Acquisitions and divestments

Notes

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2008

During 2008, Philips entered into a number of acquisitions and completed several divestments. All business combinations have been accounted for using the purchase method of accounting.

The major acquisitions in 2008 consisted of Genlyte Group Inc. (Genlyte), Respironics Inc. (Respironics) and VISICU Inc. (VISICU). The remaining acquisitions, both individually and in the aggregate, were deemed immaterial in respect of the IFRS 3 disclosure requirements.

Sales and income from operations related to activities divested in 2008, included in the Company’s consolidated statement of income for 2008, amounted to EUR 176 million and nil, respectively.

The most significant acquisitions and divestments are summarized in the next two tables and described in the section below.

Acquisitions
	net cash outflow	net assets acquired ¹⁾	other intangible assets	goodwill

Genlyte	1,894	10	860	1,024
Respironics	3,196	(152)	1,186	2,162
VISICU	198	(10)	33	175

¹⁾	Excluding cash acquired

Divestments
	inflow of cash and other assets ¹⁾	net assets divested	recognized gain (loss)

Set-Top Boxes & Connectivity Solutions	74 ²⁾	(32)	42
Philips Speech Recognition Systems	65 ³⁾	(20)	45

¹⁾	Net of cash divested
²⁾	Assets received in lieu of cost (see note 66)
³⁾	Of which EUR 22 million cash

Genlyte

On January 22 , 2008, Philips completed the purchase of all outstanding shares of Genlyte, a leading manufacturer of lighting fixtures, controls and related products for the commercial, industrial and residential markets. Through this acquisition Philips established a solid platform for further growth in the area of energy-saving and green lighting technology. The acquisition created a leading position for Philips in the North American luminaires market. Philips paid total net cash consideration of EUR 1,894 million. This amount includes the cost of 331,627 shares previously acquired in August 2007, the pay-off of certain debt and the settlement of outstanding stock options. The net impact of the Genlyte acquisition on Philips' liquidity position in 2008, excluding the pay-off of debt, was EUR 1,805 million. As of the acquisition date, Genlyte has been consolidated as part of the Lighting sector.

The condensed balance sheet of Genlyte determined in accordance with IFRS, immediately before and after the acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	254	1,024
Other intangible assets	102	860
Property, plant and equipment	129	191
Working capital	134	160
Other current financial assets	−	3
Deferred tax liabilities	(12)	(300)
Provisions	(18)	(36)
Cash	57	57
	646	1,959

Financed by
Group equity	568	1,951
Loans	78	8
	646	1,959

The goodwill recognized is related to the complementary technological expertise and talent of the Genlyte workforce and the synergies expected to be achieved from integrating Genlyte into the Lighting sector.

Other intangible assets are comprised of the following:


	amount	amortization period in years
Core technology and designs	81	1-8
In-process R&D	11	5
Group brands	142	2-14
Product brands	5	2-5
Customer relationships and patents	614	9-17
Order backlog	6	0.25
Software	1	3
	860

Genlyte contributed income from operations of EUR 34 million to the Group for the period from January 22 to December 31, 2008.

Respironics

On March 10, 2008, Philips acquired 100% of the shares of Respironics, a leading provider of innovative solutions for the global sleep and respiratory markets. Respironics designs, develops, manufactures and markets medical devices used primarily for patients suffering from Obstructive Sleep Apnea (OSA) and respiratory disorders. The acquisition of Respironics added new product categories in OSA and home respiratory care to the existing Philips business. This acquisition formed a solid foundation for the Home Healthcare Solutions business of the Company. Philips acquired Respironics' shares for a net cash consideration of EUR 3,196 million. As of the acquisition date, Respironics has been consolidated as part of the Healthcare sector.

The condensed balance sheet of Respironics determined in accordance with IFRS, immediately before and after the acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	165	2,162
Other intangible assets	39	1,186
Property, plant and equipment	123	137
Working capital	214	215
Other non-current financial assets	11	10
Provisions	(27)	(27)
Deferred tax assets/liabilities	35	(439)
Cash	135	135
	695	3,379

Financed by
Group equity	647	3,331
Loans	48	48
	695	3,379

The goodwill recognized is related to the complementary technical skills and talent of the Respironics workforce and the synergies expected to be achieved from integrating Respironics into the Healthcare sector.

