Provisions

 
 
 
2012
 
2013
 
long-term
short-term
long-term
short-term
 
 
 
 
 
Provisions for defined-benefit plans
808
52
754
51
Other postretirement benefits
233
17
200
14
Postemployment benefits and obligatory severance payments
56
26
41
25
Product warranty
90
229
59
207
Environmental provisions
330
45
249
62
Restructuring-related provisions
108
277
75
128
Onerous contract provisions
67
61
40
53
Other provisions
427
130
485
111
 
2,119
837
1,903
651

Post-employment benefits and obligatory severance payments

The provision for post-employment benefits covers benefits provided to former or inactive employees after employment but before retirement, including salary continuation, supplemental unemployment benefits and disability-related benefits.

 
 
2011
2012
2013
 
 
 
 
Balance as of January 1
116
104
82
Changes:
 
 
 
Additions
29
12
15
Utilizations
(41)
(37)
(29)
Translation differences
1
(1)
Changes in consolidation
2
(1)
Balance as of December 31
104
82
66

The provision for obligatory severance payments covers the Company commitment to pay employees a lump sum upon the employee’s dismissal or resignation. In the event that a former employee has passed away, the Company may have a commitment to pay a lump sum to the deceased employee’s relatives. The Company expects the provision will be utilized mostly within the next three years.

Product warranty

The provision for product warranty reflects the estimated costs of replacement and free-of-charge services that will be incurred by the Company with respect to products sold. The Company expects the provision will be utilized mainly within the next year. The changes in the provision for product warranty are as follows:

 
 
2011
2012
2013
 
 
 
 
Balance as of January 1
404
378
319
Changes:
 
 
 
Additions
444
370
350
Utilizations
(470)
(427)
(363)
Transfer to assets classified as held for sale
(24)
Translation differences
1
(4)
(16)
Changes in consolidation
(1)
2
Balance as of December 31
378
319
266

Environmental provisions

The environmental provisions include accrued losses recorded with respect to environmental remediation. Approximately half of this provision is expected to be utilized within the next five years. The remaining portion relates to longer-term remediation activities.

The changes in this provision are as follows:

 
 
2011
2012
2013
 
 
 
 
Balance as of January 1
250
305
375
Changes:
 
 
 
Additions
48
48
30
Utilizations
(15)
(22)
(21)
Releases
(15)
(1)
(16)
Changes in discount rate
25
18
(40)
Accretion
6
6
6
Translation differences
6
(4)
(8)
Purchase price allocation adjustment
(15)
Changes in consolidation
25
Balance as of December 31
305
375
311

The decrease of provision due to changes in discount rate in 2013 relates to an overall increase of the market rates used in discounting.

For more details on the main assumptions underlying environmental provisions reference is made to note (26) Contingent assets and liabilities.

Restructuring-related provisions

The most significant projects in 2013

In 2013, the most significant restructuring projects related to Lighting and were driven by the industrial footprint rationalization.

  • In Healthcare, the largest projects were undertaken in Customer Services, Home Healthcare Solutions and Imaging Systems in the United States, Italy and the Netherlands to reduce the operating costs and simplify the organization.
  • Consumer Lifestyle restructuring charges were mainly related to Personal Care (primarily in the Netherlands and Austria) and Coffee (mainly Italy).
  • Restructuring projects at Lighting centered on Luminaires businesses and Light Sources & Electronics, the largest of which took place in the United States, France and Belgium.
  • Innovation, Group & Services restructuring projects mainly focused on the Financial Operations Service Unit, primarily in Italy, France and the United States.

The Company expects the provision will be utilized mainly within the next year. The movements in the provisions and liabilities for restructuring in 2013 are presented by sector as follows:

 
 
Dec. 31, 2012
additions
utilized
released
other
changes 1)
Dec. 31, 2013
 
 
 
 
 
 
 
Healthcare
77
14
(50)
(23)
(1)
17
Consumer
Lifestyle
48
11
(27)
(10)
(1)
21
Lighting
198
64
(110)
(19)
(3)
130
IG&S
62
16
(30)
(15)
2
35
 
385
105
(217)
(67)
(3)
203
1)
Other changes primarily relate to translation differences and transfers between sectors

The most significant projects in 2012

In 2012, the most significant restructuring projects related to Lighting and Healthcare and were driven by our change program Accelerate!.

  • In Healthcare, the largest projects were undertaken in Imaging Systems and Patient Care & Clinical Informatics in various locations in the United States, the Netherlands and Germany to reduce the operating costs and simplify the organization.
  • Consumer Lifestyle restructuring charges were mainly related to Lifestyle Entertainment (primarily in Hong Kong and the United States) and Coffee (mainly Italy).
  • Restructuring projects at Lighting centered on Luminaires businesses and Light Sources & Electronics, the largest of which took place in the Netherlands, Belgium and in various locations in the US.
  • Innovation, Group & Services restructuring projects focused on the IT and Financial Operations Service Units (primarily in the Netherlands), Group & Regional Overheads (mainly in the Netherlands and Italy) and Philips Innovation Services (in the Netherlands and Belgium).

