Annual Report 2018

Transforming healthcare
through innovation
Contents
1 Message from the CEO 3 7 Supervisory Board 61

2 Board of Management and Executive 5 8 Supervisory Board report 62

Committee 8.1 Report of the Corporate Governance and 66
Nomination & Selection Committee
3 Strategy and Businesses 6 8.2 Report of the Remuneration Committee 68
3.1 Transforming healthcare through innovation 6 8.3 Report of the Audit Committee 74
3.2 How we create value 8 8.4 Report of the Quality & Regulatory Committee 75
3.3 Our businesses 10
3.4 Our commitment to Quality, Regulatory 19 9 Corporate governance 76
Compliance and Integrity 9.1 Board of Management and Executive 76
Committee
4 Financial performance 21 9.2 Supervisory Board 80
4.1 Performance review 21 9.3 General Meeting of Shareholders 84
4.2 Investor information 35 9.4 Meeting logistics and other information 85
9.5 Investor Relations 87
5 Societal impact 38
5.1 Social performance 38 10 Other information 90
5.2 Environmental performance 43 10.1 Reconciliation of non-IFRS information 90
10.2 Five-year overview 99
6 Risk management 50 10.3 Forward-looking statements and other 100
6.1 Our approach to risk management 50 information
6.2 Risk categories and factors 53 10.4 Definitions and abbreviations 101
6.3 Strategic risks 54
6.4 Operational risks 55 11 Statements 104
6.5 Compliance risks 57 11.1 Group financial statements 104
6.6 Financial risks 59 11.2 Company financial statements 180
11.3 Sustainability statements 196

IFRS basis of presentation

The financial information included in this document is based on IFRS,
as explained in Significant accounting policies, starting on page 112,
unless otherwise indicated.

References to Philips
References to the Company or company, to Philips or the (Philips)
Group or group, relate to Koninklijke Philips N.V. and its subsidiaries,
as the context requires. Royal Philips refers to Koninklijke Philips N.V.

Philips Lighting/Signify
References to 'Signify' in this Annual Report relate to Philips' former
Lighting segment (prior to deconsolidation as from the end of
November 2017 and when reported as discontinued operations),
Philips Lighting N.V. (before or after such deconsolidation) or Signify
N.V. (after its renaming in May 2018), as the context requires.

Dutch Financial Markets Supervision Act

This document comprises regulated information within the meaning
of the Dutch Financial Markets Supervision Act (Wet op het financieel
toezicht).

Statutory financial statements and management report

The chapters Group financial statements and Company financial
statements contain the statutory financial statements of the
Company. The introduction to the chapter Group financial statements
sets out which parts of this Annual Report form the Management
report within the meaning of Section 2:391 of the Dutch Civil Code
(and related Decrees).

Front cover: In 2018, Philips launched its Lumify with Reacts

mobile tele-ultrasound solution in Kenya and Nigeria. This solution
is based on Philips’ Lumify portable ultrasound system and
powered by Innovative Imaging Technologies’ Reacts collaborative
platform. It connects clinicians in real time by turning a compatible
smart device into an integrated tele-ultrasound solution,
combining two-way audio-visual calls with live ultrasound
streaming.
 Financial performance 4.1.5

Divestments 4.1.5 Changes in cash and cash equivalents,

Philips completed one divestment in 2018. The including cash flows
divestment involved an aggregated consideration of The movements in cash and cash equivalents for the
EUR 58 million and resulted in a gain of EUR 44 million. years ended December 31, 2016, 2017 and 2018 are
presented and explained below:
For details, please refer to Acquisitions and
divestments, starting on page 133. Philips Group
Condensed consolidated cash flows statements in mullions of EUR
2016 - 2018
2016 2017 2018
Beginning cash balance 1,766 2,334 1,939
Net cash flows from
operating activities 1,170 1,870 1,780
Net capital expenditures (741) (685) (796)
Free cash flow 1) 429 1,185 984
Other cash flows from investing
activities (352) (2,514) (690)
Treasury shares transactions (526) (414) (948)
Changes in debt (1,611) (205) 160
Dividend paid to shareholders
of the Company (330) (384) (401)
Sale of shares of Signify (former
Philips Lighting), net 825 1,060
Other cash flow items (18) (186) (3)
Net cash flows discontinued
operations 2,151 1,063 647
Ending cash balance 2,334 1,939 1,688
1)
Non-IFRS financial measure. For the definition and reconciliation
of the most directly comparable IFRS measure, refer to
Reconciliation of non-IFRS information, starting on page 90.

Net cash provided by (used for) operating activities

Net cash flows provided by operating activities
amounted to EUR 1,780 million in 2018, compared to
EUR 1,870 million in 2017. Free cash flow*) amounted to
EUR 984 million, which included a EUR 176 million
outflow related to pension liability de-risking in the US
and premium payments related to an early bond
redemption, compared to EUR 1,185 million in 2017.

Net cash flows provided by operating activities

amounted to EUR 1,870 million in 2017, which was EUR
700 million higher than in 2016, mainly due to EUR 379
million higher earnings in 2017 and the higher outflows
recorded in 2016 related to the Masimo agreements.

Net cash provided by (used for) investing activities

In 2018, other cash flows from investing activities
amounted to a cash outflow of EUR 690 million, mainly
due to acquisitions of businesses (including acquisition
of investments in associates) amounting to EUR 628
million. EPD was the biggest acquisition in 2018,
resulting in a cash outflow of EUR 273 million, including
the subsequent payments. Net cash proceeds from
divestment of businesses amounted to EUR 70 million
and were received mainly from divested businesses
held for sale. Other investing activities mainly included
EUR 177 million net cash used for foreign exchange
derivative contracts related to activities for funding and
liquidity management.

