UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 11-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED JULY 31, 2006 COMMISSION FILE NUMBER: 001-05146-01
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSACTION PERIOD FROM ________________________ TO ___________________
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
c/o Philips Electronics North America Corporation
1251 Avenue of the Americas
New York, New York 10020
Attention: Compensation and Benefits Department
(Full title of the plan and address of the plan, if different from
that of the issuer named below)
KONINKLIJKE PHILIPS ELECTRONICS N.V.
REMBRANDT TOWER, AMSTELPLEIN, 1,
AMSTERDAM 1070MX, THE NETHERLANDS
(Address of principal executive offices)
KONINKLIJKE PHILIPS ELECTRONICS N.V.
NONQUALIFIED STOCK PURCHASE PLAN
TABLE OF CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm 1
Statements of Financial Condition - July 31, 2006 and 2005 2
Statements of Income and Changes in Plan Equity -
Years ended July 31, 2006, 2005 and 2004 3
Notes to Financial Statements 4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Committee of the Koninklijke Philips Electronics N.V.
Nonqualified Stock Purchase Plan:
We have audited the accompanying statements of financial condition of the
Koninklijke Philips Electronics N.V. Nonqualified Stock Purchase Plan (the
"Plan") as of July 31, 2006 and 2005 and the related statements of income and
changes in plan equity for each of the years in the three year period ended July
31, 2006. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Plan's management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Koninklijke Philips
Electronics N.V. Nonqualified Stock Purchase Plan at July 31, 2006 and 2005, and
the changes in plan equity for each of the years in the three year period ended
July 31, 2006 in conformity with U.S. generally accepted accounting principles.
/s/KPMG LLP
New York, New York
October 27, 2006
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
STATEMENTS OF FINANCIAL CONDITION
JULY 31, 2006 AND 2005
($ IN THOUSANDS)
2006 2005
---- ----
Assets:
Investment in Koninklijke Philips
Electronics N.V. common stock at market
value - 4,002,953 shares in 2006 and
4,192,385 shares in 2005 (cost $97,258 in
2006 and $95,440 in 2005) $131,817 113,697
Contributions receivable from participants 1,531 1,942
-------- -------
Total Assets 133,348 115,639
-------- -------
Plan Equity $133,348 115,639
======== =======
See accompanying notes to financial statements
2
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY
YEARS ENDED JULY 31, 2006, 2005 AND 2004
($ IN THOUSANDS)
2006 2005 2004
---- ---- ----
Investment income:
Net change in unrealized appreciation of
investments $16,301 9,261 12,428
Net realized gain (loss) on sale of
investments 7,543 2,614 (971)
Dividend income from Koninklijke Philips
Electronics N.V. common stock 1,820 1,821 1,329
--------- -------- --------
25,664 13,698 12,786
Contributions:
Participants 20,965 21,279 22,438
Employer 3,768 4,537 6,483
--------- -------- --------
Total contributions 24,733 25,817 28,921
--------- -------- --------
Total additions 50,397 39,515 41,707
Less: Distributions to participants (32,689) (19,981) (18,643)
--------- -------- --------
Net Increase 17,708 19,534 23,064
Plan Equity:
Beginning of the Year 115,639 96,105 73,041
--------- -------- --------
End of Year $133,348 115,639 96,105
========= ======== ========
See accompanying notes to financial statements
3
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2006 AND 2005
($ IN THOUSANDS)
(1) DESCRIPTION OF THE PLAN
The following description of the Koninklijke Philips Electronics N.V.
Nonqualified Stock Purchase Plan (the "Plan") provides only general
information. Participants should refer to the Plan prospectus for a more
complete description of the Plan's provisions.
GENERAL
The Plan is a voluntary stock purchase plan established for eligible
U.S.-based employees of certain subsidiaries of Koninklijke Philips
Electronics N.V. (the "Company") effective August 1, 2000. The Plan makes
available to eligible employees of certain of the Company's subsidiaries
in the U.S. the right to purchase shares of the Company's common stock at
a discount. The common stock of the Company is quoted on several stock
exchanges including the Amsterdam Stock Exchange and the New York Stock
Exchange ("NYSE").
PARTICIPATION
U.S.-based full-time salaried and hourly employees of certain
subsidiaries of the Company except for certain senior executives, as
defined by the Plan, are eligible to participate in the Plan after
completing 30 days of full-time employment. Employees subject to
collective bargaining agreements are eligible to participate upon
acceptance of the Plan by their respective union. Certain suspension
rules apply as described below in "Plan Restrictions."
CONTRIBUTIONS
Each year, participants may contribute up to 10% of their cash
compensation, as defined by the Plan, through payroll withholdings. In
addition to the percentage limitation, contributions may not exceed
$20,000 in any calendar year.
Prior to January 2005, the cost of shares to participants was the lesser
of 85% of the closing price on the first day of the applicable purchase
period on which stocks are traded on the NYSE, or 85% of the closing
price on the last day of the applicable purchase period on which stocks
are traded on the NYSE.
Beginning January 2005, however, there was a change in the way the 15%
discount on Philips stock is calculated. Starting with the first purchase
period in 2005, the 15% discount was applied to the closing price per
share of Company stock at the end of the applicable purchase period. For
example, the purchase price for the first 2005 purchase period was based
on the March 31, 2005 closing price.
The difference between the fair value of the shares purchased and the
cost to the participants represents employer contributions.
