Philips 2007 Annual Report Download - page 187

Philips Annual Report 2007 193
Reconciliation from IFRS to US GAAP
The Company provides for transparency purposes for the users of the nancial statements, the following reconciliations
from IFRS to US GAAP.
Reconciliation of net income from IFRS to US GAAP
in millions of euros
2005 2006 2007
Net income attributable to stockholders,
as per the consolidated statements
of income on an IFRS basis 3,374 4,664 4,655
Adjustments to reconcile to US GAAP:
Reversal of capitalized product -
development cost (263) (271) (234)
Reversal of amortization of product -
development costs 197 213 205
Reversal of additional net pensions -
and other charges 97 292 311
Financial income and expense - (5) 1 (236)
Adjustment of results of -
equity-accounted investees (521) (18) (121)
Provisions - − (65) 9
Income tax effect on US GAAP -
adjustments (24) 22 (131)
Discontinued operations - (5) 472 (360)
Other - 18 73 70
Net income as per the consolidated
statements of income on a US GAAP
basis 2,868 5,383 4,168
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 costs under US GAAP are recorded as an expense.
Standards for pension accounting are signicantly different between US GAAP and IFRS. Prepaid pension assets •
under IFRS can only be recognized to the extent that economic bene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 between IFRS and US GAAP.
IFRS requires up-front prot recognition of operational sale-and-leaseback transactions when the sale-and-•
leaseback 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 in IFRS 1 that allows the inclusion of the •
existing negative cumulative translation differences 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.
In 2006 the result of discontinued operations was particularly affected by the different treatment of development •
costs between US GAAP and IFRS. This resulted in a higher gain upon the sale of the semiconductor division under
US GAAP than IFRS. In 2007, the difference in results from discontinued operations was particularly impacted by
the impairment of MedQuist, which takes into account a higher cumulative currency translation loss under US
GAAP than IFRS due to the above mentioned IFRS 1 exemption.
Reconciliation of stockholders’ equity from IFRS to US GAAP
in millions of euros
Dec. 31,
2006
Dec. 31,
2007
Stockholders’ equity as per the consolidated
balance sheets on an IFRS basis 21,910 20,287
Adjustments to reconcile to US GAAP:
Reversal of capitalized product development -
cost (535) (518)
Reversal of pensions and other -
postretirement benets 1,700 2,169
Goodwill amortization (until January 1, 2004) - 287 260
Goodwill capitalization (acquisition-related) - 30 76
Acquisition-related intangibles - (210) (162)
Equity-accounted investees - 105 69
Reversal of result on recognition of sale and -
leaseback (52) (39)
Provisions - (58) (18)
Deferred tax effect - (168) (447)
Assets from discontinued operations - 3 14
Other - (15) (7)
Stockholders’ equity as per the consolidated
balance sheets on a US GAAP basis 22,997 21,684
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