Contingent liabilities

Guarantees

Philips’ policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. At the end of 2009, the total fair value of guarantees recognized by Philips was EUR 14 million. The following table outlines the total outstanding off-balance sheet credit-related guarantees and business-related guarantees provided by Philips for the benefit of unconsolidated companies and third parties as at December 31, 2009.

Environmental remediation

The Company and its subsidiaries are subject to environmental laws and regulations. Under these laws, the Company and/or its subsidiaries may be required to remediate the effects of the release or disposal of certain chemicals on the environment.

In the United States, subsidiaries of the Company have been named as potentially responsible parties in state and federal proceedings for the clean-up of various sites. The Company accrues for losses associated with environmental obligations when such losses are probable and reliably estimable.

Legal proceedings

The Company and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations and environmental pollution. In respect of antitrust laws, the Company and certain of its (former) group companies are involved in investigations by competition law authorities in several jurisdictions and are engaged in litigation in this respect. Since the ultimate disposition of asserted claims and proceedings and investigations cannot be predicted with certainty, an adverse outcome could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

Provided below are disclosures of the more significant cases:

Asbestos

Over the past decade, judicial proceedings were brought in the United States, relating primarily to the activities of the Company’s US subsidiary TH Agriculture & Nutrition L.L.C. (THAN) prior to 1981. These proceedings involved allegations of personal injury from alleged exposure to asbestos distributed by THAN. THAN’s businesses, including those which gave rise to these alleged liabilities, were completely sold in 1984 and its ongoing operations were not material to its parent, Philips Electronics North America Corporation (PENAC), or the Company.

In previous years, certain of the asserted claims were settled; additionally various other alternatives for resolving pending and future claims were explored. In the fourth quarter of 2008, after having received the required support from representatives of the then current claimants and from a court appointed representative of future claimants, THAN filed a prepackaged plan of reorganization (the Plan) in the US Bankruptcy Court for the Southern District of New York. The Plan became effective on November 30, 2009, after having been approved by the Bankruptcy Court (May) and the US District Court for the Southern District of New York (October). Under the terms and conditions of the Plan, an Asbestos Personal Injury Trust (the Trust) was established in accordance with section 524(g) of the Bankruptcy Code to assume, liquidate and satisfy all THAN-related asbestos liabilities. The Trust has been funded with USD 900 million (EUR 597 million) contributed by PENAC and THAN. Additionally, under the Plan, PENAC has forgiven certain debt of THAN, assumed certain liabilities from THAN, and transferred its ownership interest in THAN to a trust associated with the Asbestos Personal Injury Trust. Pursuant to the Plan, the Bankruptcy Court issued a permanent injunction that directs to the Trust all claims alleging personal injury or death from exposure to asbestos distributed by THAN and bars all related litigation against THAN, its affiliates (including PENAC and the Company) and certain third parties.

In connection with these matters, a credit to income from operations in the amount of EUR 1 million was recorded in 2009 (2008: EUR 353 million, 2007: EUR 4 million). As of December 31, 2009, all PENAC obligations related to THAN’s asbestos liabilities were fully settled. At December 31, 2008, the recorded provision for loss contingencies with respect to asbestos product liability amounted to EUR 624 million. During 2009, costs of EUR 9 million were incurred with respect to litigation, claims administration, insurance recoveries, and bankruptcy-related matters (2008: EUR 24 million; 2007: EUR 27 million).

In prior years, legal proceedings were commenced against certain third-party insurance carriers which had provided various types of product liability coverage to PENAC and THAN. During 2009 and the last several years, agreements were reached with certain insurance carriers resolving disputes with respect to the interpretation and available limits of the policies, amounts payable to PENAC and THAN, and terms under which future settlements and related defense costs are reimbursable. In conjunction with these settlements, insurance recoveries of EUR 65 million were recognized in 2009 (EUR 89 million was recognized in 2008 and EUR 16 million was recognized in 2007). Insurers paid EUR 21 million in 2009 (EUR 113 million was paid in 2008 and EUR 27 million was paid in 2007) for asbestos-related defense and indemnity costs. At December 31, 2009, the recorded receivable from insurance carriers, for which settlement agreements have been reached, amounted to EUR 81 million (EUR 34 million at December 31, 2008), which is reflected in the Company’s consolidated balance sheet. Insurance receivables have not been recorded from non-settling insurance carriers. Litigation against non-settling insurance carriers continues to be pursued.

LG Display

Civil litigation

On December 11, 2006, LG Display Co. Ltd (formerly LG Philips LCD Co. Ltd.), a company in which the Company then held a minority common stock interest, announced that officials from the Korean Fair Trade Commission had visited the offices of LG Display and that it had received a subpoena from the United States Department of Justice (“DOJ”) and a similar notice from the Japanese Fair Trade Commission in connection with inquiries by those regulators into possible anticompetitive conduct in the LCD industry.

