Stockholders' equity

Common shares

As of December 31, 2009, the issued and fully paid share capital consists of 972,411,769 common shares, each share having a par value of EUR 0.20.

Preference shares

The ‘Stichting Preferente Aandelen Philips’ has been granted the right to acquire preference shares in the Company. Such right has not been exercised. As a means to protect the Company and its stakeholders against an unsolicited attempt to (de facto) take over control of the Company, the General Meeting of Shareholders in 1989 adopted amendments to the Company’s articles of association that allow the Board of Management and the Supervisory Board to issue (rights to acquire) preference shares to a third party. As of December 31, 2009, no preference shares have been issued.

Option rights/restricted shares

The Company has granted stock options on its common shares and rights to receive common shares in the future. Please refer to note (30) Share-based compensation, which is deemed incorporated and repeated herein by reference.

Treasury shares

In connection with the Company’s share repurchase programs, shares which have been repurchased and are held in treasury for (i) delivery upon exercise of options and convertible personnel debentures and under restricted share programs and employee share purchase programs, and (ii) capital reduction purposes, are accounted for as a reduction of stockholders’ equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed from treasury stock on a FIFO basis.

Any difference between the cost and the cash received at the time treasury shares are issued, is recorded in capital in excess of par value, except in the situation in which the cash received is lower than cost, and capital in excess of par has been depleted.

The following transactions took place resulting from employee option and share plans:

In order to reduce capital stock, the following transactions took place in 2008, in 2009 there were no transactions to reduce share capital:

Net income and distribution from retained earnings

A proposal will be submitted to the General Meeting of Shareholders to pay a dividend of EUR 0.70 per common share, in cash or shares at the option of the shareholder, against the net income for 2009 and the retained earnings.

Legal reserves

As of December 31, 2009, legal reserves relate to the revaluation of assets and liabilities of acquired companies in the context of multi-stage acquisitions of EUR 102 million (2008: EUR 117 million), unrealized gains on available-for-sale financial assets of EUR 120 million (2008: unrealized losses of EUR 25 million), unrealized gains on cash flow hedges of EUR 10 million (2008: unrealized losses of EUR 28 million), ‘affiliated companies’ of EUR 829 million (2008: EUR 985 million) and currency translation losses of EUR 591 million (2008: losses of EUR 527 million).

The movement in unrealized results on available-for-sale financial assets are mainly due to the sale of shares (LG Display and Pace Micro Technology Plc.). The item ‘affiliated companies’ relates to the ‘wettelijke reserve deelnemingen’, which is required by Dutch law.

Limitations in the distribution of stockholders’ equity.

Pursuant to Dutch law, limitations exist relating to the distribution of stockholders’ equity of EUR 1,255 million (2008: EUR 1,296 million). As at December 31, 2009, such limitations relate to common stock of EUR 194 million (2008: EUR 194 million) as well as to legal reserves included under ‘revaluation’ of EUR 102 million (2008: EUR 117 million), available-for-sale financial assets of EUR 120 million (2008: nil, as the amount was a loss), cash flow hedges of EUR 10 million (2008: nil, as the amount was a loss) and ‘affiliated companies’ of EUR 829 million (2008: EUR 985 million).

In general, gains related to available-for-sale financial assets, cash flow hedges and currency translation differences cannot be distributed as part of stockholders’ equity as they form part of the legal reserves protected under Dutch law. By their nature, losses relating to available-for-sale financial assets, cash flow hedges and currency translation differences, reduce stockholders’ equity, and thereby distributable amounts.