In 2017, other cash flows from investing activities

amounted to a cash outflow of EUR 2,514 million,
mainly due to acquisitions of businesses (including
acquisition of investments in associates) amounting to
EUR 2,344 million, which included the acquisition of

28 Annual Report 2018

 Financial performance 4.1.6

Spectranetics for EUR 1,908 million. Net cash proceeds
from divestment of businesses amounted to EUR 64
million and were received mainly from divested
businesses held for sale. Other investing activities
mainly included EUR 295 million net cash used for
foreign exchange derivative contracts related to
activities for funding and liquidity management, partly
received from the sale of the combined Lumileds and
Automotive businesses.
*) Non-IFRS financial measure. For the definition and
reconciliation of the most directly comparable IFRS
measure, refer to Reconciliation of non-IFRS information,
starting on page 90.

offset by EUR 90 million received related to TPV

Technology Limited loans.

4.1.6 Financing
Net cash provided by (used for) financing activities
Condensed consolidated balance sheets for the years
Treasury shares transactions mainly include the share
2016, 2017 and 2018 are presented below:
buy-back activities, which resulted in EUR 948 million
net cash outflow. Philips’ shareholders were given EUR Philips Group
738 million in the form of a dividend, of which the cash Condensed consolidated balance sheets in millions of EUR
2016 - 2018
portion of the dividend amounted to EUR 401 million.
2016 2017 2018
Changes in debt mainly reflected EUR 866 million cash
Intangible assets 12,450 11,054 12,093
outflow related to the bond redemption and EUR 990
Property, plant and equipment 2,155 1,591 1,712
million cash inflow from bonds issued.
Inventories 3,392 2,353 2,674
Receivables 5,636 4,148 4,344
In 2017, Philips’ shareholders were given EUR 742 million
Assets classified as held for sale 2,180 1,356 87
in the form of a dividend, of which the cash portion of
Other assets 4,123 2,874 3,421
the dividend amounted to EUR 384 million. Net cash
proceeds from the sale of Signify shares amounted to Payables (6,028) (4,492) (3,957)

EUR 1,060 million. Change in debt mainly reflected EUR Provisions (3,606) (2,059) (2,151)
Liabilities directly associated
1.2 billion cash outflow related to the bond redemption
with assets held for sale (525) (8) (12)
and EUR 1 billion cash inflow from bonds issued.
Other liabilities (3,052) (2,017) (2,962)
Additionally, net cash outflows for share buy-back and
Net asset employed 16,725 14,799 15,249
share delivery totaled EUR 414 million.

Cash and cash equivalents 2,334 1,939 1,688

Net cash provided by (used for) discontinued
Debt (5,606) (4,715) (4,821)
operations
Philips Group Net debt 1) (3,272) (2,776) (3,132)
Net cash provided by (used for) discontinued operations in millions Non-controlling interests (907) (24) (29)
of EUR
2016 - 2018 Shareholders' equity (12,546) (11,999) (12,088)
2016 2017 2018 Financing (16,725) (14,799) (15,249)
Net cash provided by (used for) 1)
Non-IFRS financial measure. For the definition and reconciliation
operating activities 1,037 350 (15) of the most directly comparable IFRS measure, refer to
Net cash provided by (used for) Reconciliation of non-IFRS information, starting on page 90.
investing activities (112) 856 662
Net cash provided by (used for)
financing activities 1,226 (144)
Net cash provided by (used for)
discontinued operations 2,151 1,063 647

In 2018, net cash provided by (used for) discontinued

operations amounted to EUR 647 million and mainly
included a total of EUR 642 million in relation to the
sale of Signify shares and the dividend received from
Signify reported in investing activities.

In 2017, net cash provided by (used for) operating

activities amounted to EUR 350 million and reflected
the period prior to the divestment of the combined
Lumileds and Automotive businesses (six months of
cash flows) and prior to the deconsolidation of Philips
Lighting (11 months of cash flows). In 2017, net cash
provided by (used for) investing activities amounted to
EUR 856 million and included the net cash outflow
related to the deconsolidation of Philips Lighting of EUR
175 million, (consisting of EUR 545 million proceeds
from the sale of shares on November 28, 2017, offset by
the deconsolidation of EUR 720 million of cash and
cash equivalents), and proceeds of EUR 1.1 billion

Annual Report 2018 29

 Statements 11.1.4

11.1.4 Consolidated statements of income

Philips Group
Consolidated statements of income in millions of EUR unless otherwise stated
For the years ended December 31
2016 2017 2018
6 Sales. 17,422 17,780 18,121
Cost of sales (9,484) (9,600) (9,568)
Gross margin 7,939 8,181 8,554
Selling expenses (4,142) (4,398) (4,500)
General and administrative expenses (658) (577) (631)
Research and development expenses (1,669) (1,764) (1,759)
6 Other business income. 17 152 88
6 Other business expenses. (23) (76) (33)
6 Income from operations. 1,464 1,517 1,719
7 Financial income. 65 126 51
7 Financial expenses. (507) (263) (264)
Investments in associates, net of income taxes 11 (4) (2)
Income before taxes 1,034 1,377 1,503
8 Income tax expense. (203) (349) (193)
Income from continuing operations 831 1,028 1,310
3 Discontinued operations, net of income taxes. 660 843 (213)
Net income 1,491 1,870 1,097

Attribution of net income

Net income attributable to Koninklijke Philips N.V. shareholders 1,448 1,657 1,090
Net income attributable to non-controlling interests 43 214 7

Philips Group
Earnings per common share attributable to Koninklijke Philips N.V. shareholders in EUR unless otherwise stated
For the years ended December 31
2016 2017 2018
Basic earnings per common share in EUR
Income from continuing operations attributable to shareholders 1) 0.90 1.10 1.41
Net income attributable to shareholders 1.58 1.78 1.18

Diluted earnings per common share in EUR

Income from continuing operations attributable to shareholders 1) 0.89 1.08 1.39
Net income attributable to shareholders 1.56 1.75 1.16
1)
During 2018, an error was identified in certain non-controlling interests and EPS calculations for 2016 and 2017 respectively. Reference is made
to the Significant accounting policies, starting on page 112.

