlee was appointed as member of the Board of Management and Executive Vice-President. On August 30, 2000 it was announced that Mr C. Boonstra will retire as President/CEO of the Company and Chairman of the Board of Management as of April 30, 2001. Since he was appointed as a member of the Board of Management (June 1994) and during the period in which he served as President and Chairman of the Board of Management 77 Report of the Supervisory Board 51 (from October 1996), Mr Boonstra successfully accomplished major assignments. In particular, we are grateful for his contribution to the increased focus of the Company's activities, resulting in regained financial health and credibility with the investment world. This has significantly increased shareholder value. In agreement with the Meeting of Priority Shareholders we will propose at the General Meeting of Shareholders to elect Mr Kleisterlee as the successor to Mr Boonstra. In the course of 2000, Messrs N.J. Bruijel (January 1) and F. Bok (April 1) retired as members of the Group Management Committee. With effect from April 1, 2000, Messrs T. Hooghiemstra and G.J.M. Demuynck have been appointed as members of the Group Management Committee and Senior Vice-Presidents of the Company. With effect from November 1, 2000, Mr M.T. Medeiros has been appointed as a member of the Group Management Committee and Senior Vice-President of the Company. Mr A. Baan will retire as Executive Vice-President and member of the Board of Management on March 30, 2001. We wish to thank him for all his efforts on behalf of the Company. FINANCIAL STATEMENTS The financial statements of Koninklijke Philips Electronics N.V. for 2000, as presented by the Board of Management, have been audited by KPMG Accountants N.V., independent public auditors. Their report appears on page 69 of the separate booklet entitled `Financial Statements'. We have approved these financial statements and recommend that you adopt them in accordance with the proposal of the Board of Management and likewise adopt the proposal to declare a dividend of EUR 0.36 per common share. Eindhoven, February 6, 2001 The Supervisory Board 78 Report of the Supervisory Board [Pages 79 to end intentionally omitted.] 52 ANNUAL REPORT 2000 FINANCIAL STATEMENTS [Philips Logo] PHILIPS [Pages 1 and 2 intentionally omitted.] ACCOUNTING POLICIES The consolidated financial statements are prepared on a basis consistent with generally accepted accounting principles in the Netherlands ("Dutch GAAP"). Historical cost is used as the measurement basis unless otherwise indicated. ACCOUNTING CHANGES In order to further align Philips' accounting policies under Dutch GAAP with US GAAP requirements, product development and process development costs, which previously had been included in inventories, are now charged to expense as incurred. In line with Dutch GAAP, the relevant costs included in the January 1, 2000 balance sheet - an amount of EUR 241 million, net of taxes - were charged directly to stockholders' equity. This change did not materially impact income for the year 2000. NEW ACCOUNTING PRONOUNCEMENTS The Company chose to adopt Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for derivative instruments and hedging activities", as of January 1, 2000, and SFAS No. 138, an amendment of SFAS No. 133, as of July 1, 2000. At the date of initial application all derivative instruments were recognized as either assets or liabilities and measured at fair value. Differences between previous carrying amounts and the fair values are reported as gains or losses in net income or in other reserves under stockholders' equity, as appropriate. The impact of the transition adjustment in the opening balance sheet was a credit of EUR 58 million on equity and a loss of EUR 5 million on current year earnings. In sofar as hedging relationships were established anew and the hedged items were recognized as either assets/liabilities or as firm commitments, the resulting adjustments of the carrying amounts of the hedged items have been recognized as offsetting gains and losses for the risk being hedged. Effective January 1, 2000, SEC Staff Accounting Bulletin ("SAB") 101, "Revenue recognition in financial statements', has been applied. The application of SAB 101 did not materially impact sales and revenue recognition. PRESENTATION CHANGES Beginning in 1999, results from divestitures, other than segments of business, are reported as income from continuing operations and no longer as extraordinary items. This presentation is in line with recent developments in international accounting and is fully aligned with US GAAP. Furthermore, interest on provisions for pensions has been included in income from operations instead of financial income and expenses. Prior years have not been reclassified. A pro forma presentation of the 1998 figures in accordance with the methodology used for 2000 and 1999 has been provided in a footnote on the face of the income statement and in the notes to the consolidated financial statements. Certain other reclassifications have been made to conform prior-years' data to the current presentation. ACCOUNTING POLICIES 3 53 Consolidation principles The consolidated financial statements include the accounts of Koninklijke Philips Electronics N.V. ("Royal Philips Electronics") and companies that are effectively controlled. Minority interests are disclosed separately in the consolidated statements of income and in the consolidated balance sheets. Intercompany transactions and balances have been eliminated. Investments in companies in which Royal Philips Electronics does not effectively control the financial and operating decisions, but does exert significant influence, are accounted for by the equity method. Generally, significant influence is presumed to exist if at least 20% of the voting stock is owned. The Company's share of the net income of these companies is included in results relating to unconsolidated companies in the consolidated statements of income. Investments in companies in which Royal Philips Electronics does not exert significant influence are carried at cost or, if a long-term impairment exists, at lower net realizable value. Reporting currencies Beginning in 1999, Philips' financial statements are reported in euros. Previously presented financial statements denominated in Dutch guilders have been translated into euros using the irrevocably fixed conversion rate applicable since January 1, 1999 for all periods presented (EUR 1 = NLG 2.20371). Management believes that the data denominated in euros reflect the same trends as previously reported. Philips' financial data may not be comparable to those of other companies that also report in euros if these other companies previously reported in a currency other than the Dutch guilder. Foreign currencies The financial statements of foreign operations are translated into euros. Assets and liabilities are translated using the exchange rates on the respective balance sheet dates. Income and expense items are translated based on the average rates of exchange for the periods involved. The resulting translation adjustments are charged or credited to stockholders' equity. Cumulative translation adjustments are recognized as income or expense upon disposal of a segment of business. The functional currency of foreign operations is generally the local currency, unless the primary economic environment requires the use of another currency. However, when foreign operations conduct their business in economies considered to be highly inflationary, they record transactions in a designated functional currency instead of their local currency. Gains and losses arising from the translation or settlement of foreign-denominated monetary assets and liabilities into the local currency are recognized in income in the period in which they arise. However, currency differences on intercompany loans which have the nature of a permanent investment, are accounted for as translation differences directly in stockholders' equity. 4 ACCOUNTING POLICIES 54 Derivative financial instruments The Company uses derivative financial instruments principally in the management of its foreign currency risks and to a more limited extent for interest rate and commodity price risks. Applying SFAS No. 133 and SFAS No. 138, the Company measures all derivative financial instruments based on fair values derived from market prices of the instruments or from option pricing models, as appropriate. Gains or losses arising from changes in the fair value of the instruments are recognized in the income statement for the period in which they arise to the extent that the derivatives have been designated as a hedge of recognized assets or liabilities, or to the extent that the derivatives have no hedging designation or are ineffective. The gains and losses on the designated derivatives substantially offset the changes in the values of the recognized hedged items, which are recognized also as gains and losses in the income statement. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in other reserves, until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of derivatives that are highly effective as hedges and that are designated and qualify as foreign currency hedges are recorded in either earnings or other reserves, depending on whether the hedge transaction is a fair value hedge or a cash flow hedge. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. Any ineffectiveness is recognized in financial income and expenses. Cash and cash equivalents Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. They are stated at face value. Securities Securities designated as available for sale are carried at the lower of cost or market value. Gains or losses, if any, are recorded in financial income and expenses. Securities hedged under a fair value hedge are remeasured for the changes in the fair value that are attributable to the risk which is being hedged. Receivables Receivables are carried at face value, net of allowances for doubtful accounts. 5 55 Inventories Inventories are valued at the lower of cost or market value less advance payments on work in process. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred bringing the inventories to their present location and condition. The costs of conversion of inventories include direct labor, fixed and variable production overheads, taking into account the stage of completion. In 1999 and prior years, product development and process development costs were included in inventories. The cost of inventories is determined using the first-in, first-out (FIFO) method. Provision is made for obsolescence. Other non-current financial assets Loans receivable are carried at face value, less a provision for doubtful accounts. Investments in companies for which sale is restricted for a period of one year or more are accounted for at cost, being the fair value upon receipt of the shares. Property, plant and equipment Property, plant and equipment is carried at cost less accumulated depreciation. Assets manufactured by the Company include direct manufacturing costs, production overheads and interest charges incurred during the construction period. Government grants are deducted from the cost of the related asset. Depreciation is calculated using the straight-line method over the expected economic life of the asset. Depreciation of special tooling costs is based on the expected future economic benefit of these tools. Gains and losses on the sale of property, plant and equipment are included in other business income. Intangible assets Intangible assets, including goodwill arising from acquisitions, are amortized using the straight-line method over their estimated economic lives, not to exceed twenty years. In-process Research and Development (R&D) is written off immediately upon acquisition. Patents and trademarks acquired from third parties are capitalized and amortized over their remaining lives. Effective January 1, 1999, the Company adopted the Statement of Position ("SOP") 98-1 issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", requires companies to capitalize certain costs relating to the development and purchase of software for internal use and to amortize these costs over the estimated useful life of the software. Costs of research and development are expensed in the period in which they are incurred. Impairment of intangible and tangible fixed assets The Company accounts for impairments of intangible and tangible fixed assets in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement requires that intangible and tangible fixed assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of, are reported at the lower of the carrying amount or fair value less costs to sell. 6 ACCOUNTING POLICIES 56 Provisions The Company recognizes provisions for liabilities and losses which have been incurred as of the balance sheet date and for which the amount is uncertain but can be reasonably estimated. Additionally, the Company records provisions for losses which are expected to be incurred in the future, but which relate to contingencies that exist as of the balance sheet date. The provision for restructuring relates to the estimated costs of planned reorganizations that have been approved by the Board of Management and publicly announced before the year-end, and which involve the realignment of certain parts of the industrial and commercial organization. When such reorganizations require discontinuance and/or closure of lines of activities, the anticipated costs of closure or discontinuance are included in restructuring provisions. Provisions are stated at face value, with the exception of certain long-term provisions, such as certain environmental provisions, provisions for postretirement benefits (including pensions) and severance payments in certain countries where such payments are made in lieu of pension benefits; those provisions are stated at the present value of the future obligations. Debt and other liabilities Debt and liabilities other than provisions are stated at face value. However, loans which are hedged under a fair value hedge are remeasured for the changes in the fair value that are attributable to the risk which is being hedged. Revenue recognition Sales are recognized as revenue when they are realized or realizable and earned, which is considered to occur at the time the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. In addition, there should be persuasive evidence of a sales arrangement with the client, the price is fixed or determinable and collection is reasonably assured. Normally, this situation exists when the product or merchandise is delivered or services are rendered to customers, or a sales transaction has otherwise occurred. Recognized sales are net of sales taxes, customer discounts, rebates and similar charges. Service revenue is recognized over the contractual period or as services are rendered. Revenues from long-term contracts are recognized in accordance with the percentage - of - completion method. Provision for estimated contract losses, if any, is made in the period that such losses are determined. Royalty income is recognized on an accrual basis. The most important revenue processes in relation to royalty income are payments as a percentage of sales and fixed amounts per product sold. Government grants, other than those relating to assets, are recognized as income as qualified expenditures are made. Financial income and expenses Interest income and interest expense are recognized on an accrual basis. 7 57 Income taxes Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Measurement of deferred tax assets and liabilities is based upon the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets, including assets arising from loss carryforwards, are recognized if it is more likely than not that the asset will be realized. Deferred tax assets and liabilities are not discounted. Deferred tax liabilities for withholding taxes are recognized in situations where the income of subsidiaries is to be paid out as dividends in the near future, and in the case of undistributed earnings of minority shareholdings. Changes in tax rates are reflected in the period that includes the enactment date. Benefit accounting The Company accounts for the cost of pension plans and postretirement benefits other than pensions substantially in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Postretirement Benefits other than Pensions" respectively. Most of the Company's defined-benefit plans are funded with plan assets that have been segregated and restricted in a trust to provide for the pension benefits to which the Company has committed itself. When plan assets have not been segregated by the Company or in such cases in which the Company is required to make additional pension payments, the Company recognizes a provision for such amounts. Pension costs primarily represent the increase in actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets. In the event that at any date the accumulated benefit obligation, calculated as the present value of the benefits attributed to employee service rendered prior to that date and based on current and past compensation levels, would be higher than the market value of the plan assets or the existing level of the pension provision, the difference is immediately charged to income. In certain countries the Company also provides postretirement benefits other than pensions to various employees. The cost relating to such plans consists primarily of the present value of the benefits attributed on an equal basis to each year of service, interest cost on the accumulated postretirement benefit obligation, which is a discounted amount, and amortization of the unrecognized transition obligation. This transition obligation is being amortized through charges to earnings over a twenty-year period beginning in 1993 in the USA and in 1995 for all other plans. 8 ACCOUNTING POLICIES 58 Stock-based compensation The Company accounts for stock-based compensation using the intrinsic value method in accordance with Dutch GAAP, which is also in conformity with US Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". The Company has adopted the pro forma disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation". Discontinued operations Any gain or loss from disposal of a segment of a business (product sector) together with the results of these operations until the date of disposal are reported separately as discontinued operations. The financial information of a discontinued segment of business is excluded from the respective captions in the consolidated financial statements and related notes. Extraordinary income and losses Beginning in 1999, extraordinary items include transactions which occur infrequently and are unrelated to the ordinary and typical activities of the Company. Prior to 1999, extraordinary items included income or losses arising from the disposal of a line of activity or closures of substantial production facilities within a segment of business as well as significant gains or losses from disposals of interests in unconsolidated companies. Cash flow statements Cash flow statements have been prepared under the indirect method in accordance with Dutch GAAP, which is in conformity with the requirements of SFAS No. 95, "Statement of Cash flows" and the amendment, SFAS No. 104. Cash flows resulting from hedges are in the same category as the hedged items. Cash flows in foreign currencies have been translated into euros using the average rates of exchange for the periods involved. Cash flows resulting from the acquisition or sale of securities are reported under cash flow from investing activities. Dividend distribution The proposed dividend distribution from current-year earnings to shareholders, which is subject to approval by the General Meeting of Shareholders, is recorded when such approval is received. Use of estimates The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements in order to conform with generally accepted accounting principles. Actual results could differ from those estimates. 9 59 CONSOLIDATED STATEMENTS OF INCOME OF THE PHILIPS GROUP FOR THE YEARS ENDED DECEMBER 31 in millions of euros unless otherwise stated 1)
2000 1999 1998 2) ------- ------- ------- Sales 37,862 31,459 30,459 Direct cost of sales (28,692) (24,502) (24,121) ------- ------- ------- GROSS INCOME 9,170 6,957 6,338 Selling expenses (4,960) (4,337) (4,381) General and administrative expenses (1,298) (1,212) (1,132) Other business income 1,526 388 190 Restructuring charges (157) (45) (330) ------- ------- ------- 2 INCOME FROM OPERATIONS 4,281 1,751 685 3 Financial income and expenses 1,988 32 (312) ------- ------- ------- INCOME BEFORE TAXES 6,269 1,783 373 4 Income taxes (570) (336) (41) ------- ------- ------- INCOME AFTER TAXES 5,699 1,447 332 5 Results relating to unconsolidated companies 3,970 409 39 ------- ------- ------- GROUP INCOME 9,669 1,856 371 6 Minority interests (67) (52) 170 ------- ------- ------- INCOME FROM CONTINUING OPERATIONS 9,602 1,804 541 7 DISCONTINUED OPERATIONS Income from discontinued operations (less applicable income taxes of EUR 75 million) - - 210 Gain on disposal of discontinued operations (no tax effect) - - 4,844 8 EXTRAORDINARY ITEMS-NET - (5) 458 ------- ------- ------- 9 NET INCOME 9,602 1,799 6,053
1) The consolidated financial statements have been prepared in euros. Amounts previously reported in Dutch guilders are now reported in euros using the irrevocably fixed conversion rate which became effective on January 1, 1999 (EUR 1 = NLG 2.20371). See the notes to the consolidated financial statements. 2) The 1998 results presented in line with the 2000 and 1999 presentation would result in income from operations of EUR 1,195 million, financial income and expenses of EUR 253 million (a loss), income from continuing operations of EUR 1,009 million and extraordinary items of EUR 10 million net (a loss). Net income would remain unchanged. See the notes to the consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 10 CONSOLIDATED STATEMENTS OF INCOME OF THE PHILIPS GROUP FOR THE YEARS ENDED DECEMBER 31 60 Earnings per share
2000 1999 1) 1998 1) ------------- ------------- ------------- Weighted average number of common shares outstanding (after deduction of treasury stock) during the year 1,312,859,102 1,378,040,952 1,440,224,304 BASIC EARNINGS PER COMMON SHARE IN EUROS: Income from continuing operations 7.31 1.31 0.38 Income from discontinued operations - - 0.15 Gain on disposal of discontinued operations - - 3.36 Extraordinary items-net - - 0.31 ------------- ------------- ------------- NET INCOME 7.31 1.31 4.20 DILUTED EARNINGS PER COMMON SHARE IN EUROS: Income from continuing operations 7.24 1.30 0.37 Income from discontinued operations - - 0.15 Gain on disposal of discontinued operations - - 3.34 Extraordinary items-net - - 0.31 ------------- ------------- ------------- NET INCOME 7.24 1.30 4.17 Dividend paid per common share in euros (from prior-year profits) 0.30 0.25 0.23
1) Previously reported figures restated for 4-for-1 stock split 11 61 CONSOLIDATED BALANCE SHEETS OF THE PHILIPS GROUP AS OF DECEMBER 31 in millions of euros unless otherwise stated The consolidated balance sheets are presented before appropriation of profit Assets
2000 1999 ------ ------ CURRENT ASSETS Cash and cash equivalents 1,089 2,331 10 Securities 111 1,523 11 Receivables: - Accounts receivable-net 5,905 5,274 - Accounts receivable from unconsolidated companies 56 52 - Other receivables 539 755 - Prepaid expenses 306 372 ------- ------- 6,806 6,453 12 Inventories 5,279 4,566 ------ ------ Total current assets 13,285 14,873 NON-CURRENT ASSETS 5 Unconsolidated companies: - Investments 4,793 2,060 - Loans 535 31 ------- ------- 5,328 2,091 13 Other non-current financial assets 3,747 340 14 Non-current receivables: - Accounts receivable-net 143 185 - Accounts receivable from unconsolidated companies 3 - - Other receivables 157 67 - Prepaid expenses 2,410 2,074 ------- ------- 2,713 2,326 15 Property, plant and equipment: - At cost 20,265 18,302 - Less accumulated depreciation (11,224) (10,970) ------- ------- 9,041 7,332 16 Intangible assets-net 4,427 2,822 ------ ------ Total non-current assets 25,256 14,911 ------ ------ TOTAL 38,541 29,784
