Washington, D.C. 20549
Note: All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.
We have audited the accompanying statements of net assets available for benefits of Nicor Companies Savings Investment Plan (the “Plan”) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the years then ended. 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. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by 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, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2006 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This schedule is the responsibility of the Plan's management. Such schedule has been subjected to the auditing procedures applied in our audit of the basic 2006 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
Notes to the Financial Statements
For the Years Ended December 31, 2006 and 2005
1. DESCRIPTION OF THE PLAN
The following description of the Nicor Companies Savings Investment Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for more detailed information.
The Plan. The Plan is a defined contribution plan that is designed to provide retirement benefits to substantially all employees of Nicor Gas Company, not represented by a collective bargaining agreement, and employees of certain affiliated companies (collectively referred to as the “Company”). Plan investments are commingled with those of the Nicor Gas Thrift Plan and held for safekeeping and investment by the Nicor Gas Savings Investment and Thrift Trust (the “Master Trust”). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Plan administration. Authority to control and manage the operation and administration of the Plan is vested in a committee appointed by the Board of Directors of the Company. The Vanguard Fiduciary Trust Company (“VFTC”) acts as trustee for the Master Trust and holds the investments of the Plan under the terms of a trust agreement. The VFTC also acts as investment manager for certain assets of the Plan. Administrative expenses associated with operation of the Plan are paid from Plan assets.
Contributions. Subject to Plan and Internal Revenue Service (“IRS”) limitations, the participant may elect to make either tax-deferred contributions or after-tax contributions, or a combination thereof, by payroll deduction, that are partially matched by the Company. Effective January 1, 2007, the participant may also elect to make Roth 401(k) contributions. For Nicor Gas employees hired on and after January 1, 1998, Nicor Gas makes an additional annual contribution, subject to service requirements, up to 1.5 percent of the participant’s prior year’s actual base pay. The Plan also accepts rollover contributions representing distributions from other qualified plans. Participants direct the investment of their contributions, Company contributions and account balances into various investment options offered by the Plan.
Investments. The Plan’s investment options currently include the Nicor Stock Fund, the Nicor Stable Value Fund, and 22 mutual funds.
Participant accounts. Individual accounts are maintained for each Plan participant. Each participant’s account is increased by the participant’s contributions, Company contributions and allocated plan investment earnings, and decreased by withdrawals, allocated plan investment losses and administrative expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account balance.
Participant loans. Participants may borrow up to the lesser of $50,000 or 50 percent of their vested account balance from their account. Loans are repaid through payroll deductions over periods ranging from six months to five years, and are secured by the balance in the participant’s account. The interest rate is established at the date of the loan and is based on the prime rate plus 1 percent. The interest rate remains fixed over the life of the loan.
Vesting and forfeitures. The participant’s contributions and earnings thereon are immediately vested. The Company’s contributions and earnings thereon are vested after the participant’s completion of three years of service. However, the participant will be fully vested in the Company’s contribution if the participant retires, becomes disabled, or dies before completing three years of service.
4
Nicor Companies Savings Investment Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
If the participant’s interest in the Company’s contributions and earnings thereon is not vested, such interest will be forfeited if the participant’s employment with the Company is terminated. If the participant is reemployed within five years by the Company, forfeited contributions are restored to the participant’s account. Any amounts forfeited by a participant are applied to reduce the amount of the Company’s contributions under the Plan. During 2006 and 2005, the application of forfeitures reduced the Company’s contribution by $209,132 and $298,016, respectively, and at December 31, 2006 and 2005, the Plan had $6,168 and $32,376, respectively, of forfeitures available for application against future Company contributions.
Payment of benefits. On termination of service due to retirement, disability, or death, a participant may elect to defer distribution until attainment of age 70 ½, receive either a lump-sum amount equal to the participant’s vested interest in his or her account balance or request certain payments over a specified period. For termination of service for other reasons, a participant has the option to defer distribution until attainment of age 70 ½ if their vested account balance exceeds $1,000 or receive a lump sum distribution equal to the value of the vested interest in his or her account. Benefit payments to participants are recorded and distributed on the date requested.
Suspensions and withdrawals. The participant may suspend contributions but will not cease to be a participant during the suspension period.