Amounts may not add up due to rounding.

Annual Report 2018 107

 Statements 11.1.5

11.1.5 Consolidated statements of comprehensive income

Philips Group
Consolidated statements of comprehensive income in millions of EUR
for the year ended December 31
2016 2017 2018

Net income for the period 1,491 1,870 1,097

20 Pensions and other-post employment plans:.

Remeasurement (96) 102 (8)
8 Income tax effect on remeasurements. 28 (78) (19)
Revaluation reserve:
Release revaluation reserve (4)
Reclassification directly into retained earnings 4

Financial assets fair value through OCI:

Net current-period change, before tax (147)
Reclassification directly into retained earnings (5)
Total of items that will not be reclassified to Income Statement (68) 25 (179)

Currency translation differences:

Net current period change, before tax 219 (1,177) 383
8 Income tax effect on net current-period change. 2 39 (29)
Reclassification adjustment for (gain) loss realized, in discontinued operations 191 (6)
13 Available-for-sale financial assets:.
Net current period change, before tax (44) (66)
8 Income tax effect on net current-period change. (1)
Reclassification adjustment for loss (gain) realized 24 1
Cash flow hedges:
Net current-period change, before tax 3 33 (13)
8 Income tax effect on net current-period change. (9) (3) 11
Reclassification adjustment for loss (gain) realized 5 (17) (31)
Total of items that are or may be reclassified to Income Statement 200 (1,000) 315

Other comprehensive income for the period 132 (975) 136

Total comprehensive income for the period 1,623 895 1,233

Total comprehensive income attributable to:

Shareholders of Koninklijke Philips N.V. 1,550 805 1,225
Non-controlling interests 73 90 8

Amounts may not add up due to rounding.

108 Annual Report 2018

 Statements 11.1.6

11.1.6 Consolidated balance sheets

Philips Group
Consolidated balance sheets in millions of EUR unless otherwise stated
As of December 31
2017 2018
Non-current assets
2 10 Property, plant and equipment.. 1,591 1,712
2 11 Goodwill.. 7,731 8,503
2 12 Intangible assets excluding goodwill.. 3,322 3,589
16 Non-current receivables. 130 162
5 Investments in associates. 142 244
13 Other non-current financial assets. 587 360
28 Non-current derivative financial assets. 22 1
8 Deferred tax assets. 1,598 1,828
14 Other non-current assets. 75 47
Total non-current assets 15,198 16,447

Current assets
15 Inventories. 2,353 2,674
13 Current financial assets. 2 436
14 Other current assets. 392 469
28 Current derivative financial assets. 57 36
8 Income tax receivable. 109 147
16 25 Current receivables.. 3,909 4,035
3 Assets classified as held for sale. 1,356 87
29 Cash and cash equivalents. 1,939 1,688
Total current assets 10,117 9,572
Total assets 25,315 26,019

17 Equity.
Equity 11,999 12,088
Common shares 188 185
Reserves 385 548
Other 11,426 11,355
17 Non-controlling interests. 24 29
Group equity 12,023 12,117

Non-current liabilities
18 Long-term debt. 4,044 3,427
28 Non-current derivative financial liabilities. 216 114
19 20 Long-term provisions.. 1,659 1,788
8 Deferred tax liabilities. 33 152
)
22 Non-current contract liabilities. 1 226
)
22 Other non-current liabilities. 1 474 253
Total non-current liabilities 6,426 5,959

Current liabilities
18 Short-term debt. 672 1,394
28 Current derivative financial liabilities. 167 176
8 Income tax payable. 83 118
25 Accounts payable. 2,090 2,303
)
21 Accrued liabilities. 1 2,319 1,537
)
22 Current contract liabilities. 1 1,303
19 20 Short-term provisions.. 400 363
3 Liabilities directly associated with assets held for sale. 8 12
)
22 Other current liabilities. 1 1,126 737
Total current liabilities 6,866 7,943
Total liabilities and group equity 25,315 26,019
1)
Due to IFRS 15 adoption, contractual liabilities are shown as separate captions on the balance sheet as of 2018. For more details refer to
the Significant accounting policies, starting on page 112.

Amounts may not add up due to rounding.