Other intangible assets are comprised of the following:


	amount	amortization period in years
Core technology	355	9-13
Developed non-core technology	21	4-7
In-process R&D	3	3
Trade name	72	6
Customer relationships	732	16-18
Other	3	1-3
	1,186

Respironics contributed income from operations of EUR 10 million to the Group for the period from March 10 to December 31, 2008.

VISICU

On February 20 , 2008, Philips acquired 100% of the shares of VISICU, a leading IT company which develops remote patient monitoring systems. The acquisition of VISICU will facilitate the creation of products to provide increased clinical decision support to hospital staff, while allowing them to monitor a greater number of critically ill patients. Philips paid a total net cash consideration of EUR 198 million. As of the acquisition date, VISICU has been consolidated as part of the Healthcare sector.

The condensed balance sheet of VISICU determined in accordance with IFRS, immediately before and after the acquisition date:


	before acquisition date	after acquisition date

Assets
Goodwill	−	175
Other intangible assets	−	33
Property, plant and equipment	1	−
Working capital	(2)	(4)
Other non-current financial assets	3	−
Deferred tax assets/ liabilities	7	(4)
Deferred Revenue	(25)	(2)
Cash	74	74
	58	272

Financed by
Group equity	58	272
Loans	−	−
	58	272

The goodwill recognized is related to the complementary technological skills and talent of VISICU's workforce and the synergies expected to be achieved from integrating VISICU into the Healthcare sector.

Other intangible assets are comprised of the following:


	amount	amortization period in years
Core technology	20	7
In-process R&D	4	3
Patents and trademarks	1	6
Customer relationships	5	2-15
Backlog	3	1-3
	33

VISICU contributed a loss from operations of EUR 13 million to the Group for the period from February 20 to December 31, 2008.

Pro forma disclosures on acquisitions

The following table presents the year-to-date unaudited pro-forma results of Philips, assuming Genlyte, Respironics and VISICU had been consolidated as of January 1, 2008:

Unaudited
	January-December 2008
	Philips Group	pro forma adjustments ¹⁾	pro forma Philips Group

Sales	26,385	230	26,615
Income from operations	54	(29)	25
Net income (loss)	(91)	(13)	(104)
Earnings per share - in euros	(0.09)		(0.10)

¹⁾

Pro forma adjustments include sales, income from operations and net income from continuing operations of the acquired companies from January 1, 2008 to the date of acquisition. As Philips finances its acquisitions with own funds, the pro forma adjustments exclude the cost of external funding incurred prior to the acquisition. The pro forma adjustments also reflect the impact of the purchase-price accounting effects from January 1, 2008 to the date of acquisition and the elimination of non-recurring integration costs incurred by the Company. Purchase-price accounting effects primarily relate to the amortization of intangible assets (EUR 36 million).The non-recurring integration costs primarly relate to the accelarated vesting of stock options (EUR 255 million).

The following table presents the year-to-date unaudited pro-forma results of Philips, assuming Genlyte, Respironics and VISICU had been consolidated as of January 1, 2007:

Unaudited
	Philips Group	pro forma adjustments ¹⁾	pro forma Philips Group

Sales	26,793	2,142	28,935
Income from operations	1,867	61	1,928
Net income	4,873	66	4,939
Earnings per share - in euros	4.49		4.55

¹⁾

Pro forma adjustments include sales, income from operations and net income from continuing operations of the acquired companies for 2007. As Philips finances its acquisitions with own funds, the pro forma adjustments exclude the cost of external funding incurred in 2007. The pro forma adjustments also reflect the impact of the purchase-price accounting effects of 2007. These effects primarly relate to the amortization of intangible assets (EUR 256 million) and inventory step-ups (EUR 78 million).

Set-Top Boxes and Connectivity Solutions

On April 21, 2008, Philips completed the sale of its Set-Top Boxes (STB) and Connectivity Solutions (CS) activities to UK-based technology provider Pace Micro Technology (Pace). Philips received 64.5 million Pace shares, representing a 21.6% shareholding, with a market value of EUR 74 million at that date. Philips recognized a gain on this transaction of EUR 42 million which was recognized in Other business income. Two days later, Philips reduced its interest to 17%. The Pace shares are treated as available-for-sale securities and presented under Other non-current financial assets. The shares are subject to a lock-up period which expires in April 2009.