The accompanying notes are an integral part of these consolidated financial statements. 12 CONSOLIDATED BALANCE SHEETS OF THE PHILIPS GROUP AS OF DECEMBER 31 62 Liabilities and stockholders' equity
2000 1999 ------ ------ CURRENT LIABILITIES Accounts and notes payable: - Trade creditors 4,250 3,619 - Unconsolidated companies 5 13 ------ ------ 4,255 3,632 17 Accrued liabilities 3,701 3,841 18 19 Short-term provisions 969 1,056 20 Other current liabilities 862 789 21 23 Short-term debt 1,743 577 ------ ------ Total current liabilities 11,530 9,895 NON-CURRENT LIABILITIES 22 23 Long-term debt 2,284 2,737 18 19 Long-term provisions 2,522 2,062 ------ ------ Total non-current 4,806 4,799 liabilities 24 Commitments and contingent liabilities GROUP EQUITY 6 Minority interests 469 333 25 Stockholders' equity: Priority shares, par value EUR 500 per share: Authorized and issued: 10 shares Preference shares, par value EUR 0.20 per share: Authorized: 3,249,975,000 shares (749,995,000 shares par value EUR 1 in 1999) Issued: none Common shares, par value EUR 0.20 per share: Authorized: 3,250,000,000 shares (750,000,000 shares par value EUR 1 in 1999) Issued: 1,316,070,392 shares (1,356,315,244 shares in 1999) 263 339 Treasury: 32,175,659 shares (24,714,704 shares in 1999) Share premium 7 1,631 Other reserves 11,864 10,988 Undistributed profit for the year 9,602 1,799 ------ ------ 21,736 14,757 ------ ------ TOTAL 38,541 29,784
13 63 CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE PHILIPS GROUP FOR THE YEARS ENDED DECEMBER 31 in millions of euros
2000 1999 1998 ------ ------ ------ Cash flows from operating activities: NET INCOME 9,602 1,799 6,053 Adjustments to reconcile net income to net cash provided by operating activities: Income from, and net gain on disposal of, discontinued operations - - (5,054) Depreciation and amortization 2,320 1,853 1,890 Net gain on sale of investments (6,384) (491) (728) Income from unconsolidated companies (net of dividends received) (1,187) (410) (31) Minority interests (net of dividends paid) 56 38 (173) (Increase) decrease in working capital (1,069) (469) 272 (Increase) decrease in non-current receivables (510) (32) 43 Increase (decrease) in provisions 386 (87) (177) Other items (218) (288) 45 ------ ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 2,996 1,913 2,140 Cash flows from investing activities: Purchase of intangible assets (software) (140) (200) - Capital expenditures on property, plant and equipment (3,170) (1,662) (1,634) Proceeds from disposals of property, plant and equipment 178 286 240 Proceeds from the sale of securities, net of hedging activities 848 158 - Purchase of other non-current financial assets (560) (119) (68) Proceeds from other non-current financial assets 63 67 132 Purchase of businesses (3,209) (2,993) (867) Proceeds from sale of interests in businesses 3,586 629 756 ------ ------ ------ NET CASH USED FOR INVESTING ACTIVITIES (2,404) (3,834) (1,441) ------ ------ ------ CASH FLOWS BEFORE FINANCING ACTIVITIES 592 (1,921) 699 Cash flows from financing activities: Increase (decrease) in short-term debt 734 (257) (74) Principal payments on long-term debt (325) (563) (565) Proceeds from issuance of long-term debt 203 103 194 Effect of other financial transactions - - 114 Treasury stock transactions (578) (38) (157) Capital repayment to shareholders (1,673) (1,490) - Dividends paid (399) (361) (326) ------ ------ ------ NET CASH USED FOR FINANCING ACTIVITIES (2,038) (2,606) (814) ------ ------ ------ CASH USED FOR CONTINUING OPERATIONS (1,446) (4,527) (115) Effect of changes in exchange rates and consolidations on cash positions 204 305 30 Net cash from discontinued operations - - 5,241 Cash and cash equivalents at beginning of year 2,331 6,553 1,397 ------ ------ ------ CASH AND CASH EQUIVALENTS AT END OF YEAR 1,089 2,331 6,553 ------ ------ ------
The accompanying notes are an integral part of these consolidated financial statements. 14 CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE PHILIPS GROUP FOR THE YEARS ENDED DECEMBER 31 64 Supplemental disclosures to consolidated statements of cash flows:
2000 1999 1998 ------ ------ ------ (Increase) decrease in working capital: Increase in accounts receivable and prepaid expenses (513) (534) (133) (Increase) decrease in inventories (979) 46 (60) Increase in accounts payable and accrued expenses 423 19 465 ------ ------ ------ (1,069) (469) 272 Net cash paid during the year for: Interest 167 129 244 Income taxes 266 222 200 Additional common stock issued upon conversion of long-term debt 13 29 25 Net gain on sale of investments: Cash proceeds from the sale of investments 4,675 1,140 1,128 Book value of these investments (875) (649) (400) Non-cash gains 2,584 - - ------ ------ ------ 6,384 491 728 Non-cash investing and financing information: Assets received in lieu of cash 2,589 11 1,698 ------ ------ ------ Treasury stock transactions: Shares acquired (682) (139) (323) Exercise stock options/warrants/convertible personnel debentures 104 101 166
For a number of reasons, principally the effects of translation differences and consolidation changes, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items. The consolidated financial statements have been prepared in euros. Amounts previously reported in Dutch guilders are now reported in euros using the irrevocably fixed conversion rate which became effective on January 1, 1999, (EUR 1 = NLG 2.20371). See the notes to the consolidated financial statements. 15 65 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF THE PHILIPS GROUP in millions of euros unless otherwise stated
number of shares* issued, --------------------------- paid-up share other treasury outstanding issued capital premium reserves shares total BALANCE AS OF DECEMBER 31, 1997 1,431,797,964 1,459,108,464 1,655 1,789 6,081 (371) 9,154 Issued upon exercise of: - - Convertible debentures 323,388 3 22 25 - - Stock options (7) (7) - - Warrants 14,547,444 17 39 56 Net income for the year 6,053 6,053 Dividend paid (326) (326) Treasury stock transactions (53) (152) (205) Translation differences and other changes (190) (190) - ----------------------------------------- ------------- ------------- ----- ------ ------ ---- ------ BALANCE AS OF DECEMBER 31, 1998 1,442,760,868 1,473,979,296 1,672 1,824 11,587 (523) 14,560 Issued upon exercise of: - - Convertible debentures 276,324 2 27 29 - - Stock options 80 (11) (11) Net income for the year 1,799 1,799 Dividend paid (361) (361) Treasury stock transactions (55) 28 (27) 8% share reduction (117,940,456) (1,333) (184) 27 (1,490) Translation differences and other changes 258 258 - ----------------------------------------- ------------- ------------- ------ ------ ------ ---- ------ BALANCE AS OF DECEMBER 31, 1999 1,331,600,540 1,356,315,244 339 1,631 13,255 (468) 14,757 Change in accounting policy: - - Product/process development costs previously included in inventories (241) (241) - - Derivatives (FAS 133) 58 58 Issued upon exercise of: - - Convertible debentures 458,356 6 7 13 Net income for the year 9,602 9,602 Dividend paid (399) (399) Treasury stock transactions (23) (555) (578) 3% share reduction (40,703,208) (76) (1,630) (8) 41 (1,673) Translation differences and other changes 197 197 - ----------------------------------------- ------------- ------------- --- ----- ------ ---- ------ BALANCE AS OF DECEMBER 31, 2000 1,283,894,733 1,316,070,392 263 7 22,448 (982) 21,736
* - As from May 28, 1999, the par value of Philips' common shares changed from NLG 10 to EUR 1 per share. The 1999 share reduction program was executed in May/June 1999. - Share data in this report are based on the number of shares outstanding after the 4-for-1 stock split which was effected on April 14, 2000; prior-year data have been restated accordingly. - On May 29, 2000, the Extraordinary General Meeting of Shareholders adopted the 2000 share reduction program, which became effective August 1, 2000, and which reduced the number of outstanding shares by approximately 40 million, or 3%, and changed the par value of Philips' common shares from EUR 0.25 to EUR 0.20 per share. The consolidated financial statements have been prepared in euros. Amounts previously reported in Dutch guilders are now reported in euros using the irrevocably fixed conversion rate which became effective on January 1, 1999 (EUR 1 = NLG 2.20371). See the notes to the consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF THE PHILIPS GROUP 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP all amounts in millions of euros unless otherwise stated INTRODUCTION The financial statements of Koninklijke Philips Electronics N.V. ("Royal Philips Electronics"), the parent company of the Philips Group, are included in the statements of the Philips Group. Therefore the unconsolidated statements of income of Royal Philips Electronics only reflect the net after-tax income of affiliated companies and other income after taxes. PRESENTATION OF FINANCIAL STATEMENTS The current balance sheet presentation is somewhat different from the one used under Dutch regulations and is more in line with common practice in the United States in order to accommodate the expectations of foreign - mainly US - shareholders. Under the current format, the order of presentation of assets and liabilities is based on the degree of liquidity. RECLASSIFICATIONS In order to provide comparable financial information for 1998 fully in conformity with the 2000 and 1999 presentation, items previously reported under extraordinary items and financial income and expenses have been reclassified to income from operations and results relating to unconsolidated companies, as reflected in the following table:
1998 ----------------------------------- after as reclassification published Income from operations 1,195 685 Financial income and expenses (253) (312) ----- ----- Income before taxes 942 373 Income taxes (142) (41) ----- ----- Income after taxes 800 332 Results relating to unconsolidated companies: - - Share in results 39 32 - - Results related to divestments - 7 Minority interests 170 170 ----- ----- Income from continuing operations 1,009 541 Discontinued operations 5,054 5,054 Extraordinary items-net (10) 458 ----- ----- Net income 6,053 6,053 Income from continuing operations per common share 0.70 0.38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP 17 67 1 ACQUISITIONS AND DIVESTITURES A summary of the most significant acquisitions and divestitures during 2000 is given below. LG ELECTRONICS In view of the existing relationship with LG Electronics Inc. (LGE) (a publicly listed Korean company with which Philips already has the LG.Philips LCD joint venture) and the intended new joint venture in the cathode ray tube (CRT) business, in December 2000 Philips purchased 32 million convertible redeemable preferred shares in LGE, for 544 billion Korean won (EUR 505 million). The redeemable preferred shares will be redeemed before June 30, 2004, subject to the Korean legal requirement of the existence of sufficient profit and retained earnings available for distribution. The preferred shares are also convertible one year after issuance, at Philips' option, into LGE common stock. The dividend yield on these preferred shares is 7.5%. The preferred shares have no voting rights, unless LGE is in arrears on dividend or redemption payments. The preferred shares are carried at cost (redemption value) in the accompanying consolidated balance sheet. The redeemable preferred shares result in a concentration of credit risk. However, the Company is of the opinion that out of the existing joint venture, LG.Philips LCD, and the new joint venture with LGE (expected to be established in the course of 2001) sufficient funds will flow to LGE to enable LGE to redeem the preferred shares within the next few years. However, earlier repayment is permitted. TSMC preferred stock In November 2000, the Company purchased 1.3 billion redeemable preferred shares in Taiwan Semiconductor Manufacturing Company (a publicly listed Taiwanese company in which the Philips Group has a substantial shareholding) for 13 billion Taiwanese dollars (EUR 458 million). The preferred shares are redeemable in 2003. The dividend yield on these preferred shares is 3.5%. The preferred shares carry the same voting rights as TSMC's common shares. The preferred shares are carried at cost (redemption value) in the accompanying consolidated balance sheet. The redeemable preferred shares result in a concentration of credit risks. However, based on historical results, the Company is of the opinion that TSMC will have sufficient means to redeem at the redemption date. ADAC In December 2000, Philips acquired substantially all of ADAC Laboratories' common stock for USD 18.50 per share for each outstanding share. The total purchase price approximates EUR 483 million, of which approximately EUR 437 million was paid through December 31, 2000. The balance sheet of ADAC, a medical systems business, has been included in the Company's consolidated balance sheet as of December 31, 2000. The cost of the acquisition was allocated on the basis of the fair value of the assets acquired and the liabilities assumed. Based on an independent appraisal, EUR 241 million was assigned to specific intangible assets acquired, including purchased technology, in-process R&D, the value of the customer base and the value of the existing workforce. Of this amount, EUR 44 million, representing the value of in-process R&D that had not yet reached technological feasibility and had no alternative future use, was charged to expense as of the date of acquisition. An amount of EUR 257 million, representing the excess of cost over the fair value of the net assets acquired, has been recorded as goodwill. Goodwill and other intangibles are being amortized over their useful lives, which average approximately 13 years. 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP 68 MEDQUIST During 2000, in a series of transactions, Philips acquired approximately 71% of the outstanding shares in MedQuist, a provider of electronic medical transcription services in the United States, for a total aggregate cash purchase price of EUR 1,339 million. The cost of the acquisition was allocated on the basis of the fair value of the assets acquired and liabilities assumed. Based upon independent appraisal, EUR 207 million was assigned to specific intangible assets acquired, including the value of the customer base and the existing workforce. An amount of EUR 1,097 million, representing the excess of cost over the fair value of the net assets acquired, has been recorded as goodwill. Goodwill and other intangibles are being amortized over their useful lives, which average approximately 15 years. The results of operations for MedQuist have been included in the Company's consolidated financial statements as from July 1, 2000. OPTIVA In October 2000, Philips acquired all of the outstanding shares of Optiva Corporation, the manufacturer of the Sonicare toothbrush, at a cost of approximately EUR 291 million. The cost of the acquisition was allocated on the basis of the fair value of the assets acquired and liabilities assumed. Based upon independent appraisal, EUR 99 million was assigned to specific intangible assets acquired, including patents and trademarks and the value of the workforce. Additionally, EUR 182 million, representing the excess of cost over the fair value of the net assets acquired, has been recorded as goodwill. The intangible assets are being amortized over their estimated useful lives, which average approximately 14.5 years. As from October 1, 2000, the results of operations for Optiva have been included in the Company's consolidated financial statements. Philips has changed the name of Optiva into Philips Oral Healthcare with effect from 2001. MICRUS In June 2000, Philips purchased IBM's MiCRUS 8-inch wafer fab in the USA, a semiconductor activity, for which the results of operations have been included in the consolidated financial statements as from June 1, 2000. The acquisition price was approximately EUR 378 million, of which approximately EUR 228 million was paid through December 31, 2000. Based on independent appraisal, approximately EUR 367 million was assigned to the fixed assets acquired and EUR 11 million was assigned to the value of the existing workforce. ATOS ORIGIN In October 2000, Philips and Atos of France, a leading European IT services provider, merged Atos and Origin, Philips' IT services subsidiary. Under this transaction, Philips received 21.3 million newly issued Atos shares based on Atos' closing price on August 25, 2000 of EUR 122 per share, representing 48.7% of the shares in the combined entity Atos Origin. Additionally, Philips received two tranches of warrants, each representing approximately 2.4 million Atos Origin shares. These warrants may be exercised in the event the weighted average share price of Atos Origin exceeds EUR 156 per share for twelve consecutive business days within 20 months following the closing date for the first tranche, and EUR 208 per share within 32 months for the second tranche. As from October 1, 2000, Philips no longer consolidated Origin as a separate division, but will, under the equity method of accounting, include its share in Atos Origin's earnings in results relating to unconsolidated companies from January 1, 2001 onwards. Due to Atos Origin's different reporting cycle, Philips' share can only be accounted for on a three-month-delay basis. The Company adjusted its investment in Origin to equal its share of the post-transaction merged equity of Atos Origin, based on Philips' accounting policies, resulting in a gain of EUR 1,072 million, which is included in other business income. Philips limited its voting rights to 35% and agreed to reduce its stake in Atos Origin below 35% (directly or indirectly) within two years after the closing date. 19 69 AC&M In May 2000, Philips reached agreement with Yageo Corporation of Taiwan to sell its AC&M (Advanced Ceramics & Modules) business to Yageo Corporation. The transaction was completed in August 2000, and the Company received cash proceeds of EUR 658 million and recognized a gain, net of cost of disposal, of EUR 309 million which is included in other business income (net of taxes EUR 247 million). Sales and income related to this business included in the consolidated statement of income for 2000 totaled EUR 239 million and EUR 41 million respectively. AGILENT In November 2000, the Company announced an agreement to acquire Agilent Technologies' Healthcare Solutions Group (HSG), a medical systems business, for USD 1.7 billion. The transaction is expected to close early in 2001, subject to customary regulatory approvals and other closing conditions. LG ELECTRONICS AND PHILIPS DISPLAY COMPONENTS In November 2000, Philips and LG Electronics of South Korea announced the signing of a Letter of Intent through which the companies will merge their respective cathode ray tube (CRT) businesses in a new joint venture. Under the terms of the agreement, LG and Philips will share equal control of the joint venture. The transaction is expected to close in the first half of 2001, subject to customary regulatory approvals. The new joint venture will be required to contribute USD 1.1 billion in cash to LGE to close the difference in valuation of the net assets contributed. THE MOST SIGNIFICANT ACQUISITIONS AND DIVESTITURES DURING 1999 AND 1998 WERE AS FOLLOWS: LG. PHILIPS LCD CO., LTD With effect from July 1, 1999, Philips and LG Electronics of South Korea finalized a manufacturing joint venture agreement, creating a world-leading supplier of Active Matrix Liquid Crystal Displays (AMLCDs). Philips acquired a 50 per cent stake in LGE LCD business for EUR 1.7 billion and accounts for the investment using the equity method. The cost of the acquisition was allocated on the basis of the fair value of the assets acquired and liabilities assumed. The excess of the Company's investment over its underlying equity in the recognized net assets, commonly referred to as goodwill under Dutch GAAP, is EUR 1.3 billion. Goodwill and other intangibles are being amortized over their estimated useful lives, which average 15 years. VLSI TECHNOLOGY, INC. In June 1999, the Company acquired all of the outstanding shares of VLSI Technology (VLSI), a semiconductor business, at a cost of EUR 1.1 billion, which included EUR 0.1 billion of assumed debt. The results of operations for VLSI have been included in the Company's consolidated financial statements from the date of acquisition. The cost of the acquisition was allocated on the basis of the fair value of the assets acquired and liabilities assumed. Based upon independent appraisal, EUR 342 million was assigned to specific intangible assets acquired, including purchased technology, in-process R&D, patents and trademarks, and the value of the existing workforce. Of this amount, EUR 48 million, representing the value of in-process R&D that had not yet reached technological feasibility and had no alternative future use, was charged to expense as of the date of acquisition. An amount of EUR 305 million, representing the excess of cost over the fair value of the net assets acquired, has been recorded as goodwill. Goodwill and other intangibles are being amortized over their useful lives, which average approximately 7 years. 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP 70 ORIGIN B.V. In June 1999, the Company acquired an additional 10% interest in Origin at a cost of EUR 124 million. Philips then owned approximately 98% of Origin's stockholders' equity. Goodwill resulting from the acquisition totaled EUR 107 million and had a useful life of 7 years. CONVENTIONAL PASSIVE COMPONENTS Under an agreement signed on September 27, 1998, Philips sold its Conventional Passive Components activities to an affiliate of Compass Partners International on January 14, 1999. Net assets were therefore no longer consolidated as of December 31, 1998, but included under unconsolidated companies. However, sales and income for 1998 have been included in the consolidated Group accounts of that year. In the first quarter of 1999, the transfer price of EUR 358 million was received and the gain of EUR 169 million recognized. PHILIPS CONSUMER COMMUNICATIONS Effective September 27, 1998, Philips and Lucent Technologies terminated their joint venture, Philips Consumer Communications (PCC). Philips, which owned 60% of the venture, and Lucent, which owned 40%, each regained control of the assets originally contributed. The joint venture was formed on October 1, 1997. Income from operations for 1998 included losses relating to the unwinding of the joint venture, including a write-down of obsolete inventories (EUR 159 million) and the subsequent restructuring of the PCC activities that were returned to Philips (EUR 216 million). ATL ULTRASOUND, INC ATL Ultrasound was acquired on October 2, 1998, for EUR 732 million in cash. ATL Ultrasound is a leading company in the high-performance ultrasound market. Included in the purchase price for ATL was goodwill of EUR 176 million, in-process R&D of EUR 182 million and other identifiable intangible assets amounting to EUR 228 million. Goodwill and other intangible assets are capitalized and amortized over 12 years and an average of 10 years respectively. In-process R&D was charged to expense at the date of acquisition. PHILIPS CAR SYSTEMS In December 1997, Philips and Mannesmann VDO signed a contract for the sale of Philips Car Systems to Mannesmann. Under the agreement, the first tranche (EUR 460 million) of the transfer price was received in the first quarter of 1998, while additional payments of EUR 31 million were received in 1998 for subsequently transferred activities. A final tranche of EUR 128 million was received in March 2000. The total net gain of EUR 379 million was recognized under extraordinary items in 1998. 21 71 2 INCOME FROM OPERATIONS Depreciation and amortization Included in income from operations is depreciation of property, plant and equipment and amortization of intangible assets.
