Annual Report of a Foreign Private Issuer — Form 20-F
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 20-F Koninklijke Philips Electronics N.V. 38± 157K
2: EX-1 Articles of Association 19 80K
3: EX-4 Material Contracts 6 21K
4: EX-8 List of Significant Subsidiaries 1 5K
5: EX-10.A Independent Auditors' Report and Consent 2± 11K
6: EX-10.B.1 2000 Annual Report to Shareholders 119 609K
7: EX-10.B.2 First Quarterly Report 2001 12 63K
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As filed with the Securities and Exchange Commission on May 7, 2001
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark one)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ x ] OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] For the fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-20193
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(Exact name of Registrant as specified in charter)
THE NETHERLANDS
(Jurisdiction of incorporation or organization)
REMBRANDT TOWER, AMSTELPLEIN 1, 1096 HA AMSTERDAM, THE NETHERLANDS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON SHARES - PAR VALUE NEW YORK STOCK EXCHANGE
EURO (EUR) 0.20 PER SHARE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
NONE
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
COMMON SHARES - PAR VALUE EURO (EUR) 0.20 PER SHARE
(Title of class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
Class Outstanding at December 31, 2000
KONINKLIJKE PHILIPS ELECTRONICS N.V.
Priority Shares par value EUR 500 per share 10 shares
Common Shares par value EUR 0.20 per share 1,283,894,733 shares
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 Item 18 X
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Name and address of person authorized to receive notices and communications from
the Securities and Exchange Commission:
RICHARD C. MORRISSEY
SULLIVAN & CROMWELL
ST. OLAVE'S HOUSE
9A IRONMONGER LANE
LONDON EC2V 8EY, UNITED KINGDOM
TABLE OF CONTENTS
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PAGE
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INTRODUCTION
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS 3
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3
Item 3. KEY INFORMATION 4
Item 4. INFORMATION ON THE COMPANY 10
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 17
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 17
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 19
Item 8. FINANCIAL INFORMATION 20
Item 9. THE OFFER AND LISTING 20
Item 10. ADDITIONAL INFORMATION 21
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 22
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 22
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 22
Item 17. FINANCIAL STATEMENTS 22
Item 18. FINANCIAL STATEMENTS 22
Item 19. EXHIBITS 23
2
In this report amounts are expressed in euros ("euros" or "EUR") or in US
dollars ("dollars", "US $" or "$").
INTRODUCTION
In order to utilize the "Safe Harbor" provisions of the United States
Private Securities Litigation Reform Act of 1995, Philips is providing the
following cautionary statement. This document contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of Philips and certain of the plans and objectives of Philips with
respect to these items. In particular, among other statements, certain
statements in Item 4 "Information on the Company" with regard to management
objectives, market trends, market standing, product volumes and business risks,
the statements in Item 8 "Financial Information" relating to legal proceedings,
the statements in Item 5 "Operating and Financial Review and Prospects" with
regard to Management's medium term performance objectives over the next 3-5
years under the heading "outlook" and trends in results of operations, margins,
overall market trends, risk management, exchange rates and Item 11 "Quantitative
and Qualitative Disclosures about Market Risks" are forward-looking in nature.
By their nature, forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and developments
to differ materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to, levels of consumer
and business spending in major economies, changes in consumer tastes and
preferences, the levels of marketing and promotional expenditures by Philips and
its competitors, raw materials and employee costs, changes in future exchange
and interest rates (in particular, changes in the euro and the US dollar can
materially affect results), changes in tax rates and future business
combinations, acquisitions or dispositions and the rate of technological
changes. Market share estimates contained in this report are based on outside
sources such as specialized research institutes, industry and dealer panels,
etc. in combination with management estimates.
Specific portions of Philips' Annual Report 2000 to Shareholders are
incorporated by reference in this report on Form 20-F to the extent noted
herein. Philips' Annual Report for 2000 comprises 2 separate booklets entitled
"Management Report" and "Financial Statements". Philips' First Quarterly Report
2001 is also incorporated herein by reference in this report on Form 20-F.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
3
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
I. IN ACCORDANCE WITH DUTCH GAAP * **
Beginning in 1999, Philips' consolidated financial statements are reported
in euros. Previously presented financial statements denominated in Dutch
guilders have been translated into euros using the irrevocably fixed conversion
rate applicable since January 1, 1999 for all periods presented (EUR 1 = NLG
2.20371). Management believes that the data denominated in euros reflects the
same trends as previously reported. Philips' financial data may not be
comparable to other companies that also report in euros if those other companies
previously reported in a currency other than the Dutch guilder.
Certain reclassifications have been made to conform prior-year's data to
the current presentation.
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(Millions, except per share data)
2000 (a) 2000 (b) 1999 (b) 1998 (b) 1997 1996
US $ EUR EUR EUR EUR EUR
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INCOME STATEMENT DATA:
35,253 Sales 37,862 31,459 30,459 29,658 27,094
3,986 Income from operations 4,281 1,751 685 1,714 422
1,851 Financial income and expenses-net 1,988 32 (312) (319) (404)
8,940 Income from continuing operations 9,602 1,804 541 1,231 126
- Extraordinary (expenses) income - (5) 458 1,108 (596)
- Discontinued operations - - 5,054 263 202
8,940 Net income (loss) 9,602 1,799 6,053 2,602 (268)
WEIGHTED AVERAGE NUMBER OF SHARES (IN
1,312,859 THOUSANDS) 1,312,859 1,378,041 1,440,224 1,397,590 1,367,391
(2000: EUR 0.20 par value; 1999: EUR
1 par value; 1996 up to and including
1998: NLG 10 par value):
BASIC EARNINGS PER COMMON
SHARE (c)
6.81 Income from continuing operations 7.31 1.31 0.38 0.88 0.09
6.81 Net income (loss) 7.31 1.31 4.20 1.86 (0.20)
DILUTED EARNINGS PER COMMON
SHARE (c) (d)
6.74 Income from continuing operations 7.24 1.30 0.37 0.86 0.09
6.74 Net income (loss) 7.24 1.30 4.17 1.83 (0.20)
BALANCE SHEET DATA:
517 Working capital 555 1,124 1,170 1,900 610
35,885 Total assets 38,541 29,784 28,153 23,322 21,907
1,623 Short-term debt 1,743 577 801 821 2,446
2,127 Long-term debt 2,284 2,737 2,786 3,209 3,409
902 Short-term provisions (e) 969 1,056 966 938 879
2,348 Long-term provisions (e) 2,522 2,062 2,019 2,313 2,541
437 Minority interests 469 333 242 559 279
20,238 Stockholders' equity (net assets) 21,736 14,757 14,560 9,154 6,585
245 Capital stock 263 339 1,672 1,655 1,600
CASH FLOW DATA:
Net cash provided by operating
2,789 Activities 2,996 1,913 2,140 3,210 911
551 Cash flow before financing activities 592 (1,921) 699 3,255 (925)
Net cash (used for) provided by
(1,897) Financing activities (2,038) (2,606) (814) (2,661) 777
Cash (used for) provided by
(1,346) continuing operations (1,446) (4,527) (115) 594 (148)
4
I. IN ACCORDANCE WITH DUTCH GAAP (continued) * **
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2000 1999 1998 1997 1996
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KEY RATIOS:
Income from operations:
- as a % of sales 11.3 5.6 2.2 5.8 1.6
- as a % of net operating capital (RONA) 35.7 17.5 6.5 16.4 4.2
Turnover rate of net operating capital 3.16 3.14 2.91 2.84 2.70
Inventories as a % of sales 13.9 14.5 14.0 15.2 16.0
Outstanding trade receivables
(in months' sales) 1.5 1.4 1.3 1.3 1.3
Income from continuing operations:
- as a % of stockholders' equity (ROE) 53.5 12.6 5.1 15.9 1.9
Net debt to group equity ratio 12:88 6:94 (f) 21:79 42:58
DEFINITIONS:
Working capital : Current assets excluding cash and cash equivalents
and securities less current liabilities
Net operating capital : Intangible assets (excluding goodwill unconsolidated
companies), property, plant and equipment,
non-current receivables and current assets excluding
cash and cash equivalents, securities and deferred
tax positions, after deduction of provisions and
other liabilities
RONA : Income from operations as a % of average net
operating capital
ROE : Income from continuing operations as a % of average
stockholders' equity
Net debt : Long-term and short-term debt net of cash and cash
equivalents
Average number of
outstanding shares : Weighted average number of outstanding common shares
based on monthly positions during the reporting year
(a) For the convenience of the reader, the euro amounts have been converted
into US dollars at the exchange rate used for balance sheet purposes at
December 31, 2000 (US $ 1 = EUR 1.074).
(b) Income from continuing operations in these years were impacted by a
number of significant one-time gains/losses. Excluding these incidental
items, income from continuing operations in 2000 totaled EUR 2,564
million (1999: EUR 1,557 million, 1998: EUR 916 million) or EUR 1.95
per common share (1999: EUR 1.13, 1998: EUR 0.64). Reference is made to
page 45 ("Income from continuing operations excluding one-time gains")
of the 2000 Annual Report -Management Report.
(c) Previously reported figures restated for 4-for-1 stock split.
(d) See Note 9 of "Notes to the Consolidated Financial Statements" on page
33 of the 2000 Annual Report -Financial Statements- incorporated herein
by reference for a discussion of net income (loss) per common share on
a diluted basis.
(e) Includes provision for pensions, severance payments, restructurings and
taxes among other items; see Note 18 of "Notes to the Consolidated
Financial Statements" on page 38 of the 2000 Annual Report -Financial
Statements- incorporated herein by reference.
(f) Not meaningful: net cash in 1998 exceeded the debt level.
* 1997 and prior years have been restated to reflect the sale of PolyGram
N.V. in 1998 and to present the Philips Group accounts on a continuing
basis.
