Annual Report of a Foreign Private Issuer — Form 20-F
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5: EX-10.(B)2 First Quarterly Report 20 84K
EX-10.(B)2 — First Quarterly Report
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Exhibit 10(b)(2)
First Quarterly Report 2002
--------------------------------------------------------------------------------
See attachment.
Note: Philips' first Quarterly Report 2002 is incorporated by reference in this
report on Form 20-F.
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
- financial reporting is changed to US GAAP - last year's figures have
been restated
1ST QUARTERLY REPORT
APRIL 16, 2002
PHILIPS REPORTS A NET PROFIT OF EUR 9 MILLION IN THE FIRST QUARTER OF
2002
o NET PROFIT OF EUR 9 MILLION, HELPED BY HIGHER MARGINS AND MUCH IMPROVED
RESULTS AT UNCONSOLIDATED COMPANIES
o COST REDUCTION PROGRAMS ARE ON-TRACK
o ONGOING IMPROVEMENTS IN SUPPLY CHAIN MANAGEMENT
o NET DEBT : GROUP EQUITY RATIO OF 28:72
o US GAAP APPLIED
The first quarter 2002
SALES IN THE SEMICONDUCTORS AND COMPONENTS SECTORS OF ROYAL PHILIPS
ELECTRONICS SHOWED AN IMPROVING TREND DURING THE QUARTER. LIGHTING
EXPERIENCED LOWER SALES DUE TO DIFFICULT MARKET CONDITIONS. SALES AT
MEDICAL SYSTEMS GREW STRONGLY AS A RESULT OF ACQUISITIONS. GROUP SALES
WERE 7% LOWER THAN THE FIRST QUARTER OF 2001 WHEN MARKETS WERE STILL
STRONG.
PHILIPS REALIZED A NET PROFIT OF EUR 9 MILLION (EUR 0.01 PER SHARE)
VERSUS EUR 93 MILLION (EUR 0.07 PER SHARE) IN THE FIRST QUARTER OF
2001. THE COST REDUCTION PROGRAMS ARE ON-TRACK; SO FAR ANNUALIZED
SAVINGS OF APPROXIMATELY EUR 130 MILLION HAVE BEEN REALIZED, NOT
INCLUDING THE COST SYNERGIES AT MEDICAL SYSTEMS. IMPROVED MARGINS IN
VARIOUS BUSINESSES HAD A POSITIVE IMPACT ON FIRST QUARTER'S INCOME FROM
OPERATIONS COMPARED TO THE FOURTH QUARTER OF LAST YEAR. HIGHER PENSION
COSTS NEGATIVELY AFFECTED GROUP INCOME FROM OPERATIONS IN THE FIRST
QUARTER WITH APPROXIMATELY EUR 150 MILLION. RESULTS RELATING TO
UNCONSOLIDATED COMPANIES IMPROVED SIGNIFICANTLY, WITH LG.PHILIPS LCD IN
PARTICULAR MAKING A STRONG CONTRIBUTION OF EUR 37 MILLION COMPARED TO A
LOSS OF EUR 25 MILLION LAST YEAR (EXCLUDING AMORTIZATION OF GOODWILL).
AS A RESULT OF IMPROVED SUPPLY CHAIN MANAGEMENT AND REDUCED CAPITAL
EXPENDITURES THE NET DEBT : GROUP EQUITY RATIO CAME TO 28:72.
Gerard Kleisterlee, Philips' President and CEO:
"It seems that the worst slump in recent business history is behind us now, and
that we begin to see the start of a new upturn in the business cycle. We are
encouraged by the improved performance in many of our businesses, especially in
Semiconductors and Components, supported by a record Q1 performance at DAP,
strong sales growth at Medical Systems, and good performance at CE in Europe.
Our cost reduction programs are beginning to pay off and should pick-up speed in
the second half of the year, when the cost synergies at Medical Systems start to
make an impact. Our balance sheet provides us with a solid foundation for the
transformation Philips is undergoing, and through strict capital management and
diligent control of costs and investments, we plan to keep it strong."
