6-K

6-K 1 d615067d6k.htm 6-K 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

October 21, 2013

KONINKLIJKE PHILIPS N.V.

(Exact name of registrant as specified in its charter)

Royal Philips

(Translation of registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(7): ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

Name and address of person authorized to receive notices

and communications from the Securities and Exchange Commission:

E.P. Coutinho

Koninklijke Philips N.V.

Amstelplein 2

1096 BC Amsterdam – The Netherlands

This report comprises a copy of the following press release:

- “Philips’ Third Quarter Results 2013”, dated October 21, 2013.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 21st day of October 2013.

KONINKLIJKE PHILIPS N.V.

/s/ E.P. Coutinho

(General Secretary)

Q3 2013 Quarterly report

Philips reports third-quarter comparable sales growth of 3% to EUR 5.6 billion; operational results improve by 33% to EUR 634 million

•

Comparable sales in growth geographies up 10%

•

EBITA increased to EUR 562 million, or 10.0% of sales, compared to 6.3% in Q3 2012

•

EBITA excluding restructuring and other charges increased to EUR 634 million, or 11.3% of sales

•

Net income increased to EUR 281 million, compared to EUR 105 million in Q3 2012

•

Free cash flow amounted to EUR 117 million

•

New EUR 1.5 billion share buy-back program starts on October 21

Frans van Houten, CEO:

“This was another solid quarter for Philips, especially in light of the challenging global economic environment. I am pleased with the 33% increase in our operational results, clearly reflecting the continuing benefits of our Accelerate! program. At Healthcare, EBITA improved while sales were flat and order intake declined by 2%. Consumer Lifestyle continued its strong sales performance with a comparable sales growth of 9%, driven by our focus on locally relevant products. At Lighting, LED-based sales grew 33% over the previous year, leading to an overall growth of 3%.

We continued to make good progress on the Accelerate! journey. Our overhead cost reduction program has resulted in EUR 856 million in total gross savings to date, including EUR 183 million realized in Q3 2013. Our End2End programs are delivering strong results. The leaning-out of the supply chain has led to a reduction of inventory. Our Design for Excellence (DfX) program is building a strong funnel of opportunities to lower cost of goods sold in the coming years. End2End also enables us to deliver more locally relevant innovations faster to our customers. We see strong positive engagement from our employees, making us more agile and entrepreneurial.

Our strategic focus on value-accretive innovations and new business models is resulting in encouraging successes across our markets. As the leader in the growing image-guided interventions and therapy market, Philips was the first company to install an advanced hybrid operating room in a leading medical institute in Moscow, which will serve as an example for other hospitals in Russia. Building on our leadership in digital innovation, we recently unveiled a range of higher-value connected consumer products, such as a smart air purifier, baby monitor and a digital grooming guide. As the global leader in energy-efficient lighting, we have been selected to transform Dubai Municipality’s buildings with intelligent LED solutions. Our lighting solutions are saving 50% in electricity usage and will advance Dubai’s mission to become the most sustainable city in the world.

We remain committed to reaching our financial targets this year. However, ongoing headwinds in the global economy are expected to continue to affect sales growth in the coming quarters.

Q3 financials: Operational results improve significantly across all sectors.

Healthcare currency-comparable equipment order intake declined by 2% year-on-year, with lower order intake at Patient Care & Clinical Informatics, while Imaging Systems recorded a slight increase. Comparable sales were flat year-on-year. Growth at Customer Services, Home Healthcare Solutions and Patient Care & Clinical Informatics was offset by a decline at Imaging Systems. In growth geographies, comparable sales increased by 3%, with strong growth in China, Central & Eastern Europe and Latin America. EBITA margin excluding restructuring and acquisition-related charges increased by 2.0 percentage points year-on-year to 14.6%.

Consumer Lifestyle comparable sales increased by 9%, with all businesses, i.e. Health & Wellness, Domestic Appliances and Personal Care, recording good growth. In the growth geographies, comparable sales registered a strong double-digit increase. EBITA margin excluding restructuring and acquisition-related charges increased to 11.1%, a year-on-year improvement of 3.0 percentage points.

Lighting comparable sales increased by 3%, led by Lumileds, Automotive and Light Sources & Electronics. Comparable sales at Professional Lighting Solutions and Consumer Luminaires declined in the quarter. LED-based sales grew by 33% and now represent 30% of total Lighting sales. In the growth geographies, comparable sales showed a double-digit increase. EBITA margin excluding restructuring and acquisition-related charges was 10.2%, a year-on-year improvement of 3.9 percentage points.

The new EUR 1.5 billion share buy-back program starts on October 21.

Please refer to page 21 of this press release for more information about forward-looking statements, third-party market share data, use of non-GAAP information and use of fair-value measurements.

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Philips Group

Net income

in millions of euros unless otherwise stated


	Q3 2012			Q3 2013

Sales		5,821			5,618
EBITA		366			562
as a % of sales		6.3			10.0
EBIT		254			464
as a % of sales		4.4			8.3
Financial income (expenses)		(116	)		(92	)
Income taxes		(37	)		(108	)
Results investments in associates		(6	)		6
Net income from continuing operations		95			270
Discontinued operations		10			11
Net income		105			281

Net income attributable to shareholders per common share (in euros) - diluted		0.11			0.31

Net income

•

Net income amounted to EUR 281 million, an increase of EUR 176 million year-on-year, which reflected better operating results across all sectors.

•

EBITA amounted to EUR 562 million, or 10.0% of sales, an increase of EUR 196 million year-on-year. Q3 2013 included a settlement loss of EUR 31 million arising from a lump-sum offering to terminated vested employees in our US pension plan and EUR 41 million of restructuring and acquisition-related charges. Q3 2012 EBITA included a loss of EUR 34 million on the sale of industrial assets at Lighting and restructuring and acquisition-related charges of EUR 76 million.

•

EBITA, excluding restructuring and acquisition-related charges, the Q3 2013 pension settlement loss, and the Q3 2012 loss on the sale of industrial assets at Lighting, improved to EUR 634 million, or 11.3% of sales, compared to EUR 476 million, or 8.2% of sales, in Q3 2012.

•

Tax charges were EUR 71 million higher than in Q3 2012, mainly due to higher taxable earnings.

•

Income from discontinued operations, which mainly represents the results of the Television business and the Audio, Video, Multimedia and Accessories (AVM&A) business, increased by EUR 1 million year-on-year to EUR 11 million.

Sales by sector

in millions of euros unless otherwise stated


	Q3 2012		Q3 2013		nominal			% change comparable

Healthcare		2,443		2,258		(8	)		0
Consumer Lifestyle		1,051		1,091		4			9
Lighting		2,139		2,084		(3	)		3
Innovation, Group & Services		188		185		(2	)		(7	)

Philips Group		5,821		5,618		(3	)		3

Sales per sector

•

Group sales amounted to EUR 5,618 million, an increase of 3% on a comparable basis. Group nominal sales decreased by 3%, reflecting a 6% negative currency effect.

