Stockholders equity

Common shares

In 2008, the Company's issued share capital was reduced by 170,414,994 shares, which were acquired pursuant to the EUR 5 billion share repurchase program. As of December 31, 2008, the issued share capital consists of 972,411,769 common shares, each share having a par value of EUR 0.20, which shares have been paid-in in full.

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, 2008, 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 (33) 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.

In order to reduce potential dilution effects, the following transactions took place:

In order to reduce capital stock, the following transactions took place in 2007 and 2008:

Net income (loss) and distribution to shareholders

The net loss of 2008 will be accounted for in retained earnings. A distribution of EUR 0.70 per common share will be proposed to the 2009 Annual General Meeting of Shareholders.

Legal reserves

As of December 31, 2008, legal reserves relate to the revaluation of assets and liabilities of acquired companies in the context of multi-stage acquisitions of EUR 117 million (2007: EUR 133 million), unrealized losses on available-for-sale securities of EUR 25 million (2007: gains of EUR 1,183 million), unrealized losses on cash flow hedges of EUR 28 million (2007: gains of EUR 28 million), ‘affiliated companies’ of EUR 985 million (2007: EUR 1,343 million) and currency translation losses of EUR 656 million (2007: losses of EUR 613 million).

The movement in unrealized results on available-for-sale securities are especially due to the sale of shares (TSMC and LG Display) and the recognition of impairment charges (see note 48). 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 1,296 million (2007: EUR 2,915 million). at December 31, 2008, such limitations relate to common stock of EUR 194 million (2007: EUR 228 million) as well as to legal reserves included under ‘affiliated companies’ of EUR 985 million (2007: EUR 1,343 million) and ‘revaluation’ of EUR 117 million (2007: EUR 1,344 million).

In general, gains related to available-for-sale securities, cash flow hedges and currency translation differences reduce the distributable stockholders’ equity. By their nature, losses relating to available-for-sale securities, cash flow hedges and currency translation differences automatically reduce stockholders’ equity, and thereby distributable amounts.