** The consolidated financial data have been prepared in euros. Amounts
previously reported in Dutch guilders are now reported in euros using
the irrevocably fixed conversion rate which became effective on January
1, 1999 (EUR 1= NLG 2.20371).
5
II. APPROXIMATE AMOUNTS IN ACCORDANCE WITH US GAAP * (a)
(See Note 28 of "Notes to Consolidated Financial Statements" on pages 54 through
58 of the 2000 Annual Report -Financial Statements- incorporated herein by
reference.)
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(Millions, except per share data)
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2000 (b) 2000 1999 1998 1997 1996
US $ EUR EUR EUR EUR EUR
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INCOME STATEMENT DATA:
8,917 Income (loss) from continuing operations 9,577 1,595 1,025 2,500 (519)
- Discontinued operations - - 4,891 233 176
- Extraordinary items, net - (5) (16) (43) -
Cumulative effect of a change in accounting for
79 derivative instruments and hedging activities, net 85 - - - -
8,996 Net income (loss) in accordance with US GAAP 9,662 1,590 5,900 2,690 (343)
BASIC EARNINGS PER COMMON SHARE
(2000: EUR 0.20 par value; 1999: EUR 1 par value;
1996 up to and including 1998 NLG 10 par value):
6.80 Income (loss) from continuing operations 7.30 1.16 0.71 1.79 (0.38)
6.85 Net income (loss) 7.36 1.15 4.10 1.93 (0.25)
DILUTED EARNINGS PER COMMON SHARE:
6.72 Income (loss) from continuing operations 7.22 1.15 0.70 1.76 (0.38)
6.78 Net income (loss) 7.28 1.15 4.06 1.89 (0.25)
BALANCE SHEET DATA:
21,142 Stockholders' equity 22,707 16,708 14,456 9,220 6,598
36,801 Total assets 39,524 31,385 28,009 23,194 21,677
(a) Under US GAAP, divestitures which cannot be regarded as discontinued
segments of businesses must be included in income from continuing
operations. Under Dutch GAAP, prior to 1999, certain material
transactions such as disposals of lines of activities, including
closures of substantial production facilities or substantial results
from disposals of interests in unconsolidated companies, were accounted
for as extraordinary items, whereas under US GAAP these would have been
recorded in income from operations.
(b) For the convenience of the reader, the euro amounts have been converted
into US dollars at the exchange rate used for balance sheet purposes at
December 31, 2000 (US $ 1 = EUR 1.074).
* The consolidated financial data have been prepared in euros. Amounts
previously reported in Dutch guilders are now reported in euros using
the irrevocably fixed conversion rate which became effective on January
1, 1999 (EUR 1 = NLG 2.20371).
6
III. CASH DIVIDENDS AND DISTRIBUTIONS PAID PER COMMON SHARE
The following table sets forth in euros the gross dividends paid on the
Common Shares in the financial years indicated (from prior-year profit
distribution) and such amounts as converted into US dollars and paid to holders
of Shares of New York Registry (all amounts after the 4-for-1 stock split):
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2000 1999 1998 1997 1996
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- In EUR 0.30 0.25 0.23 0.18 0.18
- In US $ 0.29 0.27 0.24 0.21 0.24
The adoption of the dividend proposal by the General Meeting of
Shareholders on March 29, 2001, resulted in a total dividend payment in the year
2001 of EUR 462 million (EUR 0.36 per Common Share).
The dollar equivalent (US $ 0.32) of the 2000 profit distribution of
EUR 0.36 - approved by the Annual General Meeting of Shareholders on March 29,
2001 - payed to shareholders in the year 2001, was calculated at the euro/dollar
rate of the official Amsterdam daily fixing rate (transfer rate) on the date
fixed and announced for that purpose by the Company. The dollar equivalents of
the prior year profit distributions paid to shareholders have been calculated at
the euro/dollar rate of the official Amsterdam daily fixing rate (transfer rate)
on the date fixed and announced for that purpose by the Company.
IV. EXCHANGE RATES US $ : EUR
Beginning in 1999, Philips' consolidated financial statements are
reported in euros. Previously presented financial statements denominated in
Dutch guilders have been translated into euros using the irrevocably fixed
conversion rate applicable since January 1, 1999 for all periods presented (EUR
1 = NLG 2.20371). Management believes that the consolidated financial statements
reported in euros reflect the same trends as previously reported. Expression of
these historical amounts in euros does not eliminate or alter any translation
effect that existed when they were originally reported in Dutch guilders. The
consolidated financial statements may not be comparable with those of other
companies that are also reporting in euros if other companies restated their
financial statements from a currency other than the Dutch guilder.
The following two tables set forth, for the periods and dates
indicated, certain information concerning the exchange rate for US dollars into
euros based on the Noon Buying Rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York (the "Noon Buying Rate"). The years prior to 1999 have been
converted into euros using the irrevocably fixed conversion rate which became
effective on January 1, 1999 (EUR 1 = NLG 2.20371):
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Calendar period Period End Average (1) High Low
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(EUR per US $ 1)
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1996 0.7837 0.7634 0.7968 0.7295
1997 0.9202 0.8887 0.9610 0.7850
1998 0.8517 0.8996 0.9479 0.8232
1999 0.9930 0.9455 0.9984 0.8466
2000 1.0652 1.0881 1.2092 0.9676
2001 (through April 17) 1.1346 1.1072 1.1371 1.0488
(1) The average of the Noon Buying Rates on the last day of each month during
the period.
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Highest Lowest
rate rate
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October 2000 1.2089 1.1399
November 2000 1.1933 1.1456
December 2000 1.1403 1.0608
January 2001 1.0883 1.0484
February 2001 1.1063 1.0622
March 2001 1.1406 1.0715
April 2001 (through April 17) 1.1346 1.1072
May 3, 2001 = 1.1247
7
IV. EXCHANGE RATES US $ : EUR (continued)
Philips publishes its financial statements in euros while a substantial
portion of its assets, earnings and sales are denominated in other currencies.
Philips conducts its business in more than 50 different currencies.
Unless otherwise stated, for the convenience of the reader the
translations of euros into dollars appearing in this report have been made based
on the balance sheet rate on December 31, 2000 (US $ 1 = EUR 1.074). This rate
is not materially different from the Noon Buying Rate on such date (US $ 1 = EUR
1.065).
The following table sets out the exchange rate for US dollars into
euros applicable for translation of Philips' financial statements for the
periods specified.
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2000 1999 1998 1997 1996
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- Rate at December 31,
(as reported) 1.0740 0.9914 0.8576 0.9166 0.7896
- Average rate (a) 1.0858 0.9392 0.8985 0.8849 0.7669
- Highest rate 1.2089 0.9987 0.9484 0.9620 0.7987
- Lowest rate 0.9675 0.8460 0.8213 0.7850 0.7306
(a) The average rates are the accumulated average rates based on daily
quotations.
RISK FACTORS
This section describes some of the risks that could affect Philips'
businesses. The factors below should be considered in connection with any
forward-looking statements in Philips' 20-F Report and the cautionary statements
contained in "Introduction" on page 3. Forward-looking statements can be
identified generally as those containing words such as "anticipates", "assumes",
"believes", "estimates", "expects", "should", "will", "will likely result",
"forecast", "outlook", "projects" or similar expressions. From time to time,
Philips may also provide oral or written forward-looking statements in other
materials Philips releases to the public.
The risks below are not the only ones that Philips faces - some risks
are not yet known to Philips and some that Philips does not currently believe to
be material could later turn out to be material. All of these risks could
materially affect Philips' business, its revenues, operating income, net income,
net assets and liquidity and capital resources.
Philips is a global company, which means that it is affected by
economic developments in all regions of the world.
PHILIPS' STRATEGY CALLS FOR ACQUISITIONS IN A NUMBER OF ITS CORE
BUSINESSES AND, THEREFORE, PHILIPS FACES THE RISKS AND UNCERTAINTIES TYPICAL OF
ACQUISITIONS.
Philips has identified and is implementing a strategy that is designed
to make Philips a world leader (i.e. among the top three competitors) in each of
its businesses. Philips will continue to implement this strategy through
acquisitions, as well as through internal growth. Accordingly, Philips' growth
strategy depends to a large degree on the availability of suitable acquisition
candidates, on the obtaining of regulatory approval and on Philips' skills in
assimilating them into the group structure. Potential difficulties inherent in
merges and acquisitions, such as delays in implementation or unexpected costs or
liabilities, as well as the risk of not realising operating benefits or
synergies from completed transactions, may adversely affect Philips' results.
PHILIPS' SUCCESS DEPENDS UPON RECRUITING AND RETAINING KEY PERSONNEL.
Growth areas like Semiconductors and Components require talented people
with specific technical key competencies for the realization of their plans. The
ability to recruit and retain quality staff, for which there is an increasing
demand in the market, is a critical success factor.
PHILIPS FACES STRONG COMPETITION IN MOST OF ITS BUSINESSES. IN
PARTICULAR, THE CONSUMER ELECTRONICS INDUSTRY IS PRONE TO VIGOROUS PRICE DRIVEN
COMPETITION DURING PERIODS OF DEPRESSED DEMAND. THIS COMPETITION CAN SOMETIMES
PUSH PRICES TO UNPROFITABLE LEVELS, WHICH COULD AFFECT PHILIPS' FINANCIAL
RESULTS.
Most businesses in which Philips is engaged, including consumer
electronics, broadband networks and electronic components, are intensely
competitive. Accordingly, Philips continually faces challenges from its
competitors, including rapid technological change, evolving standards, short
product life cycles and price erosion. In particular, the production of
electronic components for televisions and other audiovisual products carries
high fixed costs which do not vary with output levels. In other words, these
production costs do not decrease when the number of units produced decreases. As
a result, most component makers must maintain a minimum sales volume to cover
their fixed costs. When demand for their products falls, component makers often
try to boost sales volume by lowering prices so that they can continue to cover
their fixed costs. When many producers resort to such tactics, prices tend to
fall. This tendency is encouraged during economically depressed periods as
consumer will tend to be more price sensitive. Price driven competition will
result in reduction of profit margins and, in some cases, losses.