•

Healthcare comparable sales remained flat year-on-year. Customer Services achieved mid-single-digit growth, while Home Healthcare Solutions and Patient Care & Clinical Informatics showed low-single-digit growth. Imaging Systems recorded a mid-single-digit decline.

•

Consumer Lifestyle comparable sales increased by 9%. Strong double-digit comparable sales growth was seen at Health & Wellness, while Domestic Appliances showed high-single-digit growth and Personal Care recorded mid-single-digit growth.

•

Lighting comparable sales were 3% higher year-on-year, led by double-digit growth at Lumileds and Automotive. Light Sources & Electronics achieved low-single-digit growth, while Professional Lighting Solutions and Consumer Luminaires recorded a low-single-digit decline.

Q3 2013 Quarterly report 3

Sales per geographic cluster

in millions of euros unless otherwise stated


	Q3 2012		Q3 2013		nominal			% change comparable

Western Europe		1,402		1,382		(1	)		(1	)
North America		1,852		1,710		(8	)		(2	)
Other mature geographies		524		434		(17	)		(1	)

Total mature geographies		3,778		3,526		(7	)		(1	)
Growth geographies		2,043		2,092		2			10

Philips Group		5,821		5,618		(3	)		3

Sales per geographic cluster

•

Growth geographies delivered a double-digit comparable sales increase for the second consecutive quarter, driven by higher sales in all sectors.

•

Comparable sales in mature geographies declined by 1% compared to Q3 2012. The decrease was attributable to Healthcare and Lighting, while Consumer Lifestyle showed a mid-single-digit improvement.

4 Q3 2013 Quarterly report

EBITA

in millions of euros


	Q3 2012			Q3 2013

Healthcare		305			329
Consumer Lifestyle		78			116
Lighting		32			177
Innovation, Group & Services		(49	)		(60	)

Philips Group		366			562

EBITA

as a % of sales


	Q3 2012			Q3 2013

Healthcare		12.5			14.6
Consumer Lifestyle		7.4			10.6
Lighting		1.5			8.5
Innovation, Group & Services		(26.1	)		(32.4	)

Philips Group		6.3			10.0

Restructuring and acquisition-related charges

in millions of euros


	Q3 2012			Q3 2013

Healthcare		(3	)		(1	)
Consumer Lifestyle		(7	)		(5	)
Lighting		(68	)		(36	)
Innovation, Group & Services		2			1

Philips Group		(76	)		(41	)

EBIT

in millions of euros unless otherwise stated


	Q3 2012			Q3 2013

Healthcare		255			283
Consumer Lifestyle		63			102
Lighting		(14	)		140
Innovation, Group & Services		(50	)		(61	)

Philips Group		254			464
as a % of sales		4.4			8.3

Earnings per sector

•

Healthcare EBITA increased by EUR 24 million year-on-year. Excluding restructuring and acquisition-related charges, EBITA improved by EUR 22 million, driven by improved gross margins and overhead cost reductions.

•

Consumer Lifestyle EBITA increased by EUR 38 million year-on-year. Excluding restructuring and acquisition-related charges, EBITA improved by EUR 36 million. The higher EBITA was largely attributable to operating leverage from higher sales and improved gross margins across all businesses.

•

Lighting EBITA increased by EUR 145 million year-on-year. Excluding restructuring and acquisition-related charges and the Q3 2012 loss on the sale of industrial assets, EBITA improved by EUR 79 million, driven by higher gross margins and cost reductions.

•

Innovation, Group & Services EBITA decreased by EUR 11 million to a net cost of EUR 60 million. EBITA, excluding restructuring charges and a settlement loss of EUR 31 million arising from a lump-sum offering to terminated vested employees in our US pension plan, improved by EUR 21 million compared to Q3 2012. The improvement was mainly driven by lower litigation and patent filing costs in IP Royalties.

Q3 2013 Quarterly report 5

Financial income and expenses

in millions of euros


	Q3 2012			Q3 2013

Net interest expenses		(85	)		(61	)
Value adjustment to option in the UK pension plan		(12	)		(12	)
Other		(19	)		(19	)

		(116	)		(92	)

Financial income and expenses

•

Financial income and expenses amounted to a net expense of EUR 92 million, an improvement of EUR 24 million compared with Q3 2012. This was mainly attributable to lower interest expenses on debt.

Cash balance

in millions of euros


	Q3 2012			Q3 2013

Beginning cash balance		3,134			2,307
Free cash flow		410			117
Net cash flow from operating activities		648			337
Net capital expenditures		(238	)		(220	)
Acquisitions of businesses		(18	)		(5	)
Other cash flow from investing activities		(18	)		(6	)
Treasury shares transactions		(135	)		(18	)
Dividend paid		1			(41	)
Changes in debt/other		(142	)		(237	)
Net cash flow discontinued operations		—			(83	)

Ending balance		3,232			2,034

Cash balance

•

The Group cash balance decreased during Q3 2013 to EUR 2,034 million. A free cash inflow of EUR 117 million was more than offset by a EUR 237 million outflow, mainly related to debt redemption, and a EUR 83 million outflow related to discontinued operations.

•

In Q3 2012, the cash balance increased to EUR 3,232 million, mainly from a free cash inflow of EUR 410 million, partly offset by an outflow of EUR 142 million, mainly related to debt redemption, and the use of EUR 135 million in treasury shares transactions, primarily for our share buy-back program.

Cash flows from operating activities

in millions of euros

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Cash flows from operating activities

•

Operating activities resulted in a cash inflow of EUR 337 million, compared to an inflow of EUR 648 million in Q3 2012. The Q3 2013 figure includes a net increase in working capital of EUR 357 million, compared to a net decrease in working capital of EUR 139 million in Q3 2012. The remaining difference compared to Q3 2012 is mainly attributable to higher earnings.

6 Q3 2013 Quarterly report

Gross capital expenditures¹⁾

in millions of euros

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¹⁾	Capital expenditures on property, plant and equipment only

Gross capital expenditure

•

Gross capital expenditures on property, plant and equipment were EUR 7 million lower than in Q3 2012, mainly due to lower investments at Lighting and IG&S.

Inventories

as a % of sales¹⁾

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¹⁾	sales is calculated over the preceding 12 months

Inventories

•

Inventory value at the end of Q3 2013 was EUR 3.8 billion and amounted to 16.5% of sales.

•

Compared to Q3 2012, inventories as a percentage of sales improved by 0.4 percentage points. This was mainly driven by reductions at Healthcare.

Net debt and group equity

in billions of euros

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Net debt and group equity

•

At the end of Q3 2013, Philips had a net debt position of EUR 2.0 billion, compared to EUR 1.5 billion at the end of Q3 2012. During the quarter, the net debt position decreased by EUR 72 million, largely due to debt redemption.

