Philips 2005 Annual Report Download - page 119

Philips Annual Report 2005 119
of the accommodation offers at any time. By accepting
MedQuist’s accommodation offers, the customer must
agree, among other things, to release MedQuist from any
and all claims and liability regarding prior AAMT and other
billing-related issues. The accommodation offers made to
date, and those offers which may be made in the future,
are not an admission of liability by MedQuist of any
wrongdoing or an admission or acknowledgement that its
billing practices with respect to such customers were or
are incorrect. In view of MedQuist’s intention to continue
offering customer accommodation payments and the fact
that the MedQuist Board has authorized up to an amount
of USD 65 million for accommodation offers, an accrual
has been made in an amount of USD 44.5 million
representing the difference between the USD 65 million
maximum authorized amount and the USD 20.5 million
in completed accommodation payments. It is not possible
to estimate the level and timing of the other costs and
expenses related to these matters. Therefore, no other
accruals can be made presently.
As in previous years, MedQuist has continued to provide
fi nancial information to Philips for consolidation purposes.
Key fi nancial information as reported by MedQuist
(preliminary and unaudited):
in millions of USD January-December
2003 2004 2005
Net sales 491 456 411
Operating result 60 25
1) (98 ) 1)
1) Including signifi cant expenses in relation to the review of billing practices.
MedQuist announced on January 19, 2006 that its preliminary, partial and unaudited
results indicate that operating result declined USD 123 million compared to the
previous year, notably as a result of USD 101 million costs incurred in 2005 in
relation to the ongoing billing review (2004: USD 15 million).
In view of the uncertainties with respect to the impact
of the review of MedQuist’s billing practices and related
litigation on the past and future performance of MedQuist,
Philips undertook reviews of the carrying value of its
investment in MedQuist, which amounted to approximately
EUR 270 million at December 31, 2005, and concluded
that no further impairment was required. In 2004 the
carrying value of the investment in MedQuist was brought
into 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 fi nancial statements should no longer be
relied upon.
The four putative class action litigation matters pending
against MedQuist are not yet resolved and, on the basis of
current knowledge, Philips’ management has concluded
that potential future losses cannot be reliably estimated.
LG.Philips Displays
On December 21, 2005, Philips announced the write-off of
the book value of LG.Philips Displays due to the increased
pressure from fl at displays on demand and prices for
cathode-ray tubes (CRTs). The write-off of the remaining
book value amounted to EUR 126 million for the investment
and EUR 290 million for the accumulated currency
translation losses related to the investment. The impairment
charges totaled EUR 416 million and were of a non-cash
nature. Philips also fully provided for the existing guarantee
of EUR 42 million provided to LG.Philips Displays’ banks.
All amounts above were reported under results relating
to unconsolidated companies in December 2005. Philips
will not inject further capital into LG.Philips Displays.
LG.Philips Displays Holding B.V. announced on January 27,
2006 that due to worsening conditions in the cathode-
ray tube marketplace and unsustainable debt, the holding
company as well as one of its Dutch subsidiaries (LG.Philips
Displays Netherlands B.V.) and its German subsidiary in
Aachen, Germany, have all fi led for insolvency protection.
The holding company also announced that it will not be
able to provide further fi nancial support to certain loss
making subsidiaries because it has been unable to obtain
sustainable new or additional funding.
Following this announcement, various LPD companies in
the Netherlands, Germany, Slovakia and France have fi led
for bankruptcy, while part of the LPD business in the
Netherlands and United Kingdom has been continued.
Given the holding company’s inability to further fund the
subsidiaries, its operations in Czech Republic, Mexico and
the US are also reviewing their fi nancial position.
Pensions United Kingdom
In response to recent regulatory changes in the United
Kingdom, Philips has decided to eliminate the current
funding defi cit of its UK defi ned-benefi t pension plan
through an additional contribution of approximately GBP
400 million in the fi rst quarter of 2006. The impact on
earnings will be minimal.