20-F/A

As filed with the Securities and Exchange Commission on April 28, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F/A

(Mark one)

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004
OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-05146-01

KONINKLIJKE PHILIPS ELECTRONICS N.V.

(Exact name of Registrant as specified in charter)

ROYAL PHILIPS ELECTRONICS

(Translation of Registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(Address of principal executive office)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered

Common Shares — par value
Euro (EUR) 0.20 per share New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Common Shares — par value Euro (EUR) 0.20 per share

(Title of class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Class Outstanding at December 31, 2004

Koninklijke Philips Electronics N.V.			10 shares
Priority Shares par value	EUR	500 per share	1,281,527,004 shares
Common Shares par value	EUR	0.20 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 þ

TABLE OF CONTENTS

Exhibit 1: English translation of the Articles of Association of the Company dated April 1, 2005

Exhibit 12 (a): Rule 13a - 14(a) Certification

Exhibit 12 (b): Rule 13a - 14(a) Certification

Exhibit 13 (a): Rule 13a - 14(b) Certification

Exhibit 13 (b): Rule 13a - 14(b) Certification

Exhibit 15 (a): Consent of Registered Independent Public Accounting Firm

Exhibit 15 (d): LPL Consolidated Financials

Exhibit 15 (e): Audit Report Samil PricewaterhouseCoopers

Exhibit 15 (f): Consent of Samil PricewaterhouseCoopers

Exhibit 15 (g): LPD Consolidated Financials

Exhibit 15 (h): Audit Report KPMG

Exhibit 15 (i): Consent of KPMG

Exhibit 15 (j): Atos Origin Consolidated Financials

Exhibit 15 (k): Audit Report Deloitte Touche

Exhibit 15 (l): Consent of independent registered public accounting firms

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Explanatory Note

This amendment is being filed to provide separate audited consolidated financial statements of LG.Philips LCD Co., Ltd. (“LPL”) as of and for the fiscal year end December 31, 2004, and the audit report of Samil PricewaterhouseCoopers relating thereto as required under Rule 3-09 of Regulation S-X. This amendment also includes comparative information on LPL as of and for the fiscal periods ended December 31, 2003 and 2002.

Also, this amendment is being filed to provide separate consolidated financial statements of LG.Philips Displays Holding B.V. (“LPD”) as of and for the fiscal year ended December 31, 2004 as comparative information in relation to the separate consolidated financial statements of LPD as of and for the fiscal period ended December 31, 2003. The 2003 financial statements of LPD were filed as required under Rule 3-09 of Regulation S-X together with an audit report of KPMG as of and for the fiscal period ended December 31, 2003. This amendment also includes comparative information on LPD as of and for the fiscal period ended December 31, 2002, which is not required to be audited under Rule 3-09 of Regulation S-X. As a result, the separate consolidated financial statements of LPD as of and for the fiscal periods ended December 31, 2004 and 2002 included herein were not audited in accordance with generally accepted auditing standards in the United States, and are not covered by the audit report of KPMG.

In addition, this amendment is being filed to provide separate consolidated financial statements of Atos Origin S.A. (“Atos Origin”) as of and for the fiscal year ended December 31, 2004 as comparative information in relation to the separate consolidated financial statements of Atos Origin as of and for the fiscal period ended December 31, 2002. The 2002 financial statements of Atos Origin were filed as required under Rule 3-09 of Regulation S-X together with an audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton as of and for the fiscal period ended December 31, 2002. This amendment also includes comparative information on Atos Origin as of and for the fiscal period ended December 31, 2003, which is not required to be audited under Rule 3-09 of Regulation S-X. As a result, the separate consolidated financial statements of Atos Origin as of and for the fiscal periods ended December 31, 2004 and 2003 included herein were not audited in accordance with generally accepted auditing standards in the United States, and are not covered by the audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton.

This amendment amends “Item 18 Financial Statements”, and “Item 19 Exhibits”. In addition, Philips is including an English translation of the original Dutch text of the Articles of Association of Royal Philips Electronics as amended on April 1, 2005, pursuant to the resolution of the Annual Meeting of Shareholders held on March 31, 2005, and certifications of the chief executive officer and the chief financial officer.

Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in any other Item of the Form 20-F filed on February 22, 2005 or reflect any events that have occurred after the Form 20-F was filed.

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Item 18. Financial statements

The following portions of the Company’s 2004 Annual Report — Financial Statements and Analysis, as set forth on pages 89 through 175, are incorporated herein by reference and constitute the Company’s response to this Item:

“Report of independent registered public accounting firm”
“Consolidated statements of income of the Philips Group”
“Consolidated balance sheet of the Philips Group”
“Consolidated statements of cash flows of the Philips Group”
“Consolidated statements of changes in stockholders’ equity of the Philips Group”
“Accounting policies”
“New accounting standards”
“Notes to the consolidated financial statements of the Philips Group”

Separate consolidated financial statements for LPL included as Exhibit 15 (d) hereto, the independent auditors’ report of Samil PricewaterhouseCoopers with respect to the consolidated financial statements for LPL, included as Exhibit 15 (e) hereto, separate consolidated financial statements for LPD included as Exhibit 15 (g) hereto, the audit report of KPMG with respect to the consolidated financial statements for LPD as of and for the year ended December 31, 2003, included as Exhibit 15 (h) hereto, separate consolidated financial statements for Atos Origin included as Exhibit 15 (j) hereto, and the audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton with respect to the consolidated financial statements for Atos Origin as of and for the year ended December 31, 2002, included as Exhibit 15 (k) hereto, are hereby incorporated by reference. A discussion of the principal differences in the accounting principles used in preparing financial statements in France from generally accepted accounting principles in the United States, included as Exhibit 15 (m) hereto, is hereby incorporated by reference.

Schedules:

Schedules are omitted as they are either not required or the required information is included in the consolidated financial statements.

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Item 19. Exhibits

Index of exhibits
Exhibit 1	English translation of the Articles of Association of the Company dated April 1, 2005.
Exhibit 2 (b) (1)	The total amount of long-term debt securities of the Company and its subsidiaries authorized under any one instrument does not exceed 10% of the total assets of Philips and its subsidiaries on a consolidated basis. Philips agrees to furnish copies of any or all such instruments to the Securities and Exchange Commission upon request.
Exhibit 4	Employment contracts of the members of the Board of Management other than G.J. Kleisterlee (incorporated by reference to Exhibit 4 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003) (File No. 001-05146-01).
Exhibit 4 (a)	Employment contract between the Company and G.J. Kleisterlee. *
Exhibit 4 (b)	Employment contract between the Company and P.J. Sivignon. *
Exhibit 8	List of Significant Subsidiaries. *
Exhibit 12 (a)	Certification of G.J. Kleisterlee filed pursuant to 17 CFR 240. 13a-14(a).
Exhibit 12 (b)	Certification of J.H.M. Hommen filed pursuant to 17 CFR 240. 13a-14(a).
Exhibit 13 (a)	Certification of G.J. Kleisterlee furnished pursuant to 17 CFR 240. 13a-14(b).
Exhibit 13 (b)	Certification of J.H.M. Hommen furnished pursuant to 17 CFR 240. 13a-14(b).
Exhibit 15 (a)	Consent of Registered Independent Public Accounting Firm
Exhibit 15 (b)	The 2004 Annual Report to Shareholders of the Company which is furnished to the Securities and Exchange Commission for information only and is not filed except for such specific portions that are expressly incorporated by reference in this report on Form 20-F. *
Exhibit 15 (c)	Description of industry terms. *
Exhibit 15 (d)	Consolidated Financial Statements of LG.Philips LCD Co., Ltd.
Exhibit 15 (e)	Independent auditors’ report of Samil PricewaterhouseCoopers regarding the consolidated financial statements of LG.Philips LCD Co., Ltd.
Exhibit 15 (f)	Consent of Samil PricewaterhouseCoopers
Exhibit 15 (g)	Consolidated Financial Statements of LG.Philips Displays Holding B.V. **
Exhibit 15 (h)	Audit report of KPMG regarding the 2003 consolidated financial statements of LG.Philips Displays Holding B.V.
Exhibit 15 (i)	Consent of KPMG
Exhibit 15 (j)	Consolidated Financial Statements of Atos Origin S.A. **
Exhibit 15 (k)	Audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton regarding the 2002 consolidated financial statements of Atos Origin S.A.
Exhibit 15 (l)	Consent of independent registered public accounting firms
Exhibit 15 (m)	Principal differences between French GAAP and US GAAP. ***

*	Previously filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2004.
**	The LPD consolidated financial statements as of and for the fiscal periods ended December 31, 2004 and 2002 were not audited in accordance with generally accepted auditing standards in the United States, and are not covered by the audit report of KPMG. The Atos Origin consolidated financial statements as of and for the fiscal periods ended December 31, 2004 and 2003 were not audited in accordance with generally accepted auditing standards in the United States, and are not covered by the audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton.
***	Incorporated by reference to Exhibit 10 (e) to the Company’s Annual Report on Form 20-F for the year ended December 31, 2002.

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SIGNATURES

     The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

KONINKLIJKE PHILIPS ELECTRONICS N.V.
(Registrant)

/s/ G.J. Kleisterlee	/s/ J.H.M. Hommen
G.J. Kleisterlee	J.H.M. Hommen
(President, Chairman of the Board of Management	(Vice-Chairman of the Board of Management,
and the Group Management Committee)	and the Group Management Committee and
	Chief Financial Officer)

Date: April 28, 2005

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EX-1

Exhibit 1

English translation of the Articles of Association of Koninklijke Philips Electronics N.V. dated 1 April 2005

ARTICLES OF ASSOCIATION:

Name and seat.
Article 1.

1.	The name of the Company is: Koninklijke Philips Electronics N.V.
2.	The Company is authorized to act as: “Royal Philips Electronics”.
3.	Its registered office is situated in Eindhoven.

Objects.
Article 2.

The objects of the Company are to establish, participate in, administer and finance legal entities, companies and other legal forms for the purpose of the manufacture and trading of electrical, electronic, mechanical or chemical products, the development and exploitation of technical and other expertise, including software, or for the purpose of other activities, and to do everything pertaining thereto or connected therewith, including the provision of security in particular for commitments of business undertakings which belong to its group, all this in the widest sense, as may also be conducive to the proper continuity of the collectivity of business undertakings, in the Netherlands and abroad, which are carried on by the Company and the companies in which it directly or indirectly participates.

Share capital and shares.
Article 3.

1.

The share capital of the Company is one billion and three hundred million euros (EUR 1,300,000,000), divided into three billion two hundred and fifty million common shares of twenty euro cents (EUR 0.20) each, in these articles of association henceforth referred to as “common shares”, and three billion two hundred and fifty million preference shares of twenty euro cents (EUR 0.20) each, in these articles of association henceforth referred to as “preference shares”.

2.

Unless otherwise stated, the term “shares” in these articles of association shall refer both to common and to preference shares.

Issue of shares.
Article 4.

1. The Board of Management shall have the power to issue common shares if and insofar as the Board of Management has been designated by the General Meeting of Shareholders as the authorized body for this purpose. Such a designation shall only take place for a specific period of no more than five years and may not be extended by more than five years on each occasion. The Board of Management requires the approval of the Supervisory Board for such an issue.

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2.	If a designation as referred to in clause 1 is not in force, the General Meeting of Shareholders shall have the power, upon the proposal of the Board of Management — which proposal must be approved by the Supervisory Board — to resolve to issue common shares.
3.	In the event of a common share issue in return for a cash consideration, holders of common shares shall have a pre-emption right in proportion to the number of common shares which they own. The Board of Management shall have the power to restrict or exclude the pre-emption right accruing to these shareholders, if and insofar as the Board of Management has also been designated by the General Meeting of Shareholders for this purpose as the authorized body for the period of such designation. The provisions in the second and third sentences of clause 1 shall apply accordingly.
4.	If a designation as referred to in clause 3 is not in force, the General Meeting of Shareholders shall have the power, upon the proposal of the Board of Management — which proposal must be approved by the Supervisory Board — to restrict or exclude the pre-emption right accruing to shareholders.
5.	A resolution of the General Meeting of Shareholders in accordance with clauses 3 and 4 of this article requires a majority of at least two-thirds of the votes cast if less than half of the issued share capital is represented at the meeting.
6.	Clauses 1 and 2 of this article apply mutatis mutandis to an issue of preference shares. An option to take preference shares was granted on the nineteenth day of June nineteen hundred eighty-nine to the Stichting Preferente Aandelen Philips under the power vested in the Board of Management at that time in the articles of association.
7.	In order for resolutions of the General Meeting of Shareholders to issue shares or to designate the Board of Management, as referred to in clauses 1, 2 and 6, to be valid, a prior or simultaneous resolution granting approval is required from each group of holders of shares of the same type whose rights are affected by the issue.
8.	The preceding clauses of this article shall apply accordingly mutatis mutandis to the granting of rights to take shares, but shall not apply to the issue of shares to someone who exercises a previously acquired right to take shares. The Board of Management shall have the power to issue such shares.
9.	The issue price shall not be fixed below par, subject to deviations which the law permits in this respect. The common shares shall be fully paid up when they are taken. At least a quarter of the nominal amount shall be paid on preference shares when they are taken. Further payment on the preference shares shall be made within one month after the Board of Management, subject to the approval of the Supervisory Board, has made a corresponding request in writing to the shareholders concerned.

Acquisition, disposal of shares in the Company’s own capital and reduction of share capital.
Article 5.

1.	Any acquisition by the Company of shares in its capital which are not fully paid up shall be null and void.
2.	The Company may acquire, for valuable consideration, common shares in its own share capital if and insofar as:

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a.	its shareholders’ equity less the purchase price of the common shares is not less than is laid down in the relevant statutory provisions;
b.	the nominal amount of the shares in its capital which the Company acquires, holds or holds as pledgee, or which are held by a subsidiary, is not more than one-tenth of the issued share capital; and
c.	the General Meeting of Shareholders has authorized the Board of Management to acquire such shares, which authorization may be given for no more than eighteen months on each occasion.

	Shares thus acquired may again be disposed of. The Board of Management shall not acquire shares in the Company’s own share capital as referred to above — if an authorization as referred to above is in force — or dispose of such shares without the approval of the Supervisory Board.
3.	The Board of Management shall have the power, without the authorization referred to in clause 2 but with the approval of the Supervisory Board, to acquire on behalf of the Company shares in its own share capital as referred to above in order to transfer the shares to employees of the Company or of a group company, in pursuance of a rule applying to them.
4.	No voting right attaches to own shares as referred to above. These shares shall not rank for the purpose of determining any majority or for deciding whether a specific proportion of the issued share capital is represented at a general meeting of shareholders.
5.	Upon the proposal of the Board of Management — which proposal must have the approval of the Supervisory Board — the General Meeting of Shareholders shall have the power to resolve, having regard to the provisions of Section 99 of Book 2 of the Netherlands Civil Code, to reduce the issued share capital:

– by a cancellation of common shares acquired by the Company in its own share capital;

– by a reduction of the nominal amount of the shares by amendment of the articles of association, with partial repayment on those shares;

– by a cancellation of preference shares, with repayment on the said preference shares; or

– by a release from the obligation to make further payment on the preference shares upon implementation of a resolution to reduce the nominal amount of such shares.

It shall be indicated in this resolution whether and, if so, to what extent this relates to common shares, to all or only to certain preference shares or — insofar as this is permitted — to all shares, and rules shall be drawn up for the implementation of the resolution. A partial repayment or release from the obligation to make further payment must be made proportionally to all shares concerned.

Shares, share certificates and share register.
Article 6.

1.	Preference shares shall be registered. Common shares shall, at the option of the shareholder, be either in bearer or registered form, as specified in the following clauses.
2.	Where a share belongs to more than one person in any form of joint ownership, or where limited rights in rem attach to any share, the Company is entitled to require those concerned to designate in writing one person to exercise the rights attached to the share.

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3.	The expression “shareholder”, as used in these articles, shall, if the ownership of a share is vested in more than one person, mean the joint holders of such share, without prejudice, however, to the provisions of clause 2 of this article. The expression “person”, as used in these articles, shall include a body corporate.
4.	Share certificates for bearer shares consist of a main part with a dividend sheet not consisting of separate dividend coupons. Such dividend sheets shall be issued solely to “depositaries” who have been admitted to the Centre for Securities Administration in Amsterdam and who are bound by the regulations that apply to such depositaries. Share certificates for bearer shares shall be available for such numbers, which may be subject to change, as the Board of Management may determine.
5.	Registered shares shall be available:

–	in the form of an entry in the share register without issue of a share certificate; shares of this type are referred to in these articles as Type I shares;
–	and — should the Board of Management so decide — in the form of an entry in the share register with issue of a certificate, which certificate shall consist of a main part without dividend sheet; shares of this type and share certificates of this type for common shares are referred to in these articles as Type II shares and share certificates,
these being available for such numbers, which may be subject to change, as the Board of Management may determine.

6.	The form in which share certificates are issued shall be determined by the Board of Management.
7.	The forms of share specified in clauses 4 and 5 may, on conditions to be determined by the Company, be converted into other forms referred to in the respective clauses.

Article 7.

1.	In respect of registered shares a register shall be kept by or on behalf of the Company, which register shall be regularly updated and, in the form the Board of Management will decide, may, in whole or in part, be maintained in more than one copy and at more than one place. At least one copy will be maintained at the office of the Company.
2.	Each shareholder’s name and address, the number and type of shares registered in his name, the date on which registered shares were acquired, the date of acknowledgement and/or service upon the Company of the instrument of transfer, the amounts paid thereon and such further data as the Board of Management shall deem desirable, whether at the request of a shareholder or not, shall be entered in the register. The names and addresses of persons who have a right of usufruct or pledge in respect of those shares, the date on which they acquired such a right, the date of acknowledgement or service upon the Company of the instrument of transfer, as well as the other data required by law, shall also be entered in the register.
3.	Upon request, a shareholder shall be given free of charge an extract from the register in respect of the shares registered in his name.
4.	The Board of Management may resolve that the register be kept fully or partially in electronic form.

Duplicates of share certificates.
Article 8.

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1.	Upon a written request from a person entitled to such certificates, missing or damaged common share certificates, or parts thereof, may be replaced by new certificates, or by duplicates bearing the same numbers and/or letters, provided that the applicant proves his title and, in so far as applicable, his loss to the satisfaction of the Board of Management, and further subject to such conditions as the Board of Management may deem necessary.
2.	In appropriate cases, at its own discretion, the Board of Management may stipulate that the identifying numbers and/or letters of missing documents be published three times, at intervals of at least one month, in at least three newspapers to be indicated by the Board of Management, announcing the application made; in such a case new certificates or duplicates may not be issued until six months have expired since the last publication, always provided that the original documents have not been produced and shown to the Board of Management before that time.
3.	The issue of new certificates or duplicates shall render the original document invalid.
4.	The issue of new certificates or duplicates for shares may in appropriate cases, at the discretion of the Board of Management, be published in newspapers to be indicated by the Board of Management.

Transfer of shares.
Article 9.

The transfer of a registered share, including:

– the allotment of registered shares in the event of a judicial division of any form of community of property or interests;

– the transfer of a registered share as a consequence of a judgement execution;

– the creation of limited rights in rem on a registered share,

shall require an appropriate instrument of transfer that has to meet the conditions stipulated by the Company and for which a model will be available for shareholders at no costs, as well as an acknowledgement. These acknowledgement may be made:

– in the instrument of transfer; or

– by a certificate with an officially recorded, or otherwise fixed, date containing the acknowledgement on the instrument of transfer or of a copy or extract thereof authenticated by a civil law notary or by the transferor.

If a Type II share certificate has been issued, the share certificate is also required to be handed over to the Company for the purpose of the share transfer. In this case the acknowledgement may be made by making an annotation on the share certificate or by replacing the certificate with a new one in the name of the transferee.
In the case of preference shares which have not been paid up in full, the acknowledgement may be made only if there is an instrument of transfer with an officially recorded, or otherwise fixed, date. When preference shares which have not been paid up in full are transferred, the date of transfer shall be entered in the register.

Board of Management; task and appointment.
Article 10.

1. The Company shall be managed by a Board of Management, consisting of at least three members, under the supervision of a Supervisory Board. The Chairman of the Board of Management shall be President of the Company and shall have the title “Chief Executive Officer”. The other members shall be Executive Vice-Presidents of the Company. The

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	Supervisory Board may appoint a Chief Financial Officer from among the other members and may also grant other titles to members of the Board of Management. With due observance of the minimum of three, the number of members shall be decided by the Supervisory Board.
2.	Members of the Board of Management, as well as the Chairman of the Board of Management and President of the Company, shall be appointed by the General Meeting of Shareholders from a binding list of one person or as many more persons as the law requires for each vacancy to be filled, drawn up by the Supervisory Board after consultation with the Chairman of the Board of Management. Votes in respect of persons who have not been so nominated shall be invalid.
3.	The list of nominees shall be deposited for inspection by shareholders at the office of the Company, as from the date the notice convening the general meeting of shareholders at which the appointments are to be made is served until the close of that meeting and shall be published on the Company’s website. If a binding list of nominees has not been drawn up or has not been drawn up in time, this will be stated in the notification, then the General Meeting of Shareholders shall be free to appoint.
4.	The list of nominees referred to in clause 2 of this article may be deprived of its binding character by a resolution adopted at a General Meeting of Shareholders by a simple majority of the votes cast, representing at least one third of the issued share capital. In that event a new binding list shall be submitted to a subsequent general meeting of shareholders, with due observance of the provisions of the preceding clauses of this article. Should such a second list also be deprived of its binding character in the manner provided for in the first sentence, the General Meeting of Shareholders shall be free to appoint.
	If a simple majority of the votes cast is in favor of the resolution to deprive the list of nominees referred to in clause 2 of this article of its binding character, but such majority does not represent at least one third of the issued share capital, a new meeting may be convened at which the resolution may be passed by a simple majority of the votes cast, regardless of the portion of the issued share capital that this majority represents. In the event that at such meeting the resolution to deprive the list of nominees referred to in clause 2 of this article of its binding character is adopted, the provisions in the second and third sentences of this clause shall apply accordingly.
5.	A member of the Board of Management is appointed for a maximum period of four years, it being understood that this maximum period of appointment expires no later than at the end of the following general meeting of shareholders to be held in the fourth year after the year of appointment, or, if applicable, on a later pension or other contractual termination date in that year, unless the General Meeting of Shareholders resolves otherwise.
6.	Reappointment is possible on each occasion for a maximum period of four years as referred to in the preceding clause, subject to the provisions of the preceding clauses of this article.
7.	Should the number of members of the Board of Management fall below three, the powers of the Board of Management shall remain intact. In such a case a general meeting of shareholders shall be held at the earliest opportunity to fill the vacancies on the Board of Management.

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8. Without prejudice to the provisions of clause 2 of this article, a proposal to make appointments to the Board of Management may only be placed on the agenda of the general meeting of share-holders by the Board of Management and only in consultation with the Supervisory Board.

Board of Management; suspension and removal.
Article 11.

1.	Members of the Board of Management may be suspended or removed by the General Meeting of Shareholders. A resolution to suspend or remove a member of the Board of Management, other than a resolution proposed by the Board of Management or the Supervisory Board, may only be adopted by a simple majority of the votes cast, representing at least one third of the issued share capital.
2.	The members of the Board of Management may be suspended from office by the Supervisory Board either collectively or individually. Within three months of such suspension a general meeting of shareholders shall be held to decide whether the suspension shall be cancelled or upheld. The person so suspended shall be entitled to be heard at the meeting.

Representation.
Article 12.

1.	Two members of the Board of Management may jointly represent the Company at law and otherwise.
2.	The Board of Management may authorize each of its members separately to represent the Company within the limits defined in the authorization.
3.	The Board of Management shall have the power to enter into legal acts as specified in Section 94 (1) of Book 2 of the Civil Code.
4.	The Board of Management may grant powers of attorney to persons, whether or not in the service of the Company, to represent the Company and may thereby determine the scope of such powers of attorney and the titles of such persons.

Conflicts of interests.
Article 13.

1. In the event of a legal act or a lawsuit between the Company and:

a.	a member of the Board of Management him/herself; or
b.	the spouse, registered partner or other life companion, foster child and relatives by blood or marriage up to the second degree of a member of the Board of Management; or
c.	another legal entity, though not a group company or participating interest of the Company, in which a member of the Board of Management is a member of the management or a member of the supervisory board; or
d.	another legal entity, though not a group company or participating interest of the Company, of which a member of the management has a relationship under family law, as referred to above under b, with a member of the Board of Management; or
e.	another company with a capital divided in shares in which a member of the Board of Management has an interest that exceeds five percent (5%) of the issued capital; or
f.	a partnership in which a member of the Board of Management is a partner;

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and insofar as the legal act is of material significance to the Company and/or to the respective member of the Board of Management,
the respective member of the Board of Management shall not take part in the decision-making in respect of the legal act or the lawsuit. Resolutions concerning such legal acts or lawsuits require the approval of the Supervisory Board.

2.	In the cases referred to in clause 1, the Company shall be represented, without prejudice to the provisions of the last sentence of Section 146 of Book 2 of the Civil Code, by the member of the Board of Management or the member of the Supervisory Board that the Supervisory Board designates for that purpose. In other cases of a conflict of interests with the Company the powers of a member of the Board of Management shall not be withdrawn.
3.	Legal acts as referred to in clause 1 shall be mentioned in the Company’s annual report for the financial year in question.
4.	Without prejudice to what is stated in these articles of association, the provisions of this article may be worked out in further detail in the Rules of Procedure of the Board of Management.

Board of Management; rules of procedure.
Article 14.

Subject to the approval of the Supervisory Board, the Board of Management shall draw up Rules of Procedure, regulating, inter alia, the mode of convening its meetings and the internal procedure at such meetings.

Approval of resolutions of the Board of Management.
Article 15.

1. Without prejudice to the provisions made elsewhere in these articles of association, resolutions of the Board of Management concerning the following matters shall be subject to the approval of the Supervisory Board:

a.	issue of shares in the Company, restricting or excluding the pre-emption right in the event of an issue of shares, acquisition of shares in the capital of the Company and the disposal of shares thus acquired; issue of debentures chargeable to the Company;
b.	cooperation in the issue of certificates of shares in the Company;
c.	application for quotation or for withdrawal of the quotation of the securities referred to under a. and b. in the price list of any stock exchange;
d.	any investment involving expenditure equal to at least one quarter of the issued share capital plus the reserves of the Company, as shown by its balance sheet and explanatory notes;
e.	a proposal to amend the articles of association;
f.	a proposal to dissolve the Company or for a legal merger or split-off of the Company;
g.	a petition for bankruptcy or for a moratorium of payments;
h.	a proposal to reduce the issued share capital;
i.	a significant change in the identity or nature of the Company or the enterprise, including in any event:

(i) transferring the business of Company, or almost the entire business of the Company, to a third party;

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(ii)

entering into or discontinuing long-term cooperation by the Company or a subsidiary with another legal entity or company or as a fully liable partner in a limited partnership or ordinary partnership, if this cooperation or its discontinuation is of material significance to the Company;

(iii)

acquiring or disposing of a participating interest in the capital of a company to the value of at least one-third of the amount of the assets according to the balance sheet and notes thereto or, if the Company prepares a consolidated balance sheet, according to the consolidated balance sheet and notes thereto as published in the last adopted annual accounts of the Company, by the Company or one of its subsidiaries.

2.	At least once per year the Board of Management shall submit to the Supervisory Board for approval the strategy designed to achieve the Company’s operational and financial objectives and, if necessary, the parameters to be applied in relation to that strategy.
3.	The Supervisory Board may grant the approvals required in accordance with this article either for a specific legal act, or for a group of such legal acts.
4.	The Supervisory Board may also, after consultation with the Chairman of the Board of Management and in a resolution to this effect, make other resolutions of the Board of Management, which are to be clearly defined, subject to its approval. The Supervisory Board shall immediately notify the Board of Management of such a resolution.

Board of Management; absence or inability to act.
Article 16.

Without prejudice to the statutory provisions, absence or inability to act of members of the Board of Management is regulated in the Regulations of the Board of Management.

Board of Management; remuneration and indemnification.
Article 17.

1.	The policy on the remuneration of the Board of Management is adopted by the General Meeting of Shareholders upon the proposal of the Supervisory Board.
2.	With regard to remuneration schemes — in force for one or several years — in the form of shares or rights to take shares, the Supervisory Board shall submit a proposal to the General Meeting of Shareholders for approval.
3.	The remuneration and the other terms and conditions of employment of the members of the Board of Management are determined by the Supervisory Board, with due observance of the policy referred to in clause 1.
4.	Unless the law provides otherwise, the current and former members of the Board of Management are reimbursed for:

a.	the reasonable costs of defending claims for damages or defence costs in other legal proceedings;
b.	any damages which they are ordered to pay;
c.	the reasonable costs of appearing in other legal proceedings in which they are involved in their (current or former) function as hereinafter referred to, with the exception of proceedings primarily aimed at pursuing a claim on their own behalf,

in respect of an act or failure to act in the exercise of the function of the respective member of the Board of Management or of another function which he or she performs or has

9

performed at the request of the Company — in the latter case reimbursement shall only be for an amount that is not reimbursed in respect of that other function.
There will be no entitlement to the reimbursement referred to above, and any reimbursement already paid must be paid back, if and insofar as:

a.	it has been established in final judgement by a Dutch court or, in the case of arbitration, by an arbitrator that the act or failure to act can be characterized as intentional (“opzettelijk”), intentionally reckless (“bewust roekeloos”) or seriously culpable (“ernstig verwijtbaar”), unless the law provides otherwise or this would, in view of the circumstances of the case, be unacceptable according to the standards of reasonableness and fairness (“redelijkheid en billijkheid”);
b.	the costs or damages are directly connected with or arise from a legal proceeding between a current or former member of the Board of Management and the Company itself or its group companies, except legal proceedings which have been instituted by one or more shareholders on behalf of the Company, in conformity with Dutch law or otherwise;
c.	the costs and/or damages are reimbursed by insurers under an insurance policy.

5.	The Company may take out liability insurance on behalf of the persons concerned.
6.	The Supervisory Board may by agreement give further implementation to what is stated above.

Supervisory Board; task.
Article 18.

1. The Supervisory Board shall be responsible for supervising the policy pursued by the Board of Management and the general course of affairs in the group of companies, of which the Company forms part. The Supervisory Board shall assist the Board of Management with advice relating to the general policy aspects connected with the activities of the Company and of the group of companies associated with it.

2. The Board of Management shall provide the Supervisory Board with such information as the Supervisory Board needs for the performance of its duties and shall regularly report on the course of business of the group of companies associated with it. At least once per year the Board of Management shall inform the Supervisory Board in writing of the main lines of the Company’s strategic policy, the general and financial risks and the system of management and control.

Supervisory Board; appointment.
Article 19.

1.

The members of the Supervisory Board shall be appointed and may be removed by the General Meeting of Shareholders. The Supervisory Board shall consist of at least five members.

2.

Members of the Supervisory Board shall be appointed by the General Meeting of Shareholders from a binding list of one person or as many as the law requires for each vacancy to be filled, drawn up by the Supervisory Board. Votes in respect of persons who have not been so nominated shall be invalid. A list of nominees shall be deposited for inspection by shareholders at the office of the Company, as from the date the notice convening the General Meeting of Shareholders at which the appointments are to be made is served until the close of that meeting and shall be published on the Company’s website.

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If a binding list of nominees has not been drawn up or has not been drawn up in time, this will be stated in the notification, then the General Meeting of Shareholders shall be free to appoint.
Without prejudice to the provisions of the first sentence and in compliance with Section 142 (3) of Book 2 of the Civil Code, a proposal to appoint a member of the Supervisory Board may only be placed on the agenda of the general meeting of shareholders by the Supervisory Board, though only in consultation with the Board of Management. Persons as referred to in Section 160 of Book 2 of the Civil Code shall not be appointed.

3.	The list of nominees referred to in clause 2 of this article may be deprived of its binding character by a resolution adopted at a general meeting of shareholders by a simple majority of the votes cast, representing at least one third of the issued share capital. In that event, a new binding list shall be submitted to a subsequent general meeting of shareholders with due observance of the provisions of the preceding clauses of this article. Should such a second list also be deprived of its binding character in the manner provided for in the first sentence, then the General Meeting of Shareholders shall be free to appoint. If a simple majority of the votes cast is in favor of the resolution to deprive the list of nominees referred to in clause 2 of this article of its binding character, but such majority does not represent at least one third of the issued share capital, a new meeting may be convened at which the resolution may be passed by a simple majority of the votes cast, regardless of the portion of the issued share capital that represented by such majority. In the event that at such meeting the resolution to deprive the list of nominees referred to in clause 2 of this article of its binding character is adopted, the provisions in the second and third sentences of this clause shall apply accordingly.
4.	A member of the Supervisory Board shall retire at the end of the next general meeting of shareholders held after a period of four years following his appointment. After having held office for the first period of four years, members of the Supervisory Board are eligible for re-election only twice for a full period of four years, as referred to above. In specific cases the Supervisory Board may resolve to deviate from this provision. The Supervisory Board may establish a rotation schedule.
5.	A resolution to suspend or remove a member of the Supervisory Board, other than a resolution proposed by the Supervisory Board, may only be adopted by a simple majority of the votes cast, representing at least one third of the issued share capital.

Article 20.

1.	The members of the Supervisory Board shall appoint from their number a Chairman, a Vice-Chairman and a Secretary.
2.	The Supervisory Board may appoint one of its members to be a Delegate Member and in so doing determine the period of such appointment. Without prejudice to the duties and responsibilities of the Supervisory Board and of its members, the Delegate Member shall, on behalf of the Supervisory Board, maintain more frequent contact with the Board of Management with regard to the general course of affairs within the scope of article 18 of these articles of association. In so doing, the Delegate Member of the Supervisory Board shall assist the Board of Management with advice.
3.	Without prejudice to the duty and responsibility of the Supervisory Board as such, the latter body may resolve to have certain tasks performed or prepared and certain powers

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exercised or prepared by a commission from their number. Such a resolution shall specify the chairman and the secretary thereof and in what manner and how frequently such commission shall render account to the Supervisory Board as such.

Supervisory Board; meetings and adoption of resolutions.
Article 21.

1.	The Supervisory Board may adopt resolutions by absolute majority of the votes cast at a meeting attended by at least one-third of its members. The Supervisory Board may adopt resolutions in writing outside a meeting provided that the proposals for such resolutions have been sent in writing to all members and no member is opposed to this method of adopting a resolution, and provided that in such a case more than half of the members declare themselves in favour of the proposals.
2.	Minutes shall be kept of the proceedings of the Supervisory Board, which in any case shall include the resolutions adopted by the meeting. In the event that the resolutions are adopted outside a meeting, as referred to in the second sentence of the preceding clause, the resolutions so adopted shall be recorded in writing by the Secretary. Such record shall be signed by the Chairman and the Secretary.
3.	A certificate signed by two members to the effect that the Supervisory Board has adopted a particular resolution shall constitute evidence of such a resolution in dealings with third parties.
4.	The members of the Board of Management shall, if so invited by the Supervisory Board, attend the meetings of the Supervisory Board.

Supervisory Board; rules of procedure.
Article 22.

The Supervisory Board shall draw up Rules of Procedure regulating the mode of convening its meetings and the internal procedure at such meetings, including regulations for its committees.

Supervisory Board; remuneration and indemnification.
Article 23.

1.

Upon a proposal made by the Supervisory Board, the General Meeting of Shareholders shall determine the remuneration of the members of the Supervisory Board, which shall consist of a fixed yearly amount. The same applies to members of committees established by the Supervisory Board and to the Chairman. Members of the Supervisory Board shall not be granted shares and/or rights to shares by way of remuneration.

2.

Unless the law provides otherwise, the current and former members of the Supervisory Board are reimbursed for:

a.	the reasonable costs of defending claims for damages or defence costs in other legal proceedings;
b.	any damages which they are ordered to pay;
c.	the reasonable costs of appearing in other legal proceedings in which they are involved in the capacity of their (current or former) function as hereinafter referred to, with the exception of proceedings primarily aimed at pursuing a claim on their own behalf,

in respect of an act or failure to act in the exercise of the function of the respective member of the Supervisory Board or of another function which he or she performs or has performed

12

at the request of the Company — in the latter case reimbursement shall only be for an amount that is not reimbursed in respect of that other function.
There will be no entitlement to the reimbursement referred to above, and any reimbursement already paid must be paid back, if and insofar as:

a.	it has been established in final judgement by a Dutch court or, in the case of arbitration, by an arbitrator that the act or failure to act can be characterized as intentional (“opzettelijk”), intentionally reckless (“bewust roekeloos”) or seriously culpable (“ernstig verwijtbaar”), unless the law provides otherwise or this would, in view of the circumstances of the case, be unacceptable according to the standards of reasonableness and fairness (“redelijkheid en billijkheid”);
b.	the costs or damages are directly connected with or arise from a legal proceeding between a current or former member of the Supervisory Board and the Company itself or its group companies, except legal proceedings which have been instituted by one or more shareholders on behalf of the Company, in conformity with Dutch law or otherwise;
c.	the costs and/or damages are reimbursed by insurers under an insurance policy.

3.	The Company may take out liability insurance on behalf of the persons concerned.
4.	The Supervisory Board may by agreement give further implementation to what is stated above.

General meetings of shareholders; general.
Article 24.

1.

The ordinary general meeting of shareholders shall be held each year not later than the thirtieth day of June and, at the Board of Management’s option, at Eindhoven, at Amsterdam, at The Hague or at Rotterdam; the notice convening the meeting shall inform the shareholders accordingly. Extraordinary general meetings of shareholders shall be held as often as deemed necessary by the Supervisory Board or the Board of Management, and must be held if one or more shareholders jointly representing at least one-tenth of the issued share capital make a written request to that effect to the Supervisory Board and the Board of Management, specifying in detail the business to be dealt with. If the Supervisory Board and the Board of Management fail to comply with a request as referred to in the preceding clause in such a manner that the General Meeting of Shareholders can be held within six weeks after the request, the persons making the request may be authorized by the (temporary) relief judge (“voorzieningenrechter”) of the District Court at ‘s-Hertogenbosch to convene the meeting themselves.

2.

