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 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, 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 future (see note (33) 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 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 share capital, the following transactions took place in 2007 and 2008:

Net income (loss) and distribution from retained earnings

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

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). Such limitations relate to common stock of EUR 194 million (2007: EUR 228 million) as well as to legal reserves required by Dutch law included under revaluation reserves of EUR 117 million (2007: EUR 133 million) and retained earnings of EUR 985 million (2007: EUR 1,343 million). In 2007 the limitations were also affected by unrealized gains on available-for-sale securities (EUR 1,183 million) and cash flow hedges (EUR 28 million), which were both included in other reserves. In general, gains related to available-for-sale securities, cash flow hedges and currency translation differences (which have been negative for the last two years) reduce the distributable stockholders’ equity. By their nature, losses relating to available-for-sale securities, cash flow hedges and currency translation differences (as of December 31, 2008 an aggregated amount of EUR 709 million) automatically reduce stockholders’ equity, and thereby distributable amounts.

The legal reserve required by Dutch law of EUR 985 million (2007: EUR 1,343 million) included under retained earnings relates to investments in affiliated companies.

Other reserves are composed of currency translation losses of EUR 656 million (2007: losses of EUR 613 million), unrealized losses on available-for-sales 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) and actuarial losses on pension plans of EUR 1,209 million (2007: losses of EUR 305 million). The movement in unrealized results on available-for-sales securities are especially due to the sale of shares (TSMC and LG Display) and the recognition of impairment charges (see note 48).