2000 1999 1998 ----- ----- ----- Depreciation of property, plant and equipment 1,789 1,525 1,563 Amortization of goodwill relating to consolidated companies 173 95 54 Amortization of other intangible assets 201 70 - Amortization of patents and trademarks 10 6 2 Write-off of in-process R&D 44 68 202 ----- ----- ----- 2,217 1,764 1,821
Depreciation of property, plant and equipment includes an additional write-off in connection with the retirement of property, plant and equipment amounting to EUR 19 million in 2000 (1999: EUR 17 million, 1998: EUR 15 million). In 2000, additional depreciation costs relating to write-downs of EUR 42 million (1999: EUR 40 million, 1998: EUR 67 million) arising from restructuring projects were reported in the income statement, in the separate line item restructuring charges. The total amount of depreciation and amortization in 2000 includes EUR 5 million arising from impairment (1999: EUR 41 million, 1998: EUR 250 million). Amortization of goodwill relating to consolidated companies and other intangible assets in 2000 includes an impairment loss of EUR 35 million with respect to Voice Control Systems within the sector Consumer Electronics. Furthermore, amortization of intangible assets increased in the year 2000 because of the new acquisitions in 2000 and full-year amortization relating to the 1999 acquisitions. Research and development Expenditures for research and development activities amounted to EUR 2,766 million, representing 7.3% of sales (1999: EUR 2,284 million, 7.3% of sales; 1998: EUR 2,048 million, 6.7% of sales). These expenditures are included in direct cost of sales. Salaries and wages
2000 1999 1998 ----- ----- ----- Salaries and wages 7,631 6,910 6,878 Pension costs (445) (42) 188 Other social security and similar charges: - - Required by law 1,009 958 981 - - Voluntary 261 190 162 ----- ----- ----- TOTAL 8,456 8,016 8,209
See note 19 to the financial statements for further information on pension costs. 22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP 72 Employees The average number of employees during 2000 was 231,161 (1999: 230,016, 1998: 252,680). The number of employees by category is summarized as follows:
2000 1999 1998 --------------------------------- beginning end average ** average average of year* of year Production 122,989 125,421 124,473 126,622 146,249 Research & Development 22,099 22,884 22,201 21,104 20,657 Other 61,866 48,636 60,484 62,443 64,494 ------- ------- ------- ------- ------- Permanent employees 206,954 196,941 207,158 210,169 231,400 Temporary employees 19,964 22,488 24,003 19,847 21,280 ------- ------- ------- ------- ------- TOTAL 226,918 219,429 231,161 230,016 252,680
* including changes in consolidation at January 1, 2000 ** (de)consolidation changes have not been taken into consideration in determining the average number of employees The number of employees at year-end 2000 decreased by 7,489 as compared to the beginning of the year. This includes a decrease of 10,621 relating to consolidation changes. Remuneration of the Board of Management and Supervisory Board Board of Management Remuneration and pension costs relating to the members of the Board of Management amounted to EUR 4,442,733 (1999: EUR 9,412,000, 1998: EUR 11,711,000). The costs for former members of the Board of Management, which relate to pension charges, amounted to EUR 1,350,000 (1999: EUR 1,470,000, 1998: EUR 7,638,000). In 2000, the present members of the Board of Management were granted 500,000 stock option rights (1999: 440,000* stock options, 1998: 1,543,600* stock options). At year-end 2000, the members of the Board of Management held 1,911,200 stock option rights (year-end 1999: 1,480,000*) at a weighted average exercise price of EUR 20.05 (year-end 1999: EUR 12.71*). See note 26 to the financial statements for further information on stock options and pages 70-75 for further information on individual remuneration and interests in stock options and Philips shares. * After stock split in 2000 Supervisory Board The remuneration of the members of the Supervisory Board amounted to EUR 376,637 (1999: EUR 414,000, 1998: EUR 377,000); former members received no remuneration. The annual remuneration for individual members is EUR 40,840 and for the Chairman EUR 74,874. Additionally, the membership of committees of the Supervisory Board is compensated by an amount of EUR 4,538 per year per committee. At year-end 2000 the present members of the Supervisory Board held no stock options. For further information on individual remuneration and interests in Philips shares, see pages 73-75. 23 73 Other business income Other business income consists of amounts not directly related to the production and sale of products and services. Included is EUR 1,429 million relating to the net gain from the disposal of business interests (1999: EUR 257 million, 1998: EUR 37 million), primarily the gain arising from the Atos Origin merger (EUR 1,072 million) and the gain on the sale of AC&M (EUR 309 million) in 2000 and Conventional Passive Components (EUR 169 million) in 1999. Other business income also includes gains of EUR 48 million from the sale of fixed assets (1999: EUR 71 million, 1998: EUR 74 million) and various smaller items. Restructuring charges The fast-changing environment in which Philips operates requires rapid adjustments in the organizational structure, product portfolio, etc. Management continuously monitors various projects to improve the performance of the operations. The following table presents the changes in the restructuring provision from December 31, 1997 to December 31, 2000:
Type of costs balance additions utilized releases balance December 31, December 31, 1997 1998 Write-down of assets 41 192 (203) - 30 Personnel costs 189 124 (118) (20) 175 Other costs 96 33 (61) (8) 60 --- --- ---- --- --- Total 326 349 (382) (28) 265
Type of costs balance additions utilized releases balance December 31, December 31, 1998 1999 Write-down of assets 30 40 (46) (11) 13 Personnel costs 175 71 (116) (46) 84 Other costs 60 12 (33) (21) 18 --- --- ---- --- --- Total 265 123 (195) (78) 115
Type of costs balance additions utilized releases balance December 31, December 31, 1999 2000 Write-down of assets 13 52 (33) (10) 22 Personnel costs 84 125 (115) (27) 67 Other costs 18 26 (24) (9) 11 --- --- ---- --- --- TOTAL 115 203 (172) (46) 100
24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP 74 The additions to the restructuring provision in 2000 affected the income statement as follows:
write down write fixed down personnel other total assets inventories costs costs additions ------ ----------- --------- ----- --------- Lighting 27 4 31 Consumer Electronics 3 18 6 27 Components 17 8 53 12 90 DAP 1 1 7 4 13 Origin 15 15 Miscellaneous 21 2 23 Unallocated 1 3 4 ------ ----------- --------- ----- --------- Philips Group 42 10 125 26 203
The projects initiated in 2000 will ultimately reduce direct labor by approximately 3,900 persons and indirect labor by approximately 1,100 persons. Releases of surplus provisions amounted to EUR 46 million and were caused by changes in the original plans. The remaining prior-year provisions available at December 31, 2000 relate primarily to personnel costs. The Company expects to make cash expenditures of approximately EUR 75 million in 2001 with existing restructuring programs. All existing programs will be completed by the end of 2001. In 1999, the total restructuring charges to income amounted to EUR 123 million, comprising EUR 71 million for personnel costs, of which EUR 35 million related to Lighting, EUR 29 million to Miscellaneous, EUR 6 million to Components and EUR 1 million to Consumer Electronics for a total headcount reduction of approximately 1,500 persons, of whom 1,100 were direct labor and 400 indirect personnel. The 1999 charge also included EUR 40 million for asset write-downs, mainly in Components and Lighting. Of this amount, EUR 4 million related to write-down of inventories, primarily in Components. The restructuring charge for fixed-asset write-downs came to EUR 36 million and related to Components, Lighting and Miscellaneous. The write-downs are based on the discounted cash flow method. Other costs totaled EUR 12 million, largely relating to Lighting, Components and Miscellaneous. Releases of surplus provisions in 1999 amounted to EUR 78 million and were caused by changes in the original plans. 25 75 3 FINANCIAL INCOME AND EXPENSES
2000 1999 1998 ----- ----- ----- Interest income 99 133 77 Interest expense (266) (262) (321) ----- ----- ----- TOTAL INTEREST EXPENSE (NET) (167) (129) (244) Income from securities officially quoted 2,217 117 - Gains from non-current financial assets 13 44 36 Foreign exchange gains (losses) (86) 7 (40) Miscellaneous financing costs 11 (7) (5) Interest on provisions for pensions - - (59) ----- ----- ----- TOTAL 1,988 32 (312)
Income from securities officially quoted in 2000 includes the gain on the sale of JDS Uniphase shares for an amount of EUR 1,207 million. Additionally, it includes the gain on the exchange of Seagram shares for Vivendi Universal shares, amounting to EUR 966 million, net of a US dollar hedge. Furthermore, dividends received from Seagram of EUR 32 million are also included. The corresponding results for 1999 include the gain on the sale of JDS Uniphase shares (see note 10). Gains (losses) from non-current financial assets in 1999 mainly related to dividends received on Seagram shares, whereas the 1998 results mainly reflect the gain on the sale of the equity investment in Flextronics of EUR 27 million. Interest on provisions for pensions has been reclassified from financial income and expenses to income from operations with effect from 1999. 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PHILIPS GROUP 76 4 INCOME TAXES Tax on income from continuing operations amounted to EUR 570 million in 2000 (1999: EUR 336 million, 1998: EUR 41 million). In 2000, there were no taxes on extraordinary items, compared to a EUR 2 million benefit in 1999 and a EUR 96 million expense in 1998. The amount of income tax allocated to stockholders' equity relates to a benefit because of results arising from stock option transactions of EUR 11 million (1999: EUR 23 million; 1998: EUR 51 million), a charge because of deferred results on hedge transactions of EUR 85 million (1999: benefit of EUR 102 million; 1998: nil) and a benefit of EUR 107 million with respect to the accounting change related to inventories. The components of income before taxes are as follows:
2000 1999 1998 ----- ----- ------ Netherlands 4,620 479 330 Foreign 1,649 1,304 43 ----- ----- ----- INCOME BEFORE TAXES 6,269 1,783 373
The components of income tax expense are as follows: Netherlands: Current taxes 120 45 1 Deferred taxes 277 35 90 ----- ----- ----- 397 80 91 Foreign: Current taxes 349 229 100 Deferred taxes (176) 27 (150) ----- ----- ----- 173 256 (50) ----- ----- ----- INCOME TAX EXPENSE FROM CONTINUING OPERATIONS 570 336 41
Philips' operations are subject to income taxes in various foreign jurisdictions with statutory income tax rates varying from 16% to 45%, which causes a difference between the weighted average statutory income tax rate and the Netherlands' statutory income tax rate of 35%. 27 77 A reconciliation of the weighted average statutory income tax rate as a percentage of income before taxes and the effective income tax rate is as follows:
2000 1999 1998 ------ ------ ------ Weighted average statutory income tax rate 34.2 33.3 30.7 Tax effect of: Utilization of previously unrecognized loss carryforwards (2.5) (10.6) (93.0) New loss carryforwards not recognized 1.4 5.0 57.4 Changes in the valuation of other deferred taxes (0.3) 5.4 16.7 Released valuation allowance (2.6) (9.4) -- Exempt income and non-deductible expenses (19.2) (4.0) 18.1 Tax incentives and other (1.9) (0.9) (18.8) ----- ----- ----- Executive tax rate 9.1 18.8 11.1
Deferred tax assets and liabilities Deferred tax assets and deferred tax liabilities are as follows:
2000 1999 ------------------- ------------------- assets liabilities assets liabilities ------ ----------- ------ ----------- Intangible fixed assets 80 (400) 100 (20) Property, plant and equipment 240 (310) 250 (230) Inventories 240 (40) 90 (30) Receivables 80 (20) 80 (80) Provisions: - -- Pensions 100 (110) 90 (100) - -- Restructuring 50 -- 30 -- - -- Guarantees 10 -- 20 -- - -- Other 510 (10) 620 (210) Other assets 40 (440) 151 (310) Other liabilities 120 (63) 90 (226) ----- ------ ----- ------ Total deferred tax assets/liabilities 1,470 (1,393) 1,521 (1,206) ----- ------ ----- ------ Net deferred tax position 77 315 Tax loss carryforwards (including tax credit carryforwards) 1,579 2,026 Valuation allowances (1,215) (1,663) ------ ------ NET DEFERRED TAX ASSETS 441 678
28 Notes to the consolidated financial statements of the Philips Group 78 In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income in the countries where the net operating losses were incurred. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2000. The valuation allowance for deferred tax assets as of December 31, 2000 and 1999 was EUR 1,215 million and EUR 1,663 million respectively. The net change in the total valuation allowance for the years ended December 31, 2000 and 1999 was a decrease of EUR 448 million and a decrease of EUR 275 million respectively. At December 31, 2000, operating loss carryforwards expire as follows:
Total 2001 2002 2003 2004 2005 2006/2010 later unlimited ---- ---- ---- ---- ---- --------- ----- --------- 4,440 60 40 280 80 100 320 570 2,990
The Company also has tax credit carryforwards of EUR 140 million, which are available to offset future tax, if any, and which expire as follows:
Total 2001 2002 2003 2004 2005 2006/2010 later unlimited ---- ---- ---- ---- ---- --------- ----- --------- 140 18 4 18 3 2 5 40 50
Classification of the deferred tax assets and liabilities takes place at a fiscal entity level as follows:
2000 1999 ---- ---- Deferred tax assets grouped under non-current receivables 916 947 Deferred tax liabilities grouped under provisions (475) (269) ---- ---- 441 678
An amount of EUR 441 million (1999: EUR 358 million), included in deferred tax assets of EUR 916 million, is expected to be realized within one year. Classification of the income tax payable and receivable is as follows:
2000 1999 ---- ---- Income tax receivable grouped under non-current receivables 89 20 Income tax receivable grouped under current receivables 24 92 Income tax payable grouped under current liabilities (613) (484)
The amount of the unrecognized deferred income tax liability for temporary differences, totaling EUR 254 million (1999: EUR 170 million), relates to unremitted earnings in foreign Group companies, which are considered to be permanently re-invested. Under current Dutch tax law, no additional taxes are payable. However, in certain jurisdictions, withholding taxes would be payable. 29 79 5 RESULTS RELATING TO UNCONSOLIDATED COMPANIES Results relating to unconsolidated companies in 2000 primarily consist of Philips' share in the operating results of LG.Philips LCD Co. in Korea (50%) and Taiwan Semiconductor Manufacturing Co. (22.5% in common stock). Also included are the losses from the ongoing development costs of digitized street maps incurred by Navigation Technologies Corporation (NavTech). The results for 2000 include several one-time gains. A gain of EUR 680 million was recorded in conjunction with issuance of shares by TSMC at a price in excess of the Company's per share carrying value. Additionally, the sale of ASM Lithography shares in June 2000 resulted in a gain of EUR 2,595 million. Furthermore, the exchange of Philips' approximately 33% equity interest in Beltone Electronics Inc. for shares of GN Great Nordic A/S resulted in a gain of EUR 122 million. Philips' remaining 7.2% investment in ASML and 3.3% investment in GN Great Nordic were reclassified to securities and other non-current financial assets respectively (see notes 10 and 13). Philips' share in the results of Atos Origin (48.7%) will be recorded under results relating to unconsolidated companies as from January 1, 2001 onwards. Due to Atos Origin's different reporting cycle, Philips' share will be accounted for on a three-month-delay basis. In 1999, results primarily consisted of Philips' share in the operating results of LG.Philips LCD Co. (50%) in Korea (in 1999 for 6 months only), Taiwan Semiconductor Manufacturing Co. (26.7%) and ASM Lithography (23.9%). Also included are the losses incurred by Navigation Technologies Corporation (NavTech) and the non-recurring gain from the sale of part of the shares of NavTech. In 1998, an amount of EUR 7 million resulting from the sale of participations in various companies was also included. Investments in, and loans to, unconsolidated companies The changes during 2000 are as follows:
total investments loans ----- ----------- ----- Balance as of January 1, 2000 2,091 2,060 31 Changes: Acquisitions/additions 2,320 1,688 632 Sales/redemptions (197) (141) (56) Share in income 1,333 1,417 (84) Dividend received (150) (150) -- Changes in consolidation -- (12) 12 Translation and exchange rate differences (69) (69) -- ----- ----- ----- BALANCE AS OF DECEMBER 31, 2000 5,328 4,793 535
Loans to unconsolidated companies include redeemable preferred shares of TSMC, in the amount of EUR 421 million, which are presented as "additions". Included in "share in income" is a charge of EUR 84 million (1999: EUR 49 million, 1998: EUR 1 million) representing amortization of the excess of the Company's investment over its underlying equity in the net assets of unconsolidated companies, commonly referred to as goodwill under Dutch GAAP (EUR 79 million arising from the acquisition of LG.Philips LCD Co.). 30 Notes to the consolidated financial statements of the Philips Group 80 The investments in unconsolidated companies at December 31, 2000 include EUR 215 million (1999: EUR 28 million) for companies accounted for under the cost method, of which EUR 3 million (1999: EUR 2 million) represents dividends received. The total book value of investments in, and loans to, unconsolidated companies is summarized as follows:
2000 1999 ------ ------ LG.Philips LCD Co. 832 656 Taiwan Semiconductor Manufacturing Co. 2,553 1,021 ASM Lithography -- 146 Atos Origin 1,449 -- Other 494 268 ----- ----- TOTAL 5,328 2,091
The aggregate fair values of Philips' shareholdings in TSMC and Atos Origin, based on quoted market prices at December 31, 2000, were EUR 6.7 billion (1999: EUR 10.8 billion) and EUR 1.6 billion respectively. Summarized financial information for the Company's equity investments in unconsolidated companies on a combined basis is presented below:
January-December ------------------- 2000 1999 ------ ------ Net sales 9,039 5,633 Income before taxes 2,572 1,254 Income taxes (4) (124) ----- ----- Income after taxes 2,568 1,130 Net income 2,594 1,097 Total share in net income of unconsolidated companies recognized in the consolidated statements of income 1,333 412
December 31, -------------------- 2000 1999 ------ ------ Current assets 5,080 3,866 Non-current assets 16,609 6,150 ------ ------ 21,689 10,016 Current liabilities (4,123) (1,595) Non-current liabilities (3,427) (2,615) ------ ------ Net asset value 14,139 5,806 Investments in and loans to unconsolidated companies included in the consolidated balance sheet 5,328 2,091
31 81 6 MINORITY INTERESTS The share of third-party minority shareholders in Group income totaled EUR 67 million in 2000. In 1999, minority interest amounted to EUR 52 million, in contrast to 1998, when third-party shareholders absorbed EUR 170 million of the net losses incurred by Group companies, principally the losses at PCC (dissolved October 1998). Minority interests in consolidated companies, totaling EUR 469 million (1999: EUR 333 million), are based on the third-party shareholding in the underlying net assets. The increase in 2000 is mainly attributable to the acquisition of MedQuist, in which the third-party share is 29% at December 31, 2000. On the other hand, Philips acquired the remaining 20% share in Hosiden and Philips Display Corp. (HAPD) from Hosiden Corporation of Japan. 7 DISCONTINUED OPERATIONS In December 1998, Philips completed the sale of all of its 75% shareholding in PolyGram N.V. ("PolyGram"), to The Seagram Company Ltd. ("Seagram"). Philips received EUR 5,233 million in cash and 47,831,952 Seagram shares, representing approximately 12% of the outstanding Seagram shares. The sale of PolyGram resulted in a gain of EUR 4,844 million, or EUR 3.36 per share, free of taxes. The results of PolyGram have been classified as discontinued operations in the accompanying financial statements. PolyGram recorded sales of EUR 4,818 million in 1998 through the date of its sale. Philips' share in net income of PolyGram in 1998 amounted to EUR 210 million, which is included under income from discontinued operations. 8 EXTRAORDINARY ITEMS-NET
2000 1999 1998 ---- ---- ---- Extraordinary gains -- -- 589 Extraordinary losses -- (7) (35) Taxes -- 2 (96) --- --- ---- TOTAL -- (5) 458
There were no extraordinary items in 2000. Extraordinary losses in 1999 (EUR 7 million) resulted from the early redemption of debt. Extraordinary items in 1998 totaled EUR 458 million, comprising the sale of Philips Car Systems (gain of EUR 379 million) and the sale of the Optoelectronics unit as well as various other items (gain of EUR 79 million), partially offset by a loss on the early redemption of debt (EUR 15 million). Accumulated translation differences in 1998 relating to the disposed businesses reduced the gains on disposals by EUR 5 million. Those translation differences were previously accounted for directly within stockholders' equity. 32 Notes to the consolidated financial statements of the Philips Group 82 9 EARNINGS PER SHARE The earnings per share data have been calculated in accordance with SFAS No. 128 "Earnings per Share" as per the following schedule:
2000* 1999** 1998*** ------------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF SHARES(1) 1,312,859,102 1,378,040,952 1,440,224,304 BASIC EPS COMPUTATION - -- Income from continuing operations available to holders of common shares 9,602 1,804 541 - -- Income from discontinued operations -- -- 210 - -- Gain on sale of discontinued operations -- -- 4,844 - -- Extraordinary items-net -- (5) 458 ------------- ------------- ------------- NET INCOME AVAILABLE TO HOLDERS OF COMMON SHARES 9,602 1,799 6,053 DILUTED EPS COMPUTATION - -- Income from continuing operations available to holders of common shares 9,602 1,804 541 - -- Plus interest on assumed conversion of convertible debentures, net of taxes 1 -- 1 ------------- ------------- ------------- - -- Income available to holders of common shares 9,603 1,804 542 - -- Income from discontinued operations -- -- 210 - -- Gain on sale of discontinued operations -- -- 4,844 - -- Extraordinary items-net -- (5) 458 ------------- ------------- ------------- NET INCOME AVAILABLE TO HOLDERS OF COMMON SHARES PLUS EFFECT OF ASSUMED CONVERSIONS 9,603 1,799 6,054 WEIGHTED AVERAGE NUMBER OF SHARES(1) 1,312,859,102 1,378,040,952 1,440,224,304 Plus shares applicable to: - -- Options 9,961,410 6,954,752 8,043,692 - -- Convertible debentures 3,717,651 4,230,552 3,808,496 --------- --------- --------- Dilutive potential common shares 13,679,061 11,185,304 11,852,188 ------------- ------------- ------------- ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES(1) 1,326,538,163 1,389,226,256 1,452,076,492 EARNINGS PER SHARE(1): - -- Basic earnings 7.31 1.31 4.20 - -- Diluted earnings 7.24 1.30 4.17
- ------------ * par value EUR 0.20 ** par value EUR 1 *** par value NLG 10 (1) Previously reported figures restated for 4-for-1 stock split 33 83 \ 10 SECURITIES Included in securities are investments in equity securities which have been designated as available for sale (immediately available or within a period of one year) relating to shares of JDS Uniphase, ASML and, for 1999, Seagram. All are carried at the original acquisition price of the shares and are presented in the table below:
2000 1999 ------------------------------------- ----- number book market book of shares value value value ----------- ----- ------ ----- JDS Uniphase 10,477,168 61 463 120 Seagram -- -- -- 1,403 ASML 30,000,000 50 726 -- ---- ----- ----- BALANCE AS OF DECEMBER 31 111 1,189 1,523