The general meeting of shareholders will in any case deal with and deliberate on the following:

a. the Company’s annual report, which includes at least:

–	the Board of Management’s report;
–	the annual accounts with explanation and appendices;
–	the Supervisory Board’s report;
this being without prejudice to the possibility of a deferment granted to the Board of Management, as provided in Section 101 of Book 2 of the Civil Code;

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b.	proposals placed on the agenda by the Supervisory Board and the Board of Management or shareholders in accordance with the provisions of these articles of association;
c.	the filling of vacancies on the Board of Management and/or the Supervisory Board in accordance with the provisions of these articles.

3. Resolutions of the Board of Management concerning a significant change in the identity or nature of the Company or the enterprise shall be subject to the approval of the General Meeting of Shareholders, including in any event:

a.	transferring the business of the Company, or almost the entire business of the Company, to a third party;
b.	entering into or discontinuing long-term cooperation by the Company or a subsidiary with another legal entity or company or as a fully liable partner in a limited partnership or ordinary partnership, if this cooperation or its discontinuation is of material significance to the Company;
c.	acquiring or disposing of a participating interest in the capital of a company to the value of at least one-third of the amount of the assets according to the balance sheet and notes thereto or, if the Company prepares a consolidated balance sheet, according to the consolidated balance sheet and notes thereto as published in the last annual accounts of the Company, by the Company or one of its subsidiaries.

General meeting of shareholders; convening of meeting and agenda.
Article 25.

1.	The notice convening a general meeting of shareholders shall be published in the form of an advertisement which in the Netherlands shall be inserted in at least one national daily newspaper and, at the Board of Management’s option, in one or more foreign newspapers. In addition, holders of registered shares shall be notified by letter or, insofar as permitted by law, by the use of electronic means of communication that the meeting is being convened.
2.	The notice convening the meeting shall be issued by the Board of Management. In the case envisaged in the third paragraph of clause 1 of the preceding article, the notice shall be issued by the shareholders therein specified, subject to the relevant provisions of Section 111 of Book 2 of the Civil Code.
3.	The notice convening the meeting shall be issued no later than on the fifteenth day prior to the meeting.
4.	Without prejudice to what is provided in this respect elsewhere in these articles, the agenda shall contain such business as may be placed thereon by the Board of Management or the Supervisory Board. Furthermore the agenda shall contain such business as one or more shareholders representing solely or jointly at least one-hundredth of the issued share capital or holding shares in the share capital of the Company which according to the Official List of Euronext Amsterdam N.V. represent a value of at least fifty million euros, have requested the Supervisory Board and the Board of Management in writing to place on the agenda, at least sixty days before the date of the meeting. The Supervisory Board and the Board of Management may resolve not to place such business proposed by shareholders on the agenda if they are of the opinion that such request would

14

be detrimental to the serious interests of the Company. The meeting shall not adopt resolutions on matters other than those which have been placed on the agenda.

5.

Without prejudice to the provisions of Sections 99 and 123 of Book 2 of the Civil Code, the notice convening the meeting shall either mention the business on the agenda or state that the agenda is open to inspection by shareholders at the office of the Company and that copies thereof are available free of charge in such places as are mentioned in the notice. The agenda and the explanatory notes thereto prepared by the Board of Management and the Supervisory Board shall also be published on the Company’s website.

General meeting of shareholders; registration date.
Article 26.

1.	All shareholders are entitled, without prejudice to the provisions of article 6, clause 2, to attend the general meeting of shareholders, to address the meeting and, subject to the provisions of Section 118 (7) of Book 2 of the Civil Code, to vote. They may exercise the aforementioned rights at a meeting only for the common shares which on the day of the meeting are registered in their name, without prejudice to the provisions of clause 6 of this article.
2.	In order to exercise the rights mentioned in clause 1 of this article, a holder of bearer shares must submit to the Company at the meeting a receipt of deposit which has been issued by a deposit office mentioned in the notice. The depository issues such receipt of deposit after it has received confirmation from an institution affiliated with Necigef that the shareholder has a share in a collective deposit (“verzameldepot”) which such institution holds with Necigef and that the shareholder will hold the number of shares mentioned in the confirmation until the end of the meeting. The notice shall mention the last day on which the depository issues a receipt of deposit.
3.	In order to exercise the rights mentioned in clause 1 of this article, the holders of registered common shares shall notify the Company in writing of their intention to do so no later than on the day and at the place mentioned in the notice convening the meeting, and also — insofar as Type II common shares are concerned — stating the identifying number of the common share certificate.
4.	In order to exercise the rights mentioned in clause 1 of this article, the holders of preference shares shall notify the Company of their intention to do so no later than on the day prior to the meeting.
5.	The Company shall send a card of admission to the meeting to shareholders who have notified the Company of their intention in accordance with the provisions of the three preceding clauses.
6.	In deviation from the provisions of clause 1 of this article, the Board of Management may determine that with respect to common shares such persons shall be deemed to have the right to vote and the right to attend the general meeting of shareholders as at a time to be determined by the Board of Management are registered as shareholders in one or more registers designated by the Board of Management, regardless of who is entitled to the relevant shares at the time of the general meeting of shareholders. The notice convening the meeting must state the registration date and also indicate the manner in which registration may take place and the manner in which shareholders may exercise their rights. The Board of Management determines the manner in which shareholders may have

15

	themselves registered and the manner in which they may exercise their rights. This procedure may deviate from the provisions set out in clauses 2 and 3 of this article. The registration date shall be determined with due observance of applicable statutory provisions.
7.	Shareholders, usufructuaries and pledgees who are entitled to attend a general meeting may be represented by proxies with written authority. Without prejudice to the provisions of the preceding clauses of this article, the written authorization must be deposited not later than at the time and at the place indicated in this article.

Article 27.

With regard to the exercise of the rights referred to in the preceding article, the Company is entitled to regard as correct the statements regarding the registrations, depositing of share certificates and/or the granting of authorizations by shareholders, and regarding the quantities to which the registrations, deposits and/or authorizations relate, which are made to it in due time by the institutions designated for that purpose in the notice convening the meeting.

General meeting of shareholders; conduct and record of the meeting.
Article 28.

1.	General meetings of shareholders shall be presided over by the Chairman of the Supervisory Board or by any other person nominated by the Supervisory Board. The Chairman may restrict the time for which shareholders may speak, if he considers this to be desirable with a view to the orderly conduct of the meeting.
2.	The resolutions adopted at a general meeting of shareholders shall be recorded by a civil law notary. Such record shall be co-signed by the chairman of the meeting. The latter shall ensure that a summary account is made of the business transacted at the meeting.

Article 29.

1.	Unless otherwise stated in these articles, resolutions shall be adopted by a simple majority of votes. Blank and invalid votes shall not be counted. The chairman shall decide on the method of voting, including the possibility of voting by acclamation. In the event of voting by acclamation, the votes against will be recorded if a request to this effect is made.
2.	In the event of an equality of votes the relevant proposal shall be deemed to have been rejected.

General meeting of shareholders; votes.
Article 30.

Each common share and each preference share shall entitle to one (1) vote.

Meeting of holders of preference shares.
Article 31.

1. Separate meetings of holders of preference shares shall be held as often as a resolution of the meeting of holders of preference shares is required by statutory provisions or these articles of association, and further as often as the Board of Management or the Supervisory Board deems this necessary, and must be held if one or more holders of preference shares representing at least one-tenth of the capital issued in the form of preference shares make a written request to that effect to the Board of Management, specifying in detail the business to be dealt with.

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2.	A meeting of holders of preference shares shall be convened no later than on the fifteenth day prior to the meeting by a letter addressed to the persons entitled to attend this meeting.
3.	Meetings of holders of preference shares shall be held at Eindhoven, at Amsterdam, at The Hague or at Rotterdam. The notice convening the meeting shall inform the holders of preference shares in respect thereof. Articles 26 to 30 inclusive shall apply accordingly to meetings of holders of preference shares.
4.	At a meeting of holders of preference shares at which the whole of the capital issued in the form of preference shares is represented, valid resolutions may be adopted, provided that the vote is unanimous, even if the provisions governing the place of the meeting, the manner in which it is convened, the period of notice and the specification in the notice of the business to be dealt with have not been observed.

Meeting of holders of common shares.
Article 32.

Separate meetings of holders of common shares shall be held as often as a resolution of the meeting of holders of common shares is required by statutory provisions or these articles of association. The provisions of article 24, clause 1 and articles 25 to 30 inclusive shall apply accordingly to such a meeting.

Report of the Board of Management and annual accounts.
Article 33.

1.	The Company’s financial year shall be identical with the calendar year.
2.	Without prejudice to the provisions of article 24, clause 2, the Board of Management shall, within four months after the close of each financial year, draw up annual accounts and an annual report in accordance with the rules which apply to the Company in this regard. The annual accounts shall consist of a balance sheet in respect of the financial year then ended and a profit and loss account for that financial year, with the explanatory notes thereto and additional information required by law. These documents, accompanied by an auditor’s report thereon, as referred to in Section 393 of Book 2 of the Civil Code, shall be submitted for approval to the Supervisory Board, which appends its own report to them. Following approval by the Supervisory Board, these documents shall be signed by the members of the Board of Management and the members of the Supervisory Board and published together with the abovementioned documents.
3.	With the approval of the Supervisory Board, the Board of Management shall have the power to determine what portion of the profit — the positive balance of the profit and loss account - shall be retained by way of reserve. Not available for retention in this way are amounts needed for (a) the formation of legally required reserves and/or (b) distributions as referred to in clauses 1 to 3 of article 34.
4.	The auditor as referred to in clause 2 of this article shall be appointed by the General Meeting of Shareholders upon the proposal of the Board of Management and the Supervisory Board for a maximum period of three years, after which the General Meeting of Shareholders may resolve to reappoint the auditor for a new period of three years. If the General Meeting of Shareholders does not make such an appointment or reappointment, then the Supervisory Board shall have the power to do so.

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5.	The annual accounts and the accompanying documents shall be submitted to the General Meeting of Shareholders for consideration. The annual accounts shall be adopted by the General Meeting of Shareholders. The annual report shall be made available to the shareholders in the manner permitted by law.
6.	The auditor as referred to in clause 2 of this article shall be invited to attend the ordinary general meeting of shareholders. Questions may be put to him at the meeting about his report.

Appropriation of profits.
Article 34.

1.	From the profit shown in the annual accounts adopted by the General Meeting of Shareholders, the percentage mentioned below of the amount required to be paid from time to time in the course of the financial year concerned on the preference shares shall, as far as possible and in compliance with the provisions of Section 105 (2) of Book 2 of the Civil Code, first be distributed on those shares. The dividend on the preference shares shall only be distributed for the number of days that such shares were actually outstanding in the financial year concerned.
2.	The percentage referred to in clause 1 shall be equal to the Average Main Refinancing Rates during the financial year for which the distribution is made, plus two per cent (2%). Average Main Refinancing Rate shall be understood to mean the average value on each individual day during the financial year for which the distribution is made of the Main Refinancing Rates prevailing on such day. Main Refinancing Rate shall be understood to mean the rate of the Main Refinancing Operation as determined and published from time to time by the European Central Bank.
3.	If the profit for a financial year is declared and one or more preference shares have been withdrawn or preference shares have been fully repaid in that financial year, those persons who according to the register referred to in article 7 were holders of preference shares at the time of the said withdrawal or repayment shall have an inalienable right to a distribution of profit as described below. The profit which, if possible, shall be distributed to the said persons shall be equal to the amount of the distribution to which they would have been entitled under the provisions of clause 1 if they had still been holders of the aforementioned preference shares at the time when the profit was declared, this being calculated on the basis of the period for which they were holders of preference shares in the said financial year, a part of a month being counted as a full month. With regard to an alteration to the provisions of this clause, the proviso referred to in Section 122 of Book 2 of the Civil Code is made.
4.	The profit that remains after the application of clause 3 of article 33 and clauses 1 to 3 inclusive of this article, shall be at the disposal of the General Meeting of Shareholders, which is empowered to withhold distribution in whole or in part or to make a distribution in whole or in part to holders of common shares in proportion to their holdings of common shares.

Distributions.
Article 35.

1. Upon the proposal of the Board of Management, which proposal shall have received the prior approval of the Supervisory Board, the General Meeting of Shareholders shall be

18

	entitled to resolve to make distributions charged to the “other reserves” shown in the annual accounts or charged to “share premium account”.
2.	Upon the proposal of the Board of Management, which proposal shall have received the prior approval of the Supervisory Board, the General Meeting of Shareholders shall be entitled to make distributions to shareholders under article 34, article 35, clause 1 and article 36 in the form of the issue of common shares.

Article 36.

At its own discretion and having regard to the statutory provisions relating thereto, the Board of Management, with the prior approval of the Supervisory Board, may distribute from the profits for the current financial year one or more interim dividends on the shares before the annual accounts for any financial year have been approved and adopted at a general meeting.

Article 37.

1.	The Board of Management determines for various types of shares on what dates and in what form distributions will be payable. Notices relating to such distributions shall be given with due observance of the statutory provisions in such manner as the Board of Management may deem appropriate. The provisions of this article shall apply accordingly in the event of a share issue with pre-emption subscription rights.
2.	Cash distributions in respect of shares for which Type II share certificates are outstanding shall, if such distributions are made payable only outside the Netherlands, be paid in the currency of the country concerned, converted at the rate of exchange on the Amsterdam Stock Exchange at the close of business on a date to be fixed and announced by the Board of Management. This date may not be set earlier than the day before the date on which the distribution is declared and not later than the date which has been fixed for the shares concerned in accordance with the provisions of clause 3.
3.	With regard to the provisions of article 6, clause 2 and of article 7, the person entitled to any distribution on registered shares shall be the person in whose name the share is registered or, in the case of limited rights in rem, the person whose right appears well-founded at the date to be determined for that purpose by the Board of Management in respect of the distribution for each of the different types of shares.
4.	A person entitled to a distribution on a bearer share for which a share certificate is outstanding shall, in order to exercise his right to such distribution, arrange for the dividend sheet appertaining to that share to be in the safe-keeping of a depositary as mentioned in article 6, clause 4, at such a time as shall be specified by the Board of Management. In respect of distributions referred to herein, the Company shall have discharged its liability to the persons entitled thereto by making these distributions available to the depositary referred to in article 6, clause 4 or to one or more third parties designated by the latter and the Company, in favour of the persons in whose name the dividend sheets were held by the depositaries at the aforementioned time.
5.	Rights of payment of distributions in cash shall lapse if such distributions are not claimed within five years following the day after the date on which they were made available.
6.	In the case of a distribution in shares, any shares not claimed within a period to be determined by the Board of Management shall be sold for the account of the persons entitled to the distribution who failed to claim the shares. These persons are entitled only to

19

	the net proceeds in cash of such a sale. This entitlement will be forfeited if the proceeds are not claimed within five years following the day after the date on which the distribution in shares was made payable.
7.	In the case of a distribution in the form of shares on registered shares, those shares shall be added to the share register. A Type II share certificate for a nominal amount equal to the number of shares added to the register shall be issued to holders of Type II shares, without prejudice to the provisions of article 6, clause 4.
8.	The Board of Management may, for reasons which it considers sufficient, and subject to such conditions as it may consider necessary, rule that the provisions of clause 1, second paragraph and clause 4 of this article shall not apply.

Amendment of articles of association and dissolution.
Article 38.

1. A resolution to amend the articles of association or to dissolve the Company shall be valid only provided that:

a.	the approval of the Supervisory Board has been or will be obtained;
b.	the full proposals have been deposited for inspection by shareholders at the office of the Company, and have been published on the Company’s website as from the day on which the said notice is served until the close of that meeting;
c.	the resolution is adopted at a general meeting of shareholders at which more than half of the issued share capital is represented and by at least three-fourths of the votes cast; if the requisite share capital is not represented at a meeting called for that purpose, a further meeting shall be convened, to be held within eight weeks of the first meeting, at which, irrespective of the share capital represented, the resolution can be adopted by at least three-fourths of the votes cast.

2. Where a resolution as referred to in the preceding clause of this article is submitted by the Board of Management, the General Meeting of Shareholders may, notwithstanding the provisions of clause 1 c. of this article, resolve by absolute majority of votes to amend the articles of association or to dissolve the Company, without more than half of the issued capital having to be represented.

Article 39.

Should the Company be dissolved, the liquidation and apportionment shall be effected by the Board of Management in compliance with the relevant provisions of Book 2 of the Civil Code and, insofar as they are not inconsistent with the latter, the articles of association.
In adopting a resolution to dissolve the Company, the General Meeting of Shareholders may approve the payment of a remuneration to the liquidators.

Article 40.

From the balance of the liquidation, a distribution shall first be made on every preference share to the amount paid thereon and the residue thereafter shall be distributed on the common shares.

Transitional provision.
Article 41.

Rights attached to common shares which were outstanding upon the amendment of the articles of association of the first day of August two thousand may not be exercised so long as these common shares have not been converted into common shares with a nominal value of twenty euro cents (EUR 0.20) in accordance with such notarial deed, and, as far as applicable, in

20

compliance with the amendments of the articles of association of the sixth day of May nineteen hundred ninety-four, the twenty-ninth day of May nineteen hundred ninety-nine and the seventeenth day of April two thousand. Upon conversion the shareholder is entitled to the payment of dividends insofar as this right has not lapsed under the provisions of article 37, clause 5 of these articles of association.

21

EX-12.A

Exhibit 12(a)

CERTIFICATION

	I, G.J. Kleisterlee, certify that:
1.	I have reviewed this annual report on Form 20-F of Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 28, 2005
	/s/ G.J. Kleisterlee
	G.J. Kleisterlee
	President, Chairman of the Board of Management and the Group Management Committee

EX-12.B

Exhibit 12(b)

CERTIFICATION

	I, J.H.M. Hommen, certify that:
1.	I have reviewed this annual report on Form 20-F of Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 28, 2005
	/s/ J.H.M. Hommen
	J.H.M. Hommen
	Vice-Chairman of the Board of Management and the Group Management Committee and Chief Financial Officer

EX-13.A

Exhibit 13(a)

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands (the “Company”), hereby certifies, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2004 (the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: April 28, 2005	/s/ G.J. Kleisterlee
	Name:	G.J. Kleisterlee
	Title:	President, Chairman of the Board of Management and the Group Management Committee

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.

EX-13.B

Exhibit 13(b)

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands (the “Company”), hereby certifies, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2004 (the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: April 28, 2005	/s/ J.H.M. Hommen
	Name:	J.H.M. Hommen
	Title:	Vice-Chairman of the Board of Management and the Group Management Committee and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.

EX-15.A

Exhibit 15 (a)

Consent of Registered Independent Public Accounting Firm

We consent to incorporation by reference in the registration statements on Form S-8 (No. 33-65972, No. 33-80027, No. 333-91287, No. 333-70215, No. 333-91289, No. 333-39204, No. 333-75542, No. 333-87852, No. 333-104104 and No. 333-119375) and in the registration statements on Form F-3 (No. 333-4582 and 333-90686) of Koninklijke Philips Electronics N.V. of our report dated February 22, 2005, relating to the consolidated balance sheets of Koninklijke Philips Electronics N.V. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2004, included in the December 31, 2004 annual report on Form 20-F of Koninklijke Philips Electronics N.V.

Eindhoven, The Netherlands

/s/ KPMG Accountants N.V.

April 28, 2005 KPMG ACCOUNTANTS N.V.

EX-15.D

Exhibit 15 (d)

Consolidated Financial Statements of LG. Philips LCD Co., Ltd.

The LPL consolidated financial statements were prepared in accordance with generally accepted accounting principles of the United States of America. The audit report of Samil PricewaterhouseCoopers relating to the LPL consolidated financial statements as of and for the year ended December 31, 2004 is included as an Exhibit 15 (e) to this Form 20-F/A.

LG.Philips LCD Co., Ltd.

Consolidated Balance Sheets
December 31, 2003 and 2004

					(Note 3)
(in millions of Korean won, and thousands of US dollars, except for share data)	2003		2004		2004
Assets
Current assets
Cash and cash equivalents	W	504,014	W	1,361,239	$	1,315,080
Accounts receivable, net
Trade, net		613,029		461,996		446,330
Due from affiliates		541,754		427,914		413,404
Others, net		4,984		64,407		62,223
Inventories		335,921		804,117		776,850
Deferred income taxes		11,617		7,743		7,480
Prepaid expense		23,197		30,233		29,208
Prepaid value added tax		90,085		95,240		92,010
Other current assets		21,695		146,040		141,088
Total current assets		2,146,296		3,398,929		3,283,673
Long-term prepaid expenses		35,063		49,648		47,964
Property, plant and equipment, net		3,974,315		6,563,977		6,341,394
Deferred income taxes		130,654		178,450		172,399
Intangibles, net		29,260		37,435		36,166
Other assets		27,399		34,062		32,906
Total assets	W	6,342,987	W	10,262,501	$	9,914,502
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term borrowings	W	159,189	W	483,220	$	466,834
Correct portion of long-term debt		466,486		212,992		205,769
Trade accounts and notes payable
Trade		305,464		490,524		473,890
Due to affiliates		98,058		92,593		89,453
Other accounts payable
Others		323,714		439,210		424,316
Due to affiliates		699,712		576,708		557,152
Accrued expenses		106,608		119,864		115,799
Income taxes payables		41,406		76,812		74,207
Other current liabilities		51,613		82,162		79,378
Total current liabilities		2,252,250		2,574,085		2,486,798
Long-term debt, net of current portion		1,318,581		1,993,151		1,925,564
Accrued severance benefits, net		20,965		31,964		30,880
Total liabilities		3,591,796		4,599,200		4,443,242
Commitments and contingencies (Note 15)
Stockholders’ equity
Capital stock
Common stock: W5,000 par value; authorized 400 million shares; issued and outstanding 290 and 325 million shares at December 31, 2003 and December 31, 2004		1,450,000		1,626,579		1,571,422
Capital Surplus		—		1,001,940		967,964
Retained earnings		1,297,355		3,001,042		2,899,277
Accumulated other comprehensive income		3,836		33,740		32,597
Total stockholders’ equity		2,751,191		5,663,301		5,471,260
Total liabilities and stockholders’ equity	W	6,342,987	W	10,262,501	$	9,914,502

The accompanying notes are an integral part of these consolidated financial statements.

1

LG.Philips LCD Co., Ltd.

Consolidated Statements of Income
Years ended December 31, 2002, 2003 and 2004

(in millions of Korean won, and thousands										(Note 3)
of US dollars, except for share amount)	2002			2003			2004			2004
Sales
Related parties	W	1,795,011		W	2,749,696		W	3,342,602		$	3,229,255
Others		1,771,723			3,348,658			4,982,192			4,813,247
		3,566,734			6,098,354			8,324,794			8,042,502
Cost of sales		3,139,012			4,741,592			6,246,240			6,034,431
Gross profit		427,722			1,356,762			2,078,554			2,008,071
Selling, general and administrative expenses		129,045			234,519			318,449			307,650
Operating Income		298,677			1,122,243			1,760,105			1,700,421
Other income (expense)
Interest income		3,603			6,393			19,964			19,287
Interest expense		(62,295	)		(83,619	)		(58,049	)		(56,081	)
Foreign exchange gain, net		119,827			15,015			19,125			18,476
Others, net		6,254			1,045			673			650
Total other income (expense)		67,389			(61,166	)		(18,287	)		(17,668	)
Income before income tax expense		366,066			1,061,077			1,741,818			1,682,753
Income tax expense		17,956			54,574			38,131			36,838
Net income	W	348,110		W	1,006,503		W	1,703,687		$	1,645,915
Net income per common share
Basic	W	1,200		W	3,471		W	5,586		$	5.39
Diluted	W	1,200		W	3,471		W	5,586		$	5.39

The accompanying notes are an integral part of these consolidated financial statements.

2

LG.Philips LCD Co., Ltd.

Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2002, 2003 and 2004

	Common Stock				Capital Surplus								Accumulated
					Additional					Retained			Other
					Paid-In		Unearned			Earnings			Comprehensive
(in millions of Korean won)	Shares		Amount		Capital		Compensation			(Deficit)			Income (Loss)			Total
Balance as of December 31, 2001		290,000,000	W	1,450,000	W	—	W	—		W	(57,258	)		418		W	1,393,160
Comprehensive income:
Net income											348,110						348,110
Cumulative translation adjustment														(1,486	)		(1,486	)
Total comprehensive income																	346,624
Balance as of December 31, 2002		290,000,000	W	1,450,000	W	—	W	—		W	290,852		W	(1,068	)	W	1,739,784
Comprehensive income:
Net income											1,006,503						1,006,503
Cumulative translation adjustment														1,198			1,198
Net unrealized gains on derivative, net of tax														3,706			3,706
Total comprehensive income																	1,011,407
Balance as of December 31, 2003		290,000,000	W	1,450,000	W	—	W	—		W	1,297,355		W	3,836		W	2,751,191
Issuance of Common Stock		35,315,700		176,579		1,012,271											1,188,850
Unearned Compensation								(11,923	)								(11,923	)
Stock compensation expense								1,592									1,592
Comprehensive income:
Net income											1,703,687						1,703,687
Cumulative translation adjustment														(13,249	)		(13,249	)
Net unrealized gains on derivative, net of tax														43,153			43,153
Total comprehensive income																	1,733,591
Balance as of December 31, 2004		325,315,700	W	1,626,579	W	1,012,271	W	(10,331	)	W	3,001,042		W	33,740		W	5,663,301

	Common Stock				Capital Surplus							Accumulated
					Additional							Other
					Paid-In		Unearned			Retained		Comprehensive
(in thousands of US dollars) (Note 3)	Shares		Amount		Capital		Compensation			Earnings		Income			Total
Balance as of December 31, 2003		290,000,000	$	1,400,831	$	—	$	—		$	1,253,362	$	3,706		$	2,657,899
Issuance of Common Stock		35,315,700		170,591		977,945										1,148,536
Unearned Compensation								(11,519	)							(11,519	)
Stock compensation expense								1,538								1,538
Comprehensive income:
Net income											1,645,915					1,645,915
Cumulative translation adjustment													(12,800	)		(12,800	)
Net unrealized gains on derivatives, net of tax													41,691			41,691
Total comprehensive income																1,674,806
Balance as of December 31, 2004		325,315,700	$	1,571,422	$	977,945	$	(9,981	)	$	2,899,277	$	32,597		$	5,471,260

The accompanying notes are an integral part of these consolidated financial statements.

3

LG.Philips LCD Co., Ltd.

Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2003 and 2004

										(Note 3)
(in millions of Korean won, and thousands of US dollars)	2002			2003			2004			2004
Net income	W	348,110		W	1,006,503		W	1,703,687		$	1,645,915
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		948,789			956,997			1,224,118			1,182,608
Provision for severance benefits		15,429			19,950			32,584			31,479
Foreign exchange loss (gain), net		(78,871	)		3,805			(101,776	)		(98,325	)
Amortization of intangible assets		4,935			5,406			6,405			6,188
Loss on extinguishment of long-term debt		—			1,279			—			—
Loss on disposal of property, plant and equipment		2,268			36			3,281			3,170
Amortization of debt issuance cost		3,969			4,222			4,453			4,302
Decrease (increase) in deferred income taxes assets, net		16,645			11,786			(43,923	)		(42,434	)
Others, net		2,460			16,812			(4,365	)		(4,217	)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable		(156,185	)		(607,480	)		204,970			198,020
(Increase) decrease in inventories		(146,544	)		62,288			(468,196	)		(452,319	)
(Increase) decrease in prepaid expense		(17,786	)		6,554			6,443			6225
(Increase) in prepaid value added tax		(13,654	)		(69,533	)		(5,155	)		(4,980	)
(Increase) decrease in other current assets		(3,092	)		9,552			(63,493	)		(61,340	)
Increase in trade accounts and notes payable		86,022			152,743			181,421			175,269
Increase in other accounts payable		57,645			14,286			58,625			56,637
Increase in accrued expenses		1,549			66,472			13,635			13,173
(Decrease) increase in other current liabilities		(18,335	)		10,161			(9,773	)		(9,442	)
Net cash provided by operating activities		1,053,354			1,671,839			2,742,941			2,649,929
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase from related parties		(813,056	)		(1,186,909	)		(2,346,297	)		(2,266,735	)
Purchase from others		(303,885	)		(251,321	)		(1,539,353	)		(1,487,154	)
Proceeds from sales of property, plant and equipment		311			3,450			6,156			5,947
Acquisition of intangible assets		(176	)		(5,204	)		(7,884	)		(7,617	)
Others, net		(9,268	)		(12,715	)		(5,380	)		(5,196	)
Net cash used in investing activities		(1,126,074	)		(1,452,699	)		(3,892,758	)		(3,760,755	)
Cash flows from financing activities:
Proceeds from (repayment on) short-term borrowings		(38,647	)		(114,878	)		324,032			313,044
Proceeds from issuance of long-term debt		283,740			832,573			968,802			935,950
Repayment on long-term debt		(144,242	)		(496,072	)		(467,202	)		(451,359	)
Repayment of capital lease obligation		(9,547	)		—			—			—
Payment of debt issuance cost		(915	)		(6,846	)		(5,716	)		(5,522	)
Proceeds from issuance of common stock		—			—			1,229,133			1,187,453
Payment of stock issuance cost		—			—			(40,283	)		(38,917	)
Net cash provided by financing activities		90,389			214,777			2,008,766			1,940,649
Effect of exchange rate changes on cash and cash equivalents		(107	)		(209	)		(1,724	)		(1,666	)
Net increase in cash and cash equivalents		17,562			433,708			857,225			828,157
Cash and cash equivalents:
Beginning of year		52,744			70,306			504,014			486,923
End of year	W	70,306		W	504,014		W	1,361,239		$	1,315,080

The accompanying notes are an integral part of these consolidated financial statements.

4

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements
December 31, 2002, 2003 and 2004

1. Organization and Nature of Business

     LG.Philips LCD Co., Ltd. is a manufacturer and supplier of Thin Film Transistor Liquid Crystal Displays (“TFT-LCD”) to Original Equipment Manufacturers (“OEMs”) and multinational corporations.

     The accompanying consolidated financial statements include the accounts of LG.Philips LCD Co., Ltd. (“LPL”) and its consolidated subsidiaries (hereinafter collectively referred to as the “Company”).

Formation

     LG. Philips LCD Co., Ltd. was incorporated in 1985 in the Republic of Korea under the original name of LG Soft, Ltd. and until December 31, 1998 was entirely devoted to the development and marketing of software.

     As part of a restructuring of the LG Group of companies, LG Soft, Ltd. changed its name to LG LCD Co., Ltd. in November 1998 and subsequently in December 1998, LG LCD Co., Ltd. acquired the assets and liabilities of the TFT-LCD businesses of LG Electronics Inc. (“LGE”) and LG Semicon Inc. (“LGS”). The transfer of assets and liabilities from LGE to LG LCD Co., Ltd. was recorded at historical book values as LG LCD Co. Ltd. was a 100% owned subsidiary of LGE. The assets and liabilities of LGS were transferred to LG LCD Co. Ltd. at fair value based on an independent valuation.

     On July 26^th, 1999, Koninklijke Philips Electronics N.V. (“Philips”) and LGE entered into a joint venture agreement. Effective August 27,1999 LG LCD Co., Ltd. changed its name to LG.Philips LCD Co., Ltd. and on August 31, 1999 LG.Philips LCD Co., Ltd. issued a total of 145,000,000 previously unissued shares of common stock to Philips in exchange for a contribution of approximately W1,127,000 million to LGE and W725,000 million directly to the Company.

     In July 2004, pursuant to a Securities Registration Statement filed on July 16, 2004 with the Korea Exchange, the Company sold 8,640,000 shares of common stock for gross proceeds of W298,080 million. Concurrently, pursuant to a Form F-1 registration statement filed on July 15, 2004 with the U.S. Securities and Exchange Commission, the Company sold 24,960,000 shares of common stock in the form of American Depositary Shares (“ADSs”) for gross proceeds of US$748,800 thousand (W871,753 million). In September 2004, pursuant to the underwriting agreement dated July 15, 2004, the Company sold an additional 1,715,700 shares of common stock in the form of ADSs for gross proceeds of US$51,471 thousand (W59,300 million).

     As of December 31, 2004, the Company’s shareholders are as follows:

	Number of		Percentage of
	Shares		Ownership (%)
LG Electronics Inc.		145,000,000		44.57
Koninklijke Philips Electronics N. V.		145,000,000		44.57
Others		35,315,700		10.86
		325,315,700		100.00

5

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

     The Company’s subsidiaries are as follow:

		Percentage of
	Country of	Ownership (%)
Subsidiaries	Incorporation	2002		2003		2004
LG.Philips LCD America, Inc.	US		100		100		100
LG.Philips LCD Japan Co., Ltd.	Japan		100		100		100
LG.Philips LCD Germany GmbH	Germany		100		100		100
LG.Philips LCD Taiwan Co., Ltd.	Taiwan		100		100		100
LG.Philips LCD Nanjing Co., Ltd.	China		100		100		100
LG.Philips LCD Hong Kong Co., Ltd.	China		—		100		100
LG.Philips LCD Shanghai Co., Ltd.	China		—		100		100

2. Summary of Significant Accounting Policies

     The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below.

Principles of Consolidation

     The consolidated financial statements include the accounts of LG.Philips LCD Co., Ltd. and its majority-owned subsidiaries. All significant intercompany transactions and balances with the consolidated subsidiaries have been eliminated upon consolidation.

Use of Estimates

     The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. The most significant estimates and assumptions related to the allowance for uncollectable accounts receivables, warranty accrual and deferred tax valuation allowance. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates.

Translation of Foreign Currencies

     The financial position and results of operations of the Company’s subsidiary in Nanjing, China are measured using the Chinese Renminbi as its functional currency, the other overseas subsidiaries use the US dollar, and the Korean parent company uses the Korean Won as its functional currency. The financial statements of these subsidiaries are translated to Korean Won using the current exchange rate method. All the assets and liabilities are translated to Korean Won at the end-of-period exchange rates. Capital accounts are translated using historical exchange rates. Revenues and expenses are translated using average exchange rates. Translation adjustments arising from differences in exchange rates from period to period are included in the cumulative translation adjustment account in other comprehensive income of stockholders’ equity. Foreign currency transaction gains and losses are included as a component of other income (expense).

Cash and Cash Equivalents

     Cash and cash equivalents include all cash balances and highly liquid investments, including time deposits and short-term bonds which are readily convertible into known amounts of cash and have an original maturity of three months or less.

6

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

Accounts Receivable Securitization

     The Company has an accounts receivable securitization program whereby the Company sells receivables in securitization transactions and retains a subordinated interest and servicing rights to those receivables. The Company accounts for the program under the FASB’s Statement of Financial Accounting Standards No.140 (“SFAS 140”), “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. The gain or loss on sales of receivables is determined at the date of transfer based upon the relative fair value of the assets sold and the interests retained. The Company estimates fair value based on the present value of future expected cash flows using management’s best estimates of the key assumptions, including collection period and discount rates.

Allowance for Doubtful Accounts

     The Company provides an allowance for doubtful accounts receivable based on the aggregate estimated collectibility of its accounts receivable.

Inventories

     Inventories are valued at the lower of cost or market, with cost being determined on an average-cost basis, except for the cost of finished products carried by certain subsidiary companies, which is determined on a moving-average cost basis.

Lease Transactions

     Assets leased under capital leases are recorded at cost as property, plant and equipment and depreciated on a straight-line method over their estimated useful lives. In addition, aggregate lease payments are recorded as obligations under capital leases, net of accrued interest as determined by the total lease payments in excess of the cost of the leased machinery and equipment. Accrued interest is amortized over the lease period using the effective-interest rate method.

     Tools, furniture and fixtures acquired under operating lease agreements are not included in property, plant and equipment. Rather, the related lease rentals are charged to expense when incurred.

Property, Plant and Equipment

     Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives.

Buildings	20 ~ 40 years
Machinery, equipment and vehicles	4 ~ 8 years
Tools, furniture and fixtures	3 ~ 5 years

     Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to expense as incurred.

     The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Total interest expense incurred amounted to W71,742 million, W91,524 million and W95,553 million for the years ended December 31, 2002, 2003 and 2004, respectively, of which, approximately W9,447 million, W7,905 million and W37,504 million, respectively, was capitalized.

7

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

Intangible Assets

     Intangible assets, comprising intellectual property rights (including patents and technology related to the TFT production process and the like), privileges for the industrial water facility, and purchased software, are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the following estimated useful lives.

Intellectual property rights	5 ~ 10 years
Privilege for industrial water facilities	10 years
Purchased software	4 years
Others	10 years

Accounting for the Impairment of Long-Lived Assets

     Long-lived assets and intangible assets that do not have indefinite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the aggregate undiscounted future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset, an impairment loss is recognized, based on the fair value of the asset.

Accrued Severance Benefits

     Employees and directors with one year or more of service are entitled to receive a lump-sum payment upon termination of their employment with the Company, based on their length of service and rate of pay at the time of termination. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date. The annual severance benefits expense charged to operations is calculated based on the net change in the accrued severance benefits payable at the balance sheet date, plus the actual payments made during the year.

     The contributions to the national pension fund made under the National Pension Plan and the severance insurance deposit are deducted from accrued severance benefit liabilities. Contributed amounts are refunded from the National Pension Plan and the insurance company to employees on their retirement.

Revenue Recognition

     Revenues from the sale of the Company’s products are recognized when: i) persuasive evidence of an arrangement exists, ii) delivery has occurred to the customers, iii) the sales price to the customer is fixed or determinable and iv) collectibility is reasonably assured.

     The Company generally enters into long term formal master sales agreements with its significant customers. Under the terms of these agreements, the Company does not offer any form of price protection or a returns policy, however the Company provides basic limited warranties with its products.

     For domestic customers, title transfer of the Company’s product and risk of loss generally occurs on delivery and acceptance at the customers’ premises, at which point revenue is recognized. For overseas customers, the Company dispatches goods by common carrier, whereby risk of loss and the transfer of title to the customer occurs at the point of shipping and these revenues are recognized as the goods are shipped.

Research and Development Costs

     Certain costs incurred in connection with the purchase of equipment and facilities used in the Company’s research and development activities are capitalized into property, plant and equipment, to the extent that they

8

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

have alternative future uses. All other research and development costs are expensed as incurred. The Company has expensed W117,613 million, W171,387 million and W255,327 million during the years ended December 31, 2002, 2003 and 2004, respectively, for research and development costs which are included in cost of sales and selling, general and administrative expenses. These research and development expenses included depreciation cost of equipment and facilities used specifically for research and development activities amounting to W11,685 million, W8,987 million and W11,078 million for the years ended December 31, 2002, 2003 and 2004, respectively.

