SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
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FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the period commencing June 11, 2002 through July 16, 2002
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KONINKLIJKE PHILIPS ELECTRONICS N.V.
--------------------
(Name of registrant)
Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands
-------------------------------------
(Address of principal executive offices)
Name and address of person authorized to receive notices
and communications from the Securities and Exchange Commission:
A. Westerlaken
Koninklijke Philips Electronics N.V.
Amstelplein 2
1096 BC Amsterdam - The Netherlands
This report comprises a copy of the Quarterly Report of the Philips Group for
the six months ended June 30, 2002, dated July 16, 2002 as well as a copy of the
press releases entitled:
- "LG.Philips LCD Announces Major Manufacturing Expansion", dated June 24,
2002;
- "Philips Closes US$ 3.5 Billion Revolving Credit Facility", dated July 5,
2002;
- "C-COR to Purchase Philips Broadband Networks", dated July 8, 2002;
- "Philips announces comprehensive new policy on auditor independence", dated
July 16, 2002.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf, by the
undersigned, thereunto duly authorized at Amsterdam, on the 16th day of July,
2002.
KONINKLIJKE PHILIPS ELECTRONICS N.V.
/s/ G.J. Kleisterlee
G.J. KLEISTERLEE
(President,
Chairman of the Board of Management)
/s/ J.H.M. Hommen
J.H.M. HOMMEN
(Vice-Chairman of the Board of Management
and Chief Financial Officer)
Q2 Quarterly report
July 16, 2002
'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.
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.
Report on the performance of the Philips Group
- all amounts in millions of euros unless otherwise stated
- the quarterly data included in this report are unaudited
Philips reports second quarter net profit excluding special items of EUR
171 million - impairment charges of EUR 1,561 million, mainly for Vivendi
Universal
o IMPAIRMENT CHARGES TOTALING EUR 1,561 MILLION FOR VIVENDI UNIVERSAL, THE
SHL TELEMEDICINE JOINT VENTURE AND FOR GREAT NORDIC
o SALES GROWTH OF 5% OVER FIRST QUARTER 2002 AND 4% YEAR OVER YEAR
o POSITIVE RESULTS FROM UNCONSOLIDATED COMPANIES OF EUR 185 MILLION
(EXCLUDING SPECIAL ITEMS)
o POSITIVE CASH FLOW FROM OPERATING ACTIVITIES OF EUR 496 MILLION
o OVERHEAD COSTS REDUCED BY EUR 132 MILLION IN THE FIRST SIX MONTHS
o RECORD LOW INVENTORY LEVELS
The second quarter 2002
Philips recorded a net loss of EUR 1,355 million (EUR - 1.07 per share),
versus a loss of EUR 770 million (EUR - 0.60 per share) in the second
quarter of 2001. Excluding impairment charges and other special items, net
income was a profit of EUR 171 million compared with a loss of EUR 382
million in the second quarter of last year. Sales were 4% higher than the
same period last year, particularly driven by Medical Systems following its
acquisition program. Income from operations, excluding special items and
amortization of goodwill, was a profit of EUR 65 million, a comparable
improvement of EUR 319 million over the second quarter of last year,
reflecting higher gross margins and lower cost levels in general. Selling
expenses were higher, mainly resulting from the addition of the new
acquisitions at Medical Systems and the acquisition related special charges
for Marconi and Agilent HSG. Overhead expenses came down, when adjusted for
higher pension costs. The overhead cost reduction programs delivered
savings of EUR 132 million in the first six months. Higher pension costs
negatively affected group income from operations by approximately EUR 125
million. Impairment charges of EUR 1,536 million were reported in financial
income and expense for Vivendi Universal (EUR 1,516 million) and for Great
Nordic (EUR 20 million).
In addition Results from unconsolidated companies included an impairment charge
of EUR 25 million for the SHL telemedicine joint venture. Results from
unconsolidated companies, excluding special items and amortization of goodwill,
improved substantially to a profit of EUR 185 million, coming from a EUR 24
million loss last year, with LG.Philips LCD making a strong contribution of EUR
127 million. Positive cash flow from operating activities amounted to EUR 496
million driven mainly by higher operating income.
Gerard Kleisterlee,
Philips' President and CEO:
"Despite challenging circumstances, Philips has been able to extend the
improving trend into the second quarter, when excluding the impairment charges.
Cash flow from operations was strong, margins improved, and comparable sales
showed positive growth for the first time since the fourth quarter of 2000. We
are encouraged by the performance of a number of our businesses, especially
Consumer Electronics, where the actions to put the U.S. business back on track
are showing early signs of success. Our caution regarding economic development
in 2002 is looking increasingly sensible. We have been consistently planning
conservatively with regard to capacity and new investments, while focusing on
cost savings and reducing inventories. This is reflected in the fact that our
cost reduction program is delivering results, our balance sheet remains strong,
and inventories have reached a historic low for the second quarter. Through our
increased flexibility and improved supply chain management, we will be ready to
take early advantage of a market recovery."
Net income excluding special items
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- ---------
As published (1,355) (770)
per common share in euros -
basic (1.07) (0.60)
Special items:
Affecting income from 100 (450)
operations
Affecting financial income
and expenses (1,536) --
Affecting results from
unconsolidated companies (93) (68)
Taxes related to special
items 3 130
--------- ---------
Excluding special items 171 (382)
per common share in euros -
basic 0.14 (0.30)
Group sales and composition of changes (%)
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- ---------
Philips group sales 7,986 7,682
% change from the previous
year:
Nominal change 4 (16)
Consolidation changes 5 (1)
Currency effects (2) 2
Comparable change 1 (17)
Prices (6) (8)
Volume 7 (9)
Sales by sector
in millions of euros unless otherwise stated
% change
------------------
Q2 Q2 nominal compa-
2002 2001 rable
------- ------- -------- ---------
Lighting 1,192 1,268 (6) (6)
Cons. Electronics 2,347 2,527 (7) 1
DAP 524 521 1 2
Components 510 807 (37) 5
Semiconductors 1,108 1,131 (2) 0
Medical Systems 1,757 948 85 8
Miscellaneous 548 480 14 (1)
------- ------- -------- ---------
Philips group 7,986 7,682 4 1
Highlights in the 2nd quarter
Group sales and income
Sales in the second quarter were 4% higher than the same period last year,
driven by Medical Systems. Compared with the first quarter of this year, sales
increased 5%. Sales volumes picked up momentum, following the 5% year over year
decline in the first quarter. Positive growth was experienced in Components
(excluding the deconsolidated Display Components activities). In Consumer
Electronics strong sales growth in TV and DVD Video was more than offset by
lower sales in the Wireless Phone business, Digital Networks, VCR's and
Monitors.
Currency exchange rates had a negative effect of 2%, mainly following the
weakening of the US dollar and related currencies against the Euro.
Sales were strong in Asia Pacific, especially China, where sales were 30%
higher, and in North America, reflecting acquisitions by Medical Systems and
improved sales at Consumer Electronics. Sales were weaker in Latin America and
Western Europe, partly offset by a positive trend in Eastern Europe.