•

Group equity increased by EUR 149 million in the quarter to EUR 11.0 billion. The increase was largely a result of net income earned during the period, partially offset by negative currency translation differences.


		Q3 2013 Quarterly report 7

Number of employees

in FTEs

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¹⁾	Number of employees excludes discontinued operations. Discontinued operations, comprising the Audio, Video, Multimedia and Accessories business, had 1,940 employees at end of Q3 2013 (Q3 2012: 2,058; Q2 2013: 1,958).

Employees

•

Compared to Q3 2012, the number of employees decreased by 4,900. This decrease includes 327 employees from divestments. Excluding divestments, the number of employees decreased by 4,573, mainly due to the company’s overhead reduction program and the industrial footprint rationalization at Lighting.

•

The number of employees decreased by 955 in the quarter, largely attributable to the rationalization of the industrial footprint at Lighting.

8 Q3 2013 Quarterly report

Healthcare

Key data

in millions of euros unless otherwise stated


	Q3		Q3
	2012		2013

Sales		2,443		2,258
Sales growth
% nominal		18		(8	)
% comparable		7		0
EBITA		305		329
as a % of sales		12.5		14.6
EBIT		255		283
as a % of sales		10.4		12.5
Net operating capital (NOC)		8,261		7,525
Number of employees (FTEs)		38,228		37,569

Sales

in millions of euros

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EBITA

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Business highlights

•

Philips launched its premium EPIQ ultrasound system in Europe, parts of Asia and the US. EPIQ features high image quality paired with ‘Anatomical Intelligence’, a decision support technology designed to improve patient outcomes and enhance clinical workflows across the continuum of care.

•

Expanding its Hospital to Home activities in Asia Pacific, Philips has established the regional headquarters for this business in Singapore. Philips also collaborated with Guardian Health & Beauty, Singapore’s largest health and beauty chain, to screen citizens across the country for obstructive sleep apnea (OSA), to identify and treat this disorder.

•

Building on its leadership in image-guided interventions and therapy, Philips has installed an advanced hybrid operating room (OR), the first of its kind in Russia, at a leading medical institute in Moscow. The hybrid OR enables clinicians to optimally perform a wide range of clinical procedures and improve patient care.

•

In line with its vision to use partnerships to help create the future of health care, Philips strengthened its collaboration with Hansen Medical for robotic systems in minimally invasive interventions, while Froedtert & The Medical College of Wisconsin Clinical Cancer Center joined the Elekta and Philips research consortium on MRI-guided radiation therapy.

•

Reflecting the company’s focus on long-term partnerships to support innovative and affordable care, Philips and Medical Center Leeuwarden in the Netherlands have signed a 10-year managed services agreement for ultrasound.

Financial performance

•

Currency-comparable equipment orders declined 2% year-on-year. Patient Care & Clinical Informatics recorded a 7% decline, while Imaging Systems showed low-single-digit growth. Equipment order intake in growth geographies showed a low-single-digit decline, mainly due to Russia & Central Asia, while China and India recorded double-digit growth. North America equipment order intake showed a low-single-digit decline. Western Europe recorded a 7% decline as Q3 2012 included large and multi-year deals in the Netherlands and UK.

Q3 2013 Quarterly report 9

•

From a regional perspective, comparable sales in growth geographies increased by 3% year-on-year, with strong growth in China, Central & Eastern Europe and Latin America, partly offset by declines in Russia, Central Asia, Middle East and Turkey. Western Europe remained in line with Q3 2012, while North America declined by 2% and other mature geographies recorded low-single-digit growth.

•

EBITA was EUR 329 million, or 14.6% of sales, compared to EUR 305 million, or 12.5% of sales, in Q3 2012.

•

Excluding restructuring and acquisition-related charges, EBITA amounted to EUR 330 million, or 14.6% of sales, compared to EUR 308 million, or 12.6% of sales, in Q3 2012. The 2.0 percentage points increase was due to improved gross margins and overhead cost reductions.

•

Net operating capital, excluding a negative currency translation effect of EUR 547 million, decreased by EUR 189 million to EUR 7.5 billion. This decrease was largely driven by lower fixed assets. Inventories as a percentage of sales improved by 1.2 percentage points year-on-year, driven by reductions in all businesses.

•

Compared to Q3 2012, the number of employees decreased by 659, mainly as a result of reductions in North America and Europe.

Miscellaneous

•

Restructuring and acquisition-related charges in Q4 2013 are expected to total approximately EUR 5 million.

10 Q3 2013 Quarterly report

Consumer Lifestyle*

*	Excluding the Audio, Video, Multimedia and Accessories business

Key data

in millions of euros unless otherwise stated


	Q3		Q3
	2012		2013

Sales		1,051		1,091
Sales growth
% nominal		18		4
% comparable		10		9
EBITA		78		116
as a % of sales		7.4		10.6
EBIT		63		102
as a % of sales		6.0		9.3
Net operating capital (NOC)		1,443		1,164
Number of employees (FTEs)		17,125		16,326

Sales

in millions of euros

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EBITA

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Business highlights

•

Building its leadership in digital innovation, Philips unveiled a range of consumer connected propositions at this year’s IFA in Berlin. Highlights included a smart air purifier, baby monitor and a digital grooming guide.

•

The extended Philips AVENT Natural infant feeding range was showcased at the Kind + Jugend fair in Germany. The Natural baby bottle is proven to be more easily accepted by babies, thanks to its unique teat design, and has enabled Philips AVENT to achieve the #1 market position in baby bottles in North America.

•

Further strengthening our global leadership, the latest introductions in Oral Healthcare, including the Philips Sonicare PowerUp and Sonicare Flexcare Platinum, have been well received by consumers and are driving strong growth in North America and China.

•

Continuing the geographical expansion and localization of proven product innovations, Philips introduced the Airfryer in Japan and the SoupMaker in Latin America. Additionally, following major success in Russia, the MultiCooker is being launched in several European markets, with initial market response exceeding expectations.

•

Innovative, precision tools are driving Philips’ market share and brand preference in male grooming. Following the successful launch of the Click & Style range, Q3 2013 saw further portfolio expansion with the introduction of the world’s first laser-guided beard trimmer.

Financial performance

•

From a regional perspective, Consumer Lifestyle achieved a strong double-digit comparable sales increase in growth geographies and mid-single-digit growth in mature geographies. North America showed high-single-digit growth, while Western Europe remained in line with Q3 2012.

•

EBITA amounted to EUR 116 million, or 10.6% of sales, an increase of EUR 38 million and 3.2 percentage points compared to Q3 2012.

Q3 2013 Quarterly report 11

•

Excluding restructuring and acquisition-related charges, EBITA was EUR 121 million, or 11.1% of sales, compared to EUR 85 million, or 8.1% of sales, in Q3 2012. The improvement of 3.0 percentage points was largely attributable to operating leverage from higher sales and improved gross margins across all businesses.