During 2000 and 1999 a portion of the JDS Uniphase shares was sold (see note 3). In December 2000, Philips exchanged its Seagram shares for Vivendi Universal shares, which have been classified under other non-current financial assets (see note 13). At December 31, 1999, the ASML shareholding was included in unconsolidated companies. Due to the sale of 69 million shares during 2000 the remaining shares were designated as available for sale and have been reclassified to securities. 11 RECEIVABLES Trade accounts receivable include installment accounts receivable of EUR 69 million (1999: EUR 13 million). Discounted drafts of EUR 8 million (1999: EUR 22 million) have been deducted. Income taxes receivable (current portion) totaling EUR 24 million (1999: EUR 92 million) are included under other receivables. The changes in the allowance for doubtful accounts are as follows:
2000 1999 1998 ------ ------ ------ Balance as of January 1, 278 186 155 Additions charged to income 59 198 179 Deductions from allowance* (182) (118) (125) Other movements** 26 12 (23) ---- ---- ---- BALANCE AS OF DECEMBER 31, 181 278 186
- ------------ * Write-offs for which an allowance was previously provided ** Including the effect of translation differences and consolidation changes 34 Notes to the consolidated financial statements of the Philips Group 84 12 INVENTORIES Inventories are summarized as follows:
2000 1999 ------ ------ Raw materials and supplies 1,638 1,694 Work in process 1,125 801 Finished goods 2,627 2,220 Advance payments on work in process (111) (149) ----- ----- TOTAL 5,279 4,566
The changes in the reserve for obsolescence of inventories are as follows:
2000 1999 1998 ---- ---- ---- Balance as of January 1, 630 735 526 Additions charged to income 302 242 469 Deductions from reserve (243) (392) (277) Other movements* 65 45 17 ---- ---- ---- BALANCE AS OF DECEMBER 31, 754 630 735
- ------------ * Including the effect of translation differences and consolidation changes Product development and process development costs, capitalized in inventories for an amount of EUR 348 million (net of taxes EUR 241 million) at December 31, 1999, are excluded from January 1, 2000 onwards. 13 OTHER NON-CURRENT FINANCIAL ASSETS The changes during 2000 are as follows:
restricted security liquid total investments loans assets ------- ----------- ----- ---------- Balance as of January 1, 2000 340 125 136 79 Changes: Exchange of current assets 2,793 2,793 -- -- Acquisitions/additions 766 638 64 64 Sales/redemptions (180) (1) (179) -- Value adjustments (3) (3) -- -- Translation and exchange differences (38) (41) 3 -- Changes in consolidation 69 -- 69 -- - ------------------------------------ ----- ----- ----- ----- BALANCE AS OF DECEMBER 31, 2000 3,747 3,511 93 143 ----- ----- ----- ----- Accumulated total of write-downs included in the book value 24 4 20 --
In December 2000, Philips exchanged its Seagram shares for Vivendi Universal shares, a strategic investment, receiving 0.8 share in Vivendi Universal for each Seagram share. The share ownership will strengthen the Company's opportunities for a long-term relationship. In view of the existing relationship with LG Electronics Inc. of Korea and the intended new joint venture in the field of CRT business, the Company invested an amount of EUR 505 million in a convertible redeemable preferred share issue by LG Electronics Korea (see note 1). Acquisition of security investments also includes 6,822,165 shares in GN Great Nordic (EUR 132 million) received in exchange for the Company's equity position in Beltone Electronics Inc. (see note 5). Philips is restricted from selling these shares until 2003, a period of three years from the acquisition date. Other security investments include EUR 111 million of shares that are not available for sale or redemption (1999: EUR 117 million). 35 85 14 NON-CURRENT RECEIVABLES Non-current receivables include receivables with a remaining term of more than one year and the non-current portion of income taxes receivable totaling EUR 89 million (1999: EUR 20 million). Prepaid expenses in 2000 include prepaid pension costs of EUR 1,469 million (1999: EUR 1,065 million) and deferred tax assets of EUR 916 million (1999: EUR 947 million). 15 PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment and the changes during 2000 were as follows: Property, plant and equipment
prepayments land machinery and no longer and and other construction productively total buildings installations equipment in progress employed ------- --------- ------------- ------------ ------------ ------------ Balance as of January 1, 2000: Cost 18,302 3,787 10,995 2,659 814 47 Accumulated depreciation (10,970) (1,774) (7,105) (2,055) -- (36) ------- ------ ------ ------ ------ ------ Book value 7,332 2,013 3,890 604 814 11 Changes in book value: Capital expenditures 3,170 221 1,567 402 980 -- Retirements and sales (153) (49) (65) (26) (13) -- Depreciation (1,784) (143) (1,259) (374) (2) (6) Write-downs due to impairment (5) (3) -- (2) -- -- Translation differences 285 76 191 39 (21) -- Changes in consolidation 196 (27) 110 131 (17) (1) ------- ------ ------ ------ ------ ------ Total changes 1,709 75 544 170 927 (7) Balance as of December 31, 2000: Cost 20,265 3,821 11,804 2,840 1,741 59 Accumulated depreciation (11,224) (1,733) (7,370) (2,066) -- (55) ------- ------ ------ ------ ------ ------ BOOK VALUE 9,041 2,088 4,434 774 1,741 4
Land is not depreciated. The expected service lives as of December 31, 2000 were as follows: Buildings from 14 to 50 years Machinery and installations from 5 to 10 years Other equipment from 3 to 5 years 36 Notes to the consolidated financial statements of the Philips Group 86 16 INTANGIBLE ASSETS The changes during 2000 were as follows:
goodwill ----------------------------- relating relating to to consolidated unconsolidated other total companies companies* software intangibles ------- ------------ -------------- -------- ----------- Balance as of January 1, 2000: Acquisition cost 3,221 1,029 1,334 232 626 Accumulated amortization (399) (260) (51) (27) (61) ----- ----- ----- ----- ----- Book value 2,822 769 1,283 205 565 Changes in book value: Reclassifications (273) (180) (42) (15) (36) Acquisitions 2,070 1,581 3 139 347 Amortization and write-downs (512) (173) (84) (86) (169) Translation differences 57 9 2 6 40 Changes in consolidation 263 -- -- 5 258 ----- ----- ----- ----- ----- Total changes 1,605 1,237 (121) 49 440 Balance as of December 31, 2000: Acquisition cost 5,219 2,295 1,294 368 1,262 Accumulated amortization (792) (289) (132) (114) (257) ----- ----- ----- ----- ----- BOOK VALUE 4,427 2,006 1,162 254 1,005
- ------------ * Represents the excess of the Company's investment over its underlying equity in the net assets of the unconsolidated companies The final appraisal value of other intangibles in a number of last year's acquisitions, resulted in an adjustment to the amount originally assigned on a provisional basis. The reallocation of the purchase price to other intangibles and goodwill is reflected under "reclassifications". Goodwill relating to consolidated companies of EUR 1,581 million arose from the following acquisitions: MedQuist, Optiva, ADAC and several smaller items (see note 1). The amount of other intangibles acquired (EUR 347 million) includes the amounts paid for in-process R&D of EUR 44 million relating to the ADAC acquisition, which amount was charged directly to the 2000 income statement. In-process R&D for 1999 amounted to EUR 68 million (1998: EUR 202 million). Additionally, acquisitions include other specific intangible assets acquired in above-mentioned transactions, such as purchased technology, patents and trademarks, the value of the customer base and the value of the assembled workforce (see note 1). Amortization of goodwill relating to unconsolidated companies totaling EUR 84 million (1999: EUR 49 million, 1998: EUR 1 million) was not included in income from operations but was charged to results relating to unconsolidated companies. The amortization periods as of December 31, 2000 were as follows: Goodwill from 5 to 15 years Software average 3 years Other intangibles from 3 to 15 years 37 87 17 ACCRUED LIABILITIES Accrued liabilities are summarized as follows:
2000 1999 ------ ------ Salaries and wages payable 546 522 Income tax payable 613 484 Accrued holiday rights 232 234 Accrued pension costs 38 131 Commissions, freight, interest and rent payable 389 392 Other liabilities 1,883 2,078 ----- ----- TOTAL 3,701 3,841
Other liabilities in 1999 include an amount of EUR 228 million, representing the deferred payment in connection with the acquisition of the 50% share in LG.Philips LCD Co., of which EUR 142 million was paid in 2000. 18 PROVISIONS Provisions are summarized as follows:
2000 1999 ------------------------ ---------------------- Long-term Short-term Long-term Short-term --------- ---------- --------- ---------- Pensions (see note 19): - -- Defined-benefit plans 900 68 901 92 - -- Other postretirement benefits 385 47 268 88 Post-employment benefits 79 17 71 27 Deferred tax liabilities (see note 4) 282 193 209 60 Restructuring (see note 2) 20 80 30 85 Obligatory severance payments 129 57 119 87 Replacement and guarantees 74 354 58 353 Other provisions 653 153 406 264 ----- ----- ----- ----- TOTAL 2,522 969 2,062 1,056
Obligatory severance payments The provision for obligatory severance payments covers the Company's commitment to pay employees a lump sum upon reaching retirement age, or upon the employee's dismissal or resignation. In the event that a former employee has died, the Company may have a commitment to pay a lump sum to the deceased employee's relatives. Replacement and guarantees The provision for replacement and guarantees reflects the estimated costs of replacement and free-of-charge services that will be incurred by the Company with respect to products sold. Other provisions Other provisions include provisions for expected losses on existing projects/orders totaling EUR 38 million (1999: EUR 28 million), for employee jubilee funds totaling EUR 115 million and environmental provisions of EUR 202 million (1999: EUR 205 million). The changes in the provisions for post-employment benefits, obligatory severance payments, replacement and guarantees and other provisions are as follows:
Balance as of January 1, 2000 1,385 Changes: Additions 705 Utilization (574) ----- BALANCE AS OF DECEMBER 31, 2000 1,516
38 Notes to the consolidated financial statements of the Philips Group 88 19 PENSIONS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Employee pension plans have been established in many countries in accordance with the legal requirements, customs and the local situation in the countries involved. The majority of employees in Europe and North America are covered by defined-benefit plans. The benefits provided by these plans are based primarily on employees' years of service and compensation near retirement. In addition to providing pension benefits, the Company provides other postretirement benefits, primarily retiree healthcare benefits, in certain countries. Contributions are made by the Company, as necessary, to provide assets sufficient to meet the benefits payable to defined-benefit pension plan participants. These contributions are determined based upon various factors, including legal and tax considerations as well as local customs. The Company funds certain defined-benefit pension plans and other postretirement benefit plans as claims are incurred. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for defined-benefit pension plans with accumulated benefit obligations in excess of plan assets were EUR 138 million, EUR 120 million and EUR 85 million respectively as of December 31, 2000 (1999: EUR 340 million, EUR 318 million and EUR 278 million respectively). Provided is a table with a summary of the changes in the pension benefit obligations and defined pension plan assets for 2000 and 1999, and a reconciliation of the funded status of these plans to the amounts recognized in the consolidated balance sheets. Also provided is a table with a summary of the changes in the accumulated postretirement benefit obligation and plan assets for 2000 and 1999, and a reconciliation of the obligation to the amount recognized in the consolidated balance sheets. 39 89
2000 1999 2000 1999 ------ ------ ------ ------ pension benefits postretirement benefits ------------------- ----------------------- BENEFIT OBLIGATION Benefit obligation at beginning of year 17,731 17,526 580 519 Service cost 366 424 13 13 Interest cost 1,090 977 43 35 Employee contributions 32 35 -- -- Actuarial (gains) and losses 401 (612) 13 16 Plan amendments 73 (109) 2 3 Settlements (191) (205) -- (4) Curtailments (9) (2) (7) (2) Changes in consolidation (204) 144 8 1 Benefits paid (940) (889) (47) (40) Exchange rate differences 156 483 24 37 Miscellaneous 18 (41) 3 2 ------ ------ ------ ------ BENEFIT OBLIGATION AT END OF YEAR 18,523 17,731 632 580 PLAN ASSETS Fair value of plan assets at beginning of year 23,799 19,622 14 16 Actual return on plan assets (130) 4,419 2 2 Employee contributions 32 35 -- -- Employer contributions (215) (37) 3 3 Settlements (125) (193) -- -- Curtailments (2) -- -- -- Changes in consolidation (235) 187 4 -- Benefits paid (855) (798) (6) (4) Exchange rate differences 228 577 -- (3) Miscellaneous 8 (13) -- -- ------ ------ ------ ------ FAIR VALUE OF PLAN ASSETS AT END OF YEAR 22,505 23,799 17 14 Funded status 3,982 6,068 (615) (566) Unrecognized net transition (asset) obligation (140) (283) 136 167 Unrecognized prior service cost 192 61 7 6 Unrecognized net (gain) loss (3,571) (5,905) 40 37 ------ ------ ------ ------ NET BALANCES 463 (59) (432) (356) Classification of the net balances is as follows: - -- Prepaid pension costs under non-current receivables 1,469 1,065 - -- Accrued pension costs under accrued liabilities (38) (131) - -- Provisions for pensions under provisions (968) (993) ------ ------ 463 (59)
The weighted average assumptions underlying the pension computation were as follows:
2000 1999 ---- ---- Discount rate 6.0% 6.1% Rate of compensation increase 3.4% 3.4% Expected return on plan assets 7.0% 7.0%
40 Notes to the consolidated financial statements of the Philips Group 90 The components of net periodic pension costs of major defined-benefit plans were as follows:
2000 1999 1998 ------ ------ ------ Service cost-benefits earned during the period 366 424 364 Interest cost on the projected benefit obligation 1,090 977 933 Expected return on plan assets (1,535) (1,353) (1,113) Net amortization of unrecognized net transition assets (98) (100) (94) Net actuarial gain recognized (231) (13) (56) Amortization of prior service cost 21 14 27 Settlement (gain) loss (106) 8 (26) Curtailment loss 1 -- -- Minimum pension liability (gain) loss (23) (29) 46 ------ ------ ------ NET PERIODIC PENSION COST (515) (72) 81
The Company also sponsors defined-contribution and similar-type plans for a significant number of salaried employees. The total cost of these plans amounted to EUR 70 million in 2000 (1999: EUR 30 million, 1998: EUR 166 million). The components of the net periodic cost of postretirement benefits other than pensions are:
2000 1999 1998 ---- ---- ---- Service cost-benefits earned during the period 13 13 11 Interest cost on accumulated postretirement benefit obligation 43 35 33 Expected return on plan assets (2) (2) -- Amortization of unrecognized transition obligation 13 13 14 Net actuarial loss recognized 1 2 -- Curtailment cost 22 9 -- Settlement gain -- (5) -- --- --- --- NET PERIODIC COST 90 65 58
The accumulated postretirement benefit obligation was determined using a weighted average discount rate of 7.0% (1999: 6.6%), an assumed compensation increase, where applicable, of 4.6% (1999: 4.8%), and an expected return on plan assets, where applicable, of 11.7% (1999: 12.8%). For measurement purposes, the rate of increase in per capita healthcare costs is assumed to be on average 8.3% for 2000, reaching 5% by the year 2004. Healthcare cost trend assumptions have a significant effect on the amounts reported for other postretirement benefits. Increasing the assumed healthcare cost trend rate by 1 percentage point would increase the accumulated postretirement benefit obligation as of December 31, 2000 by approximately EUR 67 million and increase the net periodic postretirement benefit cost for 2000 by EUR 5 million. Conversely, decreasing the assumed healthcare cost trend by 1 percentage point would decrease the accumulated postretirement benefits as of December 31, 2000 by approximately EUR 55 million and decrease the net periodic postretirement benefit cost for 2000 by EUR 4 million. 41 91 20 OTHER CURRENT LIABILITIES Other current liabilities are summarized as follows:
2000 1999 ------ ------ Advances received from customers on orders not covered by work in process 168 147 Other taxes including social security premiums payable 375 389 Other short-term liabilities 319 253 ----- ----- TOTAL 862 789
21 SHORT-TERM DEBT
2000 1999 ------ ------ Short-term bank borrowings 1,140 383 Other short-term loans 130 98 Current portion of long-term debt 473 96 ----- ----- TOTAL 1,743 577
During 2000, the weighted average interest rate on the bank borrowings was 5.7% (1999: 5.5% and 1998: 6.5%). 22 LONG-TERM DEBT
average remaining range of average rate amount due in due after due after term interest rates of interest outstanding 2001 2001 2005 (in years) -------------- ----------- ----------- ------ --------- --------- ---------- Convertible debentures 2.4 2.4 105 -- 105 -- 4.0 Other debentures 5.6 - 8.8 7.4 2,249 431 1,818 998 6.4 Private financing 2.5 - 5.8 3.5 2 -- 2 -- 5.8 Bank borrowings 2.5 - 13.4 6.3 181 15 166 22 4.0 Liabilities arising from finance lease transactions 5.0 - 6.3 5.3 48 17 31 1 3.8 Other long-term debt 5.1 - 7.0 5.5 172 10 162 42 3.1 ----- ----- ----- ----- ----- TOTAL 7.0 2,757 473 2,284 1,063 Corresponding data previous year 6.8 2,833 96 2,737 1,278
The following amounts of long-term debt as of December 31, 2000 are due in the next five years: 2001 473 2002 274 2003 269 2004 363 2005 315 ----- 1,694 Corresponding amount previous year 1,555
Of the total long-term debt outstanding, a portion amounting to EUR 473 million which falls due in 2001, is included in short-term debt. In 1999 a certain amount of debt was repaid prior to maturity, resulting in payment of a redemption premium of EUR 7 million, which was classified as an extraordinary item (see note 8). 42 Notes to the consolidated financial statements of the Philips Group 92 In the Netherlands, Philips issues personnel debentures with a 5-year right of conversion into common shares of Royal Philips Electronics. Personnel debentures which were issued after December 31, 1998 may not be converted within a period of 3 years after the date of issue. These personnel debentures are available to most permanent employees and are purchased by them with their own funds. The personnel debentures issued on or before December 31, 1998 are redeemable on demand, but in practice are considered to be a form of long-term financing. The personnel debentures become non-convertible debentures at the end of the conversion period. At such time, they will be reported as other long-term debt. At December 31, 2000, an amount of EUR 105 million (1999: EUR 77 million) of personnel debentures was outstanding, with an average conversion price of EUR 23.21 and an average interest rate of 2.4%. The conversion price varies between EUR 6.82 and EUR 49.50, with various conversion periods ending between January 1, 2001 and December 31, 2005. Philips had two "putable" US dollar bonds outstanding at year-end 2000, which amount to EUR 288 million (1999: EUR 266 million), for which the investor may require prepayment at one specific month during the lifetime of the respective bond. The average remaining tenor of long-term debt was 5.9 years, compared to 5.4 years in 1999, assuming that investors require payment at the relevant put dates. However, assuming that the "putable" bonds will be repaid at final maturity dates, the average remaining tenor at the end of 2000 was 8.4 years, compared to 7.4 years at the end of 1999. At the end of 2000, the Group had long-term committed and undrawn credit lines available of EUR 2.5 billion, unchanged from a year earlier. The commitment fees amounted to EUR 2 million. 23 SECURED LIABILITIES Certain portions of long-term and short-term debt have been secured by collateral (see table below):
collateral --------------------------- amount of tangible the debt fixed assets other assets -------- ------------ ------------ Institutional financing 31 43 107 Other debts 14 35 -- ---- ---- ---- TOTAL 45 78 107 Previous year 55 51 110
43 93 24 COMMITMENTS AND CONTINGENT LIABILITIES Long-term operating lease commitments totaled EUR 614 million in 2000 (1999: EUR 810 million). These leases expire at various dates during the next 40 years. The payments which fall due in connection with these obligations during the coming five years are: 2001 108 2002 180 2003 173 2004 50 2005 21
Guarantees given with regard to unconsolidated companies and third parties amounted to EUR 805 million (1999: EUR 290 million). The amount of conditional liabilities was EUR 9 million (1999: EUR 27 million). Royal Philips Electronics and certain of its Group companies are involved as plaintiff or defendant in litigation relating to such matters as competition issues, commercial transactions, product liability, participations and environmental pollution. On the basis of information received to date, the Board of Management believes that this litigation will not materially affect Royal Philips Electronics' financial position and results of operations. During 1999 the Company entered into agreements for the construction of the first phase of the High Tech Campus in the Netherlands. Upon completion of the first phase, the buildings will be leased to Philips until 2007. Commitments have been entered into, and a guarantee has been issued, for all present and future monetary payment obligations of the lessee, Philips Electronics Nederland B.V., with a maximum amount of EUR 130 million. The actual contingent liability outstanding at year-end from this guarantee is EUR 26 million (1999: EUR 10 million), which is the amount spent so far. The first lease payments are anticipated to be due as from 2001, when the first premises will become available for use. 25 STOCKHOLDERS' EQUITY Stock split On March 30, 2000, the General Meeting of Shareholders authorized a 4-for-1 stock split executed on April 10, 2000. All references in the consolidated financial statements and notes to the consolidated financial statements to number of shares, per share amounts and stock option plan data have been restated to reflect the split. Share reduction program Both share capital and the share premium account have been influenced by the share reduction program of 2000, which was adopted by the Extraordinary General Meeting of Shareholders in May 2000 and completed in August 2000. The first step involved a EUR 1,630 million increase of Philips' share capital and a corresponding reduction of the share premium account, with an increase in the par value of Philips' outstanding common shares (after 4-for-1 stock split) to EUR 1.454 from EUR 0.25 per share. The second step was a reduction of the par value of the common shares to EUR 0.194 and the return of EUR 1.26 (per share) of share capital to the shareholders in cash (total amount of share capital returned: EUR 1,673 million). The third step was to increase the par value of shares by EUR 0.006 to EUR 0.20, resulting in a share capital consolidation (97 "new" shares for 100 "old" shares = 3% reduction). In 1999, the Company also executed an 8% share reduction program in a similar series of steps. 44 Notes to the consolidated financial statements of the Philips Group 94 Priority shares There are ten priority shares. The issuance of shares or rights to shares, cancellation of shares, amendments to the Articles of Association and the liquidation of the Company need approval of the priority shareholders. Preference shares The "Stichting Preferente Aandelen Philips" has been granted the right to acquire preference shares in the Company. Option rights The Company has granted stock options on shares of Royal Philips Electronics at original exercise prices equal to market prices of the shares at the date of grant (see note 26). Other reserves Royal Philips Electronics' shares which have been repurchased and are held in treasury for the delivery upon exercise of options and convertible personnel debentures are accounted for in stockholders' equity under other reserves. Treasury shares are recorded at cost, representing the market price on the acquisition date. In order to reduce potential dilution effects, a total of 15,027,513 shares were acquired during 2000 at an average market price of EUR 45.40 per share, totaling EUR 682 million, and a total of 6,573,730 shares were delivered at an average exercise price of EUR 18.94. A total of 32,175,659 shares were being held by Group companies as of December 31, 2000 (1999: 24,714,704 shares after stock split), acquired at an aggregate cost of EUR 982 million. A net deferred foreign-exchange hedge loss (net of taxes) of EUR 29 million (1999: EUR 161 million loss) is included under other reserves. The changes are as follows: Balance as of January 1, 2000 (161) Adjustments due to transition rules 58 Net change in hedging transactions (403) Recognition into earnings 577 Translation differences (100) Changes in consolidation -- ----- BALANCE AS OF DECEMBER 31, 2000 * (29)