8
RISK FACTORS (continued)
PRODUCTS IN THE SEMICONDUCTOR INDUSTRY ARE TYPICALLY SUBJECT TO
CYCLICAL MARKET FORCES WHICH MAY ADVERSELY AFFECT FUTURE RESULTS OF OPERATIONS
IN PHILIPS' BUSINESS UNIT SEMICONDUCTORS.
The semiconductor industry is highly cyclical and subject to rapid
technological change and has been subject to significant economic downturns at
various times, characterized by diminished product demand, accelerated erosion
of average selling prices and production overcapacity. Likewise, the
semiconductor industry also periodically experiences increased demand and
production capacity constraints. As a result, Philips' Semiconductors may
experience substantial period-to-period fluctuations in future results of
operations due to general industry conditions, overall economic conditions or
other factors.
IF PHILIPS FAILS TO PROTECT ITS PROPRIETARY INTELLECTUAL PROPERTY OR
FACES A CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, PHILIPS
MAY LOSE ITS INTELLECTUAL PROPERTY RIGHTS AND BE LIABLE FOR SIGNIFICANT DAMAGES.
Philips' success depends on its ability to obtain and retain patents,
license and other intellectual property rights covering its products and its
design and manufacturing processes. The process of seeking intellectual property
protection can be long and expensive. Patents may not be granted on currently
pending or future applications or may not be of sufficient scope or strength to
provide Philips with meaningful protection or commercial advantage. In addition,
effective copyright and trade secret protection may be unavailable or limited in
some countries, and Philips' trade secrets may be vulnerable to disclosure or
misappropriation by employees, contractors and others.
Competitors and other third parties may also develop technologies that
are protected by patents and other intellectual property rights. These
technologies may therefore either be unavailable to Philips or be made available
to Philips only on unfavorable terms and conditions. Litigation, which could
drain Philips financial and management resources, may be necessary to enforce
Philips' patents or other intellectual property rights or to defend against
claims of infringement of intellectual property rights brought against Philips
by third parties.
CURRENCY FLUCTUATIONS MAY HAVE A HARMFUL IMPACT ON PHILIPS' FINANCIAL
RESULTS.
Philips has a structural currency mismatch between costs and revenues,
as a substantial proportion of its production, administration and research and
development costs is denominated in euro, while a substantial proportion of its
revenues is denominated in US dollars. Consequently, fluctuations in the US
dollar against the euro can have a material impact on Philips' financial
results. In particular, a relatively stronger US dollar during any reporting
period will improve Philips income, while a weaker US dollar will worsen it.
PHILIPS MAY NOT BE ABLE TO INTRODUCE NEW PRODUCTS OR MAKE INNOVATIONS
TO PHILIPS' EXISTING PRODUCTS QUICKLY ENOUGH TO RESPOND TO TECHNOLOGICAL CHANGES
OR EVOLVING STANDARDS IN PHILIPS' CORE BUSINESSES. FAILURE TO DO SO WOULD CAUSE
PHILIPS' COMPETITIVENESS AND RESULTS OF OPERATIONS TO SUFFER.
Some of Philips' core businesses are concentrated in industries where
technological innovation is the key competitive factor. Product innovations,
technological advancements and improved products in Philips' business segments,
such as consumer electronics, semiconductors, medical systems and components,
may render some of its current products obsolete and/or cause them to suffer
from significant reductions in value. As a result, Philips may experience a
significant adverse impact on the value of its inventory, products and existing
technology and may have difficulty selling these products, which would harm its
results of operations.
In addition, Philips continually faces the challenge to develop and
create viable innovative new products. The ability to introduce product
innovations is particularly difficult because commitments to developing new
products, or upgrading existing products, must be made well in advance of sales.
Philips must therefore anticipate both future demand and technology that will be
available to supply this demand. If Philips is unable to do so, Philips will not
be able to compete in new market or product sectors and would be reliant on
older, less-marketable products and technology. This could adversely affect
Philips' financial results and growth prospects in its building block
businesses.
THE POSSIBLE BENEFITS AVAILABLE THROUGH JOINT VENTURES MAY BE DIFFICULT
TO ACHIEVE OR MAY PROVE TO BE LESS VALUABLE THAN PHILIPS HAD ESTIMATED. IN
ADDITION, PHILIPS MAY FACE PROBLEMS RELATED TO CONFLICTS OF INTERESTS, LOSS OF
CONTROL OVER CASH FLOWS AND LOSS OF PROPRIETARY TECHNOLOGIES BY PARTICIPATING IN
JOINT VENTURES.
In areas with major technological investments, like Semiconductors,
Components and Consumer Communications, Philips continues to build on
partnerships to share the high financial risks. Management of this growing
number of strategic alliances is a risk area in itself.
9
ITEM 4. INFORMATION ON THE COMPANY
THE STRUCTURE OF THE PHILIPS GROUP
The following information is important for understanding the structure
of the Philips group ("Philips" or the "Group").
Koninklijke Philips Electronics N.V. (the "Company" or "Royal Philips
Electronics") is the parent company of Philips. Its shares are listed on the
stock markets of Euronext Amsterdam, the New York Stock Exchange, the London
Stock Exchange and several other stock exchanges. The Company was incorporated
as a limited partnership with the name Philips & Co under the laws of the
Netherlands on May 15, 1891. This limited partnership was converted to the
limited liability company N.V. Philips' Gloeilampenfabrieken on September 11,
1912. On May 6, 1994, the name was changed to Philips Electronics N.V., and on
April 1, 1998 the name was changed to Koninklijke Philips Electronics N.V. The
management of the Company is entrusted to the Board of Management under the
supervision of the Supervisory Board. The Group Management Committee, consisting
of the members of the Board of Management, certain chairmen of product divisions
and certain key officers, is the highest consultative body to ensure that
business issues and practices are shared across Philips and to define and
implement common policies. Members of the Board of Management and the
Supervisory Board are appointed by the Annual General Meeting of Shareholders on
the recommendation of the Supervisory Board and the Meeting of Priority
Shareholders. See Item 7: "Major Shareholders and Related Party Transactions".
The other members of the Group Management Committee are appointed by the
Supervisory Board. The general management of Philips' worldwide operations has
been historically centered in Eindhoven, the Netherlands. However, in the first
half of 1998 the Board of Management moved to Amsterdam, the Netherlands. The
activities of the Philips group are organized in product divisions, which are
responsible for the worldwide business policy. Philips has more than 180
production sites in over 35 countries and sales and service outlets in
approximately 150 countries. Philips, a high growth technology company, delivers
products, systems and services in the fields of lighting, consumer electronics,
domestic appliances and personal care, components, semiconductors and medical
systems.
Since 1996, Philips has made significant progress in a strategic review
of its portfolio of businesses. It has reduced the number of businesses to
approximately 80 and the number of divisions from 12 to 6, bringing more
transparency, accountability and focus to its operations. At present, Philips is
focusing on strengthening its existing core businesses, through selected
acquisitions, and through disposal of businesses that are underperforming or not
essential from a strategic viewpoint.
Royal Philips Electronics has its corporate seat in Eindhoven, the
Netherlands and is registered under number 17001910 at the Commercial Register
of the Chamber of Commerce and Industry in Eindhoven, the Netherlands. The
executive offices of the Company are located at the Rembrandt Tower, Amstelplein
1, 1096 HA Amsterdam, the Netherlands, telephone 31 (0)20 59 77 777.
BUSINESS OF PHILIPS
Since it started its activities in 1891, Philips has grown from a small
incandescent lamp factory to a widely diversified multinational group of
companies, engaged primarily in the manufacture and distribution of electronic
and electrical products, systems and equipment, as well as information
technology services.
In the last five years, Philips was engaged in a continuing process of
reviewing its portfolio of businesses, which started in the course of 1996,
comprising more than 100 businesses at that time. At present, rather than
acquiring businesses in new areas, Philips is focusing on the strengthening of
its existing core activities, including through the use of selected
acquisitions, and the disposal of activities that are under-performing and not
essential from a strategic viewpoint. A few examples of these disposals are the
sale of Philips' 75% equity interest in PolyGram N.V., the disposition of
Philips' conventional (non-ceramic) Passive Components business group, the
divestment of the Advanced Ceramics & Modules and General System Components
business groups, the sale of Philips Car Systems, the reduction of Philips'
involvement in the German consumer electronics company Grundig AG, the
streamlining of Philips' media portfolio, the divestiture of the data
communication activities (for a further description see "Product Sectors and
Principal Products"), and the merger of Origin with Atos, see pages 18 through
21 of the 2000 Annual Report -Financial Statements, which are incorporated by
reference herein.
In addition to streamlining its portfolio of businesses and management,
Philips engaged in a comprehensive review of its strategy and portfolio,
involving the focus on high growth technology businesses. In consequence, as of
January 1, 2000, Philips has grouped together the relevant operations of Sound &
Vision, Philips Consumer Communications and Business Electronics into a single
Consumer Electronics organization. Given that the technologies of TV, audio,
telecommunications and computing are increasingly converging, these combinations
are appropriate. It is expected that they will capitalize on the strength of the
Philips brand and make new business generation easier, market intelligence more
coordinated and time-to-market shorter.
Besides Consumer Electronics, there are other very important building
blocks that make up the Company. The Semiconductors and Components divisions
play a crucial role, both as internal suppliers and through their leading
positions in the external market. The capital expenditures required in this
field place considerable demands on management in terms of ensuring adequate
returns by means of flexible and cost-effective operations.
10
BUSINESS OF PHILIPS (continued)
The other building blocks include the Lighting division, a world leader
with relatively consistent returns and cash flow in which Philips will continue
to invest, Medical Systems and Domestic Appliances and Personal Care. The
Company has recently invested in the extension of Medical Systems' business
scope. In the case of Domestic Appliances and Personal Care, Philips wishes to
see this division grow in the personal care field by offering new
functionalities and an enhanced emotional appeal to the consumer. The
acquisition of Optiva Corporation on October 1, 2000 was in pursuit of this
strategy.
