PolyGram sale boosts Philips results

The sale of its 75% stake in music subsidiary PolyGram helped boost 1998 net income numbers for Dutch industrial conglomerate Philips Electronics. The company saw lower operating income for the year, however, which some industry analysts interpreted as a sign that the company’s recovery plan could be slowing.

For the year, Philips reported net income of $6.68 billion, compared with net income of $2.87 billion in 1997. Much of the gain was due to the sale of the PolyGram division, which added $5.35 billion to the company’s bottom line. Sales grew 3% in 1998 to $33.61 billion, compared with $32.72 billion in 1997.

The company reported a sharp drop in operating income, however. Philips’ operating profit dropped to 2.2% of sales, compared with 5.8% of sales in 1997. Much of that swing was due to one-time charges related to acquisitions, such as Philips’ purchase of ATL Ultrasound of Bothell, WA. In that deal, Philips took a charge of $256.9 million to write off in-process R&D and to align ATL’s accounting principals with its own.

Philips did not break out numbers for its medical electronics business, which is included with several other businesses as part of the company’s Professional Products division. Year-end sales in the sector were $5.01 billion, up 5% compared with sales of $4.76 billion in 1997. Philips said its medical systems and business electronics operations contributed to the sales growth.

The division reported lower profitability due to the ATL deal, however. The segment posted an operating loss of $61.1 million, compared with operating income of $228.3 million in 1997. Without the ATL charge and other one-time expenses, the division would have posted an operating profit of $217.8 million.