The participant may elect, under certain conditions, to withdraw certain participant contributions and earnings thereon prior to termination of employment. The Company’s matching contributions and earnings thereon will not be distributed until the vested participant’s attainment of age 59-1/2 or employment has been terminated.
Plan termination. The Company expects to continue the Plan indefinitely, but reserves the right to amend or discontinue it at any time subject to the provisions of ERISA. In the event of plan termination, participants will become fully vested in their account balances.
2. ACCOUNTING POLICIES
Basis of accounting. The financial statements of the Plan are prepared under the accrual method of accounting.
Use of estimates. The preparation of financial statements in accordance with accounting policies generally accepted in the United States of America requires Plan management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates. The Plan utilizes various investment instruments, including Nicor Inc. common stock, mutual funds, common and collective trusts, and investment contracts. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in their values will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
5
Nicor Companies Savings Investment Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
Adoption of new accounting guidance. The financial statements and the master trust financial information presented in Note 5 reflect the retroactive adoption of Financial Accounting Standards Board Staff Position, AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the “FSP”). As required by the FSP, the statements of net assets available for benefits present investment contracts at fair value, as well as an additional line item showing an adjustment of fully benefit-responsive investment contracts from fair value to contract value. The statement of changes in net assets available for benefits is presented on a contract value basis and was not affected by the adoption of the FSP. The adoption of the FSP did not impact the amount of net assets available for benefits at December 31, 2005.
Investment valuation. The Plan states its investment in the Master Trust at the underlying fair value of the investments of the Master Trust as follows:
The market value for Nicor Inc. common stock is based on the closing price on the New York Stock Exchange Composite Tape.
Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Master Trust at year-end.
The Nicor Stable Value Fund is primarily composed of benefit-responsive investment contracts including insurance contracts and investments in certain registered investment companies and common/collective trusts whose contract values are guaranteed by bank contracts. These benefit-responsive investment contracts are valued at fair value and contract value. The fair values of the investment contracts are determined by taking the market value of any synthetic contracts and adding the expected future cash flows for each traditional contract. The resulting valuation is further adjusted for items such as exchanges and administrative expenses. The contract value of the investment contracts represents contributions made plus interest at the various contract rates, less Plan withdrawals and administrative expenses.
The average crediting interest rate for the Nicor Stable Value Fund was 4.3 percent and 4.2 percent at December 31, 2006 and 2005, respectively. The average yield for this fund was 4.3 percent and 4.4 percent for the years ended December 31, 2006 and 2005, respectively. There are no reserves against contract value for credit risk of the contract issuer or otherwise.
3. NET TRANSFER TO NICOR COMPANIES SAVINGS INVESTMENT PLAN
When the status of a participant changes between a union employee covered by a collective bargaining agreement and a nonunion employee not covered by a collective bargaining agreement, eligibility for participation shifts between the Nicor Gas Thrift Plan (the “union plan”) and this Plan (the “nonunion plan”). When eligibility changes, the account balance of the participant is transferred to the corresponding plan. During 2006 and 2005, net transfers of $233,140 and $31,561, respectively, were made from the Nicor Gas Thrift Plan to the Nicor Companies Savings Investment Plan.
4. EXEMPT PARTY-IN-INTEREST TRANSACTIONS
The Plan invests in shares of mutual funds managed by an affiliate of VFTC. VFTC acts as trustee for only those investments as defined by the Plan. Transactions in such investments qualify as party-in-interest transactions which are exempt from the prohibited transaction rules. Fees paid by the Plan for investment management services were included as a reduction of the return earned by each fund.
6
Nicor Companies Savings Investment Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
At December 31, 2006 and 2005, the Plan held 181,204 and 210,026 shares, respectively, of common stock of Nicor Inc., the sponsoring employer, with a cost basis of $6,323,622 and $7,069,850, respectively. During the years ended December 31, 2006 and 2005, the Plan recorded dividend income of $350,508 and $395,954, respectively.
5. MASTER TRUST FINANCIAL INFORMATION
Use of the Master Trust permits the commingling of the Plan’s assets with the assets of the Nicor Gas Thrift Plan for investment and administrative purposes. Although assets of both plans are commingled in the Master Trust, the Trustee maintains supporting records for each of the participating plans. The net investment income of the investment assets is allocated daily by the Trustee to each participating plan based on the relationship of the interest of each plan to the total of the interests of both participating plans.