In the area of information technology services, Philips has merged its
Origin activities in a new company Atos Origin as of the first of October 2000.
Philips encounters aggressive and able competition worldwide in
virtually all of Philips' business activities. Competitors range from some of
the world's largest companies offering a full range of products to small firms
specializing in certain segments of the market. In many instances, the
competitive climate is characterized by rapidly changing technology that
requires continuing research and development commitments and by
capital-intensive needs to meet customer requirements. Also, the competitive
landscape is changing as a result of increased alliances between competitors.
RECENT DEVELOPMENTS
AGILENT
The European Commission has approved the takeover by Philips of the
healthcare division of Agilent Technologies. The transaction was expected to be
completed in May 2001. See also page 20 of the 2000 Annual Report -Financial
Statements (Agilent).
PRODUCT SECTORS AND PRINCIPAL PRODUCTS
In order to improve financial transparency to Philips' shareholders and
the financial community at large, the Board decided in 2000 that separate
results will be published for all divisions. As a consequence, the following 9
segments are distinguished: Lighting, Consumer Electronics, Domestic Appliances
and Personal Care, Components, Semiconductors, Medical Systems, Origin
(deconsolidated from October 1, 2000 onwards), Miscellaneous and Unallocated.
For a description of the changes, and data related to aggregate sales,
segment revenues and income from operations, see Note 29: "Information relating
to product sectors and geographic areas" on pages 58 through 63 of the 2000
Annual Report, Financial Statements, and page 63 of the Management Report,
incorporated herein by reference. For a discussion of revenues and income from
operations of the product sectors, see Item 5: "Operating and Financial Review
and Prospects". For a discussion of recent acquisitions and alliances, see also
"Cooperative Business Activities and Unconsolidated Companies" under Item 4.
LIGHTING
Philips has been engaged in the lighting business since 1891 and is a
leader in the world market for lighting products with recognized expertise in
the development and manufacture of lighting products. A wide variety of
applications is served by a full range of incandescent and halogen lamps,
compact and normal fluorescent lamps, automotive lamps, high-intensity
gas-discharge and special lamps, QL induction lamps, fixtures, ballasts,
lighting electronics and batteries. Lighting products are manufactured in
facilities worldwide.
Philips' worldwide presence in the lighting market has given it a
strong international position in lighting projects, both in design and
full-scale turn key project installation. These activities require sophisticated
expertise and help Philips to maintain its leading position in the professional
lighting market.
Philips Lighting worldwide consists of five integrally responsible
businesses: Lamps, Luminaires, Automotive, Lighting Electronics & Gear, and
Batteries. Each of these is given complete control over all its processes.
Philips Lighting is focusing more on Special Lighting (which includes
applications such as digital data projection, stage and theatre, infrared for
industrial use, and ultraviolet for solaria and air/water disinfection) to
exploit the opportunities it offers for growth. Due to the OEM (Original
Equipment Manufacturer) and innovation character of this business, it has been
combined with Automotive.
Philips' Lighting's policy of leadership in innovation continues to
bring rewards in the marketplace. Philips is the market leader in Xenon
headlamps, which were introduced in 1997 and are achieving increasing
penetration in the upper end of the market. Providing superb illumination of the
road, these lamps dramatically improve road safety and driver comfort.
Philips' position as a supplier of headlights to the car industry is
very strong in Japan, where Philips is the market leader, and Philips is rapidly
establishing a full global presence in this field. Another innovation is the UHP
(Ultra High Power) lamp which is applied in LCD projectors of leading companies
for applications such as business presentations and large-screen consumer TVs.
UHP will also increase the application possibilities of fiber-optic lighting.
Philips Lighting's new PowerLife battery gives more power and longer life than
conventional alkaline batteries. Advanced graphite technology is the key to
PowerLife's success in answering consumer demand for batteries which perform
better in "high-drain" products.
11
PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued)
The battery marketing and sales activities of Philips will be
transferred (Mid 2001) from Lighting to Consumer Electronics.
In response to the greater demand for more efficient light sources and
lighting systems, Philips has emphasized among other things the development of
more energy-efficient lighting products and projects. In addition to the TL5
system, these include a range of electronic compact fluorescent lamps, Lighting
Management Systems, as well as QL induction lamps, which are increasingly being
used in general lighting applications. In the US, consumer demand for
longer-lasting light bulbs has been met for the first time with a five-year, or
6000 hour, guarantee on the Philips Marathon TM compact fluorescent lamp range.
In recent years Philips Lighting has completed a number of strategic
acquisitions and joint ventures, seeking to strengthen its presence in what have
been the faster-growing areas of the world, such as the Asia-Pacific region and
Eastern Europe. The most recent acquisitions include, in Poland, the Farel
Mazury luminaire operation and Polam Pabianice, which promises new opportunities
for Philips Lighting's automotive business in Europe. In 1997, Philips and
Hewlett-Packard established a joint venture company, LumiLeds Lighting B.V., for
the development, manufacture and marketing of LED-based lighting products. This
joint venture (now with Agilent Technologies, formerly part of HP) was
significantly extended in 1999. As part of its re-branding project, BP has
awarded LumiLeds a global contract to supply ChipStrip edge-lighting systems for
over 20,000 of its service stations. In the lighting controls business, growth
is boosted by the acquisition of ECS, the UK market leader. In the year 2000, a
stake was acquired in Metrolight, an Israeli company with a leading position in
HID (High Intensity Discharge) ballasts.
Besides the ongoing investments in portfolio and product innovation,
Philips Lighting focuses on innovative ways of doing business. In the field of
e-business, they concentrated initially on commercial sell-side activities. In
particular: information delivery/exchange (public websites, CD-ROM catalogues
and interactive training material); online communities (interaction with
end-users and influencers); and extranet order management with trading partners.
As of December 31, 2000, they are increasingly pursuing buy-side activities
(through exchange and buy-side e-marketplaces), where great opportunities exist
to drive costs out of the organization and the full value chain.
Regarding the management and improvement of key processes, Philips
Lighting has been building on the significant progress made over the past two
years in BEST (Business Excellence through Speed and Teamwork). In its drive for
breakthrough improvement, especially cycle time reduction, Philips Lighting is
mobilizing trained process improvement experts who apply, and facilitate others
in the use of, leading-edge improvement tools and methodologies.
CONSUMER ELECTRONICS
This segment markets a wide range of products in the following areas:
video products (consumer TV, institutional TV, VCR, TV-VCR, DVD Video), audio
products (audio systems, portable products, speaker systems, DVD recording),
computer monitors (CRT and LCD based), consumer communications (mobile phones,
cordless digital phones, fax), remote control systems, set top boxes, broadband
networks, business communications systems and speech processing. This wide range
of products is grouped into Mainstream Consumer Electronics (audio/video,
monitors), Consumer Communications (phones, faxes), Digital Networks (set-top
boxes, broadband networks) and Specialty Products (speaker systems, accessories,
institutional TV).
In the course of 2001 a number of the activities listed under Specialty
Products will be repositioned in other Philips business segments.
As the world number 3 consumer electronics company, Philips enjoys a
leading market position in many Mainstream CE product categories such as
television and video, audio, DVD, and PC monitors. Philips plays a leading role
in the development of flatscreen and widescreen television sets featuring the
16:9 format and remains at the forefront of trends in the TV viewing experience.
They continue to maintain a world-renowned reputation for excellence in TV, a
fact emphasized by its flagship 32-inch Widescreen TV being named European TV of
the Year 2000-2001 by the European Imaging and Sound Association. The
application of high-end display technologies and award-winning digital
performance enhancements enabled to combine attractive design with the best
available picture and sound quality.
As Philips' televisions set the benchmark for TV viewing, its PC
monitors share Philips' display-centric strengths. For both professional and
leisure use, Philips monitors deliver sharp, bright images, and with the growth
of PC-delivered imaging and video, new technologies provide the sharpest
reproduction of still and moving images available today on a PC monitor.
Seizing the opportunities offered by the Internet is an integral part
of Philips' product strategy. They have introduced a range of web-enabled
products including an MP3 player and a family of audio products capable of
playing back high-capacity CDs containing MP3 files. Their PC peripherals group
has also created a range of award-winning web-enabled PC video cameras.
Philips markets audio systems, portable audio products, speakers and
accessories under the Philips name, as well as high-end audio products and
systems under the Marantz brand. Philips was one of the `founding fathers' of CD
technology. Building on its strengths in cross-compatible optical storage
technologies such as CD and DVD, they are developing the next-generation audio
disc - Super Audio CD.
Printed Circuits Board Assembly is a separate business cluster within
Consumer Electronics. As a contract manufacturer, it focuses on manufacturing,
assembling and supplying printed circuit boards and related added-value services
to Philips businesses, enabling them to concentrate on their own core
competencies. This business allows Philips to gain economies of scale and to
leverage its position in the supply chain.
Digital Networks is a leading supplier in digital broadcasting systems
and set-top boxes for digital television, Internet TV and personal TV. These
TV-top products are rapidly evolving into multimedia home gateways, and Digital
Networks is in the vanguard of technology advances that will transform the
set-top boxes of today into the intelligent multimedia entertainment products of
tomorrow.
12
PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued)
Digital Networks also focuses on enabling technologies in the areas of
secure networked entertainment, developing and producing software and systems
that enable digital broadcasting and Internet distribution of audio, visual and
other digital content. They also intend to lead the convergence of broadcast and
Internet, positioning Philips prominently in the enabling technologies that will
facilitate new forms of home entertainment, information and communication.