•

EBITA included EUR 7 million of net costs formerly reported in discontinued businesses (Q3 2012 included EUR 9 million related to the Audio, Video, Multimedia and Accessories business and EUR 7 million related to the Television business).

•

Net operating capital, excluding a negative currency translation effect of EUR 79 million, decreased by EUR 200 million year-on-year. The decrease was largely driven by lower working capital.

•

The number of employees decreased by 799 year-on-year, as a result of the seasonal outflow of temporary industrial personnel, mainly in the Domestic Appliances business in the Asian region.

Miscellaneous

•

Restructuring and acquisition-related charges in Q4 2013 are expected to total approximately EUR 5 million.

12 Q3 2013 Quarterly report

Lighting

Key data

in millions of euros unless otherwise stated


	Q3 2012			Q3 2013

Sales		2,139			2,084
Sales growth
% nominal		13			(3	)
% comparable		4			3
EBITA		32			177
as a % of sales		1.5			8.5
EBIT		(14	)		140
as a % of sales		(0.7	)		6.7
Net operating capital (NOC)		5,051			4,668
Number of employees (FTEs)		51,751			47,875

Sales

in millions of euros

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EBITA

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Business highlights

•

By partnering with The Home Depot and utility companies, Philips has made its 60-watt-equivalent LED bulb available for less than $5 in several states in the US.

•

As the global leader in LED lighting, Philips has been selected to transform Dubai Municipality’s buildings with intelligent LED solutions, saving 50% in energy usage and helping Dubai in its mission to become the most sustainable city in the world.

•

Philips has signed a contract with Pep Boys, the US automotive aftermarket tire and service retail chain, to be its primary supplier of car lamp and LED interior/ exterior replacement lighting.

•

Driving innovation in professional lighting systems, Philips will install energy-efficient LED lighting in 170 Z-Energy petrol stations in New Zealand. Z-Energy petrol stations will reduce their total energy use by more than 11% and cut the annual carbon emissions from Z’s retail operations by 16%.

•

Enabling social and economic development by extending the hours of light in rural communities, Philips is teaming up with the Royal Netherlands Football Association (KNVB) to create 26 solar-powered LED ‘Community Light Centers’ in Ghana.

Financial performance

•

Comparable sales were 3% higher year-on-year, led by double-digit growth at Lumileds and Automotive. Light Sources & Electronics achieved low-single-digit growth, while Professional Lighting Solutions and Consumer Luminaires recorded a low-single-digit decline.

•

From a regional perspective, comparable sales showed a double-digit increase in growth geographies (10% increase in comparable sales excluding OEM Lumileds sales), which was partially offset by a mid-single-digit decrease in mature geographies.

•

LED-based sales grew 33% compared to Q3 2012, and now represent 30% of total Lighting sales.

•

EBITA amounted to EUR 177 million, compared to EUR 32 million in Q3 2012. Earnings in Q3 2013 were impacted by restructuring and acquisition-related charges of EUR 36 million (Q3 2012: EUR 102 million, including a EUR 34 million loss on the sale of industrial assets). The year-on-year EBITA increase was driven by higher gross margins and improvements in the cost structure.

Q3 2013 Quarterly report 13

•

EBITA, excluding restructuring and acquisition-related charges and other losses, was EUR 213 million, or 10.2% of sales (Q3 2012: EUR 134 million, or 6.3% of sales). Light Sources & Electronics, Professional Lighting Solutions and Lumileds were the main contributors to the operational improvement.

•

Net operating capital, excluding a negative currency translation effect of EUR 227 million, decreased by EUR 156 million year-on-year. The decrease was largely driven by provisions and lower fixed assets.

•

Inventories as a percentage of sales improved by 0.2 percentage points year-on-year.

•

Compared to Q3 2012, the number of employees decreased by 3,876, mainly due to the rationalization of the industrial footprint.

Miscellaneous

•

Restructuring and acquisition-related charges in Q4 2013 are expected to total approximately EUR 20 million.

14 Q3 2013 Quarterly report

Innovation, Group & Services

Key data

in millions of euros unless otherwise stated


	Q3			Q3
	2012			2013

Sales		188			185
Sales growth
% nominal		19			(2	)
% comparable		16			(7	)
EBITA of:
Group Innovation		(33	)		(28	)
IP Royalties		63			82
Group and Regional Costs		(38	)		(33	)
Accelerate! investments		(33	)		(34	)
Pensions		1			(32	)
Service Units and Other		(9	)		(15	)

EBITA		(49	)		(60	)
EBIT		(50	)		(61	)
Net operating capital (NOC)		(3,707	)		(3,108	)
Number of employees (FTEs)		12,122			12,556

Sales

in millions of euros

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EBITA

in millions of euros

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Business highlights

•

Philips improved its brand ranking by one position to become the 40th most valuable brand in the top-100 global brands by Interbrand. The brand value of Philips increased by 8% to close to USD 10 billion.

•

Philips received 510(k) clearance from the US Food and Drug Administration to bring to the US market its first Digital Pathology product for a digital manual read of HER2 status for patients with invasive breast cancer. Assessment of HER2 is a standard test to evaluate treatment options.

•

Philips was recognized as a leader in the Carbon Disclosure Project for the third consecutive year on both performance and disclosure.

•

Philips received a total of eight Successful Design Awards China 2013. Five of the winners were for Philips health care solutions, with the highest honor of the ‘Diamond Award’ going to the Philips Ambient Experience Electro Physiology Lab.

•

Underscoring its innovation in lighting technology, Philips has collaborated with Audi, Merck KGaA, Automotive Lighting and the University of Cologne in a research consortium to create the world’s first large-area, 3D organic light-emitting diodes (OLEDs); these OLEDs have now been applied in the rear lighting of a vehicle for the first time.

Financial performance

•

Sales decreased marginally from EUR 188 million in Q3 2012 to EUR 185 million in Q3 2013.

•

EBITA amounted to a net cost of EUR 60 million, including a EUR 31 million settlement loss arising from a lump-sum offering to terminated vested employees in our US pension plan. Net restructuring charges in Q3 2013 amounted to a release of EUR 1 million (Q3 2012: a net release of EUR 2 million).

•

EBITA, excluding restructuring charges and the EUR 31 million pension settlement loss, improved by EUR 21 million compared to Q3 2012, mainly due to lower litigation and patent filing costs in IP Royalties.

•

EBITA of Service Units and Other included EUR 19 million of net costs formerly reported in discontinued businesses (Q3 2012 included EUR 9 million related to the Audio, Video, Multimedia and Accessories business and EUR 3 million related to the Television business).

Q3 2013 Quarterly report 15

•

Compared to Q3 2012, the number of employees increased by 434, primarily due to the centralization of Human Resource and Research activities, partly offset by restructuring activities in the Service Units.

