Shareholders’ equity

Common shares

As of December 31, 2014, the issued and fully paid share capital consists of 934,819,413 common shares, each share having a par value of EUR 0.20.

In June 2014, Philips settled a dividend of EUR 0.80 per common share, representing a total value of EUR 729 million. Shareholders could elect for a cash dividend or a share dividend. 60% of the shareholders elected for a share dividend, resulting in the issuance of 18,811,534 new common shares. The settlement of the cash dividend resulted in a payment of EUR 293 million including tax and service charges.

The following table shows the movements in the outstanding number of shares:

Koninklijke Philips N.V.
Outstanding number of shares in number of shares
2013 - 2014
 
2013
2014
Balance as of January 1
914,591,275
913,337,767
Dividend distributed
18,491,337
18,811,534
Purchase of treasury shares
(27,811,356)
(28,537,921)
Re-issuance of treasury shares
8,066,511
10,777,489
Balance as of December 31
913,337,767
914,388,869

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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, 2014, no preference shares have been issued.

Option rights/restricted and performance shares

The Company has granted stock options on its common shares and rights to receive common shares in the future. Please refer to note (28) 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, performance and restricted share programs and employee share purchase programs, and (ii) capital reduction purposes, are accounted for as a reduction of shareholders’ equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed from treasury shares on a FIFO basis.

When treasury shares are reissued under the Company’s option plans, the difference between the cost and the cash received is recorded in retained earnings. When treasury shares are reissued under the Company’s share plans, the difference between the market price of the shares issued and the cost is recorded in retained earnings.

Dividend withholding tax in connection with the Company’s purchase of treasury shares is recorded in retained earnings.

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

Koninklijke Philips N.V.
Employee option and share plan transactions
2013 - 2014
 
2013
2014
Shares acquired
3,984
7,254,606
Average market price
EUR 22.51
EUR 24.53
Amount paid
EUR 0 million
EUR 178 million
Shares delivered
8,066,511
10,777,489
Average market price
EUR 28.35
EUR 30.26
Cost of delivered shares
EUR 229 million
EUR 326 million
Total shares in treasury at year-end
20,650,427
17,127,544
Total cost
EUR 618 million
EUR 470 million

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In order to reduce share capital, the following transactions took place:

Koninklijke Philips N.V.
Share capital transactions
2013 - 2014
 
2013
2014
Shares acquired
27,807,372
21,283,315
Average market price
EUR 22.69
EUR 23.95
Amount paid
EUR 631 million
EUR 510 million
Reduction of capital stock (shares)
37,778,510
21,837,910
Reduction of capital stock (EUR)
EUR 787 million
EUR 533 million
Total shares in treasury at year-end
3,857,595
3,303,000
Total cost
EUR 100 million
EUR 77 million

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Stock purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital involved a cash outflow of EUR 712 million, which includes the impact of taxes. Settlements of stock based compensation plans involved a cash inflow of EUR 116 million.

Dividend distribution

A proposal will be submitted to the 2015 Annual General Meeting of Shareholders to pay a dividend of EUR 0.80 per common share, in cash or shares at the option of the shareholder, from the 2014 net income and retained earnings of the Company.

Legal reserves

As of December 31, 2014, legal reserves relate to the revaluation of assets and liabilities of acquired companies in the context of multi-stage acquisitions of EUR 13 million (2013: EUR 23 million), unrealized gains on available-for-sale financial assets of EUR 27 million (2013: EUR 55 million), unrealized losses on cash flow hedges of EUR 13 million (2013: EUR 24 million unrealized gains), ‘affiliated companies’ of EUR 1,059 million (2013: EUR 1,319 million) and unrealized currency translation gains of EUR 229 million (2013: EUR 569 million unrealized losses).

The item ‘affiliated companies’ relates to the ‘wettelijke reserve deelnemingen’, which is required by Dutch law. This reserve relates to any legal or economic restrictions on the ability of affiliated companies to transfer funds to the parent company in the form of dividends.

Limitations in the distribution of shareholders’ equity

Pursuant to Dutch law, limitations exist relating to the distribution of shareholders’ equity of EUR 1,515 million as at December 31, 2014. Such limitations relate to common shares of EUR 187 million, as well as to legal reserves included under ‘revaluation’ of EUR 13 million, available-for-sale financial assets of EUR 27 million, unrealized currency translation gains of EUR 229 million and ‘affiliated companies’ of EUR 1,059 million. The unrealized losses related to cash flow hedges of EUR 13 million, although qualifying as a legal reserve, reduce the distributable amount by their nature.

As at December 31, 2013 the limitations on distributable amounts were EUR 1,609 million and related common shares of EUR 188 million, as well as to legal reserves included under ‘revaluation’ of EUR 23 million, available-for-sale financial assets of EUR 55 million, unrealized gains on cash flow hedges of EUR 24 million and ‘affiliated companies’ of EUR 1,319 million. The unrealized losses related to currency translation differences of EUR 569 million, although qualifying as a legal reserve, reduce the distributable amount by their nature.

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