In 2000, Digital Networks strengthened its global position in set-top
boxes, in the process concluding major deals with, among others, Canal+
(Europe-wide), DirecTV (USA), AOL TV (USA), News Corp (Latin America), Premiere
World (Germany), UPC (Netherlands) and DigiTurk (Turkey).
The year 2000 also saw the first products in areas like MPEG4-based
internet video, secure Internet streaming and video watermarking. Furthermore,
an agreement was signed with AT&T to supply, as from 2001, Philips TriMedia
based high-end cable boxes supporting MPEG4 (Motion Picture Expert Group) video
streaming, HAVi (Home Audio Video interoperability) home networking and
hard-disk-based personal TV.
Digital Networks has also developed set-top box software for the MHP
(Multimedia Home Platform) enhanced broadcast standard. In September 2000, an
agreement was signed with Liberate, a leading supplier of set-top box software,
to incorporate the Philips MHP software in the Liberate offering.
Philips Consumer Communications (PCC) groups together the wireless,
wired, fax and business communication activities, offering a comprehensive
product portfolio including cellular phones, digital cordless phones and fax
machines, as well as enterprise telephone systems
On October 1, 1997 Philips (60%) and Lucent Technologies (40%) formed a
joint venture for mobile communications comprising the Philips Consumer
Communications business and the Lucent Consumer Products division. Despite
ambitious plans for break-even results in the second half of 1998, PCC continued
to incur substantial losses and consequently the joint venture was dissolved on
September 27, 1998. Ambitions for the remaining activities have been scaled back
and the product offering streamlined.
PCC aims to play a leading role in the explosive market growth of
wireless communications. This will be achieved by building on its technology
base in wireless communications and related areas within the Philips Group, and
by building on Philips' expertise in the convergence of communications and
consumer electronics. PCC's ambitions are to expand its worldwide GSM market
position, while actively preparing for the next generation of digital mobile
phones based on UMTS, which will provide consumers voice, data and multimedia
service.
PCC's growth ambitions and the entry into the Mobile Internet age
require an active partnering model. Since 1999, PCC has embarked on numerous
partnerships with innovative players such as Phone.com for WAP browser
technology, AU systems for Bluetooth software technology, and M@gic4 for
enhanced messaging systems. Other partnerships are envisaged to strengthen PCC's
position in the wireless domain and in the entertainment-related area.
In the home telephone market, PCC focuses on the digital cordless
standard DECT and aims to consolidate its European No. 2 position. In 2000 PCC
expanded its product portfolio and introduced the award-winning Zenia, the first
DECT phone with voice recognition.
The fax market remains strong in Europe, and PCC intends to maintain
its No. 1 position, by continuously bringing new technologies to the market,
such as access to the Internet, resulting in a complete range of Internet Fax
Appliances.
DOMESTIC APPLIANCES AND PERSONAL CARE
Philips Domestic Appliances and Personal Care develops, manufactures
and markets a wide range of products in the field of male shaving, body beauty
and health, dental care, home environment care, and food and beverage
preparation. The sector has a strong global presence in many product categories
and is the world leader in electric shaving and No. 2 in dental care and
ironing. Philips produces the Philishave, a dry shaver which is based on the
Philips-invented rotary shaving technique. The division has leading positions in
dry shaving in Europe, Latin America, the United States and China.
In October 2000, Philips acquired Optiva Corporation, the Seattle, USA
based manufacturer of the Sonicare R.sonic toothbrush and the number one in the
U.S. power toothbrush market. By this acquisition, Philips Domestic Appliances
and Personal Care division builds on its existing position in dental care
products, becoming the number two global player. Other personal care products
include female depilatory products, skin care, hair care, fitness and sun care
products.
Philips provides products for all stages of food and beverage
preparation, such as mixers, blenders, food processors and kitchen machines,
toasters, coffee makers, deep fryers, table-top cooking and general kitchen
appliances. Philips manufactures and markets vacuum cleaners, irons, air
cleaners and heating appliances. Domestic appliances and personal care products
are sold under the Philips brand and other brand names.
Philips has long been successful on the US market under the brand name
Norelco and will continue to use this brand name for the male shaving and
grooming products. To further boost growth, Philips introduced the Philips brand
name in the U.S. in 1998, with the initial focus on body beauty and health. In
2000, together with the US retail chain Target, the Essence food and beverage
range was launched under the Philips brand.
COMPONENTS
Philips Components aims to be an industry shaper in displays, optical
storage, connectivity and imaging and sensing. Philips Components is one of the
true global powerhouses, creating systems solutions for Philips Consumer
Electronics and other top OEMs. The division focuses on select markets such as
digital consumer electronics, mobile telecom, automotive infotainment and
PC-related.
13
PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued)
Having gone through a transformation through its 'focus on value'
strategy, the division has streamlined its portfolio and built its strategy
around four key areas: displays, storage, connectivity, and imaging and sensing.
The business develops innovative modules that combine key elements of these
areas, providing integrated solutions and driving technological convergence. In
cooperation with Philips Semiconductors, 'smart modules' are being developed,
which merge technological architecture and software, adding value to the end
product.
An integrated market approach has been established, and the migration
to low-cost manufacturing centers has been accelerated. Based upon the current
market outlook, excluding the CRT (Cathode Ray Tubes) business to be merged with
LG Electronics of Korea in a 50/50 joint venture, the division aims to achieve a
+25% growth rate through both organic growth and alliances and acquisitions.
In 1997 a majority shareholding was established in Hua Fei Colour
Display Systems Co. Ltd. in Hua Fei, China; the financials of this joint venture
have been consolidated as from January 1, 1997. On April 1, 1998, Philips
increased its ownership in Hosiden and Philips Display Corp., a joint venture in
Japan for the development, production and sale of active matrix LCDs, from 50%
to 80%. As from the same date, Hosiden and Philips Display Corp. has been
reported as a consolidated company. In August 2000, Philips purchased the
remaining 20 percent of Hosiden shares. The name of the wholly owned Philips
company has been changed to Philips Components Kobe K.K. with effect from August
31, 2000.
Substantial investments in digital-age technologies have been made,
e.g. in a flat display joint venture with LG Electronics of Korea (LG.Philips
LCD) in 1999, helping to fuel dynamic growth. The division is a world leader in
display technology and in large LCD displays (through LG.Philips LCD), color
picture tubes for TVs and mobile displays.
In November 2000 Philips Components signed a Letter of Intent to
combine its forces with LG Electronics of South Korea in a new company for CRTs
that is designated to promote leadership in the display technology market. The
aim of this move is to ensure the lowest possible cost base in the maturing CRT
market and to achieve significant synergies. Recent innovation in CRTs has led
to flatter, slimmer and higher-resolution products, including the revolutionary
Cybertube, which gives a picture so sharp that it is almost three-dimensional.
In optical storage Philips Components is a leading innovator in CD and
DVD formats for the information technology and consumer electronics markets. The
division will be introducing new products at an increasing pace in 2001,
including a 16+ speed CD-RW drive and a DVD+RW video, the latter together with
Philips Consumer Electronics.
In addition, Philips Components is building a position in connectivity
modules (wired and wireless), supported by its current global No. 3 position in
RF tuners.
In the last quarter of 2000, Philips Components moved its divisional
headquarters from Eindhoven to Sunnyvale, California. The relocation is a
reflection of Philips Components' commitment to being at the heart of new
digital technologies, and close to many of its key customers.
SEMICONDUCTORS
Philips Semiconductors is one of the technological leaders of the
semiconductor industry. Ranked among the top vendors, the division is a leader
in complex systems for consumer electronics, telecommunications, automotive and
computer peripherals and networking. Additionally it is a volume manufacturer of
semiconductors for multi-market products.
The consumer segment, in which Philips has a strong presence with
products such as TV chipsets and set-top boxes, offers opportunities for a new
generation of digital applications, for connectivity with many devices in the
home and for new, simple user interfaces. Philips' Nexperia DVP (Digital Video
Processing) platform offers the ability to capitalize on this revolution in the
home. In 2000, the first Nexperia platforms were delivered, a revolutionary new
concept in the design and delivery of complex systems that help customers bring
products to market much faster. The first platform, for digital video
applications in set-top boxes, gained support from many industry players,
including AT&T, UPC, Acer, Microsoft, Samsung and Philips' Consumer Electronics
division. Combined with the Nexperia platform, Philips semiconductors will
continue to invest in key technologies and capabilities that will drive the
digital revolution forward. These include identification and security, power
management, connectivity, wired and wireless communications (such as Bluetooth)
and user interface design.
There are Philips chips in 80% of all mobile phones. Future
opportunities lie ahead in the race to the third generation of mobile phones
that network operators are looking to introduce in the next few years.
In the Automotive sector, Philips is a leading supplier of
semiconductors for in-car entertainment systems' and is leading the way in
developing the new generation of digital in-car entertainment and information
systems, as well as in-vehicle networking systems. Philips Semiconductors is a
founding member of the FlexRay consortium with Daimler Chrysler, BMW and
Motorola, which is expected to revolutionize car electronics of the near future.
In the PC computing segment there was continued strong demand for
solutions for working across platforms: connecting peripherals (printers,
cameras, scanners, etc.) to PC systems; audio, video and connectivity solutions
for multimedia; and driver and control solutions for displays. In 2000 Philips
Semiconductors also launched into the networking market with a number of key
technologies.
The division has 17 manufacturing facilities throughout the world,
located in Europe, the United States and Asia, producing more than 80 million
semiconductor chips per day. Investments during 2000 in the amount of EUR 1.6
billion boosted manufacturing capacity by 40% during the year. Manufacturing
investment during 2000 included the purchase of IBM's operational MiCRUS wafer
fab in New York State and the ramp-up of a state-of-the-art venture facility in
Singapore.
14
PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued)
MEDICAL SYSTEMS
Philips Medical Systems is one of the world's leading suppliers of
diagnostic imaging equipment with clear no. 1 or 2 positions in many of the
world's main markets. The product portfolio includes x-ray, magnetic resonance,
ultrasound, computed tomography, nuclear medicine, positron emission tomography,
radiation therapy planning, imaging IT systems and related services.
