Philips 2006 Annual Report Download - page 160

Philips Annual Report 2006160
that it believes that the defect rate will be substantially smaller than
anticipated by the customer and disputes its liability on that basis, as
well as on the basis of the limited warranty provision the customer
has invoked. Philips Semiconductors also believes that, even if the
customer were to be successful in the arbitration, Philips
Semiconductors would not be liable to the extent of the damages
claimed by the customer. Philips Semiconductors has also stated it
intends to defend the case vigorously.
In order to recover any potential amount of damages that it may be
held liable for, Philips Semiconductors in 2006 initiated arbitration
proceedings against the supplier of molding products used in the
integrated circuits that allegedly caused the failures in the customer’s
products. This arbitration has been stayed temporarily.
Philips does not believe it can reasonably estimate the amount of
possible loss in connection with the claims against Philips
Semiconductors. Philips, however, does not expect the outcome to
have a material adverse effect on its fi nancial position, but cannot
predict the effect of the ultimate loss from this matter on the
operating results in any particular fi nancial period.
LG.Philips LCD
On December 11, 2006, LG.Philips LCD, an equity-accounted investee
in which Philips holds 32.9% of the common stock, announced that
offi cials from the Korean Fair Trade Commission visited the offi ces of
LG.Philips LCD and that it had received a subpoena from the United
States Department of Justice and similar notice from the Japanese Fair
Trade Commission in connection with inquiries by those regulators
into possible anticompetitive conduct in the LCD industry.
Subsequent to the public announcement of these inquiries certain
Philips group companies were named as defendants in several class
action antitrust complaints fi led in the United States courts, seeking
damages on behalf of purchasers of products incorporating thin-fi lm
transistor liquid crystal display panels, based on alleged anticompetitive
conduct by manufacturers of such panels. The complaints assert claims
under federal antitrust law, as well as various state antitrust and unfair
competition laws.
These matters are in their initial stages and, on the basis of current
knowledge, the Company cannot establish whether a loss is probable
with respect to these actions.
28
Stockholders’ equity
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)
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 33).
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:
2005 2006
Shares acquired 12,142,707 4,385,298
Average market price EUR 20.59 EUR 27.16
Amount paid EUR 250 million EUR 119 million
Shares delivered 3,796,030 11,484,092
Average market price EUR 20.67 EUR 27.04
Amount received EUR 75 million EUR 171 million
Total shares in treasury 43,057,320 35,933,526
Total cost
EUR 1,333 million EUR 923 million
In order to reduce capital stock, the following transactions took
place in 2006:
Shares acquired 101,564,007
Average market price EUR 27.38
Amount paid EUR 2,780 million
Total shares in treasury −
Total cost −
In 2006, Philips’ issued share capital was reduced by a total of
173,268,629 shares (with a par value of EUR 0.20 each), which were
acquired pursuant to the share repurchase programs initiated in 2005
and 2006. The capital reduction was executed by way of two share
cancellations. As of December 31, 2006 the issued share capital of
Philips amounts to 1,142,826,763.
Retained earnings
A dividend of EUR 0.60 per common share will be proposed to the
2007 Annual General Meeting of Shareholders.
29
Cash from derivatives
The Company has no trading derivatives. A total of EUR 62 million
cash was received with respect to foreign exchange derivative
contracts related to fi nancing of subsidiaries (in 2005 payments of
EUR 46 million and in 2004 receipts of EUR 125 million). Cash fl ow
from interest-related derivatives is part of cash fl ow from operating
activities. During 2006 there was a cash outfl ow in relation to these
derivatives of EUR 1 million.
30
Proceeds from other non-current fi nancial assets
In 2006 there were no material proceeds from the sale of other
non-current fi nancial assets.
In 2005, the sale of all remaining shares in Atos Origin and Great Nordic
generated cash of EUR 554 million and EUR 67 million, respectively.
In 2004, the sale of all remaining shares in Vivendi Universal and ASML
generated cash of EUR 720 million and EUR 163 million, respectively.
31
Assets received in lieu of cash from the sale
of businesses
During 2006, several ownership interests were received in connection
with certain sale and transfer transactions.
112 Group fi nancial statements
Notes to the group fi nancial statements
172 IFRS information 218 Company fi nancial statements