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Equity | 12 Months Ended
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Dec. 31, 2020
Equity [Abstract] |
Equity [Text Block] | ### 18Equity #### Common shares As of December 31, 2020, authorized common shares consist of 2 billion shares (December 31, 2019: 2 billion; December 31, 2018: 2 billion) and the issued and fully paid share capital consists of 911,053,001 common shares, each share having a par value of EUR 0.20 (December 31, 2019: 896,733,721; December 31, 2018: 926,195,539). #### Preference shares As a means to protect the Company against (an attempt at) an unsolicited takeover or other attempt to exert (de facto) control of the company, the ‘Stichting Preferente Aandelen Philips’ has been granted the right to acquire preference shares in the Company. As of December 31, 2020, no such right has been exercised and no preference shares have been issued. Authorized preference shares consist of 2 billion shares as of December 31, 2020 (December 31, 2019: 2 billion; December 31, 2018: 2 billion). #### Options, restricted and performance shares Under its share-based compensation plans, the Company granted stock options on its common shares and rights to receive common shares in the future (see 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 the purpose of (i) delivery upon exercise of options, restricted and performance share programs, and (ii) capital reduction, 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. When treasury shares are re-issued by the Company upon exercise of options (granted to employees up to 2013), the difference between the cost and the cash received is recorded in retained earnings. When treasury shares are delivered by the Company upon vesting of restricted shares or performance shares (granted under the Company’s share-based compensation plans), the difference between the market price of the shares issued and the cost is recorded in retained earnings, and the market price is recorded in capital in excess of par value. The following table shows the movements in the outstanding number of shares over the last three years: Philips Group Outstanding number of shares
| 2018 | 2019 | 2020
--- | --- | --- | ---
Balance as of January 1 | 926,191,723 | 914,184,087 | 890,973,790
Dividend distributed | 9,533,223 | 9,079,538 | 18,080,198
Purchase of treasury shares | (31,993,879) | (40,390,495) | (8,669,622)
Re-issuance of treasury shares | 10,453,020 | 8,100,660 | 4,695,170
Issuance of new shares |  |  | 48,757
Balance as of December 31 | 914,184,087 | 890,973,790 | 905,128,293
The following transactions took place resulting from former and current share-based remuneration plans: Philips Group Employee option and share plan transactions
| 2018 | 2019 | 2020
--- | --- | --- | ---
Shares acquired | 8,226,101 | 5,497,675 | 5,351,411
Average market price | EUR 32.59 | EUR 34.25 | EUR 33.81
Amount paid | EUR 268 million | EUR 188 million | EUR 181 million
Shares delivered | 10,453,020 | 8,100,660 | 4,695,170
Average price (FIFO) | EUR 32.66 | EUR 32.87 | EUR 34.35
Cost of delivered shares | EUR 341 million | EUR 266 million | EUR 161 million
Total shares in treasury at year-end | 7,871,452 | 5,268,467 | 5,924,708
Total cost | EUR 258 million | EUR 180 million | EUR 199 million
In order to reduce share capital, the following transactions took place: Philips Group Share capital transactions
| 2018 | 2019 | 2020
--- | --- | --- | ---
Shares acquired | 23,767,778 | 34,892,820 | 3,318,211
Average market price | EUR 32.58 | EUR 34.29 | EUR 39.21
Amount paid | EUR 774 million | EUR 1,196 million | EUR 130 million
Cancellation of treasury shares (shares) | 24,246,711 | 38,541,356 | 3,809,675
Cancellation of treasury shares (EUR) | EUR 783 million | EUR 1,316 million | EUR 152 million
Total shares in treasury at year-end | 4,140,000 | 491,464 |
Total cost | EUR 141 million | EUR 22 million |
Share purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital, involved a cash outflow of EUR 311 million. A cash inflow of EUR 46 million from treasury shares mainly includes settlements of share-based remuneration plans. #### Share repurchase methods for share-based remuneration plans and capital reduction purposes Philips uses different methods to repurchase shares in its own capital: (i) share buyback repurchases in the open market via an intermediary; (ii) repurchase of shares via forward contracts for future delivery of shares; and (iii) the unwinding of call options on own shares. During 2020, Philips used methods (i) and (ii) to repurchase shares for capital reduction purposes and methods (ii) and (iii) to repurchase shares for share-based compensation plans. #### Forward share repurchase