Shipping and Handling Costs

     The Company includes shipping and handling costs in selling, general and administrative costs. Shipping and handling costs for the years ended December 31, 2002, 2003 and 2004, amounted to W29,412 million, W66,900 million and W94,559 million, respectively.

Advertising Costs

     Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2002, 2003 and 2004 amounted to W3,656 million, W1,697 million and W5,524 million, respectively.

Income Taxes

     The Company recognizes deferred tax assets and liabilities created by temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are computed on such temporary differences, including available net operating loss carryforwards and tax credits, by applying enacted statutory tax rates applicable to the years when such differences are expected to reverse. A valuation allowance is provided on deferred tax assets to the extent that it is more likely than not that such deferred tax assets will not be realized. The total income tax provision includes current tax expenses under applicable tax regulations and the change in the balance of deferred tax assets and liabilities.

     Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the amount carried forward.

Derivative Financial Instruments

     All derivative financial instruments are recognized as either assets or liabilities in the balance sheet at their fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or stockholders’ equity (as a component of accumulated other comprehensive income), depending on whether the derivative financial instrument qualifies as a cash flow hedge.

     At the time the company designates a hedging relationship, it defines the method it will use to assess the hedge’s effectiveness in achieving offsetting changes in fair value or offsetting cash flows attributable to the risk being hedged.

     The Company formally documents all hedging relationships between the derivatives designated as hedges and hedged items, as well as its risk management objectives and strategies for undertaking various hedging activities. The Company links all hedges that are designated as cash flow hedges to the specific forecasted

9

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

transaction. The Company also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives designated as hedges are highly effective in offsetting changes in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, the Company discontinues hedge accounting.

     The derivatives designated as cash flow hedges include foreign exchange forward contracts, which are used for reducing the risk arising from the changes in anticipated cash flow from expected transactions in foreign currency.

     Changes in the fair value of derivatives designated and effective as cash flow hedges for forecasted transactions are initially recorded in other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Changes in the fair value of the ineffective portion are recognized in current period earnings.

     The derivatives designated for trading comprise cross-currency swap contracts and foreign exchange forward contracts. Such contracts are marked-to-market with changes in value, including premiums paid or received, recognized in other income (expense) as foreign exchange gain (loss).

Deferred Bond Issuance Costs

     Costs that are directly related to the issuance of bonds are capitalized and amortized over the term of the debt using the effective interest rate method.

Warranty Reserve

     The Company records warranty liabilities for the estimated costs that may be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for eighteen months from the date of purchase. These liabilities are accrued when product revenues are recognized. Warranty costs primarily include raw materials and labor costs. Factors that affect the Company’s warranty liability include historical and anticipated rate of warranty claims on those repairs and cost per claim to satisfy the Company’s warranty obligation. As these factors are impacted by actual experience and future expectations, the Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Fair Value of Financial Instruments

     The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying values of cash and cash equivalents, time deposits, trade and notes receivable, short-term borrowings, notes and accounts payable and accrued and other liabilities, approximate fair value, due to their short term maturities. The Company estimates the fair values of its long-term debt, including the current portion, based on either the market value or the discounted amounts of future cash flows using the Company’s current incremental debt rates for similar liabilities. The fair values of derivative instruments are estimated based on market quotations.

Recent Accounting Pronouncements

     In March 2004, the FASB issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF 03-1 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for

10

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

investments that are deemed to be temporarily impaired. In September 2004, the FASB issued FASB Staff Position EITF 03-1-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-1 to investments in securities that are impaired; however, the disclosure requirements are effective for annual periods ending after June 15, 2004. Once the FASB reaches a final decision on the measurement and recognition provisions, the Company will evaluate the impact of the adoption of EITF 03-1.

     In November 2004, the FASB issued FASB Statement No. 151, “Inventory Costs—an amendment of ARB No. 43” (“FAS 151”), which is the result of its efforts to converge U.S. accounting standards for inventories with International Accounting Standards. FAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. FAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact of this standard on its consolidated financial statements.

     In December 2004, the FASB issued Statement No. 123 (Revised), “Share Based Payment”, that requires companies to expense the value of employee stock options and similar awards for interim and annual periods beginning after June 15, 2005 and applies to all outstanding and unvested stock-based awards at a company’s adoption date. The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

     On December 16, 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets”, an amendment of APB Opinion No. 29. Statement 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. Statement 153 is effective for nonmonetary asset exchanges beginning in the second quarter of fiscal 2006. The Company does not believe adoption of Statement 153 will have a material effect on its consolidated financial position, results of operations or cash flows.

3. United States Dollar Amounts

     The Company operates primarily in Korea and its financial accounting records are maintained in Korean Won. These translations should not be construed as a representation that the Korean Won amounts shown could be converted, realized or settled in US dollars at this or any other rate. The US dollar amounts are provided herein as supplemental information solely for the convenience of the reader. Korean Won amounts are expressed in US dollars at the rate of W1,035.1 : US$1, the US Federal Reserve Bank of New York noon buying exchange rate in effect on December 31, 2004. The US dollar amounts are unaudited and are not presented in accordance with generally accepted accounting principles in either Korea or the United States of America.

4. Accounts Receivable

     The following table presents accounts receivable at December 31:

(in millions of Korean won)	2003			2004
Trade	W	624,668		W	465,066
Due from LG group companies and Philips affiliates		541,754			427,914
Others		5,377			64,755
		1,171,799			957,735
Allowance for doubtful accounts		(12,032	)		(3,418	)
	W	1,159,767		W	954,317

11

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

     Trade accounts pledged as collateral related to short-term borrowings as of December 31, 2003 amounted to approximately W15,150 million (US$12,686 thousand).

     Trade bills to overseas subsidiaries negotiated through banks but not yet matured, which were recorded as short-term borrowings as of December 31, 2003 and 2004 amounted to approximately W102,841 million (US$86,109 thousand) and W410,824 million (US$369,339 thousand and JP¥2,808,387 thousand), respectively.

     In September 2004, the Company entered into a five-year accounts receivable securitization program (the “Program”) with a financial institution. The Program allows the Company to sell, on a revolving basis, an undivided interest in up to US$300 million in eligible accounts receivables of four subsidiaries, including LG.Philips LCD America (“LPLA”), LG.Philips LCD Germany (“LPLG”), LG.Philips LCD Taiwan (“LPLT”) and LG.Philips LCD Japan (“LPLJ”), while retaining a subordinated interest in a portion of the receivables. The eligible receivables of LPLA and LPLG are sold without legal recourse to third party conduits through LG. Philips LCD America Finance Corporation, a qualifying bankruptcy-remote special purpose entity, which is wholly owned by LPLA but is not consolidated for financial reporting purposes. The eligible receivables of LPLT and LPLJ are sold without legal recourse to third party conduits through ABN AMRO Taipei Branch and ABN AMRO Tokyo Branch, respectively, which are consolidated by ABN AMRO Bank. The Company continues servicing the sold receivables and charges the third party conduits a monthly servicing fee at market rates. Accordingly, no servicing asset or liability has been recorded.

     The Program qualifies for sale treatment under SFAS 140. As of December 31, 2004, the outstanding balance of securitized accounts receivable held by the third party conduits totaled W305,203 million, of which the Company’s subordinated retained interest was W59,324 million. Accordingly, W245,879 million of accounts receivable balances, net of applicable allowances, were removed from the consolidated balance sheets at December 31, 2004. Losses recognized on the sale of accounts receivable totaled approximately W3,906 million in the year ended December 31, 2004. This cost is primarily related to the loss on sale of receivables and discount on retained interests, net of the related servicing revenues and various program and facility fees associated with the Program. This cost is included in the accompanying consolidated statement of income under the caption selling, general and administrative expenses.

     The Company measures the fair value of its retained interests at the time of a securitization and throughout the term of the Program using a present value model incorporating two key assumptions: (1) a weighted average life of 65 days and (2) a discount rate of 4.11% per annum. At December 31, 2004, this retained interest is included in the accounts receivables balance reflected in the consolidated balance sheet, at fair value of the Company’s retained interest, which approximates book value due to a short average collection cycle for such accounts receivables and the Company’s collection history.

5. Inventories

     Inventories comprise the following at December 31:

(in millions of Korean won)	2003		2004
Finished products	W	122,263	W	511,008
Work in process		88,744		124,356
Raw materials		124,914		168,753
	W	335,921	W	804,117

12

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

6. Derivative Instruments and Hedging Activities

Derivatives for cash flow hedge

     During the year ended December 31, 2002, there were no derivatives designated as cash flow hedges, and during the years ended December 31, 2003 and 2004, five and thirteen foreign currency forward contracts were designated as cash flow hedges, respectively. During the years ended December 31, 2003 and 2004, these cash flow hedges were fully effective and changes in the fair value of the derivatives, of W4,352 million and W55,287 million, were recorded in other comprehensive income. The deferred gains of W55,287 million for derivatives designated as cash flow hedges are expected to be reclassified into earnings within the next twelve months.

Derivatives for trading

     For the years ended December 31, 2002, 2003 and 2004, the Company recorded realized exchange gains of W37,446 million, W40,978 million and W80,306 million and realized exchange losses of W7,753 million, W16,648 million and W51,597 million, respectively, on derivative contracts designated for trading upon settlement.

     In addition, for the years ended December 31, 2002, 2003 and 2004, the Company recorded unrealized gains of W11,289 million, W9,314 million and W68,298 million and unrealized losses of W125 million, W10,662 million and W54,142 million, respectively, relating to these derivative contracts designated for trading.

7. Property, Plant and Equipment

     Property, plant and equipment comprise the following at December 31:

(in millions of Korean won)	2003			2004
Land	W	87,130		W	313,053
Buildings		826,063			1,216,471
Machinery, equipment and vehicles		5,404,314			7,822,364
Tools, furniture and fixtures		258,647			335,180
Machinery-in-transit		30,523			705,906
Construction-in-progress		992,661			956,642
		7,599,338			11,349,616
Accumulated depreciation		(3,625,023	)		(4,785,639	)
Property, plant and equipment, net	W	3,974,315		W	6,563,977

Operating Leases

     Rental expenses of certain machinery and equipment held under operating leases for the years ended December 31, 2002, 2003 and 2004 were W780 million, W673 million and W1,304 million, respectively. The minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2004 are as follows:

(in millions of Korean won)
For the years ended December 31,
2005	W	1,406
2006		1,000
2007		122
2008		25
2009		—
Total minimum future rentals	W	2,553

13

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

8. Intangible Assets

     Intangible assets comprised the following at December 31:

	2003
	Intellectual						Privileges for
	property			Purchased			industrial water
(In millions of Korean won)	rights			Software			facilities			Others			Total
Acquisition cost	W	24,641		W	14,384		W	5,844		W	683		W	45,552
Accumulated amortization		(7,937	)		(6,243	)		(1,557	)		(555	)		(16,292	)
Intangible assets, net	W	16,704		W	8,141		W	4,287		W	128		W	29,260

	2004
	Intellectual						Privileges for
	property			Purchased			industrial water
(In millions of Korean won)	rights			Software			facilities			Others			Total
Acquisition cost	W	27,909		W	19,080		W	12,305		W	838		W	60,132
Accumulated amortization		(10,412	)		(9,295	)		(2,412	)		(578	)		(22,697	)
Intangible assets, net	W	17,497		W	9,785		W	9,893		W	260		W	37,435

     Amortization expense for the years ended December 31, 2002, 2003 and 2004 amounted to W4,935 million, W5,406 million and W6,405 million, respectively.

     The estimated aggregate amortization expense for intangible assets for the next five years is as follows:

(in millions of Korean won)
For the years ended December 31,
2005	W	6,393
2006		5,092
2007		5,092
2008		5,092
2009		4,329

9. Short-Term Borrowings

     Short-term borrowings comprise the following at December 31:

(in millions of Korean won)	2003		2004
Loans, principally from banks:
with weighted-average interest rate of 1.80%	W	159,189	W	—
with weighted-average interest rate of 3.40%		—		483,220
	W	159,189	W	483,220

14

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 3l, 2002, 2003 and 2004

10. Long-Term Debt

     Long-term debt comprise the following at December 31:

(in millions of Korean won)	2003			2004
Won denominated Loans:
Unsecured loans, representing obligations principally to banks:
Due 2006 to 2008 with interest rate of 5.9% per annum	W	58,700		W	58,700
Unsecured loans, representing obligation principally to banks:
Due 2006 to 2009 with interest rate of 6.1% per annum		—			59,100
Unsecured bond with interest rate ranging from 5.0% to 7.0%, due 2004 to 2008, net of unamortized discount		1,026,367			—
Unsecured bond with interest rate ranging from 3.5% to 6.0%, due 2006 to 2009, net of unamortized discount		—			1,320,317
		1,085,067			1,438,117
U.S. Dollar denominated Loans:
Unsecured loans, representing obligations principally to banks:
Due 2005 to 2008 with interest rate ranging from 1.6% to 1.9% per annum		40,647			—
Unsecured loans, representing obligations principally to banks:
Due 2005 to 2009 with interest ranging from 3.2% to 3.3% per annum		—			78,706
Unsecured loans, representing obligations principally to banks:
Due 2005 to 2006 with interest rate of 3M Libor+1.2% per annum		41,801			—
Unsecured loans, representing obligations principally to banks:
Due 2005 to 2006 with interest rate of 3M Libor+1.0% per annum		—			36,246
Unsecured loans, representing obligations principally to banks:		—			49,709
Due 2007 to 2010 with interest rate of 6M Libor+1.2% per annum
Unsecured bond with interest rate of 6M Libor +1.1%, due 2004, net of unamortized discount		167,202			—
Unsecured bond with interest rate of 3M Libor+1.2%, due 2005 to 2006		241,249			—
Unsecured bond with interest rate of 3M Libor+1.0%, due 2005 to 2006		—			209,191
Unsecured Term Notes with interest rate of 3M Libor+1.2%, due 2005 to 2006		194,671			—
Unsecured Term Notes with interest rate of 3M Libor+1.0%, due 2005 to 2006		—			168,803
Unsecured bond with interest rate of 3M Libor+0.6%, due 2007		—			207,120
		685,570			749,775
Chinese Renminbi denominated Loans:
Unsecured loans, representing obligations principally to banks:
Due 2008 with interest rate of 5.0% per annum		14,430			—
Unsecured loans, representing obligations principally to banks:
Due 2008 with interest rate ranging from 5.0% to 5.5% per annum		—			18,251
Less: Current portion		(466,486	)		(212,992	)
	W	1,318,581		W	1,993,151

15

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

     Unsecured long-term debts are subject to various restrictive covenants. Typically, these covenants include restrictions on the debt to equity ratio, debt coverage ratio, interest coverage ratio, total debt limits, earnings before interest, tax and depreciation requirements and other similar financial ratios. The Company was in compliance with these financial covenants during all periods presented.

     The aggregate annual maturities of long-term debt outstanding as of December 31, 2004 were as follows:

					Chinese
	Won		US Dollar		Renminbi
	denominated		denominated		denominated
(in millions of Korean won)	Loans		Loans		Loans		Total
For the years ending December 31,
2006	W	229,417	W	218,864	W	—	W	448,281
2007		339,266		231,291		—		570,557
2008		289,267		42,439		18,251		349,957
2009		609,850		31,762		—		641,612
2010		—		12,427		—		12,427
	W	1,467,800	W	536,783	W	18,251	W	2,022,834

11. Accrued Severance Benefits

     Accrued severance benefits were as follows as of December 31:

(in millions of Korean won)	2003			2004
Balance at beginning of year	W	43,532		W	56,558
Provisions for severance benefits		21,544			32,584
Transferred from affiliated companies		1,680			1,130
Actual severance payments		(10,198	)		(8,291	)
		56,558			81,981
Cumulative Deposits to National Pension Fund		(813	)		(737	)
Balance of the severance insurance deposits		(34,780	)		(49,280	)
Balance at end of year	W	20,965		W	31,964

     The severance benefits are funded approximately 61% and 60% as of December 31, 2003 and 2004, respectively, through severance insurance deposits for the payment of severance benefits, and the account is deducted from accrued severance benefit liabilities. The beneficiaries of the severance insurance deposit are the Company’s employees.

     Severance insurance deposits comprise cash deposits placed with Kyobo Life Insurance Co., Ltd., Lucky Life Insurance Co., Ltd. and Daehan Life Insurance Co., Ltd. for the years ended December 31, 2003 and 2004 and these deposits accumulated interest at an average rate of 4.8% and 4.3%, for Kyobo Life Insurance Co., Ltd., 4.4% and 4.3%, for Lucky Life Insurance Co., Ltd. and 4.8% and 4.3%, for Daehan Life Insurance Co., Ltd. for the years ended December 31, 2003 and 2004, respectively.

16

LG. Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004

     The Company expects to pay the following future benefits to its employees upon their normal retirement age:

(In millions of Korean won)
For the years ended December 31,
2005	W	—
2006		—
2007		115
2008		86
2009		49
2010		202
2011		813
2012		1,763
2013		2,052
2014		2,930

     The above amounts were determined based on the employees’ current salary rates and the number of service years that will be accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease working with the Company before their normal retirement age.

12. Income Taxes

     Income before income taxes and tax provision comprises the following:

(in millions of Korean Won)	2002		2003			2004
Income before income taxes:
Domestic	W	360,083	W	1,051,579		W	1,693,182
Foreign subsidiaries		5,983		9,498			48,636
	W	366,066	W	1,061,077		W	1,741,818
Income taxes-Current:
Domestic	W	—	W	40,238		W	85,838
Foreign subsidiaries		1,312		3,196			3,997
		1,312		43,434			89,835
Income taxes-Deferred:
Domestic		15,285		12,022			(52,583	)
Foreign subsidiaries		1,359		(882	)		879
		16,644		11,140			(51,704	)
Total income taxes	W	17,956	W	54,574		W	38,131

17

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

     The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 2003 and 2004 are as follows:

(in millions of Korean won)	2003			2004
Current deferred income tax asset
Accounts receivable	W	5,701		W	2,170
Inventories		7,809			6,976
Others		(1,247	)		7,024
Net deferred income tax assets, including other comprehensive income related deferred tax asset		12,263			16,170
Less: Other comprehensive income related deferred tax assets		(646	)		(8,427	)
Current deferred income tax asset	W	11,617		W	7,743
Non-Current
Intangible asset	W	34,462		W	30,179
Tax credit carryforward		92,514			137,828
Long term loan and debenture		(1,768	)		(706	)
Property, plant and equipment		2,726			11,857
Others		2,720			(708	)
Non-Current deferred income tax asset	W	130,654		W	178,450

     As of December 31, 2004, the Company has available unused investment tax credits of W137,828 million, which may be applied against future income tax amounts through 2009.

     Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the period during which the temporary differences reverse, the outlook for the Korean economic environment, and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion, and has determined that no valuation allowance was required as of December 31, 2003 and 2004.

     Under the Foreign Investment Promotion Act of Korea, from September 1999, the Company is entitled to an exemption from income taxes in proportion to the percentage of foreign equity for seven years following the registration of each foreign equity investment, and at one-half of that percentage for the subsequent three years through 2008.

     Aggregate tax benefits and tax effect per share from tax exemption for the years ended December 31, 2002, 2003 and 2004 are as follows:

(in millions, except for per share amount)	2002		2003		2004
Benefit from tax exemption	W	54,361	W	153,587	W	239,605
Weighted-average number of common shares outstanding		290		290		305
Effect per share (Korean Won)	W	187	W	529	W	785

     The statutory income tax rate, including tax surcharges, applicable to the Company was approximately 29.7% in 2002. The statutory income tax rate was amended to 27.5% effective for fiscal years beginning January 1, 2005 in accordance with the Corporate Income Tax Law enacted in December 2003. Accordingly, deferred income taxes as of December 31, 2003 and 2004 were calculated based on the enacted rate of 27.5%.

18

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

     Taxes are calculated for each individual entity in the group. As a result, losses incurred by subsidiaries cannot be offset against profits earned by the parent company. Taxes on the operating profit differ from the theoretical amount that would arise at the statutory tax rate of the home country of the parent for the years ended December 31, 2002, 2003 and 2004 as follows:

(in millions of Korean won)	2002			2003			2004
Taxes at Korean statutory tax rate	W	108,721		W	315,140		W	517,320
Income tax exemption		(54,361	)		(153,587	)		(239,605	)
Income tax credits		(38,793	)		(109,706	)		(224,687	)
Change in foreigner’s equity interest		—			—			(17,957	)
Foreign tax differential		1,782			376			1,815
Nondeductible items		299			277			523
Change in statutory tax rate		—			1,610			—
Others		308			464			722
Total income tax provision	W	17,956		W	54,574		W	38,131

13. Stockholder’s Equity

Common Stock

     On March 19, 2004, at the Annual General Meeting, stockholders approved an increase of authorized shares from 200 million to 400 million and a stock split on a 2:1 basis effective on May 25, 2004. The number of issued common shares as of December 31, 2003 and 2004 are 290,000,000 and 325,315,700, respectively. These financial statements retroactively reflect the impact of the stock split.

     In July 2004, pursuant to a Securities Registration Statement filed on July 16, 2004 with the Korea Exchange, the Company sold 8,640,000 shares of common stock for gross proceeds of W298,080 million. Concurrently, pursuant to a Form F-1 registration statement filed on July 15, 2004 with the U.S. Securities and Exchange Commission, the Company sold 24,960,000 shares of common stock in the form of American Depositary shares (“ADSs”) for gross proceeds of US$748,800 thousands.

     In September 2004, pursuant to the underwriting agreement dated July 15, 2004, the Company sold an additional 1,715,700 shares of common stock in the form of American Depositary shares (“ADSs”) for gross proceeds of US$51,471 thousands.

     The Company intends to use the proceeds of these sales to fund the capital expenditures associated with the construction of its seventh generation TFT-LCD fabrication plant (“P7”) and other LCD facilities in Korea.

     On May 21, 2004, employees of the Company formed an employee stock ownership association, (“ESOA”), which has the right to purchase on behalf of its membership up to 20% (1,728,000 shares) of shares offered publicly in Korea, pursuant to the Korean Securities and Exchange Act. Employees purchased the shares through the ESOA with loans provided by the Company at the initial public offering price (W34,500) and put under each individual employee’s account. 20% of the 20% of shares (345,600 shares) purchased by employees with loans from the Company is accounted for as a restricted stock award which vests over four years. Unearned compensation, shown as a deduction of Capital Surplus, will be amortized over the 4 year vesting period. During the twelve month period ended December 31, 2004, the Company recorded compensation expense of W1,592 million.

19

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

Retained Earnings

     Retained earnings consist of the following as of December 31:

(in millions of Korean won	2003		2004
Appropriated retained earnings:
Legal reserve	W	60,086	W	60,086
Reserve for business rationalization		—		—
Unappropriated retained earnings:		1,237,269		2,940,956
	W	1,297,355	W	3,001,042

     The Commercial Code of the Republic of Korea requires the Company to appropriate a portion of retained earnings as a legal reserve an amount equal to a minimum of 10% of its cash dividends until such reserve equals 50% of its capital stock. The reserve is not available for dividends but may be transferred to capital stock through an appropriate resolution by the Company’s board of directors or used to reduce accumulated deficit, if any, through an appropriate resolution by the Company’s stockholders.

     Pursuant to the Special Tax Treatment Control Law, the Company was required to appropriate, as a reserve for business rationalization, amounts equal to the tax reductions arising from tax exemptions and tax credits. This reserve was not available for payment of cash dividends, but may be transferred to capital stock through an appropriate resolution by the Company’s board of directors or used to reduce accumulated deficit, if any, through an appropriate resolution by the Company’s stockholders. Effective for fiscal years beginning January 1, 2002, the Special Tax Treatment Control Law was amended and this reserve is available for payment of cash dividends.

14. Earnings Per Share

     Earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the year.

     Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period. The Company does not have any potentially dilutive common shares. Therefore, earnings per share is the same as diluted earnings per share.

     Earnings per share for the years ended December 31, 2002, 2003 and 2004 is calculated as follows:

(In millions, except for per share amount)	2002		2003		2004
Net income as reported on the income statements	W	348,110	W	1,006,503	W	1,703,687
Weighted-average number of common shares outstanding1		290		290		305
Earnings per share	W	1,200	W	3,471	W	5,586

¹ For the year ended December 31, 2004, 35,316 thousand shares of common stock upon the issuance were included in the computation of weighted-average number of common shares outstanding.

15. Commitments and Contingencies

     The Company is subject to several legal proceedings and claims arising in the ordinary course of business. In August 2002, the Company filed a complaint against Chunghwa Picture Tubes, Tatung Company and Tatung

20

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

Co. of America, alleging patent infringement relating to liquid crystal displays and the manufacturing process for TFT-LCDs. Subsequently the Company filed a complaint against customers of Chunghwa Picture Tubes, including ViewSonic Corp., Jeans Co, Lite-On Technology Corp., Lite-On Technology International, Inc., TpV Technology and Invision Peripheral Inc. In June 2004, Chunghwa Picture Tubes filed a counter-claim against the Company in the United States District Court for the Central District of California for alleged infringement of certain patents and violation of U.S. antitrust laws. In May 2004, the Company filed a complaint against Tatung Co., the parent company of Chunghwa Picture Tubes and ViewSonic Corp. and others, claiming patent infringement of rear mountable liquid crystal display devices in the United States District of Delaware and the Patent Country Court in the United Kingdom. The Company also filed a complaint against Chunghwa Picture Tubes with the American Arbitration Association in connection with the ownership of certain patents. On May 25, 2004, the Company filed a Complaint for Declaratory Judgement of properly recorded inventorship in the United States District Court for the District of Massachusetts. In January 2005, Chunghwa Picture Tubes filed a complaint for patent infringement against the Company. The Company’s management does not expect the outcome in any of these legal proceedings, individually or collectively, to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

     During 2002, the Company reached an agreement to settle an outstanding lawsuit, relating to the misuse of one of the Company’s patents, resulting in the recognition of a gain of W4,647 million.

     The Company sells a significant portion of products based on non-binding long-term supply agreements to LGE and Philips, who are currently the largest shareholders of the Company. These agreements are for three-year terms, with automatic renewals. These agreements expired in 2004. The Company is entering into formal master agreements.

     As of December 31, 2004, the Company has a trademark license agreement with LG Corporation and Philips Electronics. Under this agreement, the Company has to pay some portion of revenue as a license fee. This agreement is for three-year terms and shall expire at the end of year 2007.

     The Company has entered into bank overdraft agreements with various banks amounting to W59,000 million and has entered into a Revolving Credit Facility Agreement with Shinhan Bank and Hana Bank amounting to W200,000 million, at December 31, 2004. The Company has a zero balance with respect to these facilities at December 31, 2004.

     LG. Philips LCD America Co., Ltd. has entered into a line of credit agreement, up to US$10,000,000 with Comerica bank. LG. Philips LCD Japan Co., Ltd. and LG. Philips LCD Germany GmbH are provided with repayment guarantees from UFJ Bank and ABN AMRO Bank amounting to JP¥1,000 million and GBP4 million, respectively, relating to their local tax payments.

     As of December 31, 2004, in relation to its TFT-LCD business, the Company has technical license agreements with Semiconductor Energy Laboratory Co., Ltd. and others. The licensing agreements generally require royalty payments based on a specific percentage of sales. Costs are accrued by the Company as the sales of the specified products are made. Royalty expenses charged to cost of sales under these licensing agreements totaled W23,483 million, W38,969 million and W43,726 million in the year ended December 31, 2002, 2003 and 2004, respectively.

21

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

16. Fair Value of Financial Instruments

     The estimated fair values of the Company’s other financial instruments are as follows:

	2003
	Notional		Carrying		Estimated
(in millions of Korean won)	amount		amount		fair value
Long-term debt including the current portion	W	—	W	1,785,067	W	1,698,579
Derivative instruments		3,165		3,004		3,004

	2004
	Notional		Carrying		Estimated
(in millions of Korean Won)	amount		amount		fair value
Long-term debt including the current portion	W	—	W	2,206,143	W	2,191,857
Derivative instruments		72,696		69,443		69,443

17. Related Party Transactions

     In the normal course of business, the Company purchases raw materials from, and sells its products to, shareholder companies and other companies within the LG Group and Philips Group. Such transactions and the related accounts receivable and payable, excluding consolidated subsidiaries, as of December 31, 2002, 2003 and 2004 are summarized as follows:

	2002
(in millions of Korean won)	Sales		Purchases(*)
LG Electronics Inc.	W	495,904	W	54,931
Philips affiliates		140,534		25,433
LG Engineering & Construction Corp.		—		230,097
LG Chem Ltd.		—		108,694
LG International Japan Ltd.		409,971		623,618
LG International HK Ltd.		457,112		—
LG MRO Co., Ltd.		195,382		8,347
LG International Singapore Ltd.		96,108		—
LG International America, Inc.		—		116,762
LG Micron Ltd.		—		28,872
Others		—		117,994
2002 Total	W	1,795,011	W	1,314,748

22

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

	2003
(in millions of Korean won)	Sales		Purchases1		Receivables		Payables2
LG Electronics Inc.	W	1,408,956	W	66,013	W	265,494	W	23,185
Philips affiliates		603,603		37,144		167,355		1,926
LG Engineering & Construction Corp.		—		733,966		—		509,510
LG Chem Ltd.		—		243,764		—		31,710
LG International Japan Ltd.		247,619		714,648		43,131		125,152
LG International HK Ltd.		190,602		—		10,834		—
LG International America, Inc.		—		53,573		—		9,513
LG International Singapore Ltd.		171,391		—		50,168		—
LG MRO Co., Ltd.		118,689		31,595		—		8,847
LG Micron Ltd.		—		62,077		—		25,593
LG CNS Co., Ltd.		—		51,220		—		17,127
Others		8,836		144,351		4,772		45,207
2003 Total	W	2,749,696	W	2,138,351	W	541,754	W	797,770

	2004
(in millions of Korean won)	Sales		Purchases1		Receivables		Payables2
LG Electronics Inc.	W	1,607,066	W	149,466	W	225,342	W	29,799
Philips affiliates		1,210,946		52,265		163,762		4,744
LG Engineering & Construction Corp.		—		828,844		—		351,093
LG Chem Ltd.		—		398,433		—		33,393
LG International Japan Ltd.		128,718		1,431,260		10,734		144,030
LG International HK Ltd.		281,242		11		7,196		—
LG International America, Inc.		—		168,565		—		12,328
LG International Singapore Ltd.		51,174		1		—		—
LG International Deutschland GmbH		—		52,569		—		5,337
LG MRO Co., Ltd.		—		67,977		—		13,484
LG Micron Ltd.		—		89,675		—		36,702
LG CNS Co., Ltd.		—		64,013		—		3,985
Others		63,456		148,810		20,880		34,406
2004 Total	W	3,342,602	W	3,451,889	W	427,914	W	669,301

1	Includes purchases of property, plant and equipment.
2	Includes advances received.

23

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

18. Segment Information

     The Company operates in one business segment, the manufacture and sale of TFT-LCDs.

     The following is a summary of operations by country based on the location of the customer as of and for the years ended December 31, 2002, 2003 and 2004. Property, plant and equipment is based on the location of the equipment.

By Geography

(in millions of Korean won)	2002		2003		2004
Revenue from external customers:
Republic of Korea	W	657,302	W	977,916	W	890,194
Asia		2,248,357		3,769,626		5,672,782
America		425,299		576,846		752,971
Europe		204,862		751,889		1,008,645
Others		30,914		22,077		202
Total	W	3,566,734	W	6,098,354	W	8,324,794
Property, Plant, and Equipment:
Republic of Korea			W	3,901,337	W	6,402,446
Asia				72,710		160,761
Others				268		770
Total			W	3,974,315	W	6,563,977

     During the years ended December 31, 2002, 2003 and 2004, the Company’s revenue from its three largest customers accounted for 34.8%, 41.1% and 42.9% of total revenue respectively. Sales to A Company constituted 12.4%, 13.4% and 12.5% of total revenue, for the years ended December 31, 2002, 2003 and 2004, respectively. And sales to B Company constituted 12.1%, 18.1% and 16.8% of total revenue, for the years ended December 31, 2002, 2003, and 2004, respectively. The Company purchases a number of components from various sources. In some cases, alternative sources of supply are not available. In other cases, the Company may establish a working relationship with a single source, even when multiple suppliers are available, if the Company believes it is advantageous to do so due to performance, quality, support, delivery, capacity or price considerations. If the supply of a critical material or component were delayed or curtailed, the Company’s ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could adversely affect operating results.

     The following is a summary of revenue by product for the years ended December 31, 2002, 2003 and 2004.

By Product

(in millions of Korean won)	2002		2003		2004
Panels for:
Notebook computers	W	1,286,890	W	1,738,994	W	2,119,116
Desktop monitors		2,026,597		3,517,491		4,662,079
TFT-LCD televisions		135,682		685,925		1,162,762
Others		117,565		155,944		380,837
Total	W	3,566,734	W	6,098,354	W	8,324,794

24

LG. Philips LCD Co., Ltd.
 
Notes to Consolidated Financial Statements—(Continued)
December 31, 2002, 2003 and 2004
 

19. Supplemental Cash Flows Information

     Supplemental cash flows information for the years ended December 31, 2002, 2003 and 2004 is as follows:

(in millions of Korean won)	2002		2003		2004
Cash paid during the year for:
Interest	W	69,651	W	75,970	W	93,621
Income taxes		1,441		2,827		41,406
Non-cash investing and financing activities:
Other accounts payable arising from the purchase of property, plant and equipment		653,421		882,839		822,288

25

LG. Philips LCD Co., Ltd.
 
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS
 

	Balance at		Charged to			Write-offs			Balance at
	beginning		bad debt			charged to			end
(in millions of Korean Won)	of period		expenses			allowance			of period
Year ended December 31, 2002:
Allowance for doubtful accounts	W	6,207	W	4,913		W	(—	)	W	11,120
Year ended December 31, 2003:
Allowance for doubtful accounts	W	11,120	W	974		W	(62)		W	12,032
Year ended December 31, 2004:
Allowance for doubtful accounts	W	12,032	W	(8,614	)	W	(—	)	W	3,418

	Balance at							Balance at
	beginning							end
	of period		Additions		Deductions			of period
Year ended December 31, 2002:
Reserve for warranty liabilities	W	12,903	W	7,919	W	(7,537	)	W	13,285
Year ended December 31, 2003:
Reserve for warranty liabilities	W	13,285	W	18,694	W	(12,199	)	W	19,780
Year ended December 31, 2004:
Reserve for warranty liabilities	W	19,780	W	13,909	W	(14,472	)	W	19,217

26

EX-15.E

Exhibit 15 (e)

Audit report of Samil PricewaterhouseCoopers for 2004

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
LG.Philips LCD Co., Ltd.

     In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of LG.Philips LCD Co., Ltd. and its subsidiaries (the “Company”) as of December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles, which as described in Note 2, are generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule, Valuation and Qualifying Accounts, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Seoul, Korea
January 26, 2005

Samil Pricewaterhouse Cooper is the Korean member firm of Pricewaterhouse Coopers. Pricewaterhouse Coopers refer to the network of member firms of Pricewaterhouse Coopers International Limited, each of which is a separate and independent legal entity.

EX-15.F

Exhibit 15 (f)

Consent of Samil PricewaterhouseCoopers

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-65972, No. 33-80027, No. 333-91287, No. 333-70215, No. 333-91289, No. 333-39204, No. 333-75542, No. 333-87852, No. 333-104104 and No. 333-119375) and in the Registration Statements on Form F-3 (No. 333-04582 and 333-90686) of Koninklijke Philips Electronics N.V. of our report dated January 26, 2005, relating to the consolidated financial statements of LG.Philips LCD Co., Ltd. and its subsidiaries, which appears in the Form 20-F/A of Koninklijke Philips Electronics N.V.

/s/ Samil PricewaterhouseCoopers


Seoul, Korea

April 28, 2005

EX-15.G

Exhibit 15 (g)

Consolidated Financial Statements of LG. Philips Displays Holding B.V.

The LPD consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America. The LPD consolidated financial statements as of and for the fiscal periods ended December 31, 2004 and 2002 were not audited in accordance with generally accepted auditing standards in the United States, and are not covered by the audit report of KPMG included as an exhibit to this Form 20-F/A. The audit report of KPMG relating to the LPD consolidated financial statements as of and for the year ended December 31, 2003 is included as Exhibit 15 (h) to this Form 20-F/A.

Consolidated Financial Statements

Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002

amounts in USD million

	Notes		2004			2003			2002
			(Not audited)						(Not audited)
Sales			$	4,047		$	3,966		$	4,402
Direct cost of sales				(3,300	)		(3,265	)		(3,630	)
Gross profit			$	747		$	701		$	772
Expenses
Selling expenses				(129	)		(127	)		(143	)
General and administrative expenses				(74	)		(102	)		(102	)
Research and development expenses				(58	)		(101	)		(112	)
Depreciation expenses				(222	)		(294	)		(290	)
Amortization expenses				(11	)		(16	)		(11	)
Other income, net		6		32			61			51
Restructuring and impairment costs		7		(327	)		(942	)		(570	)
Loss from operations			$	(42	)	$	(820	)	$	(405	)
Financial expenses		8		(95	)		(57	)		(122	)
Results related to unconsolidated companies				(5	)		—			—
Loss before income taxes			$	(142	)	$	(877	)	$	(527	)
Income taxes		9		16			18			2
Loss after income taxes			$	(126	)	$	(859	)	$	(525	)
Minority interests				(45	)		(13	)		(2	)
Net loss from continuing operations before cumulative effect of a change in accounting principle			$	(171	)	$	(872	)	$	(527	)
Cumulative effect of a change in accounting principle, net of income tax of USD Nil		10		—			—			(5	)
Net loss			$	(171	)	$	(872	)	$	(532	)

See accompanying notes, which form an integral part of these financial statements.