Income from operations came to EUR 165 million, compared to a loss of EUR 745
million last year. Income from operations excluding special items amounted to
EUR 65 million an improvement of EUR 319 million over last year. Nearly all
sectors recorded improvements in gross margin and in income from operations,
excluding special items and amortization of goodwill (last year). The
improvements in income from operations came despite the negative impact of
increased pension costs of approximately EUR 125 million, predominantly due to
lower pension credits in the Netherlands, U.S. and U.K.
Income from operations
---------------------------------------------------
in millions of euros
Q2 Q2
2002 2001
--------- ---------
Income from operations
excluding special items and
amortization of goodwill 65 (254)
Special items 100 (450)
Amortization of goodwill - (41)
-------- --------
Income from operations 165 (745)
Special items in the quarter contributed EUR 100 million, as follows:
o Gains on the sale of businesses of EUR 158 million (mainly an earn-out of
JDS Uniphase shares, related to the sale of Philips Optoelectronics in
1998).
o Gain on sale of fixed assets of EUR 6 million.
o Acquisition related charges in Medical Systems of EUR 37 million.
o Restructuring charges of EUR 27 million.
Financial income and expenses amounted to a net expense of EUR 1,605 million,
compared with a net expense of EUR 74 million last year, and included impairment
charges of EUR 1,516 million for Vivendi Universal, and EUR 20 million for Great
Nordic. Impairment is applied when market value of securities is considered
below cost for other-than-temporary reasons.
Income from operations by sector
---------------------------------------------------
in millions of euros
Q2 Q2
2002 2001
--------- ---------
Lighting 126 135
Consumer Electronics 31 (498)
DAP 74 71
Components (55) (332)
Semiconductors (64) (255)
Medical Systems 54 42
Miscellaneous 84 123
Unallocated (85) (31)
-------- -------
Philips group 165 (745)
Income taxes, excluding a non-taxable gain on the earn out of JDS Uniphase
shares related to the sale of Philips Optoelectronics, and non tax deductible
impairment charges, mainly related to Vivendi Universal, were based on a
tentative rate of 21%. The tax rate in the second quarter 2001 was 25%.
Results relating to unconsolidated companies
---------------------------------------------------
in millions of euros
Q2 Q2
2002 2001
--------- ---------
Results excluding special
items and amortization of 185 (24)
goodwill
Special items (93) (68)
Amortization of goodwill - (63)
-------- --------
Total 92 (155)
Philips' results relating to unconsolidated companies at EUR 92 million were
substantially ahead of last year. Excluding special items and goodwill
amortization, results improved particularly at LG.Philips LCD and TSMC. Special
items of EUR 93 million were:
o A restructuring charge of EUR 56 million for LG.Philips Displays.
o An impairment charge of EUR 25 million for the holding in the telemedicine
joint venture with SHL.
o Dilution loss at TSMC of EUR 12 million.
(CASH FLOW BAR CHART)
Cash flows and financing
Cash flow from operating activities was a positive EUR 496 million, EUR 746
million better than last year. The improvement came primarily from higher income
at Semiconductors, Consumer Electronics and Components, and from strong working
capital management at basically all sectors. Cash flow used for investing
activities was EUR 7 million higher than last year. In this quarter in-the-money
currency swaps were reset, resulting in a release of EUR 252 million of cash;
these transactions did not have an effect on income. Net capital expenditures
amounted to only EUR 218 million and were EUR 528 million lower than in 2001,
mainly related to Components and Semiconductors. An outflow of EUR 130 million
was recorded for the previously announced capital injection to LG.Philips
Displays. Acquisition-related payments were made to an amount of EUR 84 million,
connected to Medical Systems. Proceeds from the divestments of TechnoFusion and
Satellite Master Antenna Television (SMATV) amounted to EUR 64 million.
(INVENTORIES BAR CHART)
Consumer Electronics in particular realized major reductions in the cash
conversion cycle through effective working capital management. Inventories for
the Group as a % of sales were reduced from 16% last year to 13.4% and reached a
new record low for the second quarter, helped by the decline in value of the
U.S. Dollar.
(DEBT AND GROUP EQUITY BAR CHART)
The net debt : group equity ratio came to 30:70. Compared to the end of the
first quarter, the net debt position decreased by approximately EUR 100 million
to EUR 7.1 billion. Stockholders' equity was negatively impacted by translation
effects of EUR 0.7 billion, and by the net loss, including impairment charges to
an amount of EUR 1,561 million.
(EMPLOYEES BAR CHART)
Employment
At the end of June 2002, the number of employees was 183,641, a decrease of
2,449 from the end of the first quarter.
The reduction includes 734 employees related to divestments.
Excluding portfolio changes, the reduction was 1,715 employees, mainly in
Components and Lighting.
Lighting: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 1,192 1,268
Sales growth
% increase, nominal (6) 5
% increase, comparable (6) 4
Income from operations 126 135
IFO excluding special items and
amortization of goodwill: 140 156
in % of sales 11.7 12.3
Net operating capital (NOC) 1,867 2,170
Number of employees (FTEs) 47,205 48,307
Sales and income from operations per sector
Lighting's sales decreased 6%, reflecting general softness in the market place,
particularly in Luminaires. Sales growth in Asia Pacific continued well, whilst
Latin American sales levels remained weak, mainly due to the continuing economic
crisis in Argentina, and its impact on Brazil and on the rest of the region. The
market slowdown in Europe and North America affected turnover negatively. Income
from operations was lower than last year due to the lower sales levels, and
included restructuring charges of EUR 14 million for various activities in the
Netherlands. The income from operations margin, excluding special items and
amortization of goodwill, remained close to last year's level. The result of
LumiLeds, reported under unconsolidated companies, improved to nearly
break-even.
Consumer Electronics: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 2,347 2,527
Sales growth
% increase, nominal (7) (18)
% increase, comparable 1 (19)
Income from operations 31 (498)
IFO excluding special items and
amortization of goodwill: 30 (161)
in % of sales 1.3 (6.4)
Net operating capital (NOC) 504 1,426
Number of employees (FTEs) 26,356 35,702
Consumer Electronics' sales decreased 7%, mainly attributable to portfolio
changes and the lower sales of Wireless Phones. TV and DVD Video grew strongly,
more than offsetting lower sales in the VCR's and Monitors.
Income from operations returned to positive numbers, helped by positive income
in Wireless Phones and better performance in North America. Although the set-top
box market was still suffering in the second quarter, losses at Digital Networks
have been reduced significantly, following the refocusing strategy. License
income was lower, related to compact disc activities and impacted by unfavorable
currency effects, partly offset by higher revenues from DVD players and
recordable CD's.
DAP: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 524 521
Sales growth
% increase, nominal 1 13
% increase, comparable 2 3
Income from operations 74 71
IFO excluding special items and
amortization of goodwill: 81 76
in % of sales 15.5 14.6
Net operating capital (NOC) 672 794
Number of employees (FTEs) 9,519 10,222
Domestic Appliances and Personal Care's (DAP) sales growth of 1% was limited by
weaker markets in Latin America. Strong sales in Oral Health Care and Food and
Beverage were partly offset by lower shaver sales in the U.S. Margins remained
strong, fuelled by a favorable product mix, ongoing cost cutting and
rationalizations. In the quarter, a EUR 7 million restructuring charge was taken
related to a facility in the Netherlands. The income from operations in the
second quarter of 2001 included a gain of EUR 7 million (sale of building in
Brazil).