Subsequent to the public announcement of these inquiries, certain Philips group companies were named as defendants in a number of class action antitrust complaints filed in the United States courts, seeking, among other things, damages on behalf of purchasers of products incorporating thin-film transistor liquid crystal display panels (TFT-LCD panels), based on alleged anticompetitive conduct by manufacturers of such panels. Those lawsuits were consolidated in two master actions in the United States District Court for the Northern District of California: one, asserting a claim under federal antitrust law, on behalf of direct purchasers of TFT-LCD panels and products containing such panels, and another, asserting claims under federal antitrust law, as well as various state antitrust and unfair competition laws, on behalf of indirect purchasers of such panels and products. On November 5, 2007 and September 10, 2008, the Company and certain other companies within the Philips group companies that were named as defendants in various of the original complaints entered into agreements with the indirect purchaser plaintiffs and the direct purchaser plaintiffs, respectively, that generally toll the statutes of limitations applicable to plaintiffs’ claims, following which the plaintiffs agreed to dismiss without prejudice the claims against the Philips defendants. On December 5, 2008, following the partial grant of motions to dismiss consolidated class action complaints in the master actions, the plaintiffs filed amended consolidated class action complaints, asserting essentially the same legal claims as those alleged in the prior complaints. On December 2, 2009, the direct purchaser plaintiffs filed a third consolidated class action complaint under seal. None of the companies within the Philips group of companies currently is named as a defendant in the pending amended complaints, although the Company and PENAC are named as co-conspirators with named defendants in the indirect purchaser case, but the litigation is continuing. On the basis of current knowledge, the Company cannot determine whether a loss is probable with respect to these actions.

In addition, in February 2007, certain plaintiffs filed purported class actions in a United States court against LG Display and certain current and former employees and directors of LG Display for damages based on alleged violations of US federal securities laws. No Philips group company is named as a defendant in these actions.

In addition, the following plaintiffs have filed five separate, individual actions alleging essentially the same claims as those asserted in the class actions: (1) AT&T (and related entities), Bell South, Southwestern Bell and Pacific Bell; (2) ATS Claim, LLC; (3) Electrograph Systems, Inc. and Electrograph Technologies, Corp.; (4) Motorola, Inc.; and (5) Nokia Corporation and Nokia, Inc. No majority-owned Philips entity has been named as a defendant in any of those actions, except for the Nokia action, described below. The Company has been named as an unsued co-conspirator in the Nokia action. In addition, the Company and PENAC have been named as unsued co-conspirators in the AT&T, Electrograph, and Motorola actions. Those actions, except for the Electrograph action, have been designated as related to the consolidated actions already pending before Judge Illston in the United States District Court for the Northern District of California and have been consolidated for pre-trial purposes with the class actions.

On November 25, 2009, Nokia Corporation and Nokia, Inc., filed a complaint in the United States District Court for the Northern District of California naming, among others, PENAC as a defendant and the Company as a co-conspirator based on the same substantive allegations as in the antitrust class action complaints. This case has been designated as related to the consolidated action already pending before Judge Illston in the United States District Court for the Northern District of California and is expected to be consolidated with those actions. These matters are in their initial stages and due to the considerable uncertainty associated with these matters, on the basis of current knowledge, the Company has concluded that potential losses cannot be reliably estimated with respect to these matters. An adverse final resolution of these investigations and litigation could have a materially adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

Public investigation

Beginning in November 2008, several manufacturers of TFT-LCD panels, including LG Display, and certain executives of two of those companies entered into plea agreements with the United States Department of Justice (DOJ), pursuant to which those companies and individuals agreed to plead guilty to participating in a conspiracy to fix the prices of TFT-LCD panels. On December 15, 2008, LG Display and its wholly-owned subsidiary, LG Display America Inc., pleaded guilty to participating in a conspiracy from September 2001 to June 2006 to fix the prices of TFT-LCD panels sold worldwide. Pursuant to that plea, LG Display was sentenced to pay in five annual installments a total of USD 400 million in criminal fines. The DOJ has announced that its investigation is continuing.

On May 28, 2009, the Company received a Statement of Objections from the European Commission. In this document the European Commission alleges that the Company is jointly and severally liable for anticompetitive conduct by LG Display for the period in which the Company, according to the European Commission, exercised joint control. The Company vigorously opposes this allegation.

The Company sold its remaining shareholding in LG Display on March 11, 2009 and subsequently no longer holds shares in LG Display.