1

Consolidated Balance Sheets at December 31, 2004 and 2003

amounts in USD million, except for share figures

	Notes		2004		2003
			(Not audited)
ASSETS
Current assets:
Cash and cash equivalents		11	$	113	$	322
Accounts receivable, less allowance for doubtful accounts (USD13 million in 2004 and USD9 million in 2003)		12		389		445
Inventories		13		232		289
Amounts due from Parent companies		14		179		191
Tax refundable				14		16
Deferred tax assets		9		5		13
Other current assets		15		73		81
Total current assets			$	1,005	$	1,357
Non-current assets:
Pledged deposits		11		50		—
Investment in unconsolidated companies		16		21		3
Other non-current financial assets		17		—		13
Other non-current assets		18		6		18
Deferred tax assets		9		36		17
Property, plant and equipment		19		1,591		1,724
Goodwill and intangible assets		21		282		290
Total non-current assets			$	1,986	$	2,065
TOTAL ASSETS			$	2,991	$	3,422
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	677	$	674
Amounts due to Parent companies		14		66		86
Tax payable				1		5
Deferred tax liabilities		9		2		4
Provisions and other liabilities — current portion		22		336		311
Loans — current portion		23		200		1,654
Total current liabilities			$	1,282	$	2,734
Non-current liabilities:
Provisions and other liabilities — non-current portion		22		103		91
Loans — long-term portion		23		1,077		443
Deferred tax liabilities		9		3		14
Total non-current liabilities			$	1,183	$	548
TOTAL LIABILITIES			$	2,465	$	3,282

See accompanying notes, which form an integral part of these financial statements.

2

Consolidated Balance Sheets at December 31, 2004 and 2003 (continued),

amounts in USD million, except for share figures

	2004			2003
	(Not audited)
Minority interests		235			205
Stockholders’ equity/ (deficit):
Common stock, par value EUR1 per share Authorized: 90,000 shares Issued and outstanding: 68,182 shares (2003: 68,182 shares)		—			—
Share premium		2,040			1,546
Accumulated losses		(1,926	)		(1,752	)
Accumulated other comprehensive income		177			141
Stockholders’ equity/ (deficit)	$	291		$	(65	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,991		$	3,422

Approved and authorized for issue by the Company on April 15, 2005

 

Jeong IL Son  

President and CEO 

 

Peter van Bommel  

Deputy CEO and Chief Financial Officer 

See accompanying notes, which form an integral part of these financial statements.

3

Consolidated Statements of Changes in Stockholders’ Equity/ (Deficit) and Comprehensive Income/ (Loss) for the years ended December 31, 2004, 2003 and 2002

amounts in USD million, except for share figures

	Number of
	shares issued,									Accumulated other
	EUR 1 par value									comprehensive			Total Stockholders’
	per share		Common stock		Share premium		Accumulated losses			income			equity/ (deficit)
Balance at January 1, 2004 (Not audited)
As previously reported		68,182		—		1,546		(1,752	)		141			(65	)
Adjustment arising from acquisition of subsidiaries		—		—		—		(3	)		—			(3	)
As adjusted		68,182		—		1,546		(1,755	)		141			(68	)
Capital contribution on July 14, 2004 (net of capital duty of USD6 million)		—		—		494		—			—			494
Net loss for the year		—		—		—		(171	)		—			(171	)
Translation adjustments		—		—		—		—			36			36
Balance at December 31, 2004 (Not audited)		68,182		—		2,040		(1,926	)		177			291
Balance at January 1, 2003		68,182		—		1,546		(880	)		150			816
Net loss for the year		—		—		—		(872	)		—			(872	)
Translation adjustments		—		—		—		—			(9	)		(9	)
Balance at December 31, 2003		68,182		—		1,546		(1,752	)		141			(65	)
Balance at January 1, 2002 (Not audited)		49,998		—		1,296		(348	)		22			970
Share capital issued on May 31, 2002		18,184		—		250		—			—			250
Net loss for the year		—		—		—		(532	)		—			(532	)
Translation adjustments		—		—		—		—			128			128
Balance at December 31, 2002 (Not audited)		68,182		—		1,546		(880	)		150			816

Note: Accumulated other comprehensive income mainly represented the currency translation differences. The comprehensive income/ (loss) was USD(135) million, USD(881) million and USD(404) million for the years ended December 31, 2004, 2003 and 2002 respectively.

See accompanying notes, which form an integral part of these financial statements.

4

Consolidated Statements of Cash Flow for the years ended December 31, 2004, 2003 and 2002

amounts in USD million

	Notes		2004			2003			2002
			(Not audited)						(Not audited)
Net cash provided by operating activities			$	269		$	436		$	135
Cash flows — investing activities
Additions to property, plant and equipment				(137	)		(208	)		(442	)
Additions to intangible assets				(3	)		(5	)		(9	)
Purchase of subsidiaries		29		(2	)		—			—
Investment in unconsolidated companies		16		(19	)		(3	)		—
Purchase of available-for-sale securities				—			(17	)		—
Sales proceeds in respect of property, plant and equipment				36			51			69
Sales proceeds in respect of available-for-sale securities				18			—			—
Sales proceeds in respect of interest in business		25		—			21			—
Proceeds from sales of shares in a subsidiary to parent companies				—			2			—
Net cash used in investing activities			$	(107	)	$	(159	)	$	(382	)
Cash flows — financing activities
Net (decrease)/ increase in short-term debt				(103	)		300			(260	)
Proceeds from issuance of long-term debt				29			37			431
Repayment of long-term debt				(746	)		(360	)		(446	)
Payment of debt issuance costs				—			—			(2	)
Proceeds from issuance of share capital to minority shareholders				—			4			13
Dividend paid to minority shareholders				(15	)		(11	)		(2	)
Proceeds from capital contribution				500			—			—
Payment of capital duty related to previous and current years’ capital contribution				(6	)		—			—
Proceeds from issuance of common stock				—			—			250
Net cash used in financing activities			$	(341	)	$	(30	)	$	(16	)
Net change in cash and cash equivalents				(179	)		247			(263	)
Effect of exchange rate changes				(30	)		(50	)		6
Cash and cash equivalents at beginning of year				322			125			382
CASH AND CASH EQUIVALENTS AT END OF YEAR			$	113		$	322		$	125

Net cash paid during the year for:

	2004		2003		2002
Interest paid		77		86		100
Income taxes		20		7		29

See accompanying notes, which form an integral part of these financial statements.

5

Consolidated Statements of Cash Flow for the years ended December 31, 2004, 2003 and 2002 (continued)

amounts in USD million

	2004			2003			2002
	(Not audited)						(Not audited)
CASH FLOW — operating activities
Net loss	$	(171	)	$	(872	)	$	(532	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation	$	222		$	294		$	290
Impairment loss on property, plant and equipment		159			675			456
Impairment loss on goodwill		—			89			5
Amortization and write off of intangibles assets		11			16			11
Net (gain)/ loss on disposal and write off of property, plant and equipment		(11	)		1			(1	)
Provision for losses on available-for-sale securities		—			4			—
Gain on sale of interests in subsidiaries		—			(36	)		—
Loss on acquisition of subsidiaries		50			—			—
Gain on sale of available-for-sale securities		(5	)		—			—
Loss from unconsolidated companies		5			—			—
Minority interests		45			13			2
Increase in pledged deposits		(50	)		—			—
Decrease/ (increase) in accounts receivable		67			78			(160	)
Decrease in inventories		63			57			70
Net increase in amount due (to)/ from parent companies		(8	)		111			(86	)
Decrease/ (increase) in other current assets		18			27			(19	)
(Decrease)/ increase in accounts payable		(43	)		(179	)		205
(Decrease)/ increase in provisions and other liabilities		(79	)		128			(70	)
(Increase)/ decrease in non-current assets		(5	)		34			(17	)
Increase/ (decrease) in non-current liabilities		1			(4	)		(19	)
Net cash provided by operating activities	$	269		$	436		$	135

See accompanying notes, which form an integral part of these financial statements.

6

Notes to the Consolidated Financial Statements

1. Description of business

The principal activity of LG.Philips Displays Holding BV (“the Company”) and its subsidiaries (collectively “the Group”) is the manufacture and sale of cathode ray tubes (“CRT”) for use in television sets and computer monitors. The Group has a number of factories worldwide and serves global customers across many regions. Asia Pacific represents the Group’s major geographical market segment. The sales mix in 2004 was represented at 71% (2003: 72%) in respect of Color Picture Tubes (“CPT”) for television sets, 25% (2003: 25%) in respect of Color Display Tubes (“CDT”) for computer monitors and 4% (2002: 3%) in related components (“Comp”). Approximately 44% (2003: 43%) of the Group’s sales during 2004 were derived from sales to the Company’s parent companies.

Royal Philips Electronics (“Philips”) and LG Electronics Inc. (“LGE”) (collectively “the Group’s Parents” or the “Company’s Shareholders”) entered into a Joint Venture Agreement dated June 11, 2001 (“JV Agreement”). Pursuant to the JV Agreement, LGE and Philips transferred to the Company the assets and liabilities of their respective businesses engaged in the manufacture and sale of (i) CDT and CPT — collectively CRT; (ii) deflection yokes, electron guns and electron gun parts for use with CRT only (“Initial CRT Components”) and (iii) CRT glass (“CRT Glass”) and other key CRT components and materials (collectively such businesses are referred to as “CRT Business”). Under the terms of the JV Agreement, the closing of the acquisition by the Group of the CRT Businesses of Philips and LGE was effective as of June 30, 2001.

2. Basis of presentation

The accompanying consolidated financial statements present the operations of the Company and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).

3. Going concern

On June 25, 2004, the Group reached agreement with the lenders in the bank syndicate on a restructuring of the Group’s syndicated loan in respect of which USD1,433 million was outstanding as of January 1, 2004, and of which USD100 million was repaid in January 2004. The restructuring, effective as of July 14, 2004, includes revised loan covenants, a waiver of previous breaches of loan covenants, which could have resulted in the syndicated loan becoming immediately repayable in full had two thirds of the syndicate so elected, a revised repayment schedule of amounts due under the syndicated loan, an extensive security package to secure the syndicate loan repayment obligation and additional equity of USD500 million provided by the Company’s Shareholders to reduce part of the outstanding debt. The USD500 million equity contributions and repayment of the same amount of outstanding debt were completed in July 2004.

Under the revised syndicated loan agreement and as noted above, the Group is now subject to revised covenants, namely a debt service ratio, a maximum debt level and a maximum amount of permitted cash restructuring costs, as part of the restructuring of the syndicated loan and the Group has been in compliance with these covenants since the restructuring of the syndicated loan was completed. Management of the Group has assessed the Group’s ability to adhere to these revised covenants and expects that such covenants shall be adhered to for the foreseeable future.

7

The Group operates in a mature business that has encountered significant reductions in prices and increasing competition from newer technologies. In assessing the Group’s ability to adhere to such covenants, management’s estimate of future cash flows has taken account of management’s expectations of industry trends and market decline in assessing the Group’s ability to generate sufficient cash flows from operations to repay outstanding amounts, to meet ongoing loan covenants and to continue as a going concern. The future pace of market decline is uncertain and should such take place more rapidly than management currently expects, this could have negative implications on the Group’s ability to repay loans and adhere to covenants. However, management is satisfied that the assumptions underlying such estimate are appropriate and that they have been made after due and careful analysis.

Total bank and other loans (including amounts outstanding in respect of a Floating Rate Note (“FRN”) amounting to EUR200 million) amounted to USD1,277 million as at December 31, 2004 and cash balances at that date amounted to USD113 million.

Under the terms of the FRN, the Group is required to repay the amount by June 2007. Management has identified that the repayment of such FRN may need to be re-financed by additional sources of funds. The Group is satisfied that such repayment will be satisfactorily addressed in sufficient time to enable the FRN to be repaid or refinanced by the due date.

Management is satisfied that based on its assessment of the Group’s expected future operations, the Group will be able to meet its debts as they fall due and to adhere to loan covenant requirements. Accordingly, the financial statements have been prepared on a going concern basis.

4. Step-up accounting

Each of the Group’s Parents, LGE and Philips, contributed assets to the Company in exchange for their interest in the Group, together with cash payments by the Group to the Parents calculated by reference to differences between historical cost and valuations of certain businesses (being LGE’s CRT Business and Philips’ Glass Business) contributed to the Group by LGE and Philips. The values were determined by LGE and Philips, based on a number of factors including investment banks’ valuations, cash flow projections, negotiations between the Group’s Parents, and as set out in the JV Agreement.

Based on the amounts of net assets contributed by LGE and Philips and cash paid to LGE and Philips, assets contributed by LGE have been recorded at the book values that were contributed by LGE plus a partial step up of 17.74% of the fair value increment, and net assets contributed by Philips in respect of Philips’ Glass Business have been recorded at 100% of the fair value; such fair values having been determined by management and such accounting treatment is referred to as step-up accounting.

Based on the foregoing step-up accounting basis, the total amount of step-up increment recorded by the Group at the opening balance sheet date of June 30, 2001 was USD465 million, which was allocated by management to property, plant and equipment in the amount of USD30 million, to intellectual property rights (“IPR”) in the amount of USD71 million and to goodwill in the amount of USD364 million. The revaluation adjustment relating to property, plant and equipment is depreciated over the expected remaining useful lives of the respective assets, the value allocated to IPR is amortized over the expected useful lives of the related rights and during the period ended December 31, 2001, goodwill was amortized over 5 years. For financial periods commencing on or after January 1, 2002, the Group has adopted Statements of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, which requires allocation of goodwill to reporting units and impairment review in lieu of amortization of goodwill.

5. Accounting policies

Basis of consolidation

The accompanying consolidated financial statements include the financial statements of the Company and its subsidiaries in which the Company has a controlling financial interest. All material intra-Group transactions and balances have been eliminated on consolidation.

8

The result is reduced by the portion of the results of subsidiaries applicable to minority interests. The minority interests are disclosed separately in the consolidated statements of operations and in the consolidated balance sheets.

Investment in unconsolidated companies

Investment in companies in which the Group does not have the ability to directly or indirectly control the financial and operating decisions, but does possess the ability to exert significant influence, are accounted for using the equity method. Generally, in the absence of demonstrable proof of significant influence, it can be presumed to exist when the Group owns between 20% and 50% of the investee’s voting stock. Under the equity method, only the Group’s investment in and amounts due to and from the equity investee are included in the consolidated balance sheet; only the Group’s share of the investee’s earnings is included in the consolidated operating results; and only the dividends, cash distributions, loans or other cash received from the investee, additional cash investments, loan repayments or other cash paid to the investee, are included in the consolidated cash flows. The Group recognizes an impairment loss when an other-than-temporary decline in the value of the investment occurs.

Equity investment in companies in which the Group does not have a controlling interest, or an ownership and voting interest so large as to exert significant influence, are accounted for at market value if the investments are publicly traded. If the equity investment is not publicly traded, then the investment is accounted for at cost. The Group recognizes an impairment loss when an other-than-temporary decline in the value of an equity investment occurs.

In determining whether impairment is other-than-temporary, the Group considers whether it has the ability and intent to hold the investment for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the cost of investment and considers whether evidence indicating the cost of investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Evidence considered in the assessment includes the cause of the decline, the severity and duration of the decline, changes in value subsequent to year-end and forecast performance of the investment.

Foreign currency transactions

The reporting and functional currency adopted by the Group is the US dollar. The functional currency of foreign enterprises or subsidiaries is generally the local currency, unless the primary economic environment requires the use of another currency.

Gains and losses arising from the translation or settlement of foreign-currency-denominated monetary assets and liabilities into the local currency are recognized in income in the period in which they arise. However, currency differences on intercompany loans that have the nature of a permanent investment are accounted for as translation differences as a separate component of other accumulated comprehensive income (loss) within stockholders’ equity.

The balance sheet items of foreign enterprises or subsidiaries are translated into US dollars at the rates of exchange prevailing at the balance sheet date. The results of foreign enterprises are translated into US dollars using the average rate for the year/period. The resulting exchange differences are reflected in the other comprehensive income component within stockholders’ equity. Cumulative translation adjustments are recognized as income or expense upon disposal or liquidation of a foreign subsidiary.

9

Derivative financial instruments

The Group uses derivative financial instruments principally in the management of its foreign currency risks and to a more limited extent for commodity price risks. In applying SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which was adopted in 2003, the Group measures all derivative financial instruments based on fair values derived from market prices of the instruments. Gains or losses arising from changes in the fair value of the instruments are recognized in the statement of operations during the period in which they arise to the extent that the derivatives have been designated as a hedge of recognized assets or liabilities, or to the extent that the derivatives have no hedging designation or are ineffective. The gains and losses on the designated derivatives substantially offset the changes in the values of the recognized hedged items, which are also recognized as gains and losses in the statement of operations.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in the statement of operations.

Changes in the fair value, resulting from the risk being hedged, of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge, are recorded in accumulated other comprehensive income, until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of a derivative that are highly effective as hedges and that are designated and qualify as foreign currency hedges are recorded in either earnings or accumulated other comprehensive income, depending on whether the hedge transaction is a fair value hedge or a cash flow hedge.

The Group formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

The Group discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is undesignated as a hedging instrument, because it is unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the Group continues to carry the derivative on the balance sheet as its fair value and no longer adjusts the hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Group continues to carry the derivative on the balance sheet at its fair value, removes any asset or liability that was recorded pursuant to recognition of the firm commitment from the balance sheet, and recognizes any gain or loss in earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the Group continues to carry the derivative on the balance sheet at its fair value with subsequent changes in fair value included in earnings, and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the Group continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings.

10

Interest costs

Interest costs are expensed in the statement of operations in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

The capitalization of interest costs as part of the cost of a qualifying asset commences when expenditures for the asset are being incurred, interest costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization of interest costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

Cash and cash equivalents

Cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. For the purpose of the consolidated statements of cash flows, the Group considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Trade accounts receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. The Group reviews its allowance for doubtful accounts regularly.

The allowance for the risk of non-collection of trade accounts receivable is determined in three stages. First, significant individual debtors are assessed for creditworthiness based on external and internal sources of information; management decides upon an allowance based on that information and the specific circumstances for that debtor which might require a value allowance. In the second stage, for all other debtors the allowance is calculated based on a percentage of average historical losses. Finally, if, owing to specific circumstances such as serious adverse economic conditions in a specific country or region, it is management’s judgment that the valuation of the receivables is inadequately represented by the valuation allowance in stage two, the percentage of valuation allowance for the debtors in the related country or region may be increased to cover the increased risk.

Investments

The Group classifies its investments in debt securities as available-for-sale. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other accumulated comprehensive income within stockholders’ equity until realized, at which time the realized gain or loss is included in income.

A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Interest income is recognized when earned. Realized gains or losses, if any, are recorded in financial income and expenses.

Other non-current assets

Loans receivable are stated at amortized cost, less an allowance for impaired loans. Management considers a loan to be impaired when it is probable that the Group will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. Impairment losses are included in the allowance for doubtful accounts through a charge to bad debt expense.

11

Inventories

Inventories are stated at the lower of cost or market value. Inventory cost is determined predominantly using the first in first out method (FIFO). A small number of locations use the average cost basis, however, this is not significantly different from FIFO.

The cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred to bring the inventories to their present location and condition. The costs of conversion of inventories include direct labor, fixed and variable production overheads and variable production cost, taking into account the stage of completion of the inventories.

Provision is made for estimated losses due to obsolescence based on management’s best estimates.

Property, plant and equipment

Property, plant and equipment are stated at cost (plus step-up increment, where applicable) less accumulated depreciation and impairment. Plant and equipment under capital leases are initially recorded at the present value of minimum lease payments. These leased assets are amortized over the shorter of the lease term or the economic life of the property, plant and equipment. Assets constructed by the Group include direct manufacturing costs, production overheads and interest charges incurred during the construction period. Government grants are deducted from the cost of the related assets. The expenditure on assets under construction is recorded first in “Construction in progress” and then transferred to the appropriate asset account on completion. Depreciation is recorded using a straight-line method, based on the useful lives of the assets.

The principal depreciation rates used for this purpose are as follows:

•	Land	no depreciation
•	Buildings	20-50 years
•	Machinery	3-20 years
•	Other equipment	5-20 years

Gains and losses on the sale of property, plant and equipment are included in ‘other income’ in the statement of operations.

Maintenance and repairs are charged to the statement of operations; replacements and improvements to property, plant and equipment are capitalized and depreciated over the estimated useful lives of such assets.

Asset retirement obligations

In June 2001, the FASB issued SFAS No.143, ‘Accounting for Asset Retirement Obligations’. The Group adopted this Statement in 2003. Under the provisions of this Statement, the Group recognizes the fair value of an asset retirement obligation in the period in which it is incurred, while an equal amount is capitalized as part of the carrying amount of the long-lived asset and subsequently depreciated over the life of the asset. Upon initial application of the Statement, the Group recognized a liability for existing asset retirement obligations adjusted for cumulative accretion to January 1, 2003. Additionally, the Group recorded the asset retirement cost as an increase to the carrying amounts of the associated long-lived assets and recognized the accumulated depreciation on such capitalized cost. The cumulative effect of the initial application of the Statement has been reported in the operating result for 2003, rather than recognized as a change in accounting principle, as the amount of asset retirement obligation was less than USD0.7 million which was not material.

12

Goodwill

The Group adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Consequently, goodwill is no longer amortized but instead tested for impairment annually or whenever impairment indicators so require. Prior to the adoption of SFAS No. 142, the Group applied the straight-line method for amortization of goodwill over the period expected to benefit of 5 years.

Upon adoption of SFAS No. 142 the Group was required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Group reassessed the useful lives and residual values of all intangible assets acquired. In connection with SFAS No. 142’s transitional goodwill impairment evaluation, this Statement required the Group to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Group was required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. Furthermore, the Group was required to determine the fair value of each reporting unit and to compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeded the fair value of the reporting unit, the Group was required to perform the second step of the transitional impairment test. In the second step, the Group was required to compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which were measured as of the date of adoption of SFAS No. 142. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation was the implied fair value of the reporting unit goodwill.

The Group identified its reporting units and performed the transitional goodwill impairment test for each of those reporting units in the first quarter of 2002. An impairment loss of USD5 million was included in the statement of operations as a cumulative effect of a change in accounting principle as a consequence of the transitional impairment test.

Fair value of the reporting units is determined using expected discounted future cash flows. Determining cash flows requires the use of judgements and estimates that reflect the Group’s strategic plans and long-range forecasts. The data necessary for the impairment tests are based on management estimates of future cash flows, which require estimating revenue growth rates and profit margins.

Intangible assets other than goodwill

Intangible assets with estimable useful lives are amortized using the straight-line method over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. There are currently no intangible assets with indefinite lives.

Certain costs relating to the development and purchase of software for internal use are capitalized and subsequently amortized over the estimated useful life of the software and the amortization charge for 2004 was USD3 million (2003: USD4 million, 2002: USD2 million).

Research and development

All costs of research and development are expensed in the period in which they are incurred.

Shipping and handling

Costs related to shipping and handling are included in selling expenses for all periods presented.

13

Advertising

Advertising costs are expensed, when incurred. The cost charged to the statement of operations in 2004 amounted to USD0.1 million (2003: USD0.3 million, 2002: USD0.3 million).

Impairment or disposal of long-lived assets and intangible assets other than goodwill

The Group accounts for impairment of long-lived fixed assets in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement requires that long-lived assets and purchased intangibles subject to amortization be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets held for sale are reported at the lower of the carrying amount or fair value, less costs to sell and are no longer depreciated.

Provisions

The Group recognizes provisions for liabilities and probable losses that have been incurred as of the balance sheet date and for which the amount is uncertain but can be reasonably estimated.

In June 2002, the FASB issued SFAS No. 146, ‘Accounting for Costs Associated with Exit or Disposal Activities’. This statement nullifies the accounting for restructuring costs provided in EITF Issue No. 94-3 ‘Liability Recognition for Certain Employee Termination Benefit and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).’ The principal difference between SFAS No. 146 and EITF No. 94-3 that affects the Group relates to the timing of the recognition of a liability for a cost associated with an exit or disposal activity, including restructurings. SFAS No. 146 requires that a liability be recognized and measured at fair value only when incurred. In contrast, under Issue 94-3 the Group recognized a liability for an exit cost or recorded a restructuring provision when it committed to an exit plan.

Liabilities related to one-time employee termination benefits are recognized ratably over the future service period when those employees are required to render services to the Group, if that period exceeds 60 days or a longer legal notification period. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002 and has been adopted by the Group as of January 1, 2003.

Under FASB SFAS No. 88, ‘Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits’, if contractual termination benefits have been agreed to in advance between the company and its employees and are payable when a specified event occurs, the cost shall be recognized as a liability and an expense when payment of the benefits is probable.

Employee termination benefits covered by a contract or under an ongoing benefit arrangement are to be accounted for under SFAS No. 112 ‘Employers’ Accounting for Postemployment Benefits’ and are recognized when it is probable that the employees will be entitled to the benefits and the amounts can be reasonably estimated.

14

Environmental liabilities and other contingencies

Provisions for environmental liabilities and other contingencies resulting from past operations or events are recognized when it is probable that a liability has been incurred and the amount can be reasonably estimated.

Pursuant to the JV Agreement, environmental liabilities and certain tax contingencies arising in respect of the Philips and LGE CRT Businesses transferred to the Group, relating to events occurring on or prior to June 30, 2001, were classified as “excluded liabilities” and were not transferred to the Group. These liabilities are the responsibility of Philips and LGE respectively and accordingly, no provision has been recorded in the Group’s financial statements as at December 31, 2004 or 2003 in respect of any such liabilities.

Revenue recognition

The Group recognizes revenue when delivery has taken place pursuant to a customer purchase order, the sales price is fixed or determinable, and collectibility is reasonably assured. Generally, these criteria are met at the time the product is shipped or services are rendered and the customer takes ownership and assumes the risk of loss. Revenues are recorded net of sales taxes, customer discounts, rebates and similar charges.

Government grants

Government grants, other than those relating to assets, are recognized in the statement of operations as qualified expenditures are incurred.

Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credits available for carry forward.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rate is recognized in the statement of operations in the period that includes the enactment date.

The Group provides a valuation allowance for deferred tax assets for which it does not consider realisation of such assets to be more likely than not.

Operating leases

Rentals payable in respect of assets held or provided under operating leases are accounted for in the statement of operations on a straight-line basis over the periods of the respective leases.

15

Pension and other post-retirement plans

The Group accounts for the cost of pension plans and postretirement benefits other than pensions in accordance with SFAS No. 87, “Employers’ Accounting for Pensions”, and SFAS No. 106, “Postretirement Benefits other than Pensions”, respectively. Most of the Group’s defined-benefit plans are funded with plan assets that have been segregated and restricted in a trust to provide for the pension benefits to which the Group has committed itself.

The Group has certain defined benefit pension plans covering a portion of its employees. Pension costs in respect of defined-benefit plans primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets.

The Group also has certain defined contribution pension plans where agreed amounts (usually based on a percentage of salary) are paid regularly to a pension plan. Expenses under these plans are recognized as incurred in the statement of operations. In certain countries, the Group also provides post-retirement benefits other than pensions. The cost relating to such plans consists primarily of the present value of the benefits attributed on an equal basis to each year of service, interest cost on the accumulated post-retirement benefit obligation, which is a discounted amount, and amortization of the unrecognized transition obligation.

Further details of the Group’s pension and post-retirement pension plans are discussed in note 24 to the financial statements.

Unrecognized actuarial gains and losses are recognized in the statement of operations over the expected average remaining working lives of the employees participating in the plan.

Unrecognized prior service costs related to pension plans and post-retirement plans other than pensions are being amortized by assigning a proportional amount to the statement of operations of a number of years, reflecting the average remaining service period of the active employees.

Warranties and guarantees

Estimates for warranty costs are made based primarily on historical warranty claim experience. Estimated warranty costs are accrued at the time of sale and are recorded in cost of sales.

Use of estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used when accounting for matters such as allowance for uncollectible accounts receivable, inventory obsolescence, depreciation and amortization, deferred taxes, provisions, impairment of long lived assets, defined pension and post-retirement benefits, valuation of investments and goodwill.

Recent accounting pronouncements

In May 2003, FASB Statement No. 150, ‘Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity’ was issued. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Group, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise became effective as of January 1, 2004, except for certain mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Group on January 1, 2005. The effective date has been deferred indefinitely for certain other types of

16

mandatorily redeemable financial instruments. The Group currently does not have any financial instruments that are within the scope of this Statement.

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003) (“FIN 46R”), ‘Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Group applies FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities, and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities, and noncontrolling interest of the VIE. The Group currently does not have any VIEs that are within the scope of this Interpretation.

In December 2003, FASB Statement No. 132 (revised), Employers’ Disclosures about Pensions and Other Postretirement Benefits was issued. Statement 132 (revised) prescribes employers’ disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The new annual disclosure requirements became effective for the Group as of the year ended December 31, 2004. The Group’s disclosures in Note 24 incorporate the relevant requirements of Statement 132 (revised).

In May 2004, the FASB issued FSP No. 106-2 (“FSP 106-2”), ‘Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003’ (the ‘Medicare Act’). The Medicare Act was enacted December 8, 2003. FSP 106-2 supersedes FSP 106-1, ‘Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,’ and provides authoritative guidance on accounting for the federal subsidy specified in the Medicare Act. The Medicare Act provides for a federal subsidy equal to 28% of certain prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D, beginning in 2006. The effects of the Medicare Act relating to measures of the accumulated postretirement benefit obligation or the net periodic postretirement benefits as mandated by FASB Staff Position 106-2 were not material to the Group.

FASB Staff Position (“FSP”) No. 109-2, ‘Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004’ (“FSP 109-2”), provides guidance under FASB Statement No. 109, ‘Accounting for Income Taxes’, with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. This Staff Position is not expected to have a material impact on the Group’s financial statements.

In December 2004, Statement No. 151, ‘Inventory Costs, an amendment of ARB No. 43, Chapter 4, ‘Restatement and Revision of Accounting Research Bulletins’, was issued. This Statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and prohibits such costs from being capitalized in inventory. In addition, this Statement requires that allocation of fixed production overheads to the inventory cost be based on the normal capacity of the production facilities. This Statement is not expected to have a material effect on the Group’s financial statements.

17

In December 2004, the FASB issued Statement No. 153, ‘Exchanges of Non-monetary Assets’, an amendment of APB Opinion No. 29, ‘Accounting for Nonmonetary Transactions’. This Statement eliminates the exception in APB No. 29 for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that lack commercial substance. The Statement is not expected to have a material impact on the Group’s financial statements.

SFAS No. 123 (revised 2004), concerning Share-Based Payment was issued in December 2004. The Statement is a revision of Statement No. 123, ‘Accounting for Stock-Based Compensation’. Statement No. 123 (revised), supersedes APB Opinion No. 25, ‘Accounting for Stock Issued to Employees’, that allowed the use of the intrinsic value for measuring stock-based compensation expenses for stock issued to employees. The revised Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The revised Statement contains certain changes compared with the original pronouncement. This Statement is not expected to have a material impact on the Group’s financial statements.

Reclassifications

Certain balance sheet and statement of operations items previously reported under specific financial statement captions have been reclassified to conform with the 2004 presentation.

6. Other income, net

Other income/ (expenses) comprise:

amounts in USD million

	2004		2003			2002
Gain/ (Loss) on disposal of fixed assets		11		(1	)		1
Royalty income		4		5			—
Amounts received from insurance claims		—		1			41
Gain on sale of subsidiaries		—		36			—
Miscellaneous income		17		20			9
		32		61			51

7. Restructuring and impairment costs

As the Group is impacted by worsening market conditions and increased price erosion, it has undertaken a number of restructuring programs during 2002, 2003 and 2004.

The following table presents the movements in restructuring provisions during the year:

amounts in USD million

	Balance as of											Balance as of
	January 1,											December 31,
	2004			Addition			Charge			Utilized		2004
Write-down of assets		—			—			(209	)		209		—
Personnel costs		(79	)		(78	)		(93	)		117		(133	)
Other costs		(41	)		—			(25	)		27		(39	)
Total		(120	)		(78	)		(327	)		353		(172	)

amounts in USD million

	Balance as of								Balance as of
	January 1								December 31,
	2003			Charge			Utilized		2003
Write-down of assets		—			(764	)		764		—
Personnel costs		(46	)		(143	)		110		(79	)
Other costs		(24	)		(35	)		18		(41	)
Total		(70	)		(942	)		892		(120	)

18

amounts in USD million

	Balance as of										Balance as of
	January 1										December 31,
	2002			Charge			Utilized		Releases		2002
Write-down of assets		—			(456	)		456		—		—
Personnel costs		(9	)		(90	)		45		8		(46	)
Other costs		(14	)		(24	)		14		—		(24	)
Total		(23	)		(570	)		515		8		(70	)

Asset write-downs for 2004 were mainly related to CPT and Comp operations whereas those for 2003 & 2002 were mainly related to CPT and CDT operations. The charge in 2004 included USD50 million with respect to the acquisition of Barayo as explained in note 29.

The movements in the restructuring provision in 2004 are presented by business segment as follows:

amounts in USD million

	Balance as of											Balance as of
	January 1,											December 31,
	2004			Addition			Charge			Utilized		2004
CPT		(68	)		(78	)		(232	)		214		(164	)
CDT		1			—			(1	)		—		—
COMP		(53	)		—			(94	)		139		(8	)
Total		(120	)		(78	)		(327	)		353		(172	)

Restructuring and impairment charges during 2004 of USD327 million are presented by business segment as follows:

amounts in USD million

	Write-down of			Personnel
	assets			costs			Other costs			Total
CPT		(130	)		(86	)		(16	)		(232	)
CDT		—			(1	)		—			(1	)
COMP		(79	)		(6	)		(9	)		(94	)
Total		(209	)		(93	)		(25	)		(327	)

The movements in the restructuring provisions in 2003 are presented by business segment as follows:

amounts in USD million

	Balance as of								Balance as of
	January 1,								December 31,
	2003			Charge			Utilized		2003
CPT		(38	)		(590	)		560		(68	)
CDT		(15	)		(199	)		215		1
COMP		(17	)		(153	)		117		(53	)
Total		(70	)		(942	)		892		(120	)

19

Restructuring and impairment charges during 2003 of USD942 million are presented by business segment as follows:

amounts in USD million

	Write-down of			Personnel
	assets			costs			Other costs			Total
CPT		(494	)		(74	)		(22	)		(590	)
CDT		(196	)		(2	)		(1	)		(199	)
COMP		(74	)		(67	)		(12	)		(153	)
Total		(764	)		(143	)		(35	)		(942	)

The movements in the restructuring provisions in 2002 are presented by business segment as follows:

amounts in USD million

	Balance as of										Balance as of
	January 21,										December 31,
	2002			Charge			Utilized		Releases		2002
CPT		(3	)		(252	)		217		—		(38	)
CDT		(4	)		(247	)		230		6		(15	)
COMP		(16	)		(71	)		68		2		(17	)
Total		(23	)		(570	)		515		8		(70	)

Restructuring and impairment charges during 2002 of USD570 million are presented by business segment as follows:

amounts in USD million

	Write-down of			Personnel
	assets			costs			Other costs			Total
CPT		(190	)		(48	)		(14	)		(252	)
CDT		(222	)		(19	)		(6	)		(247	)
COMP		(44	)		(23	)		(4	)		(71	)
Total		(456	)		(90	)		(24	)		(570	)

A number of restructuring programs were announced and charged to the statement of operations in 2004 as follows:

During 2004, The Group completed the closures of its factories in Aachen CPT (Germany), Simonstone (UK), Newport (UK) and Southport (UK) which were announced in 2003. The related restructuring charges in 2004 amounted to USD37 million.

To reduce overhead costs and improve competitiveness, the Group reduced the workforce of its Aachen Glass plant (Germany) by 20% in 2004. The restructuring charges in this respect amounted to USD10 million.

In October 2004 the Group purchased the 90% share in Barayo S.A. and Barayo Proyectos S.A. (hereinafter referred to as “Barayo”). Refer to note 29 for further information. The Group subsequently announced the closure of Barayo in February 2005.

In December 2004, the Group announced the downsizing of operations in its CRT factory in Dreux, France. The related restructuring costs are estimated at USD70 million. The downsizing is anticipated to be completed in 2005.

20

As a consequence of the above restructuring activities and the changing operating environment, the Group performed an assessment of the carrying values of its long-lived assets under FAS 144, and which resulted in the recording of impairment losses of USD159 million mainly in France and Germany, and also in the UK, North America and Korea.

The number of staff affected by the above restructuring programs in 2004 is estimated by management to be around 4,500 persons.

In January 2003, the Group announced the downsizing of operations in Sittard and Stadskanaal, both in The Netherlands. Their related restructuring costs were USD14 million and USD3 million respectively.

In April 2003, the Group announced the intention to consolidate its competence centre activities in Eindhoven (The Netherlands). The Washington site in Tyne & Wear (UK) was therefore closed, resulting in restructuring costs of USD5 million.

In May 2003, the Group announced the closure of the Newport (UK) and Southport (UK) plants, resulting in a charge of USD18 million and USD5 million respectively.

In June 2003, the Group announced the downsizing of the Blackburn (UK) plant, resulting in restructuring costs of USD11 million.

In October 2003, the Group communicated to the employees of Aachen Glass (Germany) about the downsizing of operations, resulting in a charge of USD7 million.

In December 2003, the Group announced the closure of Aachen CPT (Germany) and Simonstone Glass (UK), resulting in a charge of USD207 million.

In addition to the above, other restructuring costs of USD56 million were incurred at other locations. Furthermore, the Group assessed the carrying values of long-lived assets and recorded impairment losses of USD616 million in 2003 in Korea, South America, U.K., China, France, The Netherlands and other sites.

The number of staff affected by the restructuring programs in 2003 is estimated by management to be around 3,500 persons.

In January 2002, the Group announced its intention to discontinue all operations in the Group’s Ottawa plant by the end of 2002, resulting in restructuring, impairment and termination charges of USD145 million.

In January 2002, the Group reduced its workforce in Korea and the related employee severance costs amounted to USD5 million.

The restructuring of operations in Austria was announced in March 2002, resulting in restructuring costs of USD85 million.

Restructuring in Washington, UK was announced in April 2002, resulting in a charge of USD7 million.

In June 2002, the closure of certain operations in Aachen, Germany was announced, resulting in a charge of USD14 million.

In October 2002, the research and development workforce in The Netherlands was reduced, resulting in a charge of USD7 million.

In December 2002, the Group announced the closure of the Juarez, Mexico plant. The restructuring costs were USD9 million.

21

In addition to the above, other restructuring costs of USD31 million were incurred across other locations. Furthermore, the Group assessed the carrying values of long-lived assets and recorded impairment losses of USD267 million in 2002 in Taiwan, Korea, Spain, Netherlands, USA, UK (Newport) and other sites.