Components: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 510 807
Segment revenues 576 1,177
Sales growth
% increase, nominal (37) (40)
% increase, comparable 5 (36)
Income from operations (55) (332)
IFO excluding special items and
amortization of goodwill: (56) (173)
in % of segment revenues (9.7) (14.7)
in % of sales (11.0) (21.4)
Net operating capital (NOC) 346 2,554
Number of employees (FTEs) 12,925 39,213
Components' sales in the second quarter were 5% higher than in the second
quarter of 2001, adjusted for deconsolidation of Display Components. Compared
with the first quarter of this year, an increase of 1% was realized, mainly due
to color mobile phone displays.
Income from operations for the quarter was a loss of EUR 55 million, compared to
a EUR 332 million loss in the second quarter of 2001. Special items in last year
amounted to a negative of EUR 159 million. Compared with the first quarter,
income from operations decreased, caused by lower sales in Optical Storage,
especially in the data segment due to late product introductions.
Semiconductors: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 1,108 1,131
Segment revenues 1,253 1,257
Sales growth
% increase, nominal (2) (19)
% increase, comparable 0 (27)
Income from operations (64) (255)
IFO excl. special items and
amortization of goodwill: (71) (136)
in % of segment revenues (5.7) (10.8)
in % of sales (6.4) (12.0)
Net operating capital (NOC) 4,147 5,529
Number of employees (FTEs) 32,713 36,384
Semiconductors' sales were 2% lower compared with the same period last year, but
10% higher than in the first quarter of 2002. Display Solutions and Mobile
Communications were the main contributors to the increase. The utilization rate
improved from 50% at the end of March to 60% in the second quarter. As a result,
income from operations improved by EUR 39 million sequentially.
The book-to-bill ratio in the second quarter of 1.0, following 1.3 in the first
quarter, indicates the continued uneasiness and short-term order cycle of the
Semiconductor market.
Medical Systems: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 1,757 948
Sales growth
% increase, nominal 85 38
% increase, comparable 8 4
Income from operations 54 42
IFO excluding special items and
amortization of goodwill: 88 83
in % of sales 5.0 8.8
Net operating capital (NOC) 5,217 2,908
Number of employees (FTEs) 31,340 20,040
Medical Systems' strong sales growth was driven by the new acquisitions, Agilent
HSG and Marconi. In addition, the sales increased at X-ray, CT/MR, and Nuclear
Medicine.
Income from operations, excluding special items and amortization of goodwill,
increased modestly over the second quarter of last year. The income from
operations margin in the current quarter, however, increased over the first
quarter of this year, from 2.9% to 5.0%. Special items amounting to EUR 34
million were taken for the integration of the new acquisitions.
Miscellaneous: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Sales 548 480
Sales growth
% increase, nominal 14 (35)
% increase, comparable (1) (24)
Income from operations 84 123
IFO excluding special items and
amortization of goodwill: (62) (69)
in % of sales (11.3) (14.4)
Net operating capital (NOC) 284 491
Number of employees (FTEs) 18,916 16,486
Sales in Miscellaneous increased 14% in nominal terms and were 1% lower on a
comparable basis.
As part of the divestment program announced earlier this year, TechnoFusion and
SMATV were sold, resulting in a gain of EUR 39 million. A gain of EUR 113
million was booked connected to an earn-out (for which Philips received
additional shares in JDS Uniphase) in relation to the sale of Philips
Optoelectronics to JDS Uniphase in 1998, and a gain of EUR 6 million for the
sale of fixed assets, whilst a restructuring charge of EUR 12 million in
Research.
Income from operations, excluding special items and amortization of goodwill,
improved slightly from last year and also against the first quarter.
Unallocated: key data
---------------------------------------------------
in millions of euros unless otherwise stated
Q2 Q2
2002 2001
--------- --------
Corporate and regional overheads (86) (105)
Pensions 1 74
-------- --------
Income from operations (85) (31)
Number of employees (FTEs) 4,667 6,036
Income from operations at Unallocated amounted to a loss of EUR 85 million
compared to a loss of EUR 31 million in the second quarter of 2001.
The total costs of corporate and regional overheads has been reduced by 20%,
when taking into account that pension costs in this sector were EUR 73 million
higher due to lower pension credits in the Netherlands, the USA and the UK.
Results relating to unconsolidated companies
(excluding special items and amortization of
goodwill)
---------------------------------------------------
in millions of euros
Q2 Q2
2002 2001
--------- ---------
SSMC (10) (23)
LG.Philips LCD 127 (48)
LG.Philips Displays (21) -
Others 89 47
-------- --------
Total 185 (24)
Results related to unconsolidated companies
In the second quarter, results relating to Unconsolidated Companies, excluding
special items and amortization of goodwill, improved substantially from a loss
of EUR 24 million in the second quarter of 2001, to a profit of EUR 185 million
this year, and was also EUR 113 million up on the first quarter. The increase
was mainly attributable to strong results at LG.Philips LCD and TSMC.
LG.Philips Displays showed a loss of EUR 21 million, excluding special items,
compared to a break-even result in the first quarter. Results in the second
quarter were affected by an adjustment for financing costs from the first
quarter.
LG.Philips LCD joint venture (100%)
---------------------------------------------------
in millions of euros unless
otherwise stated
Q2 Q2
2002 2001
-------- -------
Sales 882 533
Sales growth
% increase, nominal 65 (18)
Income from operations 224 (87)
in % of sales 25.4 (16.3)
Net income (100%) 254 (97)
Net income (Philips share = 50%) 127 (48)
Net income (Philips share = 50%,
incl. amortization of
goodwill) 127 (69)
Net operating capital (NOC) 2,722 2,721
Number of employees (FTEs) 5,284 4,467
LG.Philips LCD joint venture (100%)
The TFT LCD market enjoyed significant revenue growth due to strong demand for
LCD monitors, higher fab utilization rates and higher prices.
Current quarter sales were 65% above the sales level of the second quarter 2001,
and 22% above the first quarter.
The second half of the quarter was boosted by the additional capacity from the
new 5th generation plant and sales growth was visible in all panel sizes.
LG.Philips LCD has obtained the number one position in the market based on
volumes, and number two in value terms.
Income from operations for the quarter was EUR 224 million, indicating a
significant turnaround compared to the EUR 87 million loss suffered in the
second quarter of 2001. The improvement in income from operations resulted in
net income of EUR 254 million, which is a EUR 351 million increase from the
second quarter of 2001.
Net income excluding special items
---------------------------------------------------
in millions of euros unless otherwise stated
JANUARY- January-
JUNE June
2002 2001
--------- ---------
As published (1,346) (677)
per common share in euros -
basic (1.06) (0.53)
Special items:
Affecting income from 158 (502)
operations
Affecting financial income
and expenses (1,469) -
Affecting results from
unconsolidated companies (184) (73)
Taxes related to special
items (12) 155
-------- --------
Excluding special items 161 (257)
per common share in euros -
basic 0.13 (0.20)
Highlights in the 1st half year
Sales in the first six months amounted to EUR 15,584 million, a decrease of 2%.