Philips Medical Systems, already the world leader in certain
modalities, has significantly strengthened its position in the field of
diagnostic imaging with the acquisition of ATL Ultrasound as of October 1, 1998.
This company is one of the leaders in ultrasound imaging systems - one of the
fastest growing sectors of the market - and the clear leader in all-digital
ultrasound systems. In ultrasound, the subsidiary ATL has brought SonoCT
realtime compound imaging to all major applications of ultrasound and united it
with other advanced capabilities such as 3D, bringing the benefits of numerous
powerful technologies together.
In addition to organic growth, Philips Medical Systems is constantly
looking for opportunities to strenghten their product and technology portfolio
as well as their geographical presence through acquisitions and alliances. In
December 2000, Philips Medical Systems acquired approximately a 90% shareholding
in ADAC Laboratories, based in Milpitas, California. ADAC Laboratories , a
worldwide market leader in nuclear medicine, positron emission tomography - one
of the fastest-growing market segments - and radiation therapy planning -, thus
completing the range of modalities. Furthermore, subject to customary regulatory
approvals, agreement was reached in November 2000 to buy the Healthcare
Solutions Group (HSG) of Agilent Technologies Inc., whose products are not only
complementary to the existing portfolio in cardiology, but also will enable the
Company to enter in exciting new markets. In the past year, investments were
made in SHL Telemedicine, the leading company in cardiac home service, with whom
a joint venture will be started in Europe in 2001. As a result of these moves,
Philips Medical Systems aims to distribute medical technology across all
clinical settings, from hospitals and clinical centers to people at work, at
home and on the move.
In imaging IT, the offerings have been expanded by acquiring the
Cardiologica software suite, an advanced information system that makes all
patient data available from every point of care. This system is part of
HeartCare, the dynamic portfolio of cardiovascular imaging modalities,
connectivity solutions and support services that maximize patient care and
workflow efficiency.
In the course of 2000 a range of new customer support products was
introduced, aimed at better cost control for healthcare providers. For instance,
Philips Medical Systems is capable of offering transcription services that
reduce overall reporting costs through the acquisition of the majority of shares
in MedQuist Inc. of the United Sates, a provider of outsourced medical record
translation services.
ORIGIN
Origin is a global IT service company delivering systems and a full
range of services that facilitate total business solutions for clients. It is
represented in more than 30 countries. In October 2000, Philips sold its 98%
interest in Origin to Atos and received a 48.7% interest in Atos Origin. As a
result of the merger, as from October 1, 2000, Philips no longer consolidated
Origin as a separate division but will include its share of Atos origin's
earnings in results relating to unconsolidated companies beginning January 1,
2001, with a delay of three months.
MISCELLANEOUS
This sector comprises not only various ancillary businesses, including
Philips Enabling Technologies Group (formerly Philips Machinefabrieken), FEI
Company, Assembleon (formerly Electronic Manufacturing Technology), Philips
Research, Centre for Industrial Technology, Corporate Intellectual Property and
Philips Design.
Philips Enabling Technologies Group manufactures customer-specific
machinery, tools and precision components for high-quality professional
equipment. In 2000, Philips Machinefabrieken changed its name to Philips
Enabling Technologies Group, a more accurate expression of the unit's
competencies and the competitive environment in which it operates, i.e. at the
interface of high technology and precision manufacturing. The unit's strategic
focus is to continuously enhance its technical capabilities in order to provide
full-fledged co-creation support to high-tech customers wishing to focus on
their core competencies and thus wishing to subcontract their manufacturing
activities. Philips Enabling Technologies Group seeks to build strategic
alliances with clients in carefully selected market segments that offer high
growth potential, e.g. front- and back-end semiconductor equipment, aerospace
engine and airframe parts, and plastic parts for the electronics and automotive
industries.
Assembleon (formerly Electronic Manufacturing Technology) is a leading
manufacturer of SMT `production-on-demand' assembly equipment and support
software. As of January 1, 2001, Assembleon has been made an independent unit
within the Philips Group with a view to a possible stock market flotation in the
course of 2001.
Philips' Centre for Industrial Technology (CFT) supports the Group's
businesses in their business and product creation processes and with the design
and realization of advanced process technologies and innovative production
equipment. On the basis of its specific expertise, CFT contributes, as a
strategic partner, to the profitability of the businesses by creating a
competitive edge in speed and quality of innovation and in world-class
manufacturing.
Philips Design is one of the largest design studios in the world and
works according to its proprietary High Design process, a human-focused,
multi-disciplinary, research-based approach whose purpose is to provide clients
with competitive and sustainable solutions, also in the field of e-Design. The
quality of Philips Design's work is internationally recognized, as witnessed by
the dozens of design awards that it wins every year for its product and
interface design solutions. Philips Design's visionary projects, explorations of
future lifestyles aimed at supporting the creation of preferable solutions for
consumers, have also received international recognition (e.g. the Gold
Industrial Excellence Award of the Industrial Designers Society of America for
the Culinary Art project in 2000).
15
PRODUCT SECTORS AND PRINCIPAL PRODUCTS (continued)
Philips' policy in the field of intellectual property is to add value
by protecting and leveraging the innovations resulting from its substantial R&D
investments. In 2000, about one new patent application was filed for every
million euro spent on R&D, which shows the high level of innovation within the
Philips R&D organization. Through these new patent filings, Philips has secured
solid positions in fields such as set-top boxes, digital video, in-home
networking, internet applications and other product areas.
Although many of Philips' patents and licenses are significant, none is
individually material to Philips' business as a whole.
Philips has a strong Intellectual Property Right position consisting of
approximately 65,000 patent rights. In 2000, Philips filed almost 2,100 new
patent applications, up 35% from 1999. Although many of Philips' patents and
licenses are significant, none is individually material to Philips' business as
a whole. Patent protection is extremely important to Philips' operations. It
spends significant resources to protect its intellectual property rights and
intellectual property licenses. Reference is also made to the 2000 Annual Report
-Financial Statements-, page 22 (research and development) and -Management
Report- pages 43, 59 and 60.
RESEARCH AND DEVELOPMENT
Management believes that a sustained strong performance in the field of
research and development activities is of the utmost importance to strengthen
Philips' competitiveness in its various markets and to open up new markets.
Philips Research's mission is to generate value for the Company through
technology-based innovations. By focussing not only on technical aspects, but
also on the business development side of the innovation process, they are
constantly improving the portfolio of Research projects.
The launch of new Research activities in China, India and Belgium has
further established Philips Research as one of the world's major global
industrial research laboratories. With facilities in three continents and about
3,000 staff, Philips Research is at the forefront in developing new technologies
for innovative products and is thus `shaping the future'.
Research innovations incorporated in consumer products include various
applications of optical storage technology, for example CD-RW. Philips continues
to play a major role in the further development of standards and technology for
CD applications. Research contributions to the Components and Semiconductors
businesses include the transfer of polymer LED technology to Components, which
has in the meantime resulted in the first product introductions. Semiconductors
has achieved a large market share in RF power modules based on bipolar
transistor technology developed by Research.
COOPERATIVE BUSINESS ACTIVITIES AND UNCONSOLIDATED COMPANIES
The information set forth under the heading "Cooperative business
activities and unconsolidated companies" on pages 60 and 61 of the 2000 Annual
Report -Management Report- of the Company, is incorporated herein by reference.
ORGANIZATIONAL STRUCTURE
Information concerning Philips' significant subsidiaries is
incorporated by reference from Exhibit 8 to this Annual Report on Form 20-F.
PROPERTY, PLANT AND EQUIPMENT
Philips' manufacturing facilities, warehouses and office facilities are
mostly located in the Netherlands, the rest of Europe, the Far East and the
United States and Canada. These plants are generally in good condition and
adequate for the manufacturing requirements of Philips. The geographic
allocation of assets employed as shown in Note 29: "Information relating to
product sectors and geographic areas" on pages 58 through 63 of the 2000 Annual
Report -Financial Statements- and incorporated herein by reference is generally
indicative of the location of manufacturing facilities.
16
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The information required by this Item is incorporated by reference
herein on pages 44 through 73 of the 2000 Annual Report -Management Report
("Operating and Financial Review and Prospects").
OPERATING RESULTS
The information required by this Item is incorporated by reference
herein on pages 44 through 60 of the 2000 Annual Report - Management Report
("Operating and Financial Review and Prospects"). The Issuer's First Quarterly
Report 2001, which forms Exhibit 10 (b) (2) to this annual report on Form 20-F
is incorporated herein by reference and contains a description of results since
December 31, 2000, as well as describing the Company's views about its financial
performance and operating plans for 2001. The statements under the "Outlook"
section of the First Quarterly Report supplements those statements made in the
Issuer's Annual Report - Management Report on page 73 under the heading Outlook.
In addition, the Outlook section of the Annual Report - Management Report on
page 73 contains the Company's current performance objectives for the medium
term. The performance objectives are not necessarily forecasts and management
would seek to meet these objectives over a 3-5 year period. These performance
objectives and statements concerning results and events in 2001 are subject to a
number of factors set forth under the heading "Introduction" and Item 3 - "Risk
Factors" that could cause actual results and developments to differ materially
from those expressed or implied under the Outlook section of the Annual Report
or the Outlook section of the First Quarterly Report 2001.
COOPERATIVE BUSINESS ACTIVITIES AND UNCONSOLIDATED COMPANIES
The information required by this Item is incorporated by reference
herein on pages 60 and 61 of the 2000 Annual Report - Management Report
("Operating and Financial Review and Prospects").
LIQUIDITY AND CAPITAL RESOURCES
The information required by this Item is incorporated by reference
herein on pages 61 through 65 of the 2000 Annual Report - Management Report
("Operating and Financial Review and Prospects"). Philips believes it has
adequate financial resources for financing working capital needs.