The number of staff affected by the restructuring programs in 2002 is estimated by management to be in the region of 4,900 persons.

The total amount of costs incurred during 2004, cumulative amount incurred to 2004 and expected to be incurred associated with the restructuring activities initiated after December 31, 2002 by reporting segments and by major types of costs are:

amounts in USD million

							Costs
				Cumulative			expected to
	Amount			amount			be incurred
	incurred for			incurred to			but not
	the year			date			provided for
CPT		(216	)		(741	)		(49	)
CDT		(1	)		(197	)		(3	)
COMP		(92	)		(275	)		(8	)
Total		(309	)		(1,213	)		(60	)

amounts in USD million

							Costs
				Cumulative			expected to
	Amount			amount			be incurred
	incurred for			incurred to			but not
	the year			date			provided for
Write-down of assets		(187	)		(935	)		(7	)
Personnel costs		(97	)		(224	)		(38	)
Other costs		(25	)		(54	)		(15	)
Total		(309	)		(1,213	)		(60	)

The above-mentioned activities are expected to be completed by 2005.

8. Finance income and expenses

Finance income and expenses are set out below:

amounts in USD million

	2004			2003			2002
Interest income		9			3			8
Interest expense, gross		(77	)		(86	)		(100	)
Interest capitalized		—			—			2
Interest expense (net)		(68	)		(83	)		(90	)
Impairment loss on available-for-sale securities (note 17)		—			(4	)		—
Foreign exchange (losses)/ gains		(11	)		44			(16	)
Gain on disposal of available-for-sale securities		5			—			—
Miscellaneous financing costs		(21	)		(14	)		(16	)
		(95	)		(57	)		(122	)

22

A loan facility amendment fee of USD1.85 million, was paid in May 2002 and is amortized over the remaining period of the related syndicated loan facility. In addition, an arrangement fee of USD0.2 million was incurred in respect of the issuance of the Group’s EUR200 million Floating Rate Notes (“FRN”), and which is being amortized over a period of 5 years, being the term of the FRN. During 2001, loan arrangement costs of USD35 million arose in respect of the Group’s syndicated loan facility and such costs are being amortized over the term of the revolving loan. Miscellaneous financing costs represent the amortization charge of loan arrangement fees over the respective periods of such loans.

9. Taxes

Income taxes

Net tax credit relating to continuing operations amounted to USD16 million in 2004 (2003: USD18 million, 2002: USD2 million).

Loss before taxes comprises:

amounts in USD million

	2004			2003			2002
The Netherlands		(5	)		(59	)		(303	)
Foreign		(132	)		(818	)		(224	)
		(137	)		(877	)		(527	)

Tax credit comprises:

amounts in USD million

	2004			2003			2002
The Netherlands:
Current taxes		1			1			—
Deferred taxation		—			—			3
		1			1			3
Foreign:
Current taxes		17			7			20
Deferred taxation		(34	)		(26	)		(25	)
		(17	)		(19	)		(5	)
		(16	)		(18	)		(2	)

The Group’s operations are subject to income taxes in various foreign jurisdictions with statutory income tax rates varying from 10% to 40%. The major reconciling item between the weighted average statutory income tax rate as a percentage of income before taxes and effective income tax rate is the change in valuation allowance.

The tax effects of transactions recorded as accumulated other comprehensive income (loss) within stockholders’ equity/ (deficit) are recognized on a net-of-tax basis. The tax charge relating to the deferred results on hedge transactions was not considered material. Other items affecting accumulated other comprehensive income do not have tax consequences.

23

Deferred tax

The principal components of deferred tax in the balance sheet are set out below:

amounts in USD million

	2004						2003
	Assets			Liabilities			Assets			Liabilities
Goodwill and intangible assets		7			—			77			—
Property, plant and equipment		119			(56	)		136			(16	)
Inventories		1			—			—			(2	)
Receivables		2			—			1			(1	)
Provisions:
Pensions		14			—			2			—
Restructuring		39			—			7			—
Others		3			(5	)		16			(1	)
Other assets		—			—			5			—
Other liabilities		1			(2	)		1			—
Tax credits		36			—			—			—
Tax losses		410			—			405			—
		632			(63	)		650			(20	)
Valuation allowance		(533	)		—			(618	)		—
Net deferred tax assets/ (liabilities)		99			(63	)		32			(20	)
Net deferred tax position		36			—			12			—

In assessing the realisability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies, including those undertaken in conjunction with the Group’s Parents, in making this assessment. In order to fully realize the deferred tax assets, the Group will need to generate future taxable income in the countries where the net operating losses were incurred. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Group will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2003 and 2004.

The valuation allowance for deferred tax assets as of December 31, 2004, 2003 and 2002 was USD533 million, USD618 million and USD270 million respectively. The net change in the total valuation allowance for the year ended December 31, 2004 and 2003 was a decrease of USD85 million and an increase of USD348 million, primarily representing the change in property, plant and equipment and tax losses.

The amounts have been classified in the consolidated balance sheet as follows:

amounts in USD million

	2004					2003
	Deferred		Deferred			Deferred		Deferred
	tax asset		tax liability			tax asset		tax liability
Current portion		5		(2	)		13		(4	)
Non-current portion		36		(3	)		17		(14	)
		41		(5	)		30		(18	)

24

At December 31, 2004, the Group has net operating loss and tax credit carry forwards for income tax purposes of USD1,804 million (2003: USD1,109 million) which are available to offset future taxable income.

At December 31, 2004, estimated tax loss and tax credit carry forwards are expected to expire as follows:

											2010 to
Total	2005		2006		2007		2008		2009		2024		Unlimited
1,804		166		—		—		70		77		614		877

The Group makes estimates of amounts payable for taxation based on its interpretation of the relevant tax rules and legislation, which in certain aspects is subject to interpretation and varying local practice. Management is satisfied that all material amounts payable in respect of corporate taxes, sales tax and value added tax and similar amounts where appropriate have been adequately accrued for in the financial statements.

10. Cumulative effect of a change in accounting principle

As at January 1, 2002, the Group adopted SFAS No. 142, Goodwill and Other Intangible Assets. On January 1, 2002, the Group followed the two-step approach for the goodwill transitional impairment test. In the first step of the impairment test, the Group calculated the fair value of each reporting unit and compared the amount with the carrying amount of the reporting units. Since the fair value was lower than the carrying amount, the second step of the goodwill impairment test was undertaken. An impairment loss of USD5 million was recorded as of January 1, 2002 as the cumulative effect of a change in accounting principle as a consequence of the adoption of SFAS No. 142.

11. Cash and cash equivalents

Cash balances are held in various locations throughout the world including substantial amounts held outside of The Netherlands. Although the Group intends to include cash balances from many locations as possible in a global cash pooling system, the repatriation of some foreign balances is restricted by local laws and exchange control in certain jurisdictions in respect of which cash and cash equivalents of USD67 million (2003: USD163 million) was recorded in the consolidated balance sheet. Where local restrictions prevent an efficient inter-company transfer of funds, the Group’s intention is that cash balances would remain in the foreign country and the Group would meet liquidity needs through ongoing cash flows, external borrowings or both.

At December 31, 2004, the Group has in total USD50 million deposited in a Cash Reserve Account which account was opened with the agent bank on behalf of the bank syndicate of the USD2,000 million syndicated loan facility and has been pledged to the agent bank. The cash balance standing to the credit of this account can only be applied towards debt repayment or prepayment and interest payment according to the requirements set forth in the Restructuring Agreement and is therefore restricted. Accordingly, this is included in non-current assets.

25

12. Accounts receivable

Accounts receivable includes trade and notes receivable from sales of goods and services to customers and is net of an allowance for doubtful accounts.

The changes in the allowance for doubtful accounts are as follows:

amounts in USD million

	2004			2003			2002
Balance as of January 1		9			27			24
Charge during year		9			16			24
Write-offs charged against the allowance		(5	)		(34	)		(21	)
Balance as of December 31,		13			9			27

13. Inventories

Inventories comprise:

amounts in USD million

	2004			2003
Raw materials and supplies		115			128
Work in progress		35			54
Finished goods		105			129
		255			311
Less: Provision for obsolescence		(23	)		(22	)
Total		232			289

14. Related party transactions

In addition to those disclosed elsewhere in these financial statements, the following sets out material related party transactions between the Group and related parties:

amounts in USD million

	2004									2003						2002
	LGE			Philips			Anfei			LGE			Philips			LGE			Philips
Sales		893			905			3			855			836			856			966
Purchases		400			32			50			507			48			530			41
Amount due (to)/ from LGE, Philips and Anfei at December 31,
Amount due to		(52	)		(14	)		(9	)		(77	)		(9	)		(27	)		(35	)
Amount due from		94			85			1			97			94			129			149

In the opinion of management, the above material transactions have been entered into by the Group in the normal course of its business.

26

As of July 14, 2004, both LGE and Philips contributed cash as additional equity investment in the Group in the amount of USD250 million each. As part of the restructuring of the Company’s syndicated loan, the then existing guarantees for an amount of USD200 million from each parent as security for the Company’s syndicated loan were released and replaced by a guarantee of USD50 million from each parent for the payment obligations in relation to the restructured syndicated loan. In addition, LGE and Philips repaid an amount of USD50 million each towards normal trade receivables prior to January 7, 2004 and have agreed as of July 14, 2004 to continue their repayments so as to maintain at the last day of each quarter this working capital reduction for the Group in an amount not less than USD50 million each.

In 2003, the Group sold its interest in LG.Philips Displays Austria to Philips. The sales proceeds reflected in the financial statements amounted to USD21 million. The result for the year ended December 31, 2003 included the gain on this disposal of this interest for USD24 million. As part of the sale, the Group had provided certain guarantees to indemnify Philips for third party claims for any liabilities, obligations, contingent liabilities or any other risks by the Group’s Austrian operations during the period when the Group controlled these operations. This guarantee shall not exceed in aggregate a maximum amount of Euro 5 million, except for risks of product liability, where no maximum amount will apply.

At the end of 2003, LG.Philips Displays Wales signed a real estate sales contract with LGE. LGE had paid USD13 million deposit to the Group in December 2003. The gain of the real estate sales amounted to USD16 million and was recognized in 2004 as the legal title had been transferred from the Group to LGE.

In December 2003 and January 2004, the Group received from Philips and LGE an amount of USD0.5 million each which completed the disposal of 2% of the shares of LG.Philips Displays Brazil to LGE and Philips, making LGE and Philips each a 1% shareholder of LG.Philips Displays Brazil.

In March 2004, the Group made the balance payments in respect of an investment in Henan Anfei Electronic Glass Company Limited (“Anfei”) amounting to USD19.4 million, which completed the acquisition of a 34% interest in Anfei.

The Group has various operating businesses in the United Kingdom, which are part of a legal branch of LG.Philips Displays Netherlands BV (“LPDN”). The UK operations have been loss making and management is satisfied that current year tax losses are available for carry forward and consortium relief. LPDN and Philips Electronics UK (“PEUK”) have entered into a Compensation Agreement for Tax Losses (“the Agreement”) whereby PEUK will pay LPDN for the benefit of current year tax losses it can utilize under consortium relief provisions. The availability and utilization of the losses is dependant on such consortium relief loss surrenders being in compliance with UK and European Union legislation, which is expected to be tested by the UK Inland Revenue authority, but the management is confident it should prevail as confirmed by positive legal advice from a Queen’s Counsel in the UK. Under the Agreement, payment is made by PEUK to LPDN for 50% of LPDN’s UK losses on the basis of estimated tax losses available for surrender. The tax benefit is shared 50/50 between PEUK and LPDN. Consequently, LPDN receives GBP7.5 per GBP100 of current year tax losses as the current tax rate in the UK is 30%. During 2004, LPDN had received GBP4 million (2003: GBP6 million, 2002: Nil) (2004: USD8 million, 2003: USD10 million, 2002: Nil) from PEUK for the transfer of LPDN’s UK tax losses (for 2003 and 2004). These amounts would be repayable to PEUK should the consortium relief claims be held to be invalid.

Results for the year ended December 31, 2002 included fire insurance claimed from LGE of USD40.5 million, the sales of intellectual property to Philips of USD20 million, quality rebates from LGE of USD3 million, R&D service provided to LGE of USD5 million and income of USD3 million from LGE relating to divestment of ‘Fly Back Transformer’ business.

Both LGE and Philips have provided certain indemnities for various items including certain litigation matters and also pre-formation liabilities such as certain tax liabilities and environmental liabilities that may come to light in respect of events or conditions relating to periods prior to June 30, 2001.

27

Additionally, the Group has service level agreements with both LGE and Philips. The Group makes payment to LGE and Philips pursuant to service level agreements, and services provided by LGE and Philips are charged on a cost plus basis and vice versa where the Group provides services to LGE and Philips.

15. Other current assets

Other current assets primarily consist of prepaid expenses.

16. Investment in unconsolidated companies

In March 2004, the Group made the balance payments in respect of an investment in Henan Anfei Electronic Glass Company Limited (“Anfei”) amounting to USD19.4 million.

With this further equity injection, and the receipt of the business license, the Group has increased its equity investment to USD22 million representing a shareholding of 34%. The Group has adopted the equity method of accounting in respect of this investment. Included in investment is USD6 million, representing the excess of the Group’s investment over its underlying equity in the net assets of the unconsolidated company.

At December 31, 2003, Anfei was still awaiting the grant of the final business licence from the Chinese Government, and accordingly, the USD3.4 million initial investment was accounted for as an investment deposit in Anfei. As the Group did not have a majority controlling interest and was also not able to exercise significant influence over Anfei as of December 31, 2003, the investment was recorded at cost in the Group’s consolidated balance sheet.

The changes during 2004 are as follows:

amounts in USD million

	Investments
Balance as of January 1, 2004		3
Acquisitions/ additions		19
Share of loss		(2	)
Translation differences		1
Balance as of December 31, 2004		21

The results related to unconsolidated companies shown in Statement of Operations also included the share of loss of other unconsolidated companies of USD3 million, which were subsequently acquired by the Group to become its subsidiaries during 2004, as explained in note 29.

17. Other non-current financial assets

During 2003, the Group invested in a bond issued by LG Card amounting to USD17 million. This investment was classified as an available-for-sale security. LG Card was undergoing financial difficulties and restructuring in 2003 and in light of those circumstances, an other-than-temporary impairment charge of USD4 million was recorded against this investment to write the investment down to its fair value. During 2004, this investment was disposed of for USD18 million.

18. Other non-current assets

Included in other non-current assets in 2004 are mainly rental and utility deposits whereas those in 2003 were mainly amounts receivable of USD11.6 million, net of allowance of USD2.5 million from a former group company that was sold during 2003.

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19. Property, plant and equipment

amounts in USD million

							Land and
							Buildings
				Land and			(held for					Other			Construction
COST	Total			Buildings			sale)		Machinery			equipment			in progress
Balance as of January 1, 2004		3,298			748			—		2,301			145			104
Additions		137			9			—		37			11			80
Acquisition		72			—			72		—			—			—
Transfer and reclassification		—			9			—		50			(4	)		(55	)
Disposals and write-offs		(543	)		(43	)		—		(474	)		(26	)		—
Translation differences	131			29			—		94			5			3
		(203	)		4			72		(293	)		(14	)		28
Balance as of December 31, 2004		3,095			752			72		2,008			131			132

							Land and
							Buildings
				Land and			(held for					Other			Construction
ACCUMULATED DEPRECIATION AND IMPAIRMENT	Total			Buildings			sale)		Machinery			equipment			in progress
Balance as of January 1, 2004		(1,574	)		(221	)		—		(1,226	)		(73	)		(54	)
Depreciation charged for the year		(222	)		(32	)		—		(167	)		(23	)		—
Impairments		(159	)		(22	)		—		(119	)		(17	)		(1	)
Disposals and write-offs		518			30			—		462			26			—
Translation differences		(67	)		(6	)		—		(55	)		(6	)		—
		70			(30	)		—		121			(20	)		(1	)
Balance as of December 31, 2004		(1,504	)		(251	)		—		(1,105	)		(93	)		(55	)
Net book value at December 31, 2004		1,591			501			72		903			38			77
Net book value at December 31, 2003		1,724			527			—		1,075			72			50

In 2004, the Group entered into a land sale agreement with a real estate company in Spain. The carrying value of the land has been classified as held for sale. The land sale transaction is expected to be consummated by 2005. Such land held for sale is reported under the CPT product segment.

Land (with a book value of USD103 million) is not depreciated.

In view of the declining CRT market, price erosion and keen competition from LCD and plasma technologies, the Group recorded impairment charges of USD159 million in respect of its property, plant and equipment (see note 7).

No interest was capitalized during the year ended December 31, 2004 (2003: Nil, 2002: USD2 million).

29

20. Leases

The Group has non-cancellable operating leases, primarily for computer equipment, that expire within the next year. These leases generally contain renewal options for periods ranging from three to five years. The Group’s operating leases also include non-cancellable operating leases for property, which expire over periods ranging from 6 months to 7 years.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2004 are:

amounts in USD million

Year ending December 31
2005	13
2006	6
2007	5
2008	3
2009	3
After 5 years	4
Total minimum leases payments	34

Operating lease expenses amounted to USD19.7 million in 2004 (2003: USD29.9 million, 2002: USD28.0 million).

21. Goodwill and intangible assets

amounts in USD million

										Other
COST	Total			Goodwill			Software			intangibles
Balance as of January 1, 2004		450			364			17			69
Additions		3			—			3			—
Translation differences		2			—			1			1
		5			—			4			1
Balance as of December 31, 2004		455			364			21			70
ACCUMULATED AMORTIZATION AND IMPAIRMENT
Balance as of January 1, 2004		(160	)		(130	)		(9	)		(21	)
Amortization		(11	)		—			(3	)		(8	)
Translation differences		(2	)		—			(1	)		(1	)
		(13	)		—			(4	)		(9	)
Balance as of December 31, 2004		(173	)		(130	)		(13	)		(30	)
Net book value at December 31, 2004		282			234			8			40
Net book value at December 31, 2003		290			234			8			48

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Goodwill assigned to products segment

amounts in USD million

	Balance as
	of January 1,
	2004		Impairment		Total
CPT		234		—		234
CDT		—		—		—
COMP		—		—		—
Total		234		—		234

amounts in USD million

	Balance as
	of January 1,
	2003		Impairment			Total
CPT		234		—			234
CDT		89		(89	)		—
COMP		—		—			—
Total		323		(89	)		234

The Group evaluates goodwill on an annual basis as of the fourth quarter, and whenever events and changes in circumstances indicate that there may be a potential impairment. Future goodwill impairment tests could result in further charges to earnings.

Amortizing intangible assets

At December 31, 2004, amortizing intangible assets consisted of:

amounts in USD million

			Weighted average
	Gross carrying		amortization period		Accumulated
	amount		(years)		amortization
Acquired intangible assets
Software		21		3		(13	)
Intellectual property rights		58		10		(21	)
Technology-based		10		5		(7	)
Other intangible assets		2		5		(2	)
		91		7.27		(43	)

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At December 31, 2003, amortizing intangible assets consisted of:

amounts in USD million

			Weighted average
	Gross carrying		amortization period		Accumulated
	amount		(years)		amortization
Acquired intangible assets
Software		17		3		(9	)
Intellectual property rights		57		10		(14	)
Technology-based		10		5		(5	)
Other intangible assets		2		5		(2	)
		86		7.27		(30	)

Amortization expense related to amortizing intangible assets was USD11 million for the year ended December 31, 2004 (2003: USD16 million; 2002: USD11 million).

The estimated amortization expenses for these amortizing intangible assets for each of the five succeeding years are:

amounts in USD million

2005	12
2006	9
2007	7
2008	6
2009	6

22. Provisions and other liabilities

Provisions comprise:

amounts in USD million

	2004				2003
	Current		Non current		Current		Non current
	portion		portion		portion		portion
Pensions		—		9		—		7
Other post-retirement benefits		2		39		1		38
Restructuring		168		4		110		10
Jubilee		2		2		1		4
Obligatory severance payment		2		32		7		25
Warranty		4		12		5		5
Other liabilities		158		5		187		2
		336		103		311		91

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Other liabilities are summarized as follows:

amounts in USD million

	2004				2003
	Current		Non current		Current		Non current
	portion		portion		portion		portion
Personnel related costs
Salaries and wages		29		—		25		—
Accrued holiday entitlements		13		—		12		—
Other personnel-related costs		12		—		13		—
Deferred income		24		—		21		—
Fixed assets related costs (Gas, water, electricity, rent and other)		17		—		15		—
Distribution costs		9		—		9		—
Material related costs		8		—		5		—
Sales related costs		2		—		2		—
Interest related accruals		1		—		15		—
Derivative instruments — liabilities		—		—		31		—
Other accrued liabilities		43		5		39		2
		158		5		187		2

The provision for warranty reflects the estimated costs of replacement and free-of-charge services that will be incurred by the Group with respect to products sold. The changes in the provision for warranty are as follows:

amounts in USD million

	2004			2003			2002
Balance as of January 1		10			9			7
Additions		16			10			6
Utilizations		(11	)		(10	)		(1	)
Releases		—			—			(4	)
Translation differences		1			1			1
Balance as of December 31		16			10			9

23. Long-term and short-term debt

Long-term debt in multi-currencies comprise:

amounts in USD million

							Amount					Amount
							outstanding at					outstanding at
	Range of			Average rate			December 31,			Years of		December 31,
	interest rates			of interest			2004			maturity		2003
Long-term bank loans		2.72 - 7.83	%		4.43	%		928			2 to 4 years		226
Other		2.50 - 4.79	%		4.66	%		289			2 to 10 years		267
								1,217					493
Less: current portion								(140	)				(50	)
								1,077					443

In July 2002, a private placement of EUR200 million Floating Rate Note (“FRN”) due 2007 was made. These notes were issued by a wholly owned subsidiary, LG.Philips Displays Finance LLC, at par and carry

33

a coupon rate of 2.625% per annum over the six months Euribor rate. The notes are unsecured and are listed on the Luxembourg Stock Exchange, and are guaranteed by LG.Philips Displays Holding B.V. The proceeds from the FRN issue were primarily used to fund the general working capital and restructuring projects undertaken in the Group.

Based on the loan agreements, at December 31, 2004, the long-term debt is expected to be repaid as follows in the coming five years:

amounts in USD million

Year ending December 31
2005	140
2006	188
2007	445
2008	162
2009	132
Thereafter	150
	1,217

The Restructuring Agreement provides the bank syndicate an enhanced security package. Various Security Interests which have been granted in favor of the agent bank of the syndicated loan facility include, among others:

1.	charge over the Mandatory Prepayment Account, Cash Reserve Account and Escrow Account with the total outstanding balance of USD50 million as of December 31, 2004;
2.	charge over Intellectual Property;
3.	pledge of shares of certain LG.Philips Displays companies;
4.	pledge of inter-company receivables of LG.Philips Displays Holding B.V. which the 2004 year-end balance was USD2,408 million;
5.	pledge of real property and assets in the Netherlands, Czech, Korea, Brazil, France, Mexico and USA which the total book value was USD888 million as of December 31, 2004.

Equipment with a carrying value of USD59 million as of December 31, 2004 (2003: USD50 million) in a subsidiary in the People’s Republic of China (“PRC”) has been pledged as security in respect of a portion of the long-term bank loans in the amount of USD30 million (2003: USD60 million).

Short-term debt comprises:

amounts in USD million

	2004		2003
Bank loans		60		1,604
Portion of long-term debt included under current-liabilities		140		50
		200		1,654

During 2004, the weighted average interest rate on short-term bank borrowings was 3.56% (2003: 2.83%).

At December 31, 2003, the Group was in breach of certain covenants in respect of the Group’s USD2,000 million syndicated loan facility. As set out in note 3, on July 14, 2004, the Group successfully completed the restructuring of the amounts outstanding under the syndicated loan agreement.

34

A set of new financial covenants was set up in the Restructuring Agreement based on the Group’s revised long-term projections. 14 Subsidiaries of LG.Philips Displays Holding B.V. are guarantors for the syndicated loan facility. The Restructuring Agreement also includes various monitoring, reporting and enforcing mechanisms to ensure the full protection of lenders’ rights under the syndicated loan facility. Upon the occurrence of an event of default, the lenders can choose to declare the outstanding syndicated loan immediately due and payable and exercise their rights under various security agreements with the Group.

The Group has opened a Mandatory Prepayment Account, Cash Reserve Account and Escrow Account with the agent bank of the bank syndicate and pledged them to the agent bank for debt service purpose. The proceeds from certain asset disposals, certain new (long term) debt financings, among others, etc. as well as the excess cash over USD130 million from the annual ending cash balance of the Group except subsidiaries in the PRC and Barcelona shall be deposited to the Mandatory Prepayment Account. If the outstanding credit balance of the Mandatory Prepayment Account is above USD5 million at the end of any interest period, the agent bank shall apply the balance for the syndicated loan prepayment according to the procedures set forth in the Restructuring Agreement. The Group is not allowed to withdraw proceeds from these accounts for any purpose other than debt service.

Property, plant and equipment with a carrying value of USD82 million as of December 31, 2004 (2003: USD67 million) in a subsidiary in the PRC comprising buildings, land use rights and equipment have been pledged as security in respect of a portion of short-term bank loans in the amount of USD42 million (2003: USD76 million).

At December 31, 2004, LG.Philips Displays Holding B.V. guarantees USD30 million shot-term loans borrowed by one subsidiary in the PRC in favor of the Korea Development Bank.

Accounts receivable with a carrying amount of USD9 million as of December 31, 2004 (2003: USD39 million) has been pledged as security in respect of USD9 million receivable discounting on recourse basis (2003: USD39 million).

At the end of 2004, the Group has approximately USD256 million available and unused short-term uncommitted loan facilities in China and Korea. The Group is not paying any commitment fee for these unused loan facilities.

24. Pensions and other post-retirement benefits

(a)	Defined benefit pension plans
	Operations of the Group located in Brazil, Germany and Taiwan have defined benefit pension plans covering certain qualified employees. The assets of the plans are held separately from those of the Group. The Group contributes, as necessary, an amount determined by reference to actuarial valuations. Pension costs in respect of defined-benefit pension plans primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets.
(b)	Multi-employer pension plans
	Certain employees of operations of the Group located in the Netherlands, the United States of America, the United Kingdom (excluding operations in Wales), Austria and France participate jointly with employees of Philips in the defined benefit pension plans established in the relevant jurisdictions by Philips (the “multi-employer pension plans”) pursuant to the service level agreements between the Group and Philips. Under the pension plan arrangements, pension plan assets in respect of the Group’s employees are not segregated from those in respect of Philips’ employees and the plans are accounted for as multi-employer plans. The amounts of pension contributions made by the Group are determined by reference to Philips consulting actuaries. Pension contributions paid and due for the year are charged to the statement of operations as pension costs.

35

(c)	Defined contribution pension arrangements
	Defined contribution pension plans covering qualified employees are in place for operations of the Group located in Hong Kong, China, Korea, Slovakia, Czech Republic and Singapore. Pension contributions are determined based on either specific rates set out in the rules of the relevant pension plans or local regulatory requirements. The amount of pension contributions paid and due for the year are charged to the statement of operations as pension costs.
(d)	Defined benefit post-retirement plans
	The Group offers defined benefit post-retirement plans in United States of America and Brazil to provide benefits for retirees and eligible dependents. Certain employees may become eligible for such postretirement benefits upon reaching retirement age. Contributions made by the Group are determined by reference to independent actuarial valuations. The net periodic costs are recognized as employees render the services necessary to earn the post-retirement benefits.
(e)	Other post-employment benefits plans
	In certain jurisdictions the Group also offers post-employment benefits or severance plans to eligible employees upon voluntary terminations. The amount of benefits is determined based on the Group’s employee benefits policies in the relevant locations and is generally based on the employees’ years of service with the Group. The costs of such benefits are accrued and charged to the statement of operations in the year when employees of these locations become eligible.

The measurement date for most defined benefit plans is December 31.

Provided below is a table with a summary of the changes in the pension benefit obligations and defined pension plan assets for 2004 and 2003, and a reconciliation of the funded status of these plans to the amounts recognized in the consolidated balance sheets.

Also provided below is a table with a summary of the changes in the accumulated postretirement benefit obligations and plan assets for 2004 and 2003, and a reconciliation of the obligations to the amounts recognized in the consolidated balance sheets.

36

amounts in USD million

	2004			2003		2004			2003
Benefit obligation	Pension benefits					Postretirement benefits
Benefit obligation as of January 1,		41.9			29.1		46.4			37.4
Service cost		0.4			0.6		0.2			0.3
Interest cost		5.2			3.6		3.8			3.4
Actuarial loss		3.4			1.5		13.4			4.5
Benefit paid		(3.4	)		—		(3.1	)		(1.2	)
Exchange rate differences		3.8			7.1		1.5			2.0
Benefit obligation as of December 31		51.3			41.9		62.2			46.4

amounts in USD million

	2004			2003			2004			2003
Plan assets	Pension benefits						Postretirement benefits
Fair value of plan assets as of January 1,		39.7			26.8			—			—
Actual return on plan assets		6.4			5.7			—			—
Employee contributions		—			0.1			—			—
Employer contributions		0.5			0.4			—			—
Benefit paid		(3.4	)
Exchange rate differences		3.5			6.7			—			—
Fair value of plan assets as of December 31,		46.7			39.7			—			—
Funded status		(4.5	)		(2.2	)		(62.2	)		(46.4	)
Unrecognized prior service cost		0.3			0.4			0.3			0.3
Unrecognized net (gain) loss		—			(2.0	)		21.1			7.4
Net balance		(4.2	)		(3.8	)		(40.8	)		(38.7	)
Classification of the net balances is as follows:
- Prepaid pension costs under non-current receivable		4.9			3.2			—			—
- Provisions for pensions under provisions		(9.1	)		(7.0	)		(40.8	)		(38.7	)
		(4.2	)		(3.8	)		(40.8	)		(38.7	)

Information for pension plans with accumulated benefit obligation in excess of plan assets

amounts in USD million

	2004		2003
Projected benefit obligation		9.1		7.0
Accumulated benefit obligation		8.8		6.1
Fair value of plan assets		—		—

Total accumulated benefit obligation for pension benefits was USD50.0 million as of December 31, 2004 (2003: USD40.1 million).

37

The components of net periodic pension costs of major defined-benefit and post-retirement plans were as follows:

	2004			2003			2002			2004		2003		2002
	Pension benefits									Post-retirement benefits
Service cost-benefits earned during the period		0.4			0.6			0.6			0.2		0.3		0.3
Interest cost on the projected benefit obligation		5.2			3.6			3.8			3.8		3.4		3.1
Expected return on plan assets		(6.0	)		(3.7	)		(4.5	)		—		—		—
Net actuarial loss recognized		—			0.7			—			0.4		0.3		—
Other		0.1			0.1			3.1			—		0.1		—
Net periodic pension cost		(0.3	)		1.3			3.0			4.4		4.1		3.4

The Group used the following assumptions, calculated based on weighted average, to measure the benefit obligations at December 31 as follows:

	2004			2003			2004			2003
	Pension benefits						Post-retirement benefits
Discount rate		10.7	%		12.0	%		7.6	%		7.5	%
Rate of compensation increase		5.8	%		6.7	%		1.9	%		1.5	%

The Group used the following assumptions, calculated based on weighted average, to measure the net periodic benefit cost for years ended December 31 as follows:

	2004			2003			2004			2003
	Pension benefits						Post-retirement benefits
Discount rate		12.0	%		10.9	%		7.5	%		7.9	%
Rate of compensation increase		6.7	%		5.4	%		1.5	%		1.4	%
Expected long-term return on plan assets		14.5	%		12.8	%		—			—

Assumed healthcare cost trend rates at December 31:

	2004			2003
Healthcare cost trend rate assumed for next year		7.7	%		9.6	%
Rate that the cost trend rate will gradually reach		6.0	%		6.0	%
Year that the rate reaches the rate it is assumed to remain at		2008			2008

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:

	1-		1-
	Percentage-		Percentage-
	Point		Point
	Increase		Decrease
Effect on total of service and interest cost		0.9		(0.7	)
Effect on post-retirement benefit obligation		8.9		(7.8	)

The Group also sponsors defined-contribution and similar-type plans for a significant number of salaried employees. The total cost of these plans amounted to USD5.7 million (2003: USD4.6 million; 2002: USD0.7 million). The contributions to the multi-employer plans amounted to USD14.6 million in 2004 (2003: USD14.2 million; 2002: USD11.0 million) .

38

As of December 31, 2004, the following benefit payments, which reflect expected future services, as appropriate, are expected to be paid:

			Post-
	Pension		retirement
	benefits		benefits
2005		3.6		3.6
2006		3.9		3.8
2007		4.2		4.0
2008		4.4		4.3
2009		4.7		4.6
Thereafter		26.8		23.1
		47.6		43.4

Contributions expected to be paid to the pension benefits plan during the next fiscal year are USD0.5 million.

The investment strategy for the plan assets (based on the Investment Policy Statement) in general is annually determined by the Administrative Committee and approved by the Board of Directors of the pension fund. The investment policy sets out the target strategic allocations for each asset class considered, the ranges for tactical asset allocation, risks budgets, and other investment guidelines for the investment manager, such as benchmarks and target credit ratings.

The pension fund invests in the local equity and fixed income markets, as well as the commercial real estate market. Derivatives are used to achieve exposure to certain less liquid assets that would otherwise be difficult to negotiate. Additionally, they are used to effect quick changes in tactical asset allocation and duration, and may also be used to limit the plan’s exposure to interest rate risk and currency exchange risk on investments. In order to keep the fund’s investment strategy in balance with the structure of its pension benefit obligation, asset-liability reviews are carried out periodically. The structure of the pension benefit obligation, expectations and scenarios with regard to the long-term rate of return on assets, acceptable ranges for contributions and risk parameters are the input for these reviews.

The expected long-term rates of return on assets are based on scenario analysis of the development of the global economy and consequently the development of financial markets.

The Group’s pension plan asset allocation at December 31, 2004 and November 30, 2003 and target allocation 2005 is as follows:

	Target
	allocation
	2005			2004			2003
Asset category
Equity securities		3	%		5	%		4	%
Debt securities		70	%		64	%		66	%
Real estate		24	%		28	%		27	%
Other		3	%		3	%		3	%
		100	%		100	%		100	%

39

25. Disposal of subsidiaries

During 2003, the group disposed certain interests of its subsidiaries for USD21 million, satisfied in cash.

amounts in USD million

	2003
Net assets disposed
Accounts receivable		(4	)
Inventories		(18	)
Other current assets		(11	)
Property, plant and equipment		(2	)
Accounts payable		6
Other provisions and liabilities		23
Other non-current liabilities		21
Net identifiable liabilities		15
Total proceeds received, satisfied in cash		21
Gain in respect of the disposal of subsidiaries		36

26. Financial instruments and risks

The Group runs a global business. Hence, it is exposed to global market risks, including currency risk, interest rate risk, commodity risk and credit risk.

The Group does not purchase or hold derivative financial instruments for trading purposes.

Currency risk

The Group’s functional currency is the US dollar. The Group has a significant proportion of its revenues and costs denominated in Euros, Pound Sterling, Chinese Yuan and Korean Won as it has substantial presence in terms of sales, production, administration and design and engineering in Europe, China and Korea. Consequently, fluctuations in Euros, Pound Sterling, Chinese Yuan and Korean Won against the US dollar can have a material impact on the Group’s financial results.

The Group is exposed to currency risks in the following areas: -

• Transaction exposure arising from transactions denominated in currencies other than the Group’s functional currency, such as existing and forecast sales and purchases, and account receivables and payables;

• Translation exposures of non-functional-currency-denominated debt of the Group;

• Translation exposures of non-functional-currency-denominated intercompany loans to the its subsidiaries; and

• Translation exposures of non-functional-currency-denominated equity investments.

The Group has adopted the following Risk Management Policy: -

Hedging is allowed for transaction exposures denominated in currencies other than the functional currencies of the local organizations. Local treasury managers and/or financial controllers are responsible for identifying, measuring and arranging hedges for the foreign currency exposures arising from material transactions. Forwards are allowed to be used to hedge committed and anticipated foreign currency exposures. Generally the maximum tenor of the hedges is less than 12 months.

The Group does not hedge the foreign currency exposures arising from translation exposures.

The Group does not hedge the foreign currency exposures arising from non-functional-currency-denominated equity investments.

Interest rate risk

40

At December 31, 2004, the Group had USD1,092 million of external floating debt. The Group has not employed any hedges for the floating debt and there were no outstanding interest rate swaps at year-end 2004.

Commodity price risk

The Group purchases certain base metal (such as copper) and precious metal. To mitigate the commodity price risks, the Group employs derivatives to hedge such risks. The commodity price derivatives are entered into as cash flow hedges to offset forecast purchases. There were no commodity derivative contracts outstanding at year-end 2004.

Credit risks

The Group encounters credit exposure to its customers with respect to the receivables and the financial institutions with respect to derivative financial instruments, borrowing and cash deposits. The Group did not experience any significant loss arising from payment failure by its customers as the Group performs ongoing credit evaluations of the financial conditions of its customers. As of December 31, 2004, the Group had credit risks, based on the gross fair value of the financial transactions, exceeding USD10 million to the following number of counterparties.

	USD10 - 25 million		> USD25 million
AA rated bank counterparties		1		1
A rated bank counterparties		—		2
Lower rated bank counterparties		3		3

To protect both the financial institutions and the Group, it is the Group’s policy to execute an ISDA (International Swap Dealers Association) master agreement prior to entering any derivatives with the financial institutions. Wherever possible, cash is placed in financial institutions with strong credit ratings.

41

Fair value of financial assets and liabilities

The estimated fair value of financial instruments has been determined by the Group using available market information and appropriate valuation methods. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short maturities. The fair value of the derivative instruments and financial assets is based on their estimated market price. The carrying amount of debts approximates their fair value as the debts are predominantly floating rate or short-term.

Amount in USD million

	December 31, 2004						December 31, 2003
	Carrying			Estimated			Carrying			Estimated
	Amount			fair value			Amount			fair value
Assets:
Cash and cash equivalents		113			113			322			322
Accounts receivable		389			389			445			445
Pledged deposits		50			50			—			—
Other financial assets		—			—			13			13
Liabilities:
Accounts payable		(677	)		(677	)		(674	)		(674	)
Debt		(1,277	)		(1,277	)		(2,097	)		(2,097	)
Derivative instruments		—			—			(31	)		(31	)

27. Commitments & Contingencies

Litigation

The Group is subject to various ongoing and pending lawsuits and claims at December 31, 2004 that management believes to be insignificant. The Group intends to vigorously contest the liability in all such matters brought against the Group. While no assurance can be given as to the ultimate outcome of such lawsuits, the directors are of the opinion that such litigation will not have a material adverse effect on the results of operations or the financial position of the Group.