Philips Speech Recognition Systems

On September 28, 2008, Philips sold its speech recognition activities to US-based Nuance Communications for EUR 65 million. Philips realized a gain of EUR 45 million on this transaction which was recognized in Other business income.

2007

During 2007, Philips entered into a number of acquisitions and completed several disposals of activities. All business combinations have been accounted for using the purchase method of accounting.

Major acquisitions in 2007 were Partners in Lighting and Color Kinetics, currently Philips Solid-State Lighting Solutions. The remaining acquisitions, both individually and in the aggregate, were deemed immaterial in respect of the IFRS 3 disclosure requirements.

Sales and income from operations related to activities divested in 2007, included in the Company's consolidated statement of income 2007, amounted to EUR 262 million and a loss of EUR 39 million respectively.

The most significant acquisitions and divestments are summarized in the next two tables and described in the section below.

Acquisitions
	net cash outflow	net assets acquired ¹⁾	other intangible assets	goodwill

Partners in Lighting	561	47	217	297
Color Kinetics	515	(29)	187	357

¹⁾	Excluding cash acquired

Divestments
	cash inflow ¹⁾	net assets divested ²⁾	recognized gain (loss)

LG Display	1,548	895	653

¹⁾	Net of cash divested
²⁾	Includes the release of cumulative translation differences

Partners in Lighting (PLI)

On February 5, 2007, Philips acquired PLI, a leading European manufacturer of home luminaires. Philips acquired 100% of the shares of PLI from CVC Capital Partners, a private equity investment company, at a net cash consideration of EUR 561 million paid upon completion of the transaction. As of the date of acquisition, PLI has been consolidated within the Lighting sector.

The condensed balance sheet of PLI determined in accordance with IFRS, immediately before and after acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	293	297
Other intangible assets	−	217
Property, plant and equipment	76	97
Other non-current financial assets (liabilities)	(30)	1
Working capital	75	114
Provisions	−	(14)
Deferred tax liabilities	8	(67)
Cash	23	23
	445	668

Financed by
Group equity	(46)	584
Loans	491	84
	445	668

The goodwill recognized is related to the complementary technical skills and talent of PLI's workforce and the synergies expected to be achieved from integrating PLI into the Lighting sector.

Other intangible assets comprise:


	amount	amortization period in years
Customer relationships and patents	156	20
Trademarks and trade names	61	20
	217

PLI contributed income from operations of EUR 24 million to the Group for the period from February 5 to December 31, 2007.

Color Kinetics

On August 24, 2007, Philips completed the acquisition of 100% of the shares of Color Kinetics, a leader in designing and marketing innovative lighting systems based on Light Emitting Diode (LED) technology for a net cash consideration of EUR 515 million. As of the date of acquisition, Color Kinetics has been consolidated within the Lighting sector.

The condensed balance sheet of Color Kinetics determined in accordance with IFRS, immediately before and after acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	−	357
Other intangible assets	−	187
Property, plant and equipment	7	7
Working capital	10	16
Deferred tax	−	(52)
Cash	71	71
	88	586

Financed by
Group equity	88	586
	88	586

The goodwill recognized is related mainly to the complementary expertise of the Color Kinetics workforce and the synergies expected to be achieved from integrating Color Kinetics into the Lighting sector.

Other intangible assets comprise:


	amount	amortization period in years

Trade marks and trade names	1	1
Developed and core technology	113	10-20
In-process research and patents	1	0.5
Customer relationships	68	7-18
Other	4	2-10
	187

Color Kinetics reported a loss from operations of EUR 8 million to the Group for the period from August 24 to December 31, 2007.

Pro forma disclosures on acquisitions

The following table presents the year-to-date unaudited pro-forma results of Philips, assuming PLI and Color Kinetics had been consolidated as of January 1, 2007:

Unaudited
	January-December 2007
	Philips Group	pro forma adjustments ¹⁾	pro forma Philips Group

Sales	26,793	75	26,868
Income from operations	1,867	−	1,867
Net income	4,873	(2)	4,871
Earnings per share - in euros	4.49		4.48

¹⁾

Pro forma adjustments include sales, income from operations and net income from continuing operations of the acquired companies from January 1, 2007 to the date of acquisition. As Philips finances its acquisitions with own funds, the pro forma adjustments exclude the cost of external funding incurred prior to the acquisition. The pro forma adjustments also reflect the impact of the purchase-price accounting effects from January 1, 2007 to the date of acquisition and the elimination of non-recurring post-merger integration costs incurred by the Company. Purchase-price accounting effects primarily relate to the amortization of intangible assets (EUR 10 million).

