Philips 2005 Annual Report Download - page 88

Philips Annual Report 200588
TSMC benefi ted from continued positive market demand
through 2004; however, it also experienced a slowdown in
the fourth quarter, when utilization rates declined to
around 85%. In Taiwan dollar terms, full-year sales for 2004
increased 27% over 2003 to a record high.
In 2004 the Crolles2 waferfab venture with
STMicroelectronics and Freescale for the advanced
development of silicon manufacturing technology unveiled
its 90 nm process, thus confi rming its progress towards
strong manufacturing cost savings. Philips’ share in the
costs of this facility amounted to EUR 60 million.
Results on the sale of shares in 2004 were primarily
attributable to the gain on the sale of 11 million shares in
Atos Origin (EUR 151 million), resulting in a reduction of
the Company’s shareholding in Atos Origin from 31.9% to
15.4% at year-end 2004. The amount in 2003 mainly
resulted from the sale of 100 million American
Depository Shares (each representing 5 common shares)
of TSMC (EUR 695 million).
Gains and losses arising from dilution effects were
primarily due to a EUR 156 million gain recorded as a
result of a reduction of the Company’s shareholding in
Atos Origin (from 44.7% to 31.9%) following the
Schlumberger Sema acquisition by Atos Origin in January
2004 and a EUR 108 million gain recorded as a result of a
dilution of the Company’s shareholding in LG.Philips LCD
(from 50% to 44.6%) in conjunction with the latter’s
secondary offering.
In accordance with TSMC’s Articles of Incorporation,
yearly bonuses to employees have been granted partially in
shares. Generally, stock dividends will also be distributed.
In 2004 and 2003, new shares were issued in grants to
employees and as a stock dividend. Because Philips only
participates in the stock dividend distribution, its shareholding
in TSMC was diluted as a result of shares issued to
employees. Accordingly, Philips recorded a dilution loss
of EUR 10 million in 2004 and EUR 15 million in 2003.
This dilution loss decreased the book value of Philips’
investment in TSMC and is charged to results relating
to unconsolidated companies.
On August 16, 2002, Atos Origin purchased all of the
common stock of KPMG Consulting in the UK and the
Netherlands. The consideration for the acquisition consisted
of the issue of 3,657,000 bonds redeemable in shares
(ORA bonds) with stock subscription warrants attached
at a price of EUR 64.20 each, representing a total amount
of EUR 235 million, and a cash payment of EUR 417 million.
The bonds and warrant bonds were redeemed in shares
on August 16, 2003. As a consequence, Philips’ shareholding
was diluted from 48.4% to 44.7%, resulting in a dilution
gain in 2003 of EUR 68 million. This dilution gain increased
the book value of Philips’ investment in Atos Origin and
was credited to results relating to unconsolidated companies.
Furthermore, in 2003, the Company recorded an
investment (goodwill) impairment charge of EUR 411 million
with respect to its investment in LG.Philips Displays.
Minority interests
The share of minority interests in the income of group
companies in 2004 amounted to EUR 51 million, compared
with a share of EUR 56 million in 2003. This was mainly
infl uenced by the effect of the consolidation of SSMC
(EUR 29 million), which was more than offset by NAVTEQ
(EUR 32 million).
Net income
Income before the cumulative effect of a change in
accounting principles in 2004 amounted to EUR 2,836
million (EUR 2.22 per common share – basic) compared
to EUR 709 million in 2003 (EUR 0.55 per common
share – basic).
The cumulative effect of the change in accounting
principles in 2003 was EUR 14 million (EUR 0.01 per
common share – basic).
Net income in 2004 was EUR 2,836 million (EUR 2.22
per common share – basic) compared to EUR 695 million
in 2003 (EUR 0.54 per common share – basic).
Management discussion and analysis