28. Subsequent events

On March 2, 2005, the Group announced the closure of its Durham (UK) plant due to heavy price erosion and drop in demand for medium sized tubes. The factory is expected to cease operations by end of July 2005. The related closure costs will amount to approximately USD43 million and the closure will be completed in 2005.

On March 24, 2005, the Chinese authorities approved the merger of Hua Fei Colour Display Systems Co., Ltd. and Nanjing Huapu Electronics Co., Ltd., which companies are both for 55% owned by the Group. The merger is expected to be completed in 2005 and will not change the Group’s shareholding interest.

29. Acquisition of subsidiaries

During 2004, the Group acquired the remaining 90% shareholding in Barayo from Business Creation Industries B.V. (“BC”) subject to certain conditions. These conditions were satisfied and the purchase was consummated on October 19, 2004, on which date the Group became the sole shareholder (100%) of Barayo. Thus, the Group has consolidated Barayo’s results from October 19, 2004.

42

The excess of the consideration over the fair value of the assets and liabilities assumed, amounting to USD50 million, was expensed as the Group has committed and intends to close the operations of Barayo. As the Group had previously held a 10% shareholding in Barayo, the Group retroactively consolidated 10% of Barayo’s results in 2003 and 2004 until the acquisition date by accounting for the Group’s 10% of the shareholding in Barayo according to the equity method, following provision of ARB 51. As a result thereof, the Group recorded a loss of EUR2 million (equivalent to USD3 million) and EUR3 million (equivalent to USD3 million) in the Consolidated Statement of Operations for the year 2004 and consolidated retained earnings, respectively.

On February 3, 2005, the Group announced the closure of its Barayo plant in Spain. The number of employees affected is around 360.

43

30. Summary of Operating Segments

The Group’s business units have been segregated and internally reported by management into three major reportable segments comprising CPT, CDT, and Comp. Its CPT segment for television sets and CDT segment for computer monitors serve global customers from various regions. The components segment includes Glass, Deflection Yoke, Electron Gun and Yoke Rings.

Product Segment

amounts in USD million

	For the year ended December 31, 2004
													Corporate
	Total			CPT			CDT			COMP			and other
Total sales including internal sales		4,673			2,870			1,027			776			—
Internal sales		(626	)		—			—			(626	)		—
Net total sales to third parties		4,047			2,870			1,027			150			—
% of net third parties’ sales		100	%		70.9	%		25.4	%		3.7	%		—
(Loss)/ profit from operations		(42	)		(75	)		109			(52	)		(24	)(1)
% of net third parties’ sales		–1.0	%		–2.6	%		10.6	%		–34.7	%
Capital expenditure		137			91			14			32			—
Long-lived assets		1,873			1,409			304			160			—
Total assets		2,991			2,000			489			275			227	(1)

amounts in USD million

	For the year ended December 31, 2003
													Corporate
	Total			CPT			CDT			COMP			and other
Total sales including internal sales		4,705			2,862			969			874			—
Internal sales		(739	)		—			—			(739	)		—
Net total sales to third parties		3,966			2,862			969			135			—
% of net third parties’ sales		100	%		72.2	%		24.4	%		3.4	%		—
(Loss)/ profit from operations		(820	)		(498	)		(168	)		(166	)		12	(1)
% of net third parties’ sales		–20.7	%		–17.4	%		–17.3	%		–123.0	%
Capital expenditure		208			105			20			83			—
Long-lived assets		2,014			1,425			341			248			—
Total assets		3,422			1,995			588			414			425	(1)

44

amounts in USD million

	For the year ended December 31, 2002
													Corporate
	Total			CPT			CDT			COMP			and other
Total sales including internal sales		5,393			2,999			1,201			1,193			—
Internal sales		(991	)		—			—			(991	)		—
Net total sales to third parties		4,402			2,999			1,201			202			—
% of net third parties’ sales		100	%		68.1	%		27.3	%		4.6	%		—
(Loss)/ profit from operations		(405	)		(165	)		(223	)		(40	)		23	(1)
% of net third parties’ sales		–9.2	%		–5.5	%		–18.6	%		–19.8	%		—
Capital expenditure		442			295			97			50			—
Long-lived assets		2,843			1,897			602			344			—
Total assets		4,349			2,621			827			701			200	(1)

(1) Unallocated income/ (loss) includes general and administrative expenses in the corporate office and research centres as well as net general service fee recovered from product segments, net of amounts incurred. Unallocated total assets primarily relate to cash.

Geographical Area

amounts in USD million

	For the year ended December 31, 2004
	Total			Netherlands			China			Korea			America			Brazil			Others
Total sales including internal sales		6,034			1,031			1,366			1,405			376			532			1,324
Internal sales		(1,987	)		(74	)		(183	)		(290	)		(55	)		(280	)		(1,105	)
Net total sales to third parties		4,047			957			1,183			1,115			321			252			219
% of net third parties’ sales		100	%		23.7	%		29.2	%		27.6	%		7.9	%		6.2	%		5.4	%
Long-lived assets		1,873			4			632			509			8			108			612
Total assets		2,991			191			1,073			695			66			175			791

45

amounts in USD million

	For the year ended December 31, 2003
	Total			Netherlands			China			Korea			America			Brazil			Others
Total sales including internal sales		5,874			888			1,351			1,304			310			415			1,606
Internal sales		(1,908	)		(90	)		(170	)		(269	)		(21	)		(252	)		(1,106	)
Net total sales to third parties		3,966			798			1,181			1,035			289			163			500
% of net third parties’ sales		100	%		20.1	%		29.8	%		26.1	%		7.3	%		4.1	%		12.6	%
Long-lived assets		2,014			21			702			536			18			120			617
Total assets		3,422			319			1,125			840			85			172			881

amounts in USD million

	For the year ended December 31, 2002
	Total			Netherlands			China			Korea			America			Brazil			Others
Total sales including internal sales		6,592			744			1,138			1,604			460			362			2,284
Internal sales		(2,190	)		(276	)		(167	)		(441	)		(41	)		(179	)		(1,086	)
Net total sales to third parties		4,402			468			971			1,163			419			183			1,198
% of net third parties’ sales		100	%		10.6	%		22.1	%		26.4	%		9.5	%		4.2	%		27.2	%
Long-lived assets		2,843			31			894			683			191			146			898
Total assets		4,349			228			1,283			1,001			280			188			1,369

46

EX-15.H

Exhibit 15 (h)

Independent Auditors’ Report

The Board of Directors and Shareholders
LG. Philips Displays Holding B.V.

We have audited the accompanying consolidated balance sheet of LG. Philips Displays Holding B.V and its subsidiaries (“the Group”) as of December 31, 2003 and the related consolidated statements of operations, changes in stockholders’ deficit and comprehensive income and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2003, and of the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG
KPMG

Hong Kong

June 26, 2004

EX-15.I

Exhibit 15 (i)

Consent of KPMG

We consent to incorporation by reference in the registration statements on Form S-8 (No. 33-65972, No. 33-80027, No. 333-91287, No. 333-70215, No. 333-91289, No. 333-39204, No. 333-75542, No. 333-87852, No. 333-104104 and No. 333-119375) and in the registration statements on Form F-3 (No. 333-4582 and 333-90686) of Koninklijke Philips Electronics N.V. of our report dated June 26, 2004, relating to the consolidated financial statements of LG. Philips Displays Holding B.V. for the year ended December 31, 2003, appearing in this amendment No. 1 to the Annual Report on Form 20-F of Koninklijke Philips Electronics N.V. for the year ended December 31, 2004.

Hong Kong
April 28, 2005 /s/ KPMG
KPMG

EX-15.J

Exhibit 15 (j)

Consolidated Financial Statements of Atos Origin S.A.

The Atos Origin consolidated financial statements were prepared in accordance with accounting principles generally accepted in France. The Atos Origin consolidated financial statements as of and for the fiscal periods ended December 31, 2004 and 2003 were not audited in accordance with generally accepted auditing standards in the United States, and are not covered by the audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton included as an exhibit to this Form 20-F/A. The audit report relating to the Atos Origin consolidated financial statements of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton as of and for the year ended December 31, 2002 is included as an exhibit to this Form 20-F/A.

14.1.2 Consolidated Income Statement

(in EUR millions)

	Notes	Period ended			Period ended			Period ended
	(*)	Dec 31st, 2004			Dec 31st, 2003			Dec 31st, 2002
		(Not audited)			(Not audited)
Revenue			5,302.0			3,034.6			3,042.9
Personnel expenses	b		(2,762.0	)		(1,667.3	)		(1,642.0	)
Operating costs and expenses	d		(2,155.2	)		(1,119.5	)		(1,135.3	)
Income from operations			384.8			247.8			265.6
% of revenue			7.3	%		8.2	%		8.7	%
Net financial expense	e		(48.5	)		(26.6	)		(27.3	)
Income from ordinary activities			336.3			221.2			238.3
Non-recurring items	f		(149.6	)		(54.9	)		(70.8	)
Corporate income tax	g		(51.7	)		(40.9	)		(46.9	)
Net income before equity affiliates, minority			135.0			125.4			120.6
interests and amortization of goodwill
Share of income/(losses) of equity affiliates			(0.7	)		(0.1	)		(0.1	)
Minority interests	h		(6.8	)		(11.2	)		(11.3	)
Net income before amortization of goodwill —			127.6			114.1			109.2
Group Share
% of revenue			2.4	%		3.8	%		3.6	%
Amortization of goodwill	k		(117.1	)		(283.1	)		(38.4	)
Net income for the period — Group Share			10.5			(169.0	)		70.8
Net earnings per share	i
Weighted average number of shares (**)			65,821,887			45,458,166			43,954,677
Basic earnings per share before amortization of			1.94			2.51			2.48
goodwill (Euros)
Basic earnings per share (Euros)			0.16			(3.72	)		1.61
Weighted average diluted number of shares			67,473,784			48,380,433			50,846,590
Diluted earnings per share before amortization of			1.90			2.39			2.15
goodwill (Euros)
Diluted earnings per share (Euros)			0.17			(3.42	)		1.39

(*)	See Notes to the consolidated financial statements
(**)	On December 31st, 2002 the ORA bonds issued in consideration for the acquisition of KPMG Consulting in the United Kingdom and the Netherlands were not included in the weighted average number of shares. The ORA bonds were included in the diluted average number of shares.

Atos Origin Annual Report 2004 1

14.1.3 Consolidated Balance Sheet

(in EUR millions)

	Notes	Dec. 31st,		Dec. 31st,		Dec. 31st,
ASSETS	(*)	2004		2003		2002
		(Not audited)		(Not audited)
Goodwill	k		2,030.7		742.3		1,029.1
Other intangible fixed assets	l		128.3		27.1		32.2
Tangible fixed assets	m		232.8		156.0		217.3
Investments	n		26.2		18.3		21.3
Total Fixed Assets			2,418.0		943.6		1,299.9
Trade accounts and notes receivable	o		1,522.5		754.7		871.9
Other receivables, prepayments and accrued income	p		565.4		249.7		264.2
Transferable securities	t		258.6		458.7		133.1
Cash at bank and in hand	t		207.5		65.5		288.7
Total Current Assets			2,554.0		1,528.6		1,557.9
Total Assets			4,972.0		2,472.2		2,857.8

(in EUR millions)

	Notes	Dec. 31st,			Dec. 31st,			Dec. 31st,
LIABILITIES AND SHAREHOLDERS' EQUITY	(*)	2004			2003			2002
		(Not audited)			(Not audited)
Common stock	q		66.9			47.9			44.1
Additional paid-in capital			1,240.1			279.4			44.0
Consolidated reserves			179.9			413.6			343.0
Translation adjustments			(31.7	)		(36.2	)		3.8
Net income for the period			10.5			(169.0	)		70.8
Other Shareholders’ equity (**)			—			—			234.8
Shareholders’ equity — Group Share			1,465.8			535.7			740.5
Minority interests	v		52.7			48.2			43.6
Total Shareholders’ equity			1,518.5			583.9			784.1
Provisions for contingencies and losses	s		843.3			239.4			266.6
Borrowings	t		957.1			790.2			862.1
Trade accounts payable	u		577.4			236.5			342.8
Other liabilities, accruals and deferred income	r		1,075.7			622.1			602.2
Total Liabilities			2,610.2			1,648.8			1,807.1
Total Liabilities and Shareholders’ equity			4,972.0			2,472.2			2,857.8

(*)	See Notes to the consolidated financial statements
(**)	On December 31st , 2002 the ORA bonds issued in consideration for the acquisition of KPMG Consulting in the United Kingdom were included in Shareholders’ equity.

Atos Origin Annual Report 2004 2

14.1.4 Consolidated Cash Flow Statement

(in EUR millions)

		Period			Period			Period
		ended			ended			ended
		Dec 31st ,			Dec 31st ,			Dec 31st ,
		2004			2003			2002
		(Not audited)			(Not audited)
Net income Group Share			10.5			(169.0	)		70.8
Amortization of goodwill			117.1			283.1			38.4
Depreciation of tangible and intangible assets			149.9			102.3			125.1
Net charge for operating depreciation and provisions			(94.6	)		(5.2	)		(2.1	)
Net charge for financial depreciation and provisions			(10.7	)		4.2			10.5
Net charge for exceptional provisions			(22.2	)		(47.1	)		(23.6	)
Net losses (gains) on disposals of fixed assets and acquisition costs			(0.6	)		(4.1	)		(6.1	)
Equity affiliates and minority interests			7.5			11.3			11.4
Deferred taxes			14.0			(13.0	)		18.2
Net cash from operations before change in working capital	a		170.9			162.5			242.6
Reduction in working capital	b		74.1			79.5			51.2
Net cash from operating activities			245.0			242.0			293.8
Purchase of tangible and intangible assets	c		(137.4	)		(70.0	)		(102.3	)
Proceeds from disposals of tangible and intangible assets	d		37.4			3.5			62.3
Net Operating Investments			(100.0	)		(66.5	)		(40.0	)
Financial investments and business combination related investment	e		(585.7	)		(11.0	)		(478.4	)
Cash and cash equivalents of companies purchased during the year	f		102.7			0.0			25.6
Proceeds from disposals of financial investments	g		183.7			26.7			45.4
Cash and cash equivalents of companies sold during the year	h		(5.8	)		(2.9	)		(0.5	)
Net Financial Investments			(305.1	)		12.8			(407.9	)
Net Cash used in investing activities			(405.1	)		(53.7	)		(447.9	)
Common stock issues	i		4.1			4.4			9.1
Dividends paid to minority shareholders of subsidiaries	j		(3.7	)		(6.0	)		(11.3	)
New loans			1,037.4			25.7			634.1
Repayments of long and medium-term borrowings			(916.4	)		(106.7	)		(228.2	)
Net cash from financing activities			121.4			(82.6	)		403.7
Increase (Decrease) in cash and cash equivalents	q		(38.7	)		105.7			249.6
Opening cash and cash equivalents			524.2			421.9			176.5
Increase (decrease) in cash and cash equivalents			(38.7	)		105.7			249.6
Impacts of exchange rate fluctuations on cash and cash equivalents			(19.4	)		(3.4	)		(4.2	)
Closing cash and cash equivalents			466.1			524.2			421.9
Opening net debt			(266.0	)		(440.3	)		(235.2	)
New loans			(1,037.4	)		(25.7	)		(634.1	)
Repayments of long and medium-term borrowings			916.4			106.7			228.2
Increase (decrease) in cash and cash equivalents	q-f-h		(135.6	)		108.6			224.5
Net long and medium-term debt of companies purchased during the period	k		64.9			0.0			(14.3	)
Net long and medium-term debt of companies sold during the period	l		(5.4	)		(2.9	)		(0.0	)
Impact of exchange rate fluctuations on net long and medium-term debt	m		(19.2	)		(4.8	)		(2.0	)
Profit-sharing amounts payable to French employees transferred to debt	n		(8.7	)		(7.6	)		(7.5	)
Closing net debt			(491.0	)		(266.0	)		(440.3	)

(in EUR millions)

		Period			Period			Period
		ended			ended			ended
		Dec 31st ,			Dec 31st ,			Dec 31st ,
		2004			2003			2002
		(Not audited)			(Not audited)
Cash from operating activities before reorganization & FVA	a-o-p		327.4			267.8			331.2
Reduction in working capital	b		74.1			79.5			51.2
Net cash from operating activities before reorganization & FVA			401.5			347.3			382.4
Purchase of tangible and intangible assets	c		(137.4	)		(70.0	)		(102.3	)
Net cash from operations before reorganization & FVA			264.1			277.3			280.1
Reorganization, rationalization and integration	o		(141.9	)		(96.3	)		(73.1	)
Fair value adjustments (FVA)	p		(14.6	)		(9.0	)		(15.5	)
Proceeds from disposals of tangible and intangible assets	d		37.4			3.5			62.3
Other changes	i+j+m+n		(27.5	)		(14.0	)		(11.7	)
Net cash before net financial investments			117.5			161.5			242.1
Financial investments	e+k		(520.8	)		(11.0	)		(492.7	)
Proceeds from disposals of financial investments and net debt sold	g+l		178.3			23.8			45.4
Net financial investments			(342.5	)		12.8			(447.2	)
Net cash flow			(225.0	)		174.3			(205.1	)
Opening net debt			(266.0	)		(440.3	)		(235.2	)
Closing net debt			(491.0	)		(266.0	)		(440.3	)

Atos Origin Annual Report 2004 3

14.1.5 Consolidated statement of changes in shareholders’ equity

(in EUR millions)

	Number												Net
	of shares												income
	at period				Addit.								for			Other			Equity,
	end		Common		paid-in		Consolidated			Translation			the			Shareholders’			Group
	’000s		Stock		capital		reserves			Adjustments			period			equity			share
At December 31st, 2002		44,056		44.1		44.0		343.0			3.8			70.8			234.8			740.5
* Common stock issues for cash		157		0.1		4.3														4.4
* Translation adjustments											(40.0	)								(40.0	)
* Prior period net income								70.8						(70.8	)					0.0
* Net Income for the period														(169.0	)					(169.0	)
* Other								(0.2	)											(0.2	)
* ORA bonds		3,657		3.7		231.1											(234.8	)		0.0
At December 31st, 2003 (Not audited)		47,870		47.9		279.4		413.6			(36.2	)		(169.0	)		0.0			535.7
* Common stock issues for cash		19,069		19.1		960.7														979.8
* Translation adjustments											4.5									4.5
* Prior period net income/(loss)								(169.0	)					169.0
* Net Income for the period														10.5						10.5
* Change in accounting policy (**)								(64.7	)											(64.7	)
At December 31st, 2004 (Not audited)		66,938		66,9		1,240.1		179.9			(31.7	)		10.5			0.0			1,465.8

(**) See paragraph on pensions in the notes to the consolidated financial statements

14.1.6 Segment information

Information by service line

(in EUR millions)

				Period ended
	Period ended			Dec 31st, 2003			Period ended			Period ended
	Dec 31st, 2004			Pro forma (*)			Dec 31st, 2003			Dec 31st, 2002
	(Not audited)			(Not audited)			(Not audited)
Consulting & Systems Integration
Revenue		2,537			2,706			1,453			1,418
Income from operations		192.2			160.5			82.1			81.9
% margin		7.6	%		5.9	%		5.7	%		5.8	%
Tangible and intangible assets		70.3						55.4			46.3
Year-end number of employees		24,938			26,345			14,605			16,337
Managed Operations
Revenue		2,765			2,699			1,582			1,625
Income from operations		264.1			267.9			198.7			213.6
% margin		9.6	%		9.9	%		12.6	%		13.1	%
Tangible and intangible assets		285.4						124.2			197.9
Year-end number of employees		21,447			19,548			11,773			12,166
Corporate
Income from operations		(71.5	)		(109.9	)		(33.0	)		(30.0	)
% margin		–1.3	%		–2.0	%		–1.1	%		–1.0	%
Tangible and intangible assets		5.3						3.5			5.3
Year-end number of employees		199			200			95			99
Total Group
Revenue		5,302			5,405			3,035			3,043
Income from operations		384.8			318.6			247.8			265.6
% margin		7.3	%		5.9	%		8.2	%		8.7	%
Tangible and intangible assets		361.0						183.1			249.5
Year-end number of employees		46,584			46,093			26,473			28,602

(*) See notes regarding unaudited pro forma information

Atos Origin Annual Report 2004 4

Information by geographical area

(in EUR millions)

				Period ended
	Period ended			Dec 31st, 2003			Period ended			Period ended
	Dec 31st, 2004			Pro forma			Dec 31st, 2003			Dec 31st, 2002
	(Not audited)			(Not audited)			(Not audited)
France
Revenue		1,410			1,445			1,050			1,086
Income from operations		121.1			116.4			113.2			116.2
% margin		8.6	%		8.1	%		10.8	%		10.7	%
Tangible and intangible assets		97.3						85.9			106.1
Year-end number of employees		12,489			12,347			7,894			8,685
United Kingdom
Revenue		1,222			1,133			331			238
Income from operations		117.5			90.0			15.7			12.9
% margin		9.6	%		7.9	%		4.7	%		5.4	%
Tangible and intangible assets		35.8						5.4			5.5
Year-end number of employees		6,658			6,743			1,847			2,139
The Netherlands
Revenue		983			967			961			913
Income from operations		125.4			114.9			114.3			124.2
% margin		12.8	%		11.9	%		11.9	%		13.6	%
Tangible and intangible assets		39.2						58.0			95.5
Year-end number of employees		8,321			8,468			8,424			9,019
Other EMEA (**)
Revenue		1,266			1,291			561			610
Income from operations		73.1			66.4			31.8			28.6
% margin		5.8	%		5.1	%		5.7	%		4.7	%
Tangible and intangible assets		156.6						24.3			27.6
Year-end number of employees		14,136			13,554			6,036			6,319
Americas
Revenue		280			386			77			132
Income from operations		9.4			12.3			0.5			7.8
% margin		3.4	%		3.2	%		0.7	%		5.9	%
Tangible and intangible assets		9.8						1.7			3.3
Year-end number of employees		2,714			2,768			1,014			1,210
Asia Pacific
Revenue		141			182			55			63
Income from operations		9.8			28.5			5.2			5.8
% margin		7.0	%		15.7	%		9.4	%		9.2	%
Tangible and intangible assets		17.0						4.3			6.2
Year-end number of employees		2,067			2,013			1,163			1,131
Corporate
Income from operations		(71.5	)		(109.9	)		(33.0	)		(30.0	)
% margin		-1.3	%		-2.0	%		-1.1	%		-1.0	%
Tangible and intangible assets		5.3						3.5			5.3
Year-end number of employees		199			200			95			99
Total Group
Revenue		5,302			5,405			3,035			3,043
Income from operations		384.8			318.6			247.8			265.6
% margin		7.3	%		5.9	%		8.2	%		8.7	%
Tangible and intangible assets		361.0						183.1			249.5
Year-end number of employees		46,584			46,093			26,473			28,602

(*)	See notes regarding unaudited pro forma information
(**)	Other European countries, Middle-East and Africa.

Atos Origin Annual Report 2004 5

14.1.7 Scope of consolidation

The major changes to the scope of consolidation during the period were as follows:

14.1.7.1 Acquisition

On January 22^nd, 2004, the acquisition of Sema Group was approved at an Extraordinary General Meeting of the shareholders of Atos Origin. The acquisition was completed on January 29th, 2004 and Sema Group has been consolidated since January 1^st, 2004, the date from which Atos Origin took effective control of the company (see note j to the consolidated financial statements). A combined pro forma Income Statement relating to this acquisition is shown in note a to the consolidated financial statements.

14.1.7.2 Disposals

On June 30^th, 2004 Atos Origin disposed of Convergent, a US-based company that specializes in providing logistical advice. Revenue for the 6 months to June 30^th, 2004 was EUR 4.5 million.

On July 23^rd, 2004 the Group disposed of its US energy management company known as Cellnet, sometimes referred to as Real Time Energy Management. Cellnet’s proprietary technology enables utility companies to monitor energy consumption in real time. Revenue for the 7 months to July 31^st, 2004 was EUR 74.6 million and the business employed approximately 400 staff.

On August 3^rd, 2004 the Group disposed of Priority Call Management, a US-based company specializing in intelligent network applications for telecommunications services providers. Revenue for the 7 months to July 31^st, 2004 was EUR 5.9 million.

The disposal of the three above-mentioned businesses had no impact on the Group consolidated Income Statement.

On October 20^th, 2004 the Group disposed of Atos Origin Australia. Revenue for the 9 months to September 30^th, 2004 was EUR 12.3 million.

On December 31^st, 2004 the Group disposed of Atos Origin IT Services Peru. Revenue for the 12 months of 2004 was EUR 2.0 million.

14.1.8 Net assets held for sale as of December 31st, 2004

On January 28th, 2005 Atos Origin sold its Swedish company, PA-Konsult, which specializes in consulting and integration of human resources and payroll solutions. Revenue in 2004 was EUR 11.1 million.

The assets and liabilities being disposed of have been incorporated in two lines of the consolidated balance sheet, as net assets and liabilities under disposal, and valued at their net disposal value in accordance with IFRS 5.

Current income from PA-Konsult for the year is included in Group income. No gain related to the disposal of the assets classified as held for sale has been recognized in the Income Statement.

Atos Origin Annual Report 2004 6

The following table sets out the net fair value of the assets and liabilities held for disposal:

(in EUR millions)

	December 31st,
	2004
	(Not audited)
Tangible assets		0.1
Trade and other receivables		21.6
Net assets held for sale (see note p)		21.7
Trade and other payables		(2.5	)
Net liabilities held for sale (see note v)		(2.5	)
Fair value of assets and liabilities under disposal		19.2
Selling price		19.2

14.1.9 Accounting Policies

With effect from January 1^st, 2001, the consolidated financial statements have been prepared in accordance with French accounting rules and methods applicable to consolidated financial statements approved by the Order of June 22^nd, 1999, implementing the Accounting Standards Committee Regulation CRC 99-02. The consolidated financial statements at December 31^st, 2004 reflect the effects of the new accounting rules and recommendations that came into effect on January 1^st, 2004 as explained below.

The National Accounting Council’s Recommendation CNC 2003-R01 of April 1^st, 2003 relating to rules for accounting and evaluating retirement commitments and similar benefits.

With effect from January 1^st, 2004, the Group has accounted for its retirement and related benefit commitments in accordance with the above recommendation. This recommends that actuarial deficits not yet recognized in the consolidated financial statements at December 31^st, 2003 should be charged against equity at January 1^st, 2004. This means that the Group has been in alignment with the recommendations of IFRS 1 since the start of 2004.

The application of this recommendation resulted in an equity decrease at January 1^st, 2004 of EUR 64.7 million (net of tax), representing a gross amount of EUR 93.4 million in provisions.

Rule CRC 04-03 of May 4^th, 2004

This ruling removes the specific need to hold securities in an entity in order to be able to consolidate it. A Group must consolidate an entity if it has management control. The provision has been applicable from January 1^st, 2004 but has not led to any increase in the group’s total assets and liabilities, compared with the rules applied previously.

As part of the preparation of the consolidated financial statements, Atos Origin has aligned itself with the provisions of certain standards established by the International Accounting Standards Board (IASB) with respect to measurement and recognition since the fiscal years 2000 and 2001. In particular, Atos Origin has aligned itself with measures prescribed for the recognition of revenue from services involving fixed price contracts based on the percentage of completion method (IAS 11), the determination of income taxes (IAS 12), the recording of property, plant and equipment (IAS 16) and leases (IAS 17), the measurement and recognition of employee benefits (IAS 19), the effects of changes in foreign exchange rates (IAS 21), the impairment of assets (IAS 36) and the recognition of provisions, contingent liabilities and contingent assets (IAS 37).

Atos Origin Annual Report 2004 7

14.1.10 Consolidation rules

Methods of consolidation

The financial statements of companies over which Atos Origin exercises exclusive control, whether directly or indirectly, are fully consolidated. The financial statements of companies in which voting rights are split between the Company and another shareholder are consolidated as follows:

– Companies over which Atos Origin has effective control of their business operations are fully consolidated;

– Companies over which Atos Origin exercises significant influence are accounted for using the equity method. Significant influence is assumed to exist where more than 20% of voting rights are held.

Basis of consolidation

All companies are consolidated on the basis of financial statements or accounts drawn up to December 31^st and adjusted, where necessary, in accordance with Group accounting policies.

Foreign companies

The balance sheets of subsidiaries that do not use the single European currency are translated into euros at year-end rates of exchange and their income statements are translated at average exchange rates for the year. The impact of exchange rate movements on the balance sheet and net income for the year is taken to shareholders’ equity as a translation adjustment (IAS21).

Review of the “value in use” of long-term assets

Since the financial year 2002, long-term assets (property, plant and equipment, intangible assets and goodwill) are adjusted to their “value in use” when significant adverse changes are identified indicating that the value in use of an asset appears to be lower than its net carrying amount on a long-term basis. Such events include significant adverse long-term changes affecting the economic environment and the assumptions made, and commercial objectives chosen, at the date of acquisition.

The Group assesses the value in use of long-term assets within geographic areas (countries) representing cash generating units, which reflects the operational organization and the way in which capital employed is managed in the group. Value in use is determined using the discounted cash flow (DCF) method, in accordance with the following principles:

– Using after-tax cash flows from the 2005 budget and the subsequent 3-year plan as prepared by country managements, after review by the Group Finance Division and approval by the Management Board,

– Using an interest rate corresponding to the mean weighted cost of capital of the Atos Origin group,

– Using a terminal value calculated by taking the final period of the business plan and projecting it to infinity, without taking into account a perpetual growth rate

Value in use is determined by adding the revised flow for the 4-year forecasting period and the revised terminal value. Value in use is then compared to the contribution value to the consolidated long-term asset balance sheet for each country. If depreciation appears necessary, the impairment charge is equal to the difference between the net book value and the value in use.

For goodwill, in addition to future economic benefits, value in use takes into account the benefits expected from acquisition, such as the synergies resulting from the integration of the acquired enterprise with the Group’s activities and the enterprise’s strategic value for the Group. The Group is therefore in line with the provisions of IAS 36.

Atos Origin Annual Report 2004 8

Business combinations

Depending on specific legal and tax circumstances, business combinations may be accounted for as an asset purchase — as in the case of some outsourcing contracts — or as a share purchase. When combining businesses, the identifiable assets and liabilities are valued in accordance with French accounting standards and in line with IFRS 3. The difference between the acquisition cost and the fair value of the identifiable assets and liabilities acquired is recorded as “Goodwill” for companies consolidated by global or proportional integration, and as “Equity investments” for companies over which the Group exerts significant influence.

In a partial transfer of shares in companies consolidated by global or proportional integration, the cost price of the asset transferred includes the quota of goodwill that is attributable to the transferred shares, whether the transfer occurs by way of exchange or dilution.

Goodwill

Goodwill represents that portion of the difference between the cost of an investment and the Group’s share in the adjusted net assets of the company acquired as of the date of acquisition, not allocated to fair value adjustments. Goodwill is amortized on a straight-line basis over the estimated period of benefit, not exceeding 20 years.

In accordance with accounting rules in force and pursuant to the COB Recommendation of January 1988 (Monthly Bulletin No. 210), Atos Origin has applied against shareholders’ equity an appropriate proportion of goodwill arising in connection with business combinations. In particular, this was the case with the acquisition of Origin, in connection with which EUR 181 million was applied against share premium. If this goodwill had not been applied against the share premium account, the transaction would have generated an annual amortization expense of EUR 9.0 million.

Effective date of acquisitions and disposals

The consolidated income statement includes the results of companies acquired during the financial year, commencing from the date on which control changed. Disposals have been included up until the end of the month closest to the date on which the sale was completed.

Research and development expenditure

Research and development expenditure in respect of specific applications or products is expensed in the period in which it is incurred.

Other intangible fixed assets

Other intangible fixed assets include software acquired by the Group and amortized on a straight-line basis over periods specific to each acquisition, subject to a maximum of five years. The cost of software developed for internal or commercial use is generally expensed in the period in which it is incurred. However, it may be capitalized within intangible fixed assets when the required conditions are satisfied, including sustainable future profitability. Only costs incurred during the software production phase are capitalized. Costs incurred during design, user configuration and follow-up phases are expensed in the period.

It should be noted that, at December 31^st, 2004 the main intangible assets that conform to the definition in the IAS 38 standard, are upfront payments in respect of new outsourcing contracts.

During the fair value review of newly acquired contracts, the upfront payment paid in the context of a business combination may be recognized as an intangible asset, separate from the remaining goodwill relating to contract acquisition. This rule has been applied in 2004 for the new outsourcing contracts with KardstadtQuelle and E Plus. The Group considers that there is no foreseeable limit to the period of cash inflows. Thus, the asset is not amortised but is subject to an annual impairment test.

Atos Origin Annual Report 2004 9

The Group holds a number of patents but has not granted any licenses in respect thereof. The Group incurs license fees in respect of licenses granted to it. These fees are recorded in the Income statement as operating costs and expenses.

Tangible fixed assets

Tangible fixed assets are recorded at acquisition cost, net of any interest expenses. They are depreciated on a straight-line or reducing-balance basis over the following expected useful lives:

– Buildings	20 years
– Fixtures and fittings	5 to 10 years
– Computer hardware	3 to 5 years
– Vehicles	4 years
– Office furniture and equipment	5 to 10 years

Assets acquired under operating lease contracts are not capitalized. Assets acquired under finance lease contacts are capitalized and the corresponding borrowing recorded as a liability in the balance sheet. The accounting policy adopted by the Group is consistent with IAS 17.

Investments

Non-consolidated participating interests are stated at the lower of acquisition cost and fair value. Fair value corresponds to fair value to the Group, taking into account the Group’s share of adjusted net worth and the profitability prospects of the investment entity. A provision for impairment is recorded where the fair value of an investment falls below its acquisition cost.

Treasury stock

Atos Origin shares held by the parent company are charged against consolidated shareholders’ equity. The accounting treatment for these shares is attributable to the purpose of their holding. In the event of a disposal, the gain or loss and the corresponding tax impact are recorded as changes in consolidated shareholders’ equity.

Operating Receivables

Operating receivables are recorded at nominal value. They are assessed individually and, where appropriate, a provision is raised to take likely recovery problems into account.

Transferable securities

Transferable securities are recorded in the balance sheet at the lower of acquisition cost and market value. For listed securities, market value is equal to the stock market price at the fiscal year-end. SICAV units are recorded at net asset value. Unrealized capital gains are not recognized.

Provisions for contingencies and losses

Provisions for contingencies and losses are recognized in compliance with the rulings of the Comite de la Reglementation Comptable governing liabilities (CRC N° 2000-06), the application of which is mandatory for financial years beginning on, or after, January 1st, 2002.

The regulation defines a liability as an element of the asset base with a negative economic value for the entity, i.e. an obligation (legal, regulatory, or contractual) of the entity with respect to a third party for which an outflow of resources benefiting this third party is probable or certain, without any consideration expected from the third party that is at least equivalent. The accounting policy adopted by the Group is consistent with IAS 37 — “Provisions, Contingent Liabilities and Contingent Assets”.

When accounting for acquisitions, the Group makes provision for known and contingent liabilities (risks, lawsuits etc.) in the opening balance sheet. These provisions are liabilities that increase the value of acquisition goodwill.

Atos Origin Annual Report 2004 10

Up to December 31^st, 2004, once the goodwill allocation period has expired, unused provisions have been released in the income statement and offset by an exceptional depreciation of goodwill, resulting in no impact within the net income. From January 1^st 2005 onwards, in accordance with the IFRS rules, any unused provisions will be released through the income statement with specific related disclosure.

Provisions for employee benefits

The Atos Origin Group offers its employees various long-term benefits on retirement or conditional on their seniority in the group, including a lump sum on retirement and long-term benefits agreed during employment such as jubilees and anniversary premiums. These benefits are subject to the provisions set out hereafter:

a)

Defined Contribution schemes: these schemes do not create a future commitment for the Group other than the Group’s obligation to pay regular contributions of a fixed percentage of the employee’s salary to outside organizations. These amounts are charged to the income statement as and when they are paid to the outside organizations.

b)

Defined Benefit schemes, for which the Group has a potential on-going obligation to employees. The characteristics of these plans vary according to the legislation and regulations applicable in each country. They are financed during the employment by payments to specialist funds. An evaluation of these commitments is made at regular intervals in line with the IAS 19 standard and may result in future obligations on the Group to fund any deficit between scheme liabilities and assets. Such schemes mainly affect employees in The Netherlands and the United Kingdom.

* Determining the net commitment to be provisioned

The Group is in line with IAS 19 for evaluating retirement and similar benefits. Based on the internal rules for each plan in each of the relevant countries, independent actuaries calculate the revised value of the Group’s future obligations (“Projected Benefit Obligations”). A central actuary takes on the task of providing coordination, consistency and standardization of the actuarial parameters used. The revised value of future obligations changes annually according to the following factors:

Recurring factors

– Increases in liabilities due to the acquisition of additional rights (“Cost of services given during the year”),

– Increases due to the passing of the time with a one year reduction in the discounting effect (“Financial cost”),

– Decreases linked to the exercise of rights (“Payments to beneficiaries”).

One-off factors

– Variations due to changes in the economic assumptions (rate of inflation, interest rate, yield expected from the assets, etc.) and

– Staffing assumptions (salary increases, staff turnover, life expectancy).

* Treatment of actuarial differences

Actuarial differences are created when the expected value of fund assets differs compared with their market value at year-end, or as a result of changes to long-term actuarial assumptions (e.g. discount rates, salary changes etc.). In the case of long-term benefits during employment (jubilees, anniversary premiums), the actuarial differences are provided for at balance sheet date.

Under the “Corridor” principle, provision is made in respect of funding deficits only when the value of scheme liabilities exceeds the value of underlying fund assets by more than 10%. The provision is made on a straight-line basis over the average remaining working lives of the employees of the scheme in question.

