Philips 2007 Annual Report Download - page 34

Philips Annual Report 200740
Financial income and expenses
A breakdown of the nancial income and expenses is
shown in the table below.
Financial income and expenses
in millions of euros
20051) 20061) 2007
Interest expense (net) (202) (189) (43)
Sale of securities 233 − 2,549
Other 73 217 107
104 28 2,613
1) Restated to present the MedQuist business as a discontinued operation
The net interest expense in 2007 was EUR 146 million
lower than in 2006, mainly as a result of the higher
average cash position of the Group and higher average
interest rates applied to those deposits. Additionally,
interest expense decreased mainly as a result of a
reduction in average debt during 2007 compared to 2006.
Sale of securities
in millions of euros
2005 2006 2007
Gain on sale of Atos Origin shares 185 − −
Gain on sale of Great Nordic shares 48 − −
Gain on sale TSMC shares − − 2,528
Loss on sale of JDS Uniphase − − (10)
Gain on sale of Nuance − − 31
233 − 2,549
In 2007, a total gain of EUR 2,549 million was recognized
on the sale of shares in TSMC, Nuance and JDS Uniphase,
whereas during 2006 there were no sales of securities.
Other nancial income of EUR 107 million in 2007
included a cash dividend of EUR 128 million from TSMC
and a EUR 12 million gain related to the revaluation of
the convertible bond received from TPV Technology.
This was partly offset by a EUR 36 million impairment
of JDS Uniphase prior to the sale.
In 2006, other nancial income of EUR 217 million
included a cash dividend of EUR 223 million from TSMC,
a gain of EUR 97 million upon the designation of the
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.
This was partly offset by losses of EUR 77 million
resulting from an impairment of the available-for-sale
holding in TPO Display and of EUR 61 million due to a
decline in the fair value of the share option within a
convertible bond received from TPV Technology.
Income taxes
Income taxes amounted to EUR 622 million, compared
to EUR 167 million in 2006. The tax burden in 2007
corresponded to an effective tax rate of 13.9% on
pre-tax income, compared to 13.6% in 2006.
The effective tax rate in 2007 was affected by tax-
exempt items such as the non-taxable gain on the sale
of shares in TSMC. Non-taxable items in 2006 were the
TSMC dividend, as well as the gains and losses resulting
from changes in the fair value of TSMC stock and the
TPV convertible bond. Income taxes in 2006 were also
positively affected by a reduction in the Dutch corporate
tax rate and gains resulting from nal agreements on
prior-year taxes in various jurisdictions.
For 2008, the effective tax rate excluding non-taxable
items is expected to be around 30%, broadly in line
with 2007.
For further information, please refer to note 6 of
the notes to the Group nancial statements.
Results of equity-accounted investees
The results relating to equity-accounted investees
increased by EUR 920 million compared to 2006
and resulted in income of EUR 763 million in 2007,
a breakdown of which is given in the table below.
Results of equity-accounted investees
in millions of euros
20051) 20061) 2007
Company’s participation in income
(loss) 513 (180) 271
Results on sale of shares 1,545 79 514
Gains arising from dilution effects 165 14 −
Investment impairment and guaran-
tee charges (469) (70) (22)
1,754 (157) 763
1) Restated to present the MedQuist business as a discontinued operation
8 Financial highlights 10 Message from the President 16 The Philips Group
Management discussion
and analysis
62 The Philips sectors