On March 6, 2009, the Washington State Attorney General’s Office (the ‘Washington AG’) issued a Civil Investigative Demand (CID) to PENAC pursuant to which PENAC was requested, among other things, to produce documents and to provide answers to interrogatories concerning the sale of TFT-LCD panels and the sale of TFT-LCD products. PENAC was also requested to provide to the Washington AG any documents previously produced to the DOJ as part of the DOJ’s ongoing investigation into the TFT-LCD industry. After discussions with the Washington AG, the Washington AG agreed to allow PENAC, instead of responding to the CID, to provide the limited amount of aggregate sales data and component data that the Company previously provided to the plaintiffs in the direct purchaser plaintiff’s class action. On March 27, 2009, PENAC produced that information to the Washington AG. Thereafter, PENAC provided the same information to the Missouri Attorney General’s Office and the Illinois Attorney General’s Office in response to a CID and subpoena issued, respectively, on March 18, 2009 and April 2, 2009 to PENAC.

Due to the considerable uncertainty associated with these matters, on the basis of current knowledge, the Company has concluded that potential losses cannot be reliably estimated with respect to these matters. An adverse final resolution of these investigations and litigation could have a materially adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

CRT Investigations

On November 21, 2007, the Company announced that competition law authorities in several jurisdictions have commenced investigations into possible anticompetitive activities in the Cathode-Ray Tubes, or CRT industry. As one of the companies that formerly was active in the CRT business, Philips is subject to a number of these ongoing investigations. The Company has assisted the regulatory authorities in these investigations. In November 2009, the European Commission sent a Statement of Objections to Philips, indicating that it intends to hold Philips liable for antitrust infringements in the CRT industry. In the US, the Department of Justice has deferred Philips’ obligation to respond to the grand jury subpoena Philips received in November of 2007.

Subsequent to the public announcement of these investigations in 2007, certain Philips group companies were named as defendants in over 50 class action antitrust complaints filed in various federal district courts in the United States. These actions allege anticompetitive conduct by manufacturers of CRTs and seek treble damages on behalf of direct and indirect purchasers of CRTs and products incorporating CRTs. These complaints assert claims under federal antitrust law, as well as various state antitrust and unfair competition laws and may involve joint and several liability among the named defendants. These actions have been consolidated by the Judicial Panel for Multidistrict Litigation for pre-trial proceedings in the United States District Court for the Northern District of California.

Consolidated amended complaints were filed by the direct and indirect purchasers on March 16, 2009. On May 19, 2009, motions to dismiss were filed on behalf of all Philips entities in response to both the direct and indirect purchaser actions in the federal class actions pending in the Northern District of California. The motions seek to dismiss all claims against all Philips defendants on various grounds. A separate motion to dismiss was filed on behalf of nearly all defendants seeking to eliminate or limit certain of the claims of the direct and indirect purchasers. There is no definitive schedule for resolution of the motions to dismiss by the Court. Discovery on personal jurisdiction and most merits-related issues is likely to be delayed until the resolution of the motions to dismiss. Philips intends to continue to vigorously defend these lawsuits.

Certain Philips group companies have also been named as defendants, in proposed class proceedings in Ontario, Quebec and British Columbia, Canada along with numerous other participants in the industry. Philips intends to vigorously oppose these claims, and the proceedings remain at a preliminary stage. At this time, no class proceeding has been certified and no statement of defense has been filed.

Due to the considerable uncertainty associated with these matters, on the basis of current knowledge, the Company has concluded that potential losses cannot be reliably estimated with respect to these matters. An adverse final resolution of these investigations and litigation could have a materially adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

Optical Disc Drive (ODD)

On October 27, 2009, the Antitrust Division of the United States Department of Justice confirmed that it had initiated an investigation into possible anticompetitive practices in the Optical Disc Drive (ODD) industry. Philips Lite-On Digital Solutions Corp. (PLDS), a joint venture owned by the Company and Lite-On IT Corporation, as an ODD market participant, is included in this investigation. PLDS is also subject to similar investigations outside the US relating to the ODD market. PLDS and Philips intend to cooperate with the authorities in these investigations.

Subsequent to the public announcement of these investigations in 2007, the Company, PLDS and Philips & Lite-On Digital Solutions USA, Inc., were named as defendants in at least two class action complaints filed in the United States District Court for the Northern District of California.  Several additional complaints were filed against other ODD manufacturers in the Northern District of California and at least one other United States District Court.  These actions allege anticompetitive conduct by manufacturers of ODDs, seek treble damages on behalf of direct purchasers of ODDs, and may involve joint and several liability among the named defendants. 

These matters are in their initial stages and due to the considerable uncertainty associated with these matters, on the basis of current knowledge, the Company has concluded that potential losses cannot be reliably estimated with respect to these matters. An adverse final resolution of these investigations and litigation could have a materially adverse effect on the Company’s consolidated financial position, results of operations and cash flows.