RESEARCH AND DEVELOPMENT
For information required by this Item, reference is made to the
separate section "Research and Development" as part of the business description
under Item 4.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The information required by this Item is incorporated by reference
herein on page 23 and pages 70 through 76 of the 2000 Annual Report -Financial
Statements, and pages 74 through 78 of the Annual Report -Management Report.
DIRECTORS AND SENIOR MANAGEMENT
At the General Meeting of Shareholders on March 29, 2001, Mr W. Hilger
retired from the Supervisory Board. At the same meeting, Messrs L.C. van Wachem
and L. Schweitzer were re-elected by the General Meeting of Shareholders as
member of the Supervisory Board.
Mr A. Baan retired as Executive Vice-President and member of the Board
of Management on March 30, 2001. On April 30, 2001, Mr C. Boonstra retired as
President/CEO of the Company and Chairman of the Board of Management. Mr G.J.
Kleisterlee is elected as per the same date as his successor by the General
Meeting of Shareholders.
On May 1, 2001, Mr A. Huijser, member of the Group Management and head
of Corporate Research, became Chief Technology Officer. As per the same date, Mr
D. Hamill became Chief Executive Officer of Philips Lighting, succeeding Mr J.
Whybrow, and was appointed a member of the Group Management Committee.
COMPENSATION
For information on the remuneration of the Board of Management and the
Supervisory Board, required by this Item, see page 23 for the aggregate amounts
and pages 70 through 74 for individually named members of the 2000 Annual Report
-Financial Statements- incorporated herein by reference.
The aggregate direct remuneration paid in 2000 to, or for the benefit
of, the members of the Supervisory Board, the Board of Management, the Group
Management Committee and 48 officers in the Netherlands, taken as a group, was
as follows:
Aggregate direct remuneration: EUR 25,382,261.
Due to the negative net periodic pension cost as a result of the funded
status of the Dutch Philips Pensionfund, no contribution to retirement plans was
paid in 2000.
17
SHARE OWNERSHIP
[Download Table]
number of shares
------------------------------
as of as of
April 17, December 31,
2001 2000
--------- ------------
L.C. van Wachem 17,848 17,848
L. Schweitzer 1,070 1,070
C. Boonstra 54,320 54,320
G.J. Kleisterlee 27,200 -
Mr L.C. van Wachem is also Chairman of the Board of the Dr. A.F.
Philips Stichting.
Messrs W. de Kleuver, J-M. Hessels and K.A.L.H. van Miert are also
member of the Board of the Dr. A.F. Philips Stichting. As per April 30, 2001 Mr
G.J. Kleisterlee, has succeeded Mr C. Boonstra as President of the Company, as a
consequence of which Mr Kleisterlee has succeeded Mr Boonstra as member of the
Dr. A.F. Philips Stichting and as a member of the Stichting Preferente Aandelen
Philips.
BOARD PRACTICES
The employment agreements of the members of the Board of Management,
other than Mr Kleisterlee, are entered into for a definite period of time. Their
employment agreements provide that if their employment is terminated, other than
for a compelling reason, prior to the expiration of the term of their respective
agreement, they will be entitled to receive a once only payment equal to twice
their annual salary. As Mr Kleisterlee's employment agreement with Philips is
for an indefinite duration, any benefit payable to him on termination will be
determined under Dutch law, in the same manner as other employees of Philips who
are employed for an indefinite duration. Exhibit number 4 contains the form of
contract used for members of the Board of Management.
EMPLOYEES
The information set forth under the heading "Employment" on page 51 of
the 2000 Annual Report -Management Report- and "Employees" on page 23 of the
Financial Statements of the Company, is incorporated herein by reference.
[Download Table]
Employees by product sector 2000 1999 1998
---------------------------------------------------------------------------------
Lighting 47,124 47,453 48,997
Consumer Electronics 45,421 47,238 50,378
DAP 10,111 9,737 9,393
Components 41,160 41,709 42,613
Semiconductors 35,304 29,952 26,583
Medical Systems 19,358 11,297 11,561
Origin - 16,690 16,948
Miscellaneous 14,684 16,066 20,107
Unallocated 6,267 6,732 7,106
---------------------------------------------------------------------------------
Total 219,429 226,874 233,686
[Download Table]
Employees by geographic area 2000 1999 1998
---------------------------------------------------------------------------------
Netherlands 35,262 43,153 44,476
Europe (excl. Netherlands) 69,733 73,592 73,770
USA and Canada 33,173 26,919 25,941
Latin America 18,882 19,079 22,663
Africa 811 740 782
Asia 60,776 62,264 64,882
Australia and New Zealand 792 1,127 1,172
---------------------------------------------------------------------------------
Total 219,429 226,874 233,686
18
STOCK OPTIONS
During 2000, 14,923,294 stock options to purchase Common Shares of
Koninklijke Philips Electronics N.V. were issued. In 2000 6,012,732 options were
exercised and 995,893 initially allocated options were forfeited due to
resignations/dismissals prior to vesting. From December 31, 2000 to April 17,
2001, 7,585,450 stock options were newly issued, 932,101 stock options were
exercised and 469,381 initially allocated options were forfeited. As of April
17, 2001, the number of shares issuable upon exercise of stock options
outstanding was 35,144,425 (December 31, 2000: 28,960,457 stock options).
For a discussion of the options and the employee debentures, see also
Note 22: "Long-term debt", Note 25: "Stockholders' equity" and Note 26:
"Stock-based compensation" of "Notes to the Consolidated Financial Statements"
on pages 42 through 49 of the 2000 Annual Report -Financial Statements-
incorporated herein by reference.
For information specified in this Item for individually named directors
and officers, see pages 70 through 74 of the 2000 Annual Report -Financial
Statements- incorporated herein by reference.
The following table provides more detailed information about the stock
options outstanding at April 17, 2001:
[Enlarge/Download Table]
options outstanding options exercisable
-------------------------------------------------------- --------------------------------
number exercise weighted average number weighted
outstanding price per remaining exercisable average
at April 17, share contractual life at April 17, exercise
2001 (years) 2001 price per
share
--------------------------------------------------------------------------------------------------------------------------
Fixed option plans: (price in (price in
EUR) EUR)
1996 80,000 6.61 0.5 80,000 6.61
1997 1,927,700 9.19-19.43 1.0 1,927,700 12.80
1998 2,145,800 16.45-21.02 1.9 2,033,800 16.81
1999 3,864,400 15.76-23.01 2.9 - -
2000 3,420,750 42.03-53.75 8.9 - -
2001 2,775,950 37.60 9.8 - -
(price in US$) (price in US$)
1998 1,538,299 12.94-23.59 7.0 1,411,635 17.58
1999 2,372,862 21.98-35.34 8.1 753,281 25.08
2000 3,568,597 36.65-49.71 9.0 - -
2001 1,427,225 34.50 9.8 - -
---------- ---------
23,121,583 6,206,416
========== =========
Variable plans: (price in (price in
EUR) EUR)
2000 3,419,350 42.03-53.75 8.9 - -
2001 2,775,950 37.60 9.8 - -
(price in (price in
US$) US$)
1993 - 1994 230,918 2.75-6.89 1.8 230,918 2.92
1995 - 1997 1,301,572 7.50-14.20 3.8 1,301,572 7.80
2000 3,718,727 36.65-49.71 9.0 - -
2001 576,325 34.50 9.8 - -
---------- ---------
12,022,842 1,532,490
========== =========
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
As of April 17, 2001, no person is known to the Company to be the owner
of more than 5% of its Common Shares.
The Common Shares are held by shareholders worldwide in bearer and
registered form. Outside the United States, shares are held primarily in bearer
form. As of April 17, 2001, approximately 87% of the Common Shares were held in
bearer form. In the United States shares are held primarily in the form of
registered Shares of New York Registry (Shares of New York Registry) for which
Citibank, N.A., 111 Wall Street, New York, New York 10043 is the transfer agent
and registrar. As of April 17, 2001, approximately 13% of the total number of
outstanding Common Shares were represented by Shares of New York Registry issued
in the name of approximately 1,392 holders of record. Only bearer shares are
traded on the stock market of Euronext Amsterdam and other European stock
exchanges. Only Shares of New York Registry are traded on the New York Stock
Exchange. Bearer shares and registered shares may be exchanged for each other.
Since certain shares are held by brokers and other nominees, these numbers may
not be representative of the actual number of United States beneficial holders
or the number of Shares of New York Registry beneficially held by US residents.
19
RELATED PARTY TRANSACTIONS
MERGER OF PHILIPS DISPLAY COMPONENTS WITH LG'S DISPLAY COMPONENTS ACTIVITIES
Philips and LG Electronics of South Korea announced in November 2000
the signing of a letter of intent pursuant to which the companies expect to
merge their respective cathode ray tube (CRT) businesses into a new 50-50 joint
venture company. The transaction is expected to close in 2001 and is subject to
customary regulatory approvals. Upon the closing of the transaction, LG will
receive USD 1.1 billion from the new company to address the difference in the
valuation of the contributed businesses.
Under the terms of the letter of intent, LG and Philips will share
equal control of the joint venture.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18 " Financial Statements".
LEGAL PROCEEDINGS
Philips is involved in proceedings concerning environmental problems
including proceedings relating to the closure of discontinued chemical
operations and the clean-up of various sites, including Superfund sites, in the
United States. The potential costs related to these proceedings and the possible
impact thereof on future operations are uncertain. However, based on current
information, management does not believe that the outcome of these matters or
other litigation incidental to its extensive international operations and
involving, among other matters, competition issues and commercial transactions,
will result in a liability which would have a material effect on the
consolidated financial position and results of operations of Philips at December
31, 2000.
SIGNIFICANT CHANGES
Philips' First Quarterly Report 2001 is incorporated by reference
herein.
ITEM 9. THE OFFER AND LISTING
The Common Shares of the Company are listed on the stock market of
Euronext Amsterdam, on six other European stock exchanges and on the New York
Stock Exchange. The principal markets for the Common Shares are the Amsterdam,
New York and London Stock Exchanges.
