Philips 2006 Annual Report Download - page 190

Philips Annual Report 2006190
Reconciliation from IFRS to US GAAP
The Company provides for transparency purposes for the users of the fi nancial statements, the following
reconciliations from IFRS to US GAAP.
Reconciliation of net income from IFRS to US GAAP
in millions of euros
2004 2005 2006
Net income as per the consolidated
statements of income on an IFRS basis 2,783 3,374 4,664
Adjustments to reconcile to US GAAP:
Reversal of capitalized product
development cost
-
(216 ) (263 ) (271 )
Reversal of amortization of product
development costs
-
167 197 213
Reversal of additional net pensions
and other charges
-
128 97 292
Financial income and expense - 182 (5 ) −
Adjustment of results of equity-
accounted investees
-
(34 ) (521 ) (18 )
Provisions - − − (65 )
Income tax effect on IFRS adjustments - (46 ) (24 ) 22
Discontinued operations - (101 ) (5 ) 472
Other - (27 ) 18 74
Net income as per the
consolidated statements of income
on a US GAAP basis 2,836 2,868 5,383
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 signifi cantly different between US GAAP and IFRS. Prepaid pension assets
under IFRS can only be recognized to the extent that economic benefi ts are available in the form of refunds from
the plan or reductions in future contributions to the plan. Further, parts of the funded status remain unrecognized
under IFRS, while SFAS No. 158 requires full recognition of the funded status.
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 equity-
accounted investees under IFRS and US GAAP.
IFRS requires up-front profi t recognition of operational sale-and-leaseback transactions when the sale is at market
conditions, whereas US GAAP requires amortization.
Different accounting policies for valuation and discounting give rise to a reconciliation item for provisions.
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 the inclusion of 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 and 2006, this mainly affects the results from
equity-accounted investees and discontinued operations respectively.
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Reconciliation of stockholders’ equity from IFRS to US GAAP
in millions of euros
Dec. 31,
2005
Dec. 31,
2006
Stockholders’ equity as per the consolidated
balance sheets on an IFRS basis 16,319 21,910
Adjustments to reconcile to US GAAP:
Reversal of capitalized product
development cost
-
(503 ) (535 )
Reversal of pensions and other
postretirement benefi ts
-
1,750 1,700
Goodwill amortization (until January 1, 2004) - 321 290
Goodwill capitalization (acquisition-related) - 40 30
Acquisition-related intangibles - (294 ) (210 )
Equity-accounted investees - 178 105
Reversal of result on recognition of sale
and leaseback
-
(80 ) (52 )
Deferred tax effect - (424 ) (168 )
Discontinued operations - (664 ) −
Provisions - − (58 )
Other - 23 (15 )
Stockholders’ equity as per the consolidated
balance sheets on a US GAAP basis
16,666 22,997
112 Group fi nancial statements 172 IFRS information
Notes to the IFRS fi nancial statements
218 Company fi nancial statements