- ------------- * Estimated net amount expected to be reclassified into earnings within the next 12 months: EUR 29 million. At the beginning of the year 2000 the opening balance of the deferred foreign exchange hedges has been adjusted with a correction due to the introduction of SFAS No. 133. In the course of the year the deferred position was affected by substantial movements in the deferred foreign exchange results related to securities. Before the end of the year the majority of these results were recognized into earnings. 45 95 26 STOCK-BASED COMPENSATION The Company has granted stock options on its common shares to members of the Group Management Committee, Philips Executives and certain non-executives. The purpose of the stock option plans is to align the interests of management with those of shareholders by providing additional incentives to improve the Company's performance on a long-term basis, thereby increasing shareholder value. Under the Company's plans, options are granted at fair market value on the date of grant. Exercise of all options is restricted by the Company's rules on insider trading. In 2000, fixed stock options and performance (variable) stock options were granted under the Corporate Philips Stock Option Plan 2000. Under this plan, options are granted for ten years, with a three-year restriction period during which no options can be exercised. The actual number of performance stock options that will be eligible for vesting will be determined based upon Total Shareholder Return of Philips, as defined in comparison with a peer group of multinationals over a three-year period. In prior years, options were issued with terms of either five or ten years, all vesting within two or three years from grant. US dollar-denominated stock options are granted to employees in the USA only. During the year, the Company established an employee stock purchase plan in the USA. Under the terms of this plan, substantially all employees in the USA are eligible to purchase a limited number of shares of Philips stock, through payroll withholdings, at a price equal to the lower of 85% of the closing price at the beginning or end of quarterly stock purchase periods. A total of 4,034 shares were sold in 2000 under the plan at a price of EUR 36.13. The shares subject to the stock option and stock purchase plans are covered by shares held in treasury. The Company accounts for stock-based compensation using the intrinsic value method. Accordingly, no compensation has been recorded for the fixed stock options granted, nor for the stock purchase plan. Additionally, no compensation cost was recognized for the performance stock options granted in 2000 due to the market value of the shares as at December 31, 2000. The pro forma net income, calculated as if the fair value of the options granted to option holders would have been considered as compensation costs, is as follows:
2000 1999(1) 1998(1) ------ ------- ------- Net income: - -- As reported 9,602 1,799 6,053 - -- Pro forma 9,515 1,775 6,034 Basic earnings per share: - -- As reported 7.31 1.31 4.20 - -- Pro forma 7.25 1.29 4.19 Diluted earnings per share: - -- As reported 7.24 1.30 4.17 - -- Pro forma 7.17 1.28 4.16 - ------------
(1) Previously reported figures restated for 4-for-1 stock split 46 Notes to the consolidated financial statements of the Philips Group 96 As noted above, the actual number of performance stock options that are ultimately eligible to vest is dependent upon Total Shareholder Return of Philips, as defined in comparison with a peer group of multinationals over a three-year period. To the extent that the number of stock options that ultimately vest differs from the assumptions underlying the pro forma results presented above, future pro forma net income will be adjusted. Pro forma net income may not be representative of that to be expected in future years. In accordance with SFAS No. 133, the fair value of stock options granted is required to be based upon a theoretical statistical option valuation model. In actuality, since the Company's stock options are not traded on any exchange, employees can receive no value nor derive any benefit from holding these stock options without an increase in the market price of Philips' stock. Such an increase in stock price would benefit all shareholders commensurately. The fair value of the Company's 2000, 1999 and 1998 option grants was estimated using a Black-Scholes option pricing model and the following assumptions:
2000 1999 1998 ------ ------ ------ (EUR-denominated) Risk-free interest rate 5.06% 3.19% 4.16% Expected dividend yield 0.7% 1.2% 1.4% Expected option life 4 yrs 4 yrs 3 yrs Expected stock price volatility 46% 37% 36%
2000 1999 1998 ------ ------ ------ (USD-denominated) Risk-free interest rate 6.26% 5.32% 5.30% Expected dividend yield 0.9% 1.2% 1.4% Expected option life 5 yrs 5 yrs 5 yrs Expected stock price volatility 43% 37% 34%
The assumptions were used for these calculations only and do not necessarily represent an indication of management's expectations of future development. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 47 97 The following table summarizes information about the stock options outstanding at December 31, 2000: Fixed option plans
options outstanding options exercisable ---------------------------------------------------- ---------------------------------- weighted number average number weighted outstanding exercise remaining exercisable average exercise at Dec. 31, price per contractual at Dec. 31, price per 2000 share life (years) 2000 share ---------- -------------- ------------ ----------- ---------------- (price in EUR) (price in EUR) 1996 595,200 6.61-7.53 0.3 595,200 7.41 1997 2,184,000 9.19-19.43 1.3 2,184,000 12.25 1998 2,225,800 11.57-21.02 2.2 2,113,800 16.76 1999 3,872,400 15.76-23.01 3.2 -- -- 2000 3,427,750 42.03-53.75 9.3 -- -- (price in USD) (price in USD) 1998 1,594,436 12.94-23.59 7.3 810,673 17.13 1999 2,467,645 21.98-35.34 8.3 691,490 23.30 2000 3,802,922 36.65-49.71 9.4 -- -- ---------- ---------- 20,170,153 6,395,163 Variable plans (price in EUR) (price in EUR) 2000 3,426,350 42.03-53.75 9.3 -- -- (price in USD) (price in USD) 1993-1994 240,584 2.75-6.89 2.0 240,584 2.91 1995-1997 1,320,448 7.50-14.20 4.0 1,320,448 7.80 2000 3,802,922 36.65-49.71 9.4 -- -- ---------- ---------- 8,790,304 1,561,032
48 Notes to the consolidated financial statements of the Philips Group 98 A summary of the status of the Company's stock option plans as of December 31, 2000, 1999 and 1998 and changes during the years then ended is presented below: Fixed option plans
2000 1999(1) 1998(1) ----------------------- ----------------------- ----------------------- weighted weighted weighted average average average exercise exercise exercise (price in (price in (price in shares EUR) shares EUR) shares EUR) ---------- --------- ---------- --------- ---------- --------- Outstanding at the beginning of the year 13,261,600 14.27 15,376,800 11.61 21,162,000 7.80 Granted 3,445,850 43.52 3,983,400 16.22 5,267,600 16.30 Exercised (4,172,484) 13.56 (6,062,600) 8.47 (11,052,800) 6.55 Forfeited (229,816) 11.61 (36,000) 9.19 -- -- ---------- ---------- ---------- Outstanding at the end of the year 12,305,150 22.75 13,261,600 14.27 15,376,800 11.61 Weighted average fair value of options granted during the year in EUR 17.42 4.76 3.89 (price in USD) (price in USD) (price in USD) Outstanding at the beginning of the year 4,996,988 20.66 2,484,600 17.34 -- -- Granted 4,015,797 42.25 2,914,700 23.12 2,507,600 17.90 Exercised (665,900) 19.06 (295,644) 17.52 -- -- Forfeited (481,882) 32.76 (106,668) 20.47 (23,000) 18.34 ---------- ---------- ---------- Outstanding at the end of the year 7,865,003 31.17 4,996,988 20.66 2,484,600 17.34 Weighted average fair value of options granted during the year in USD 18.38 8.55 6.13
Variable plans
2000 1999(1) 1998(1) ----------------------- ----------------------- ----------------------- weighted weighted weighted average average average exercise exercise exercise (price in (price in (price in shares EUR) shares EUR) shares EUR) ---------- --------- ---------- --------- ---------- --------- Outstanding at the beginning of the year -- -- -- -- -- -- Granted 3,445,850 43.52 -- -- -- -- Exercised -- -- -- -- -- -- Forfeited (19,500) 42.92 -- -- -- -- ---------- ---------- ---------- Outstanding at the end of the year 3,426,350 43.53 -- -- Weighted average fair value of options granted during the year in EUR 17.42 -- -- (price in USD) (price in USD) (price in USD) Outstanding at the beginning of the year 2,787,200 7.14 4,804,736 6.95 7,276,152 6.58 Granted 4,015,797 42.25 -- -- -- -- Exercised (1,174,348) 7.28 (1,904,648) 6.62 (1,599,440) 4.74 Forfeited (264,695) 36.09 (112,888) 7.99 (871,976) 7.91 ---------- ---------- ---------- Outstanding at the end of the year 5,363,954 31.97 2,787,200 7.14 4,804,736 6.95 Weighted average fair value of options granted during the year in USD 18.38 -- --
- ------------ (1) Previously reported figures restated for 4-for-1 stock split 49 99 27 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Concentrations of credit risk Credit risk represents the loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. As of December 31, 2000, the Company identified 3 customers with significant exposure. This exposure amounts to EUR 291 million in total and ranges from EUR 50 million to EUR 150 million per customer. To reduce exposure to credit risk, the Company performs ongoing credit evaluations of the financial condition of its customers but generally does not require collateral. The Company invests available cash and cash equivalents with various financial institutions. The Company is also exposed to credit risks in the event of non-performance by counterparties with respect to derivative financial instruments. The Company does not enter into any derivative financial instruments to protect against default of financial counterparties. However, the Company requires all financial counterparties with which it deals in derivative transactions to complete legally enforceable set-off agreements prior to trading and, whenever possible, to have a strong credit rating from Standard & Poor's and Moody's Investor Services. It is our policy to conclude financial transactions, where possible, under an ISDA master netting agreement. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings. Derivative instruments and hedging activities The Company is exposed to the risk of changes in foreign exchange rates, certain commodity prices and interest rates. To manage these risks, the Company enters into various hedging transactions that have been authorized pursuant to its policies and procedures as described below. The Company does not purchase or hold derivative financial instruments for trading purposes. 50 Notes to the consolidated financial statements of the Philips Group 100 Foreign exchange risk In the normal course of business, the Company is exposed to foreign exchange risk in the following areas: o Transaction exposures, such as both existing and forecasted sales and purchases and payables/receivables resulting from such transactions; o Translation exposure of investments in foreign entities (including results); o Exposures of non-functional-currency-denominated debt; o Exposures of non-functional-currency-denominated securities. The Company periodically enters into derivative contracts to offset significant exposures from transactions such as sales and purchases of products and machines, including certain forecasted amounts, denominated in currencies other than the functional currency. Generally, the contracts are for a maximum of 12 months. Typically, these derivatives are accounted for as cash flow hedges. It is the Company's policy not to hedge the translation exposure. Gains and losses from such contracts are included in income from operations. Financing of subsidiaries is generally done in the functional currency of the borrowing entity. If the financing currency is not the functional currency of the business, the entity's exposure to foreign exchange risks is, in principle, hedged, unless this is restricted for regulatory reasons. The hedges related to external debt and intercompany loans are covered by foreign currency forward contracts. The changes in the fair value of these hedges are accounted for in financial income and expenses and will substantially be offset. All hedges related to debt and intercompany loans are forward foreign exchange contracts or cross-currency basis swaps. The Company partially hedges the foreign exchange exposure arising from securities that are available for sale. The forward foreign exchange hedges related to securities outstanding at December 31, 2000, are fair value hedges and consequently have an offsetting effect on the value of the hedged securities. All hedges related to securities are forward foreign exchange contracts. Gains and losses on the derivatives are included in financial income and expenses. 51 101 Commodity price risk The Company is a purchaser of certain base metals such as copper, precious metals and energy. The Company maintains a commodity-price risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility. The commodity-price derivatives that the Company enters into are concluded as cash flow hedges to offset forecasted purchases. Gains and losses recognized in earnings are included in income from operations. Interest-rate risk The Company partially hedges the interest-rate risk inherent in the external debt. As of year-end 2000, the Company hedged a notional amount of EUR 803 million, compared to current outstanding denominated fixed-rate public debt of EUR 1,313 million. The euro-denominated debt was not hedged. The interest-rate currency swaps hedge adverse movements of long-term interest rates and foreign exchange rate movements. Under these hedge contracts, the Company receives fixed US dollar interest and pays variable euro interest. These interest rate hedges are fair value hedges. Changes in fair value on these derivatives are presented in financial income and expenses. As of December 31, 2000, the majority of debt consists of bonds. Of the EUR 2,262 million of bonds outstanding, 12.7% have an embedded put feature, which allows the investor to redeem the bonds prior to their final maturity date. In accordance with the transition provisions of SFAS No. 133, the Company recorded a net of tax cumulative effect-type adjustment credit of EUR 58 million in accumulated other reserves to recognize at fair value all derivatives that are designated as cash flow hedging instruments. At December 31, 2000, the Company had EUR 29 million (1999: EUR 161 million loss) of net deferred losses on derivative instruments, net of tax, in stockholders' equity. The Company expects that virtually the entire balance will be reclassified into earnings in 2001. 52 Notes to the consolidated financial statements of the Philips Group 102 Fair value of financial assets and liabilities The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange or the value that will ultimately be realized by the Company upon maturity or disposition. Additionally, because of the variety of valuation techniques permitted under SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", comparisons of fair values between entities may not be meaningful. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
December 31, 2000 December 31, 1999 ---------------------- ---------------------- carrying estimated carrying estimated amount fair value amount fair value -------- ---------- -------- ---------- Assets: Cash and cash equivalents 1,089 1,089 2,331 2,331 Securities 111 1,189 1,523 3,686 Accounts receivable-current 6,500 6,500 6,081 6,081 Other financial assets 3,747 3,631 340 340 Accounts receivable-non-current 303 269 252 231 Derivative instruments 423 423 (139) (130) Liabilities: Accounts payable (4,255) (4,255) (3,632) (3,632) Debt (4,027) (4,061) (3,314) (3,427)
The following methods and assumptions were used to estimate the fair value of financial instruments: Cash, accounts receivable and accounts payable The carrying amounts approximate fair value because of the short maturity of these instruments. Cash equivalents The fair value is based on the estimated aggregate market value. Securities The fair value of equity investments is based on quoted market prices. Other financial assets For other financial assets, fair value is based upon the estimated market prices. Debt The fair value is estimated on the basis of the quoted market prices for certain issues, or on the basis of discounted cash flow analyses based upon Philips' incremental borrowing rates for similar types of borrowing arrangements with comparable terms and maturities. Derivative instruments The fair value is the amount that the Company would receive or pay to terminate the derivative instruments, considering currency exchange rates and remaining maturities. 53 103 28 APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA The accounting policies followed in the preparation of the consolidated financial statements differ in some respects from those generally accepted in the United States of America. To determine net income and stockholders' equity in accordance with generally accepted accounting principles in the United States of America (US GAAP), Philips has applied the following accounting principles: o Under US GAAP, divestitures which cannot be regarded as discontinued segments of business must be included in income from continuing operations. Under Dutch GAAP, prior to 1999, certain material transactions such as disposals of lines of activities, including closures of substantial production facilities, were accounted for as extraordinary items, whereas under US GAAP they would have been recorded in income from operations. o In 2000, Philips reported a credit to net income of EUR 16 million (versus a credit of EUR 62 million in 1999 and charges of EUR 34 million in 1998) because the excess amount of the accumulated benefit obligation over the market value of the plan assets or the existing level of the pension provision in certain Company pension plans was lower than in the preceding two years. For US GAAP purposes, when recording the additional minimum liability, a portion of this amount is capitalized as an intangible asset and the remaining balance is charged to equity, net of applicable taxes. o In 1999 and prior years, certain product development and process development costs were included in inventories under Dutch GAAP. In order to further align Philips' accounting principles under Dutch GAAP with US GAAP, effective January 1, 2000, such costs are recorded as a period expense when incurred. o Under Dutch GAAP, securities available for sale are valued at the lower of cost or net realizable value. Under US GAAP they are valued at market price, unless such shares are restricted by contract for a period of one year or more, and unrealized holding gains or losses with respect to securities available for sale are credited or charged to stockholders' equity. o Prior to the year 2000, under Dutch GAAP, the results of foreign-exchange contracts relating to hedges of securities, when sale is restricted for a period of one year or more, were deferred to stockholders' equity (EUR 90 million). Under US GAAP, changes in the value of these forward exchange contracts are reported in income. On January 1, 2000, the Company adopted SFAS No. 133 as its accounting policy for derivative instruments for both Dutch GAAP and US GAAP. However, the resulting cumulative effect of change in accounting principle is EUR 58 million gain for Dutch GAAP and is EUR 32 million loss for US GAAP because of the differences in accounting for derivatives which existed prior to adoption of SFAS No. 133. 54 Notes to the consolidated financial statements of the Philips Group 104 o Philips reported a charge to income from operations of EUR 329 million for restructuring in its 1998 financial statements. With regard to a portion of this restructuring, EUR 40 million (EUR 23 million net of taxes), the plans had not been communicated to employees until early 1999 and, accordingly, this portion was recorded under US GAAP as a charge in 1999. o Under US GAAP, consolidation of majority-owned entities is not permitted if minority interest holders have the right to participate in operating decisions of the entity. Although Philips owned 60% of the Philips Consumer Communications joint venture, under US GAAP the venture with Lucent Technologies could not be consolidated but was accounted for under the equity method. o Under Dutch GAAP, catalogues of recorded music, music publishing rights, film rights and theatrical rights belonging to PolyGram (which was sold in 1998) were written down to the extent that the present value of the expected income generated by the acquired catalogues was below their book value. Under US GAAP the rights were initially amortized over a maximum period of 30 years. As a result of the sale of PolyGram, the cumulative amortization has been credited to the gain on disposal in 1998 income under US GAAP. o Under Dutch GAAP, goodwill arising from acquisitions prior to 1992 was charged directly to stockholders' equity. Under US GAAP, goodwill arising from acquisitions, including those prior to 1992, is capitalized and amortized over its useful life up to a maximum period of 20 years. As a result of the sale of PolyGram, the related goodwill has been fully amortized and charged to the gain on disposal in 1998 income under US GAAP. o Under Dutch GAAP, funding of NavTech's activities is accounted for as results relating to unconsolidated companies (2000: EUR 71 million, 1999: EUR 44 million, 1998: EUR 61 million) whereas under US GAAP these amounts have to be included in income from operations as research and development costs. o Under Dutch GAAP, the excess of the Company's investment over its underlying equity in the net assets of unconsolidated companies has been classified as goodwill under intangible fixed assets, whereas under US GAAP it would be included in investments in unconsolidated companies. o During the year ended December 31, 2000, the Company recognized gains on divestitures which totaled EUR 1,381 million. Under Dutch GAAP, these gains are classified in the consolidated statement of income as other business income, which is included as part of income from operations, whereas under US GAAP, such gains are not classified in income from operations. 55 105 Reconciliation of net income according to Dutch GAAP versus US GAAP
2000 1999 1998 ------ ------ ------ Income from continuing operations as per the consolidated statements of income 9,602 1,804 541 Cumulative effect of a change in accounting principle in 2000 and reclassification of extraordinary items under Dutch GAAP 5 -- 474 ----- ----- ----- 9,607 1,804 1,015 Adjustments to US GAAP (net of taxes): Additional minimum liabilities under SFAS No. 87 (16) (62) 34 Reversal of capitalized development costs in inventories -- (12) (40) Reversal of provisions for restructuring -- (23) 23 Reversal of deferred hedge result on securities -- (90) -- Adjustments to unconsolidated companies, net (14) -- -- Other items -- (22) (7) ----- ----- ----- INCOME FROM CONTINUING OPERATIONS IN ACCORDANCE WITH US GAAP BEFORE DISCONTINUED OPERATIONS, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 9,577 1,595 1,025 Income from discontinued operations -- -- 210 Gain on disposal of discontinued operations -- -- 4,681 Extraordinary items -- net -- (5) (16) Cumulative effect of a change in accounting for derivative instruments and hedging activities, net 85 -- -- ----- ----- ----- NET INCOME IN ACCORDANCE WITH US GAAP 9,662 1,590 5,900 Basic earnings per common share in EUR(1): Income from continuing operations 7.30 1.16 0.71 Income from discontinued operations -- -- 0.15 Gain on disposal of discontinued operations -- -- 3.25 Extraordinary items -- net -- (0.01) (0.01) Cumulative effect of a change in accounting 0.06 -- -- NET INCOME 7.36 1.15 4.10 Diluted earnings per common share in EUR(1): Income from continuing operations 7.22 1.15 0.70 Income from discontinued operations -- -- 0.15 Gain on disposal of discontinued operations -- -- 3.22 Extraordinary items -- net -- -- (0.01) Cumulative effect of a change in accounting 0.06 -- -- NET INCOME 7.28 1.15 4.06