Annual Report 2018 109

 Statements 11.1.7

11.1.7 Consolidated statements of cash flows

Philips Group
Consolidated statements of cash flows 1) in millions of EUR
For the years ended December 31
2016 2017 2018
Cash flows from operating activities
Net income 1,491 1,870 1,097
Results of discontinued operations, net of income taxes (660) (843) 213
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization, and impairment of fixed assets 976 1,025 1,089
Impairment of goodwill and other non-current financial assets 24 15 1
Net gain on sale of assets (3) (107) (71)
Interest income (43) (40) (31)
Interest expense on debt, borrowings, and other liabilities 294 186 165
Income taxes 203 349 193
Investments in associates, net of income taxes (11) 2
Decrease (increase) in working capital 131 101 (179)
Decrease (increase) in receivables and other current assets (89) 64 (97)
Decrease (Increase) in inventories (63) (144) (394)
Increase (decrease) in accounts payable, accrued and other current liabilities 283 181 311
Decrease (increase) in non-current receivables, other assets and other
liabilities (160) (358) (49)
19 Increase (decrease) in provisions. (647) (252) (271)
Other items 76 377 37
Interest paid (296) (215) (170)
Interest received 42 40 35
Dividends received from investments in associates 48 6 20
Income taxes paid (295) (284) (301)
Net cash provided by (used for) operating activities 1,170 1,870 1,780
Cash flows from investing activities
Net capital expenditures (741) (685) (796)
Purchase of intangible assets (95) (106) (123)
Expenditures on development assets (301) (333) (298)
Capital expenditures on property, plant and equipment (360) (420) (422)
3 Proceeds from sales of property, plant and equipment. 15 175 46
23 Net proceeds from (cash used for) derivatives and current financial assets. (117) (198) (175)
23 Purchase of other non-current financial assets. (53) (42) (34)
23 Proceeds from other non-current financial assets. 14 6 77
4 Purchase of businesses, net of cash acquired. (197) (2,344) (628)
3 Net proceeds from sale of interests in businesses, net of cash disposed of. 64 70
Net cash provided by (used for) for investing activities (1,092) (3,199) (1,486)
Cash flows from financing activities
18 Proceeds from issuance (payments) of short-term debt. (1,377) 12 34
18 Principal payments on short-term portion of long-term debt. (357) (1,332) (1,161)
18 Proceeds from issuance of long-term debt. 123 1,115 1,287
17 Re-issuance of treasury shares. 80 227 94
17 Purchase of treasury shares. (606) (642) (1,042)
5 Proceeds from sale of Signify (Philips Lighting) shares. 863 1,065
5 Transaction costs paid for sale of Signify (Philips Lighting) shares. (38) (5)
17 Dividends paid to shareholders of Koninklijke Philips N.V.. (330) (384) (401)
Dividends paid to non-controlling interests (2) (2) (3)
Net cash provided by (used for) financing activities (1,643) 55 (1,192)
Net cash provided by (used for) continuing operations (1,566) (1,274) (898)
3 Net cash provided by (used for) discontinued operations. 2,151 1,063 647
Net cash provided by (used for) continuing and discontinued operations 585 (211) (251)
Effect of changes in exchange rates on cash and cash equivalents (17) (184) -
Cash and cash equivalents at the beginning of the year 1,766 2,334 1,939
Cash and cash equivalents at the end of the period 2,334 1,939 1,688
1)
The accompanying notes are an integral part of these consolidated financial statements. For a number of reasons, principally the effects of
translation differences and consolidation changes, certain items in the statements of cash flows do not correspond to the differences between
the balance sheet amounts for the respective items

Amounts may not add up due to rounding.

110 Annual Report 2018

 Statements 11.1.8

11.1.8 Consolidated statements of changes in equity

Philips Group
Consolidated statements of changes in equity in millions of EUR unless otherwise stated
For the year ended December 31

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Balance as of Jan. 1, 2016 186 4 1,058 56 12 2,669 7,985 (363) 11,607 118 11,725

Total comprehensive income (loss) (4) 191 (20) (1) 1,384 1,550 73 1,623
Dividend distributed 4 398 (732) (330) (330)
IPO Philips Lighting (now Signify) (15) (1) 125 109 716 825
Cancellation of treasury shares (4) (446) 450
Purchase of treasury shares (589) (589) (589)
Re-issuance of treasury shares (122) (35) 231 74 74
Share call options (103) 90 (13) (13)
Share-based compensation plans 119 119 119
Income tax share-based compensation
plans 19 19 19
Balance as of Dec. 31, 2016 186 1,234 36 10 3,083 8,178 (181) 12,546 907 13,453
Total comprehensive income (loss) (823) (66) 12 1,681 805 90 895
Dividend distributed 2 356 (742) (384) (94) (478)
Sale of shares of Philips Lighting (now
Signify) (19) 346 327 712 1,039
Deconsolidation Philips Lighting (now
Signify) (66) 54 (12) (1,590) (1,602)
Purchase of treasury shares (318) (318) (318)
Re-issuance of treasury shares (205) 3 334 133 133
Forward contracts (1,018) (61) (1,079) (1,079)
Share call options 95 (255) (160) (160)
Share-based compensation plans 151 151 151
Income tax share-based compensation
plans (8) (8) (8)
Balance as of Dec. 31, 2017 188 392 (30) 23 3,311 8,596 (481) 11,999 24 12,023
IFRS 9 and 15 adjustment 3) (4) (25) (29) (29)
Balance as of Jan. 1, 2018 188 392 (34) 23 3,311 8,571 (481) 11,970 24 11,993
Total comprehensive income (loss) 347 (147) (33) 1,058 1,225 8 1,233
Dividend distributed 2 336 (738) (400) (3) (403)
Purchase of treasury shares (514) (514) (514)
Re-issuance of treasury shares (276) (4) 341 61 61
Forward contacts 124 (443) (319) (319)
Share call options 34 (85) (51) (51)
Cancellation of treasury shares (5) (779) 783
Share-based compensation plans 107 107 107
Income tax share-based compensation
plans 11 11 11
Balance as of Dec. 31, 2018 185 739 (181) (10) 3,487 8,266 (399) 12,088 29 12,117
1)
Cumulative translation adjustments related to investments in associates were EUR 45 million at December 31,2018 (2017: EUR 46 million, 2016:
EUR 40 million).
2)
Previously available-for-sale financial assets.
3)
Impact of IFRS 9 and 15 adoption. Reference is made to the Significant accounting policies, starting on page 112

Amounts may not add up due to rounding.

