Philips 2007 Annual Report Download - page 149

Philips Annual Report 2007 155
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Financial income and expenses
2005 2006 2007
Interest income 87 150 236
Interest expense (289) (339) (279)
Net interest expense (202) (189) (43)
Income from non-current nancial
assets 240 334 2,697
Foreign exchange results 1 2 (1)
Other nancing income (expense) 65 (119) (40)
306 217 2,656
104 28 2,613
Interest income increased by EUR 86 million during 2007, mainly as a
result of higher average cash balances and higher average interest rates
realized during 2007, compared to 2006.
Interest expense decreased by EUR 60 million during 2007, mainly as
a result of lower average debt positions and lower interest costs on
derivatives related to hedging of Philips foreign currency denominated
cash balances and intercompany funding positions.
In 2007, income from non-current nancial assets totaled EUR 2,697
million, and included EUR 2,528 million from the sale of shares in
TSMC, EUR 31 million gain on sale of shares in Nuance Communications,
EUR 10 million loss on sale of shares in JDS Uniphase and a cash
dividend of EUR 128 million from TSMC. In 2006, income from
non-current nancial assets totaled EUR 334 million, and included a
cash dividend of EUR 223 million from TSMC and a gain of EUR 97
million upon designation of the TSMC shares received through a stock
dividend as trading securities. In 2005, EUR 233 million of tax-exempt
gains from the sale of the remaining shares in Atos Origin and Great
Nordic were recognized.
In 2007, other nancial charges included an impairment charge of
EUR 36 million in relation to the investment in JDS Uniphase, and
a EUR 12 million gain as a result of the fair value change in the
conversion option embedded in the convertible bond received
from TPV Technology. In 2006, other nancial charges included
an impairment charge of EUR 77 million in relation to the investment
in TPO Display, a EUR 61 million loss as a result of the fair value
change in the conversion option embedded in the convertible bond
received from TPV Technology and a EUR 29 million gain as a result
of increases in the fair value of the trading securities held in TSMC.
In 2005, other nancial charges included a EUR 53 million fair value
gain on the conversion option embedded in the TPV Technology
convertible bond.
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Income taxes
The tax expense on income before tax amounted to EUR 622 million
(2006: EUR 167 million, 2005: EUR 526 million).
The components of income before taxes and income tax expense
are as follows:
2005 2006 2007
Netherlands 616 444 2,770
Foreign 1,046 785 1,695
Income before taxes 1,662 1,229 4,465
Netherlands:
Current taxes 3 81 (41)
Deferred taxes (92) (58) (144)
(89) 23 (185)
Foreign:
Current taxes (454) (273) (360)
Deferred taxes 17 83 (77)
(437) (190) (437)
Income tax expense (526) (167) (622)
Philips’ operations are subject to income taxes in various foreign
jurisdictions. The statutory income tax rates vary from 12.5% to
41.0%, which causes a difference between the weighted average statutory
income tax rate and the Netherlands’ statutory income tax rate of
25.5% (2006: 29.6%; 2005: 31.5%).
A reconciliation of the weighted average statutory income tax rate
to the effective income tax rate is as follows:
2005 2006 2007
Weighted average statutory
income tax rate 32.5 30.1 26.9
Tax effect of:
Changes in the valuation allowance:
- utilization of previously reserved
loss carryforwards (3.2) (1.6) (0.2)
- new loss carryforwards not
expected to be realized 3.1 2.2 0.9
- additions (releases) (9.3) 3.4 (3.5)
Non-tax-deductible impairment charges − − 0.2
Non-taxable income (10.0) (16.0) (17.3)
Non-tax-deductible expenses 4.2 8.9 1.2
Withholding and other taxes 16.3 1.3 (0.2)
Tax rate changes 0.7 (6.5) 2.6
Tax incentives and other (2.7) (8.2) 3.3
Effective tax rate 31.6 13.6 13.9
The weighted average statutory tax rate declined in 2007 compared
to 2006 due to changes of the tax rates in certain countries, primarily
due to a reduction in the Netherlands.
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Group nancial statements
Notes to the group nancial statements
Company nancial statements 250 Corporate governance246 Reconciliation of
non-US GAAP information 258 The Philips Group in the last ten years 260
Investor information