Contingent liabilities

Guarantees

Philips’ policy is to provide only guarantees and other letters of support, in writing. Philips does not stand by other forms of support. At the end of 2008, the total fair value of guarantees was EUR 10 million (2007: EUR 3 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, 2008.

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, including Superfund sites. The Company applies the provisions of SOP 96-1, ‘Environmental Liabilities’, and SFAS No. 5, ‘Accounting for Contingencies’, and accrues for losses associated with environmental obligations when such losses are probable and reasonably estimable.

Generally, the costs of future expenditures for environmental remediation obligations are not discounted to their present value since the amounts and the timing of related cash payments are not reliably determinable. Potential insurance recoveries are recognized when recoveries are deemed probable.

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 group companies and 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 and consolidated results of operations for a particular period.

Provided below are disclosures of the more significant cases:

Asbestos

Judicial proceedings have been 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, involving allegations of personal injury from alleged asbestos exposure. The claims generally relate to asbestos used in the manufacture of unrelated companies’ products in the United States and frequently involved claims for substantial compensatory and punitive damages. THAN’s businesses which allegedly gave rise to these alleged liabilities were completely sold in 1984 and its ongoing operations are not material to its parent, Philips Electronics North America Corporation (PENAC), or the Company.

During the past several years, certain of the asserted claims were settled. Additionally, various alternatives for resolving pending and future claims were explored, including the possibility of THAN filing for bankruptcy. In the fourth quarter of 2008, THAN solicited votes for the acceptance of a plan of reorganization from the holders of asbestos claims. Approximately ninety percent of the claimants (both in number and value of claims) voted in favor of the plan, exceeding the thresholds of seventy-five percent in number and two-thirds in value which are required for a prepackaged bankruptcy under section 524(g) of the Bankruptcy Code. On November 24, 2008, THAN filed a petition, along with a prepackaged plan of reorganization, in the U.S. Bankruptcy Court for the Southern District of New York seeking reorganization under Chapter 11 of the U.S. Bankruptcy Code. Under the proposed Plan of Reorganization, which must be approved by the Bankruptcy Court and the U.S. District Court for the Southern District of New York, an Asbestos Personal Injury Trust (the Trust) would be established in accordance with section 524(g) of the Bankruptcy Code to assume, liquidate and satisfy all liabilities of THAN determined to arise from, or relate to pending and future claims alleging personal injury or death based on or related to alleged exposure to asbestos fiber distributed by THAN, a product containing asbestos fiber distributed by THAN, or an asbestos-containing product distributed by THAN. The Trust would be funded by a contribution of USD 900 million (EUR 639 million) by PENAC and THAN. Additionally, under the Plan, PENAC will forgive certain debt of THAN and assume certain liabilities from THAN. If approved by the Courts, the Plan of Reorganization will result in a permanent injunction directing all claims alleging personal injury or death from exposure to asbestos distributed by THAN to the Trust and will bar all related litigation against THAN, its affiliates (including PENAC and the Company) and certain third parties. As a result of THAN’s bankruptcy filing, an automatic stay has been implemented, staying, restraining and enjoining the commencement or continuation of any and all actions or other proceedings against THAN. Additionally, on December 3, 2008, the U.S. Bankruptcy Court issued a preliminary injunction staying, restraining and enjoining the commencement or continuation of any and all actions or other proceedings against PENAC, its affiliates, and certain third parties, based on or related to alleged exposure to asbestos fiber distributed by THAN, a product containing asbestos fiber distributed by THAN, or an asbestos-containing product distributed by THAN.

In connection with these matters, a pre-tax charge to earnings of EUR 326 million was recorded in 2008. In 2006, a pre-tax charge to earnings of EUR 334 million was recognized, representing the cost of disposing of pending and estimated future claims filed through 2016. There was no expense recognized in 2007. At December 31, 2008, the recorded provision for loss contingencies with respect to asbestos product liability amounted to EUR 640 million (EUR 316 million at December 31, 2007). During 2008, costs of EUR 24 million were incurred with respect to litigation, claims administration, insurance recoveries, and bankruptcy related matters (EUR 27 million was incurred in 2007 and EUR 15 million was incurred in 2006).

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 2008 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 87 million were recognized in 2008 (EUR 17 million was recognized in 2007 and EUR 79 million was recognized in 2006). Insurers paid EUR 113 million in 2008 (EUR 27 million was paid in 2007 and EUR 34 million was paid in 2006) for asbestos-related defense and indemnity costs. At December 31, 2008, EUR 121 million was jointly held by PENAC and THAN in an insurance settlement proceeds trust for future contribution to the Trust if the Plan of Reorganization is approved by the Courts. Additionally, at December 31, 2008, the recorded receivable from insurance carriers, for which settlement agreements have been reached amounted to EUR 36 million (EUR 62.7 million at December 31, 2007) for the reimbursement of incurred defense and indemnity costs as well as for probable recoveries of accrued projected settlement costs with respect to pending and future claims, 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. Additionally, settlement discussions are also being held with certain carriers.

MedQuist

On January 22, 2008, Philips and four employees of Philips' affiliates that once served on the board of directors of MedQuist, Inc. were named as defendants in a lawsuit filed in New Jersey state court challenging MedQuist's exploration of strategic alternatives, as well as Philips ultimate sale of its MedQuist stake to an unaffiliated third party in August 2008. On July 10, 2008, the defendants moved to dismiss the complaint and, on November 24, 2008, the court dismissed the action in its entirety and with prejudice. In December 2008 the plaintiff filed a notice of appeal.

LG Display

On December 11, 2006, LG Display Co. Ltd (formerly LG.Philips LCD Co. Ltd.), a company in which the Company holds 13% of the common stock, announced that officials from the Korean Fair Trade Commission visited the offices of LG Display and that it had received a subpoena from the United States Department of Justice and 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 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 December 5, 2008, following the partial grant of motions to dismiss consolidated class action complaints in those master actions, the plaintiffs filed amended consolidated class action complaints, asserting essentially the same legal claims as those alleged in the prior complaints. The Company and certain other companies within the Philips group companies that were named as defendants in various of the original complaints have entered into agreements with the plaintiffs 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. None of the companies within the Philips group of companies currently is named as a defendant in the pending amended complaints, but the litigation is continuing. 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 U.S. federal securities laws. No Philips group company is named as a defendant in these actions.

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 price 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 the basis of current knowledge, the Company cannot determine whether a loss is probable with respect to these actions.

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 the U.S., Philips has been informed that 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, 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. Pursuant to a Stipulation and Order issued by the District Court on September 12, 2008, a broad stay of merits discovery has been imposed and the Court has set a deadline of March 9, 2009 for the filing of separate consolidated amended complaints by the direct and indirect purchasers. Philips intends to move to dismiss such consolidated amended complaints once they are filed and otherwise will vigorously defend these lawsuits.

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

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.