•

Net operating capital, excluding a currency translation effect of EUR 101 million, increased by EUR 498 million year-on-year, mainly due to an increase in the value of currency hedges.

Miscellaneous

•

Restructuring charges in Q4 2013 are expected to total approximately EUR 5 million.

16 Q3 2013 Quarterly report

Additional information on Audio, Video, Multimedia and Accessories business

AVM&A results reconciliation

in millions of euros unless otherwise stated


	Q3			Q3
	2012			2013

EBITA		2			(9	)

Disentanglement costs		0			(12	)

Former AVM&A net costs allocated to Consumer Lifestyle		9			7
Former AVM&A net costs allocated to IG&S		9			19

Eliminated amortization other AVM&A intangibles		(4	)		0

EBIT discontinued operations		16			5

Financial income and expenses		0			1
Income taxes		(6	)		4

Net income (loss) of discontinued operations		10			10

Number of employees (FTEs)		2,058			1,940

Following the agreement with Funai Electric Co. Ltd, as mentioned in the Q1 2013 press release, the results of the Audio, Video, Multimedia and Accessories (AVM&A) business are reported as discontinued operations in the Consolidated statements of income and Consolidated statements of cash flows. Prior-period comparative figures have been restated accordingly. Consequently, Audio, Video, Multimedia and Accessories sales and EBITA are no longer included in the Consumer Lifestyle and Group results of continuing operations.

The net income of discontinued operations attributable to the Audio, Video, Multimedia and Accessories business is in line with Q3 2012 at EUR 10 million.

Since Q1 2013, the applicable net operating capital of this business is reported under Assets and Liabilities classified as held for sale in the Consolidated balance sheet.

The EBITA of Consumer Lifestyle includes net costs of EUR 7 million formerly reported as part of the results of this business. The EBITA of Innovation, Group & Services includes net costs of EUR 19 million formerly reported as part of this business.

Q3 2013 Quarterly report 17

Other information

Share repurchase program

Philips will start a share repurchase program of up to EUR 1.5 billion to be executed during the next 2-3 years. The maximum number of shares that will be repurchased under this program depends on the development in the share price during the course of the program. All shares repurchased under this program will be cancelled, resulting in a reduction of Philips’ outstanding share capital.

Philips will start this repurchase program as of October 21 and will enter into subsequent discretionary management agreements with one or more banks to repurchase Philips shares within the limits of relevant laws and regulations (in particular EC Regulation 2273/2003) and Philips’ articles of association. All transactions under this program will be published on Philips’ website (www.philips.com/investor) on a weekly basis.

18 Q3 2013 Quarterly report

Philips quarterly statistics

all amounts in millions of euros unless otherwise stated


	2012												2013
	1st quarter			2nd quarter			3rd quarter			4th quarter			1st quarter			2nd quarter			3rd quarter			4th quarter

Sales		5,307			5,570			5,821			6,759			5,258			5,654			5,618
comparable sales growth %		5			6			7			5			1			3			3

Gross margin		2,008			2,139			2,253			2,591			2,101			2,347			2,357
as a % of sales		37.8			38.4			38.7			38.3			40.0			41.5			42.0

Selling expenses		(1,196	)		(1,314	)		(1,298	)		(1,526	)		(1,190	)		(1,245	)		(1,214	)
as a % of sales		(22.5	)		(23.6	)		(22.3	)		(22.6	)		(22.6	)		(22.0	)		(21.6	)

G&A expenses		(199	)		(151	)		(222	)		(273	)		(200	)		(230	)		(253	)
as a % of sales		(3.7	)		(2.7	)		(3.8	)		(4.0	)		(3.8	)		(4.1	)		(4.5	)

R&D expenses		(450	)		(440	)		(447	)		(494	)		(424	)		(416	)		(437	)
as a % of sales		(8.5	)		(7.9	)		(7.7	)		(7.3	)		(8.1	)		(7.4	)		(7.8	)

EBIT		341			229			254			(176	)		305			509			464
as a % of sales		6.4			4.1			4.4			(2.6	)		5.8			9.0			8.3

EBITA		451			339			366			(50	)		402			603			562
as a % of sales		8.5			6.1			6.3			(0.7	)		7.6			10.7			10.0

Net income (loss)		183			102			105			(420	)		162			317			281

Net income (loss) attributable to shareholders		182			102			104			(423	)		161			317			282
Net income (loss) - shareholders per common share in euros - diluted		0.20			0.11			0.11			(0.46	)		0.17			0.35			0.31

Q3 2013 Quarterly report 19

Philips quarterly statistics (continued)

all amounts in millions of euros unless otherwise stated


	2012												2013
	January- March			January- June			January- September			January- December			January- March			January- June			January- September			January- December

Sales		5,307			10,877			16,698			23,457			5,258			10,912			16,530
comparable sales growth %		5			6			6			6			1			2			2

Gross margin		2,008			4,147			6,400			8,991			2,101			4,448			6,805
as a % of sales		37.8			38.1			38.3			38.3			40.0			40.8			41.2

Selling expenses		(1,196	)		(2,510	)		(3,808	)		(5,334	)		(1,190	)		(2,435	)		(3,649	)
as a % of sales		(22.5	)		(23.1	)		(22.8	)		(22.7	)		(22.6	)		(22.3	)		(22.1	)

G&A expenses		(199	)		(350	)		(572	)		(845	)		(200	)		(430	)		(683	)
as a % of sales		(3.7	)		(3.2	)		(3.4	)		(3.6	)		(3.8	)		(3.9	)		(4.1	)

R&D expenses		(450	)		(890	)		(1,337	)		(1,831	)		(424	)		(840	)		(1,277	)
as a % sales		(8.5	)		(8.2	)		(8.0	)		(7.8	)		(8.1	)		(7.7	)		(7.7	)

EBIT		341			570			824			648			305			814			1,278
as a % of sales		6.4			5.2			4.9			2.8			5.8			7.5			7.7

EBITA		451			790			1,156			1,106			402			1,005			1,567
as a % of sales		8.5			7.3			6.9			4.7			7.6			9.2			9.5

Net income (loss)		183			285			390			(30	)		162			479			760

Net income (loss) attributable to shareholders		182			284			388			(35	)		161			478			760
Net income (loss) - shareholders per common share in euros - diluted		0.20			0.31			0.42			(0.04	)		0.17			0.52			0.83

Net income (loss) from continuing operations as a % of shareholders’ equity		6.3			4.3			4.0			(0.6	)		5.8			9.0			9.4

	period ended 2012												period ended 2013

Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)		915,926			931,391			923,912			914,591			905,381			913,874			915,095
Shareholders’ equity per common share in euros		13.35			13.01			13.01			12.19			12.33			11.78			11.93

Inventories as a % of sales¹⁾		16.9			17.2			16.9			14.3			15.5			15.7			16.5
Inventories excluding discontinued operations		3,623			3,812			3,877			3,359			3,629			3,696			3,832

Net debt : group equity ratio		6:94			13:87			11:89			6:94			12:88			16:84			16:84

Net operating capital		10,634			11,485			11,048			9,316			9,969			10,184			10,249

Total employees		122,008			121,801			121,284			118,087			117,881			117,239			116,266
of which discontinued operations		2,285			2,166			2,058			2,005			1,970			1,958			1,940

¹⁾	sales is calculated over the preceding 12 months

20 Q3 2013 Quarterly report

Forward-looking statements

Forward-looking statements

This document and the related oral presentation, including responses to questions following the presentation, contain 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. Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.