The following table presents the year-to-date unaudited pro-forma results of Philips, assuming PLI and Color Kinetics had been consolidated as of January 1, 2006:

Unaudited
	Philips Group	pro forma adjustments ¹⁾	pro forma Philips Group

Sales	26,682	454	27,136
Income from operations	1,336	14	1,350
Net income	5,153	26	5,179
Earnings per share - in euros	4.39		4.41

¹⁾

Pro forma adjustments include sales, income from operations and net income from continuing operations of the acquired companies of 2006. As Philips finances its acquisitions with own funds, the pro forma adjustments exclude the cost of external funding incurred in 2006. The pro forma adjustments also reflect the impact of the purchase-price accounting effects of 2006. These effects primarily relate to the amortization of intangible assets (EUR 26 million) and inventory step-ups (EUR 26 million).

LG Display

On October 10, 2007, Philips sold 46,400,000 shares of common stock in LG Display to financial institutions in a capital markets transaction. This transaction represented 13% of LG Display's issued share capital and reduced Philips’ holding to 19.9%. The transaction resulted in a gain of EUR 654 million, reported under Results relating to equity-accounted investees.

2006

During 2006, Philips entered into a number of acquisitions and completed several divestments. All acquisitions have been accounted for using the purchase method of accounting.

Major acquisitions in 2006 were Lifeline, Witt Biomedical, Avent and Intermagnetics. The remaining acquisitions, both individually and in the aggregate, were deemed immaterial in respect of the IFRS 3 disclosure requirements.

Sales and income from operations related to activities divested in 2006, included in the Company’s consolidated statement of income for 2006, amounted to EUR 975 million and a loss of EUR 21 million respectively.

The most significant acquisitions and divestments are summarized in the next two tables and described in the section below.

Acquisitions
	net cash outflow	net assets acquired ¹⁾	other intangible assets	goodwill

Lifeline	583	(77)	319	341
Witt Biomedical	110	(2)	29	83
Avent	689	(47)	392	344
Intermagnetics	993	(50)	313	730

¹⁾	Excluding cash acquired

Divestments
	cash inflow ¹⁾	net assets divested ²⁾	recognized gain

CryptoTec	30	4	26
Philips Enabling Technologies (ETG)	45	38	7
Philips Sound Solutions (PSS)	53	41	12
FEI Company	154	51	103

¹⁾	Net of cash divested
²⁾	Includes the release of cumulative translation differences

Lifeline

On March 22, 2006, Philips completed its acquisition of Lifeline, a leader in personal emergency response services. Philips acquired a 100% interest in Lifeline by paying USD 47.75 per share in cash. As of the date of acquisition Lifeline is consolidated as part of the Healthcare sector.

The condensed balance sheet of Lifeline determined in accordance with IFRS, immediately before and after acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	15	341
Other intangible assets	18	319
Property, plant and equipment	34	20
Other non-current financial assets	22	19
Working capital	27	8
Deferred tax liabilities	(6)	(124)
Cash	17	14
	127	597

Financed by
Group equity	84	597
Loans	43	−
	127	597

Other intangible assets comprise:


	amount	amortization period in years

Trademarks and trade names	114	indefinite
Software	9	3-5
Customer relationships	196	5-20
	319

Witt Biomedical

On April 26, 2006, Philips completed its acquisition of Witt Biomedical, the largest independent supplier of hemodynamic monitoring and clinical reporting systems used in cardiology catheterization laboratories. As of the date of acquisition, Witt Biomedical has been consolidated within the Healthcare sector.