- ------------ (1) Previously reported figures restated for 4-for-1 stock split 56 Notes to the consolidated financial statements of the Philips Group 106 In addition to the reconciliation of net income, "comprehensive income" is required to be reported under US GAAP. Comprehensive income is defined as all changes in the equity of a business enterprise during a period, except investments by, and distributions to, equity owners. Accordingly, comprehensive income consists of net income and other items that are reflected in stockholders' equity on the balance sheet and have been excluded from the income statement. Such items of other comprehensive income include foreign currency translation adjustments, the change in the fair value of certain derivatives qualifying for hedge treatment, certain pension liability-related losses and unrealized holding gains and losses on securities available for sale. Statement of comprehensive income
2000 1999 1998 ------ ------ ------ Net income in accordance with US GAAP 9,662 1,590 5,900 Other comprehensive income (net of taxes): Cumulative effect of a change in accounting for derivative instruments and hedging activities (32) -- -- Translation differences 65 419 (194) Deferred results on derivatives 132 (71) 15 Minimum pension liability adjustment -- 43 (49) Unrealized holding gains (losses) on securities available for sale (1,191) 2,131 32 - ----------------------------------------------- ------ ------ ------ COMPREHENSIVE INCOME IN ACCORDANCE WITH US GAAP 8,636 4,112 5,704
Reconciliation of stockholders' equity according to Dutch GAAP versus US GAAP
2000 1999 ------ ------ Stockholders' equity as per the consolidated balance sheets 21,736 14,757 Equity adjustments that affect net income: Intangible assets relating to additional liabilities under SFAS No. 87 13 29 Reversal of capitalized development costs in inventories -- (241) Unconsolidated companies (14) -- Equity adjustments not affecting net income under US GAAP: Unrealized holding gains on securities available for sale 972 2,163 - ---------------------------------------------------------- ------- ------ STOCKHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP 22,707 16,708 Translation differences as included in stockholders' equity (868) (991)
Changes in unrealized holding gains on securities available for sale in 2000 primarily relate to the sale of Seagram shares and the partial sale of Uniphase shares during the year 2000, which resulted in realized gains included in Philips' net income under Dutch GAAP for the year 2000. 57 107 Philips Consumer Communications Effective September 27, 1998, Philips and Lucent Technologies terminated their joint venture, Philips Consumer Communications (PCC). Philips, which owned 60% of the venture, and Lucent, which owned 40%, each regained control of the assets originally contributed. The joint venture was formed on October 1, 1997. Philips has accounted for its investment in the PCC/Lucent joint venture on a consolidated basis, whereas according to US GAAP the joint venture is accounted for under the equity method. Income from operations for 1998 included losses relating to the unwinding of the joint venture, including a write-down of obsolete inventories (EUR 159 million) and the subsequent restructuring of the PCC activities that were returned to Philips (EUR 216 million). Summarized financial information for the PCC joint venture, included in Philips' consolidated financial statements in previous years, is as follows:
9 months 1998 ------------- Sales 1,376 Loss from operations (349) Loss before income taxes (350) Net loss (219) Net cash used for operating activities (378) Net cash used for investing activities (48) Net cash provided by financing activities 395
29 INFORMATION RELATING TO PRODUCT SECTORS AND GEOGRAPHIC AREAS In order to improve financial transparency to Philips' shareholders and the financial community at large, the Board decided in 2000 that separate results will be published for all divisions. As a consequence, the following 9 segments are distinguished: Lighting, Consumer Electronics, Domestic Appliances and Personal Care, Components, Semiconductors, Medical Systems, Origin (deconsolidated from October 1, 2000 onwards), Miscellaneous and Unallocated. Lighting Philips is a leader in the world lighting market. A wide variety of applications are served by a full range of incandescent and halogen lamps, automotive lamps, high-intensity gas-discharge and special lamps, QL induction lamps, fixtures, ballasts, lighting electronics and batteries. Consumer Electronics This division markets a wide range of products in the following areas: video products (Consumer TV, Institutional TV, VCR, TV-VCR, DVD Video), audio products (audio systems, portable products, speaker systems), computer monitors (CRT- and LCD-based), consumer communications (mobile phones, cordless digital phones, fax), remote control systems, set-top boxes, broadband networks, business communications systems and speech processing. The Consumer Electronics sector includes 9 months of operations of the PCC/Lucent joint venture in 1998. For further details, please refer to note 28. Domestic Appliances and Personal Care This division markets a wide range of products in the following areas: male shaving & grooming (shavers, trimmers, etc.), body beauty and care (depilators, hair dryers, suncare, electric toothbrushes, skincare, thermometers, etc.), food and beverage (mixers, coffee makers, toasters, etc.) and home environment care (vacuum cleaners, air cleaners, steam irons, fans, etc.). 58 Notes to the consolidated financial statements of the Philips Group 108 Components Philips Components is a leading supplier of display, storage and other key components. It produces a wide range of products such as picture tubes (for TV and monitors), LCDs, passive components, magnetic products and modules for optical storage. Semiconductors Philips Semiconductors is a major supplier of integrated circuits (ICs) and discrete semiconductors to the consumer electronics, telecommunications, automotive, PC and PC peripherals industries. Medical Systems Philips is among the top three makers of systems for diagnostic imaging, based on x-ray, computed tomography, magnetic resonance and ultrasound technologies. It also provides consultancy services, information management, training and technical services to its customers in the healthcare sector. Origin Origin is a global IT service company delivering systems and a full range of services that facilitate total business solutions for clients. It is represented in more than 30 countries. In October 2000, Philips sold its 98% interest in Origin to Atos and received a 48.7% interest in Atos Origin. This investment is accounted for under the equity method. As a result of the merger, as from October 1, 2000, Philips no longer consolidated Origin as a separate division but will include its share of Atos Origin's earnings in results relating to unconsolidated companies beginning January 1, 2001, with a delay of three months. Miscellaneous This sector comprises not only various ancillary businesses, including Philips Enabling Technologies Group (formerly Philips Machinefabrieken and FEI Company, but also various (remaining) activities that have been sold, discontinued, phased out or deconsolidated in earlier years, such as, in 1998, Philips Media, Philips Car Systems, Superclub and ASM Lithography. The costs of basic research and patents are included in the Miscellaneous sector. Unallocated The sector Unallocated includes general and administrative expenses in the corporate center and the country organizations. For a description of the various product divisions included in the product sectors, please refer to the relevant section of the separate booklet entitled `Management Report'. The sales volumes of the various business activities and the associated income from operations by product sector and by geographic area are set forth in the following tables. Segment revenues represent the total of sales to third parties ('sales') and sales of products and services between the product sectors ('intersegment revenues'). Included in segment revenues by geographic area is the total revenue from worldwide sales to third parties and unconsolidated companies by consolidated companies located within that geographic area ('sales'), as well as the total value of sales to consolidated companies in other geographic areas ('interregional revenues'). The transfer prices charged for all intersegment (including interregional) sales are based on the arm's length principle as set forth in internationally accepted transfer pricing policies and guidelines. 59 109 Product sectors
2000 ----------------------------------------------------------------------------------- results relating sales (to income as a % of to third segment (loss) from segment unconsolidated parties) revenues Ebita operations revenues companies ---------- -------- ------- ----------- --------- -------------- Lighting 5,052 5,097 677 668 13.1 (33) Consumer Electronics 14,683 14,852 420 374 2.5 (4) DAP 2,107 2,130 292 287 13.5 -- Components 4,562 6,332 570 569 9.0 211 Semiconductors 5,879 6,812 1,451 1,346 19.8 1,151 Medical Systems 3,031 3,047 308 169 5.5 (3) Origin 717 1,164 1,089 1,063 91.3 (2) Miscellaneous 1,831 1,882 (105) (113) (6.0) 2,647 Unallocated -- -- (79) (82) 3 ------ ------ ------ ------ ------ TOTAL 37,862 41,316 4,623 4,281 3,970 INTERSEGMENT REVENUES (3,454) ------ SALES 37,862 INCOME FROM OPERATIONS AS A % OF SALES 11.3
1999 ----------------------------------------------------------------------------------- results relating sales (to income as a % of to third segment (loss) from segment unconsolidated parties) revenues Ebita operations revenues companies ---------- -------- ------- ----------- --------- -------------- Lighting 4,548 4,597 609 602 13.1 (1) Consumer Electronics 12,436 12,602 276 258 2.0 (1) DAP 1,791 1,817 221 220 12.1 -- Components 3,754 5,325 289 286 5.4 187 Semiconductors 3,796 4,557 716 614 13.5 259 Medical Systems 2,493 2,495 219 181 7.3 (9) Origin 1,056 1,735 125 97 5.6 -- Miscellaneous 1,585 1,705 (78) (94) (5.5) (25) Unallocated (411) (413) (1) ------ ------ ------ ------ ------ Total 31,459 34,833 1,966 1,751 409 Intersegment revenues (3,374) ------ Sales 31,459 Income from operations as a % of sales 5.6
1998 ----------------------------------------------------------------------------------- results relating sales (to income as a % of to third segment (loss) from segment unconsolidated parties) revenues Ebita operations revenues companies ---------- -------- ------- ----------- --------- -------------- Lighting 4,453 4,504 601 595 13.2 4 Consumer Electronics 12,364 12,524 (443) (447) (3.6) 2 DAP 1,746 1,769 200 199 11.2 -- Components 3,814 5,259 46 44 0.8 (10) Semiconductors 3,212 3,963 769 765 19.3 110 Medical Systems 1,950 1,957 152 (49) (2.5) (12) Origin 1,059 1,654 77 59 3.6 -- Miscellaneous 1,861 2,069 (67) (82) (4.0) (46) Unallocated (392) (399) (9) ------ ------ ------ ------ ------ Total 30,459 33,699 943 685 39 Intersegment revenues (3,240) ------ Sales 30,459 Income from operations as a % of sales 2.2
60 Notes to the consolidated financial statements of the Philips Group 110 Geographic areas
2000 ----------------------------------------------------------------- sales (to income as a % of third segment (loss) from segment parties) revenues Ebita operations revenues ---------- -------- ------- ----------- --------- Netherlands 1,696 16,001 2,424 2,395 15.0 Europe excl. Netherlands 15,271 20,084 860 851 4.2 USA and Canada 9,565 11,889 488 186 1.6 Latin America 2,285 2,054 60 59 2.9 Africa 271 167 3 3 1.8 Asia 8,774 14,613 808 807 5.5 Australia and New Zealand 433 (20) (20) (4.6) ------ ------ ------ ------ TOTAL 37,862 65,241 4,623 4,281 INTERREGIONAL REVENUES (27,379) ------ SALES 37,862 INCOME FROM OPERATIONS AS A % OF SALES 11.3
1999 ----------------------------------------------------------------- sales (to income as a % of third segment (loss) from segment parties) revenues Ebita operations revenues ---------- -------- ------- ----------- --------- Netherlands 1,619 12,452 546 513 4.1 Europe excl. Netherlands 13,039 16,600 619 611 3.7 USA and Canada 7,918 9,310 255 82 0.9 Latin America 1,862 1,642 (40) (41) (2.5) Africa 229 107 1 1 0.9 Asia 6,346 11,188 584 584 5.2 Australia and New Zealand 446 424 1 1 0.2 ------ ------ ------ ------ Total 31,459 51,723 1,966 1,751 Interregional revenues (20,264) ------ Sales 31,459 Income from operations as a % of sales 5.6
1998 ----------------------------------------------------------------- sales (to income as a % of third segment (loss) from segment parties) revenues Ebita operations revenues ---------- -------- ------- ----------- --------- Netherlands 1,653 11,089 449 446 4.0 Europe excl. Netherlands 13,015 16,430 648 638 3.9 USA and Canada 7,462 8,572 (254) (473) (5.5) Latin America 2,089 2,013 (204) (205) (10.2) Africa 270 126 (1) (1) (0.7) Asia 5,556 10,013 311 287 2.9 Australia and New Zealand 414 419 (6) (7) (1.6) ------ ------ ------ ------ Total 30,459 48,662 943 685 Interregional revenues (18,203) ------ Sales 30,459 Income from operations as a % of sales 2.2
61 111 Product sectors
2000 -------------------------------------------------------------------------------- net total total operating liabilities long-lived capital assets capital excl. debt assets expenditures depreciation ------ --------- ----------- ---------- ------------ ------------ Lighting 2,944 1,903 947 1,383 258 171 Consumer Electronics 5,366 1,867 3,436 778 324 280 DAP 1,131 752 379 564 96 77 Components 5,532 2,062 1,499 3,273 660 343 Semiconductors 8,501 4,572 1,283 4,233 1,631 692 Medical Systems 3,982 2,821 1,157 2,429 58 47 Origin 1,449 -- -- -- 18 43 Miscellaneous 1,421 441 832 430 125 92 Unallocated 8,215 (61) 2,776 378 -- 44 ------ ------ ------ ------ ------ ------ TOTAL 38,541 14,357 12,309 13,468 3,170 1,789
1999 -------------------------------------------------------------------------------- net total total operating liabilities long-lived capital assets capital excl. debt assets expenditures depreciation ------ --------- ----------- ---------- ------------ ------------ Lighting 2,849 1,875 849 1,275 176 161 Consumer Electronics 4,683 1,677 2,905 791 261 245 DAP 777 459 314 256 76 67 Components 5,179 2,078 1,151 3,197 259 364 Semiconductors 5,188 3,194 928 2,917 622 467 Medical Systems 1,840 1,023 807 640 41 38 Origin 683 240 415 275 56 68 Miscellaneous 1,545 628 820 441 85 98 Unallocated 7,040 (1,016) 3,191 362 86 40 ------ ------ ------ ------ ------ ------ Total 29,784 10,158 11,380 10,154 1,662 1,548
1998 -------------------------------------------------------------------------------- net total total operating liabilities long-lived capital assets capital excl. debt assets expenditures depreciation ------ --------- ----------- ---------- ------------ ------------ Lighting 2,607 1,764 810 1,194 191 173 Consumer Electronics 4,287 1,540 2,613 674 321 289 DAP 747 449 293 246 98 72 Components 3,112 2,070 932 1,865 299 357 Semiconductors 3,106 1,905 557 1,584 437 455 Medical Systems 1,677 936 736 597 36 31 Origin 572 147 367 184 69 63 Miscellaneous 1,470 650 727 463 106 124 Unallocated 10,575 212 2,729 321 77 51 ------ ------ ------ ------ ------ ------ Total 28,153 9,673 9,764 7,128 1,634 1,615
62 Notes to the consolidated financial statements of the Philips Group 112 Main countries
2000 --------------------------------------------------------------------------------- sale (to net third total operating long-lived capital parties) assets capital assets expenditures depreciation -------- --------- ----------- ---------- ------------ ------------ Netherlands 1,696 8,593 2,932 1,885 638 369 United States 9,126 8,802 5,820 5,051 573 349 Germany 3,272 1,644 128 672 194 132 France 2,333 2,749 222 474 205 120 United Kingdom 2,179 951 526 337 89 61 China (incl. Hong Kong) 2,683 2,113 783 814 295 156 Other countries 16,573 13,689 3,946 4,235 1,176 602 ------ ------ ------ ------ ------ ------ TOTAL 37,862 38,541 14,357 13,468 3,170 1,789
1999 --------------------------------------------------------------------------------- sale (to net third total operating long-lived capital parties) assets capital assets expenditures depreciation -------- --------- ----------- ---------- ------------ ------------ Netherlands 1,619 7,740 2,151 1,811 435 370 United States 7,535 5,139 2,839 2,476 249 228 Germany 2,727 1,558 86 632 134 147 France 1,962 1,118 164 392 92 113 United Kingdom 2,281 1,041 607 321 55 53 China (incl. Hong Kong) 2,023 1,570 635 635 91 123 Other countries 13,312 11,618 3,676 3,887 606 514 ------ ------ ------ ------ ------ ------ Total 31,459 29,784 10,158 10,154 1,662 1,548
1998 --------------------------------------------------------------------------------- sale (to net third total operating long-lived capital parties) assets capital assets expenditures depreciation -------- --------- ----------- ---------- ------------ ------------ Netherlands 1,653 11,863 2,778 1,633 404 343 United States 7,164 3,518 1,538 1,167 155 189 Germany 2,777 1,536 669 698 143 250 France 2,092 1,130 158 410 76 129 United Kingdom 1,931 907 504 298 60 64 China (incl. Hong Kong) 1,878 1,273 517 574 124 96 Other countries 12,964 7,926 3,509 2,348 672 544 ------ ------ ------ ------ ------ ------ Total 30,459 28,153 9,673 7,128 1,634 1,615
63 113 [Pages 64 through 69 intentionally omitted.] PROPOSED DISTRIBUTION OF INCOME OF ROYAL PHILIPS ELECTRONICS Pursuant to article 35 of the Articles of Association, EUR 9,140 million of the income for the financial year 2000 shall be retained by way of reserve. A proposal will be submitted to the General Meeting of Shareholders to declare a dividend of EUR 0.36 per common share from the remaining income (EUR 462 million). CORPORATE GOVERNANCE OF THE PHILIPS GROUP General Koninklijke Philips Electronics N.V. (the `Company') is the parent company of the Philips Group. Its shares are listed on the stock market of Euronext Amsterdam, the New York Stock Exchange, the London Stock Exchange and several other stock exchanges. The management of the Company is entrusted to the Board of Management under the supervision of the Supervisory Board. The activities of the Philips Group are organized in product divisions, which are responsible for the worldwide business policy. Philips has more than 200 production sites in over 25 countries and sales and service outlets in some 150 countries. It delivers products, systems and services in the fields of lighting, consumer electronics and communications, domestic appliances and personal care, components, semiconductors, medical systems, business electronics and information technology. The Company's activities are grouped in nine sectors: Lighting, Consumer Electronics, Domestic Appliances and Personal Care, Components, Semiconductors, Medical Systems, Origin (deconsolidated from October 1, 2000 onwards), Miscellaneous and Unallocated. The statutory list of all subsidiaries and affiliated companies, prepared in accordance with the relevant legal requirements (The Netherlands Civil Code, Book 2, Articles 379 and 414), forms part of the notes to the consolidated financial statements and is deposited at the office of the Commercial Register in Eindhoven, the Netherlands (file no. 1910). In recent years the governance of the Company and the Philips Group has been improved, in particular in respect of the supervisory function, the rights of shareholders and transparency. These improvements were in response to developments in the international capital markets, such as the United States, where the Company's shares have been traded since 1962 and listed on the New York Stock Exchange since 1987. Philips also generally endorses the recommendations of the Committee of the Amsterdam Exchanges of October 1997 on best practices in corporate governance. Remuneration of the Board of Management and Supervisory Board GENERAL POLICY The objective of the remuneration policy for members of the Board of Management is in line with that for Philips Executives within the Philips Group, i.e. to attract, motivate and retain highly qualified executives who improve the performance of the Company. In order to maintain a competitive remuneration package for Board-level executive talent, benchmarking against comparable companies is carried out systematically. The remuneration package consists of a base salary, an annual incentive in the form of a cash bonus, and a long-term incentive in the form of stock options. 70 Other information regarding Royal Philips Electronics 114 BASE SALARY Base salaries are based on a functional salary system. The functional scale salary levels are adapted annually to developments in the market. Each year, on the proposal of the Remuneration Committee, the Supervisory Board decides on a possible salary increase for the individual members of the Board of Management. Progression of the salary of an individual Board of Management member to his functional salary level is usually over a 3-year period from appointment. This progression, in conjunction with a market-related adjustment of salary levels, resulted -- for Board members who were in office for the whole year -- in a 13.8% increase in salaries compared with 1999. ANNUAL INCENTIVE Each year, a bonus can be earned: in principle, up to a maximum of 50% of the annual base salary. The Remuneration Committee may decide to grant a higher bonus percentage if special targets are realized. The bonus criteria and the targets for the members of the Board of Management are determined annually by the Remuneration Committee of the Supervisory Board. Targets are set at a challenging level and are partly linked to the Philips Group results and partly to the businesses for which the member of the Board of Management has direct responsibility. The bonus pay-out depends on the degree to which targets were met in the preceding financial year. The bonuses paid in 2000 were higher than in 1999 as a consequence of the 1999 operating results as compared to 1998. LONG-TERM INCENTIVE Long-term incentives for members of the Board of Management are provided through Philips' stock option plans. These plans align the interests of shareholders and members of the Board of Management. Acting on the advice of the Remuneration Committee, the Supervisory Board has the discretionary power to grant Royal Philips Electronics stock options to members of the Board of Management. The conditions attached to the stock options have to be decided each year by the Supervisory Board. For details of the plan, see page 46. In 2000, 50% of the granted stock options has been awarded as fixed options and 50% has been awarded as performance options, linked to the long-term performance of the Company. REMUNERATION The total remuneration and related costs (in euros) of the members of the Board of Management in 2000 can be specified as follows:
2000 1999 ---------- --------- Salaries 3,758,811 3,575,000 Bonuses 2,242,922 1,619,000 Other payments -- 1,095,000 ---------- --------- 6,001,733 6,289,000 Pension charges * (1,559,000) 3,123,000 ---------- --------- Total 4,442,733 9,412,000
* The negative amount of pension charges in 2000 is mainly due to reduced periodic pension costs related to pensions funded by the Dutch Philips Pension Fund, whereas pension charges in 1999 were influenced by payments related to former members of the Board of Management. 71 115 The cash remuneration in euros of the individual members of the Board of Management was as follows:
2000 1999 ------------------------------------ --------------------------------------------------- salary bonus* total salary bonus* other total --------- --------- --------- --------- --------- --------- --------- C. Boonstra 907,560 900,300 1,807,860 794,115 363,024 1,157,139 J.H.M. Hommen 612,603 432,906 1,045,509 589,914 200,571 790,485 A. Baan 612,603 218,382 830,985 521,847 83,344 605,191 A.P.M. van der Poel 612,603 318,327 930,930 521,847 133,109 654,956 J.W. Whybrow 612,603 302,671 915,274 521,847 229,763 751,610 G.J. Kleisterlee (April-December) 400,839 400,839 --------- --------- --------- --------- --------- --------- --------- Subtotal 3,758,811 2,172,586 5,931,397 2,949,570 1,009,811 3,959,381 --------- --------- --------- --------- --------- --------- --------- D.G. Eustace 70,336 70,336 136,134 113,445 249,579 Other former members 489,705 495,754 1,094,518 2,079,977 --------- --------- --------- --------- --------- --------- --------- Total 3,758,811 2,242,922 6,001,733 3,575,409 1,619,010 1,094,518 6,288,937
* The bonuses paid are related to the level of performance achieved in the previous year. The table below gives an overview of the interests of the members of the Board of Management under the stock option plans of Royal Philips Electronics (numbers adjusted for stock split in 2000).