These factors include but are not limited to domestic and global economic and business conditions, developments within the euro zone, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2012.

Third-party market share data

Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

Use of non-GAAP information

In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of these non-GAAP measures to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found in our Annual Report 2012.

Use of fair-value measurements

In presenting the Philips Group financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are estimated using appropriate valuation models and unobservable inputs. Such fair value estimates require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our Annual Report 2012. Independent valuations may have been obtained to support management’s determination of fair values.

All amounts are in millions of euros unless otherwise stated. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2012, unless otherwise stated.

Prior-period financials have been restated for the treatment of Audio, Video, Multimedia and Accessories as discontinued operations, the adoption of IAS 19R, which mainly relates to pension reporting, and adjustments to the quarterly figures of 2012, which have already been included in the Annual Report 2012 (for an explanation refer to Annual Report 2012 section 12.10 “Significant Accounting Policies”). An overview of the revised 2012 figures per quarter is available on the Philips website, in the Investor Relations section.

Q3 2013 Quarterly report 21

Condensed consolidated statements of income

in millions of euros unless otherwise stated


	3rd quarter						January to September
	2012			2013			2012			2013

Sales		5,821			5,618			16,698			16,530
Cost of sales		(3,568	)		(3,261	)		(10,298	)		(9,725	)

Gross margin		2,253			2,357			6,400			6,805

Selling expenses		(1,298	)		(1,214	)		(3,808	)		(3,649	)
General and administrative expenses		(222	)		(253	)		(572	)		(683	)
Research and development expenses		(447	)		(437	)		(1,337	)		(1,277	)
Other business income		9			20			241			102
Other business expenses		(41	)		(9	)		(100	)		(20	)

Income from operations		254			464			824			1,278

Financial income		13			15			62			51
Financial expenses		(129	)		(107	)		(352	)		(304	)

Income before taxes		138			372			534			1,025

Income tax expense		(37	)		(108	)		(158	)		(298	)

Income after taxes		101			264			376			727

Results relating to investments in associates		(6	)		6			(18	)		21

Net income from continuing operations		95			270			358			748

Discontinued operations - net of income tax		10			11			32			12

Net income		105			281			390			760

Attribution of net income for the period
Net income attributable to shareholders		104			282			388			760
Net income attributable to non-controlling interests		1			(1	)		2			—

Earnings per common share attributable to shareholders
Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands):
- basic		929,261	¹⁾		914,431			925,112	¹⁾		910,145
- diluted		936,176	¹⁾		922,209			929,485	¹⁾		917,701

Net income attributable to shareholders per common share in euros:
- basic		0.11			0.31			0.42			0.84
- diluted		0.11			0.31			0.42			0.83

¹⁾	Adjusted to make 2012 comparable for the elective share dividend premium (273 thousand) issued in June 2013

22 Q3 2013 Quarterly report

Condensed consolidated balance sheets

in millions of euros unless otherwise stated


	September 30,		December 31,		September 29,
	2012		2012		2013

Non-current assets:
Property, plant and equipment		2,992		2,959		2,813
Goodwill		7,117		6,948		6,654
Intangible assets excluding goodwill		3,902		3,731		3,400
Non-current receivables		154		176		163
Investments in associates		195		177		165
Other non-current financial assets		557		549		596
Deferred tax assets		1,837		1,919		1,826
Other non-current assets		80		94		67

Total non-current assets		16,834		16,553		15,684

Current assets:
Inventories - net		4,071		3,495		3,832
Other current financial assets		—		—		10
Other current assets		412		337		425
Derivative financial assets		129		137		138
Income tax receivable		133		97		136
Receivables		4,522		4,585		4,580
Assets classified as held for sale		56		43		486
Cash and cash equivalents		3,232		3,834		2,034

Total current assets		12,555		12,528		11,641

Total assets		29,389		29,081		27,325

Shareholders’ equity		12,016		11,151		10,913
Non-controlling interests		36		34		38

Group equity		12,052		11,185		10,951

Non-current liabilities:
Long-term debt		3,837		3,725		3,374
Long-term provisions		1,969		2,119		2,011
Deferred tax liabilities		144		92		104
Other non-current liabilities		1,955		2,005		1,754

Total non-current liabilities		7,905		7,941		7,243

Current liabilities:
Short-term debt		859		809		692
Derivative financial liabilities		674		517		413
Income tax payable		142		200		119
Accounts and notes payable		2,997		2,839		3,076
Accrued liabilities		2,986		3,171		2,895
Short-term provisions		640		837		613
Liabilities directly associated with assets held for sale		33		27		245
Other current liabilities		1,101		1,555		1,078

Total current liabilities		9,432		9,955		9,131

Total liabilities and group equity		29,389		29,081		27,325

Q3 2013 Quarterly report 23

Condensed consolidated statements of cash flows

in millions of euros


	3rd quarter						January to September
	2012			2013			2012			2013

Cash flows from operating activities:
Net income		105			281			390			760
Loss from discontinued operations		(10	)		(11	)		(32	)		(12	)
Adjustments to reconcile net income to net cash provided by operating activities:
Fixed assets depreciation, amortization, and impairments		346			330			1,016			946
Impairment of goodwill and other non-current financial assets		9			3			12			6
Net gain (loss) on sale of assets		33			(9	)		(159	)		(49	)
(Income) loss from investments in associates		3			(7	)		9			(22	)
Dividends received from investments in associates		—			—			7			6
(Increase) decrease in working capital:		139			(357	)		(234	)		(1,247	)
Increase in receivables and other current assets		(206	)		(428	)		(109	)		(421	)
Increase in inventories		(157	)		(265	)		(443	)		(662	)
Increase (decrease) in accounts payable, accrued and other liabilities		502			336			318			(164	)
(Increase) decrease in non-current receivables, other assets and other liabilities		(62	)		60			(191	)		(79	)
Increase (decrease) in provisions		51			(76	)		107			(243	)
Other items		34			123			101			167

