Philips 2004 Annual Report Download - page 48

Income from the sale of securities affects the comparability of the
financial income and expenses reported in 2003 and 2004 and
contains the following items:
2003 2004
Income from the sale of securities:
Gain on sale of JDS Uniphase shares 13 –
Gain on sale of ASML shares 114 140
Gain on sale of Vivendi shares 19 300
Income taxes
Income taxes represented an expense of EUR 358 million,
compared to a benefit of EUR 15 million in 2003. Excluding
non-taxable gains on the IPO of NAVTEQ (EUR 635 million) and
the sale of shares in Vivendi Universal and ASML (EUR 440 million)
and the non-tax-deductible impairment charge relating to
MedQuist (EUR 590 million), the tax rate in 2004 corresponded to
an effective tax rate of 27%, compared with an effective tax benefit
of 6% in 2003.
The positive deviation from the projected tax rate of 30% for 2004
is the consequence of an improved performance in certain fiscal
jurisdictions (e.g. Italy and Belgium) which resulted in a release of
valuation allowances that more than offset additions to provisions
included under income taxes payable to cover certain fiscal
contingencies.
For 2005, an effective tax charge of 30% on pre-tax income is
expected.
Results relating to unconsolidated companies
Results relating to unconsolidated companies consisted of the
following:
2003 2004
Company’s participation in income and loss 169 983
Results on sale of shares 715 193
Gains and losses arising from dilution effects 53 254
Investment impairment charges (431) (8)
Total 506 1,422
The Company’s participation in income and loss was comprised of:
2003 2004
LG.Philips LCD 382 575
LG.Philips Displays (385) (69)
SSMC (7) –
Others 179 477
Total 169 983
In 2004 most of the unconsolidated companies’ net income
improved compared to 2003.
LG.Philips LCD continued to benefit from very strong demand for
flat screens and achieved a much higher net income. However,
after many months of rising price levels, by mid-year selling prices
started to decline as manufacturing capacity outpaced market
demand. In November 2004, LG.Philips LCD announced the
decision to invest in its seventh-generation TFT-LCD fabrication
plant. The total investment for ‘P7’, which will be developed in
phases, is KRW 5,297 billion (EUR 3.7 billion).
Although operating results improved in 2004 compared to 2003,
confronted with continued price erosion and tough market
conditions, LG.Philips Displays continued to reorganize its
activities worldwide to reduce capacity. The Company’s share of
restructuring and asset impairment charges recorded by LG.Philips
Displays amounted to EUR 132 million in 2004 and EUR 417
million in 2003.
SSMC was consolidated in 2004 by the Semiconductor division,
and consequently no longer contributed to the results relating to
unconsolidated companies.
The Company has a share in income and losses of various other
companies, primarily TSMC, Atos Origin, InterTrust, Crolles and
NAVTEQ (as from August 2004).
The license agreement between InterTrust Technologies Corp.
and Microsoft Corp. to settle all their outstanding litigation
contributed a net gain of EUR 100 million. The various other
companies contributed a net profit of EUR 377 million.
TSMC benefited from continued positive market demand through
2004; however, it also experienced a slowdown in the fourth
quarter, when utilization rates went down to around 85%. In
Taiwan dollar terms, full-year sales for 2004 increased 27% over
2003 to a record high.
47Philips Annual Report 2004