Philips 2005 Annual Report Download - page 191

Philips Annual Report 2005 191
Reconciliation from IFRS to US GAAP and Dutch GAAP
Previously, under Dutch law (Book 2, Title 9, Netherlands Civil Code referred to as Dutch GAAP) the Company reported single company and
consolidatednancialstatements.ThereforethesenancialstatementsrepresentthepreviousGAAPnancialstatementsasreferredtoinIFRS1
paragraph38.TheCompanyprovidesbothinaccordancewithIFRS1andfortransparencypurposesfortheusersofthenancialstatements,the
following reconciliations from IFRS to US GAAP and Dutch GAAP.
Reconciliation from IFRS to US GAAP
The major differences between IFRS and US GAAP that affect stockholders’ equity and net income are the following:
IFRS requires capitalization and subsequent amortization of development cost if the relevant conditions for capitalization are met, whereas
development cost under US GAAP is recorded as an expense.
StandardsforpensionaccountingaresubstantiallythesameinbothUSGAAPandIFRS.However,onrst-timeadoption,IFRS1allows
recognition of cumulative actuarial gains and losses as per January 1st, 2004. Furthermore, the so-called additional minimum pension liabilities
recognized under US GAAP do not exist in IFRS and IFRS has stricter rules than US GAAP for the recognition of prepaid pension assets.
Under IFRS, goodwill is not amortized as from 2004. Since goodwill was no longer amortized as from 2002 under US GAAP, IFRS has two
additional years of goodwill amortization. This is also a reason for differences in unconsolidated companies under IFRS and US GAAP.
IFRSrequiresup-frontprotrecognitionofoperationalsale-and-leasebacktransactionswhenthesaleisatmarketconditions,whereas
US GAAP requires amortization.
The differences as explained above affect income taxes and therefore deferred income taxes.
The composition of equity under IFRS is affected by the exemption of IFRS 1 that allows including the existing negative cumulative translation
differences of EUR 3.4 billion in retained earnings as per January 1, 2004. As a result of the application of this exemption, the recycling of
translation gains and losses from equity to the income statement differs when comparing US GAAP and IFRS. For 2005, this mainly affected
the results unconsolidated companies.
Reconciliation from US GAAP to Dutch GAAP
For the determination of net income and stockholders’ equity in accordance with Dutch GAAP, the following differences with US GAAP have been
taken into account:
Under US GAAP, SFAS No. 142, goodwill is no longer amortized but is tested for impairment on an annual basis and whenever indicators of
impairment arise. Under Dutch GAAP, goodwill is amortized on a straight-line basis not exceeding 20 years. As a consequence, goodwill
amortization and impairment charges under Dutch GAAP may be different from US GAAP.
Dutch law requires that previously recognized impairment charges for available-for-sale securities are reversed through income when the fair
value of these securities increases to a level that is above the new cost price that was established on recognition of an impairment. In view of this
requirement,other-than-temporaryincreasesinfairvalueofavailable-for-salesecuritiesarerecognizedinnancialincome.USGAAPprohibits
such recognition.
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Reconciliation of net income from IFRS to US GAAP and Dutch GAAP
in millions of euros 2004 2005
Net income as per the consolidated statements of
income on an IFRS basis 2,783 3,374
Adjustments to reconcile to US GAAP:
Reversal of c apitalized product development cost (617) (697)
Reversal of amortization of product development assets 412 467
Reversal of additional net pensions and other charges 150 114
Financial income and expenses 182 (5)
Adjustment of results of unconsolidated companies (34) (524)
Income tax effect on IFRS adjustments (4) 29
Discontinued operations (15) 91
Other (21) 19
Net income as per the consolidated statements of
income on a US GAAP basis 2,836 2,868
Adjustments to reconcile to Dutch GAAP:
Goodwill amortization net of taxes (439)
Lower impairment charges due to amortization of
goodwill 68
Adjustment on gain on sale of securities/shares due
to lower book value:
-nancialincomeandexpenses (202)
- results relating to unconsolidated companies 34
Reversal of impairment of available-for-sale securities 19
Higher dilution gain LG.Philips LCD due to
amortization of goodwill 20
Net income as per the consolidated statement of
income on a Dutch GAAP basis 2,336
Reconciliation of stockholders’ equity from IFRS to US and Dutch GAAP
in millions of euros Jan. 1,
2004
Dec. 31,
2004
Dec. 31,
2005
Stockholders’ equity as per the
consolidated balance sheets on an IFRS basis 11,947 14,239 16,319
Adjustments to reconcile to US GAAP:
Reversal of capitalized product
development cost (1,212) (1,409) (1,668)
Reversal of pensions and other
postretirementbenets 1,724 1,701 1,749
Goodwill amortization
(until January 1, 2004) 395 355 404
Goodwill capitalization (acquisition-related) − − 40
Acquisition-related intangibles − − (294)
Unconsolidated companies 234 230 178
Reversal of result recognition sale and
leaseback (107) (102) (80)
Deferred tax effect (201) (123) (57)
Discontinued operations (20) (33) 51
Other 3 2 24
Stockholders’ equity as per the
consolidated balance sheets on a US
GAAP basis 12,763 14,860 16,666
Adjustments to reconcile to Dutch GAAP:
Goodwill amortization net of taxes (1,483) (1,922)
Lower impairment charges due to
amortization of goodwill 746 814
Higher dilution gain LG.Philips LCD due
to amortization of goodwill −20
Adjustment on gain of sale of Atos
Origin shares due to lower book value −34
Adjustment on increase of fair value
securities in connection with lower
book value −32
Translation differences 142 178
Stockholders’ equity as per the
consolidated balance sheets on a Dutch
GAAP basis 12,168 14,016