The movements in the provisions and liabilities for restructuring in 2012 are presented by sector as follows:

 
 
Dec. 31, 2011
additions
utilized
released
other changes1)
Dec. 31, 2012
 
 
 
 
 
 
 
Healthcare
18
100
(29)
(7)
(5)
77
Consumer
Lifestyle
39
58
(41)
(8)
48
Lighting
52
225
(61)
(16)
(2)
198
IG&S
60
67
(47)
(10)
(8)
62
 
169
450
(178)
(41)
(15)
385
1)
Other changes primarily relate to translation differences and transfers between sectors

The most significant projects in 2011

In 2011, the most significant restructuring projects related to Lighting and Innovation, Group & Services were driven by our change program Accelerate!.

  • In Healthcare, the largest projects were undertaken in Home Healthcare Solutions, Imaging Systems and Patient Care & Clinical Informatics in various locations in the United States to reduce the operating costs and simplify the organization.
  • Consumer Lifestyle restructuring charges mainly relate to our remaining Television operations in Europe.
  • Restructuring projects at Lighting are driven by our change program Accelerate!. In addition projects centered on the Luminaires business and Light Sources & Electronics, the largest of which took place in Brazil, the Netherlands and in various locations in the US.
  • Innovation, Group & Services restructuring projects focused on the Global Service Units (primarily in the Netherlands), Group & Regional Overheads (mainly the Netherlands, Brazil and Italy) and Philips Design (Netherlands).

The movements in the provisions and liabilities for restructuring in 2011 are presented by sector as follows:

 
 
Dec. 31, 2010
additions
utilized
released
other changes1)
Dec. 31, 2011
 
 
 
 
 
 
 
Healthcare
33
16
(17)
(14)
18
Consumer
Lifestyle
75
25
(56)
(6)
1
39
Lighting
70
44
(47)
(13)
(2)
52
IG&S
48
37
(15)
(14)
4
60
 
226
122
(135)
(47)
3
169
1)
Other changes primarily relate to translation differences and transfers between sectors

Onerous contract provisions

The onerous contract provisions include provisions for the loss recognized upon signing the agreement with TPV Technology Limited for the Television business of EUR 7 million (2012: EUR 24 million), provisions for unfavorable supply contracts as part of divestment transactions of EUR 38 million (2012: EUR 60 million), onerous (sub)lease contracts of EUR 38 million (2012: EUR 35 million) and expected losses on existing projects/orders of EUR 10 million (2012: EUR 9 million).

The Company expects the provision will be utilized mostly within the next three years. The changes in the provision for onerous contract are as follows:

 
 
2011
2012
2013
 
 
 
 
Balance as of January 1
248
128
Changes:
 
 
 
Additions
270
142
34
Utilizations
(22)
(277)
(64)
Releases
(6)
(4)
Reclassification
21
(1)
Balance as of December 31
248
128
93

Other provisions

The main elements of other provisions are: provision for employee jubilee funds totaling EUR 76 million (2012: EUR 76 million), self-insurance liabilities of EUR 56 million (2012: EUR 61 million), liabilities related to business combinations totaling EUR 9 million (2012: EUR 36 million), provisions for rights of return of EUR 45 million (2012: EUR 45 million), provisions in respect of outstanding litigation totaling EUR 236 million (2012: EUR 238 million), provision for possible taxes/social security of EUR 65 million (2012: EUR 28 million) and provision for decommissioning costs of EUR 33 million (2012: EUR nil million).

In 2013, EUR 20 million of releases related to provision for business combinations.

The reclassification in 2013 includes mainly liabilities related to decommissioning costs reclassified to provisions from other (non)current liabilities and possible taxes transferred to provisions from other non-current financial assets. The reclassification in 2012 includes mainly liabilities for rights of return which were recognized in previous years in accrued liabilities.

There are provisions in respect of certain outstanding litigation within various operations, of which management expects the outcomes of these disputes to be resolved within the forthcoming five years. The actual outcome of these disputes and the timing of the resolution cannot be estimated by the Company at this time. The further information ordinarily required by IAS 37, ‘Provisions, contingent liabilities and contingent assets’ has not been disclosed on the grounds that it can be expected to seriously prejudice the outcome of the disputes.

Less than a half of provision for employee jubilee funds and provision for possible taxes/social security is expected to be utilized within next five years. Provision for self-insurance liabilities and provision for decommissioning costs are expected to be used mainly within the next five years. All other provisions are expected to be utilized within the next three years, except for provision for rights of return, which the Company expects to use within the next year.

 
 
2011
2012
2013
 
 
 
 
Balance as of January 1
310
389
557
Changes:
 
 
 
Additions
201
396
190
Utilizations
(138)
(260)
(148)
Releases
(9)
(27)
(55)
Reclassification
67
84
Liabilities directly associated with assets held for sale
(6)
(3)
Translation differences
(4)
(9)
(29)
Changes in consolidation
35
1
Balance as of December 31
389
557
596

(0)
(0)
This is an interactive electronic version of the Philips Annual Report 2013 and also contains certain information in summarized form. The contents of this version are qualified in their entirety by reference to the printed version of the full Philips Annual Report 2013. This printed version is available as a PDF file on this website. Information about: forward-looking statements, third-party market share data, fair value information, IFRS basis of presentation, use of non-GAAP information, statutory financial statements and management report, reclassifications and analysis of 2013 compared to 2012.