Annual Report 2018 111

 Statements 11.1.9
11.1.9 Notes
Notes to the Consolidated financial statements of the
Philips Group
1 Significant accounting policies
The Consolidated financial statements in the Group
financial statements section have been prepared in
accordance with International Financial Reporting
Standards (IFRS) as endorsed by the European Union
(EU) and with the statutory provisions of Part 9, Book 2
of the Dutch Civil Code.
All standards and interpretations issued by the
International Accounting Standards Board (IASB) and
the IFRS Interpretations Committee effective 2018 have
been endorsed by the EU; consequently, the
accounting policies applied by Philips also comply with
IFRS as issued by the IASB. These accounting policies
have been applied by group entities.
The Consolidated financial statements have been
prepared under the historical cost convention, unless
otherwise indicated.
The Consolidated financial statements are presented in
euros, which is the presentation currency. Due to
rounding, amounts may not add up precisely to the
totals provided.
On February 25, 2019, the Board of Management
authorized the Consolidated financial statements for
issue. The Consolidated financial statements as
presented in this report are subject to adoption by the
Annual General Meeting of Shareholders, to be held on
May 9, 2019.
Use of estimates
The preparation of the Consolidated financial
statements in conformity with IFRS requires
management to make judgments, estimates and
assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities,
income and expenses. These estimates inherently
contain a degree of uncertainty. Actual results may
differ from these estimates under different assumptions
or conditions.
In the process of applying the accounting policies,
management has made estimates and assumptions
concerning the future and other key sources of
estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the
reported amounts of assets and liabilities within the
next financial year, as well as to the disclosure of
contingent liabilities at the date of the Consolidated
financial statements, and the reported amounts of
revenues and expenses during the reporting period. The
company evaluates these estimates and judgments on
an ongoing basis and bases the estimates on historical
experience, current and expected future outcomes,
third-party evaluations and various other assumptions
that Philips believes are reasonable under the
circumstances. Existing circumstances and assumptions
112 Annual Report 2018
about future developments may change due to
circumstances beyond the company’s control and are
reflected in the assumptions if and when they occur.
The results of these estimates form the basis for making
judgments about the carrying value of assets and
liabilities as well as identifying and assessing the
accounting treatment with respect to commitments and
contingencies. The company revises material estimates
if changes occur in the circumstances or if there is new
information or experience on which an estimate was or
can be based.
The areas where the most significant judgments and
estimates are made are goodwill, deferred tax asset
recoverability, impairments, classification and
measurement of financial instruments, the accounting
for an arrangement containing a lease, revenue
recognition, tax risks and other contingencies,
assessment of control, classification of assets and
liabilities held for sale and the presentation of items of
profit and loss and cash flows as continuing or
discontinued, as well as when determining the fair
values of acquired identifiable intangible assets,
contingent considerations and investments based on an
assessment of future cash flows (e.g. earn out
arrangements as part of acquisitions). For further
discussion of these significant judgements and
estimates, reference is made to the respective
accounting policies and notes within these
Consolidated financial statements that relate to the
above topics.
Further judgment is applied when analyzing
impairments of goodwill and intangible assets not yet
ready for use that are performed annually and
whenever a triggering event has occurred to determine
whether the carrying value exceeds the recoverable
amount. These analyses are generally based on
estimates of discounted future cash flows. Furthermore,
the company applies judgment when actuarial
assumptions are established to anticipate future events
that are used in calculating post-employment benefit
expenses and liabilities. These factors include
assumptions with respect to interest rates, rates of
increase in healthcare costs, rates of future
compensation increases, turnover rates and life
expectancy.
Correction of errors in accounting for Earnings Per
Share
During 2018, Philips determined that the basic and
diluted earnings per common share amounts for income
from continuing operations attributable to shareholders,
presented in the 2017 consolidated financial statements
of the Group, were understated for both 2017 and 2016.
The understatement was a result of an error, solely
impacting certain EPS calculations and disclosures, in
the allocation of income attributable to non-controlling
interests, between continuing and discontinued
operations. The correction of this error resulted in basic
earnings per common share for income from continuing
operations attributable to shareholders for 2017, being
restated upwards from EUR 0.88 to EUR 1.10 (2016: EUR
0.86 to EUR 0.90). Similarly, diluted earnings per