The condensed balance sheet of Witt Biomedical determined in accordance with IFRS, immediately before and after acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	−	83
Other intangible assets	−	29
Property, plant and equipment	1	1
Working capital	13	17
Provisions	(4)	(24)
Deferred tax	−	4
Cash	5	5
	15	115

Financed by
Group equity	15	115
	15	115

Other intangible assets comprise:


	amount	amortization period in years

In-process research and development	4	3
Developed and core technology	11	4
Customer relationships	6	10
Backlog	7	1
Other	1	3
	29

Avent

As of August 31, 2006, Philips completed its acquisition of Avent, a leading provider of baby and infant feeding products in the United Kingdom and the United States. Philips acquired Avent for EUR 689 million, which was paid in cash upon completion of the transaction. As of the date of acquisition, Avent has been consolidated within the Consumer Lifestyle sector.

The condensed balance sheet of Avent determined in accordance with IFRS, immediately before and after acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	367	344
Other intangible assets	−	392
Property, plant and equipment	36	35
Working capital	26	40
Deferred tax liabilities	−	(122)
Cash	23	22
	452	711

Financed by
Group equity	(35)	711
Loans	487 ¹⁾	−
	452	711

¹⁾	Includes preference share capital

Other intangible assets comprise:


	amount	amortization period in years

Trademarks and trade names	242	indefinite
Customer relationships and patents	150	5-18
	392

Intermagnetics

On November 9, 2006, Philips acquired Intermagnetics for USD 27.50 per share, which was paid in cash upon completion. Additionally, in connection with the closing, Philips provided a loan to Intermagnetics of approximately USD 120 million to pay off debt and certain other obligations, including amounts related to the acceleration of stock-based compensation and expenses incurred as a result of the transaction. Since the date of the transaction, Intermagnetics has been consolidated within the Healthcare sector.

The condensed balance sheet of Intermagnetics determined in accordance with IFRS, immediately before and after acquisition date:


	before acquisition date	after acquisition date

Assets and liabilities
Goodwill	132	730
Other intangible assets	34	313
Property, plant and equipment	35	45
Working capital	67	66
Provisions	−	(6)
Deferred tax liabilities	(6)	(96)
Cash	19	24
	281	1,076

Financed by
Group equity	137	1,017
Loans	144	59
	281	1,076

Other intangible assets comprise:


	amount	amortization period in years

Core and existing technology	181	6
In-process R&D	39	3
Trademarks and trade names	8	10
Customer relationships	81	9
Miscellaneous	4	2
	313

Pro forma disclosures on acquisitions

The following table presents the year-to-date pro forma unaudited results of Philips, assuming Lifeline, Witt Biomedical, Avent and Intermagnetics had been consolidated as of January 1, 2006:

Unaudited
	Philips Group	pro forma adjustments ¹⁾	pro forma Philips Group

Sales	26,682	236	26,918
Income from operations	1,336	(17)	1,319
Net income	5,153	(11)	5,142
Earnings per share - in euros	4.39		4.38

¹⁾

Pro forma adjustments include sales, income from operations and net income from continuing operations of the acquired companies from January 1, 2006 to the date of acquisition. For that purpose, sales related to the pre-existing relationship between Philips and Intermagnetics have been excluded. As Philips finances its acquisitions with own funds, the pro forma adjustments exclude the cost of external funding incurred prior to the acquisition. The pro forma adjustments also reflect the impact of the purchase-price accounting effects from January 1, 2006 to the date of acquisition and the elimination of non-recurring post-merger integration costs incurred by the Company. Purchase-price accounting effects primarily relate to the amortization of intangible assets (EUR 81 million) and inventory step-ups (EUR 24 million).

CryptoTec

On March 31, 2006, Philips transferred its CryptoTec activities to Irdeto, a world leader in content security and a subsidiary of multimedia group Naspers. Irdeto purchased the CryptoTec assets for an amount of EUR 30 million. The gain on this transaction of EUR 26 million has been reported under Other Business income.

Philips Enabling Technologies

On November 6, 2006, Philips sold Philips Enabling Technologies Group (ETG) to VDL. The recognized gain on this transaction (EUR 7 million) has been reported under Other business expense.

Philips Sound Solutions

On December 31, 2006, Philips sold its Philips Sound Solutions (PSS) business to D&M Holding for EUR 53 million. The transaction resulted in EUR 12 million gain, reported under Other business income.

FEI Company

On December 20, 2006, Philips sold its 24.8% interest in FEI Company, a NASDAQ listed company, in a public offering. The sale provided Philips with net proceeds of EUR 154 million and a non-taxable gain of EUR 103 million. The gain is included in Results relating to equity-accounted investees.

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