plans / contracts ##### Forward contracts to repurchase shares for share-based compensation plans On January 29, 2020, Philips announced that it will repurchase up to 6 million shares to cover certain of its obligations arising from its long-term incentive and employee stock purchase plans. Under this program, Philips entered into three forward contracts for an amount of EUR 174 million to acquire 5 million shares with settlement dates varying between October 2021 and November 2022 and a weighted average forward price of EUR 34.85. No further transactions are expected in respect to this program. On October 22, 2018, Philips announced and started a share repurchase program for an amount of up to EUR 174 million to cover its long-term incentive and employee stock purchase plans, after which it repurchased shares via an intermediary to allow for buybacks in the open market during both open and closed periods. On November 12, 2018, Philips announced to extend this program and entered into three forward contracts for an amount of EUR 319 million to repurchase 10 million shares with settlement dates varying between October 2019 and November 2021 and a weighted average forward price of EUR 31.89. As of December 31, 2020, a total of 8 million shares under this program were acquired (4 million of which were settled in the fourth quarter of 2019 and 4 million in the fourth quarter of 2020). This resulted in EUR 256 million increase in retained earnings against treasury shares (EUR 130 million and EUR 126 million pertaining to 2019 and 2020 respectively). As of December 31, 2020, the remaining forward contracts to cover obligations under share-based remuneration plans related to 7 million shares. ##### Forward contracts to repurchase shares for capital reduction purposes On January 29, 2019, Philips announced a share buyback program for an amount of up to EUR 1.5 billion. Philips started the program in the first quarter of 2019. On March 23, 2020, Philips announced that 50.3% of the program had been completed through repurchases by an intermediary to allow for purchases in the open market during both open and closed periods, and that the remainder of the program would be executed through one or more individual forward transactions. Consequently, in the first half of 2020 Philips entered into four forward contracts for an amount of EUR 745 million to acquire 20 million shares with settlement dates varying between June 2021 and December 2021 and a weighted average forward price of EUR 36.40. As of December 31, 2020, all of these forward contracts were outstanding. #### Share call options In 2016 Philips purchased EUR and USD-denominated call options on its own shares to hedge options granted to employees up to 2013. In 2020, the company unwound 498,144 EUR-denominated and 853,267 USD-denominated call options against the transfer of the same number of its own shares (1,351,411 shares) and an additional 31 million cash payment to the buyer of the call options. On December 31, 2020, the remaining EUR-denominated options and USD-denominated options related to 670,456 and 274,315 shares respectively. #### Shares cancellation In June 2020 Philips completed the cancellation of 3,809,675 of its common shares (with a cost price of EUR 152 million). The cancelled shares were acquired as part of the Philips’ EUR 1.5 billion share repurchase program announced on January 29, 2019. #### Dividend distribution ##### 2020 In July 2020, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 758 million including costs. The dividend was distributed in the form of shares only resulting in the issuance of 18,080,198 new common shares. Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for the share dividend in respect of 2019. Further reference is made to Earnings per share. A proposal will be submitted to the 2021 Annual General Meeting of Shareholders to pay a dividend of EUR 0.85 per common share, in cash or shares at the option of the shareholders, against the net income of the Company for 2020. ##### 2019 In June 2019, Philips settled a dividend of EUR 0.85 per common share, representing a total value of EUR 775 million including costs. Shareholders could elect for a cash dividend or a share dividend. Approximately 42% of the shareholders elected for a share dividend, resulting in the issuance of 9,079,538 new common shares. The settlement of the cash dividend involved an amount of EUR 453 million (including costs). ##### 2018 In June 2018, Philips settled a dividend of EUR 0.80 per common share, representing a total value of EUR 738 million including costs. Shareholders could elect for a cash dividend or a share dividend. Approximately 46% of the shareholders elected for a share