The following presents the Master Trust’s net assets as of December 31, 2006 and 2005, the increase or decrease in the Master Trust’s net assets derived from investment activities for the years then ended and the Plan’s share of each:
Net Assets in Master Trust
| | December 31 | |
| | | 2006 | | | 2005 | |
| Assets: | | | | | | |
| General Investments (at fair value): | | | | | | |
| Group annuity contracts | $ | - | | $ | 21,478,194 | |
| Common/collective trusts* | | 92,783,816 | | | 87,513,577 | |
| Nicor Inc. common stock* | | 22,163,918 | | | 19,815,267 | |
| Registered investment companies* | | 196,786,209 | | | 165,844,557 | |
| Loans to participants* | | 6,309,891 | | | 5,995,366 | |
| | | | | | | |
| | | 318,043,834 | | | 300,646,961 | |
| | | | | | | |
| Liabilities: | | | | | | |
| | | | | | | |
| Operating payables | | 3,669 | | | 15,728 | |
| | | | | | | |
| Net assets in Trust at fair value | | 318,040,165 | | | 300,631,233 | |
| | | | | | | |
| Adjustment from fair value to contract value for | | | | | | |
| fully benefit-responsive investment contracts | | 1,470,879 | | | 1,612,725 | |
| | | | | | | |
| Net assets in Trust | $ | 319,511,044 | | $ | 302,243,958 | |
| | | | | | | |
| Plan’s interest in Trust net assets, at fair value | $ | 176,493,811 | | $ | 168,824,208 | |
| | | | | | | |
| Plans percentage interest in Trust | | | | | | |
| net assets, at fair value | | 55% | | | 56% | |
* Party-in-interest investments.
7
Nicor Companies Savings Investment Plan
Notes to the Financial Statements (concluded)
For the Years Ended December 31, 2006 and 2005
The Plan’s interest in the Trust’s investments that represent five percent or more of the Plan’s net assets available for benefits as of December 31, 2006 and 2005 are as follows:
| | December 31 |
| | | 2006 | | | 2005 |
| | | | | | |
| Vanguard 500 Index Fund Investor Shares | $ | 26,984,541 | | $ | 24,198,262 |
| Vanguard Developed Markets Index Fund | | 10,926,351 | | | 7,410,970 |
| Vanguard Small-Cap Index Fund Investor Shares | | 14,113,150 | | | 12,616,606 |
| Vanguard Wellington Fund Investor Shares | | 17,781,836 | | | 16,062,381 |
| Nicor Stable Value Fund | | 59,483,120 | | | 67,875,747 |
| | | | | | |
Master Trust Investment Activities
| | Year Ended December 31 | |
| | | 2006 | | | 2005 | |
| Investment income: | | | | | | |
| Interest | $ | 956,050 | | $ | 1,278,591 | |
| Dividends | | 892,009 | | | 962,787 | |
| Net change in market value of Nicor Inc. common stock | | 3,528,840 | | | 1,134,038 | |
| Net investment gain from common/collective trusts | | 4,345,091 | | | 3,831,529 | |
| Net investment gain from registered investment companies | | 23,403,020 | | | 10,744,700 | |
| Other | | 136,584 | | | 565,698 | |
| | | | | | | |
| | | 33,261,594 | | | 18,517,343 | |
| | | | | | | |
| Administrative expenses | | (55,821 | ) | | (57,143 | ) |
| | | | | | | |
Increase in Trust net assets derived from investment activities | $ | 33,205,773 | | $ | 18,460,200 | |
| | | | | | | |
| Plan’s interest in Trust investment activities | $ | 18,623,113 | | $ | 10,378,090 | |
6. FEDERAL INCOME TAX STATUS
The IRS has determined and informed the Company by a letter dated April 22, 2003, that the Plan and related Trust was tax exempt under Section 401(a) of the Internal Revenue Code (the “Code”). The Plan has since been amended, and Plan’s management believes that the Plan and related Master Trust continue to be designed and operated in compliance with the requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
8
|
Form 5500 Schedule H, Part IV, Line 4(i) - Schedule of Assets (Held at End of Year) |
December 31, 2006 |
| | | | | | |
| | | | | | |
Identity of Issue, Borrower | | | | |
or Similar Party | | Description of Investment | | Current Value |
| | | | | | |
| | | | | | |
| (A) | Investments held in Master Trust | | | | $ 175,145,944 |
| | | | | | |
| (A) | Participant Notes Receivable | | Participant loans earning interest from 5% to 9.25% | | 2,109,158 |
| | | | maturing from 2007 through 2011 | | |
| | | | | | |
| | Total | | | | $ 177,255,102 |
| | | | | | |
| | | | | | |
| | | | | | |
| (A) | Denotes party-in-interest investment | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 9 |
| |
| |
| |
| |
