Philips 2013 Annual Report Download - page 225

14 Reconciliation of non-GAAP information 14 - 14
Annual Report 2013 225
14 Reconciliation of non-GAAP
information
Explanation of Non-GAAP measures
Koninklijke Philips N.V. (the ‘Company’) believes that an understanding of
sales performance is enhanced when the eects of currency movements
and acquisitions and divestments (changes in consolidation) are
excluded. Accordingly, in addition to presenting ‘nominal growth’,
‘comparable growth’ is provided.
Comparable sales exclude the eects of currency movements and
changes in consolidation. As indicated in the Significant accounting
policies, sales and income are translated from foreign currencies into the
Company’s reporting currency, the euro, at the exchange rate on
transaction dates during the respective years. As a result of significant
currency movements during the years presented, the eects of translating
foreign currency sales amounts into euros could have a material impact.
Therefore, these impacts have been excluded in arriving at the
comparable sales in euros. Currency eects have been calculated by
translating previous years’ foreign currency sales amounts into euros at
the following year’s exchange rates in comparison with the sales in euros
as historically reported. Years under review were characterized by a
number of acquisitions and divestments, as a result of which activities
were consolidated or deconsolidated. The eect of consolidation changes
has also been excluded in arriving at the comparable sales. For the
purpose of calculating comparable sales growth, when a previously
consolidated entity is sold or contributed to a venture that is not
consolidated by the Company, relevant sales are excluded from impacted
prior-year periods. Similarly, when an entity is acquired, relevant sales are
excluded from impacted periods.
The Company uses the term EBIT and EBITA to evaluate the performance
of the Philips Group and its operating sectors. The term EBIT has the same
meaning as Income from operations (IFO). Referencing EBITA will make
the underlying performance of our businesses more transparent by
factoring out the amortization of acquired intangible assets. EBITA
represents income from operations before amortization and impairment
of intangible assets generated in acquisitions (excluding software and
capitalized development expenses).
The Company believes that an understanding of the Philips Group’s
financial condition is enhanced by the disclosure of net operating capital
(NOC), as this figure is used by Philips’ management to evaluate the capital
efficiency of the Philips Group and its operating sectors. NOC is defined as:
total assets excluding assets classified as held for sale less: (a) cash and
cash equivalents, (b) deferred tax assets, (c) other non-current financial
assets and current financial assets, (d) investments in associates, and after
deduction of: (e) provisions, (f) accounts and notes payable, (g) accrued
liabilities, (h) other non-current liabilities and other current liabilities.
Net debt is defined as the sum of long- and short-term debt minus cash
and cash equivalents. The net debt position as a percentage of the sum of
group equity (shareholders’ equity and non-controlling interests) and net
debt is presented to express the financial strength of the Company. This
measure is widely used by management and investment analysts and is
therefore included in the disclosure. Our net debt position is managed in
such a way that we expect to continiously meet our objective to retain our
target at A3 rating (Moody’s) and A- rating (Standard and Poor’s).
Furthermore, the Group’s objective when managing the net debt position
is to fulfill our commitment to a stable dividend policy with a 40% to 50%
pay-out of continuing net income.
Cash flows before financing activities, being the sum total of net cash from
operating activities and net cash from investing activities, and free cash
flow, being net cash from operating activities minus net capital
expenditures, are presented separately to facilitate the reader’s
understanding of the Company’s funding requirements.
Net capital expenditures comprise of purchase of intangible assets,
proceeds from sale of intangible assets, expenditures on development
assets, capital expenditures on property, plant and equipment and
proceeds from disposals of property, plant and equipment. This measure
is widely used by management to calculate free cash flow.
Adjustments
Prior-period financial statements have been restated for the treatment of
Audio, Video, Multimedia and Accessories as discontinued operations
(see note 7, Discontinued operations and other assets classified as held for
sale) and the adoption of IAS 19R, which mainly relates to pension
reporting (see note 30, Post-employment benefits).