<SEC-DOCUMENT>0001193125-20-179131.txt : 20200729
<SEC-HEADER>0001193125-20-179131.hdr.sgml : 20200729
<ACCEPTANCE-DATETIME>20200625165003
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001193125-20-179131
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		4
FILED AS OF DATE:		20200625

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			KONINKLIJKE PHILIPS NV
		CENTRAL INDEX KEY:			0000313216
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			P7
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		BREITNER CENTER
		STREET 2:		AMSTELPLEIN 2
		CITY:			AMSTERDAM
		STATE:			P7
		ZIP:			1096 BC
		BUSINESS PHONE:		31 20 59 77777

	MAIL ADDRESS:	
		STREET 1:		BREITNER CENTER
		STREET 2:		AMSTELPLEIN 2
		CITY:			AMSTERDAM
		STATE:			P7
		ZIP:			1096 BC

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	KONINKLIJKE PHILIPS ELECTRONICS NV
		DATE OF NAME CHANGE:	19981217

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PHILIPS ELECTRONICS N V
		DATE OF NAME CHANGE:	19930727

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PHILIPS NV
		DATE OF NAME CHANGE:	19910903
</SEC-HEADER>
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 </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">United States Securities and Exchange Commission </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Division of Corporation Finance, Office of Manufacturing </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">100 F.
Street, N.E. </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Washington, DC 20549 </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Attn:
&nbsp;Ms.&nbsp;Melissa Raminpour, Branch Chief </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Effie Simpson, Staff Accountant </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman" ALIGN="right">Amsterdam, June&nbsp;24, 2020 </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Your reference:
File <FONT STYLE="white-space:nowrap"><FONT STYLE="white-space:nowrap">No.&nbsp;001-05146-01</FONT></FONT> </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Subject: <B>Response to your comments on the
Koninklijke Philips N.V. Form <FONT STYLE="white-space:nowrap">20-F</FONT> for the Fiscal Year Ended December</B><B></B><B>&nbsp;31, 2019 filed February</B><B></B><B>&nbsp;25, 2020</B> </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Dear Ms.&nbsp;Raminpour and Ms.&nbsp;Simpson, </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Thank you for
your letter dated May&nbsp;28, 2020, setting forth your comments regarding the Form <FONT STYLE="white-space:nowrap">20-F</FONT> for the Fiscal Year Ended December&nbsp;31, 2019, filed February&nbsp;25, 2020 (the &#147;2019 Form <FONT
STYLE="white-space:nowrap">20-F&#148;)</FONT> of Koninklijke Philips N.V. (&#147;Philips&#148;). </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">To facilitate your consideration of Philips&#146;
response, we have included below your comment and have provided Philips&#146; response immediately following. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">We hope that your comments are sufficiently
addressed below. However, should you have any further questions or require further clarification, please do not hesitate to contact Delwin Witth&ouml;ft, the Chief Accounting Officer, at telephone +31 655210260. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Yours faithfully, </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">/s/ A. Bhattacharya </P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">A. Bhattacharya Executive Vice President and Chief Financial Officer </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD VALIGN="top"> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: 2020-06-24</P>
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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B><U>COMMENTS: </U></B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Form <FONT STYLE="white-space:nowrap">20-F</FONT> for the Year Ended December&nbsp;31, 2019 </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>7 Financial Performance </B></P> <P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>7.1 Performance Review, page 2
</B></P> <P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B><I>1. We note no discussion of cost of sales. Given the significance of such costs to your results of operations for each period presented as well
as the size of your operations, please revise and expand future filings to separately quantify and discuss factors responsible for changes in the levels of the company&#146;s cost of sales on a consolidated basis and by segment. As part of your
revised disclosure, please quantify and discuss the impact of each significant component of costs comprising cost of sales that caused them to materially vary (or not vary when expected to) instead of using terms such as &#147;primarily&#148; or
&#147;partially offset&#148;. This disclosure should be presented in a manner to allow investors to discern the relative contribution of material components contributing to the total change in cost of revenues and operating costs and the resulting
gross margin. Please note that even when total amounts of costs of sales do not materially vary from period to period, the impacts of material variances in components that offset each other should be separately disclosed, quantified, and discussed
(not netted). As part of your response, please provide us with examples of your intended disclosures based on current financial results. </I></B></P>
<P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Philips response </B></P> <P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">While management does use &#147;gross
margin&#148; to track operating performance, manage and evaluate the business, at both a consolidated and segment level, it does not use &#147;cost of sales&#148; as one of its key performance indicators. As a result, Philips has historically
focused its narrative disclosure in relation to changes in cost of sales on the impact of material component changes of cost of sales on gross margin. As such, in the 2019 Form <FONT STYLE="white-space:nowrap">20-F,</FONT> Philips&#146; discussion
of gross margin, including discussion of drivers of changes in cost of sales, was located in section 7.1.1 (<I>Results of operations</I>) in the financial performance section, following the &#147;Performance per geographic cluster&#148; section.
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<TD VALIGN="top"> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: 2020-06-24</P>
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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Philips acknowledges that certain investors and users of our financial statements may view additional
information on cost of sales as a valuable supplemental information to our financial statements and related disclosures. Accordingly, in our future annual reports on Form <FONT STYLE="white-space:nowrap">20-F,</FONT> we will separately quantify and
discuss significant factors responsible for changes in our cost of sales in addition to changes in gross margin for all periods presented. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Below is an
illustrative example of additional disclosure on cost of sales based on the comparison of the years ended December&nbsp;31, 2019 and 2018. In future annual reports on Form <FONT STYLE="white-space:nowrap">20-F,</FONT> we expect to locate the
additional disclosure on cost of sales in section 7.1.1 (<I>Results of operations</I>) following the discussion of &#147;Performance per geographic cluster&#148; and prior to the discussion of &#147;Gross margin&#148;, based on the format of the
2019 Form <FONT STYLE="white-space:nowrap">20-F.</FONT> </P> <P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B><I>Cost of sales </I></B></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; margin-left:2%; text-indent:-2%; font-size:10pt; font-family:Times New Roman">Philips Group </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:2%; text-indent:-2%; font-size:10pt; font-family:Times New Roman"><B>Cost of sales components </B>in millions of EUR </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:2%; text-indent:-2%; font-size:10pt; font-family:Times New Roman">2018 &#150; 2019 </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TR>