Net income excluding special items
----------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
----- ----
As published 9 93
per common share in euros -
basic 0.01 0.07
Special items:
Affecting income from
operations 58 (52)
Affecting financial income
and expenses 67 0
Affecting results from
unconsolidated companies (91) (5)
Taxes related to special
items (15) 25
---- ----
Excluding special items (10) 125
per common share in euros -
basic (0.01) 0.10
Group sales and composition of changes (%)
----------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
----- ----
Philips group sales 7,598 8,208
% change from the previous
year:
Nominal change (7) (1)
Consolidation changes 4 0
Currency effects 1 3
Comparable change (12) (4)
Prices (7) (6)
Volume (5) 2
Sales by sector
----------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
% change
--------------------
Q1 Q1 compa-
2002 2001 nominal rable
---- ---- ------- ------
Lighting 1,228 1,295 (5) (7)
Cons Electronics 2,200 2,685 (18) (13)
DAP 454 440 3 3
Components 506 934 (46) (11)
Semiconductors 1,010 1,420 (29) (30)
Medical Systems 1,664 824 102 10
Miscellaneous 536 610 (12) (14)
----- ----- ----- -----
Philips group 7,598 8,208 (7) (12)
* adjusted for changes in currencies and consolidations
Group sales and income
In general, the first quarter of the year seems to confirm that markets are
bottoming out, and inventory corrections have stopped, but overall market
conditions are still fragile. The US economy is showing some positive signs,
including a recovery of consumer and business confidence to pre-September 11
levels. Economic conditions in Europe were slightly weaker, caused by lower
exports. The economies in Latin America remained depressed as the turmoil in
Argentina and weakness in Brazil affected the whole region. Business conditions
in Asia Pacific are developing very well, with China and Korea standing out.
Sales in the first quarter came to EUR 7,598 million, a decrease of 7% over a
year ago. Changes in the group portfolio on balance had a positive effect of 4%,
driven by the newly acquired companies at Medical Systems. Price erosion
declined from 9% in the fourth quarter of 2001 to 7% in the first quarter of
2002. The decline in sales volume versus last year occurred mainly in the more
cyclical sectors Consumer Electronics, Components and Semiconductors. Sales at
Medical Systems continued to grow strongly, while sales at Domestic Appliances
and Personal Care (DAP) rose by 3%. Lighting sales were negatively affected by
lower demand in Luminaires and difficult market conditions in Latin America.
Income from operations for the first quarter of 2002 came to a profit of EUR 73
million (1.0% of sales) and included special items totaling a positive EUR 58
million:
o a EUR 40 million currency translation gain from the liquidation of
certain Components activities in Japan;
o a EUR 40 million gain related to sale of the CRT glass activities;
o a gain of EUR 33 million related to real-estate transactions;
o acquisition related charges at Medical Systems of EUR 22 million;
Income from operations
----------------------------------------------------------
in millions of euros
[Download Table]
Q1 Q1
2002 2001
---- ----
Income from operations
excluding special items and
amortization of goodwill 15 410
Special items 58 (52)
Amortization of goodwill 0 (45)
---- ----
Income from operations 73 313
Income from operations by sector
----------------------------------------------------------
in millions of euros
[Download Table]
Q1 Q1
2002 2001
---- ----
Lighting 152 202
Consumer Electronics 45 (99)
DAP 65 53
Components 19 (77)
Semiconductors (103) 231
Medical Systems 27 1
Miscellaneous (49) 21
Unallocated (83) (19)
---- ----
Philips group 73 313
Results relating to unconsolidated companies
----------------------------------------------------------
in millions of euros
[Download Table]
Q1 Q1
2002 2001
---- ----
Results excluding special
items and amortization of
goodwill 72 (5)
Special items (91) (5)
Amortization of goodwill (24) (63)
--- ---
Total (43) (73)
o disentanglement costs of EUR 10 million related to the sale of the fax
business to Sagem S.A.;
o restructuring charges of EUR 23 million, notably in the Optical Storage
business of Components.
Income from operations, when adjusted for special items and amortization of
goodwill, decreased from EUR 410 million in 2001 to EUR 15 million in 2002,
reflecting the still difficult business conditions, compared with the first
quarter last year. Increased pensions costs, predominantly due to reduction of
pension credits in the Netherlands, negatively affected group income in the
first quarter by approximately EUR 150 million.