common share for income from continuing operations
attributable to shareholders for 2017 was restated
upwards from EUR 0.86 to EUR 1.08 (2016: EUR 0.85 to
EUR 0.89). Basic and diluted earnings per common
share for income from discontinued operations has
been restated downwards in an equal amount.
The basic and diluted net income attributable to
shareholders earnings per common share in either year
were not impacted.
Changes in presentation from the prior year
Accounting policies have been applied consistently for
all periods presented in these consolidated financial
statements, except for the items mentioned below. In
addition, certain prior-year amounts have been
reclassified to conform to the current year presentation.
Change in Consolidated balance sheets presentation
Following the adoption of IFRS 15, the company has
changed the presentation of certain amounts in the
Consolidated balance sheets to reflect the terminology
of IFRS 15. Further reference is made to the section New
standards and interpretations of this note.
Change in Segment reporting
Due to the divestment and deconsolidation of
businesses in 2017, Philips changed the way it allocates
resources and analyzes its performance based on the
revised segment structure. Accordingly, from 2018
onwards the operational reportable segments for the
purpose of the disclosures required by IFRS 8 Operating
Segments were Diagnosis & Treatment businesses,
Connected Care & Health Informatics businesses and
Personal Health businesses. Each being responsible for
the management of its business worldwide.
Additionally, HealthTech Other and Legacy Items were
combined into Other. The new segment structure had
no impact on the cash-generating units disclosed in
Goodwill, starting on page 144.
Consequential changes to comparative segment
disclosures have been processed in Other assets,
starting on page 147, Receivables, starting on page 148,
and Provisions, starting on page 153. The 2017 and 2016
segment results have been reclassified according to the
revised reporting structure. Segment information can be
found in Information by segment and main country,
starting on page 129.
Specific choices within IFRS
In certain instances IFRS allows alternative accounting
treatments for measurement and/or disclosure. Philips
has adopted one of the treatments as appropriate to
the circumstances of the company. The most important
of these alternative treatments are mentioned below.
Tangible and intangible fixed assets
Under IFRS, an entity shall choose either the cost model
or the revaluation model as its accounting model for
tangible and intangible fixed assets. In this respect,
items of property, plant and equipment are measured at
cost less accumulated depreciation and accumulated
impairment losses. The useful lives and residual values
Statements 11.1.9
are evaluated annually. Furthermore, the company
chose to apply the cost model, meaning that costs
relating to product development, the development and
purchase of software for internal use and other
intangible assets are capitalized and subsequently
amortized over the estimated useful life. Further
information on Tangible and Intangible fixed assets can
be found in Property, plant and equipment, starting on
page 143 and in Intangible assets excluding goodwill,
starting on page 146, respectively.
Employee benefit accounting
IFRS does not specify how an entity should present its
service costs related to pensions and net interest on the
net defined-benefit liability (asset) in the Consolidated
statements of income. With regards to these elements,
the company presents service costs in Income from
operations and the net interest expenses related to
defined-benefit plans in Financial expense.
Furthermore, when accounting for the settlement of
defined-benefit plans, the company made the
accounting policy choice to adjust the amount of the
plan assets transferred for the effect of the asset ceiling.
Further information on employee benefit accounting
can be found in Post-employment benefits, starting on
page 156.
Cash flow statements
Under IFRS, an entity shall report cash flows from
operating activities using either the direct method
(whereby major classes of gross cash receipts and gross
cash payments are disclosed) or the indirect method
(whereby profit or loss is adjusted for the effects of
transactions of a non-cash nature, any deferrals or
accruals of past or future operating cash receipts or
payments, and items of income or expense associated
with investing or financing cash flows). In this respect,
the company chose to prepare the cash flow
statements using the indirect method.
Furthermore, interest cash flows are presented in cash
flows from operating activities rather than in cash flows
from financing or investing activities, because they enter
into the determination of profit or loss. The company
chose to present dividends paid to shareholders of
Koninklijke Philips N.V. as a component of cash flows
from financing activities, rather than to present such
dividends as cash flows from operating activities, which
is an allowed alternative under IFRS.
Consolidated statements of cash flows can be found in
Consolidated statements of cash flows, starting on page
110.
Policies that are more critical in nature
Revenue recognition
Revenue from the sale of goods in the normal course of
business is recognized at a point in time when the
performance obligation is satisfied and it is based on
the amount of the transaction price that is allocated to
the performance obligation. The transaction price is the
Annual Report 2018 113
 Statements 11.1.9
Transaction costs of financial assets carried at FVTPL
are expensed in the Consolidated statements of
income.
Classification and subsequent measurement
The company classifies its non-derivative financial
assets in the following measurement categories:
• those that are measured subsequently at fair value
(either through OCI (FVTOCI) or profit or loss
(FVTPL));
• those that are measured at amortized cost.
In assessing the classification, the company considers
the business model for managing the financial assets
and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will
be recorded in either the Consolidated statements of
income or in Other comprehensive income (OCI). For
investments in equity instruments that are not held for
trading, this will depend on whether the company has
made an irrevocable election at the time of initial
recognition to account for the equity investment at
FVTOCI. For investments in these equity instruments,
the company does not subsequently reclassify between
FVTOCI and FVTPL. For debt investments, assets are
reclassified between FVTOCI, FVTPL and amortized
cost only when its business model for managing those
assets changes.
Non-derivative financial assets comprise cash and cash
equivalents, receivables and other financial assets.
Cash and cash equivalents
Cash and cash equivalents include all cash balances,
certain money market funds and short-term highly
liquid investments with an original maturity of three
months or less that are readily convertible into known
amounts of cash. Further information on cash and cash
equivalents can be found in Cash flow statement
supplementary information, starting on page 160.
Receivables
Receivable balances that are held to collect are
subsequently measured at amortized cost and are
subject to impairment as explained in the impairment
section of this note. Receivables that are held to collect
and sell are subsequently measured at FVTOCI and are
also subject to impairment. The company derecognizes
receivables on entering into factoring transactions if the
company has transferred substantially all risks and
rewards or if the company does not retain control over
those receivables. Further information on receivables
can be found in Receivables, starting on page 148.
Other (non-)current financial assets
Other (non-)current financial assets include both debt
instruments and equity instruments.
Debt instruments include those subsequently carried at
amortized cost, those carried at FVTPL and those
carried at FVTOCI. Classification depends on the
120 Annual Report 2018
company’s business model for managing the asset and
the cash flow characteristics of the asset.
Debt instruments that are held for collection of
contractual cash flows, where those cash flows
represent solely payments of principal and interest, are
measured at amortized cost and are subject to
impairment. Interest income from these financial assets
is included in Financial income using the effective
interest rate method. Financial assets with embedded
derivatives are considered in their entirety when
determining whether their cash flows are solely
payment of principal and interest.
Debt instruments that are held for collection of
contractual cash flows and for selling the financial
assets, where the assets’ cash flows represent solely
payments of principal and interest, are measured at
FVTOCI and are subject to impairment. Movements in
the carrying amounts are taken through OCI, except for
the recognition of impairment gains or losses, interest
revenue and foreign exchange gains and losses, which
are recognized in the Consolidated statements of
income. When the financial asset is derecognized, the
cumulative gain or loss previously recognized in OCI is
reclassified from equity to the Consolidated statements
of income. Interest income from these financial assets is
included in Financial income using the effective interest
rate method.
Debt instruments that do not meet the criteria for
amortized cost or FVTOCI are measured at FVTPL. A
gain or loss on a debt investment that is subsequently
measured at FVTPL is recognized in the Consolidated
statements of income in the period in which it arises.
Equity investments are subsequently measured at fair
value. Equity instruments that are held for trading are
measured at FVTPL. For equity instruments that are not
held for trading, the company makes an irrevocable
election at the time of initial recognition whether to
account for the equity investment at FVTPL or FVTOCI.
Where management has elected to present fair value
gains and losses on equity investments in OCI, there is
no subsequent reclassification of fair value gains and
losses to the Consolidated statements of income
following the derecognition of the investment.
Dividends from such investments continue to be
recognized in the Consolidated statements of income
when the company’s right to receive payments is
established.
Further information on other (non-)current financial
assets can be found in Other financial assets, starting
on page 147
Debt and other financial liabilities
Debt and other financial liabilities, excluding derivative
financial liabilities and provisions, are initially measured
at fair value and, in the case of debt and payables, net
of directly attributable transaction costs. Debt and other
financial liabilities are subsequently measured at
amortized cost using the effective interest rate.
Amortized cost is calculated by taking into account any
 Statements 11.1.9

