Simpler, stronger, better Annual Report 2007 “ Philips taps teams of futurists, cultural anthropologists, designers and scientists to develop user- centered products and services.” BusinessWeek.com, 9/10/07 BusinessWeek innovation ranking Awards Simplicity Event 2007 In the BusinessWeek-Boston Consulting Group’s annual In 2007 we received over 45 design Philips’ Simplicity Events use simplicity- ranking of the world’s most innovative companies, Philips awards recognizing our commitment to led design concepts to provide an insight jumped from No. 67 in 2006 to No. 38 in 2007. people-focused solutions. These included into possible solutions three to five years 16 coveted iF awards. We also won two ahead. The 2007 edition in London prestigious awards from the European showcased how the inventive use of Imaging & Sound Association (EISA). technology, coupled with intuitive, The 47PFL9732D FlatTV with Ambilight personalized design, can enhance care was named European Full-HD LCD TV for people’s well-being at home, in the 2007-2008, while the HTS8100 SoundBar hospital and on the move. DVD Home Theater with Ambisound technology was named European Home Theater Compact System 2007-2008. ...they are at the heart of our thinking “ Philips not only talks simplicity, it lives simplicity.” Dr Jürgen Häusler, 56% CEO Interbrand Zintzmeyer & Lux Live Earth / asimpleswitch.com Sales of innovative products 500 million and counting Interbrand ranking On July 7, 2007, Philips sponsored the In 2007, 56% of our sales came from In May 2007 our 500 millionth shaver Philips was one of the ten fastest-growing Live Earth concerts at eight different products introduced in the last was produced in Drachten (Netherlands). brands in terms of total brand value in locations around the world, attracting an three years. We also ushered in the future of shaving the 2007 ranking of the top-100 global audience of two billion people. On the with the launch of the revolutionary brands as compiled by leading brand asimpleswitch.com website, over 600,000 Arcitec shaver. With its ergonomic design consultant Interbrand. Our brand value people have pledged to replace a total of and three independently flexing heads, rose 15% to an estimated USD 7.7 billion, over 3.3 million light bulbs with energy- Arcitec offers optimum skin contact in making Philips the 42nd most valuable efficient alternatives. curved areas for a faster, closer, more brand in the world. efficient shave. This Annual Report is available online – in dynamic, interactive form – at the address below. Key financial data are available as Excel downloads. The Report can We are also be downloaded in full or per chapter in PDF. www.philips.com/annualreport2007 In parallel and complementary to this Annual Report 2007, we have inspired published our Sustainability Report 2007 (www.philips.com/sustainability). Forward-looking statements assumptions used are disclosed in the financial statements. In certain This document contains certain forward-looking statements with cases, independent valuations are obtained to support management’s respect to the financial condition, results of operations and business determination of fair values. of Philips and certain of the plans and objectives of Philips with respect to these items, in particular the Outlook section of the chapter The US GAAP basis of presentation Philips Group in this Annual Report. Examples of forward-looking The financial information included in this document is based on statements include statements made about our strategy, estimates US GAAP, unless otherwise indicated. As used in this document, the of sales growth, future EBITA and future developments in our organic term EBIT has the same meaning as Income from operations (IFO). business. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances Use of non-US GAAP information and there are many factors that could cause actual results and In presenting and discussing the Philips Group’s financial position, developments to differ materially from those expressed or implied operating results and cash flows, management uses certain non- by these forward-looking statements. US GAAP financial measures like: comparable growth; EBITA; NOC; by people net debt (cash); and cash flow before financing activities. These These factors include but are not limited to domestic and global non-US GAAP financial measures should not be viewed in isolation economic and business conditions, the successful implementation of as alternatives to the equivalent US GAAP measures. our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal Further information on non-US GAAP information and a claims, changes in exchange and interest rates, changes in tax rates, reconciliation of such measures to the most directly comparable pension costs, raw materials and employee costs, our ability to identify US GAAP measures can be found in the chapter Reconciliation and complete successful acquisitions and to integrate those acquisitions of non-US GAAP information. into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, Statutory financial statements and management report economic and other developments in countries where Philips operates, The chapters IFRS financial statements and Company financial industry consolidation and competition. As a result, Philips’ actual statements contain the statutory financial statements. The introduction future results may differ materially from the plans, goals, and expectations to the chapter IFRS financial statements sets out which parts of this set forth in such forward-looking statements. For a discussion of Annual Report form the management report within the meaning of factors that could cause future results to differ from such forward- Section 2:391 of the Dutch Civil Code (and related Decrees). looking statements, see also the chapter Risk management. Reclassifications Third-party market share data On November 2, 2007, Philips announced that it has decided to Statements regarding market share, including those regarding Philips’ proceed with the sale of its approximately 70% ownership interest in competitive position, contained in this document are based on outside MedQuist. Amongst others, in order to ensure comparison between sources such as specialized research institutes, industry and dealer different financial years and to achieve optimal transparency for users panels in combination with management estimates. Where full-year of the Annual Report, all consolidated financial statements of prior information regarding 2007 is not yet available to Philips, those years have been restated to present the MedQuist business as a statements may also be based on estimates and projections prepared discontinued operation. The original consolidated financial statements by outside sources or management. Rankings are based on sales unless of prior years are available on the Company’s website. otherwise stated. As of January 2007, the following key portfolio changes have been Fair value information applied to the Philips Group structure: Other Activities was renamed Energy-saving potential In presenting the Philips Group’s financial position, fair values are Innovation & Emerging Businesses; Unallocated was renamed Group World of wonder Better images, lower impact used for the measurement of various items in accordance with the Management & Services; GSU activities and Miscellaneous were Philips has redefined home entertainment The 256-slice Philips Brilliance iCT Designed for offices and schools, for applicable accounting standards. These fair values are based on market transferred from Innovation & Emerging Businesses to Group instance, Philips MASTER TL-D Eco prices, where available, and are obtained from sources that are deemed Management & Services; Consumer Healthcare Solutions was moved with Aurea. The Aurea experience is like scanner can capture an image of the to be reliable. Readers are cautioned that these values are subject to from DAP to Innovation & Emerging Businesses. Also, as of January 2007, stepping into a different world, as scenes entire heart in just two beats, while fluorescent lamps save 15% energy changes over time and are only valid at the balance sheet date. When certain Corporate/Regional/Country overhead and Corporate reducing radiation doses by up to 80%. compared to traditional T8 fluorescent a readily determinable market value does not exist, fair values are Intellectual Property costs were allocated to the operating divisions radiate an aura of light and color beyond estimated using valuation models, which we believe are appropriate to further improve transparency of the total cost structure. As a the frame. The result is a totally lamps, of which the EU alone has an for their purpose. They require management to make significant consequence of the aforementioned, prior-year financials have installed base of more than 1 billion. assumptions with respect to future developments which are inherently been restated. immersive, ambient viewing experience. uncertain and may therefore deviate from actual developments. Critical 6 Philips Annual Report 2007 Contents Financial statements 8 Financial highlights 127 Notes overview 10 Message from the President Group financial statements 128 Management’s report 129 Auditors’ report The Philips Group