Income from operations excluding special items came to a profit of EUR 80
million. Gross margin improved whilst costs were reduced and pension costs were
approximately EUR 275 million higher than the same period last year. Results
from Unconsolidated companies improved substantially, mainly at LG.Philips LCD.
Net income excluding special items in the first half year came to a profit of
EUR 161 million.
Subsequent Events
On July 5, Philips announced that it had closed a US$ 3.5 billion revolving
credit facility, replacing a previous US$ 2.5 billion facility which had been in
place since July 1996 and was never drawn upon by the Company.
Since June 30, 2002, there has been a further decline in the fair value of
Philips' investment in Vivendi Universal by EUR 181 million (as of July 12,
2002). Consistent with accounting regulations, Philips will continually evaluate
whether such a decline in fair value of securities and other financial assets
should be considered as being other-than-temporary. Depending on the future
performance of Vivendi Universal and these other securities, the Company may be
required to record additional non-cash impairment charges to write-down its
investments to fair value.
Outlook
Improvements in economic conditions around the world are slow and economic
indicators provide inconsistent messages, although the overall trend line is
slightly positive. The outlook for the second half of the year is basically more
of the same, with the usual seasonality in the third quarter, followed by an
improvement in the fourth quarter. Results in the second half of the year are
expected to be better than the first half year, driven by improved performance
in virtually all sectors.
We will continue to focus on further reducing costs, on tight capital
management, on maintaining positive cash flow, keeping a healthy balance sheet
and bringing innovative products to our customers.
Amsterdam, July 16, 2002
Board of Management
Statements of income
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Consolidated statements of income
2nd quarter January to June
----------------- -----------------
2002 2001 2002 2001
------ ------ ------ ------
Sales 7,986 7,682 15,584 15,890
Cost of sales (5,420) (5,550) (10,649) (11,166)
------ ------ ------- -------
GROSS MARGIN 2,566 2,132 4,935 4,724
Research and development expenses (786) (868) (1,545) (1,693)
Selling expenses (1,335) (1,238) (2,589) (2,381)
General and administrative expenses (380) (316) (721) (649)
Restructuring and other charges (27) (606) (50) (692)
------ ------ ------- -------
(2,528) (3,028) (4,905) (5,415)
------ ------ ------- -------
Other income (expenses) - net 127 151 208 259
------ ------ ------- -------
Income (loss) from operations 165 (745) 238 (432)
Financial income and expenses:
- interest (107) (90) (209) (156)
- impairment charges (1,536) - (1,536) -
- other 38 16 120 (2)
------ ------ ------- -------
(1,605) (74) (1,625) (158)
------ ------ ------- -------
Income before taxes (1,440) (819) (1,387) (590)
Income taxes 3 205 6 149
------ ------ ------- -------
Income after taxes (1,437) (614) (1,381) (441)
Results relating to unconsolidated companies 92 (155) 49 (228)
Minority interests (10) (1) (14) (8)
------ ------ ------- -------
NET INCOME (1,355) (770) (1,346) (677)
INCOME FROM OPERATIONS
as a % of sales 2.1 (9.7) 1.5 (2.7)
as a % of net operating capital (RONA) 3.4 (6.9)
Weighted average number of common shares outstanding during the period
(in thousands):
(after deduction of treasury stock)
o basic 1,274,900 1,281,442
o diluted 1,282,248 1,291,018
NET EARNINGS PER COMMON SHARE IN EUROS:
o basic (1.07) (0.60) (1.06) (0.53)
o diluted (1.07) (0.60) (1.06) (0.53)
The Group financial statements have been prepared on a basis consistent with US
GAAP, which differs in certain respects from Dutch GAAP. Net income determined
in accordance with Dutch GAAP amounted to a loss of EUR 1,693 million in the
first six months of 2002, compared to a loss of EUR 664 million in the same
period last year. These aggregate amounts result in basic earnings per common
share of a loss of EUR 1.33 in January-June 2002 compared to a loss of EUR 0.52
last year. As of January 1, 2002 the US GAAP treatment of available for sale
securities and the US GAAP rules for profit recognition on sale and lease-back
transactions are also applied for the determination of Dutch GAAP net income and
stockholders' equity; the remaining difference between Dutch GAAP and US GAAP is
caused by the fact that goodwill is no longer amortized under US GAAP from
January 1, 2002 but instead tested for impairment.
Balance sheets and additional ratios
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Consolidated balance sheets
June 30, Dec. 31, June 30,
2002 2001 2001
--------- -------- ---------
Cash and cash equivalents 683 890 916
Securities 581 692 946
Receivables 5,795 6,154 6,184
Inventories 4,307 4,290 5,816
Unconsolidated companies 7,645 7,552 6,514
Other non-current financial assets 1,238 2,789 3,155
Non-current receivables 3,338 3,596 2,904
Property, plant and equipment 6,784 7,718 9,772
Intangible assets - net 5,041 5,521 3,344
--------- -------- ---------
TOTAL ASSETS 35,412 39,202 39,551
Accounts payable and other liabilities 7,508 8,234 8,004
Debt 7,807 7,866 6,220
Provisions 3,507 3,740 3,499
Minority interests 191 202 342
Stockholders' equity 16,399 19,160 21,486
---------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 35,412 39,202 39,551
Number of common shares
outstanding at the end of period
o shares in thousands 1,274,575 1,274,172 1,275,715
RATIOS
Stockholders' equity, per common share in
euros 12.87 15.04 16.84
Inventories as a % of sales 13.4 13.3 16.0
Outstanding trade receivables, in months'
sales 1.6 1.5 1.7
Net debt : group equity ratio 30:70 26:74 20:80
Stockholders' equity determined in accordance with Dutch GAAP amounted
to EUR 15,919 million as of June 30, 2002 compared to EUR 16,399 million
under US GAAP.
The deviation is caused by the fact that goodwill under Dutch GAAP has to be
amortized and charged to income, whereas under US GAAP it is no longer
amortized, but instead tested for impairment.