Income from operations of a loss of EUR 103 million at Semiconductors decreased
by EUR 334 million compared to the first quarter of last year, but improved by
almost EUR 124 million (excluding special items) compared to the fourth quarter
of last year. The improvement at Consumer Electronics of EUR 144 million was
mainly related to the new business model for mobile phones and related special
charges of EUR 74 million recorded last year, as well as improved results at CE
outside the U.S.
Financial income and expenses amounted to a net expense of EUR 20 million and
included a gain of EUR 67 million related to the sale of a portion of ASML
securities. The net interest expenses increased by EUR 36 million due to a
higher debt level, but were almost offset by foreign exchange gains.
Income taxes are based on an effective rate of 21%, excluding the aforementioned
gain on the sale of ASML shares, which is not taxable.
Philips' results relating to unconsolidated companies amounted to a loss of EUR
43 million in the first quarter, versus a loss of EUR 73 million last year.
Results relating to unconsolidated companies, excluding special items and
goodwill amortization, improved strongly. Philips' share of restructuring
charges at LG.Philips Displays amounted to EUR 91 million.
Results relating to unconsolidated companies
(excluding special items and amortization of
goodwill)
---------------------------------------------------
in millions of euros
[Download Table]
Q1 Q1
2002 2001
---- ----
SSMC (16) (23)
LG.Philips LCD 37 (25)
LG.Philips Displays 1 --
Others 50 43
--- ---
Total 72 (5)
As the results related to Atos Origin are reported on a three-month delay basis,
amortization of goodwill of EUR 24 million referring to the fourth quarter of
2001 was included.
Results from LG.Philips LCD were encouraging due to rising demand and price
increases in recent months. LG.Philips Displays achieved a break-even result,
excluding special items. The CRT market, in general, although still difficult,
especially with pressure from the LCD products, has stabilized.
[Bar chart]
Cash flow from operating activities
in millions of euros
[Download Table]
Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002
------- ------- ------- ------- -------
-349 -250 160 1,687 -54
[Bar chart]
Inventories as a % of sales
[Download Table]
Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002
------- ------- ------- ------- -------
15.6 16.0 14.9 13.3 14.0
[Bar chart]
Net debt and group equity
in billions of euros
[Download Table]
Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002
------- ------- ------- ------- -------
Group equity 22.5 21.8 19.0 19.4 18.5
Net debt 4.5 5.3 6.9 7.0 7.2
net debt:
group equity ratio
17:83 20:80 27:73 26:74 28:72
Cash flows and financing
The first quarter 2002 generated a cash outflow from operating activities of EUR
54 million, approximately EUR 300 million better than the first quarter of last
year. Improvements came entirely from the improved working capital management.
Inventories as a percentage of sales were 14.0% compared to 15.6% in the first
quarter of 2001. All sectors contributed strongly. The cash conversion cycle
showed continued improvements.
Cash used for investing activities of EUR 187 million in this quarter was EUR
648 million lower than in the first quarter of last year. The largest cash
outflow came from a EUR 120 million final settlement payment to LGE for the CRT
joint venture transaction. In addition, approximately EUR 100 million cash was
used for a planned capital increase to SSMC and the Ishoni investment at
Semiconductors. The partial sale of ASML securities resulted in a cash inflow of
EUR 72 million. Capital expenditures for the quarter amounted to EUR 225 million
and were reduced significantly compared to the level of EUR 753 million in last
year's first quarter. Disposals of properties resulted in a cash inflow of EUR
219 million.
Due to both the lower working capital and the lower investments, cash flow
before financing was EUR 241 million negative, which represented an improvement
of EUR 943 million compared with the first quarter of 2001.
The net debt : group equity ratio came to 28:72 compared to 26:74 at the end of
2001. Net debt increased by EUR 248 million in the first quarter of 2002, mainly
due to financing needs for investing activities. Group equity decreased in the
same quarter by EUR 889 million and was negatively impacted by the dividend
payable, amounting to EUR 459 million, and a fair-value adjustment for certain
financial assets of EUR 482 million.
[Bar chart]
EMPLOYEES
position at the end of the quarter
thousands
[Download Table]
Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q4 2002
------- ------- ------- ------- -------
219,399 212,390 191,545 188,643 186,090
The market value of our investments in publicly quoted companies, as of March
31, 2002, exceeded book value by EUR 10.3 billion. The market value of certain
securities (particularly Vivendi Universal) is currently below cost. If this
situation continues, it could lead to impairment in the second half of 2002.