Atos Origin Annual Report 2004 11

* Pension and other benefit charges in the year

The charge for pension and other commitments set out above includes:

– a charge for acquiring an additional year of benefit rights;

– a charge for any variation of existing rights since the start of the financial year;

– income corresponding to the yield expected from the assets;

– a charge for amortization of negative actuarial differences as explained above;

– a charge (or income) linked to changes to the plans or the setting up of new plans;

– a charge (or income) linked to any reduction or liquidation of the plan.

With effect from January 1^st, 2004, the Group has decided to show the financial cost and expected yield from assets as a net financial charge in the income statement.

Debt issuance costs and bond redemption premiums

Debt issuance costs are included in deferred charges and released to the income statement on a straight-line basis over the life of the loan. Bonds are recorded in liabilities as an amount corresponding to the issue proceeds and a provision is raised over the life of the loan to cover the related premiums, net of tax. A provision for the redemption premium is recognized over the life of the loan, net of tax.

The Group has decided to adopt the position expressed by the COB (former French stock exchange authority) in its 1994 Annual Report and reiterated in its recommendations for the 2002 year-end closing, which consists of providing for all redemption premiums at the closing from the time the share price falls below the discounted value of the bond redemption. This recommendation was applied from the financial year 2002 as regards the Atos Origin convertible bond issue, which matured in October 2004. No charge was recorded in the 2003 and the 2004 financial year relating to this matter.

Accounting classification of ORA bonds in the consolidated balance sheet

The bonds redeemable in shares (ORA bonds) issued by Atos Origin on the acquisition of KPMG Consulting in the United Kingdom and the Netherlands are recorded in shareholders’ equity in 2002 in accordance with French accounting rules, due primarily to the absence of any consideration for the bonds and any certainty of conversion. On August 16th, 2003, those bonds were fully converted into shares.

Financial Instruments

The Group uses various financial instruments to hedge against foreign exchange and interest rate risks. All hedging instruments are traded with leading financial institutions. Foreign exchange risks are hedged using forward contracts and currency swaps, and interest rate risks using standard interest rate swap agreements. Hedging gains and losses are matched against the loss or gain on the hedged item.

Atos Origin Annual Report 2004 12

Revenue

Revenue consists of proceeds from the sale of services and equipment carried out by fully consolidated companies in the normal course of business. The Group is therefore in line with IAS 11.

Consulting and Systems Integration revenue from fixed-price contracts is recognized in line with the technical completion of projects. Income from fixed-price contracts to develop individual applications or integrated systems is recorded over the course of several fiscal years and recognized using the percentage of completion method. Work in progress is recorded in the balance sheet under “Trade Accounts and notes receivable” and the excess of billings over costs under “Deferred income”.

Managed Operations revenue is generally based on a fixed-price agreement or variable IT work units rendered. On-line services revenue (within Managed Operations) is linked to transaction volumes and IT services rendered.

As indicated in the management report section concerning the transition to IAS/IFRS, the recognition of turnover from outsourcing contracts (including application management, infrastructure management and business process outsourcing) under IAS 11 remains subject to detailed implementation review and decisions. A working group has been set up with some of the largest groups in the IT sector in order to produce a common position on the subject, including decisions on the treatment to be applied to the costs of transition/conversion in the initial phase of outsourcing contracts. The decisions taken will be applied to financial statements for the first half of 2005.

Income from ordinary activities

Income from ordinary activities comprises the results of operations and financing transactions of the various Group business lines, and any write-downs of non-consolidated participating interests.

Non-recurring items

Non-recurring items include income and expenses relating to events or operations clearly outside the ordinary activities of the Group due to their nature, amount or unusual occurrence.

Corporate Income Tax

The tax charge recorded in the Income Statement is the total of the current and deferred tax charge.

The Group accounts for deferred tax using the liability method on all temporary differences between the book value and tax base of assets and liabilities recorded in the consolidated balance sheet, with the exception of non-deductible goodwill and the undistributed earnings of consolidated companies. The deferred tax charge is not discounted to present value. Deferred tax assets and liabilities are netted off at taxable entity level. Deferred tax assets corresponding to temporary differences, tax losses carried-forward are recognized in the accounts as deferred tax assets and a provision raised when the likelihood of realization of taxable profits at tax entity level is considered low based on available historical and forecast information. The accounting policy adopted by the Group is consistent with IAS 12 — “Income Taxes”.

Earnings per share

Earnings per share (basic and diluted) is calculated by dividing net income before and after amortization of goodwill by:

– the weighted average number of shares outstanding during the period (basic earnings per share);

– the weighted average number of shares outstanding during the period, plus the number of shares that could be issued as a result of the exercise in full of all convertible securities outstanding (diluted earnings per share).

Atos Origin Annual Report 2004 13

14.1.11 Foreign currency translation rates

		2004		Dec 31st , 2004		2003		Dec 31st , 2003
Country		Average rate		Closing rate		Average rate		Closing rate
Argentina (ARS)	ARS 100 = EUR		27.298		24.688		29.916		27.270
Singapore (SGD)	SGD 100 = EUR		47.623		44.920		50.830		46.620
Australia (AUD)	AUD 100 = EUR		59.241		57.277		57.592		59.517
Brazil (BRL)	BRL 100 = EUR		27.537		27.672		28.900		27.576
Chile (CLP)	CLP1000 = EUR		1.316		1.313		1.280		1.335
Columbia (COP)	COP10000 = EUR		3.057		3.047		3.101		2.881
Hong Kong (HKD)	HKD 100 = EUR		10.337		9.445		11.374		10.199
India (INR)	INR 100 = EUR		1.777		1.684		1.901		1.745
Japan (JPY)	JPY 10000 = EUR		74.427		71.608		76.413		74.047
Malaysia (MYR)	MYR 100 = EUR		21.182		19.293		23.305		20.871
Mexico (MXN)	MXN 100 = EUR		7.133		6.587		8.212		7.050
Middle-East (SAR)	SAR 100 = EUR		21.465		19.576		23.621		21.112
Peru (PEN)	PEN 100 = EUR		23.517		22.377		25.652		22.873
Poland (PLN)	PLN 100 = EUR		22.119		24.483		22.770		21.268
China (CNY)	CNY 100 = EUR		9.726		8.870		10.700		9.566
South Africa (ZAR)	ZAR 100 = EUR		12.496		13.004		11.754		12.008
Sweden (SEK)	SEK 100 = EUR		10.960		11.086		10.961		11.013
Switzerland (CHF)	CHF 100 = EUR		64.769		64.813		65.795		64.189
Taiwan (TWD)	TWD 100 = EUR		2.409		2.300		2.574		2.330
Thailand (THB)	THB 100 = EUR		2.000		1.882		2.132		1.998
Turkey (TRL)	TRL 1,000,000 = EUR		0.565		0.545		0.591		0.564
United Kingdom (GBP)	GBP1 = EUR		1.474		1.418		1.446		1.419
U.S.A (USD)	USD 100 = EUR		80.512		73.416		88.583		79.177
Venezuela (VEB)	VEB 10000 = EUR		4.304		3.823		5.459		4.986

Atos Origin Annual Report 2004 14

14.1.12 Notes to the consolidated financial statements

14.1.12.1 Notes to the consolidated income statement

a) 2003 Pro forma information

The summary pro forma information of the new Group has been prepared and communicated for informational purposes only and is not intended to represent an historic view of the new group in 2003, now or at any time in the future. It is based on historic data and intended only to facilitate an understanding of the actual combined activities of the new group compared with 2003.

Basis of preparation of 2003 Pro forma information

* Financial statements used

The activities acquired from Schlumberger are referred to as “Sema Group”. On January 22nd, 2004 Atos Origin received approval from shareholders for the acquisition of Sema Group at an Extraordinary General Meeting. The acquisition was completed on January 29^th, 2004. The summary pro forma income statement of the new group, combining Atos Origin and the Sema Group, has been prepared in accordance with French accounting principles applied by Atos Origin.

This pro forma income statement is derived from:

– The consolidated financial statements of Atos Origin as described in its 2003 Annual Report, which have been prepared in accordance with French accounting principles applied by Atos Origin, expressed in euros and reviewed by the Group’s auditors.

– The 2003 pro forma financial statements of the Sema Group, which were prepared by Schlumberger as described hereafter, are in accordance with U.S. accounting principles applied by Schlumberger, restated by Atos Origin to comply with French accounting principles applied by the Group, converted into euros and are unaudited.

– The combining entries relating to the Acquisition were prepared by Atos Origin, as described hereafter, and are in accordance with French accounting principles applied by Atos Origin, expressed in euros.

* Retroactivity of the acquisition and assumptions used

The 2003 pro forma income statement of Atos Origin has been adjusted to take into account the impact of the various financial operations that were part of the acquisition of the Sema Group, as if the consolidation had been performed on January 1st, 2003.

These adjustments are as follows:

– Notional financial interest has been charged on the acquisition debt at the rate of 5% per year, including the resulting tax savings at 35,4%,

– Amortization of the definitive Sema goodwill over 20 years, in accordance with accounting principles applied by the Atos Origin Group.

* Reclassifications and Adjustments

The following adjustments and reclassifications have been applied to the pro forma income statement of Sema Group in order to make them comparable with those of Atos Origin and to enable the Group to produce a combined pro forma income statement. The income statement has been prepared under Atos Origin accounting principles, anticipating the impact of IFRS rules, including:

– Reclassifications & adjustments necessary to convert from US GAAP to French GAAP and IFRS

– Adjustments to the Opening Balance Sheet under IFRS 3

– Conversion into euros

Atos Origin Annual Report 2004 15

* Exchange rates

All figures have been converted to euros using the relevant average and closing rates of exchange applicable for the period. For income statement figures, the average rate of exchange published by the Central European Bank on December 31st, 2003 was 1 U.S. dollar ($) = EUR 0.88583

Sema Group pro forma income statement

(in EUR millions)

	Period ended December 31st, 2003
	US			Adjust			Eliminatn.			French
	GAAP			GAAP			Costs			GAAP
Revenue		2,370.0									2,370.0
Income from operations		55.5			(6.8	)		22.1			70.8
Financial result		4.0			(1.7	)					2.3
Non-recurring items					(47.4	)					(47.4	)
Tax		(17.8	)		(9.7	)		(4.7	)		(12.8	)
Equity method and minority interests		(1.0	)								(1.0	)
Net income before goodwill amortization		40.7			(46.2	)		17.4			11.9
Goodwill amortization
Net income – Group share		40.7			(46.2	)		17.4			11.9

The steps to convert the income statement received in US GAAP to the pro forma statements and Atos Origin accounting principles were as follows:

Adjustment of GAAP: to harmonize the income statement of the Sema Group with French accounting principles applied by Atos Origin, involving the elimination of specific US GAAP adjustments not applicable to, or handled differently by, Atos Origin.

Elimination of costs: to reflect the activity of the Sema Group as if it had been an independent entity during this period, including:

- The restatement of standard margin on loss making contracts,

- The reclassification in non-recurring items of restructuring costs,

- The elimination of Schlumberger specific costs (Schlumberger fees, IT support and support services).

These adjustments have been explained through the Document E, for which the Autorité des Marchés Financiers (AMF — the French Financial Markets Authority) allocated the registration number E.04-004 on January 16th, 2004.

Combined pro forma Income Statement

(in EUR millions)

	Period ended December 31st, 2003
	Atos			Sema			Acquisition
	Origin			Group			(a)			Combined
Revenue		3,035.0			2,370.0						5,405.0
Income from operations		247.8			70.8						318.6
Financial result		(26.6	)		2.3			(25.3	)		(49.6	)
Non-recurring items		(54.9	)		(47.4	)					(102.3	)
Tax		(40.9	)		(12.8	)		9.0			(44.7	)
Equity method and minority interests		(11.3	)		(1.0	)					(12.3	)
Net income before goodwill amortization		114.2			11.9			(16.3	)		109.7
Goodwill amortization		(283.2	)					(70.7	)		(353.9	)
Net income – Group share		(169.0	)		11.9			(87.0	)		(244.2	)
Weighted average number of shares		45,458,166						19,000,000			64,458,166
EPS (b) before non-recurring items & gw amo (d)		3.36						(0.69	)		2.67
Basic EPS (b) (c)		(3.72	)					(0.07	)		(3.79	)

(a)	Adjustments required to reflect an acquisition date of January 1st, 2003
(b)	Earnings per share
(c)	In EUR, based on a weighted average number of shares
(d)	Net of tax

Atos Origin Annual Report 2004 16

b) Personnel expenses

(in EUR millions)

	Period						Period						Period
	ended						ended						ended
	Dec 31st,			% of			Dec 31st,			% of			Dec 31st,
	2004			revenue			2003			revenue			2002
Wages and salaries		(2,120.2	)		(40.0	%)		(1,277,6	)		(42,1	%)		(1,265,8	)
Social charges		(600.9	)		(11.3	%)		(354,8	)		(11,7	%)		(328,3	)
Tax, training, profit-sharing		(57.4	)		(1.1	%)		(35,4	)		(1,2	%)		(36,2	)
Net charge to provisions for pensions		16.5			0.3	%		0,5			0,0	%		(11,7	)
Total		(2,762.0	)		(52.1	%)		(1,667,3	)		(54,9	%)		(1,642,0	)

c) Analysis of staff by geographical region

Geographical region

	Year-end		Year-end		Year-end		Average		Average		Average
	number of		number of		number of		number of		number of		number of
	employees		employees		employees		employees		employees		employees
	2004		2003		2002		2004		2003		2002
France		12,489		7,894		8,685		12,403		8,467		8,657
United Kingdom		6,658		1,847		2,139		6,581		1,933		1,592
The Netherlands		8,321		8,424		9,019		8,418		8,667		8,184
Other EMEA		14,136		6,036		6,319		13,493		6,216		6,571
Americas		2,714		1,014		1,210		2,631		1,070		1,367
Asia — Pacific		2,067		1,163		1,131		2,041		1,130		1,134
Corporate		199		95		99		233		96		100
Total		46,584		26,473		28,602		45,800		27,577		27,606

d) Operating costs and expenses

(in EUR millions)

	Period						Period						Period
	ended						ended						ended
	Dec 31st,			% of			Dec 31st,			% of			Dec 31st,
	2004			revenue			2003			revenue			2002
Purchase for selling and royalties		(407.5	)		(7.7	%)		(241.1	)		(7.9	%)		(172.6	)
Sub-contracting costs		(588.0	)		(11.1	%)		(177.8	)		(5.9	%)		(215.2	)
Real estate		(207.3	)		(3.9	%)		(126.8	)		(4.2	%)		(136.7	)
Means of production		(359.7	)		(6.8	%)		(161.2	)		(5.3	%)		(161.4	)
Telecommunications		(106.5	)		(2.0	%)		(103.3	)		(3.4	%)		(117.8	)
Travelling expenses		(144.8	)		(2.7	%)		(57.1	)		(1.9	%)		(81.8	)
Taxes, other than corporate income tax		(30.8	)		(0.6	%)		(21.8	)		(0.7	%)		(21.4	)
Other operating expenses (*)		(238.9	)		(4.5	%)		(132.6	)		(4.4	%)		(117.2	)
Sub-total expenses		(2,083.5	)		(39.3	%)		(1,021.8	)		(33.7	%)		(1,024.0	)
Depreciation of fixed assets		(149.9	)		(2.8	%)		(102.4	)		(3.4	%)		(125.1	)
Net charge of provisions for current assets		16.4			0.3	%		4.0			0.1	%		4.5
Net charge to provisions for contingencies & losses		61.8			1.2	%		0.7			0.0	%		9.3
Sub-total depreciation and provisions		(71.7	)		(1.4	%)		(97.7	)		(3.2	%)		(111.3	)
Total		(2,155.2	)		(40.7	%)		(1,119.5	)		(36.9	%)		(1,135.3	)

(*) Management services, fees, advertising, company cars

e) Net financial expenses

(in EUR millions)

						Period ended			Period ended			Period ended
	Income		Expense			Dec 31st, 2004			Dec 31st, 2003			Dec 31st, 2002
Convertible bond		10.9		(12.9	)		(2.0	)		(1.7	)		(3.8	)
Long and medium-term borrowings				(33.0	)		(33.0	)		(22.9	)		(14.1	)
Lease financing (*)				(4.5	)		(4.5	)		(0.8	)		(1.3	)
Short-term financing		8.6		(6.4	)		2.2			7.2			2.5
Net interest expense		19.5		(56.8	)		(37.3	)		(18.2	)		(16.7	)
Financial pension expense				(4.0	)		(4.0	)
Exchange gains and losses				(3.2	)		(3.2	)		(4.2	)		(2.0	)
Financial amortization and provisions		1.4		(3.1	)		(1.7	)		(4.2	)		(8.5	)
Other				(2.4	)		(2.4	)		0.0			(0.1	)
Total		20.9		(69.4	)		(48.5	)		(26.6	)		(27.3	)

(*) Lease financing expenses increased by EUR 3.7 million due to the lease financing costs of the assets linked to Cellnet’s operations divested on July 23rd, 2004.

Atos Origin Annual Report

17

Average net debt increased from EUR 399 million in 2003 to EUR 671 million in 2004. Excluding the financing of Cellnet’s assets, the average cost of borrowings amounted to 5.0% compared with 4.6% in 2003.

f) Non-recurring items

Non-recurring items totalled EUR 150 million and included mainly integration costs amounting to EUR 23 million, rationalization costs amounting to EUR 15 million and staff reorganization costs amounting to EUR 110 million.

g) Corporate income tax

The notional income tax rate in 2004 was of 27.7% compared with 24.6% in 2003. After adjusting for deductible amortization of goodwill, the effective tax rate is 31.0% as compared with 29.3% in 2003. Deductible goodwill amortization expense amounted to EUR 19.7 million and relates mainly to goodwill created upon the integration of the KPN entities and KPMG Consulting in the UK.

• Net income before tax and amortization of goodwill was as follows:

(in EUR millions)

	Period ended			Period ended			Period ended
	Dec 31st. 2004			Dec 31st. 2003			Dec 31st. 2002
Net income on ordinary activities		336.3			221.2			238.3
Non-recurring items		(149.6	)		(54.9	)		(70.8	)
Net income before tax and amortization of goodwill		186.8			166.3			167.5
Deductible amortization of goodwill		(19.7	)		(26.9	)		(12.7	)
Theoretical tax base		167.0			139.4			154.8
Group’s tax burden		(51.7	)		(40.9	)		(46.9	)
Group’s effective taxation rate		31.0	%		29.3	%		30.3	%

* Current and deferred taxes

(in EUR millions)

				Period ended									Period ended									Period ended
	Dec 31st, 2004									Dec 31st, 2003									Dec 31st, 2002
	France			International			Total			France			International			Total			France			International			Total
Current taxes		(11.6	)		(26.1	)		(37.7	)		(31.6	)		(22.4	)		(54.0	)		(18.2	)		(10.6	)		(28.8	)
Deferred taxes		(5.8	)		(8.2	)		(14.0	)		(1.4	)		14.5			13.1			3.4			(21.5	)		(18.1	)
Total		(17.4	)		(34.3	)		(51.7	)		(33.0	)		(7.9	)		(40.9	)		(14.8	)		(32.1	)		(46.9	)

The deferred tax charge of EUR 14 million in 2004 was impacted by a net release of valuation allowances on deferred tax assets of EUR 9.3 million and by the announced reduction of the nominal tax rate in The Netherlands and in France for the next three years, for an amount of EUR 3.5 million.

Atos Origin Annual Report

18

* Effective tax rate

The difference between the standard French corporate income tax rate and the nominal tax rate was as follows:

(in EUR millions)

	Period ended			Period ended			Period ended
	Dec 31st, 2004			Dec 31st, 2003			Dec 31st, 2002
Net income before tax and after deductible goodwill amortization		167.0			139.4			154.8
French standard rate of tax		35.4	%		35.4	%		35.4	%
Theoretical tax charge at French standard rate		(59.1	)		(49.3	)		(54.8	)
Impact of permanent differences		1.8			(6.1	)		1.1
Foreign income taxed at different rates		(0.8	)		2.9			1.7
Unrecognized deferred tax assets		9.3			13.8			2.0
Others		(2.9	)		(2.2	)		3.1
Group tax charge		(51.7	)		(40.9	)		(46.9	)
Effective tax rate		31.0	%		29.3	%		30.3	%

* Analysis of deferred tax assets by type and origin

(in EUR millions)

						Net value		Net value
						Dec 31st,		Dec 31st,
	Gross value		Provision			2004		2003
Deferred tax on losses carried forward		275.5		(217.9	)		57.6		47.2
Deferred tax on timing differences, adjustments and provisions		292.9		(76.1	)		216.8		34.3
Total (*)		568.4		(294.0	)		274.4		81.5

(*) Net of deferred tax assets EUR 279.8 million (note p) and deferred tax liabilities EUR 5.4 million (note v)

Deferred tax assets not provided represent profits recognized in the accounts, by tax unit, in respect of probable future tax savings. Such savings are restricted to the ability of each tax unit to recover these assets in the near future. Deferred tax assets are not discounted to present value in line with IAS 12 at an individual tax unit level and certain tax units are unable to produce a reliable reversal schedule.

The Group is providing for its tax assets depending on their likelihood of utilization, which is determined from the historical financial results and the financial forecasts of the Group’s operational entities, taking into account legal restructuring in progress.

* Tax losses carried forward are as follows

(in EUR millions)	Dec 31st. 2004			Dec 31st. 2003			Dec 31st. 2002
2003								9.2
2004					5.7			0.9
2005		0.9			1.1			2.2
2006		0.5			1.8			3.5
2007		5.5			1.3			22.1
2008		4.6			24.2
2009		293.9
Tax losses available for carry forward after more than 5 years		239.7			42.5			76.5
Ordinary tax losses carried forward		545.0			76.6			114.4
Evergreen tax losses carried forward		292.2			443.8			95.8
Total tax losses carried forward		837.2			520.4			210.2
Deferred tax on losses carried forward		275.5			150.1			60.9
Valuation allowance		(217.9	)		(102.9	)		(44.2	)
Net deferred tax on losses carried forward		57.6			47.2			16.7

Atos Origin Annual Report

19

Compared to 2003, total tax losses carried forward have increased by EUR 523 million. The increase can be analyzed as follows:

• EUR 159 million existing losses at the time of the Sema Group acquisition,

• EUR 361 million due to the disposals in North America, of which EUR 207 million are capital losses and EUR 154 million are operating losses,

• Decrease of EUR 226 million losses upon impairment of Atos Consulting in The United Kingdom in 2003 due to conversion into timing differences in 2004 by application of the 4% goodwill amortization regime in The United Kingdom.

The countries with the largest tax losses available for carry forward are the United States (EUR 395 million), the United Kingdom (EUR 98 million), France (EUR 61 million), Germany (EUR 59 million) and Italy (EUR 41 million).

The net value of deferred tax assets on timing differences increased from EUR 34 million to EUR 217 million, primarily due to an increase of EUR 124 million in the timing of pensions which are fully recognised in the UK Sema entities.

h) Minority interests

The minority interest share in net income is EUR 6.8 million. The most significant balances include:

• AtosEuronext, Bourse Connect and companies in partnership with Euronext (EUR 3.4 million)

• Atos Wordline GmbH, a German payment services specialist (EUR 1.8 million)

i) Earnings per share

The Group applies the earnings per share calculation rules described in “Accounting Principles”. Under this method it is assumed that funds received on the date of exercise of rights are invested at either the money market rate or the Group internal rate of return. Basic and diluted earnings per share were as follows:

	Period ended		Period ended			Period ended
	Dec. 31st, 2004		Dec. 31st, 2003			Dec. 31st, 2002
Net income — Group share [a]		10.5		(169.0	)		70.8
Impact of the conversion of dilutive instruments		0.6		1.4			0.1
Diluted net income — Group share [b]		11.1		(167.6	)		70.9
Weighted-average number of shares outstanding [c]		65,821,887		45,458,166			43,954,677
Impact of dilutive instruments
Philips Warrants							2,387,413
KPMG ORA Bonds							3,657,000
KPMG Consulting Earn-out shares				847,500			847,500
Stock subscription options (*)		1,305,081		1,448,373
Closing dilutive instruments		1,305,081		2,295,873			6,891,913
Weighted-average dilutive instruments [d]		1,651,897		2,922,267			6,891,913
Weighted-average diluted number of shares [e]=[c]+[d]		67,473,784		48,380,433			50,846,590
Earnings per share in EUR [a]/[c]		0.16		(3.72	)		1.61
Diluted earnings per share in EUR [b]/[e]		0.17		(3.42	)		1.39

(*) If the exercise price is lower than the stock price at the end of the period

Atos Origin Annual Report 2004 20

14.1.12.2 Notes to the consolidated balance sheet

j) Consolidated opening balance sheet

The Group has finalized the Sema opening balance sheet by allocating the purchase price to the fair value of Sema’s identifiable assets and liabilities, in line with French and IFRS accounting standards.

The Consolidated Opening Balance Sheet at January 1^st, 2004 is derived from:

- The consolidated balance sheet statements of Atos Origin described in its 2003 Financial Report, which have been prepared in accordance with French accounting principles applied by Atos Origin, expressed in euros and audited by the Group’s auditors for the period ended December 31st, 2003.

- The acquired assets and liabilities of the Sema Group at January 1st, 2004 prepared by Schlumberger, restated in accordance with French accounting principles applied by Atos Origin, expressed in euros.

- Opening balance sheet adjustments to evaluate the identifiable assets and liabilities of the Sema Group at their fair value in accordance with French GAAP and IFRS rules.

- Consolidated entries relating to the acquisition, which have been prepared by Atos Origin as described hereafter, and are in accordance with French accounting principles applied by Atos Origin, expressed in euros at the end of 2004.

Sema Group — Opening Balance Sheet at January 1^st, 2004

(in EUR millions)

	Acquired		OBS			Sema			Acquired			OBS			Sema
Assets	assets		Adjust			pro forma		Liabilities	liabilities			Adjust.			pro forma
Intangible assets		22.1					22.1	Shareholders’ equity		519.6			(437.6	)		82.1
Tangible assets		120.8		(6.5	)		114.3	Minority interests		2.6						2.6
Financial assets		8.5		(1.1	)		7.4
Total fixed assets		151.4		(7.6	)		143.8	Total Equity		522.2			(437.6	)		84.7
Net assets held for sale		303.4		(123.7	)		179.7	Pensions		163.1			146.1			309.2
Deferred tax		104.0		66.1			170.1	Other provisions		120.0			184.8			304.6
Net working capital		174.2		(41.6	)		132.6	Total Provisions		283.0			330.8			613.8
Working capital		278.2		24.5			302.7	Net debt		(72.3	)					(72.3	)
Total Assets		733.0		(106.8	)		626.2	Total Liabilities		733.0			(106.8	)		626.2

Net assets held for sale at January 1^st , 2004

(in EUR million)

NET ASSETS	Acquired assets		OBS adjustments			Sema pro forma
Cellnet		284.2		(123.7	)		160.5
PA-Konsult		19.2					19.2
Total		303.4		(123.7	)		179.7

Working capital at January 1^st , 2004

(in EUR million)

ASSETS	Acquired assets			OBS adjustments			Sema pro forma
Net deferred tax		104.0			66.1			170.1
Trade receivables		748.2			(25.2	)		723.0
Trade payables		(208.9	)					(208.9	)
Net other receivables/payables		(365.1	)		(16.4	)		(381.5	)
Total		278.2			24.5			302.7

Atos Origin Annual Report 2004 21

Provisions at January 1^st , 2004

(in EUR million)

	Acquired			OBS			Sema
LIABILITIES	liabilities			adjustments			pro forma
Pensions		(163.1	)		(146.1	)		(309.2	)
Fair value adjustments		(4.5	)		(6.5	)		(11.0	)
Reorganization		(8.0	)		(3.6	)		(11.6	)
Rationalization		(8.7	)		(37.6	)		(46.3	)
Project commitments		(67.2	)		(72.0	)		(139.2	)
Litigation & contingencies		(31.5	)		(65.0	)		(96.5	)
Total		(283.0	)		(330.8	)		(613.8	)

Consolidated Opening Balance Sheet at January 1^st , 2004

(in EUR millions)

	January 1st , 2004
	Atos		Sema
Assets	Origin		Group		Total		Acquisition		Consolidated
Goodwill		742.3				742.3		1,413.6		2,155.9
Other intangible assets		27.1		22.1		49.2				49.2
Tangible assets		156.0		114.3		270.3				270.3
Financial assets		18.3		7.4		25.7				25.7
Total fixed assets		943.7		143.8		1,087.5		1,413.6		2,501.1
Working capital net of deferred tax		64.0		132.6		196.6				196.6
Deferred tax		81.6		170.1		251.7				251.7
Working capital requirements		145.6		302.7		448.3				448.3
Assets held for sale				278.9		278.9				278.9
Total Assets		1,089.3		725.4		1,814.7		1,413.6		3,228.3

	Atos		Sema
Liabilities	Origin		Group			Total		Acquisition		Consolidated
Shareholders’ equity –Group share		535.7		82.1			617.8		909.3		1,527.1
Minority interests		48.2		2.6			50.8				50.8
Total shareholders’ equity		583.9		84.7			668.6		909.3		1,577.9
Provisions for pensions		105.2		309.2			414.4				414.4
Other provisions		134.2		304.6			438.8				438.8
Provisions for risks and losses		239.4		613.8			853.2				853.2
Net debt		266.0		(72.3	)		193.7		504.3		698.0
Liabilities held for sale				99.2			99.2				99.2
Total Liabilities		1,089.3		725.4			1,814.7		1,413.6		3,228.3

k) Goodwill

An impairment test on long-term assets was carried out at December 31^st, 2004 in accordance with the procedure adopted by the Group as part of its control process. This procedure, which is described in the Group’s accounting principles, is based on the discounted future net cash flow method and consists of evaluating the recoverable value of each cash-generating unit. This evaluation is conducted on the basis of underlying assumptions taken from the budget process and spread over 4 years, including reasonable growth and profitability rates. The discount rate used was 9.2% and is taken from a consensus of studies performed by financial analysts at the end of 2004. The discount rate has been applied to all cash-generating units to give an appreciation of their cash flows. As at December 31^st, 2004 the recoverable amounts thus recorded are greater than the net book values and therefore no depreciation has been charged.

(in EUR million)

	Dec 31st,			Acquisitions			Disposals			Translation			Dec 31st,			Acquisitions			Disposals			Translation			Dec 31st ,
	2002			Expenses			Reversals			differential			2003			Expenses			Reversals			differential			2004
Gross value		1,194.0			35.3			(10.7	)		(35.0	)		1,183.6			1,416.2			(1.0	)		(0.3	)		2,598.6
Current amortization		(136.1	)		(57.8	)		4.8			5.2			(183.9	)		(117.1	)		0.6			0.9			(299.5	)
Extraordinary depreciation		(28.7	)		(228.8	)(*)								(257.5	)		(10.9	)(**)		—			—			(268.4	)
Net value		1,029.2			(251.3	)		(5.9	)		(29.8	)		742.3			1,288.2			(0.4	)		0.6			2,030.7

(*)	The extraordinary depreciation expense for the financial year 2003 of EUR 228.8 million included an impairment charge of EUR 225.3 million in respect of Atos KPMG Consulting in the United Kingdom.
(**)	The extraordinary depreciation expense for the financial year 2004 of EUR 10.9 million relates to the release of unused provisions in the opening balance sheet for Atos Consulting in the United Kingdom and the Netherlands.

Atos Origin Annual Report 2004 22

Final goodwill of Sema Group

Pursuant to the provisions of Regulation 99-02 and to IFRS, the elements of consideration paid for the acquisition of Sema Group were valued at their fair value on January 1^st, 2004, the effective date at which control was assumed, and included:

– 19.3 million shares issued by Atos Origin in favour of Schlumberger, including 0.3 million treasury stock shares, valued on the basis of the price of the shares at January 1st, 2004, which was EUR 51.35.

– A cash consideration of EUR 400 million, reduced by the amount of a repayment made in cash by Schlumberger in May 2004 of EUR 50 million.

– An additional amount of EUR 142 million paid in cash on the date of the closing of the acquisition, corresponding to a surplus of working capital and cash taken over at the closing date, compared with agreed levels.

– Acquisition expenses of EUR 12 million, net of tax.

The total purchase price of EUR 1,496 million is summarized as follows:

(en EUR millions)

Value of Atos Origin shares	991
Net cash purchase price	350
Additional amount in cash	142
Acquisition expenses (net of tax)	12
Total	1,496

Goodwill of EUR 1,414 million was determined as follows:

(en EUR millions)

Acquisition price (I)	1,496
Acquired net equity of Sema Group entered into the assets of the balance sheet	520
Sema Opening balance sheet adjustments	(438	)
Gross goodwill at January 1st , 2004	1,414

l) Other intangible fixed assets

(in EUR millions)

	Gross value			Amortization			Net value
December 31st, 2002		109.7			(77.5	)		32.2
Additions, Charges		11.4			(12.7	)		(1.3	)
Disposals, Reversals		(9.8	)		9.3			(0.5
Changes in Group structure / Translation differences		(7.7	)		4.4			(3.3
December 31st, 2003		103.6			(76.5	)		27.1
Additions, Charges		24.9			(24.9	)
Disposals, Reversals		(25.2	)		19.1			(6.1	)
Changes in Group structure / Translation differences		202.4			(95.1	)		107.3
December 31st, 2004		305.7			(177.4	)		128.3

Intangible assets at December 31^st, 2004 mainly consisted of software acquired in order to meet internal requirements or the requirements of clients. Software developed by the Group is normally expensed during the year in which the costs have been incurred.

Changes in scope during 2004 were mainly as a result of the Sema Group acquisition and arising from up-front payments totalling EUR 83 million, in connection with new outsourcing contracts with KardstadtQuelle and E-Plus. These “up-front payments” are not amortized due to their indefinite useful life, but are instead subject to an annual impairment test

Atos Origin Annual Report 2004 23

m) Tangible fixed assets

(in EUR millions)

													Fixed			Payments
							Computer			Other			assets in			on
	Land			Buildings			hardware			assets			progress			account			Total
Gross value at Dec. 31st. 2002		1.2			115.3			479.4			124.0			3.3			0.2			723.4
Additions					7.0			32.2			5.0			(0.3	)		0.1			44.0
Disposals					(8.4	)		(22.4	)		(11.8	)								(42.6	)
Changes in Group structure		(0.1	)		(1.4			(20.7	)		(3.6	)		(2.6	)		(0.2	)		(28.6	)
Gross value at Dec. 31st. 2003		1.1			112.5			468.5			113.6			0.4			0.1			696.3
Additions					16.8			50.2			31.9			0.5			0.1			99.5
Disposals					(8.1	)		(45.9	)		(45.7	)		—			—			(99.7	)
Changes in Group structure		2.5			54.5			133.2			156.8			8.4			(0.1	)		355.2
Gross value at Dec. 31st. 2004		3.6			175.7			606.0			256.7			9.3			(0.1	)		1,051.3
Accumulated depreciation at
Dec. 31st. 2002		0.0			(49.0	)		(365.8	)		(91.3	)		0.0			0.0			(506.1	)
Charge					(14.6	)		(67.7	)		(13.2	)								(95.5	)
Release					6.0			20.3			11.2									37.5
Changes in Group structure					2.5			18.9			2.5									23.9
Accumulated depreciation at																	0.0			(540.3	)
Dec. 31st. 2003		0.0			(55.1	)		(394.3	)		(90.8	)		0.0			0.0			(540.3	)
Charge					(20.0	)		(73.1	)		(31.9	)								(125.1	)
Release					5.4			40.2			44.5									90.1
Changes in Group structure					(27.5	)		(89.7	)		(126.0	)								(243.3	)
Accumulated depreciation at
Dec. 31st. 2004		0.0			(97.3	)		(516.9	)		(204.3	)		0.0			0.0			(818.6	)
Net Value at Dec. 31st , 2004		3.6			78.4			89.0			52.4			9.3			0.1			232.8

n) Investments

Investments of EUR 26.2 million include securities accounted for through the equity method and non-consolidated interests amounting to EUR 1.7 million, and loans, deposits and guarantees (primarily linked to property rentals) of EUR 24.5 million.

o) Trade accounts and notes receivable

(in EUR millions)

	Dec 31st			Dec 31st			Dec 31st
	2004			2003			2002
Gross value of trade receivables		1,569.0			788.9			908.0
Provision for doubtful debts		(46.5	)		(34.2	)		(36.1	)
Net asset value		1,522.5			754.7			871.9
Prepayments		(23.0	)		(86.8	)		(87,2	)
Deferred income and amounts due to customers		(306.2	)		(106.0	)		(66.0	)
Net accounts receivables at December 31st		1,193.3			561.9			718.7
Number of days’ revenue outstanding		64			57			68

Atos Origin Annual Report 2004

24

p) Other receivables, prepayments and accrued income

(in EUR millions)
	Dec. 31st, 2004		Dec. 31st, 2003		Dec. 31st, 2002
Assets held for sale		21.7
Recoverable VAT		37.3		33.2		56.3
Tax-related assets (carry back, minimum tax charge, tax credits)		66.8		28.4		43.7
Deferred tax assets		279.8		89.9		77.4
Amounts receivable on disposals of tangible assets and investments		2.4		5.2		5.9
Other receivables		67.9		34.2		25.2
Prepayments and accrued income		89.5		58.8		55.7
Total		565.4		249.7		264.2

q) Common stock

	Number		Par
	of shares		Value	Total
				(in EUR thousands)
Common stock at December 31st , 2002		44,055,676	EUR 1		44,055.7
Common stock at December 31st , 2003		47,869,633	EUR 1		47,869.6
Common stock at December 31st , 2004		66,938,254	EUR 1		66,938.3

Capital increases took place as follows:

		Number of		Impact on		Impact on
Dates of the Management Board Meeting	Nature of the capital increase	issued shares		share capital		share premium
				(in EUR millions)
January 22nd , 2004	Sema acquisition		19,000,000		19.0		854.1
March 31st , 2004	Exercise of options		47,186		0.05		1.6
June 30th , 2004	Exercise of options		12,820		0.01		0.6
September 30th , 2004	Exercise of options		1,320				0.03
December 31st, 2004	Exercise of options		7,295				0.2
Total at December 31st , 2004			19,068,621		19.1		856.5

r) Minority interests

Minority interests in shareholders’ equity totalled EUR 52.7 million. The most significant interests were:

– AtosEuronext, Bourse Connect and companies in partnership with Euronext: EUR 40.3 million

– Atos Worldline GmbH a German payment specialist company: EUR 5.6 million

s) Provisions for contingencies and losses

(in EUR millions)

													Sema		Sema		Jan. 1st,
			Other										Jan. 1st		adjust		2004		Other
	2002		(a)			Charge		Release			2003		2004		OBS		combined		(a)			Charge		Release			2004
Fair value adjustment		22.4		1.1			2.7		(8.8	)		17.5		4.5		6.5		28.5		(0.2	)		—		(14.7	)		13.6
Reorganization		49.6		(1.9	)		16.1		(41.2	)		22.6		8.0		3.6		34.2		(0.3	)		81.7		(64.5	)		51.1
Rationalization		9.8		15.5			0.6		(6.1	)		19.7		8.7		37.6		66.0		(5.9	)		10.4		(20.2	)		50.3
Projects commitments		12.4		20.2			3.9		(8.2	)		28.3		67.2		72.0		167.5		(11.4	)		7.2		(63.0	)		100.3
Litigation & contingencies		63.0		—			3.6		(20.4	)		46.1		31.5		65.0		142.6		1.4			10.1		(40.9	)		113.3
Pensions		109.4		(3.8	)		33.2		(33.6	)		105.2		163.1		146.1		414.4		112.3			69.9		(82.0	)		514.7
Total provisions		266.6		31.0			60.1		(118.3	)		239.4		283.0		330.8		853.2		95.9			179.3		(285.3	)		843.3

(a) The “Other” column comprises adjustments to the opening balance sheet, changes in Group structure, translation differences and changes in accounting policy for pensions in 2004.

