Philips 2005 Annual Report Download - page 138

Philips Annual Report 2005138
Stock-based compensation
In 2003, the Company adopted the fair value recognition provisions of
SFAS No. 123, ‘Accounting for Stock-Based Compensation’, as amended
by SFAS No. 148, ‘Accounting for Stock-Based Compensation – Transition
andDisclosure’,prospectivelyforallemployeeawardsgranted,modied
or settled after January 1, 2003. Under the provisions of SFAS No. 123,
the Company recognizes the estimated fair value of equity instruments
granted to employees as compensation expense over the vesting period
on a straight-line basis. For awards granted to employees prior to 2003,
the Company continued to account for stock-based compensation using
the intrinsic value method in accordance with US Accounting Principles
Board (APB) Opinion No. 25, ‘Accounting for Stock Issued to Employees’.
The following table illustrates the effect on net income and earnings per
share as if the Company had applied the fair value recognition provisions
for all outstanding and unvested awards in each period:
2003 2004 2005
Net income:
As reported 695 2,836 2,868
Add: Stock-based compensation expense
included in reported net income, net of
related tax 27 52 65
Deduct: stock-based compensation
expense determined using the fair-value
method, net of related tax (134) (115) (77)
Pro forma 588 2,773 2,856
Basic earnings per share:
As reported 0.54 2.22 2.29
Pro forma 0.46 2.17 2.28
Diluted earnings per share:
As reported 0.54 2.21 2.29
Pro forma 0.46 2.16 2.28
Discontinued operations
Based on SFAS No. 144 ‘Accounting for the Impairment or Disposal
of Long-Lived Assets’ the Company has determined that the level of
‘business’ is the component within Philips for which operations and cash
owscanbeclearlydistinguishedfromtherestoftheCompanyand
qualiesasadiscontinuedoperationintheeventofdisposalofa
business. Any gain or loss from disposal of a business, together with
the results of these operations until the date of disposal, is reported
separately as discontinued operations in accordance with SFAS No. 144.
Thenancialinformationofadiscontinuedbusinessisexcludedfrom
therespectivecaptionsintheconsolidatednancialstatementsand
related notes and reported separately.
Cashowstatements
Cashowstatementshavebeenpreparedusingtheindirectmethodin
accordance with the requirements of SFAS No. 95, ‘Statement of Cash
ows’,asamendedbySFASNo.104.Cashowsinforeigncurrencies
have been translated into euros using the weighted average rates of
exchange for the periods involved.
Cashowsfromderivativeinstrumentsthatareaccountedforasfair
valuehedgesorcashowhedgesareclassiedinthesamecategory
asthecashowsfromthehedgeditems.Cashowsfromderivative
instruments for which hedge accounting has been discontinued are
classiedconsistentwiththenatureoftheinstrumentasfromthe
date of discontinuance.
Use of estimates
Thepreparationofnancialstatementsrequiresmanagementtomake
estimates and assumptions that affect amounts reported in the consolidated
nancialstatementsinordertoconformwithgenerallyaccepted
accounting principles. Actual results could differ from those estimates.
Reclassications
Certainitemspreviouslyreportedunderspecicnancialstatement
captionshavebeenreclassiedtoconformwiththe2005presentation.
Groupnancialstatements