number of options amounts in euros ----------------------------------------------------- -------------------- share as of granted exercised as of price on Jan. 1, during during Dec. 31, exercise exercise expiry 2000 2000 2000 2000 price date date --------- -------- --------- --------- -------- --------- ---------- C. Boonstra 240,000 240,000 9.19 13.02.2002 120,000 120,000 15.76 11.02.2004 -- 120,000a) 120,000a) 42.03 17.02.2010 J.H.M. Hommen 480,000 480,000 9.19 13.02.2002 80,000 80,000 16.45 12.02.2003 80,000 80,000 15.76 11.02.2004 -- 80,000a) 80,000a) 42.03 17.02.2010 A. Baan b) 80,000 60,000 20,000 16.45 52.37 12.02.2003 80,000 80,000 15.76 11.02.2004 -- 80,000a) 80,000a) 42.03 17.02.2010 A.P.M. van der Poel 80,000 40,000 40,000 16.45 46.13 12.02.2003 80,000 80,000 15.76 11.02.2004 -- 80,000a) 80,000a) 42.03 17.02.2010 J.W. Whybrow 80,000 80,000 -- 16.45 43.47 12.02.2003 80,000 80,000 15.76 11.02.2004 -- 80,000a) 80,000a) 42.03 17.02.2010 G.J. Kleisterlee 27,200c) 27,200c) 7.53 25.02.2001 12,000c) 12,000c) 9.19 13.02.2002 12,000c) 12,000c) 16.45 12.02.2003 60,000c) 60,000c) 15.76 11.02.2004 -- 60,000a/c) 60,000a/c) 42.03 17.02.2010 --------- ------- ------- --------- Total 1,591,200 500,000 180,000 1,911,200
a) 50% fixed options and 50% performance-related options b) Mr Baan's interests in Philips securities, including stock options, are held by an independent trustee, having exclusive discretionary power to take investment decisions. The terms thereof comply with internal rules and those of the Securities Board of the Netherlands. c) awarded before date of appointment as a member of the Board of Management. 72 Other information regarding Royal Philips Electronics 116 The Supervisory Board and the Board of Management have decided to adjust upwards the exercise price of all options granted to, but not yet exercised by, members of the Board of Management as of May 29, 1999 by EUR 0.437 and as of July 31, 2000 by EUR 0.021 per common share in connection with the 8% share reduction program and the 3% share reduction program effected mid-1999 and mid-2000 respectively. This increase is not incorporated in the above table. PENSIONS The pensions are mainly funded by Philips Pension Fund. The Company can also grant additional pension benefits. The by-laws of Philips Pension Fund apply, with the proviso that the pensionable age has been set at 60. If members of the Board of Management continue in the employment of the Company until the age of 62 or later, the pension payments are postponed accordingly. Because the retirement age is different from the date of commencement of the state pension, the pension scheme provides for a temporary payment in order to compensate for the adverse effect. The Board of Management members' own contribution comprises 4% of EUR 56,414 and 6% of the difference between the gross pensionable salary minus the franchise and the above mentioned amount of EUR 56,414. The vested pension benefits of individual members of the Board of Management are as follows:
increase in accrued accumulated ultimate pension annual pension age at retirement during as at 31-12-2000 age 2000 31-12-2000 ---------- ---------- ---------- -------------- (EUR) (EUR) C. Boonstra 62 63 14,521 157,021 J.H.M. Hommen 57 62 19,652 73,915 A. Baan 58 62 12,575 342,857 A.P.M. van der Poel 52 62 12,575 216,727 J.W. Whybrow 53 62 12,575 307,479 G.J. Kleisterlee 54 62 9,256 207,791
SUPERVISORY BOARD During 2000 the individual members of the Supervisory Board received, by virtue of the positions they held, the following remuneration (in euros):
2000 1999 ------------------------------------- ------------------------------------ member member ship committees total ship committees total ------- ---------- ------- ------- ---------- ------- EUR EUR EUR EUR EUR EUR L.C. van Wachem 74,874 9,076 83,950 74,874 7,941 82,815 W. de Kleuver 40,840 9,076 49,916 40,840 7,941 48,781 W. Hilger 40,840 9,076 49,916 40,840 9,076 49,916 C.J. Oort (Jan./March) 20,420 1,134 21,554 40,840 4,538 45,378 L. Schweitzer 40,840 -- 40,840 40,840 -- 40,840 R. Greenbury 40,840 4,538 45,378 40,840 3,403 44,243 J-M. Hessels 40,840 3,403 44,243 40,840 -- 40,840 K.A.L.H. van Miert 40,840 -- 40,840 -- -- -- ------- ------ ------- ------- ------ ------- 340,334 36,303 376,637 319,914 32,899 352,813 Former members -- -- -- 57,857 3,404 61,261 ------- ------ ------- ------- ------ ------- 340,334 36,303 376,637 377,771 36,303 414,074
73 117 SUPERVISORY BOARD MEMBERS' AND BOARD OF MANAGEMENT MEMBERS' INTERESTS IN PHILIPS SHARES Members of the Supervisory Board and of the Board of Management are not allowed to take any interests in derivative Philips securities.
number of shares --------------------------------- as of as of December 31, January 1, 2000 2000* ------------ ---------- L.C. van Wachem 17,848 18,400 L. Schweitzer 1,070 1,104 C. Boonstra 54,320 -- J.W. Whybrow 1,070 1,104
* After 4-for-1 stock split and before 3% share reduction in 2000 The above statement does not specify ownership of convertible personnel debentures, which are held under a scheme that since 1998 has no longer been applicable to the members of the Board of Management. BOARD OF MANAGEMENT AND SUPERVISORY BOARD The Board of Management is responsible for the effective management of the business. It is required to keep the Supervisory Board informed of developments, to consult it on important matters and to submit certain important decisions to it for its prior approval. The Board of Management consists of at least three members (currently six), who are elected for an indefinite period by the General Meeting of Shareholders. Individual data on the members of the Board of Management are printed on page 74 of the separate booklet entitled `Management Report'. The President is appointed by the General Meeting of Shareholders. Members of the Board of Management may be suspended by the Supervisory Board and the General Meeting of Shareholders and dismissed by the latter. The remuneration of the members of the Board of Management is determined by the Supervisory Board upon a proposal from the President and on the advice of the Remuneration Committee of the Supervisory Board. The Supervisory Board is independent of the Board of Management and is responsible for supervising both the policies of the Board of Management and the general direction of the Group's business. It is also required to advise the Board of Management. The Supervisory Board consists of at least five members (currently seven). They elect a Chairman, Vice-Chairman and Secretary from their midst. The Board has three permanent committees: an Audit Committee, a Remuneration Committee and a Nomination and Selection Committee. These committees advise the plenary Supervisory Board. The Supervisory Board has adopted Rules of Procedure to consolidate its own governance rules. The profile for the Supervisory Board's composition and additional data on the individual members are given on page 76 of the separate booklet entitled `Management Report'. Members of the Supervisory Board are appointed by the General Meeting of Shareholders for fixed terms of four years, and may be re-elected for two additional four-year terms. In exceptional cases, however, the Supervisory Board and the Meeting of Priority Shareholders may deviate from this rule. At the latest, members retire upon reaching the age of 72. Members of the Supervisory Board may be suspended or dismissed by the General Meeting of Shareholders. Their remuneration is fixed by the General Meeting of Shareholders. 74 Other information regarding Royal Philips Electronics 118 The appointment of the members of the Board of Management and the Supervisory Board by the General Meeting of Shareholders is upon a binding recommendation from the Supervisory Board and the Meeting of Priority Shareholders. However, this binding recommendation may be overruled by a resolution of the General Meeting of Shareholders taken by a majority of at least 2/3 of the votes cast and representing more than half of the issued share capital. GROUP MANAGEMENT COMMITTEE The Group Management Committee consists of the members of the Board of Management, certain Chairmen of product divisions and certain key officers. Members other than members of the Board of Management are appointed by the Supervisory Board. The task of the Group Management Committee, the highest consultative body within Philips, is to ensure that business issues and practices are shared across the Company and to define and implement common policies. GENERAL MEETING OF SHAREHOLDERS A General Meeting of Shareholders is held at least once a year to discuss and resolve on the report of the Board of Management, the annual accounts with explanation and appendices, the report of the Supervisory Board, any proposal concerning dividends or other distributions, and any other matters proposed by the Supervisory Board, the Board of Management, the Meeting of Priority Shareholders or shareholders in accordance with the provisions of the Company's Articles of Association. This meeting is held in Eindhoven, Amsterdam, Rotterdam or The Hague no later than six months after the end of the financial year. Meetings are convened by public notice and mailed to registered shareholders. Extraordinary General Meetings may be convened by the Supervisory Board or the Board of Management if deemed necessary and must be held if the Meeting of Priority Shareholders or shareholders jointly representing at least 10% of the outstanding capital make a written request to that effect to the Supervisory Board and the Board of Management specifying in detail the business to be dealt with. The agenda of the General Meeting shall contain such business as may be placed thereon by the Board of Management, the Supervisory Board or the Meeting of Priority Shareholders. Requests from shareholders for items to be included on the agenda will be honored, provided that such requests are made to the Board of Management and the Supervisory Board by shareholders representing at least 1% of the Company's outstanding capital at least 60 days before a General Meeting of Shareholders and provided that the Board of Management and the Supervisory Board are of the opinion that such requests are not detrimental to the serious interests of Philips. The main powers of the General Meeting of Shareholders are to appoint, suspend and dismiss members of the Board of Management and the Supervisory Board, to adopt the financial statements and to discharge the Board of Management and the Supervisory Board from responsibility for performing their respective duties for the previous financial year, to adopt amendments to the Articles of Association and proposals to dissolve or liquidate the Company, to issue shares or rights to shares, to restrict or pass pre-emptive rights of shareholders and to repurchase or cancel outstanding shares. Following common practice, the Company each year requests limited authorization to issue (rights to) shares, to pass pre-emptive rights and to repurchase shares. 75 119 MEETING OF PRIORITY SHAREHOLDERS AND THE DR. A.F. PHILIPS-STICHTING There are ten priority shares. Eight are held by the Dr. A.F. Philips-Stichting, with Messrs F.J. Philips and H.A.C. van Riemsdijk each holding one. The self-electing Board of the Dr. A.F. Philips-Stichting consists of the Chairman and the Vice-Chairman and Secretary of the Supervisory Board, certain other members of the Supervisory Board, and the President of the Company. At present, the Board consists of Messrs L.C. van Wachem, W. de Kleuver, J-M. Hessels, K.A.L.H. van Miert and C. Boonstra. A Meeting of Priority Shareholders is held at least once a year, at least thirty days before the General Meeting of Shareholders. Approval of the Meeting of Priority Shareholders is required for resolutions of the General Meeting of Shareholders regarding the issue of shares or rights to shares, the cancellation of shares, amendments to the Articles of Association, and the liquidation of the Company. Acting in agreement with the Supervisory Board, the Meeting also makes a binding recommendation to the General Meeting of Shareholders for the appointment of members of the Board of Management and the Supervisory Board, which can be overruled by the General Meeting of Shareholders as set out before. MEETING OF HOLDERS OF PREFERENCE SHARES AND THE STICHTING PREFERENTE AANDELEN PHILIPS The authorized share capital of the Company consists of ten priority shares, 3,250,000,000 ordinary shares and 3,249,975,000 preference shares. The Stichting Preferente Aandelen Philips (`the Foundation') has been granted the right to acquire preference shares in the Company. The mere notification that the Foundation wishes to exercise its rights, should a third party ever seem likely to gain a controlling interest in the Company, will result in the preference shares being effectively issued. The Foundation may exercise this right for as many preference shares as there are ordinary shares in the Company outstanding at that time. The object of the Foundation is to represent the interests of the Company, the enterprises maintained by the Company and its affiliated companies within the Philips Group, such that the interests of Philips, those enterprises and all parties involved with them are safeguarded as effectively as possible, and that they are afforded maximum protection against influences which, in conflict with those interests, may undermine the autonomy and identity of Philips and those enterprises, and also to do anything related to the above ends or conducive to them. The members of the self-electing Board of the Foundation are Messrs J.R. Glasz, H.B. van Liemt, W.E. Scherpenhuijsen Rom, L.C. van Wachem and C. Boonstra. As Chairman of the Supervisory Board and the Board of Management respectively, Messrs Van Wachem and Boonstra are members of the Board ex officio. Mr Boonstra is not entitled to vote. The Board of Management of the Company and the Board of the Stichting Preferente Aandelen Philips declare that they are jointly of the opinion that the Stichting Preferente Aandelen Philips is independent of the Company as required by the Listing Requirements of Euronext Amsterdam N.V.'s stock market. 76 Other information regarding Royal Philips Electronics [Pages 77 to end intentionally omitted.] EX-10.B.2 7 u43961ex10-b_2.txt FIRST QUARTERLY REPORT 2001 1 EXHIBIT 10 (b) (2) FIRST QUARTERLY REPORT 2001 --------------------------- Note: Philips First Quarterly Report 2001 is incorporated by reference in this report on Form 20-F. 2 1st Quarterly report April 17, 2001 Report on the performance of the Philips Group - -------------------------------------------------------------------------------- Key performance data for the period ending March 31 all amounts in millions of euros unless otherwise stated the data included in this report are unaudited
January to March -------------------- 2001 2000 ------- ------- Sales 8,208 8,329 Income from operations, excl. amortization goodwill and other intangibles arising from acquisitions (Ebita) 412 716 As a % of sales 5.0 8.6 Income from operations 332 663 As a % of sales 4.0 8.0 Net income 106 1,140 Per common share in euros 0.08 0.86 Cash flows before financing activities (1,184) 535 Income from operations, as a % of net operating capital (RONA) 11.5 25.1 Net income, as a % of stockholders equity (ROE) 2.5 31.2 Net debt : group equity ratio 17:83 4:96 Number of employees 219,399 229,341
PHILIPS REPORTS NET INCOME OF EUR 106 MILLION IN THE FIRST QUARTER OF 2001 Weakness in telecommunications and PC industries continues o Net Income: EUR 106 million (EUR 0.08 per share) o Sales declined 1% o Income from operations: EUR 332 million (4.0% of sales) o Unconsolidated companies: a loss of EUR 73 million, as a result of lower operational income and higher goodwill and merger integration costs o One-time charge in the second quarter of approximately EUR 350 million; headcount reduction of more than 6,000 The rapid downturn in the telecommunications and PC industries that has affected the businesses of Royal Philips Electronics since December 2000, continued throughout the first quarter of 2001. Results at Components, Consumer Electronics and to a lesser extent Semiconductors, were especially impacted by this decline, the speed of which has been remarkable. Performance at Lighting, Domestic Appliances and Personal Care (DAP), and Medical Systems was solid, as expected. Net Income in the first quarter amounted to EUR 106 million (EUR 0.08 per share) compared to EUR 1,140 million (EUR 0.86 per share) in the corresponding period of 2000. Included in income is an after tax gain of EUR 53 million from the sale of the Philips Broadcast Group to Thomson Multimedia. The first quarter of 2000 included a gain of EUR 526 million (EUR 0.40 per share) from the sale of a portion of the JDS Uniphase shares. Sales in the first quarter came to EUR 8,208 million, a 1% decrease on the year before. Changes arising from 3 (de)consolidations had a neutral effect on balance. Currency fluctuations had a positive effect of 3%. Price erosion in the first quarter, at 6%, compares with 5% in the corresponding quarter in the year earlier. Volume growth in the first quarter of 2001 was 2%. Income from operations excluding amortization goodwill and other intangibles in the first quarter was EUR 412 million (5% of sales). Income included an incidental gain of EUR 70 million related to the sale of Philips Broadcast activities to Thomson Multimedia, and EUR 25 million collected insurance payments at Semiconductors. Also included were charges for the write-off of components and inventory obsolescence at Consumer Communications of EUR 74 million, one-time acquisition related charges for ADAC at Medical Systems of EUR 20 million, and charges of EUR 37 million for various activities in Miscellaneous. Last year's first quarter included charges of EUR 82 million for various restructuring projects, and other incidental charges. Income from Operations amounted to EUR 332 million compared to EUR 663 million in the first quarter of 2000. The goodwill related charges came to EUR 80 million compared to EUR 53 million in 2000. The increase related to charges for newly acquired companies in 2000 (MedQuist, ADAC and Optiva). Financial income and expenses in the first quarter were EUR -84 million, compared to income of EUR 480 million last year. The first quarter of 2000 included an incidental gain on the sale of a portion of JDS Uniphase shares of EUR 526 million. Excluding this item, the financial income and expense amounted to EUR -46 million. The difference mainly relates to higher interest expenses. Income tax charges in the first quarter have been determined at a tentative rate of 25%. This compares to 20% (excluding non taxable gain on the sale of JDS Uniphase shares) in last year's corresponding quarter. Philips' income from operational results relating to unconsolidated companies amounted to a loss of EUR 10 million in the first quarter, versus a profit of EUR 153 million last year. Market weakness resulted in lower contributions from TSMC, and negative contributions from SSMC and LG.Philips LCD Co. Philips' share in the results of Atos Origin was included under income from operational results on a three month delay basis (i.e. relating to Atos Origin's 4th quarter 2000 performance), and included Philips' share of non-recurring merger integration costs of EUR 20 million. Goodwill charges relating to unconsolidated companies amounted to EUR 63 million compared to EUR 18 million in the first quarter of 2000. The increase related to Philips' shareholdings in TSMC and Atos Origin. The share of third-party minority interests in the income of Group companies amounted to EUR 7 million, compared to EUR 14 million in the first quarter of 2000. Net income for the first quarter amounted to EUR 106 million (EUR 0.08 per share) versus EUR 1,140 million (EUR 0.86 per share) in 2000. Accounting policies Accounting policies applied are unchanged compared to the year 2000. Segment reporting On February 8, 2001 it was announced that the activities listed under Consumer Electronics Specialty Products would be reallocated within the Group. In the first quarter of 2001, the respective businesses have been moved as follows: o Institutional TV and Accessories to Mainstream CE o Broadband Networks to Digital Networks o Speaker Systems, Remote Control Systems, Creative Display Solutions, and Imaging to Components 4 o All remaining businesses to Miscellaneous Prior year financials for the year 2000 in the sectors have been restated accordingly. Sales and income from operations per sector Sales in the Lighting sector totaled EUR 1,295 million, 6% ahead of the year before. Currency movements had a positive impact of 3% on sales. Volume growth was 7%, while prices were 4% lower, on average. The strongest sales growth was achieved by the business units Automotive & Special Lighting and Luminaires. Income from operations came to EUR 202 million, approximately the same level as last year. Margins remained strong at 15.5%, below the record 16.6% in the year earlier quarter. Sales in Consumer Electronics totaled EUR 2,685 million, a decrease of 5% over the same quarter in 2000. Currency movements had a positive effect of 2% on nominal sales. Sales volume increased by 4%, while prices decreased on average by 10%; price erosion rose particularly in mobile phones. Sales of Mainstream CE products increased marginally, hampered by the slowdown in the U.S. market. Sales edged up in Branded Monitors, DVD Video and Audio Systems. Digital Networks recorded sharply lower sales of set-top boxes, in particular to U.S. cable operators. Sales in mobile handsets were impacted by the weakness in the telecommunications industry, particularly in