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 acquire (de facto) 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 (see note (30) Share-based compensation).

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 first-in, first-out (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 share capital, 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.

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). Such limitations relate to common stock of EUR 194 million (2008: EUR 194 million) as well as to legal reserves required by Dutch law included under revaluation reserves of EUR 102 million (2008: EUR 117 million), retained earnings of EUR 829 million (2008: EUR 985 million) and other reserves of EUR 130 million (2008: nil, as the amount was a loss).

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.

Therefore gains related to available-for-sale financial assets (2009: EUR 120 million) and gains related to cash flow hedges (2009: EUR 10 million), representing an aggregate amount of EUR 130 million included in other reserves, limit the distribution of stockholders’ equity. The loss related to currency translation differences (2009: EUR 591 million) also reduces distributable amounts.

The legal reserve required by Dutch law of EUR 829 million (2008: EUR 985 million) included under retained earnings relates to investments in affiliated companies.