<TD WIDTH="74%"></TD>

<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>

<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>

<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>

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<TD></TD>
<TD></TD>
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<TR STYLE="page-break-inside:avoid ; font-family:Times New Roman; font-size:8pt">
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1.00pt solid #000000"><B>2018</B></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1.00pt solid #000000"><B><I>as&nbsp;a&nbsp;%<BR>of&nbsp;sales</I></B></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1.00pt solid #000000"><B>2019</B></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1.00pt solid #000000"><B><I>as&nbsp;a&nbsp;%<BR>of&nbsp;sales</I></B></TD>
<TD VALIGN="bottom">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff" STYLE="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<TD VALIGN="top"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">Costs of materials used</P></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">4,826</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>26.6</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">5,321</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>27.3</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD></TR>
<TR STYLE="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<TD VALIGN="top"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">Salaries and wages</P></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">2,132</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>11.8</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">2,311</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>11.9</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD></TR>
<TR BGCOLOR="#cceeff" STYLE="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<TD VALIGN="top"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">Depreciation and amortization</P></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">447</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>2.5</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">572</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>2.9</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD></TR>
<TR STYLE="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<TD VALIGN="top"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">Other manufacturing costs</P></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">2,162</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>11.9</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" ALIGN="right">2,403</TD>
<TD NOWRAP VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><I>&nbsp;</I></TD>
<TD VALIGN="bottom" ALIGN="right"><I>12.3</I></TD>
<TD NOWRAP VALIGN="bottom"><I>%&nbsp;</I></TD></TR>
<TR STYLE="font-size:1px; ">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff" STYLE="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman"><B>Cost of sales</B></P></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><B>&nbsp;</B></TD>
<TD VALIGN="bottom" ALIGN="right"><B>9,568</B></TD>
<TD NOWRAP VALIGN="bottom"><B>&nbsp;</B></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><B><I>&nbsp;</I></B></TD>
<TD VALIGN="bottom" ALIGN="right"><B><I>52.8</I></B></TD>
<TD NOWRAP VALIGN="bottom"><B><I>%&nbsp;</I></B></TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"><B>&nbsp;</B></TD>
<TD VALIGN="bottom" ALIGN="right"><B>10,607</B></TD>
<TD NOWRAP VALIGN="bottom"><B>&nbsp;</B></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"><B><I>&nbsp;</I></B></TD>
<TD VALIGN="bottom" ALIGN="right"><B><I>54.4</I></B></TD>
<TD NOWRAP VALIGN="bottom"><B><I>%&nbsp;</I></B></TD></TR>
<TR STYLE="font-size:1px; ">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">&nbsp;</P></TD>
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</TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>Philips&#146; cost of sales increased by EUR 1,039&nbsp;million to EUR 10,607&nbsp;million in 2019, compared to EUR
9,568&nbsp;million in 2018. Expressed as a percentage of sales, this represented an increase to 54.4% of sales in 2019 from 52.8% of sales in 2018. Cost of sales includes only expenses directly or indirectly attributable to the production process,
such as cost of materials used, salaries and wages, depreciation and amortization of assets used in manufacturing and other manufacturing costs (such as repair and maintenance costs related to production, expenses incurred for shipping and handling
of internal movements of goods and other expenses related to manufacturing). </I></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>The components of cost of sales increased broadly in line with the
7.5% increase in nominal sales from 2018 to 2019, except as described below. </I></P>
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<TD VALIGN="top"> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Date: 2020-06-24</P>
<P STYLE="margin-top:0pt; margin-bottom:1pt; font-size:10pt; font-family:Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Page:
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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>Costs of materials used in 2019 were negatively impacted by the effect of
<FONT STYLE="white-space:nowrap">US-China</FONT> tariffs across all segments, with tariffs resulting in incremental expenses of approximately EUR 106&nbsp;million compared to 2018. </I></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>Salaries and wages in 2019 included incremental expenses of EUR 41&nbsp;million across all segments related to the implementation of compliance programs in
response to the EU Medical Device Regulation compared to 2018. Salaries and wages were otherwise stable as a percentage of sales from 2018 to 2019, as merit increases were offset by productivity savings. </I></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>Depreciation and amortization in cost of sales in 2019 included incremental expenses of EUR 68&nbsp;million related to impairments of assets and EUR
12&nbsp;million amortization charges related to acquisitions for the Diagnosis&nbsp;&amp; Treatment businesses compared to 2018. Depreciation and amortization in cost of sales in 2019 also included incremental expenses of EUR 9&nbsp;million related
to factory investments for the Personal Health businesses compared to 2018. </I></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>Other manufacturing costs in 2019 included incremental expenses of EUR
28&nbsp;million, primarily in the segment Other, related to increases in environmental provisions due to unfavorable changes in the discount rate and other estimations compared to 2018. </I></P>
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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