Statements of cash flows
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Consolidated statements of cash flows *
2nd quarter January to June
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
Cash flows from operating
activities:
Net income (1,355) (770) (1,346) (677)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 527 762 1,023 1,350
Impairment financial assets 1,536 0 1,536 0
Net gain on sale of investments (149) (222) (329) (306)
(Income) loss from unconsolidated
companies (net of dividends
received) (90) 155 (47) 286
Minority interests (net of
dividends paid) 10 1 14 8
(Increase) decrease in working
capital 85 (194) (413) (1,218)
(Increase) decrease in non-current
receivables (86) (215) 112 (128)
Increase in provisions 25 196 (96) 23
Other items (7) 37 (12) 63
------ ------ ------ ------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 496 (250) 442 (599)
Cash flows from investing
activities:
Purchase of intangible assets
(software) (42) (71) (80) (102)
Capital expenditures on property,
plant and equipment (220) (714) (445) (1,467)
Proceeds from disposals of
property, plant and equipment 44 39 263 66
Proceeds from sale (purchase) of
securities, other non-current
financial assets and derivatives 256 488 332 484
(Purchase of businesses) proceeds
from sale of businesses (163) 140 (382) 66
------ ------ ------ ------
NET CASH USED FOR INVESTING
ACTIVITIES (125) (118) (312) (953)
CASH FLOWS BEFORE FINANCING
ACTIVITIES 371 (368) 130 (1,552)
* 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)*
2nd quarter January to June
------------------- -------------------
2002 2001 2002 2001
------ ------ ------ ------
CASH FLOWS BEFORE FINANCING
ACTIVITIES 371 (368) 130 (1,552)
Cash flows from financing activities:
Increase in debt 141 952 221 2,060
Treasury stock transactions (64) (132) (41) (294)
Dividends paid (459) (458) (459) (458)
------ ------ ------ ------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (382) 362 (279) 1,308
DECREASE IN CASH AND CASH
EQUIVALENTS (11) (6) (149) (244)
Effect of changes in exchange
rates and consolidations on cash
positions (79) 15 (58) 71
Cash and cash equivalents at
beginning of the period 773 907 890 1,089
------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD 683 916 683 916
* 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.
Statement of changes in stockholders' equity
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Consolidated statements of changes in stockholders' equity
January to June 2002
-------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
--------------------------------------------- Total
Capital in Available Minimum Cash Treasury stock-
Common excess of Retained Translation for sale pension flow shares holders'
stock par value earnings differences securities liability hedges at cost equity
------ ---------- --------- ----------- ---------- --------- ------ -------- --------
Balance as of January 1, 2002 263 13 20,403 (766) 566 (18) (7) (1,294) 19,160
Net income (1,346) (1,346)
Net current period change (679) (1,705) 6 (2,378)
Reclassifications into income (40) 1,487 7 1,454
------ ------ ------ ----- ----- ------
TOTAL COMPREHENSIVE INCOME (LOSS) (1,346) (719) (218) 7 6 (2,270)
Dividend payable (459) (459)
Purchase of treasury stock (102) (102)
Re-issuance of treasury stock 10 61 71
Stock options accrual (1) (1)
------ ------ ------ ------ ------ ----- ----- ------ ------
Balance as of June 30, 2002 263 22 18,598 (1,485) 348 (11) (1) (1,335) 16,399
====== ====== ====== ====== ====== ===== ===== ====== ======
Product sectors
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Segment revenues and income from operations
2nd quarter
------------------------------------------------------------------------------------------
2002 2001
----------------------------------- -------------------------------------------------
segment Income (loss) from segment
revenues operations revenues Income (loss) from operations *
-------- --------------------- -------- ----------------------------------
amount as % of US GAAP before as % of
segment basis amortization segment
revenues goodwill revenues
Lighting 1,200 126 10.5 1,281 135 137 10.7
Consumer Electronics:
Mainstream CE 2,226 13 0.6 2,331 (382) (382) (16.4)
Digital Networks 81 (20) (24.7) 170 (184) (184) (108.2)
Licenses 60 38 63.3 79 68 68 86.1
----- ----- ----- ----- ----- ----- ------
2,367 31 1.3 2,580 (498) (498) (19.3)
DAP 529 74 14.0 526 71 74 14.1
Components 576 (55) (9.5) 1,177 (332) (332) (28.2)
Semiconductors 1,253 (64) (5.1) 1,257 (255) (243) (19.3)
Medical Systems 1,758 54 3.1 950 42 65 6.8
Miscellaneous 658 84 12.8 532 123 123 23.1
Unallocated (85) (31) (30)
----- ----- ----- ----- -----
Total 8,341 165 8,303 (745) (704)
Intersegment revenues (355) (621)
----- ------
SALES 7,986 7,682
INCOME FROM OPERATIONS
AS A % OF SALES 2.1 (9.7) (9.2)
* For the sake of comparison with 2002, income from operations 2001 is also
reported before amortization of goodwill.
Product sectors (continued)
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Segment revenues and income from operations
January to June
-------------------------------------------------------------------------------------------
2002 2001
------------------------------------- -----------------------------------------------
segment Income (loss) from segment
revenues operations revenues Income (loss) from operations *
-------- --------------------- -------- ----------------------------------
amount as % of US GAAP before as % of
segment basis amortization segment
revenues goodwill revenues
Lighting 2,435 278 11.4 2,588 337 341 13.2
Consumer Electronics:
Mainstream CE 4,286 6 0.1 4,776 (539) (539) (11.3)
Digital Networks 161 (41) (25.5) 373 (224) (224) (60.1)
Licenses 144 111 77.1 171 166 166 97.1
----- ----- ----- ------ ----- ----- ------
4,591 76 1.7 5,320 (597) (597) (11.2)
DAP 988 139 14.1 972 124 130 13.4
Components 1,132 (36) (3.2) 2,509 (409) (409) (16.3)
Semiconductors 2,396 (167) (7.0) 2,849 (24) 0 0
Medical Systems 3,423 81 2.4 1,774 43 92 5.2
Miscellaneous 1,300 35 2.7 1,196 144 146 12.2
Unallocated (168) (50) (49)
----- ----- ------ ----- -----
Total 16,265 238 17,208 (432) (346)
Intersegment revenues (681) (1,318)
------ ------
SALES 15,584 15,890
INCOME FROM OPERATIONS
AS A % OF SALES 1.5 (2.7) (2.2)
* For the sake of comparison with 2002, income from operations 2001 is also
reported before amortization of goodwill.
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 June June 30, June 30,
2002 2001 2002 2001
------ ------ ------ ------
Lighting 2,420 2,563 2,771 3,121
Consumer Electronics 4,547 5,212 2,981 4,232
DAP 978 961 1,051 1,165
Components 1,016 1,741 4,168 5,681
Semiconductors 2,118 2,551 7,613 9,373
Medical Systems 3,421 1,772 7,297 4,164
Miscellaneous 1,084 1,090 3,078 2,976
Unallocated -- 6,453 8,839
------ ------ ------ ------
TOTAL 15,584 15,890 35,412 39,551
--------------------------------------------------------------------------------
Sales and long-lived assets
Sales (to third
parties) Long-lived assets *
------------------ --------------------
January to June June 30, June 30,
2002 2001 2002 2001
------ ------ -------- --------
Netherlands 741 750 1,689 1,958
United States 4,757 4,105 6,201 5,149
Germany 1,099 1,265 649 767
France 904 948 293 447
United Kingdom 703 795 189 353
China 1,167 1,180 427 965
Other countries 6,213 6,847 2,377 3,477
------ ------ ------ ------
TOTAL 15,584 15,890 11,825 13,116
* Includes property, plant and equipment and intangible assets-net.
Philips quarterly statistics
all amounts in millions of euros unless otherwise stated; percentage increases
always in relation to the corresponding period of previous year
2001 2002
----------------------------------------- -------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
quarter quarter quarter quarter quarter quarter quarter quarter
-------- ------- -------- ------- -------- ------- -------- -------
Sales 8,208 7,682 7,187 9,262 7,598 7,986
% increase (1) (16) (23) (16) (7) 4
Income (loss) from
operations before
amortization goodwill 358 (704) (462) (407) 73 165
as % of sales 4.4 (9.2) (6.4) (4.4) 1.0 2.1
% increase . . . . (80) .