Employment
At the end of March 2002, the number of employees was 186,090, a decrease of
2,553 over the position as per end December, 2001. Excluding portfolio changes
of 218, staffing levels were reduced by 2,335. The reduction was particularly
strong at Consumer Electronics.
Lighting: key data
------------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
---- ----
Sales 1,228 1,295
Sales growth
% increase, nominal (5) 6
% increase, comparable (7) 3
Income from operations 152 202
IFO excluding special items and
amortization of goodwill: 151 204
in % of sales 12.3 15.8
Net operating capital (NOC) 2,002 2,116
Number of employees (FTEs) 47,741 48,387
Consumer Electronics: key data
------------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
---- ----
Sales 2,200 2,685
Sales growth
% increase, nominal (18) (5)
% increase, comparable (13) (7)
Income from operations 45 (99)
IFO excluding special items and
amortization of goodwill: 52 (22)
in % of sales 2.4 (0.9)
Net operating capital (NOC) 677 1,632
Number of employees (FTEs) 26,526 35,829
DAP: key data
------------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
---- ----
Sales 454 440
Sales growth
% increase, nominal 3 15
% increase, comparable 3 1
Income from operations 65 53
IFO excluding special items and
amortization of goodwill: 67 56
in % of sales 14.8 12.7
Net operating capital (NOC) 705 742
Number of employees (FTEs) 9,420 10,209
Sales and income from operations per sector
Sales in the Lighting sector dropped by 5%, partly due to the transfer of its
battery activity to Consumer Electronics. Sales in Asia Pacific continued their
positive trend. North American sales levels were maintained, in spite of a weak
market. Sales in Latin America were adversely affected by the poor economic
environment. The lower European turnover was entirely caused by lower sales in
Luminaires, where market conditions are difficult. Automotive Lighting continued
to show growth. Focused cost management, as well as the normal seasonal effect
in the first quarter, supported an increase of the IFO margin over the fourth
quarter of 2001 by 2.1%, to 12.3%.
The sales decline in Consumer Electronics amounted to 18%, and was caused by
weaker performance of the Audio and VCR activities. The redesigned GSM business
and the refocused strategy for set-top boxes, together with a weak set-top box
market, led to sales declines.
TV, DVD and CE Accessories showed growth.
Improvement in income from operations versus last year was mainly caused by the
new business model for mobile phones and an insurance payout of EUR 16 million.
Last year included a write-off in mobile phones for an amount of EUR 74 million
as a special item.
Consumer Electronics in North America was still loss making, however, the
European activities performed well. License income amounted to EUR 73 million,
EUR 25 million lower than last year. This decline in income came from expiration
of certain patents related to CD, only partly compensated by higher license
income related to DVD. Certain activities, previously part of Digital Networks,
now reported under Miscellaneous, had a loss of EUR 7 million in the first
quarter of 2001.
Sales of Domestic Appliances and Personal Care continued to develop with
impressive growth of the Cool Skin shaver range, the Senseo coffee machine and
the Sonicare toothbrush. Despite adverse developments in the Latin
DAP: key data
------------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
---- ----
Sales 506 934
Sales revenues 556 1,332
Sales growth
% increase, nominal (46) (22)
% increase, comparable (11) (19)
Income from operations 19 (77)
IFO excluding special items and
amortization of goodwill: (47) (77)
in % of segment revenues (8.5) (5.8)
in % of sales (9.3) (8.2)
Net operating capital (NOC) 407 2,621
Number of employees (FTEs) 14,206 42,851
[Download Table]
Components: special items in Q1 2002
------------------------------------------------------------------
in millions of euros
o A charge for restructuring at Optical Storage (14)
o A gain related to the sale of CRT glass activity 40
o A currency translation gain from the liquidation
of certain Components activities in Japan 40
----
Total special items 66
Semiconductors: key data
------------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
---- ----
Sales 1,010 1,420
Segment revenues 1,143 1,592
Sales growth
% increase, nominal (29) 16
% increase, comparable (30) 4
Income from operations (103) 231
IFO excl. special items and
amortization of goodwill: (103) 243
in % of segment revenues (9.0) 15.3
in % of sales (10.2) 17.1
Net operating capital (NOC) 4,704 5,369
Number of employees (FTEs) 32,741 37,160
American region and downscaling in Japan, the overall sales growth totaled 3%.
