Philips 2006 Annual Report Download - page 39

Philips Annual Report 2006 39
from changes in the fair value of TSMC stock and TPV
bond options. Non-taxable items in 2005 were the sale
of shares in Atos Origin and Great Nordic (in total EUR
233 million) and part of the gain on the TPV transaction.
For 2007, the effective tax rate on pre-tax income is
expected to be in the mid-20% range.
Results from equity-accounted investees
The results from equity-accounted investees decreased
by EUR 1,911 million to a loss of EUR 157 million in
2006, a breakdown of which is shown in the table below.
Results from equity-accounted investees
in millions of euros
20041) 20051) 2006
Company’s participation in income 1,033 513 (180)
Results on sale of shares 185 1,545 79
Gains arising from dilution effects 254 165 14
Investment impairment and
guarantee charges (8) (469) (70)
1,464 1,754 (157)
1) Restated to present the Semiconductors division as a discontinued operation
The Company’s participation in the net income of equity-
accounted investees declined from a gain of EUR 513
million in 2005 to a loss of EUR 180 million, primarily
due to lower results at LG.Philips LCD and the change
in accounting treatment of TSMC.
Excluding the 2005 sale of shares, LG.Philips LCD’s
operational result in 2006 declined by EUR 342 million
compared to 2005, resulting in a loss of EUR 196 million
as price pressure and oversupply impacted results.
In 2005, the TSMC operational profi t of EUR 380 million
was recorded under results relating to equity-accounted
investees. In 2006, a gain of EUR 223 million related to
the receipt of the TSMC cash dividend was recognized in
fi nancial income and expenses. Further to this, a gain of
EUR 97 million upon the designation of a TSMC stock
dividend as trading securities and a gain of EUR 29 million
as a result of an increase in the fair value of these trading
securities were included in fi nancial income and expenses.
Results on the sale of shares in 2006 were primarily
attributable to the EUR 76 million non-taxable gain on
the sale of the remaining 8.4 million shares of common
stock in FEI Company, reducing Philips’ shareholding
from 24.8% to zero.
In 2005, a total gain of EUR 1,545 million was recognized,
mostly related to the sale of shares in NAVTEQ, TSMC
and LG.Philips LCD.
Gains and losses arising from dilution effects in 2006
were mainly due to a EUR 14 million dilution gain
recorded for TPV following the IPO in the fi rst quarter
and a further share issue in the second quarter. As a
consequence, Philips’ shareholding in TPV was reduced
by 1.2 percentage points to 13.8%. This dilution gain
increased the book value of Philips’ investment in TPV.
Gains and losses arising from dilution effects in 2005
included a EUR 189 million dilution gain recorded for
LG.Philips LCD as a result of the secondary offering of
shares and a dilution loss of EUR 24 million related to
TSMC as Philips’ shareholding was diluted due to the
issue of new shares in grants to employees.
On a per-country basis, agreements with LG.Philips
Displays for voluntary payments (social contributions
and environmental clean-up) were reached in the fi rst
quarter of 2006. As a consequence, a total loss of EUR 61
million was recognized in 2006, largely related to social
costs in France, Germany, the Netherlands and the UK.
In 2005, an impairment charge of EUR 416 million
related to the investment in LG.Philips Displays and
a charge of EUR 42 million for the existing guarantee
provided to LG. Philips Displays’ banks were recorded.
Minority interests
The share of minority interests in the income of group
companies reduced income by EUR 4 million in 2006,
compared to an increase of EUR 3 million in 2005. The
main driver behind the decrease in income was the reduced
shareholding in the venture Philips BenQ Digital Storage.
Discontinued operations
Following an announcement of a binding letter of intent
between Philips and Toppoly Optoelectronics Corporation
of Taiwan in November 2005, the merger of Mobile
Display Systems (MDS) with Toppoly was completed
in June 2006. An after-tax transaction gain of EUR 29
million was recognized. As a consequence of this
transaction, Philips holds a 17.5% stake in TPO.
On September 29, 2006, the Company sold a majority
stake in its Semiconductors division to a private equity
consortium led by Kohlberg Kravis Roberts & Co. (KKR).
The transaction consisted of the sale of the division for
54 The Philips sectors 86 Risk management 100 Report of the Supervisory Board 110 Financial Statements