Philips 2004 Annual Report Download - page 87

Other information
Proposed dividend to shareholders of Royal
Philips Electronics
A proposal will be submitted to the 2005 Annual General Meeting
of Shareholders to declare a dividend of EUR 0.40 per common
share (EUR 513 million, based on the outstanding number of
shares at December 31, 2004).
Pursuant to article 35 of the Articles of Association, and with the
approval of the Supervisory Board and the Meeting of Priority
Shareholders, the remainder of the income for the financial year
2004 has been retained by way of reserve.
In 2003 a dividend was paid of EUR 0.36 per common share. The
balance sheet presented in this report, as part of the consolidated
financial statements for the period ended December 31, 2004, is
before dividend, which is subject to shareholder approval after
year-end.
Share repurchase program
The Company has announced and started a share repurchase
program of up to EUR 750 million to be executed until July 2005;
up to EUR 500 million will be used for capital reduction and up to
EUR 250 million to hedge long-term incentive and employee stock
purchase programs.
MedQuist
As announced earlier, MedQuist, in which Philips holds
approximately 70.9% of the common stock and which is
consolidated in Philips’ financial statements, is conducting a review
of the company’s billing practices and related matters. MedQuist is
the subject of an ongoing investigation by the U.S. Securities and
Exchange Commission relating to these practices and has received
a subpoena from the U.S. Department of Justice relating to these
practices and other matters. MedQuist has not been able to
complete the audit of its fiscal years 2003 and 2004 and has
postponed the filing of its annual report for fiscal year 2003 and
reports for subsequent periods. The MedQuist board has
announced that the company’s previously issued financial
statements included in its annual report for fiscal year 2002 and its
quarterly reports during 2002 and 2003, and all earnings releases
and similar communications relating to those periods, should no
longer be relied upon.
MedQuist also stated that it was unable to assess whether the
results of the review of its billing practices and related litigation
may have a material impact on its reported revenues, results and
financial position. It remains uncertain when the review can be
completed. When additional information becomes available with
respect to the possible financial impact of the review, Philips will
determine whether such information has accounting consequences
for Philips and the impact, if any, on Philips’ consolidated financial
statements.
Key financial information as reported by MedQuist to
Philips (unaudited):
January-December
in millions of USD 2002 2003 2004
Net sales 486 491 456
Net income1) 44 38 162)
1) Of which 70.9% contributes to Philips net income
2) Including significant expenses in relation to the review of billing practices
In view of the uncertainties with respect to the impact of the
alleged potential improper billing practices and related litigation on
the past and future performance of MedQuist, Philips undertook a
review of the carrying value of its investment in MedQuist and
concluded in November that the valuation could no longer be
supported. The carrying value of the investment in MedQuist was
brought in line with the value at which the shares of MedQuist had
been trading on the over-the-counter market subsequent to
November 2, 2004, when MedQuist announced that its previously
issued financial statements should no longer be relied upon.
In 2004 Philips recognized non-cash impairment charges of
EUR 590 million on its investment in MedQuist.
During the fourth quarter, various plaintiffs, including current and
former customers, shareholders and transcriptionists, filed four
putative class actions arising from allegations of, among other
things, inappropriate billing by MedQuist for its transcription
services. These matters are in their initial stages and, on the basis
of current knowledge, Philips’ management cannot establish
whether a loss is probable with respect to these actions.
86 Philips Annual Report 2004
Operating and financial review and prospects