Atos Origin Annual Report 2004 25

* Fair value adjustment

(in EUR millions)

												Sema		Sema		Jan. 1st,
			Other									Jan. 1st,		adjust		2004		Other
	2002		(a)		Charge		Release			2003		2004		OBS		combined		(a)			Charge		Release			2004
Fair value adjustment		22.4		1.1		2.7		(8.8	)		17.5		4.5		6.5		28.5		(0.2	)		—		(14.7	)		13.6

(a) Adjustments to goodwill & translation differences, changes in group structure.

Fair value adjustment provisions consist mainly of commitments for software licences that are in excess of the Group’s commercial requirements, taken over upon the acquisitions of Origin and Sema Group.

* Reorganization

(in EUR millions)

													Sema		Sema		Jan. 1st,
			Other										Jan. 1st,		adjust		2004		Other
	2002		(a)			Charge		Release			2003		2004		OBS		combined		(a)			Charge		Release			2004
Reorganization		49.6		(1.9	)		16.1		(41.2	)		22.6		8.0		3.6		34.2		(0.3	)		81.7		(64.5	)		51.1

(a) Adjustments to goodwill & translation differences, changes in group structure.

Reorganization provisions at December 31st, 2004 include provisions for restructuring within Atos Origin and Sema Group prior to January 1^st, 2004 and new provisions charged through the income statement in 2004 to cover the cost of the merger integration reorganisation plan.

* Rationalization

(en EUR millions)

												Sema		Sema		Jan. 1st,
			Other									Jan. 1st,		adjust		2004		Other
	2002		(a)		Charge		Release			2003		2004		OBS		combined		(a)			Charge		Release			2004
Rationalization		9.8		15.5		0.6		(6.1	)		19.7		8.7		37.6		66.0		(5.9	)		10.4		(20.2	)		50.3

(a) Adjustments to goodwill & translation differences, changes in group structure.

Rationalization provisions at December 31st, 2004 include provisions to cover the rationalization of premises and data processing facilities in Atos Origin and Sema Group prior to January 1^st, 2004, and new provisions created in 2004 to cover merger integration rationalisation of premises, including potential dilapidations and restoration in respect of empty space identified by Sema Group before the merger.

* Project commitments

(in EUR millions)

												Sema		Sema		Jan. 1st,
			Other									Jan. 1st,		adjust		2004		Other
	2002		(a)		Charge		Release			2003		2004		OBS		combined		(a)			Charge		Release			2004
Projects commitments		12.4		20.2		3.9		(8.2	)		28.3		67.2		72.0		167.5		(11.4	)		7.2		(63.0	)		100.3

(a) Adjustments to goodwill & translation differences, changes in group structure.

* Litigation & contingencies

(in EUR millions)

												Sema		Sema		Jan. 1st,
			Other									Jan. 1st,		adjust		2004		Other
	2002		(a)		Charge		Release			2003		2004		OBS		combined		(a)		Charge		Release			2004
Litigation & contingencies		63.0		—		3.6		(20.4	)		46.1		31.5		65.0		142.6		1.4		10.1		(40.9	)		113.3

(a) Adjustments to goodwill & translation differences, changes in group structure.

Provisions for litigation and contingencies include tax contingencies (EUR 45 million) and provision for potential litigation and various other smaller identified claims. A substantial proportion of notified claims have been specifically warranted by Schlumberger, including defence costs. The action plan implemented during preceding years (including through insurance-incentives and the promotion of service quality) will help achieve further reductions in the number and value of claims and litigation.

Atos Origin Annual Report 2004

26

* Pensions

(in EUR millions)															Sema
													Sema		OBS		Combined
	Dec 31st,		Other								Dec 31st,		Jan 1st,		Jan 1st,		Jan 1st,		Other							Dec. 31st,
	2002		(a)			Charge		Release			2003		2004		2004		2004		(a)		Charge		Release			2004
Pensions		109.4		(3.8	)		33.2		(33.6	)		105.2		163.1		146.1		414.4		112.4		69.9		(82.0	)		514.7

- Situation at January 1^st, 2004

Atos Origin’s commitments under defined benefit pension schemes at January 1^st, 2004, including the integration of Sema Group was as follows:

(in EUR millions)	Dec 31st,
	2003									January 1st, 2004						Sema
	Atos Origin			KPN & AC			Measurt			Reallocation			Total			Group			Combined
Total commitments		(723.3	)		(170.2	)		(3.6	)		(4.4	)		(901.5	)		(886.3	)		(1,787.8	)
Fair value of plan assets		557.8			122.1			0.4						680.3			577.1			1,257.4
Funded status		(165.5	)		(48.1	)		(3.2	)		(4.4	)		(221.2	)		(309.2	)		(530.4	)
Prepayments		(5.8	)											(5.8	)					(5.8	)
Reallocation											4.4			4.4						4.4
Provisions		57.1			48.1									105.2			309.2			414.4
Financial debt		24.0												24.0						24.0
Net amount recognized in		75.3			48.1			0.0			4.4			127.8			309.2			437.0
the balance sheet
Unrecognized deficit		(90.2	)		0.0			(3.2	)		0.0			(93.4	)		0.0			(93.4	)

Provision for the funding deficits of defined benefit schemes in Atos Origin at December 31^st, 2003 amounted to EUR 57 million. Some of the funds relating to schemes for KPN and Atos Consulting staff in The Netherlands had not been received at December 31^st, 2003 and were therefore shown as a provision liability at that date. The funds were transferred to Atos Origin in 2004. The sum of these two items amounted to EUR 105 million at December 31^st, 2003.

At December 31^st, 2003, the value of scheme liabilities/commitments and the value of fund assets were based on calculation methods set out in IAS19. For the requirements of the first application of the preferred French standard, the Atos Origin group proceeded to revise these amounts. This revised assessment of Atos Origin provisions has been made at January 1^st, 2004 for EUR 3 million.

A reallocation in employee related liabilities of EUR 4 million was made to cover the German commitments at January 1^st, 2004.

The unrecognized losses on defined benefits of Atos Origin at January 1^st, 2004 of EUR 93 million has been recorded against the opening equity at January 1^st, 2004. This adjustment corresponds to the change in accounting method related to the non-amortization of the actuarial losses at January 1^st, 2004. As a result, the opening status of provisions at January 1^st, 2004 including the change of accounting method was as follows:

(in EUR millions)			Combined		Change
	Dec 31st,		Jan 1st,		Jan 1st,		Jan 1st,		Other							Dec. 31st,
	2003		2004		2004		2004		(a)		Charge		Release			2004
Pensions		105.2		414.4		93.4		507.8		19.0		69.9		(82.0	)		514.7

Atos Origin Annual Report 2004

27

The opening pension provision at January 1^st, 2004 excluded EUR 24 million which was classified as financial debt in the balance sheet of Atos Origin at December 31^st, 2003. A plan for refinancing the main Dutch pension fund was renegotiated with trustee managers in 2003 and approved by the Dutch supervisory authority (PVK). In consideration for a decrease in future indexation commitments, additional contributions were to be paid into the fund by Atos Origin in 2004 and 2005. This action will restore the pension fund’s prudent funding criteria in accordance with national standards. Taking into account the fact that this commitment is certain, the related EUR 24 million contribution was reclassified at December 31st, 2003 as a financial debt instead of a provision. EUR 16.5 million was disbursed in 2004.

The category “Other” in the table above includes pension commitments taken over with the new outsourcing contracts for KardstadQuelle and E-Plus (EUR 17 million).

- Pension commitments at January 1^st, 2004, by country

The Atos Origin Group’s commitments at January 1^st, 2004, following the integration of Sema Group and after charging to equity in 2004 the Atos Origin (pre-Sema) actuarial deficit not recognized at December 31^st, 2003, was as follows:

January 1st, 2004	The Netherlands						United Kingdom
	Atos			Sema			Atos			Sema
(in EUR millions)	Origin			Group			Origin			Group			Others			Total
Total Commitments		(642.5	)		(4.2	)		(158.2	)		(799.5	)		(183.4	)		(1,787.8	)
Fair value of plan assets		533.6			3.5			125.4			532.5			62.4			1,257.4
Funded status		(108.9	)		(0.7	)		(32.8	)		(267.0	)		(121.0	)		(530.4	)
Provisions		108.9			0.0			32.8			121.3			121.3			384.3
Sema OBS Provisions		0.0			0.7			0.0			145.7			(0.3	)		146.1
Total provisions		108.9			0.7			32.8			267.0			121.0			530.4
Unrecognized gain (loss)		0.0			0.0			0.0			0.0			0.0			0.0

At January 1^st, 2004, the integration of Sema Group led to a significant increase by EUR 309 million in the level of pension funding deficit, located mainly in the United Kingdom and Germany.

The most significant commitments of the Atos Origin group as a whole concern entities located in the United Kingdom (54% of group commitments) and in The Netherlands (36% of group commitments), where retirement is mainly provided through pension funds based wholly or partly on defined benefits through separate legal entities administered jointly. Their resources are provided by employer and employee contributions as well by the return obtained from the fund’s assets, generally invested in shares and bonds. The solvency of funds is reviewed by local regulators, using periodic actuarial evaluations. These are designed to ensure that the level of contributions is sufficient to guarantee the payment of future benefits. Some other group entities, especially in Germany, Italy and France operate compulsory schemes, as well as traditional indemnity plans at end of career or upon leaving service.

The funding deficit was fully covered by provisions in the accounts of Atos Origin at January 1st, 2004 and provisions of EUR 146 million were created in the opening balance sheet of Sema Group following acquisition, under the purchase accounting method.

Atos Origin Annual Report 2004 28

– Situation at December 31^st, 2004 by country

The principal assumptions have been incorporated in the actuarial valuations, performed in accordance with IAS 19 recommendations, as follows:

	United Kingdom									The Netherlands									Other Euro countries
	2004			2003			2002			2004			2003			2002			2004			2003			2002
Rate of salary increase		2.50% to 3	%		2.75	%		3.75	%		1.90	%		3.35	%		3.35	%	2 to 3%
Expected return on plan assets		7.50	%		7.70	%		7.70	%		7.00	%		7.00	%		7.00	%	Not applicable
Discount rate		5.25	%		5.50	%		5.75	%		4.75	%		5.25	%		5.50	%		4.75	%		5.25	%		5.50	%

The main defined-benefit plans at December 31^st , 2004 were as follows:

(in EUR millions)

	The			United						Dec. 31st
	Netherlands			Kingdom			Others			2004
Total commitments		(738.4	)		(1,097.3	)		(209.6	)		(2,045.3	)
Fair value of plan assets		617.5			757.9			57.3			1,432.7
Funded status		(120.9	)		(339.4	)		(152.3	)		(612.6	)
Provisions		85.3			293.7			135.7			514.7
Financial debt		7.5									7.5
Net amount recognized in the balance sheet		92.8			293.7			135.7			522.2
Unrecognized past service cost								(8.9	)		(8.9	)
Unrecognized actuarial gain (loss)		(28.1	)		(45.7	)		(7.7	)		(81.5	)
Unrecognized gain (loss)		(28.1	)		(45.7	)		(16.6	)		(90.4	)
Corridor (10% of commitments) (*)		73.8			109.7			18.9
Amortization base (*)		0.0			4.3			(1.3	)
Average remaining working period of employees		9.0			9.0			12.0
Forecast 2005 actuarial amortization charge		0.0			0.5			(0.5	)

(*) Corridor and amortization base are calculated on a plan by plan basis.

Plans partially or totally pre-financed through external funds (pension funds, etc,) represent a total obligation as at December 31^st, 2004 of EUR 1,878 million (92% of the group’s total commitment).The assets to cover these plans are invested in shares (58%), bonds (33%) and other forms such as cash, real estate, etc. (9%).

- Change between January 1^st , 2004 and December 31^st , 2004

(in EUR millions)

	January 1st ,			Dec. 31st ,
	2004			2004			Total change
Total commitments		(1,787.8	)		(2,045.3	)		(257.5)		+14.4	%
Fair value of plan assets		1,257.4			1,432.7			175.3		+13.9	%
Funded status		(530.4	)		(612.6	)		(82.2	)
Provisions		506.4			514.7			8.3
Financial debt		24.0			7.5			(16.5	)
Net amount recognized in the balance sheet		530.4			522.2			(8.2	)
Unrecognized gain (loss)		0.0			(90.4	)		(90.4	)

Total commitments have increased by 14% during the period due to a reduction in the discount rate of funds used in the United Kingdom and in The Netherlands, partially covered by a growth of 14% in the fair value of plan assets, for which the expected return was globally stable. As a result, the net unrecognized deficit on defined benefit schemes was EUR 90 million at December 31^st, 2004.

Atos Origin Annual Report 2004 29

– 2004 Analysis

Analysis of amounts recorded in the Balance Sheet and the Income Statement in respect of existing plans was as follows:

(in EUR millions)

	Dec. 31st 2004
Accrued expenses at the end of the year (*)		522.2
Net amount recognized in the balance sheet		522.2
Net amount recorded in the Income Statement
Current service cost		(67.0	)
Interest expense		(99.7	)
Expected return on plan assets		95.8
Amortization of actuarial gains/losses		(0.2	)
Effect of specific events		1.4
Effect of past service cost		(0.2	)
Total profit / (loss)		(69.9	)

(*) Provision before re-classification among financial payables of the EUR 7.5 million.

t) Net debt

(in EUR millions)

										Dec. 31st , 2004
										Falling due within
				Dec.			Jan 1st																		5
	Dec. 31st			31st			2004						1			2			3			4			years
	2002			2003			combined			Total			year			years			years			years			or more
Bonds		(173.0	)		(173.0	)		(173.0	)
Finance leases		(17.2	)		(6.8	)		(6.8	)		(16.3	)		(6.7	)		(4.9	)		(2.6	)		(1.8	)		(0.4	)
Long-term borrowings		(636.7	)		(568.9	)		(568.9	)		(769.3	)		(162.3	)		(105.1	)		(100.4	)		(100.3	)		(301.2	)
Securitization (*)											(132.8	)		(132.8	)
Other borrowings		(35.3	)		(41.5	)		(41.5	)		(38.6	)		(23.1	)		(1.2	)		(3.1	)		(4.2	)		(7.1	)
Total Borrowings		(862.1	)		(790.2	)		(790.2	)		(957.1	)		(324.9	)		(111.1	)		(106.0	)		(106.3	)		(308.7	)
Transferable securities		133.1			458.7			90.0			258.6			258.6
Cash at bank and in band		288.7			65.4			2.2			207.5			207.5
Total cash and cash		421.8			524.2			92.20			466.1			466.1
Net debt		(440.3	)		(266.0	)		(698.0	)		(491.0	)		141.2			(111.1	)		(106.0	)		(106.3	)		(308.7	)

Securitization

In March 2004, Atos Origin entered into a 5-year pan-European program with Ester Finance, a 100% subsidiary of CALYON rated by S&P and Moodies AA- and Aa2 respectively. The maximum amount financed through this program is EUR 200 million.The trade receivables from Atos Origin were from Group entities in The Netherlands, France, United Kingdom and Germany and sold on a recurring basis. Ester financed this transaction through the issuance of commercial paper rated A1P1. A subordinated deposit (made in the form of trade receivables) to the purchaser supports this level of rating. The amount of this deposit is re-calculated on a monthly basis and is a function of several ratios such as dilution, DSO’s, loss ratio, etc. At December 31^st, 2004 the total trade receivables sold to Ester finance were EUR 230 millions and the subordinated deposit was EUR 97 million, resulting in a net financing for Atos Origin group of EUR 133 million. The Group has decided to keep in the balance sheet the receivables and the related debt.

Fixed- and floating-rate borrowings were as follows:

(in EUR millions)

	2004			2003			2002
Fixed-rate borrowings		(40.5	)		(188.1	)		(183.0	)
Floating-rate borrowings		(916.6	)		(602.1	)		(679.1	)
Total borrowings		(957.1	)		(790.2	)		(862.1	)

Atos Origin Annual Report 2004 30

Fixed-rate financial debt primarily related to finance leases and to the French mandatory employee profit-sharing scheme. Floating-rate borrowings mainly consisted of syndicated loan and credit facilities, and overdrafts used occasionally by Group companies.

At December 31^st, 2004, EUR 365 million of net debt (38% of the Group’s gross debt) was fixed or hedged rate. The Group’s policy is to hedge 50% of the floating-rate debt (syndicated loan – Tranches A and B), primarily through fixed-rate swap agreements.

All borrowings are denominated in euros.

Convertible bonds (1999-2004)

In June 1999 Atos issued a EUR 172.5 million convertible bond, represented by 1,440,501 bonds, with a nominal value of EUR 119.8 each. The bonds paid interest at 1% per year. The bonds were fully reimbursed on October 1^st, 2004 at a price of EUR 131.40 each, at a total cash cost of EUR 189.3 million, of which EUR 16.8 million was redemption premium.

Structure of the new syndicated loan (2004-2009)

A new syndicated loan was partly drawn down at the end of January 2004 in order to refinance existing debt, including existing loan facilities, and to pay the cash component of the acquisition of the Sema Group and the costs and expenses linked to that acquisition.

The EUR 900 million syndicated loan is structured in three tranches as follows:

(In EUR millions)

	Amount		Maturity	Repayment
Term loan — Tranche B		400	5 years	Progressive
Term loan — Tranche A		250	5 years	At the end
Revolving loan — Tranche C		250	3 years	Progressive
Total		900

(In EUR millions)

		Repayment schedule
		2005			2006			2007			2008			2009
Term loan — Tranche B	400		(50	)		(100	)		(100	)		(100	)		(50	)
Term loan — Tranche A	250														(250	)
Revolving loan — Tranche C	250		(125	)		(125	)
Total	900		(175	)		(225	)		(100	)		(100	)		(300	)

Pursuant to the terms of the syndicated loan, Atos Origin is required to comply with two covenants, which are applied on a semi-annual basis on June 30th and December 31st, and on a rolling 12-month annualized basis:

– Atos Origin’s Consolidated Leverage Ratio (Consolidated Net Debt divided by Consolidated EBITDA) may not be greater than 1.75 for test periods up to and including December 31st, 2004, and may not exceed 1.5 thereafter.

– Atos Origin’s Consolidated Interest Cover Ratio (Consolidated EBITA (*) divided by Consolidated Net Interest Expense) may not be less than 5.0 throughout the term of the current syndicated loan. (*) Corresponding to the Group’s income from operations.

At the end of December 2004, the Group was substantially within its borrowing convenants, with a Consolidated Leverage Ratio of 1.12 and a Consolidated Interest Cover ratio at more than 10 times in 2004.

u) Trade accounts and notes payable

(in EUR millions)

	Dec 31st		Dec 31st		Dec 31st
	2004		2003		2002
Trade payables		572.1		232.6		325.7
Amounts payable on tangible assets		5.3		4.0		17.1
Total		577.4		236.6		342.8

Atos Origin Annual Report 2004 31

v) Other liabilities, accruals and deferred income

(in EUR millions)

	Dec. 31st, 2004		Dec. 1st, 2003		Dec 1st, 2002
Liabilities held for sale		2.5
Advances and down payments received on client orders		23.0		86.8		87.2
Employee-related liabilities		295.0		175.5		176.4
Social security and other employee welfare liabilities		180.6		98.0		106.6
VAT payable		171.2		87.3		102.3
Corporate income tax payable		74.4		52.7		39.0
Deferred tax liabilities		5.4		8.3		9.7
Liabilities on acquisitions of participating interests		—		—		4.6
Miscellaneous creditors and other operating liabilities		162.7		57.3		29.3
Deferred income		160.9		56.1		47.1
Total		1,075.7		622.1		602.2

w) Off-Balance sheet commitments

Off-balance sheet commitments include all significant rights and obligations of the Atos Origin group other than those already included in the consolidated balance sheet and income statement.

In line with the Financial Security Act published in August 2003, in order to ensure that off-balance sheet commitments given or received by the group Management are exhaustive, exact and consistent, internal procedures for the identification and control of off-balance sheet commitments have been revised and implemented.

Atos Origin’s Management perform detailed reviews of all contractual obligations, financial and commercial commitments and conditional obligations. The relevant departments of the group, legal and financial in particular, perform a thorough and regular review of these commitments, which are submitted to the Management Board in accordance with the delegation of authority rules in the group.

Procedures applicable to debt instruments (syndicated loans, credit lines, etc.)

The external financing of the Group is fully centralized at Corporate level and validated by the Management Board. Before granting inter-company loans, Corporate Treasury reviews the tax and legal consequences and examines alternative options. As an exception, for group entities based in Brazil, China and Singapore, Corporate Treasury has organized a local credit facility, which is reviewed on an annual basis and renewed if appropriate.

Procedures applicable to leasing and rental commitments

The Group has issued financial instructions relating to internal investment and leasing or other forms of financing transaction. A clear distinction is made between the approval of an investment and the financing decision for the approved investment. In this instruction the scope, process and threshold for investments to be approved by the internal Investment Committee are defined. The Investment Committee is consulted for any investment that amounts to more than EUR 250,000. Investments linked to major contracts (e.g. outsourcing deals) may also require approval by the Management Board under the contract approval process.

The financing of an approved investment is a Corporate Treasury decision and is triggered by various factors, such as the type of equipment being purchased and the matching cash flows to be received from the client.

Procedures applicable to guarantees

The group has issued instructions for the review and issue of business and credit related guarantees. These instructions define the approval process, including formal approval of the Group CFO in defined

Atos Origin Annual Report 2004 32

cases. The request for approval must be sent to Corporate Legal and Corporate Treasury to review the compliance with all group policies.

For parent company guarantees (performance and financial guarantees), limits are authorised by the Supervisory Board within which the Management Board is authorised to grant guarantees. These limits are usually set for a 12-month period. For parent company guarantees exceeding a certain amount, specific authorisation must be sought from the Supervisory Board. The administration of these guarantees takes place at corporate level. At a local level, the residual value of guarantees is defined and monitored by a joint assessment of legal and finance departments on a regular basis.

All bank guarantees (bid and performance bonds, financial guarantees) require Corporate approval and the administration also takes place at Corporate level. The reconciliation of bank guarantees with the issuing bank is a local responsibility and is requested on a periodic basis. The main criteria for approval of guarantees are compliance with legal requirements and a satisfactory risk assessment of the contract with the client.

In order to avoid double counting, issued guarantees are not disclosed if the underlying commitments (e.g. lease payments for office rent) are already disclosed or the underlying commitments are already recorded in the balance sheet (e.g. as a liability).

Procedures applicable to other off-balance sheet commitments

The company has set up group legal policies that, inter alia, define the principles regarding contractual liability with clients. Specifically, procedures are in place that are aimed at maintaining the acceptance of contractual liability within a reasonable level, compared to the level of revenue and profit generated for the Group.

Any deviation from the liability limits defined in the procedures requires the approval of the Regional General Counsel and of the Management Board member in charge of the region. Moreover, deviations that are above a higher threshold are reported to the Audit Committee of the Supervisory Board on a quarterly basis.

Contractual commitments

The table below illustrates the minimum future payments for firm obligations and commitments over the coming years. The amounts indicated under the financial payable and leasing contracts are posted on the group balance sheet.

	Instalments by period
Contractual obligations	Dec. 31st						More than		Dec. 31st
EUR m.	2004		- 1 year		1 to 5 years		5 years		2003
Long term borrowings (> 5 years)		769.3		162.3		606.0		1.0		568.9
Financial leases		16.3		6.7		9.6		0.0		6.8
Sub-total — Recorded in the balance sheet		785.6		169.0		615.6		1.0		575.7
Operating leases : land, building, fittings		646.2		129.2		335.5		181.5		484.3
Operating leases : IT equipment		212.6		107.1		105.5		0.0		69.6
Operating leases : other fixed assets		91.3		39.5		51.8				76.9
Non-cancellable purchase obligations (>5 years)		58.1		28.8		29.3				36.6
Other long term obligations		0.0								0.0
Sub-total — Commitments		1,008.2		304.6		522.1		181.5		667.4
Total		1,793.8		473.6		1,137.7		182.5		1,243.1

As a matter of general policy, Atos Origin does not own office space or data processing centres. Lease agreements having a standard term provide the necessary flexibility in the Group’s organization. For IT equipment, Atos Origin focuses on the rental of desktop computers, taking into account the need to renew such equipment continuously in response to changes in technology and software. Rental agreements mainly have a term of less than 48 months. Vehicles are made available to specific employees in accordance with individual or collective contractual terms.

Atos Origin Annual Report 2004 33

Commercial commitments

(In EUR millions)

	Dec. 31st 2004		Dec. 31st 2003
Performance guarantees		499.4		115.4
Bank guarantees		127.4		2.0
Other guarantees		—		6.0
Pledges		5.0		—
Penalties and other commercial commitments		—		6.8
Total		631.8		130.2

Committed unused credit lines amounted to EUR 5.8 million at the end of December 2004.

Performance and bank guarantees increased significantly at January 1^st, 2004 due to the acquisition of Sema Group. Such commitments were widely used by the acquired Group although it is Atos Origin’s policy to limit issuing performance and bank guarantees.

Subsequent to the Cellnet disposal in July 2004, Atos Origin SA still has two outstanding parent guarantees with Schlumberger in relationships with Wepco and Citicorp for a total amount of EUR 89 million, which are fully counter-guaranteed by the acquirer of Cellnet, “Cellnet Holdings Corp”.

Specific commitments

– Material share purchase commitment taken by Atos Origin:

Under a joint venture agreement signed in 2000 between the former Origin Group and Softech, a put option has been granted to Softech for the sale of its 25% ownership in Atos Origin Middle East Co Ltd (incorporated in Saudi Arabia) for a minimum price of USD 15 million.

– Material representations and warranties received :

Philips

Following the acquisition of Origin from Philips in 2000, normal representations and warranties were received by Atos Origin. Some claims were made within the scope of such representations and warranties and Philips was requested to honour the warranties. Philips and Atos Origin are still in discussion regarding such claims.

KMPG

Following the acquisition of the consulting business of KPMG in the United Kingdom, which occurred on August 16^th, 2002, normal representations and warranties were received by Atos Origin. One significant item of litigation regarding a customer in the UK was within the scope of such representations and warranties and KPMG was called to honour its warranty. A settlement has been agreed after December 31^st 2004 with KPMG for an amount of EUR 3 million.

Schlumberger

Material claims relating to the Sema business, including some class actions and employee related claims in the United States, have been specifically guaranteed by Schlumberger, including defense costs.

– Material representations and warranties granted :

Cellnet Holdings Corp

Following the divestment of the Cellnet meter reading business in the US, which occurred on July 23^rd, 2004, normal representations and warranties were granted to Cellnet Holdings Corp. Such representations and warranties are capped at a maximum of 20% of the purchase price and are valid until the end of October 2005. As of the date of this report, no claims have been made by the purchaser.

Atos Origin Annual Report 2004 34

14.1.13 Scope of consolidation as of December 31st, 2004 (Main entities)

	Percentage		Consolidation	Percentage
	interest		method	control		Address
HOLDING COMPANY
Atos Origin SA		Consolidating parent company				18. avenue d’Alsace – 92400 COURBEVOIE
Atos Origin International SAS		100	FC		100	18. avenue d’Alsace – 92400 COURBEVOIE
Atos Origin BV		100	FC		100	Polarisaveneue 97. 2132 JH HOOFDDORP
Atos Origin International NV		100	FC		100	Imperiastraat 12. B 1930 ZAVENTEM
Competencies and Alliances (ICA)		100	FC		100	Minervastraat 7. B 1930 ZAVENTEM
Atos Origin International BV		100	FC		100	Naritaweg 52 – 1043 BZ AMSTERDAM
Seahorse Holding BV		100	FC		100	Naritaweg 52 – 1043 BZ AMSTERDAM
St Louis Ré		100	FC		100	65, avenue de la gare – L16111 LUXEMBOURG
France
A2B		66	FC		66	18. avenue d’Alsace – 92400 COURBEVOIE
SA Groupe Idée Industrie Services		100	FC		100	18. avenue d’Alsace – 92400 COURBEVOIE
Arema		95	FC		95	18. avenue d’Alsace – 92400 COURBEVOIE
Atos Euronext		50	FC		50	Palais de la Bourse. Place de la Bourse. 75002 PARIS
Atos Consulting		100	FC		100	6/8, boulevard Haussman – 75009 PARIS
Atos Origin Formation		100	FC		100	7/13. rue de Bucarest – 75008 PARIS
Atos Origin Infogérance		100	FC		100	18. avenue d’Alsace – 92400 COURBEVOIE
Atos Origin Intégration		100	FC		100	18. avenue d’Alsace – 92400 COURBEVOIE
Atos TPI		51	FC		51	18. avenue d’Alsace – 92400 COURBEVOIE
Atos Worldline		100	FC		100	18. avenue d’Alsace – 92400 COURBEVOIE
Bourse Connect		58.5	FC		58.5	4. rue de la Bourse – 75002 PARIS
Diamis		30	FC		60	18. avenue d’Alsace – 92400 COURBEVOIE
Mantis		100	FC		100	24. rue des Jeûneurs – 75002 PARIS
THE NETHERLANDS
Atos Origin IT Nederland B.V.		100	FC		100	Papendorpseweg 93, 3528 BJ UTRECHT
Atos Origin IT Systems Management Nederland BV		100	FC		100	Groenewoudseweg 1. 5621 BA EINDHOVEN
Atos Origin Telco Services		100	FC		100	Henri Dunantlaan 2. 9728 HD GRONINGEN
Atos Origin KPMG Consulting NV		100	FC		100	Rijnzathe 10, 3454 PV DE MEERN
Atos NLC Holding BV		100	FC		100	Rijnzathe 10, 34545 PV DE MEERN
E.M.E.A. (Europe – Middle East – Africa)
Germany
Atos Origin Gmbh		100	FC		100	Curiestraße 5 – D70563 STUTTGART
Atos Origin Worldline Gmbh		100	FC		100	Pascalstrasse 19 – 52076 AACHEN
Atos Origin Processing Services Gmbh		58.4	FC		58.4	Hahnstraße 25. 60528 FRANKFURT
Belgium
Atos Origin Belgium N.V.		100	FC		100	Rue de Stalle, 140 – 1180 BRUXELLES
Atos Origin Global Services SA		100	FC		100	Minervastraat 7. B 1930 ZAVENTEM
Greece
Atos Origin Hellas SA		100	FC		100	Kifissias Avenue and Gizi – 15125 ATHENS
Saudi Arabia
Atos Origin Middle East		75	FC		75	Po Box 30862 – Al Khobar 31952 – SAUDI ARABIA
Austria
Atos Origin Information Technology GmbH		100	FC		100	Triester Strasse 66. Postfach 289. A-1101 VIENNA
Spain
Atos Origin Sociedad Anonima Espanola		100	FC		100	Calle Albarra Cin 25. 28037 Madrid
Italy
Atos Origin SPA		100	FC		100	Piazza IV Novembre 3 – 20124 MILANO
Luxembourg
Atos Origin Luxembourg S.A.		100	FC		100	ZA Bourmicht – L 8070 BERTRANGE
Poland
Atos Origin IT Services SP Zoo		100	FC		100	Ul. Domaniewska 41 – 672 Warszawa
Atos Origin SP Zoo		100	FC		100	Al. Jerozolimskie 195 b 02-222 Warszawa
Portugal
Atos Origin Portuguesa (Tecnologias de Informaçao). LDA		100	FC		100	Taguspark. Ed. Inovaçao III. no. 512. 2780-920 Porto Salvo
United Kingdom
Atos Origin UK Limited		100	FC		100	1-2 Dorset Rise – London EC4Y 8EN
Atos Origin IT services UK LTD		100	FC		100	P.O. Box 14 – CW2 6DR CREWE
Atos Origin UK Holding		100	FC		100	1-2 Dorset Rise – London EC4Y 8EN
Atos KPMG Consulting		100	FC		100	1-2 Dorset Rise – London EC4Y 8EN

Atos Origin Annual Report 2004 35

	Percentage		Consolidation	Percentage
	interest		method	control		Address
Sweden
Atos Origin AB		100	FC		100	Box 757 – 851 22 SUNDSVALL
Switzerland
Atos Origin Telecom Schweiz AG		100	FC		100	Binzmühlestrasse 95, 8050 Zurich
Atos Origin (Schweiz) AG		100	FC		100	Industriestrasse 19 – 8304 Wallisellen
ASIA PACIFIC
China
Atos Origin Information Technology (Shangai) Co. Ltd.		100	FC		100	Room 1103-B4 – Pu Dong Software Park – 498 Guo Shou Jing Road – Zhang Jiang Hi-Tech. Zone – SHANGAI 201203. P.R.
Sema Group Ltd		100	FC		100	Canton Road, Tsim Sha Tsui 25-27 – KOWLON – HONG KONG
Atos Origin Hong Kong Ltd.		100	FC		100	43/F Hopewell Centre. 17 Kennedy Road. WANCHAI
India
Atos Origin India Private Ltd		100	FC		100	Unit No. 126/127. SDF IV. SEEPZ. Andheri (East). MUMBAI – 400 096
Atos Origin IT Services Private Ltd		100	FC		100	Unit No. 126/127. SDF IV. SEEPZ. Andheri (East). MUMBAI – 400 096
Malaysia
Atos Origin (Malaysia) Sdn. Bhd.		100	FC		100	5th Floor. Menara Merais. No.1. Jalan 19/3. 46300 Petaling Jaya. Selangor Darul Ehsan. West Malaysia
Singapore
Atos Origin (Singapore) Pte		100	FC		100	8 Temasek Boulevard. # 07-01 Suntec Tower Three. Singapore 038988
Taiwan
Atos Origin Taiwan Ltd.		100	FC		100	9F.. No.117. Sec 3. Ming Sheng E. Rd.. Taipei 105. TAIWAN
Thailand
Atos Origin IT (Thailand) Limited		100	FC		100	200 Moo 4. 25th Floor. Jasmine international Tower. Room No. 2502. Chaengwattana Road. Pakkret. Nonthaburi 11120. Thailand
AMERICAS
Argentina
Atos Origin Argentina S.A.		100	FC		100	Vedia 3892 P.B.. capital federal. C1430 DAL – BUENOS AIRES. Argentina
Brazil
Atos IT Servicos Do Brasil LTDAL		100	FC		100	R. Alexandre Dumas 1711 – B4717 004 SAO PAULO
Atos Origin Brasil Ltda.		100	FC		100	Rua Itapaiuna. 2434 – 2° andar- Parte. Santo Amaro. SAO PAULO
Mexico
Atos Origin Services Mexico Sa De CV		100	FC		100	Ejercito Nacional, Col Granada Piso 6 – 11528 MEXICO DF
United States of America
Atos Origin IT Services INC		100	FC		100	5599 San Felipe – 77056 HOUSTON
Atos Origin Inc.		100	FC		100	430. Mountain Avenue – MURRAY HILL NJ 0797

FC: full consolidation

Atos Origin Annual Report 2004 36

EX-15.K

Exhibit 15 (k)

Audit report of Deloitte Touche Tohmatsu and Amyot Exco Grant Thornton for 2002

Deloitte Touche Tohmatsu
Commissaires aux Comptes
Membre de la Compagnie de Versailles
185 avenue Charles de Gaulle
92200 Neuilly sur Seine Amyot Exco Grant Thornton
Commissaries aux Comptes
Membre de la Compagnie de Paris
104 avenue des Champs Elysées
75008 Paris

To the shareholders of Atos Origin S.A.:

We have audited the accompanying consolidated balance sheet of Atos Origin S.A. and its subsidiaries (the “Group”) as of December 31, 2002 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2002 and the results of its operations and its cash flows for the year ended December 31, 2002 in conformity with accounting principles generally accepted in France.

Paris and Neuilly-sur-Seine
September 10, 2003

Deloitte Touche Tohmatsu	Amyot Exco Grant Thornton
/s/ Jean-Paul Picard	/s/ Daniel Kurkdjian
/s/ Jean-Marc Lumet	/s/ Vincent Papazian

EX-15.L

Exhibit 15 (l)

Consent of independent registered public accounting firms

We consent to incorporation by reference in the registration statements on Form S-8 (No. 33-65972, No. 33-80027, No. 333-91287, No. 333-70215, No. 333-91289, No. 333-39204, No. 333-75542, No. 333-87852, No. 333-104104 and No. 333-119375) and in the registration statements on Form F-3 (No. 333-4582 and 333-90686) of Koninklijke Philips Electronics N.V. of our report dated September 10, 2003, relating to the consolidated financial statements of Atos Origin S.A. for the year ended December 31, 2002, appearing in this amendment No. 1 to the Annual Report on Form 20-F of Koninklijke Philips Electronics N.V. for the year ended December 31, 2004.

Paris and Neuilly-sur-Seine
April 28, 2005

Amyot Exco Grant Thornton	Deloitte & Associés
/s/ Daniel Kurkdjian	/s/ Jean-Paul Picard
/s/ Vincent Papazian	/s/ Jean-Marc Lumet