|
| |
EMPLOYER IDENTIFICATION NO. 36-2863847 |
PLAN NO. 8 |
| |
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006 AND 2005 |
TOGETHER WITH INDEPENDENT AUDITORS' REPORT |
| |
| |
| |
| |
To the Nicor Gas Thrift Plan Committee:
We have audited the accompanying statements of net assets available for benefits of Nicor Gas Thrift Plan (the “Plan”) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the years then ended. 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. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by 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, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2006 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This schedule is the responsibility of the Plan's management. Such schedule has been subjected to the auditing procedures applied in our audit of the basic 2006 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Chicago, Illinois
June 27, 2007
| |
Statements of Net Assets Available for Benefits | |
| | | | | | |
| | | | | | |
| | | December 31 | |
| | | 2006 | | 2005 | |
| Assets: | | | | | | | |
| Investment in Master Trust, at fair value: | | | | | | | |
| Investment securities and other | | $ | 137,345,624 | | $ | 127,971,951 | |
| Participant loans | | | 4,200,730 | | | 3,835,074 | |
| | | | 141,546,354 | | | 131,807,025 | |
| | | | | | | | |
| Receivables: | | | | | | | |
| Employer contributions | | | 171,803 | | | 154,407 | |
| | | | | | | | |
| Net assets available for benefits, at fair value | | | 141,718,157 | | | 131,961,432 | |
| | | | | | | | |
| Adjustment from fair value to contract value | | | | | | | |
| for fully-benefit responsive investment contracts | | | 709,585 | | | 748,414 | |
| | | | | | | | |
| Net assets available for benefits | | $ | 142,427,742 | | $ | 132,709,846 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Statements of Changes in Net Assets Available for Benefits | |
| | | | | | | | |
| | | | | | | | |
| | | | Year ended December 31 | |
| | | | 2006 | | | 2005 | |
| | | | | | | | |
| Net increase in Plan assets from investment | | | | | | | |
| activities of the Master Trust | | $ | 14,582,660 | | $ | 8,082,110 | |
| | | | | | | | |
| Contributions: | | | | | | | |
| Participant | | | 3,940,698 | | | 3,880,781 | |
| Employer | | | 1,755,782 | | | 1,719,443 | |
| | | | 5,696,480 | | | 5,600,224 | |
| | | | | | | | |
| Distributions to participants | | | (10,328,104 | ) | | (10,246,148 | ) |
| | | | | | | | |
| Transfers, net | | | (233,140 | ) | | (31,561 | ) |
| | | | | | | | |
| Net increase | | | 9,717,896 | | | 3,404,625 | |
| | | | | | | | |
| Net assets available for benefits at | | | | | | | |
| beginning of year | | | 132,709,846 | | | 129,305,221 | |
| | | | | | | | |
| Net assets available for benefits at | | | | | | | |
| end of year | | $ | 142,427,742 | | $ | 132,709,846 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| The accompanying notes are an integral part of these statements. | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 12 |
Notes to the Financial Statements
For the Years Ended December 31, 2006 and 2005
1. DESCRIPTION OF THE PLAN
The following description of the Nicor Gas Thrift Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for more detailed information.
The Plan. The Plan is a defined contribution plan that is designed to provide retirement benefits to substantially all employees of Nicor Gas Company (the “Company”) represented by a collective bargaining agreement. Plan investments are commingled with those of the Nicor Companies Savings Investment Plan and held for safekeeping and investment by the Nicor Gas Savings Investment and Thrift Trust (the “Master Trust”). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Plan administration. Authority to control and manage the operation and administration of the Plan is vested in a committee appointed by the Board of Directors of the Company. The Vanguard Fiduciary Trust Company (“VFTC”) acts as trustee for the Master Trust and holds the investments of the Plan under the terms of a trust agreement. The VFTC also acts as investment manager for certain assets of the Plan. Administrative expenses associated with operation of the Plan are paid from Plan assets.
