Equity

Common shares

As of December 31, 2013, the issued and fully paid share capital consists of 937,845,789 common shares, each share having a par value of EUR 0.20.

In June 2013, Philips settled a dividend of EUR 0.75 per common share, representing a total value of EUR 678 million. Shareholders could elect for a cash dividend or a share dividend. Approximately 59.8% of the shareholders elected for a share dividend, resulting in the issuance of 18,491,337 new common shares. The settlement of the cash dividend resulted in a payment of EUR 272 million.

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

Share movement schedule
 
2012
2013
 
 
 
Balance as of January 1
926,094,902
914,591,275
 
 
 
Dividend distributed
30,522,107
18,491,337
Purchase of treasury shares
(46,870,632)
(27,811,356)
Re-issuance of treasury shares
4,844,898
8,066,511
 
 
 
Balance as of December 31
914,591,275
913,337,767

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, 2013, 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 (31) 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.

Any difference between the cost and the cash received at the time treasury shares are issued, 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:

 
 
2012
2013
 
 
 
Shares acquired
5,147
3,984
Average market price
EUR 17.86
EUR 22.51
Amount paid
EUR 0 million
EUR 0 million
Shares delivered
4,844,898
8,066,511
Average market price
EUR 24.39
EUR 28.35
Amount received
EUR 118 million
EUR 229 million
Total shares in treasury at year-end
28,712,954
20,650,427
Total cost
EUR 847 million
EUR 618 million

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

 
 
2012
2013
 
 
 
Shares acquired
46,865,485
27,807,372
Average market price
EUR 16.41
EUR 22.69
Amount paid
EUR 769 million
EUR 631 million
Reduction of capital stock
82,364,590
37,778,510
Total shares in treasury at year-end
13,828,733
3,857,595
Total cost
EUR 256 million
EUR 100 million

Dividend distribution

A proposal will be submitted to the 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 2013 net income.

Limitations in the distribution of shareholders’ equity

Pursuant to Dutch law, limitations exist relating to the distribution of shareholders’ equity of EUR 1,609 million (2012: EUR 1,480 million). Such limitations relate to common shares of EUR 188 million (2012: EUR 191 million) as well as to legal reserves required by Dutch law included under retained earnings of EUR 1,319 million (2012: EUR 1,161 million), revaluation reserves of EUR 23 million (2012: EUR 54 million), available-for-sale financial assets EUR 55 million (2012: EUR 54 million) and cash flow hedges EUR 24 million (2012: EUR 20 million).

The unrealized losses related to currency translation differences of EUR 569 million (2012: EUR 93 million), although qualifying as a legal reserve, reduce the distributable amount by their nature.

The legal reserve required by Dutch law of EUR 1,319 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 represent the claims that third parties have on equity of consolidated group companies that are not wholly-owned by the Company. The Company has no material non-controlling interests. The Net income attributable to non-controlling interests amounted to EUR 3 million in 2013 (2012: EUR 5 million).

In 2013 Philips reduced its non-controlling interest by EUR 19 million due to the sale of one of its Healthcare subsidiaries in China in which a local shareholder held an ownership percentage of 49%.

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 from discontinued operations less: (a) cash and cash equivalents, (b) deferred tax assets, (c) other (non-)current financial assets, (d) investments in associates, and after deduction of: (e) provisions excluding deferred tax liabilities, (f) accounts and notes payable, (g) accrued liabilities, (h) current/non-current liabilities, and (i) trading securities.

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 (Moody’s) and A- rating (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.

NOC composition
 
2011
2012
2013
 
 
 
 
Intangible assets
11,012
10,679
9,766
Property, plant and equipment
3,014
2,959
2,780
Remaining assets
9,393
8,921
8,699
Provisions
(2,680)
(2,956)
(2,554)
Other liabilities
(10,357)
(10,287)
(8,453)
Net operating capital
10,382
9,316
10,238

Composition of net debt to group equity
 
2011
2012
2013
 
 
 
 
Long-term debt
3,278
3,725
3,309
Short-term debt
582
809
592
Total debt
3,860
4,534
3,901
Cash and cash equivalents
3,147
3,834
2,465
Net debt (cash)1)
713
700
1,436
 
 
 
 
Shareholders’ equity
12,328
11,151
11,214
Non-controlling interests
34
34
13
Group equity
12,362
11,185
11,227
 
 
 
 
Net debt and group equity
13,075
11,885
12,663
Net debt divided by net debt and group equity (in %)
5
6
11
Group equity divided by net debt and group equity (in %)
95
94
89
1)
Total debt less cash and cash equivalents
Composition of cash flows
 
2011
2012
2013
 
 
 
 
Cash flows from operating activities
760
2,082
1,138
Cash flows from investing activities
(1,275)
(925)
(997)
Cash flows before financing activities
(515)
1,157
141

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This is an interactive electronic version of the Philips Annual Report 2013 and also contains certain information in summarized form. The contents of this version are qualified in their entirety by reference to the printed version of the full Philips Annual Report 2013. This printed version is available as a PDF file on this website. Information about: forward-looking statements, third-party market share data, fair value information, IFRS basis of presentation, use of non-GAAP information, statutory financial statements and management report, reclassifications and analysis of 2013 compared to 2012.

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