Philips 2006 Annual Report Download - page 205

Philips Annual Report 2006 205
4747
48
Intangible assets excluding goodwill
The changes during 2006 were as follows:
other
intangible
assets
product
development software total
Balance as of
January 1,
2006:
Cost 1,865 921 516 3,302
Accumulated
amortization (554 ) (418 ) (378 ) (1,350 )
Book value 1,311 503 138 1,952
Changes in
book value:
Acquisitions/
additions 995 305 109 1,409
Amortization/
deductions (205 ) (202 ) (73 ) (480 )
Impairment
losses − (11 ) − (11 )
Translation
differences (140 ) (14 ) (8 ) (162 )
Changes in
consolidation (2 ) (46 ) − (48 )
Total changes 648 32 28 708
Balance as of
December 31,
2006:
Cost 2,616 1,083 554 4,253
Accumulated
amortization (657 ) (548 ) (388 ) (1,593 )
Book Value 1,959 535 166 2,660
The estimated amortization expense for these other intangible assets
for each of the fi ve succeeding years are:
2007 253
2008 243
2009 227
2010 216
2011 194
4848
The additions relate to the following categories:
other
intangible
assets
product
development software total
Additions from
internal
development − 269 67 336
Additions
acquired
separately 6 3 31 40
Additions
acquired
through
business
combinations 989 33 11 1,033
995 305 109 1,409
Additions to other intangible assets include the acquired trademarks
and trade names Lifeline and Avent, that are valued on a preliminary
basis at EUR 114 million and EUR 242 million respectively. The Company
decided to use these brands together with the Philips brand in a dual
branding marketing strategy. This fact, together with market evidence,
indicates that these brands have indefi nite useful lives. Therefore, these
brands are not amortized but tested for impairment annually and
whenever there is an indication that the brand may be impaired.
The unamortized costs of computer software to be sold, leased or
otherwise marketed amounted to EUR 57 million at the end of 2006
(2005: EUR 50 million). The amounts charged to the income statement
for amortization or impairment of these capitalized computer software
costs amounted to EUR 18 million in 2006 (2005: EUR 13 million,
2004: EUR 6 million).
49
Goodwill
The changes during 2006 were as follows:
2005 2006
Balance as of January 1 1,358 2,174
Changes in book value:
Acquisitions 637 1,596
Sale of businesses (32 ) −
Reclassifi cation from equity-accounted investees 13 −
Translation differences 198 (270 )
Balance as of December 31 2,174 3,500
The key assumptions used in the annual impairment test are growth
of sales and gross margin, together with the rates used for discounting
the forecast cash fl ows. The discount rates are determined for each
cash-generating unit (one level below sector level) and range from
7.5% to 14.1%, with an average of 10.3% for the Philips group. Sales
and gross margin growth are based on management’s internal forecasts
for four years that are extrapolated for another fi ve years with
reduced growth rates, after which a terminal value is calculated in
which growth rates are reduced to a level of 1% to 4%.
Acquisitions in 2006, include goodwill related to the acquisitions of
Lifeline for EUR 341 million, Witt Biomedical for EUR 83 million,
Avent for EUR 344 million and Intermagnetics for EUR 770 million,
and several smaller acquisitions.
4949
226 Corporate governance224 Reconciliation of
non-US GAAP information
234 The Philips Group
in the last ten years
236 Investor information