Contributions. Subject to Plan and Internal Revenue Service (“IRS”) limitations, the participant may elect to make either tax-deferred contributions or after-tax contributions, or a combination thereof, by payroll deduction, that are partially matched by the Company. For employees hired on and after January 1, 1998, the Company makes an additional annual contribution, subject to service requirements. The additional annual contribution was 1.3 percent for 2005 and 2006. Participants direct the investment of their contributions, Company contributions and account balances into various investment options offered by the Plan.
Investments. The Plan’s investment options currently include the Nicor Stock Fund, the Nicor Stable Value Fund, and 22 mutual funds.
Participant accounts. Individual accounts are maintained for each Plan participant. Each participant’s account is increased by the participant’s contributions, Company contributions and allocated plan investment earnings, and decreased by withdrawals, allocated plan investment losses and administrative expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account balance.
Participant loans. Participants may borrow up to the lesser of $50,000 or 50 percent of their vested account balance from their account. Loans are repaid through payroll deductions over periods ranging from six months to five years, and are secured by the balance in the participant’s account. The interest rate is established at the date of the loan and is based on the prime rate plus 1 percent. The interest rate remains fixed over the life of the loan.
Vesting and forfeitures. The participant’s contributions and earnings thereon are immediately vested. The Company’s contributions and earnings thereon are vested after the participant’s completion of three years of service. However, the participant will be fully vested in the Company’s contribution if the participant retires, becomes disabled, or dies before completing three years of service.
13
Nicor Gas Thrift Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
If the participant’s interest in the Company’s contributions and earnings thereon is not vested, such interest will be forfeited if the participant’s employment with the Company or an affiliate is terminated. If the participant is reemployed within five years by the Company or an affiliate, forfeited contributions are restored to the participant’s account. Any amounts forfeited by a participant are applied to reduce the amount of the Company’s contributions under the Plan. During 2006 and 2005, the application of forfeitures reduced the Company’s contribution by $22,500 and $14,398, respectively, and at December 31, 2006 and 2005, the Plan had $27,027 and $148, respectively, of forfeitures available for application against future Company contributions.
Payment of benefits. On termination of service due to retirement, disability, or death, a participant may elect to defer distribution until attainment of age 70 ½, receive either a lump-sum amount equal to the participant’s vested interest in his or her account balance or request certain payments over a specified period. For termination of service for other reasons, a participant has the option to defer distribution until attainment of age 70 ½ if their vested account balance exceeds $1,000 or receive a lump sum distribution equal to the value of the vested interest in his or her account. Benefit payments to participants are recorded and distributed on the date requested.
Suspensions and withdrawals. The participant may suspend contributions and will not cease to be a participant during the suspension period.
The participant may elect, under certain conditions, to withdraw certain participant contributions and earnings thereon prior to termination of employment. The Company’s matching contributions and earnings thereon will not be distributed until the vested participant’s attainment of age 59-1/2 or employment has been terminated.
Plan termination. The Company expects to continue the Plan indefinitely, but reserves the right to amend or discontinue it at any time in a manner consistent with any collective bargaining agreement and subject to the provisions of ERISA. In the event of plan termination, participants will become fully vested in their account balances.
2. ACCOUNTING POLICIES
Basis of accounting. The financial statements of the Plan are prepared under the accrual method of accounting.
Use of estimates. The preparation of financial statements in accordance with accounting policies generally accepted in the United States of America requires Plan management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates. The Plan utilizes various investment instruments, including Nicor Inc. common stock, mutual funds, common and collective trusts, and investment contracts. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in their values will occur in the near term and such changes could materially affect the amounts reported in the financial statements.
14
Nicor Gas Thrift Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
Adoption of new accounting guidance. The financial statements and the master trust financial information presented in Note 5 reflect the retroactive adoption of Financial Accounting Standards Board Staff Position, AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the “FSP”). As required by the FSP, the statements of net assets available for benefits present investment contracts at fair value, as well as an additional line item showing an adjustment of fully benefit-responsive investment contracts from fair value to contract value. The statement of changes in net assets available for benefits is presented on a contract value basis and was not affected by the adoption of the FSP. The adoption of the FSP did not impact the amount of net assets available for benefits at December 31, 2005.