Income (loss) from
operations 313 (745) (505) (458) 73 165
as % of sales 3.8 (9.7) (7.0) (4.9) 1.0 2.1
% increase . . . . (77) .
Net income (loss) 93 (770) (736) (1,062) 9 (1,355)
% increase . . . . (90) .
per common share
in euros 0.07 (0.60) (0.57) (0.84) 0.01 (1.07)
January- January- January- January- January- January- January- January-
March June September December March June September December
-------- ------- --------- -------- --------- --------- --------- --------
Sales 8,208 15,890 23,077 32,339 7,598 15,584
% increase (1) (9) (14) (15) (7) (2)
Income (loss) from
operations before
amortization goodwill 358 (346) (808) (1,215) 73 238
as % of sales 4.4 (2.2) (3.5) (3.8) 1.0 1.5
% increase . . . . (80) .
Income (loss) from
operations 313 (432) (937) (1,395) 73 238
as % of sales 3.8 (2.7) (4.1) (4.3) 1.0 1.5
% increase . . . . (77) .
as a % of net operating
capital (RONA) 10.9 (6.9) (9.3) (9.3) 2.0 3.4
Net income (loss) 93 (677) (1,413) (2,475) 9 (1,346)
% increase . . . . (90) .
as a % of stockholders'
equity (ROE) 2.1 (7.1) (9.8) (11.9) 0.2 (14.7)
per common share
in euros 0.07 (0.53) (1.10) (1.94) 0.01 (1.06)
period ending 2001 period ending 2002
----------------------------------------- --------------------------------------------
Inventories as % of sales 15.6 16.0 14.9 13.3 14.0 13.4
Average collection period
of trade receivables
in months' sales 1.6 1.7 1.7 1.5 1.7 1.6
Net debt : group equity
ratio 17:83 20:80 27:73 26:74 28:72 30:70
Total employees
(in thousands) 219 212 192 189 186 184
Information also available on Internet, address: www.investor.philips.com
Printed in the Netherlands
LG.Philips LCD Announces Major Manufacturing Expansion
AMSTERDAM, THE NETHERLANDS/KUMI, SOUTH KOREA, JUNE 24, 2002 - LG.PHILIPS LCD,
THE 50-50 JOINT VENTURE OF ROYAL PHILIPS ELECTRONICS (AEX: PHI, NYSE: PHG) AND
LG ELECTRONICS, TODAY ANNOUNCED AN INVESTMENT OF MORE THAN USD 1 BILLION TO
FURTHER EXPAND CAPACITY AND CREATE PANEL SUPPLY FOR THE FAST GROWING LCD TV
MARKET AND LARGE-SCREEN DESKTOP MONITORS. THE INVESTMENT WILL BE SELF-FINANCING
WITH NO ADDITIONAL FUNDING REQUIRED FROM EITHER PARTNER. PRODUCTION WILL BEGIN
IN THE FIRST HALF OF 2003.
The announcement follows the opening of the world's first fifth-generation
thin-film transistor liquid crystal display (TFT-LCD) manufacturing factory last
month (known as P4). The new investment (P5) will see LG.Philips LCD further
expand its fifth generation manufacturing capacity, using even larger glass
substrates (1100 x 1250 mm), than those used originally in "P4" (1000 x 1200 mm)
- enabling a more comprehensive line-up of large-panel LCD offerings and a
complete product portfolio. P5 is expected to begin production in the first half
of 2003, with LG.Philips LCD producing 120,000 fifth generation sheets per month
of by the end of that year, further consolidating its position as the world's
largest supplier of TFT-LCDs.
Larger screen sizes (above 10-inches) for television applications and desktop
monitors are expected to drive demand over the next few years, growing from 30.9
million units in 2002 to 104.9 million units in 2006 (a CAGR of 36 percent).
Shipments of TFT-LCD panels larger than 16 inches are expected to grow even
faster during the same period, at a CAGR of 46 percent (data from Stanford
Resources).
"The P5 investment reflects the growing demand for larger panel LCD's,
especially in the high growth LCD TV market," commented Matt Medeiros, Chairman
of the joint venture board, and President & CEO of Philips Components.
"LG.Philips LCD has an excellent track record of investing at the right time to
take advantage of demand, driven by new applications - P5 is another example. As
a strategic investment, and a key supplier to Philips, both in branded and
B-to-B products, LG.Philips LCD is supporting Philips' leadership in Displays,
which alongside Storage, Connectivity, and Digital Video Processing make up the
technology pillars for the company's future growth."
"Our expansion efforts will further position us as the large screen TFT-LCD
leader and enable us to meet customer demands for a full line-up of displays in
all sizes ranging from 15-inch to over 30-inch wide screens for premium monitor
and TV usage," noted Bruce Berkoff, LG.Philips LCD's executive vice president of
marketing. "Furthermore, `P5' reinforces LG.Philips LCD's ongoing commitment to
drive the industry by setting standards and continuously pushing the technology
envelope."
About LG.Philips LCD
Headquartered in Seoul, South Korea, LG.Philips LCD - a joint venture company
established in July 1999 by LG Electronics and Royal Philips Electronics - is
one of the world's leading manufacturers of AMLCDs. LG.Philips LCD leads the
AMLCD industry through its high technology, quality and manufacturing
capabilities. The company has extended its focus beyond traditional and
successful notebook and PC monitor markets and is poised to also deliver
solutions for consumer electronics products like the growing LCD TV category, as
well as other value-added, non-
traditional, display-centric markets such as the multimedia, medical, automotive
and aerospace industries. As part of its efforts to be at the forefront of
display innovation, LG.Philips LCD is focused on maintaining a diverse product
portfolio while continuing to invest aggressively in R&D to further its market
leadership position in the AMLCD arena. Information on the company is available
at www.lgphilips-lcd.com, LG.Philips LCD makes "Technology You Can See!"
Safe Harbor 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. 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 effect results), 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.
About Royal Philips Electronics
Royal Philips Electronics of the Netherlands is one of the world's biggest
electronics companies and Europe's largest, with sales of EUR 32.3 billion in
2001. It is a global leader in color television sets, lighting, electric
shavers, medical diagnostic imaging and patient monitoring, and one-chip TV
products. Its 186,000 employees in more than 60 countries are active in the
areas of lighting, consumer electronics, domestic appliances, components,
semiconductors, and medical systems. Philips is quoted on the NYSE (symbol:
PHG), London, Frankfurt, Amsterdam and other stock exchanges. News from Philips
is located at www.philips.com/newscenter
Philips Closes US$ 3.5 Billion Revolving Credit Facility
AMSTERDAM, THE NETHERLANDS, JULY 5, 2002 - ROYAL PHILIPS ELECTRONICS (AEX: PHI,
NYSE: PHG) TODAY ANNOUNCED THAT IT HAS CLOSED A US$ 3.5 BILLION REVOLVING CREDIT
FACILITY.
The facility, which has a five-year maturity, was launched at the end of May
this year and was well oversubscribed. It replaces an existing US$2.5 billion
revolving credit facility which had been in place since July 1996 and was never
drawn upon by the company.