Europe, caused by slowing consumer demand and adjustment of the excess inventories throughout the supply chain. Income from operations in Consumer Electronics turned from a profit of EUR 83 million in 2000 to a loss of EUR 99 million. The decrease was mainly attributable to Consumer Communications, which reported a loss of EUR 118 million, compared to a profit of EUR 24 million last year. Adjusted sales plans in Consumer Communications resulted in a write down of components and an obsolescence charge of EUR 74 million. Sales of handsets in Western Europe were significantly lower. By contrast, performance in Asia was positive, mainly driven by the Xenium product which has been well received in the region. Due to the sales shortfall, income from operations at Digital Networks ended the quarter at a loss of EUR 40 million, EUR 24 million lower than the loss of EUR 16 million of last year. Income in 2001 included a charge of EUR 3 million for write-off of inventories. In the first quarter, Mainstream CE reported a loss of EUR 39 million, compared to a loss of EUR 8 million in 2000. The performance was negatively impacted by the slowdown of the U.S. economy, which left both manufacturers and retailers with high inventory levels in the first few months of this year. License income in the first quarter increased with EUR 15 million to EUR 98 million. Sales in the DAP sector totaled EUR 440 million, representing 15% growth. The consolidated sales of Optiva Corporation was the main driver for the uplift (12%). Price erosion was stable at 2%, while volume growth was 3%. Strong growth was posted in Eastern Europe, Brazil and China. This was partly countered by lower sales in North America, reflecting the weaker economy and slowing demand. Sales in Europe were stimulated by the launch, together with Douwe Egberts, of the Senseo Crema, a revolutionary new coffee-making system. Income from operations increased by approximately 18% to EUR 53 million, mainly driven by improvements in Body Beauty and Health, and the Oral Care business. Sales in the Components sector totaled EUR 934 million, a decrease of 22% over the first quarter of 2000. Changes in consolidations had a negative effect of 7%, while currency movements positively impacted nominal sales by 3%. Average prices decreased by 7%, while sales volume decreased by 11%. Sales in the sector were strongly affected by the slowdown in the worldwide PC industry and telecommunications markets, affecting sales in monitor displays, optical storage modules and mobile display systems. In the first quarter income of Components came to a loss of EUR 77 million, compared to a profit of EUR 100 million last year. All businesses showed a deterioration on last year. Within Display Components, this was caused by lower sales and high 5 cost levels in relation to reduced activity levels. Generally weak conditions for the mobile market, resulting in price erosion and lower capacity utilization, caused lower results within Mobile Display Systems. Optical Storage was strongly influenced by the continued slowdown of the PC market. Income also deteriorated compared to last year, due to higher investments in New Business Creation and investment for e-business projects. Sales in the Semiconductors sector came to EUR 1,420 million, an increase of 16% over the same quarter in the year earlier. The consolidation of MiCRUS and SMP (Malaysia) had a positive effect of 8% on nominal sales, in addition to a 4% positive currency effect. Price erosion was 6%, up from 3% last year, while volume growth came to 10%. Income from operations amounted to EUR 231 million, which is 4% lower than the EUR 241 million of last year. Income in the first quarter 2001 included collected insurance payments of EUR 25 million. Operating margin on revenues declined from 16.8% in the first quarter of last year, to 14.5% this year. Sales in the Medical Systems sector totaled EUR 824 million, 44% up from the year earlier. The larger part of the increase relates to the consolidation of MedQuist and ADAC (33%). Additionally, sales were positively influenced by currency movements (5%). On a comparable basis, sales increased 6%, mainly caused by Europe and North America. Order intake, excluding the effect of the new consolidations, increased 21%, and was most significant in Magnetic Resonance. Income from operations in Medical Systems came to a small profit of EUR 1 million, compared to EUR 20 million last year. Higher goodwill charges of EUR 36 million, and one-time charges related to the acquisition of ADAC of EUR 20 million, mainly caused the deviation. Sales in the Miscellaneous sector totaled EUR 610 million, a decrease of 8% over the year before. In the first quarter Philips' stake in NavTech has been increased from 50% to 80%, and the company has been consolidated as per January 1, 2001. The income of Miscellaneous came to EUR 21 million and included special charges of EUR 37 million for a number of items and the gain of EUR 70 million on the sale of parts of Philips Professional Broadcast group to Thomson Multimedia. Last year's income was a loss of EUR 23 million. Income from operations in Unallocated was breakeven, compared to a loss of EUR 9 million last year. Geographic developments Geographically, sales growth was strong in North America (11% up), driven by sales of new consolidations (MedQuist, MiCRUS, ADAC and Optiva) and the appreciation of the U.S. dollar. On a comparable basis, sales were lower by 11%, affected by the slowdown of the U.S. economy. Sales in Asia Pacific ended 3% lower, particularly caused by lower supplies of Components to the depressed PC industry. European sales decreased 8%, mainly caused by the deconsolidation of Origin; on a comparable basis, sales were virtually flat. Latin America saw 5% growth. Income from operations in the first quarter weakened in all regions except Asia Pacific. The weaker economic conditions in the U.S. affected the performance in North America, in particular at Components, Mainstream CE and Digital Networks. This resulted in a loss of EUR 115 million for this region, compared to a loss of EUR 10 million last year. Income in Europe amounted to EUR 253 million and was approximately half the amount of last year. The lower performance in Europe was almost entirely due to the losses recorded in Consumer Communications and Components, and the impact of the financial crisis in Turkey. Income in Latin America was at the same level as last year. With an increase in income of EUR 51 million, Asia Pacific came to a profit of EUR 185 million. All sectors, except Components contributed to the improvement; increases were 6 particularly noticeable at Mainstream CE and at Semiconductors. Cash flows and financing The cash flow from operating activities in the first quarter amounted to a negative of EUR 349 million which was EUR 754 million lower than in the first quarter of last year. The variance was mostly related to the lower income, higher investment in working capital and the decrease in provisions. Expressed as a percentage of sales, inventories at the end of the first quarter came to 15.6%, compared to 14.5% a year earlier. The biggest increases occurred at Digital Networks, Components, Semiconductors and Lighting. Cash flow from investing activities in the first quarter totaled EUR 835 million, compared to a positive inflow of EUR 130 million in 2000. The deviation is mainly caused by the absence of proceeds from the sales of securities, while securities worth EUR 550 million were sold last year. An additional impact came from net capital expenditures (mainly in Components and Semiconductors), which were EUR 757 million, EUR 301 million higher than last year, though considerably lower than the EUR 1,248 million of the last quarter of 2000. In the first quarter of 2001, the cash flow from financing activities amounted to an inflow of EUR 946 million, due to the impact of a EUR 1,108 million increase in short term debt levels, mostly resulting from the USD 2.5 billion Global Commercial Paper program, launched earlier in the year. The net debt to group equity ratio amounted to 17:83 at the end March 2001, compared to a ratio of 4:96 at the end of the first quarter of last year. Employees The number of employees at the end of March 2001 totaled 219,399, unchanged from January 1, 2001, but approximately 10,000 less than March 31, 2000. Outlook We see no signs that the slowdown in economic activity in certain parts of the world, particularly the USA, is near its end. This will continue to cause low growth and high price erosion for some of the markets in which Philips is active. As a result, net income in the second quarter before special charges is likely to be negative. Capital expenditures have been cut back to EUR 2.5 billion and will be reduced further if needed. Measures are being taken to bring costs in line with revenue levels, including a headcount reduction of between 6,000 and 7,000 people. During the course of the second quarter, detailed plans will be communicated, in particular with respect to structurally underperforming activities in Components, and Consumer Electronics. For the moment, we expect to take one-time pre-tax charges of approximately EUR 350 million in the second quarter. This will include a charge of approximately EUR 60 million for the disentanglement of the Display Components business in preparation for the joint venture with LG. April 17, 2001 Royal Philips Electronics Board of Management 7 Statements of income all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Consolidated statements of income
January to March ------------------------- 2001 2000 --------- --------- Sales 8,208 8,329 Income from operations, excl. amortization goodwill and other intangibles arising from acquisitions (Ebita) 412 716 Amortization goodwill and other intangibles (80) (53) Income from operations 332 663 Financial income and expenses (84) 480 Income before taxes 248 1,143 Income taxes (62) (124) Income after taxes 186 1,019 Results relating to unconsolidated companies: o income from operational results (10) 153 o amortization goodwill and other intangibles (63) (18) (73) 135 Minority interests (7) (14) Net income 106 1,140 Weighted average number of common shares outstanding during the period (after deduction of treasury stock) o shares in thousands 1,282,674 1,331,020 Basic earnings per common share in euros: o net income 0.08 0.86 Diluted earnings per common share in euros: o net income 0.08 0.85
Safe Harbor: Statement under the Private Securities Litigation Reform Act of 1995 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 Outlook paragraph. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, levels of consumer and business spending in major economies, changes in consumer tastes and preferences, the levels of marketing and promotional expenditures by Philips and its competitors, raw materials and employee costs, changes in future exchange and interest rates (in particular, changes in the euro and the US dollar can materially affect results), changes in tax rates and future business combinations, acquisitions or dispositions and the rate of technical changes. Market share estimates contained in this report are based on outside sources such as specialized research institutes, industry and dealer panels, etc. in combination with management estimates. 8 Balance sheets and additional ratios all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Consolidated balance sheets
2001 2000 2000 March 31, Dec. 31, March 31, ---------- --------- --------- Cash and cash equivalents 907 1,089 2,579 Securities 124 111 1,499 Receivables 6,517 6,806 6,619 Inventories 5,905 5,279 4,785 Unconsolidated companies 5,466 5,328 2,429 Other non-current financial assets 3,762 3,747 365 Non-current receivables 2,657 2,713 2,113 Property, plant and equipment 9,612 9,041 7,640 Intangible assets - net 4,519 4,427 2,832 Total assets 39,469 38,541 30,861 Accounts payable and other liabilities 8,205 8,818 8,203 Dividend payable 462 -- 399 Debt 5,394 4,027 3,288 Provisions 3,351 3,491 3,248 Minority interests 483 469 365 Stockholders' equity 21,574 21,736 15,358 Total liabilities and stockholders' equity 39,469 38,541 30,861 Ratios Stockholders' equity, per common share in euros 16.85 16.93 11.55 Inventories as a % of sales 15.6 13.9 14.5 Outstanding trade receivables, in months' sales 1.6 1.5 1.6 Number of common shares outstanding at the end of period o shares in thousands 1,280,198 1,283,895 1,329,965
Statements of cash flows all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Consolidated statements of cash flows*
January to March --------------------- 2001 2000 ------- ------- Cash flows from operating activities: Net income 106 1,140 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 588 502 Net gain on sale of investments (84) (545) Income from unconsolidated companies 131 (153) Minority interests 7 14 Increase in working capital (810) (555) Decrease in non-current receivables 87 80 (Decrease) increase in provisions (186) 70 Other items (188) (148) Net cash (used for) provided by operating activities (349) 405
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January to March --------------------- 2001 2000 ------- ------- Cash flows from investing activities: Net capital expenditures (757) (456) (Purchase) proceeds from the sale of securities (1) 550 (Purchase) proceeds of other non-current financial assets (3) (45) Proceeds from sale of businesses/ (purchase of businesses) (74) 81 Net cash (used for) provided by investing activities (835) 130 Cash flows before financing activities (1,184) 535
* For a number of reasons, principally the effects of translation differences and consolidation changes, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items. Statements of cash flows (continued) all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Consolidated statements of cash flows (continued)*
January to March ----------------------- 2001 2000 ------- ------- Cash flows before financing activities (1,184) 535 Cash flows from financing activities: Increase (decrease) in debt 1,108 (174) Treasury stock transactions (162) (173) Capital repayment to shareholders -- -- Dividends paid -- -- Net cash provided by (used for) financing activities 946 (347) (Decrease) increase in cash and cash equivalents (238) 188 Effect of changes in exchange rates and consolidations on cash positions 56 60 Cash and cash equivalents at beginning of the period 1,089 2,331 Cash and cash equivalents at end 907 2,579 of period
* For a number of reasons, principally the effects of translation differences and consolidation changes, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items. 10 Statements of changes in stockholders' equity all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Consolidated statements of changes in stockholders' equity
January to March ---------------------- 2001 2000 ------ ------ Balance as of beginning of period 21,736 14,757 Change in accounting policy: o product/process development costs inventories -- (241) o derivatives -- 58 Exercise of convertible debentures 1 6 Treasury stock transactions (162) (173) 3% share reduction -- -- Dividend accrual/payment (462) (399) Net income for the period 106 1,140 Translation differences and other (including deferred results on derivatives) 355 210 Balance as of end of period 21,574 15,358
Product sectors all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Segment revenues and income from operations
January to March ---------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------ ------------------------------------------ income income (loss) as % of (loss) as % of segment from segment segment from segment revenues Ebita operations revenues revenues Ebita operations revenues -------- ----- ---------- -------- -------- ----- ---------- -------- Lighting 1,307 204 202 15.5 1,237 207 205 16.6 Consumer Electronics* 2,740 (99) (99) (3.6) 2,875 83 83 2.9 DAP 446 58 53 11.9 387 45 45 11.6 Components 1,332 (77) (77) (5.8) 1,640 100 100 6.1 Semiconductors 1,592 257 231 14.5 1,435 266 241 16.8 Medical Systems 824 46 1 0.1 574 30 20 3.5 Origin -- -- -- -- 400 9 1 0.3 Miscellaneous 664 23 21 3.2 766 (17) (23) (3.0) Unallocated -- 0 0 -- (7) (9) Total 8,905 412 332 9,314 716 663 Intersegment revenues (697) (985) Sales 8,208 8,329 Income from operations as a % of sales 4.0 8.0 * of which: Mainstream CE 2,073 (39) (39) (1.9) 1,982 (8) (8) (0.4)
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January to March ---------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------ ------------------------------------------ income income (loss) as % of (loss) as % of segment from segment segment from segment revenues Ebita operations revenues revenues Ebita operations revenues -------- ----- ---------- -------- -------- ----- ---------- -------- Consumer Communications 372 (118) (118) (31.7) 521 24 24 4.6 Digital Networks 203 (40) (40) (19.7) 278 (16) (16) (5.8) Licenses 92 98 98 106.5 94 83 83 88.3 Consumer Electronics 2,740 (99) (99) (3.6) 2,875 83 83 2.9
Geographic areas all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Segment revenues and income from operations
January to March ---------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------ ------------------------------------------ income income (loss) as % of (loss) as % of segment from segment segment from segment revenues Ebita operations revenues revenues Ebita operations revenues -------- ----- ---------- -------- -------- ----- ---------- -------- Netherlands 2,921 221 220 7.5 3,553 291 282 7.9 Europe excl. Netherlands 4,879 34 33 0.7 4,508 251 248 5.5 USA and Canada 2,947 (37) (115) (3.9) 2,385 31 (10) (0.4) Latin America 394 9 9 2.3 383 9 9 2.3 Africa 32 0 0 0.0 28 0 0 0.0 Asia 3,205 183 183 5.7 3,131 138 138 4.4 Australia and New Zealand 70 2 2 2.9 91 (4) (4) (4.4) Total 14,448 412 332 14,079 716 663 Interregional revenues (6,240) (5,750) Sales 8,208 8,329 Income from operations as a % of sales 4.0 8.0
Product sectors and main countries all amounts in millions of euros unless otherwise stated - -------------------------------------------------------------------------------- Sales and total assets
Sales (to third parties) Total assets* ------------------------ ------------------------- January to March --------------------- 2001 2000 2001 2000 March 31, March 31, ------ ------ --------- --------- Lighting 1,295 1,226 3,076 2,972 Consumer Electronics 2,685 2,812 4,346 4,133 DAP 440 381 1,116 749 Components 934 1,204 5,795 5,650 Semiconductors 1,420 1,224 9,454 5,628
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Sales (to third parties) Total assets* ------------------------ ------------------------- January to March --------------------- 2001 2000 2001 2000 March 31, March 31, ------ ------ --------- --------- Medical Systems 824 573 4,052 1,869 Origin -- 248 -- 686 Miscellaneous 610 661 3,389 1,769 Unallocated -- -- 8,241 7,405 Total 8,208 8,329 39,469 30,861
Sales and total assets
Sales (to third parties) Long-lived assets ------------------------ ------------------------- January to March --------------------- 2001 2000 2001 2000 March 31, March 31, ------ ------ --------- --------- Netherlands 385 438 1,941 1,822 United States 2,071 1,849 5,190 2,576 Germany 709 795 733 625 France 480 509 495 405 United Kingdom 438 497 346 331 China (incl. Hong Kong) 639 579 909 681 Other countries 3,486 3,662 4,517 4,032 Total 8,208 8,329 14,131 10,472
* Includes book value of unconsolidated companies and intangible assets Philips quarterly statistics all amounts in millions of euros unless otherwise stated; percentage increases always in relation to the corresponding period of previous year
2000 2001 ------------------------------------- -------------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th quarter quarter quarter quarter quarter quarter quarter quarter ------- ------- ------- ------- ------- ------- ------- ------- Sales 8,239 9,155 9,371 11,007 8,208 % increase 22 25 21 15 (1) Ebita 716 779 1,016 2,112 412 as % of sales 8.6 8.5 10.8 19.2 5.0 % increase 26 98 148 256 (42) Income from operations 663 724 945 1,949 332 as % of sales 8.0 7.9 10.1 17.7 4.0 % increase 21 127 168 267 (50) Net income 1,140 3,604 2,066 2,792 106 % increase 143 1,230 455 306 (91) per common share in euros 0.86 2.71 1.58 2.16 0.08
January- January- January- January- January- January- January- January- March June September December March June September December -------- -------- -------- -------- -------- -------- -------- -------- Sales 8,329 17,484 26,855 37,862 8,208 % increase 22 24 23 20 (1) Ebita 716 1,495 2,511 4,623 412 as % of sales 8.6 8.6 9.4 12.2 5.0 % increase 26 55 83 135 (42) Income from operations 663 1,387 2,332 4,281 332 as % of sales 8.0 7.9 8.7 11.3 4.0 % increase 21 60 91 144 (50)
January- January- January- January- January- January- January- January- March June September December March June September December -------- -------- -------- -------- -------- -------- -------- -------- as a % of net operating capital (RONA) 25.1 25.3 27.4 35.7 11.5 Net income 1,140 4,744 6,810 9,602 106 % increase 143 541 512 434 (91) as a % of stockholders' equity (ROE) 31.2 62.1 56.5 53.5 2.5 per common share in euros 0.86 3.57 5.15 7.31 0.08
Period ending 2000 Period ending 2001 ------------------------------------------ ------------------------------------------ Inventories as % of 14.5 14.7 15.8 13.9 15.6 sales Average collection period of trade receivables in months' sales 1.6 1.6 1.6 1.5 1.6 Net debt: group equity 4:96 * 8:92 12:88 17:83 ratio Total employees (in 229 232 239 219 219 thousands)
* Not meaningful: net cash exceeded the debt level. Information also available on Internet, address: www.investor.philips.com Printed in the Netherlands -----END PRIVACY-ENHANCED MESSAGE-----