Income from operations came to a first quarter record level of EUR 65 million,
traditionally a seasonally weak quarter. The IFO margin (excluding special items
and goodwill amortization) increased by 2.1% to 14.8%.
Sales in the Components sector, excluding the deconsolidation of Display
Components, were 11% lower than the first quarter of 2001. A positive trend,
however, was seen during the quarter particularly in Mobile Display Systems and
Optical Storage. Mobile Display Systems gained 3% market share in volume terms
to 24%, and saw some minor price increases.
Income from operations, excluding special items and amortization of goodwill,
was a loss of EUR 47 million, which was a sequential improvement of EUR 97
million, coming from almost all businesses. Certain activities, previously part
of Components had a loss of EUR 3 million in the first quarter of 2001 and are
now reported under Miscellaneous.
Semiconductor sales showed positive sequential growth of 7% in the first quarter
and utilization rates improved to 50% by the end of March. Improvements were
largely visible in the standard analogue businesses and in display-related
products. The latter increased because of stronger demand for display drivers.
Income from operations, although negative, benefited from the higher utilization
rates, cost reductions and lower price erosion (9%). Demand from end-markets
appears to be picking up, but we remain cautious about the full year outlook.
This was reflected in the relatively low level of capital expenditure of EUR 47
million in the first quarter. The book-to-bill ratio for the first quarter was
1.3 compared to 0.9 in the fourth quarter of last year.
Medical Systems: key data
---------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
------ ------
Sales 1,664 824
Sales growth
% increase, nominal 102 44
% increase, comparable 10 6
Income from operations 27 1
IFO excluding special items and
amortization of goodwill: 49 48
in % of sales 2.9 5.8
Net operating capital (NOC) 5,593 2,830
Number of employees (FTEs) 31,105 19,788
Miscellaneous: key data
---------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
------ ------
Sales 536 610
Sales growth
% increase, nominal (12) (32)
% increase, comparable (14) (9)
Income from operations (49) 21
IFO excluding special items and
amortization of goodwill: (71) (23)
in % of sales (13.2) (3.8)
Net operating capital (NOC) 548 731
Number of employees (FTEs) 19,616 18,993
Unallocated: key data
---------------------------------------------------------------
in millions of euros unless otherwise stated
[Download Table]
Q1 Q1
2002 2001
------ ------
Corporate and regional
overheads (68) (83)
Pensions (7) 56
Other (8) 8
------ ------
Income from operations (83) (19)
Number of employees (FTEs) 4,735 6,182
The strong sales increase in Medical Systems (102%) is mainly attributable to
the new acquisitions of Agilent Healthcare Solutions Group (HSG) and Marconi
Medical Systems. In addition, the increase in sales was particularly strong in
Magnetic Resonance and X-Ray.
Special items amounting to EUR 22 million related to the integration costs of
the new acquisitions. A provision of EUR 14 million was taken for the risk
exposure related to Argentina. A non-recurring adjustment of EUR 12 million for
material related costs impacted results unfavorably. Initial results of synergy
effects to reduce the cost structure are expected in the second half of the
year.
Sales in Miscellaneous were down by 12% compared with the first quarter 2001.
The reduction is mainly attributable to lower sales at Philips Enabling
Technologies Group, Philips Business Communications, and Assembleon, although
sales were stable compared to the fourth quarter 2001.
Special items mainly related to:
o disentanglement costs of EUR 10 million for the fax business;
o a gain on the sale of properties, mainly in Italy, totaling EUR 33
million.
No gain was taken on the sale-and-lease-back transactions in Eindhoven, in
accordance with US GAAP.
Income from operations at Unallocated amounted to a loss of EUR 83 million in
2002 compared to a loss of EUR 19 million in 2001. The negative variance was
mainly caused by the lower pension credits in The Netherlands and higher pension
costs predominantly in the U.S., partly offset by an 18% reduction in corporate
and regional overhead costs.
Outlook
In general, we see some of our markets strengthening, and economic conditions
around the world improving to a degree. We expect that the Semiconductor and
Components divisions will show further improvements. We see a stronger market
for LCD, in particular, although markets in telecommunications and especially IT
remain subdued. In addition, our Lighting business is facing difficult market
conditions.