Net cash provided by operating activities		648			337			1,026			233

Cash flows from investing activities:
Purchase of intangible assets		(11	)		(9	)		(25	)		(17	)
Proceeds from sale of intangible assets		—			—			160			—
Expenditures on development assets		(86	)		(88	)		(250	)		(268	)
Capital expenditures on property, plant and equipment		(144	)		(137	)		(449	)		(406	)
Proceeds from disposals of property, plant and equipment		3			14			412			22
Cash to derivatives and securities		(9	)		(11	)		(54	)		(93	)
Purchase of other non-current financial assets		(9	)		(1	)		(163	)		(5	)
Proceeds from other non-current financial assets		—			6			—			15
Purchase of businesses, net of cash acquired		(22	)		1			(253	)		(5	)
Proceeds from sale of interests in businesses, net of cash disposed of		4			(6	)		13			85

Net cash used for investing activities		(274	)		(231	)		(609	)		(672	)

Cash flows from financing activities:
Proceeds from issuance of (payments on) short-term debt		(20	)		(76	)		168			(203	)
Principal payments on long-term debt		(106	)		(126	)		(589	)		(167	)
Proceeds from issuance of long-term debt		28			14			1,201			48
Treasury shares transactions		(135	)		(18	)		(577	)		(505	)
Dividends paid		1			(41	)		(255	)		(272	)

Net cash used for financing activities		(232	)		(247	)		(52	)		(1,099	)

Net cash provided by (used for) continuing operations		142			(141	)		365			(1,538	)

Cash flows from discontinued operations:
Net cash used for operating activities		(70	)		(44	)		(273	)		(176	)
Net cash provided by (used for) investing activities		70			(39	)		73			(50	)

Net cash used for discontinued operations		—			(83	)		(200	)		(226	)

Net cash provided by (used for) continuing and discontinued operations		142			(224	)		165			(1,764	)

24 Q3 2013 Quarterly report


	3rd quarter					January to September

Effect of change in exchange rates on cash and cash equivalents		(44	)	(49	)		(80	)	(36	)
Cash and cash equivalents at the beginning of the period		3,134		2,307			3,147		3,834

Cash and cash equivalents at the end of the period		3,232		2,034			3,232		2,034

Net cash paid during the period for
Pensions		(149	)	(157	)		(490	)	(489	)
Interest		(102	)	(83	)		(210	)	(202	)
Income taxes		(92	)	(139	)		(275	)	(378	)

For a number of reasons, principally the effects of translation differences, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items.

Q3 2013 Quarterly report 25

Condensed consolidated statement of changes in equity

in millions of euros


	common shares			capital in excess of par value			retained earnings			revaluation reserve			currency translation differences			available -for-sale financial assets		cash flow hedges			treasury shares at cost			total shareholders’ equity			non- controlling interests		total equity

January-September 2013

Balance as of December 31, 2012		191			1,304			10,724			54			(93	)		54		20			(1,103	)		11,151			34		11,185

Net income								760																	760			—		760

Other comprehensive income, net of tax								(24	)		(12	)		(277	)		8		(6	)					(311	)				(311	)


Total comprehensive income								736			(12	)		(277	)		8		(6	)					449			—		449

Dividend distributed		4			402			(678	)																(272	)				(272	)

Movement non-controlling interest								—																	—			4		4

Cancellation of treasury shares		(7	)					(780	)													787			—					—

Purchase of treasury shares								(38	)													(531	)		(569	)				(569	)

Re-issuance of treasury shares					(37	)		(58	)													167			72					72

Share-based compensation plans					74																				74					74

Income tax share-based compensation plans					8																				8					8


Total other equity movements		(3	)		447			(1,554	)													423			(687	)		4		(683	)


Balance as of September 29, 2013		188			1,751			9,906			42			(370	)		62		14			(680	)		10,913			38		10,951

26 Q3 2013 Quarterly report

Sectors

in millions of euros unless otherwise stated

Sales and income from operations


	3rd quarter
	2012							2013
	sales		income from operations as a % of sales					sales		income from operations as a % of sales

Healthcare		2,443		255		10.4			2,258		283		12.5
Consumer Lifestyle		1,051		63		6.0			1,091		102		9.3
Lighting		2,139		(14	)	(0.7	)		2,084		140		6.7
Innovation, Group & Services		188		(50	)	—			185		(61	)	—

Philips Group		5,821		254		4.4			5,618		464		8.3

Sales and income from operations


	January to September
	2012						2013
	sales		income from operations as a % of sales				sales		income from operations as a % of sales

Healthcare		7,065		665		9.4		6,747		838		12.4
Consumer Lifestyle		2,934		287		9.8		3,177		255		8.0
Lighting		6,180		22		0.4		6,107		365		6.0
Innovation, Group & Services		519		(150	)	—		499		(180	)	—

Philips Group		16,698		824		4.9		16,530		1,278		7.7

Q3 2013 Quarterly report 27

Sectors and main countries

in millions of euros

Sales total assets and total liabilities


	sales				total assets				total liabilities excluding debt
	January to September				September 30,		September 29,		September 30,		September 29,
	2012		2013		2012		2013		2012		2013

Healthcare		7,065		6,747		11,617		10,783		3,269		3,172
Consumer Lifestyle		2,934		3,177		3,506		3,007		2,063		1,843
Lighting		6,180		6,107		7,316		7,150		2,243		2,461
Innovation, Group & Services		519		499		6,894		5,899		5,033		4,587

						29,333		26,839		12,608		12,063
Assets and liabilities classified as held for sale						56		486		33		245

Philips Group		16,698		16,530		29,389		27,325		12,641		12,308

Sales and tangible and intangible assets


	sales			tangible and intangible assets¹⁾
	January to September			September 30,		September 29,
		2012	2013		2012		2013

Netherlands		436	463		892		867
United States		4,974	4,699		8,280		7,572
China		1,847	2,045		1,122		1,093
Germany		914	926		261		282
Japan		842	761		621		439
France		663	633		89		82
India		520	493		156		126
Other countries		6,502	6,510		2,590		2,406

Philips Group		16,698	16,530		14,011		12,867

¹⁾	Includes property, plant and equipment, goodwill, and intangible assets excluding goodwill

28 Q3 2013 Quarterly report

Pension costs

in millions of euros

Specification of pension costs


	3rd quarter
	2012								2013
	Netherlands			other		total			Netherlands			other		total

Defined-benefit plans

Pensions
Current service cost		44			21		65			48			23		71
Past service cost (incl. curtailments)		—			—		—			—			—		—
Settlements		—			—		—			—			31		31
Interest expense		—			19		19			—			17		17
Interest income		(1	)		—		(1	)		(1	)		—		(1	)

Total		43			40		83			47			71		118
of which discontinued operations		—			—		—			—			—		—

Retiree Medical
Interest expense		—			3		3			—			2		2

Total		—			3		3			—			2		2

Defined-contribution plans
Cost		3			34		37			3			34		37
of which discontinued operations		—			1		1			—			1		1

Specification of pension costs


	January to September
	2012									2013
	Netherlands			other			total			Netherlands			other			total

Defined-benefit plans

Pensions
Current service cost		131			65			196			144			64			208
Past service cost (incl. curtailments)		—			—			—			—			(78	)		(78	)
Settlements		—			—			—			—			31			31
Interest expense		—			57			57			—			49			49
Interest income		(3	)		—			(3	)		(3	)		—			(3	)

Total		128			122			250			141			66			207
of which discontinued operations		1			1			2			1			—			1

Retiree Medical
Current service cost		—			1			1			—			1			1
Past service cost (incl. curtailments)		—			(25	)		(25	)		—			—			—
Interest expense		—			9			9			—			8			8

Total		—			(15	)		(15	)		—			9			9

Defined-contribution plans
Cost		8			101			109			7			105			112
of which discontinued operations		1			3			4			—			2			2

Q3 2013 Quarterly report 29

Reconciliation of non-GAAP performance measures

in millions of euros unless otherwise stated

Certain non-GAAP financial measures are presented when discussing the Philips Group’s performance. In the following tables, a reconciliation to the most directly comparable IFRS performance measure is made.