dividend, resulting in the issuance of 9,533,233 new common shares. The settlement of the cash dividend involved an amount of EUR 400 million (including costs). #### Limitations in the distribution of shareholders’ equity As at December 31, 2020, pursuant to Dutch law, certain limitations exist relating to the distribution of shareholders’ equity of EUR 831 million. Such limitations relate to common shares of EUR 182 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 626 million and unrealized gains related to cash flow hedges of EUR 23 million. The unrealized currency translation differences of EUR 58 million and unrealized losses related to fair value through OCI financial assets of EUR 305 million qualify as revaluation reserves and reduce the distributable amount due to the fact that these reserves are negative. The legal reserve required by Dutch law of EUR 626 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. As at December 31, 2019, these limitations in distributable amounts were EUR 1,870 million and related to common shares of EUR 179 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 713 million and unrealized currency translation differences of EUR 978 million. The unrealized losses related to fair value through OCI financial assets of EUR 303 million and unrealized losses related to cash flow hedges of EUR 24 million qualify as a revaluation reserve and reduce the distributable amount due to the fact that this reserve is negative. #### Non-controlling interests Non-controlling interests relate to minority stakes held by third parties in consolidated group companies. #### Capital management Philips manages capital based upon the IFRS measures, net cash provided by operating activities and net cash used for investing activities as well as the non-IFRS measure net debt*). The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included below. Net debt*) is defined as the sum of long and short-term debt minus cash and cash equivalents. Group equity is defined as the sum of shareholders’ equity and non-controlling interests. This measure is used by Philips Treasury management and investment analysts to evaluate financial strength and funding requirements. The Philips net debt*) position is managed with the intention of retaining a strong investment grade credit rating. Furthermore, Philips’ aim when managing the net debt*) position is dividend stability and a pay-out ratio of 40% to 50% of Adjusted income from continuing operations attributable to shareholders*) (reconciliation to the most directly comparable IFRS measure, Net income, is provided at the end of this note). Philips Group Composition of net debt and group equity1) in millions of EUR unless otherwise stated
| 2018 | 2019 | 2020
--- | --- | --- | ---
Long-term debt | 3,427 | 4,939 | 5,705
Short-term debt | 1,394 | 508 | 1,229
Total debt | 4,821 | 5,447 | 6,934
Cash and cash equivalents | 1,688 | 1,425 | 3,226
Net debt1) | 3,132 | 4,022 | 3,708
Shareholders' equity | 12,088 | 12,597 | 11,870
Non-controlling interests | 29 | 28 | 31
Group equity | 12,117 | 12,625 | 11,901
Net debt and group equity ratio1) | 21:79 | 24:76 | 24:76
1)Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. Adjusted income from continuing operations attributable to shareholders*) is not a recognized measure of financial performance under IFRS. The reconciliation of Adjusted income from continuing operations attributable to shareholders*) to the most directly comparable IFRS measure, Net income for 2020 is included in the table below. Philips Group Adjusted income from continuing operations attributable to shareholders1) 2) in millions of EUR
| 2019 | 2020
--- | --- | ---
Net income | 1,173 | 1,195
Discontinued operations, net of income taxes | 19 | 10
Income from continuing operations | 1,192 | 1,205
Continuing operations non-controlling interests | (5) | (8)
Income from continuing operations attributable to shareholders1)2) | 1,186 | 1,197
Adjustments for: |  |
Amortization of acquired intangible assets | 350 | 381
Impairment of goodwill | 97 | 144
Restructuring costs and acquisition-related charges | 318 | 203
Other items | 153 | 301
Net finance expenses3) | 13 | (125)
Tax impact of adjusted items | (280) | (285)
Adjusted Income from continuing operations attributable to shareholders1)2) | 1,838 | 1,814
1)Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information.2)Shareholders in this table refers to shareholders of Koninklijke Philips N.V.3)The comparative figures have been restated to conform to the revised definitions. Refer to the Reconciliation of non-IFRS information. *)Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information.

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