The facility represents assured access to liquidity giving the company
additional financial flexibility.
Safe Harbor 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. 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 effect results), 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.
About Royal Philips Electronics
Royal Philips Electronics of the Netherlands is one of the world's biggest
electronics companies and Europe's largest, with sales of EUR 32.3 billion in
2001. It is a global leader in color television sets, lighting, electric
shavers, medical diagnostic imaging and patient monitoring, and one-chip TV
products. Its 186,000 employees in more than 60 countries are active in the
areas of lighting, consumer electronics, domestic appliances, components,
semiconductors, and medical systems. Philips is quoted on the NYSE (symbol:
PHG), London, Frankfurt, Amsterdam and other stock exchanges. News from Philips
is located at www.philips.com/newscenter
C-COR to Purchase Philips Broadband Networks
AMSTERDAM, THE NETHERLANDS / STATE COLLEGE, PA, USA, JULY 8, 2002 - C-COR.NET
(NASDAQ: CCBL), A GLOBAL PROVIDER OF BROADBAND COMMUNICATIONS TECHNOLOGY,
SYSTEMS, AND SERVICES, AND ROYAL PHILIPS ELECTRONICS (AEX: PHI, NYSE: PHG) TODAY
ANNOUNCED THAT C-COR WILL ACQUIRE PHILIPS BROADBAND NETWORKS (PBN) FOR A CASH
PAYMENT OF APPROXIMATELY EUR 80 MILLION AND THE ASSUMPTION OF CERTAIN
LIABILITIES. THE TRANSACTION IS EXPECTED TO BE COMPLETED DURING THE SECOND HALF
OF 2002, SUBJECT TO CUSTOMARY CLOSING CONDITIONS, REGULATORY APPROVALS, AND
APPLICABLE CONSULTATION PROCEDURES.
Philips Broadband Networks employs approximately 500 people and is among the top
providers of broadband products and services worldwide, with a strong customer
base in Europe and in the Asia Pacific region. PBN is supported by sales and
service organizations in twelve countries, and a design and production facility
in Manlius, New York. Philips Broadband Networks designs, manufactures and
distributes a wide range of underlying technologies for the burgeoning broadband
sector, including transmission products (transmitters and receivers, optical
nodes, network amplifiers, line extenders, and taps/passive devices), network
optimizing technologies (DWDM, WDM, and bandstacking devices), and element
management systems.
Commenting on the envisaged transaction, David A. Woodle, Chairman and CEO of
C-COR, said: "Philips Broadband Networks will provide us an opportunity to
significantly increase C-COR's customer and installed equipment base in the
high-potential growth markets of Europe and Asia. This purchase will capitalize
on the synergies of expertise, market focus, and product offerings that exist
between C-COR and Philips Broadband Networks to strengthen C-COR's
competitiveness and open new market opportunities."
"We are progressing well on our stated goal to find solutions for more than 25
businesses within the Philips portfolio that we have decided to divest," said
Tom Verbeek, CEO of Philips Corporate Investments. "As part of C-COR, PBN will
have better opportunities to develop new markets and opportunities to deliver
future growth."
Upon completion of the transaction, Philips Broadband Networks will become part
of C-COR's Broadband Communications Products (BCP) division. C-COR expects that
integration of PBN will be substantially completed by the end of calendar year
2002. Starting in calendar year 2003, the acquisition will add more than $100
million in annual revenue and be accretive.
C-COR has scheduled a conference call for 11:00 AM (ET) on Monday, July 8, 2002,
to discuss the purchase. Details regarding access to the conference call are
provided under a separate C-COR news release, dated July 8, 2002.
About C-COR
C-COR (www.c-cor.net) is a leading provider of premium quality,
globally-oriented fiber optic, digital video transport, and RF telecommunication
products (including the award winning lumaCOR(TM) High Density Platform,
recently voted the industry's "Best New Headend Product" for 2002 by readers of
Communications Technology magazine); OSS (Operations Support System) management
solutions; and high-end
technical field services - all enabling cost-effective delivery of voice, video,
and high-speed data over advanced HFC (Hybrid Fiber Coax) broadband networks.
Headquartered in the U.S., with facilities worldwide, C-COR's mission is to
provide our customers with second-to-none network integrity throughout the full
network life cycle. C-COR's common stock is listed on the Nasdaq National Market
(Symbol: CCBL) and is a component of the Russell 2000 Stock Index. Some of the
information presented in this announcement constitutes forward-looking
statements pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements represent C-COR's
judgment regarding future events, and are based on currently available
information. Although C-COR believes it has a reasonable basis for these
forward-looking statements, C-COR cannot guarantee their accuracy, and actual
results may differ materially from those C-COR anticipated due to a number of
uncertainties, many of which C-COR is not aware. Factors which could cause
actual results to differ from expectations include, among others, the successful
completion of the purchase of Philips Broadband Networks and its successful
integration into C-COR, capital spending patterns of the communications
industry, changes in regard to a significant customer, the demand for network
integrity, the trend toward more fiber in the network, C-COR's ability to
develop new and enhanced products, C-COR's ability to provide complete network
solutions, continued industry consolidation, the development of competing
technologies, the global demand for C-COR's products and services, and C-COR's
ability to achieve its strategic objectives, For additional information
concerning these and other important factors which may cause C-COR's actual
results to differ materially from expectations and underlying assumptions,
please refer to the reports filed by C-COR with the Securities and Exchange
Commission.
Safe Harbor 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. 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 effect results), 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.
About Royal Philips Electronics
Royal Philips Electronics of the Netherlands is one of the world's biggest
electronics companies and Europe's largest, with sales of EUR 32.3 billion in
2001. It is a global leader in color television sets, lighting, electric
shavers, medical diagnostic imaging and patient monitoring, and one-chip TV
products. Its 186,000 employees in more than 60 countries are active in the
areas of lighting, consumer electronics, domestic appliances, components,
semiconductors, and medical systems. Philips is quoted on the NYSE (symbol:
PHG), London, Frankfurt, Amsterdam and other stock exchanges. News from Philips
is located at www.philips.com/newscenter
PHILIPS ANNOUNCES COMPREHENSIVE NEW POLICY ON AUDITOR INDEPENDENCE
AMSTERDAM, THE NETHERLANDS, JULY 16, 2002 - Royal Philips Electronics (AEX: PHI,
NYSE: PHG) today unveiled a comprehensive new global policy on external auditor
independence covering Philips and all majority owned entities.
Philips has always maintained a policy of strict separation between the auditing
and consulting functions of its auditing company, in line with SEC Rule 2-01,
under which the appointed external auditor must be independent of the company
both in fact and appearance. That policy has now been strengthened with
self-imposed regulations, going far beyond external requirements.