Sales growth composition

in %


	3rd quarter												January to September
	comparable growth			currency effects			consolidation changes			nominal growth			comparable growth			currency effects			consolidation changes			nominal growth

2013 versus 2012
Healthcare		0.0			(7.1	)		(0.5	)		(7.6	)		(0.5	)		(3.8	)		(0.2	)		(4.5	)
Consumer Lifestyle		9.3			(5.5	)		0.0			3.8			10.8			(2.5	)		0.0			8.3
Lighting		3.0			(5.8	)		0.2			(2.6	)		1.5			(2.7	)		0.0			(1.2	)
Innovation, Group & Services		(6.9	)		(1.3	)		6.6			(1.6	)		(8.3	)		(0.5	)		4.9			(3.9	)

Philips Group		2.5			(6.1	)		0.1			(3.5	)		2.0			(3.1	)		0.1			(1.0	)

EBITA (or Adjusted income from operations) to Income from operations (or EBIT)


	3rd quarter									January to September
	Income from operations (or EBIT)			Amortization of intangibles¹⁾			EBITA (or Adjusted income from operations)			Income from operations (or EBIT)			Amortization of intangibles¹⁾			EBITA (or Adjusted income from operations)

2013
Healthcare		283			(46	)		329			838			(133	)		971
Consumer Lifestyle		102			(14	)		116			255			(41	)		296
Lighting		140			(37	)		177			365			(112	)		477
Innovation, Group & Services		(61	)		(1	)		(60	)		(180	)		(3	)		(177	)

Philips Group		464			(98	)		562			1,278			(289	)		1,567

2012
Healthcare		255			(50	)		305			665			(150	)		815
Consumer Lifestyle		63			(15	)		78			287			(42	)		329
Lighting		(14	)		(46	)		32			22			(134	)		156
Innovation, Group & Services		(50	)		(1	)		(49	)		(150	)		(6	)		(144	)

Philips Group		254			(112	)		366			824			(332	)		1,156

¹⁾	Excluding amortization of software and product development

30 Q3 2013 Quarterly report

Reconciliation of non-GAAP performance measures (continued)

in millions of euros

Net operating capital to total assets


	Philips Group		Healthcare		Consumer Lifestyle		Lighting		IG&S

September 29, 2013
Net operating capital (NOC)		10,249		7,525		1,164		4,668		(3,108	)
Exclude liabilities comprised in NOC:
- payables/liabilities		9,335		2,730		1,565		1,851		3,189
- intercompany accounts		—		159		79		126		(364	)
- provisions		2,624		283		199		484		1,658
Include assets not comprised in NOC:
- investments in associates		165		86		—		21		58
- other current financial assets		10		—		—		—		10
- other non-current financial assets		596		—		—		—		596
- deferred tax assets		1,826		—		—		—		1,826
- cash and cash equivalents		2,034		—		—		—		2,034

		26,839		10,783		3,007		7,150		5,899
Assets classified as held for sale		486

Total assets		27,325

December 31, 2012
Net operating capital (NOC)		9,316		7,976		1,205		4,635		(4,500	)
Exclude liabilities comprised in NOC:
- payables/liabilities		10,287		2,760		1,718		1,695		4,114
- intercompany accounts		—		71		42		37		(150	)
- provisions		2,956		355		315		581		1,705
Include assets not comprised in NOC:
- investments in associates		177		86		—		22		69
- other non-current financial assets		549		—		—		—		549
- deferred tax assets		1,919		—		—		—		1,919
- cash and cash equivalents		3,834		—		—		—		3,834

		29,038		11,248		3,280		6,970		7,540
Assets classified as held for sale		43

Total assets		29,081

September 30, 2012
Net operating capital (NOC)		11,048		8,261		1,443		5,051		(3,707	)
Exclude liabilities comprised in NOC:
- payables/liabilities		9,855		2,920		1,703		1,792		3,440
- intercompany accounts		—		68		32		54		(154	)
- provisions		2,609		281		328		397		1,603
Include assets not comprised in NOC:
- investments in associates		195		87		—		22		86
- other non-current financial assets		557		—		—		—		557
- deferred tax assets		1,837		—		—		—		1,837
- cash and cash equivalents		3,232		—		—		—		3,232

		29,333		11,617		3,506		7,316		6,894
Assets held for sale		56

Total assets		29,389

Q3 2013 Quarterly report 31

Reconciliation of non-GAAP performance measures (continued)

in millions of euros

Composition of net debt to group equity


	September 30, 2012		December 31, 2012		September 29, 2013

Long-term debt		3,837		3,725		3,374
Short-term debt		859		809		692

Total debt		4,696		4,534		4,066
Cash and cash equivalents		3,232		3,834		2,034

Net debt (cash) (total debt less cash and cash equivalents)		1,464		700		2,032

Shareholders’ equity		12,016		11,151		10,913
Non-controlling interests		36		34		38

Group equity		12,052		11,185		10,951

Net debt and group equity		13,516		11,885		12,983

Net debt divided by net debt and group equity (in %)		11		6		16
Group equity divided by net debt and group equity (in %)		89		94		84

Composition of cash flows


	3rd quarter						January to September
	2012			2013			2012			2013

Cash flows provided by operating activities		648			337			1,026			233
Cash flows used for investing activities		(274	)		(231	)		(609	)		(672	)

Cash flows before financing activities		374			106			417			(439	)

Cash flows provided by operating activities		648			337			1,026			233
Net capital expenditures:		(238	)		(220	)		(152	)		(669	)
Purchase of intangible assets		(11	)		(9	)		(25	)		(17	)
Proceeds from sale of intangible assets		—			—			160			—
Expenditures on development assets		(86	)		(88	)		(250	)		(268	)
Capital expenditures on property, plant and equipment		(144	)		(137	)		(449	)		(406	)
Proceeds from sale of property, plant and equipment		3			14			412			22

Free cash flows		410			117			874			(436	)

32 Q3 2013 Quarterly report

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