Since the third quarter of 2001, margin improvements and cost management have
been the main drivers for improved results. During the remainder of the year, we
will maintain a cautious stance on costs, capital expenditure, working capital
and employment. We will continue to be selective with new investments, and be
vigilant in maintaining a strong balance sheet.
Amsterdam, April 16, 2002
Board of Management
'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.
STATEMENTS OF INCOME
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Consolidated statements of income
[Enlarge/Download Table]
January to March January to March
2002 2001
------------------------- ---------------------------
Sales 7,598 8,208
Cost of sales (5,229) (5,616)
---------- ----------
GROSS MARGIN 2,369 2,592
Research and development expenses (759) (825)
Selling expenses (1,254) (1,143)
General and administrative expenses (341) (333)
Restructuring and other charges (23) (86)
---------- ----------
(2,377) (2,387)
Other income (expenses) - net 81 108
---------- ----------
Income (loss) from operations 73 313
Financial income and expenses:
- Interest (102) (66)
- Other 82 (18)
---------- ----------
(20) (84)
---------- ----------
Income before taxes 53 229
Income taxes 3 (56)
---------- ----------
Income after taxes 56 173
Results relating to unconsolidated companies (43) (73)
Minority interests (4) (7)
-------------------------------------------- ---------- ----------
NET INCOME 9 93
INCOME FROM OPERATIONS
as a % of sales 1.0 3.8
as a % of net operating capital (RONA) 2.0 10.9
Weighted average number of common
Shares outstanding (in thousands):
(after deduction of treasury stock)
o basic 1,274,920 1,282,674
o diluted 1,283,694 1,293,705
NET EARNINGS PER COMMON SHARE IN EUROS:
o basic 0.01 0.07
o diluted 0.01 0.07
The Group financial statements have been prepared on a basis consistent with US
GAAP, which differs in certain respects from Dutch GAAP. The application of US
GAAP ensures that the company's financial position is stated on a basis that is
best understood by the global financial markets and is applied by a majority of
the industry peers. Net income determined in accordance with Dutch GAAP amounted
to a loss of EUR 91 million in the first three months of 2002, compared to a
profit of EUR 106 million in the same period last year. These aggregate amounts
result in basic earnings per common share of a loss of EUR 0.07 in January-March
2002 compared to a profit of EUR 0.08 last year. The most important deviation,
is caused by the fact that goodwill is no longer amortized under US GAAP as from
January 1, 2002 but instead tested for impairment. Furthermore, results from
sale and lease-back transactions are recognized only proportionally during the
terms of the lease under US GAAP, whereas under Dutch GAAP these results would
have been realized in full.
BALANCE SHEETS AND ADDITIONAL RATIOS
all amounts in millions of euros unless otherwise stated
----------------------------------------------------------------------
Consolidated balance sheets
[Download Table]
2002 2001 2001
March 31, Dec. 31, March 31,
--------- --------- ---------
Cash and cash equivalents 773 890 907
Securities 859 692 840
Receivables 6,302 6,154 6,517
Inventories 4,452 4,290 5,905
Unconsolidated companies 7,752 7,552 6,599
Other non-current financial assets 2,131 2,789 3,443
Non-current receivables 3,413 3,596 2,657
Property, plant and equipment 7,489 7,718 9,612
Intangible assets - net 5,563 5,521 3,382
-------------------------------------- --------- --------- ---------
TOTAL ASSETS 38,734 39,202 39,862
Accounts payable and other liabilities 8,168 8,234 8,205
Dividend payable 459 -- 462
Debt 7,997 7,866 5,394
Provisions 3,637 3,740 3,338
Minority interests 199 202 483
Stockholders' equity 18,274 19,160 21,980
-------------------------------------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 38,734 39,202 39,862
RATIOS
Stockholders' equity, 18,274 19,160 21,980
per common share in euros 14.32 15.04 17.17
Inventories as a % of sales 14.0 13.3 15.6
Outstanding trade receivables, in months' sales 1.7 1.5 1.6
Net debt : group equity ratio 28:72 26:74 17:83
Number of common shares
outstanding at the end of period
o shares in thousands 1,275,847 1,274,172 1,280,198
Stockholders' equity determined in accordance with Dutch GAAP amounted to EUR
17,962 million as of March 31, 2002 compared to EUR 18,274 million under US
GAAP.