Investment valuation. The Plan states its investment in the Master Trust at the underlying fair value of the investments of the Master Trust as follows:
The market value for Nicor Inc. common stock is based on the closing price on the New York Stock Exchange Composite Tape.
Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Master Trust at year-end.
The Nicor Stable Value Fund is primarily composed of benefit-responsive investment contracts including insurance contracts and investments in certain registered investment companies and common/collective trusts whose contract values are guaranteed by bank contracts. These benefit-responsive investment contracts are valued at fair value and contract value. The fair values of the investment contracts are determined by taking the market value of any synthetic contracts and adding the expected future cash flows for each traditional contract. The resulting valuation is further adjusted for items such as exchanges and administrative expenses. The contract value of the investment contracts represents contributions made plus interest at the various contract rates, less Plan withdrawals and administrative expenses.
The average crediting interest rate for the Nicor Stable Value Fund was 4.3 percent and 4.2 percent at December 31, 2006 and 2005, respectively. The average yield for this fund was 4.3 percent and 4.4 percent for the years ended December 31, 2006 and 2005, respectively. There are no reserves against contract value for credit risk of the contract issuer or otherwise.
3. NET TRANSFER TO NICOR COMPANIES SAVINGS INVESTMENT PLAN
When the status of a participant changes between a union employee covered by a collective bargaining agreement, and a nonunion employee not covered by a collective bargaining agreement, eligibility for participation shifts between this Plan (the “union plan”) and the Nicor Companies Savings Investment Plan (the “nonunion plan”). When eligibility changes, the account balance of the participant is transferred to the corresponding plan. During 2006 and 2005, net transfers of $233,140 and $31,561, respectively, were made from the Nicor Gas Thrift Plan to the Nicor Companies Savings Investment Plan.
4. EXEMPT PARTY-IN-INTEREST TRANSACTIONS
The Plan invests in shares of mutual funds managed by an affiliate of VFTC. VFTC acts as trustee for only those investments as defined by the Plan. Transactions in such investments qualify as party-in-interest transactions which are exempt from the prohibited transaction rules. Fees paid by the Plan for investment management services were included as a reduction of the return earned by each fund.
15
Nicor Gas Thrift Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
At December 31, 2006 and 2005, the Plan held 292,384 and 294,051 shares, respectively, of common stock of Nicor Inc., the sponsoring employer, with a cost basis of $9,448,545 and $9,092,959, respectively. During the years ended December 31, 2006 and 2005, the Plan recorded dividend income of $541,491 and $566,833, respectively.
5. MASTER TRUST FINANCIAL INFORMATION
Use of the Master Trust permits the commingling of the Plan’s assets with the assets of the Nicor Companies Savings Investment Plan for investment and administrative purposes. Although assets of both plans are commingled in the Master Trust, the Trustee maintains supporting records for each of the participating plans. The net investment income of the investment assets is allocated daily by the Trustee to each participating plan based on the relationship of the interest of each plan to the total of the interests of both participating plans.
The following presents the Master Trust’s net assets as of December 31, 2006 and 2005, the increase or decrease in the Master Trust’s net assets derived from investment activities for the years then ended and the Plan’s share of each:
Net Assets in Master Trust
| | December 31 | |
| | | 2006 | | | 2005 | |
| Assets: | | | | | | |
| General Investments (at fair value): | | | | | | |
| Group annuity contracts | $ | - | | $ | 21,478,194 | |
| Common/collective trusts* | | 92,783,816 | | | 87,513,577 | |
| Nicor Inc. common stock* | | 22,163,918 | | | 19,815,267 | |
| Registered investment companies* | | 196,786,209 | | | 165,844,557 | |
| Loans to participants* | | 6,309,891 | | | 5,995,366 | |
| | | | | | | |
| | | 318,043,834 | | | 300,646,961 | |
| | | | | | | |
| Liabilities: | | | | | | |
| | | | | | | |
| Operating payables | | 3,669 | | | 15,728 | |
| | | | | | | |
| Net assets in Trust at fair value | | 318,040,165 | | | 300,631,233 | |
| | | | | | | |
| Adjustment from fair value to contract value for | | | | | | |
| fully benefit-responsive investment contracts | | 1,470,879 | | | 1,612,725 | |
| | | | | | | |
| Net assets in Trust | $ | 319,511,044 | | $ | 302,243,958 | |
| | | | | | | |
| Plan’s interest in Trust net assets, at fair value | $ | 141,546,354 | | $ | 131,807,025 | |
| | | | | | | |
| Plan’s percentage interest in Trust | | | | | | |
| net assets, at fair value | | 45% | | | 44% | |
* Party-in-interest investments.
