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:

Philips Group
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

This item is optimized for devices with a larger screen. You can still view this item in PDF format.
Download PDF

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, 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 (see note (28) 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, 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 first-in, first-out (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.

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:

Philips Group
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

This item is optimized for devices with a larger screen. You can still view this item in PDF format.
Download PDF

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

Philips Group
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

This item is optimized for devices with a larger screen. You can still view this item in PDF format.
Download PDF

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.

Limitations in the distribution of shareholders’ equity

As at December 31, 2014, pursuant to Dutch law, certain limitations exist relating to the distribution of shareholders’ equity of EUR 1,515 million. Such limitations relate to common shares of EUR 187 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 1,059 million, revaluation reserves of EUR 13 million, available-for-sale financial assets EUR 27 million and unrealized currency translation differences of EUR 229 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, these limitations in distributable amounts were EUR 1,609 million and related to common shares of EUR 188 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 1,319 million, revaluation reserves of EUR 23 million, available-for-sale financial assets of EUR 55 million and cash flow hedges EUR 24 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.

The legal reserve required by Dutch law of EUR 1,059 million included under retained earnings 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.

Non-controlling interests

Non-controlling interests relate to minority stakes held by third parties in consolidated group companies. The Net loss attributable to non-controlling interests amounted to EUR 4 million in 2014 (Net income attributable to non-controlling interests 2013: EUR 3 million).

In 2014 Philips increased its non-controlling interest mainly due to the acquisition of General Lighting Company, in which Alliance Holding domiciled in Kingdom of Saudi Arabia holds an ownership percentage of 49% (please refer to note (4) Acquisitions and divestments).

Objectives, policies and processes for managing capital

Philips manages capital based upon the measures net operating capital (NOC), net debt and cash flows before financing activities.

The Company believes that an understanding of the Philips Group’s financial condition is enhanced by the disclosure of net operating capital (NOC), as this figure is used by Philips’ management to evaluate the capital efficiency of the Philips Group and its operating sectors. NOC is defined as: total assets excluding assets classified as held for sale less: (a) cash and cash equivalents, (b) deferred tax assets, (c) other non-current financial assets and current financial assets, (d) investments in associates, and after deduction of: (e) provisions (f) accounts and notes payable, (g) accrued liabilities, (h) other non-current liabilities and other current liabilities.

Net debt is defined as the sum of long- and short-term debt minus cash and cash equivalents. The net debt position as a percentage of the sum of group equity (shareholders’ equity and non-controlling interests) and net debt is presented to express the financial strength of the Company. This measure is widely used by management and investment analysts and is therefore included in the disclosure. Our net debt position is managed in such a way that we expect to continuously meet our objective to retain our target at A3 rating with stable outlook (Moody’s,) and A-rating with negative outlook (Standard and Poor’s). Furthermore, the Group’s objective when managing the net debt position is to fulfill our commitment to a stable dividend policy with a 40% to 50% target pay-out from continuing net income.

Cash flows before financing activities, being the sum of net cash from operating activities and net cash from investing activities, are presented separately to facilitate the reader’s understanding of the Company’s funding requirements.

Philips Group
Net operating capital composition in millions of EUR
2012 - 2014
 
2012
2013
2014
Intangible assets
10,679
9,766
10,526
Property, plant and equipment
2,959
2,780
2,095
Remaining assets
8,921
8,699
9,041
Provisions
(2,956)
(2,554)
(3,445)
Other liabilities
(10,287)
(8,453)
(9,379)
Net operating capital
9,316
10,238
8,838

This item is optimized for devices with a larger screen. You can still view this item in PDF format.
Download PDF
Philips Group
Composition of net debt to group equity in millions of EUR unless otherwise stated
2012 - 2014
 
2012
2013
2014
Long-term debt
3,725
3,309
3,712
Short-term debt
809
592
392
Total debt
4,534
3,901
4,104
Cash and cash equivalents
3,834
2,465
1,873
Net debt1)
700
1,436
2,231
 
 
 
 
Shareholders’ equity
11,151
11,214
10,867
Non-controlling interests
34
13
101
Group equity
11,185
11,227
10,968
 
 
 
 
Net debt and group equity
11,885
12,663
13,199
Net debt divided by net debt and group equity (in %)
6%
11%
17%
Group equity divided by net debt and group equity (in %)
94%
89%
83%
1)
Total debt less cash and cash equivalents
This item is optimized for devices with a larger screen. You can still view this item in PDF format.
Download PDF
Philips Group
Composition of cash flows in millions of EUR
2012 - 2014
 
2012
2013
2014
Cash flows from operating activities
1,886
912
1,303
Cash flows from investing activities
(712)
(862)
(984)
Cash flows before financing activities
1,174
50
319

This item is optimized for devices with a larger screen. You can still view this item in PDF format.
Download PDF
(0)
(0)

This equals recurring net income from continuing operations, or net income excluding discontinued operations and excluding material non-recurring items.

CO2-equivalent or carbon dioxide equivalent is a quantity that describes, for a given mixture and amount of greenhouse gas, the amount of CO2 that would have the same global warming potential (GWP), when measured over a specified timescale (generally 100 years).

SF6 (Sulfur hexafluoride) is used in the electrical industry as a gaseous dielectric medium.