The most important deviations, compared to US GAAP, are:
- securities available for sale, valued at cost or structurally lower net
realizable value under Dutch GAAP, whereas under US GAAP these securities
are valued at market price and changes in the unrealized gains or losses
are accounted for directly in stockholders' equity.
- 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 *
[Download Table]
January to March
-----------------------
2002 2001
------ ------
Cash flows from operating
activities:
Net income 9 93
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 496 588
Net gain on sale of investments (180) (84)
(Income) loss from
unconsolidated companies (net of
dividends received 43 131
Minority interests (net of
dividends paid) 4 7
Decrease (increase) in working
capital (438) (810)
Increase in non-current
receivables 198 87
Increase in provisions (121) (173)
Other items (65) (188)
---------------------------------- ------ ------
NET CASH USED FOR OPERATING
ACTIVITIES (54) (349)
Cash flows from investing
activities:
Purchase of intangible assets
(software) (38) (31)
Capital expenditures on
property, plant and equipment (225) (753)
Proceeds from disposals of
property, plant and equipment 219 27
Proceeds (purchase) from the
sale of securities and other
non-current financial assets 76 (4)
(Purchase of business) proceeds
from sale of business (219) (74)
---------------------------------- ------ ------
NET CASH USED FOR INVESTING
ACTIVITIES (187) (835)
CASH FLOWS BEFORE FINANCING
ACTIVITIES (241) (1,184)
* 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)*
[Download Table]
January to March
-----------------------
2002 2001
------ ------
CASH FLOWS BEFORE FINANCING
ACTIVITIES (241) (1,184)
Cash flows from financing
activities:
Increase in debt 80 1,108
Treasury stock transactions 23 (162)
------------------------------ ------ ------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 103 946
DECREASE IN CASH AND CASH
EQUIVALENTS (138) (238)
Effect of changes in exchange rates
and consolidations on cash positions 21 56
Cash and cash equivalents at
beginning of the period 890 1,089
------------------------------ ------ ------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD 773 907
* 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
[Enlarge/Download Table]
January to March 2002
----------------------------------------------------------------------------------------------
Accumulated other comprehensive
income (loss)
------------------------------------------
Capital Total
in excess Available Minimum Cash Treasury stock-
Common of par Retained Translation for sale pension flow shares holders'
stock 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 9 9
Net current period change 48 (433) (1) (386)
Reclassifications into income (40) (49) 7 (82)
------- ------- ------- ------- ------- -------
TOTAL COMPREHENSIVE INCOME (LOSS) 9 8 (482) 7 (1) (459)
Dividend payable (459) (459)
Purchase of treasury stock (22) (22)
Re-issuance of treasury stock 5 45 50
Stock options accrual 4 4
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance as of March 31, 2002 263 22 19,953 (758) 84 (11) (8) (1,271) 18,274
======= ======= ======= ======= ======= ======= ======= ======= =======
PRODUCT SECTORS
all amounts in millions of euros unless otherwise stated
--------------------------------------------------------------------------------
Segment revenues and income from operations
[Enlarge/Download Table]
January to March
----------------------------------------------------------------------------------------------------
2002 2001
-------------------------------------- ------------------------------------------------------
Income (loss) from Income (loss) from
operations operations *
---------------------- --------------------------------------
as % of before as % of
Segment segment segment US GAAP amortization segment
Revenues amount revenues revenues basis goodwill revenues
-------- ------ -------- -------- ------ ------------ --------
Lighting 1,235 152 12.3 1,307 202 204 15.6
Consumer Electronics:
Mainstream CE 2,060 (7) (0.3) 2,445 (157) (157) (6.4)
Digital Networks 80 (21) (26.3) 203 (40) (40) (19.7)
Licenses 84 73 86.9 92 98 98 106.5
------ ------ ------- ------ ------ ------ -------
2,224 45 2.0 2,740 (99) (99) (3.6)
DAP 459 65 14.2 446 53 56 12.6
Components 556 19 3.4 1,332 (77) (77) (5.8)
Semiconductors 1,143 (103) (9.0) 1,592 231 243 15.3
Medical Systems 1,665 27 1.6 824 1 27 3.3
Miscellaneous 642 (49) (7.6) 664 21 23 3.5
Unallocated (83) (19) (19)
------ ------ ------ ------ ------
Total 7,924 73 8,905 313 358
Intersegment revenues (326) (697)
------ ------
SALES 7,598 8,208
INCOME FROM OPERATIONS
AS A % OF SALES 1.0 3.8 4.4
* For the sake of comparison with 2002, income from operations 2001 is also
reported before amortization goodwill.