The following table shows the high and low sales prices of the Common
Shares on the stock market of Euronext Amsterdam as reported in the Official
Price List and the high and low sales prices on the New York Stock Exchange
(after 4-for-1 stock split):
[Enlarge/Download Table]
EURONEXT NEW YORK
AMSTERDAM (EUR) STOCK EXCHANGE (US $)
----------------------------------- ----------------------------------
High Low High Low
--------------------------------------------------------------------------------------------------------------------------
1996 8.05 5.16 10.75 7.25
1997 20.28 7.71 22.25 9.75
1998 23.18 9.03 25.75 10.50
1999 33.75 14.14 34.13 16.38
2000 58.30 30.39 54.13 31.00
1999 1st quarter 19.13 14.14 20.13 16.38
2nd quarter 24.28 17.95 25.25 19.50
3rd quarter 27.44 21.50 27.63 22.80
4th quarter 33.75 21.28 34.13 22.88
2000 1st quarter 54.50 30.39 53.67 32.99
2nd quarter 56.75 36.70 55.15 37.50
3rd quarter 58.30 44.11 55.80 40.00
4th quarter 49.35 34.13 43.31 31.00
October 2000 49.35 38.30 43.31 33.50
November 2000 48.15 36.74 41.06 31.00
December 2000 47.18 34.13 41.38 31.13
January 2001 45.95 34.15 42.63 31.88
February 2001 41.40 34.22 38.59 31.13
March 2001 39.99 27.72 37.05 24.65
April 2001 34.40 27.11 30.95 24.59
20
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
For a general description of Philips' Articles of Association see pages
4 through 7 of Philips' Form S-8 filed with the SEC on June 13, 2000, file
number 333-39204, which is incorporated by reference herein.
EXCHANGE CONTROLS
There are currently no limitations, either under the laws of the
Netherlands or in the Articles of Association of the Company, to the rights of
non-residents to hold or vote Common Shares of the Company. Cash dividends
payable in Dutch guilders on Netherlands registered shares and bearer shares may
be officially transferred from the Netherlands and converted into any other
currency without Dutch legal restrictions, except that for statistical purposes
such payments and transactions must be reported to the Dutch Central Bank, and
furthermore, no payments, including dividend payments, may be made to
jurisdictions subject to sanctions adopted by the government of the Netherlands
and implementing resolutions of the Security Council of the United Nations. The
Articles of Association of the Company provide that cash distributions on Shares
of New York Registry shall be paid in US dollars, converted at the rate of
exchange on the stock market of Euronext Amsterdam at the close of business on
the day fixed and announced for that purpose by the Board of Management in
accordance with the Company's Articles of Association.
TAXATION
The statements below are only a summary of the present Netherlands tax
laws and the Tax Convention of December 18, 1992 between the United States of
America and the Kingdom of the Netherlands (the US Tax Treaty) and are not to be
read as extending by implication to matters not specifically referred to herein.
As to individual tax consequences, investors in the Common Shares should consult
their own tax advisors.
WITHHOLDING TAX
In general, a dividend distributed by a company resident in the
Netherlands (such as the Company) is subject to a withholding tax imposed by the
Netherlands at a rate of 25%. Stock dividends paid out of the Company's paid-in
share premium recognized for Netherlands tax purposes are not subject to the
above mentioned withholding tax.
Pursuant to the provisions of the US Tax Treaty, dividends paid by the
Company to a shareholder who is a resident of the United States (as defined in
the US Tax Treaty), are generally eligible for a reduction in the rate of Dutch
withholding tax to 15%, unless (i) the beneficial owner of the dividends carries
on business in the Netherlands through a permanent establishment, or performs
independent personal services in the Netherlands from a fixed base, and the
Common Shares form part of the business property of such permanent establishment
or pertain to such fixed base, or (ii) the beneficial owner of the dividends is
not entitled to the benefits of the US Tax Treaty under the "treaty-shopping"
provisions thereof. Dividends paid to qualifying exempt US pension trusts and
qualifying exempt US organizations are exempt from Dutch withholding tax under
the US Tax Treaty. However, for qualifying exempt US organizations no exemption
at source upon payment of the dividend can be applied for; such exempt US
organizations should apply for a refund of the 25% withholding tax.
The gross amount (including the withheld amount) of dividends
distributed on Common Shares will be dividend income to the US shareholder, not
eligible for the dividends received deduction generally allowed to corporations.
However, subject to certain conditions and limitations, the Dutch withholding
tax will be treated as a foreign income tax that is eligible for credit against
the shareholders' US income taxes.
CAPITAL GAINS
Capital gains upon the sale or exchange of Common Shares by a
non-resident individual or by a non-resident corporation of the Netherlands are
exempt from Dutch income tax, corporation tax or withholding tax, unless (i)
such gains are effectively connected with a permanent establishment in the
Netherlands of the shareholders' trade or business or (ii) are derived from a
direct, indirect or deemed substantial participation in the share capital of a
company (such substantial participation not being a business asset).
In general, an individual has a substantial participation if he holds
either directly or indirectly and either independently or jointly with his
spouse or steady partner, at least 5% of the total issued share capital or
particular class of shares of a company. For determining a substantial
participation, other shares held by close relatives are taken into account. The
same applies to options to buy shares. A deemed substantial participation
amongst others exists if (part of) a substantial participation has been disposed
of, or is deemed to have been disposed of, on a non-recognition basis. Under the
US Tax Treaty however, the Netherlands may only tax a capital gain derived from
a substantial participation if the alienator has been a resident of the
Netherlands at any time during the five-year period preceding the alienation,
and owned at the time of alienation either alone or together with his relatives,
at least 25% of any class of shares.
NET WEALTH TAX
As of January 1st, 2001, for foreign shareholders no net wealth tax is
levied in the Netherlands.
21
ESTATE AND GIFT TAXES
No estate, inheritance or gift taxes are imposed by the Netherlands on
the transfer of Common Shares if, at the time of the death of the shareholder or
the transfer of the Common Shares (as the case may be), such shareholder or
transferor is not a resident of the Netherlands, unless such Common Shares are
attributable to a permanent establishment or permanent representative of the
shareholder in the Netherlands.
Inheritance or gift taxes (as the case may be) are due, however, if
such shareholder or transferor:
(a) has Dutch nationality and has been a resident of the
Netherlands at any time during the ten years preceding the
time of the death or transfer; or
(b) has no Dutch nationality but has been a resident of the
Netherlands at any time during the twelve months preceding the
time of transfer (for Netherlands gift taxes only).
DOCUMENTS ON DISPLAY
It is possible to read and copy documents referred to in this annual
report on Form 20-F that have been filed with the SEC at the SEC's public
reference room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms and their copy charges.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this Item is incorporated by reference
herein on pages 65 through 68 of the 2000 Annual Report -Management Report.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The following portions of the Company's 2000 Annual Report -Financial
Statements- as set forth on pages 3 through 63 are incorporated herein by
reference and constitute the Company's response to this Item:
"Accounting policies"
"Consolidated statements of income of the Philips Group"
"Consolidated balance sheets of the Philips Group"
"Consolidated statements of cash flows of the Philips Group"
"Consolidated statements of changes in stockholders' equity of the
Philips Group"
"Notes to the consolidated financial statements of the Philips Group"
Schedules:
Schedules are omitted as they are either not required or not
applicable.
22
ITEM 19. EXHIBITS
INDEX OF EXHIBITS
Exhibit 1 Articles of Association, as amended, dated as of
August 1, 2000, English translation.
Exhibit 2 (b) (1) The total amount of long-term debt securities of the
Registrant and its subsidiaries authorized under any
one instrument does not exceed 10% of the total
assets of Philips and its subsidiaries on a
consolidated basis. Philips agrees to furnish copies
of any or all such instruments to the Securities and
Exchange Commission upon request.
Exhibit 4 Material contracts
Exhibit 8 List of Significant Subsidiaries.
Exhibit 10 (a) Independent auditors' report and consent of the
independent auditors.
Exhibit 10 (b) (1) The 2000 Annual Report to Shareholders of the
Company, consisting of the Management Report and
Financial Statements, which is furnished to the
Securities and Exchange Commission for information
only and is not filed except for such specific
portions that are expressly incorporated by reference
in this report on Form 20-F.
Exhibit 10 (b) (2) Philips' First Quarterly Report 2001, which is
incorporated by reference in this report on Form
20-F.
23
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
KONINKLIJKE PHILIPS ELECTRONICS N.V.
/s/ G.J. Kleisterlee /s/ J.H.M. Hommen
--------------------- --------------------------
G.J. Kleisterlee J.H.M. Hommen
(President, Chairman (Executive Vice-President,
of the Board of Management and Member of the Board of
the Group Management Committee) Management and the
Group Management Committee,
and Chief Financial Officer)
Registrant
Date: May 7, 2001
EXHIBIT INDEX
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
1 Articles of Association, as amended, dated as of August 1,
2000, English translation.
2 (b) (1) The total amount of long-term debt securities of the
Registrant and its subsidiaries authorized under any one
instrument does not exceed 10% of the total assets of Philips
and its subsidiaries on a consolidated basis. Philips agrees
to furnish copies of any or all such instruments to the
Securities and Exchange Commission upon request.
4 Material contracts
8 List of Significant Subsidiaries.
10 (a) Independent auditors' report and consent of the independent
auditors.
10 (b) (1) The 2000 Annual Report to Shareholders of the Company,
consisting of the Management Report and Financial Statements,
which is furnished to the Securities and Exchange Commission
for information only and is not filed except for such specific
portions that are expressly incorporated by reference in this
report on Form 20-F.
10 (b) (2) Philips' First Quarterly Report 2001, which is incorporated by
reference in this report on Form 20-F.
24
Dates Referenced Herein and Documents Incorporated by Reference
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