The attached policy, effective from July 15, 2002 can be summarized as follows:
o Clear definition of exactly which services the external auditor is
entitled and not entitled to provide
o Establishing that a tender process must be carried out for non-audit
services expected to generate fees of above EUR 250,000
o Formal advanced approval by the audit committee of the Supervisory
Board for any work expected to generate fees of above EUR 2 million
o Rotation of the lead external audit partner after a maximum of five
years and rotation of the key audit partners after a maximum of seven
years
o Appointment of external auditor for a period of three years, upon
which the Supervisory Board will assess the performance against
measurable criteria, inform the shareholders on the outcome at the
next general meeting, and submit a proposal to the meeting on the
appointment of the external auditor
o Clear definition of the responsibility of the external auditor and its
independence, with annual assessment by the audit committee
o Restricted hiring agreement between Philips and the external auditor
o Disclosure in the Annual report on auditor independence policy and all
audit and non-audit fees incurred for professional services provided
by the external auditor during the reporting period
"Philips is taking a pioneering role in establishing an unambiguous policy with
regard to the role of our external auditor, not only in the Netherlands, but on
a global basis," commented Jan Hommen, Philips' Vice Chairman and Chief
Financial Officer. "Having always maintained strict separation between the
consulting and auditing arms of our auditor, our proactive approach is a logical
step in light of recent events in the corporate world. Philips reports its
financial performance on the basis of maximum transparency and openness - this
comprehensive policy reflects that attitude."
For further information, please contact:
Jeremy Cohen, Philips Corporate Communications, tel: +31 20 59 77 213
jeremy.cohen@philips.com
About Royal Philips Electronics
Royal Philips Electronics of the Netherlands is one of the world's biggest
electronics companies and Europe's largest, with sales of EUR 32.3 billion in
2001. It is a global leader in color television sets, lighting, electric
shavers, medical diagnostic imaging and
patient monitoring, and one-chip TV products. Its 184,000 employees in more than
60 countries are active in the areas of lighting, consumer electronics, domestic
appliances, components, semiconductors, and medical systems. Philips is quoted
on the NYSE (symbol: PHG), London, Frankfurt, Amsterdam and other stock
exchanges. News from Philips is located at www.philips.com/newscenter.
'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.
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.
PHILIPS POLICY ON AUDITOR INDEPENDENCE
SERVICES PROVIDED BY THE EXTERNAL AUDITOR
GENERAL POLICY
Royal Philips Electronics N.V. (Philips), including all its majority owned legal
entities, will only use the appointed external auditor to provide services
(other than the Audit and Audit related services outlined below), in cases where
these services do not conflict with the auditor's independence.
In line with SEC Rule 2-01 the appointed external auditor of Philips must be
independent of the company both in fact and appearance. As a consequence, the
external auditor is not independent if he/she, directly or indirectly, maintains
a financial, employment or businesses relationship with Philips or provides a
service which:
o Creates a mutuality of interest
o Places the auditor in a position to audit his/her own work
o Results in the auditor acting as a Philips manager or Philips
employee, or
o Puts the auditor in the role of advocate for Philips
SERVICES PROVIDED
Consistent with the abovementioned policy, the Philips' external auditor is
entitled to provide the following services:
Audit services
Audit services are:
a. Issuing the audit opinion on the Philips' consolidated financial
statements. This service includes the review of internal accounting
controls
b. Issuing the audit opinion on the statutory financial statements of the
holding company and its subsidiaries, where legally required
c. Issuing the audit opinion on the Form 20F and other SEC filings
d. Review opinions on interim financial statements.
The external auditor can be engaged to perform the above audit services without
the requirement of a separate tender process.
Audit related services
Audit related services are assurance services or other work traditionally
provided to Philips by the external auditor in his role as external auditor.
They usually result in a certification or specific opinion on an investigation.
These audit related services include:
a. Audits of businesses acquired or to be sold & due diligence services
b. Audit of financial statements of employee benefit plans
c. Opinions/audit reports on information provided by the company upon
request from a third party (prospectus, comfort letter, royalty
audits, GSA audits)
d. Forensic audits
e. Advice on accounting policies
f. Sustainability audits/reviews
g. EDP audits
The external auditor can be engaged to perform these audit related services
without requirement of a separate tender process, under the arrangements made
for audit services.
Non-audit services
These include:
a. Tax services
b. Consulting services
Tax services may include local tax compliance, advice on tax planning and advice
on transfer pricing issues.
For all these services a tender process is required for work anticipated to
generate fees of above E 250,000 and if above E 2 million the audit
committee of the Supervisory Board should approve the decision in advance. The
total annual audit fee for non-audit services shall not exceed the sum of the
annual fees for audit and audit-related services.
Under the Philips policy of auditor independence, the external auditor may not
provide the following categories of services:
a. Appraisal or Valuation Services or Fairness Opinions
b. Financial Information Systems Design and Implementation
c. Bookkeeping Services
d. Management functions
e. Executive Recruiting and Resource Services
f. Broker-Dealer Services
g. Legal services
h. Internal Audit services
For more details on the above services reference is made to the current SEC
Rules 2-01. For further clarification on prohibited services the management of
Corporate Control should be contacted.
ROTATION OF KEY AUDIT PARTNERS
Philips requires its external auditor to adhere to a rotation policy that is
widely accepted and provides an appropriate balance between going concern
(effectiveness and efficiency, e.g. audit costs), risk management, independence
and credibility. This implies a rotation of the lead audit partner after a
maximum period of five (5) years. Other key audit partners at corporate level
and PD level will rotate after a maximum period of seven (7) years. These key
audit partners may rotate to a different position within Philips. The starting
measurement date for this rotation policy is 1-1-2000.
APPOINTMENT OF AUDITOR
The external auditor will be appointed for a period of three years.
Every 3 years the Audit Committee of the Supervisory Board will assess the
performance of the external auditor against measurable criteria laid down in a
formal service level agreement.
The Supervisory Board will inform the shareholders on the outcome of this review
at the next annual meeting and submit a proposal to the general shareholder's
meeting on the appointment of the external auditor. In case the Supervisory
Board proposes not to reappoint the existing external auditor, a tender process
will be applied to select a new external auditor. (New review/proposal will take
place at the annual shareholders meeting for the reporting year 2004).
RESPONSIBILITY OF THE EXTERNAL AUDITOR
The external auditor will maintain a quality control system that provides
reasonable assurance that its independence will not be impaired. The external
auditor will report annually to the Audit Committee of the Supervisory Board on
all aspects concerning independence, including possible conflicts with this
policy, if any. The external auditor will annually confirm its independence in
writing.
RESPONSIBILITY OF THE AUDIT COMMITTEE
Each year the Audit Committee will formally evaluate the Auditor Independence
issue, document its position on this matter, and address any changes to this
Policy or situation as needed.
HIRING ARRANGEMENTS
Philips and the external auditor agree on a restricted hiring policy:
- Philips will not hire partners of the external auditor involved in the
Philips audit within the last two (2) years.
- The external auditor will not hire Senior Management from Philips for
involvement in the Philips audit within two (2) years after
termination of their employment agreement with Philips.
COMMUNICATION
Philips will communicate its policy on auditor independence to stakeholders and
disclose the audit and non-audit fees incurred for professional services
provided by its external auditor during the reporting period.
In this disclosure the total fee note of the external auditor will be broken
down in fees for audit services (incl. Audit related services) and non audit
services, categorized by the main classes identified.
This policy is effective from July 15, 2002 onwards.