16
Nicor Gas Thrift Plan
Notes to the Financial Statements (continued)
For the Years Ended December 31, 2006 and 2005
The Plan’s interest in the Trust’s investments that represent five percent or more of the Plan’s net assets available for benefits as of December 31, 2006 and 2005 are as follows:
| | December 31 |
| | | 2006 | | | 2005 |
| | | | | | |
| Vanguard 500 Index Fund Investor Shares | $ | 19,805,031 | | $ | 17,415,129 |
| Vanguard Small-Cap Index Fund Investor Shares | | 11,884,373 | | | 10,584,934 |
| Vanguard Wellington Fund Investor Shares | | 13,127,339 | | | 11,581,839 |
| Nicor Stable Value Fund | | 55,442,949 | | | 58,774,031 |
| Nicor Stock Fund | | 13,740,085 | | | 11,588,066 |
| | | | | | |
Master Trust Investment Activities
| | Year Ended December 31 | |
| | | 2006 | | | 2005 | |
| Investment income: | | | | | | |
| Interest | $ | 956,050 | | $ | 1,278,591 | |
| Dividends | | 892,009 | | | 962,787 | |
| Net change in market value of Nicor Inc. common stock | | 3,528,840 | | | 1,134,038 | |
| Net investment gain from common/collective trusts | | 4,345,091 | | | 3,831,529 | |
| Net investment gain from registered investment companies | | 23,403,020 | | | 10,744,700 | |
| Other | | 136,584 | | | 565,698 | |
| | | | | | | |
| | | 33,261,594 | | | 18,517,343 | |
| | | | | | | |
| Administrative expenses | | (55,821 | ) | | (57,143 | ) |
| | | | | | | |
Increase in Trust net assets derived from investment activities | $ | 33,205,773 | | $ | 18,460,200 | |
| | | | | | | |
| Plan’s interest in Trust investment activities | $ | 14,582,660 | | $ | 8,082,110 | |
6. FEDERAL INCOME TAX STATUS
The IRS has determined and informed the Company by a letter dated April 2, 2003, that the Plan and related Trust was tax exempt under Section 401(a) of the Internal Revenue Code (the “Code”). The Plan has since been amended, and Plan management believes that the Plan and related Master Trust continue to be designed and operated in compliance with the requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
17
Nicor Gas Thrift Plan
Notes to the Financial Statements (concluded)
For the Years Ended December 31, 2006 and 2005
7. RECONCILIATION TO FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
| | | 2006 | | | 2005 |
| Net assets available for benefits per the financial statements | $ | 142,427,742 | | $ | 132,709,846 |
| Deemed distributions included as expense in Form 5500 | | 3,985 | | | 8,444 |
| Net assets available for benefits per Form 5500 | $ | 142,423,757 | | $ | 132,701,402 |
18
|
Form 5500 Schedule H, Part IV, Line 4(i) - Schedule of Assets (Held at End of Year) |
December 31, 2006 |
| | | | | | |
| | | | | | |
Identity of Issue, Borrower | | | | |
or Similar Party | | Description of Investment | | Current Value |
| | | | | | |
| | | | | | |
| (A) | Investments held in Master Trust | | | | $ 138,055,209 |
| | | | | | |
| (A) | Participant Notes Receivable | | Participant loans earning interest from 5% to 9.25% | | 4,200,730 |
| | | | maturing from 2007 through 2012 | | |
| | | | | | |
| | Total | | | | $ 142,255,939 |
| | | | | | |
| | | | | | |
| | | | | | |
| (A) | Denotes party-in-interest investment | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 19 |
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 these annual reports to be signed on their behalf by the undersigned hereunto duly authorized.
