Philips 2006 Annual Report Download - page 191

Philips Annual Report 2006 191
38
Discontinued operations
Semiconductors
On September 29, 2006, the Company sold a majority stake in its
Semiconductors division to a private equity consortium led by
Kohlberg Kravis Robert & Co. (KKR). The transaction consisted of the
sale of the division for a total consideration of EUR 7,913 million and
a simultaneous acquisition of a minority interest in the recapitalized
organization at a cost of EUR 854 million. A gain of EUR 3,683 million
has been recorded on the sale, net of costs directly associated with
this transaction of approximately EUR 68 million. The recorded income
tax expense on this gain is still under discussion with the tax authorities.
In accordance with IFRS 5, the operations of the Semiconductors
division and the aforementioned gain have been presented as
discontinued operations. Prior-year consolidated fi nancial statements
have been restated to conform to this presentation.
The Company’s ownership interest in the recapitalized organization, now
named NXP Semiconductors, has been recorded at its fair value as at
the date of the transaction of EUR 854 million. Philips’ ownership in
NXP consists of 19.9% of the preferred shares and 17.5% of the common
shares. The Company has determined that they cannot exert signifi cant
infl uence over the operating or fi nancial policies of NXP and accordingly
the investment is accounted for as a cost-method investment.
Philips and NXP will have continuing relationships through shared
research and development activities and through license agreements.
The existing global service agreements for -amongst others- payroll,
network and purchase facilities cover a period of approximately one year.
Additionally, through the purchase of component products, namely
semiconductor products for the consumer electronic sector, Philips
and NXP will have a continuing relationship for the foreseeable future.
The Company has assessed the expected future transactions and
determined that the cash fl ows from these transactions are not
signifi cant direct cash fl ows.
The following table summarizes the results of the Semiconductors
division included in the consolidated statement of income as
discontinued operations for 2004, 2005 and the period through its
divestment on September 29, 2006.
2004 2005 2006
Sales 4,491 4,620 3,681
Costs and expenses (3,933 ) (4,163 ) (3,144 )
Gain on sale of discontinued operations − − 4,323
Income before income taxes 558 457 4,860
Income taxes (170 ) (134 ) (790 )
Result of equity- accounted investees (42 ) (73 ) (63 )
Minority interest (29 ) (34 ) (49 )
Net income 317 216 3,958
The following table shows the components of the gain from the sale
of discontinued operations, net of tax on December 31, 2006:
2006
Consideration 7,913
Carrying value of net assets disposed (3,522 )
Cost of disposal (68 )
Gain on disposal before taxes 4,323
Income taxes (640 )
Gain on sales 3,683
3838
The following table presents Philips Semiconductors’ assets and
liabilities, classifi ed as discontinued operations in the consolidated
balance sheet at December 31, 2005:
2005
Accounts receivable 604
Inventory 683
Equity-accounted investees 299
Property, plant and equipment 1,874
Intangible assets including goodwill 1,354
Assets of discontinued operations 4,814
Accounts payable 443
Provisions 582
Other liabilities 411
Liabilities of discontinued operations 1,436
Philips Mobile Display Systems
On November 10, 2005, Royal Philips Electronics and Toppoly
Optoelectronics Corporation of Taiwan announced that they had
signed a binding letter of intent to merge Philips’ Mobile Display
Systems (MDS) business unit with Toppoly. The company has been
named TPO, and the transaction has been completed in the fi rst
half of 2006.
Philips separately reported the results of the MDS business as a
discontinued operation and previous years have been restated.
Summarized fi nancial information for MDS is as follows:
2004 2005 2006
Sales 973 653 194
Costs and expenses (937 ) (827 ) (160 )
Income from operations 36 (174 ) 34
Financial income and expenses − − −
Income before taxes 36 (174 ) 34
Income taxes − − −
Net income 36 (174 ) 34
The 2006 results of EUR 34 million mainly relate to translation
differences recognized upon completion of the transaction. The 2005
results included an impairment loss of EUR 163 million.
Notes to the IFRS consolidated fi nancial statements of the Philips Group
all amounts in millions of euros unless otherwise stated
The reader is also referred to the notes to the consolidated fi nancial statements based on US GAAP.
226 Corporate governance224 Reconciliation of
non-US GAAP information
234 The Philips Group
in the last ten years
236 Investor information