Philips 2004 Annual Report Download - page 154

availability and limits of insurance), management believes that the final outcome of any of the
pending proceedings, or all of them combined, will not have a material adverse effect on the
consolidated financial position of the Company but could be material to the consolidated results
of operations of the Company for a particular period. The Company cannot reasonably predict
the number of claims that may be asserted in the future. Accordingly, neither the Company nor
any of its subsidiaries has made an accrual for loss contingencies related to any unasserted
claims. If the general trends towards (i) higher costs of resolving individual asbestos personal
injury cases, (ii) increasing numbers of cases and claimants, or (iii) the naming of more
peripheral defendants, such as the Company’s subsidiaries in such cases continues, or if
insurance coverage is ultimately less than anticipated, the Company’s consolidated financial
position and results of operations could be materially and adversely affected.
O
27 Stockholders’ equity
Priority shares
There are ten priority shares, which are currently held by a foundation called the Dr. A.F.
Philips-Stichting. The self-electing Board of the Dr. A.F. Philips-Stichting consists of the
Chairman, the Vice-Chairman and the Secretary of the Supervisory Board, certain other
members of the Supervisory Board and the President of the Company. The approval of the
Meeting of Priority Shareholders is required for resolutions of the General Meeting of
Shareholders of the Company regarding the issue of ordinary shares of the Company or rights
to such shares, the cancellation of the shares, amendments to the Articles of Association, and
the liquidation of the Company. The Supervisory Board of the Company and the Meeting of
Priority Shareholders also make binding recommendations to the General Meeting of
Shareholders for the appointment of the members of the Board of Management and the
Supervisory Board of the Company. A proposal shall be made to the 2005 Annual General
Meeting of Shareholders to amend the current articles of association of the Company. Upon the
shareholders meeting approving this amendment, the priority shares will be cancelled.
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) preference shares to a third party.
Option rights/restricted shares
The Company has granted stock options on its common shares and rights to receive common
shares in future (see note 32).
Treasury shares
Royal Philips Electronics’ shares which have been repurchased and are held in treasury for
delivery upon exercise of options and convertible personnel debentures and under restricted
share programs 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
market value at the time treasury shares are issued, is recorded in capital in excess of par value.
153Philips Annual Report 2004