4
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2006 AND 2005
($ IN THOUSANDS)
Legal title to the participant's shares are held by SPP & Co., a New
Jersey partnership of Computershare Trust Company N.A., formerly doing
business as Equiserve Trust Company, N.A.
Contributions are used to purchase whole and fractional shares of the
Company at the end of each purchase period (a calendar quarter).
VESTING
All contributions and common shares purchased are 100% vested.
DIVIDENDS
Dividends paid, net of applicable taxes withheld, are reinvested into the
participant's account and used to purchase additional common shares at
the prevailing market price during the next purchase period.
PLAN RESTRICTIONS
A participant may sell any shares held in their account at any time.
Beginning in 2005, the penalty for selling shares held by the Plan for
less than one year was eliminated. Prior to 2005, if shares held by the
Plan for less than one year were sold, the participant would become
ineligible to participate in the Plan for the following two quarters.
PLAN TERMINATION
The Company may suspend or terminate the Plan at any time. If the Plan is
suspended or terminated payroll deductions will terminate and unapplied
withholdings will be used to purchase common shares or be repaid to
participants without interest as soon as practicable following the
termination of the Plan.
PLAN EXPENSES
Plan expenses are paid by the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are significant accounting policies followed by the Plan:
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis
of accounting.
5
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2006 AND 2005
($ IN THOUSANDS)
INVESTMENT VALUATION AND INCOME RECOGNITION
The investment in shares held by the Plan is recorded at market value,
measured by the closing price listed by the NYSE. Purchases and sales of
securities are recorded on a trade-date basis. Realized gains and losses
are allocated using the first in, first out method. Dividends are
recorded on the ex-dividend date.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
DISTRIBUTIONS
Participants may request distributions in the form of Company stock or
cash. Distributions are recorded when paid.
(3) INVESTMENT IN COMMON SHARES
Each participant is a 100% owner of the number of shares held on their
behalf by SPP & Co., a New Jersey partnership of Computershare Trust
Company N.A., formerly doing business as Equiserve Trust Company, N.A.
Participants maintain the same rights as common stock shareholders.
As of July 31, 2006, 4,002,953 shares were held for participants and were
valued at $32.93 per share. As of July 31, 2005, 4,192,385 shares were
held for participants and were valued at $27.12 per share. There were
$1,531 and $1,942 of participants' contributions not yet used to purchase
shares on July 31, 2006 and 2005, respectively, which is reflected as
contributions receivable from participants on the statements of financial
condition.
Proceeds from the sales of Company common stock, cost of stock sold and
the related realized gain (loss) were as follows:
For the year ended July 31,
2006 2005 2004
---- ---- ----
Proceeds $ 32,689 19,981 18,643
Cost of stock sold 25,146 17,367 19,614
-------- ------- --------
Realized gain (loss) $ 7,543 2,614 (971)
======== ======= ========
6
KONINKLIJKE PHILIPS ELECTRONICS N.V. NONQUALIFIED STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2006 AND 2005
($ IN THOUSANDS)
(4) TAX STATUS
The Plan is a non-qualified employee stock purchase plan for U.S. tax
purposes. Participants of the Plan are taxed under Section 83 of the
Internal Revenue Code. Upon purchase of the shares, the excess of the
closing market price of the shares on the purchase date over the
discounted purchase price (Beginning 2005, 85% of the closing price on
the last day of the purchase period) is included as ordinary income on
the participant's W-2 form sent to the Internal Revenue Service. Any
additional appreciation on the shares from the date of purchase until the
date of subsequent sale will then be taxed to participants under Section
83 of the Internal Revenue Code as short-term or long-term capital gain
or loss, depending on the period of time the shares are held before sale.
Participants are also required to report as ordinary income the amount of
any dividends received on common shares purchased through the Plan.
(5) MARKET RISK
The Plan's assets are invested in one security, the common stock of
Koninklijke Philips Electronics N.V. Investment securities are exposed to
various risks, such as interest rate, market, and credit risks. Due to
the level of risk associated with this investment security, it is at
least reasonably possible that the changes in the value of the investment
security will occur in the near term and that such changes could
materially affect the amounts reported in the statement of financial
condition. The underlying value of the Company common stock is entirely
dependent upon the performance of the Company and the market's evaluation
of such performance.
7
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
TRUSTEES (OR OTHER PERSONS WHO ADMINISTER THE EMPLOYEE BENEFIT PLAN) HAVE DULY
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED.
KONINKLIJKE PHILIPS ELECTRONICS N.V.
NONQUALIFIED STOCK PURCHASE PLAN
DATE: October 30, 2006 BY: /s/ WILCO GROENHUYSEN
----------------------------------------------
NAME: WILCO GROENHUYSEN
TITLE: CHAIRMAN, STOCK PURCHASE PLAN COMMITTEE
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Committee of the Koninklijke Philips Electronics N.V.
Nonqualified Stock Purchase Plan:
We consent to the incorporation by reference in the Registration Statements (No.
333-119375, 333-104104, 333-87852, 333-75542 and 333-39204) on Form S-8 of
Koninklijke Philips Electronics N.V. of our report dated October 27, 2006
relating to the statements of financial condition of the Koninklijke Philips
Electronics N.V. Nonqualified Stock Purchase Plan as of July 31, 2006 and 2005
and the related statements of income and changes in plan equity for each of the
years in the three-year period ended July 31, 2006, which report appears in the
Annual Report of Koninklijke Philips Electronics N.V. Nonqualified Stock
Purchase Plan on Form 11-K.
/s/ KPMG LLP
New York, New York
October 27, 2006