Company profits were nevertheless hit by a loss of 355 million euros in the fourth quarter because of a one-off 509-million euro European Commission fine for cathode ray price fixing, Philips said in a statement.
Under the entertainment deal, Philips long-term partner Funai will pay 150 million euros plus an unspecified licence fee to use the Philips brand in audio, multimedia and accessories for an initial period of five and a half years, with an option to renew for five years.
That deal will be closed by the end of 2013, while the video business will be transferred in 2017 because of Philips' existing licence arrangements.
"With this transaction we are taking another step in reshaping the consumer lifestyle portfolio and transforming Philips into the leading technology company in health and well-being," Philips chief executive officer Frans van Houten said in a statement.
"I am confident that today's agreement with Funai, our partner for over 25 years, will create a promising future for Philips audio, video and entertainment, and continuity for our customers.
Funai CEO Tomonori Hayashi said: "This is truly an exciting time for us at Funai."
"We will benefit from Philips' legendary know-how and innovation, as well as the excellent talent they have in place around the world," Hayashi was quoted as saying.
"Additionally, this will give Funai the opportunity to meet our goal of expanding our business into markets including Brazil, Russia, India and China."
The company, which employs around 122,000 people globally, has been historically known for its televisions, small appliances and light bulbs, but has sought over the last decade to develop activities in the medical equipment and lifestyle sector.
In April last year the company sold its troubled television branch to TPV Technology.