the related costs over the period necessary to match New standards and interpretations
them with the costs that they are intended to
compensate. Grants related to assets are deducted IFRS accounting standards adopted as from 2018
from the cost of the asset and presented net in the The company applies, for the first time, IFRS 15 Revenue
Consolidated balance sheets. from Contracts with Customers and IFRS 9 Financial
instruments. The impact of the adoption of these new
Financial guarantees standards is disclosed below. Other amendments and
The company recognizes a liability at the fair value of interpretations applied for the first time in 2018, but did
the obligation at the inception of a financial guarantee not have a material impact on the consolidated financial
contract if it is probable that an outflow of resources statements of the company.
embodying economic benefits will be required to settle
the obligation. The guarantee is subsequently Impact on the financial statements
measured at the higher of the best estimate of the As explained below, IFRS 15 was adopted using the
obligation or the amount initially recognized less, when modified retrospective approach and IFRS 9 was
appropriate, cumulative amortization. adopted retrospectively with the exception of certain
aspects of hedge accounting. As a result, for IFRS 15 the
Cash flow statements reclassifications and adjustments arising from the
Cash flows arising from transactions in a foreign changes in the company’s accounting policies are not
currency are translated into the company’s functional reflected in a restated Consolidated balance sheets as
currency using the exchange rate at the date of the cash at December 31, 2017, but are recognized in the opening
flow. Cash flows from derivative instruments that are Consolidated balance sheets on January 1, 2018. For
accounted for as cash flow hedges are classified in the IFRS 9, the company has taken an exemption not to
same category as the cash flows from the hedged restate comparative information for prior periods with
items. Cash flows from other derivative instruments are respect to classification and measurement
classified as investing cash flows. requirements. Accordingly, the information presented
for 2017 does not generally reflect the requirements of
Segment information IFRS 9 but rather those of IAS 39.
Operating segments are components of the company’s
business activities about which separate financial The following tables show the adjustments recognized
information is available that is evaluated regularly by for each individual Consolidated balance sheets
the chief operating decision maker (the Executive caption. Consolidated balance sheets captions that
Committee of the company). The Executive Committee were not affected by the changes have not been
decides how to allocate resources and assesses included. The adjustments, by standard, are explained
performance. Reportable segments comprise the in more detail below.
operating segments Diagnosis & Treatment businesses,
Connected Care & Health Informatics businesses, Balance sheet presentation impact of IFRS 15 adoption in millions of
EUR
Personal Health businesses and Other. Segment
Balance sheet December 31, Presentation January 1,
accounting policies are the same as the accounting captions 2017 change 1) 2018 2)
policies applied by the company. Other non-
current liabilities 474 (249) 226
Earnings per Share Non-current
contract
The company presents basic and diluted earnings per liabilities 249 249
share (EPS) data for its common shares. Basic EPS is Accrued
calculated by dividing the Net income (loss) attributable liabilities 2,319 (791) 1,528
to shareholders by the weighted average number of Other current
common shares outstanding during the period, adjusted liabilities 1,126 (372) 754
Current contract
for own shares held. Diluted EPS is determined by
liabilities 1,163 1,163
adjusting the Net income (loss) attributable to 1)
The amounts in relation to the IFRS 15 presentation change have
shareholders and the weighted average number of been reclassified to conform to the 31 December 2018
common shares outstanding during the period, adjusted Consolidated balance sheets classification.
2)
for own shares held, for the effects of all dilutive Opening balance sheet after IFRS 15 presentation change.
potential common shares, which comprises forward
purchase contracts, restricted shares, performance
shares and share options granted to employees.

Further information on earnings per share can be found

in Earnings per share, starting on page 142.