PRODUCT SECTORS AND MAIN COUNTRIES
all amounts in millions of euros unless otherwise stated
[Enlarge/Download Table]
--------------------------------------------------------------------------------------
Sales and total assets
Sales (to third parties) Total assets
------------------------ -------------------------
January to March 2002 2001
2002 2001 March 31, March 31,
------ ------ --------- ---------
Lighting 1,228 1,295 2,954 3,076
Consumer Electronics 2,200 2,685 3,181 4,346
DAP 454 440 1,082 1,116
Components 506 934 4,226 5,795
Semiconductors 1,010 1,420 8,382 9,450
Medical Systems 1,664 824 7,955 4,052
Miscellaneous 536 610 3,196 3,389
Unallocated 7,758 8,638
--------------------- ------ ------ ------ ------
TOTAL 7,598 8,208 38,734 39,862
[Enlarge/Download Table]
--------------------------------------------------------------------------------------
Sales and long-lived assets
Sales (to third parties) Long-lived assets *
------------------------ -------------------------
January to March 2002 2001
2002 2001 March 31, March 31,
------ ------ --------- ---------
Netherlands 380 385 1,736 1,941
United States 2,257 2,071 6,993 5,190
Germany 585 709 656 733
France 443 480 298 495
United Kingdom 366 438 202 346
China 533 639 499 909
Other countries 3,034 3,486 2,668 3,380
--------------------- ------ ------ ------ ------
TOTAL 7,598 8,208 13,052 12,994
* Includes proporty, plant and equipment and intangible assets-net.
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PHILIPS QUARTERLY STATISTICS
all amounts in millions of euros unless otherwise stated; percentage increases
always in relation to the corresponding period of previous year
[Enlarge/Download Table]
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
% increase (1) (16) (23) (16) (7)
Income (loss) from
operations before
amortization
goodwill 358 (704) (462) (407) 73
as % of sales 4.4 (9.2) (6.4) (4.4) 1.0
% increase . . . . (80)
Income (loss) from
operations 313 (745) (505) (458) 73
as % of sales 3.8 (9.7) (7.0) (4.9) 1.0
% increase . . . . (77)
Net income (loss) 93 (770) (736) (1,062) 9
% increase . . . . (90)
per common share in
euros 0.07 (0.60) (0.57) (0.84) 0.01
[Enlarge/Download Table]
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
% increase (1) (9) (14) (15) (7)
Income (loss) from
operations before
amortization
goodwill 358 (346) (808) (1,215) 73
as % of sales 4.4 (2.2) (3.5) (3.8) 1.0
% increase . . . . (80)
Income (loss) from
operations 313 (432) (937) (1,395) 73
as % of sales 3.8 (2.7) (4.1) (4.3) 1.0
% increase . . . . (77)
as a % of net operating
capital (RONA) 10.9 (6.9) (9.3) (9.3) 2.0
Net income (loss) 93 (677) (1,413) (2,475) 9
% increase . . . . (90)
as a % of stockholders'
equity (ROE) 2.1 (7.1) (9.8) (11.9) 0.2
per common share in
euros 0.07 (0.53) (1.10) (1.94) 0.01
[Enlarge/Download Table]
period ending 2001 period ending 2002
----------------------------------------------- -----------------------------------------------
Inventories as % of sales 15.6 16.0 14.9 13.3 14.0
Average collection period
of trade receivables
in months' sales 1.6 1.7 1.7 1.5 1.7
Net debt : group equity
ratio 17:83 20:80 27:73 26:74 28:72
Total employees (in
thousands) 219 212 192 189 186
Information also available on Internet, address: www.investor.philips.com
Printed in the Netherlands
Dates Referenced Herein and Documents Incorporated by Reference
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