124 Annual Report 2018

 Statements 11.1.9

22 Other liabilities The other liabilities per December 31, 2017 and 2018
include reclassifications from litigation provisions to
Other non-current liabilities liabilities due to settlements reached. For more details
Other non-current liabilities are summarized as follows: reference is made to Litigation provisions in Provisions,
starting on page 153 and to Legal proceedings in
Philips Group Contingent assets and liabilities, starting on page 162.
Other non-current liabilities in millions of EUR
2017 - 2018
2017 2018 Contract liabilities
Deferred income 1) 249 Non-current contract liabilities were EUR 226 million at
Other tax liability 161 181 December 31, 2018 (2017: EUR 249 million) and current
Other liabilities 65 72 contract liabilities were EUR 1,303 million at December
Other non-current liabilities 474 253 31, 2018 (2017: EUR 1,163 million).
1)
Due to implementation of IFRS 15 balances included in deferred
income are now presented as contract liabilities. The current contract liabilities increased with EUR 140
million. The year-on-year change is mainly driven by an
The other non-current liabilities decreased with EUR 221 increase in contractual billings.
million. This increase is mainly driven by the change of
presentation of balances included in deferred income. The current contract liabilities as per December 31, 2017
resulted in revenue recognized of EUR 1,163 million in
For further details on tax related liabilities refer to 2018.
Income taxes, starting on page 138.
23 Cash flow statement supplementary information
Other current liabilities
Other current liabilities are summarized as follows: Net cash used for derivatives and current financial
assets
Philips Group
In 2018, a total of EUR 177 million cash was paid with
Other current liabilities in millions of EUR
2017 - 2018 respect to foreign exchange derivative contracts related
2017 2018 to activities for liquidity management and funding (2017:
Accrued customer rebates that cannot be EUR 295 million outflow; 2016: EUR 128 million outflow).
offset with accounts receivables for those
customers 435 422
Purchase and proceeds from non-current financial
Advances received from customers on
orders not covered by work in process 1) 372 assets
Other taxes including social security In 2018, the net cash inflow of EUR 43 million was
premiums 164 178 mainly due to inflows from the repayment of loans
Other liabilities 155 137 receivable, the sale of stakes and capital distributions
Other current liabilities 1,126 737 from investment funds, partly offset by an outflow due
1)
Due to implementation of IFRS 15 balances included in advances to capital contributions into investment funds.
received from customers on orders not covered by work in progress
are now presented as contract liabilities.
In 2017, the net cash outflow of EUR 36 million was
The other current liabilities decreased with EUR 389 mainly due to capital contributions in Gilde and Abraaj
million. This decrease is mainly driven by the change of Growth Markets Fund and the acquisition of other
presentation of balances included in advances received stakes.
from customers on orders not covered by work in
process. In 2016, the net cash inflow of EUR 39 million was
mainly due to the acquisition of stakes in Abraaj Growth
Markets Fund.

160 Annual Report 2018

 Statements 11.1.9

Reconciliation of liabilities arising from financing activities

Philips Group
Reconciliation of liabilities arising from financing activities in millions of EUR
2017 - 2018
Balance as of Currency effects and Balance as of
Dec. 31, 2017 Cash flow consolidation changes Other 1) Dec. 31, 2018
Long term debt 2) 4,595 126 45 (109) 4,657
USD bonds 2,137 (866) 31 - 1,303
EUR bonds 997 990 1 1,988
Bank borrowings 190 21 - - 211
Other long-term debt 20 (1) - - 18
Finance leases 281 (18) 13 53 330
Forward contracts 3) 970 (163) 807
Short term debt 2) 120 34 (29) 39 164
Short-term bank borrowings 71 34 (29) 76
Other short-term loans
Forward contracts 3) 49 39 88
Equity (1,500) (1,351) 1,558 (1,293)
Dividend payable (404) 404
Forward contracts 3) (1,018) 124 (894)
Treasury shares (481) (948) 1,030 (399)
Total (1,192)
1)
Besides non-cash, other includes interest paid on finance leases, which is part of cash flows from operating activities
2)
Long-term debt includes the short-term portion of long-term debt, and short-term debt excludes the short-term portion of the long-term
debt.
3)
The forward contracts are related to the share buyback program and LTI plans

Philips Group
Reconciliation of liabilities arising from financing activities in millions of EUR
2016 - 2017
Currency
Balance as Transfer to liabilities effects and
of Dec. 31, Cash directly associated with consolidation Balance as of
2016 flow 1) assets held for sale changes Other 2) Dec. 31, 2017
Long term debt 3) 5,396 (217) (1,255) (327) 998 4,595
USD bonds 3,608 (1,184) (287) 1 2,137
EUR bonds 997 - 997
Bank borrowings 1,470 (22) (1,238) (21) - 190
Other long-term debt 39 (20) - 1 (1) 20
Finance leases 279 12 (18) (20) 29 281
Forward contracts 4) 970 970
Short term debt 3) 210 (4) (86) (49) 49 120
Short-term bank borrowings 207 (3) (84) (49) 71
Other short-term loans 2 (1) (2) -
Forward contracts 4) 49 49
Equity (181) 168 (1,487) (1,500)
Sale of Lighting (now Signify)
shares 1,060 (1,060)
Dividend payable (478) 478
Forward contracts 4) (1,018) (1,018)
Treasury shares (181) (414) 114 (481)
Total (53)
1)
Cash flow includes cash movements related to Lighting from January to April 2017, and therefore does not equal cash flow financing activities in
the consolidated statements of cash flows.
2)
Besides non-cash, other includes interest paid on finance leases, which is part of cash flows from operating activities
3)
Long-term debt includes the short-term portion of long-term debt, and short-term debt excluding the short-term portion of long-term debt.
4)
The forward contracts are mainly related to the share buyback program

Annual Report 2018 161