SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED)
For the year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
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Commission File No. 1-14161
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KeySpan Energy
401(k) Plan For Union Employees
(Full title of the Plan)
KeySpan Corporation
(Name of issuer of the securities held pursuant to the Plan)
One MetroTech Center
Brooklyn, NY 11201-3385
(Address of principal executive office)
KeySpan Energy 401(k) Plan For Union Employees
TABLE OF CONTENTS
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Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Assets Available for Benefits
as of December 31, 2003 and 2002 2
Statement of Changes in Assets Available for Benefits
for the Year Ended December 31, 2003 3
Notes to Financial Statements 4-10
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i - Schedule of Assets
(Held at End of Year)as of December 31, 2003 11
SIGNATURES 12
EXHIBIT INDEX:
Independent Registered Public Accounting Firm's Consent 13
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 ("ERISA"), have been omitted because they are not
applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Investment Review Committee of
KeySpan Corporation:
We have audited the accompanying statements of assets available for benefits of
the KeySpan Energy 401(k) Plan for Union Employees (the "Plan") as of December
31, 2003 and 2002, and the related statement of changes in assets available for
benefits for the year ended December 31, 2003. 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 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 assets available for benefits of the Plan at December 31, 2003 and
2002, and the changes in assets available for benefits for the year ended
December 31, 2003, 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, 2003 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 2003 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.
/s/ Deloitte & Touche LLP
New York, New York
June 28, 2004
KEYSPAN ENERGY 401(K) PLAN FOR UNION EMPLOYEES
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
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ASSETS: 2003 2002
Participant directed investments, at fair value $423,601,260 $336,835,090
Nonparticipant directed investments, at fair value 94,876,360 80,581,813
---------------- ----------------
Total Investments 518,477,620 417,416,903
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RECEIVABLES:
Participants' contribution 471,397 382,408
Employers' contribution 46,263 37,830
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Total Receivables 517,660 420,238
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ASSETS AVAILABLE FOR BENEFITS $518,995,280 $417,837,141
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See notes to financial statements.
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KEYSPAN ENERGY 401(k) PLAN FOR UNION EMPLOYEES
STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
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ADDITIONS TO ASSETS ATTRIBUTED TO:
Net investment income:
Net appreciation on investments $63,493,656
Interest and dividends 14,505,595
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Net investment income 77,999,251
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Contributions:
Participants 33,734,302
Employer 3,296,326
Rollovers 458,219
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Total Contributions 37,488,847
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Total Additions 115,488,098
DEDUCTIONS FROM ASSETS ATTRIBUTED TO:
Benefits paid to participants (13,511,163)
Net assets transferred out to the Management Plan (818,796)
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Total Deductions (14,329,959)
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INCREASE IN ASSETS 101,158,139
ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 417,837,141
-----------------
End of Year $518,995,280
=================
See notes to financial statements.
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KEYSPAN ENERGY 401(k) PLAN FOR UNION EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2003
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1. DESCRIPTION OF THE PLAN
The following description of the KeySpan Energy 401(k) Plan for Union
Employees (the "Plan") available to eligible employees of KeySpan
Corporation (the "Company" or "KeySpan") provides only general information.
Participants should refer to the Plan Document for a more complete
description of the Plan's provisions.
General - The Plan was approved by the shareholders of the Company at the
annual meeting of shareholders on February 3, 1983. The Plan provides for
eligible employees of the Company and its wholly-owned subsidiaries to
become participants of the Plan. All employees are eligible to participate
in the Plan immediately upon hire. The recordkeeper, custodian and the
trustee of the Plan is the Vanguard Fiduciary Trust Company (the "Vanguard
Group" or "Vanguard"). The Plan is a defined contribution plan and is
subject to Title I of the Employee Retirement Income Security Act of 1974
("ERISA").
On September 30, 1999, the Board of Directors of the Company approved the
amendment and restatement of the Plan. As a result, the assets of the
participants of the former Long Island Lighting Company Capital
Accumulation Plan for Union Employees were merged with the Plan.
The Investment Review Committee (the "Committee"), at the meeting held on
September 20, 2000, approved the merger of the Eastern Enterprises,
Colonial Gas and EnergyNorth 401(k) Plans with the Plan, effective as soon
as practicable, following the date of acquisition. On April 11, 2001, the
Committee approved the new Participating Employer List resulting from
KeySpan's holding company structure and the acquisition of Eastern
Enterprises.
Effective January 1, 2002, the Committee approved the following: 1)
increase the maximum amount that participants can contribute in accordance
with Internal Revenue Service ("IRS") regulations ($11,000 for 2002,
increasing by $1,000 each year until 2006); 2) increase the contribution
limit to 50% of compensation, up to the IRS maximum limit; 3) reduce the
hardship withdrawal waiting period from 12 months to 6 months; and 4) a new
Employee Stock Ownership Plan be created within the 401(k), which allows
participants in the Plan to choose to reinvest their dividends in Company
Common Stock or to receive the dividends in cash.
On July 2, 2002, KeySpan sold one of its subsidiaries, Midland Enterprises
LLC, to Ingram Industries, Inc. Employees under this subsidiary were not
eligible to participate in the Plan as of the date of the sale.
Plan Amendments - Effective January 1, 2003, the Committee approved
catch-up contributions for employees age 50 and over.
Effective January 1, 2003, the match for KeySpan Home Energy Services Local
1049 changed from $0 to 1/3 of the first $30 of weekly contributions and a
10% discount on the purchase of Company Common Stock.
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Contributions - All employees who are eligible pursuant to their collective
bargaining agreement contributing to the Plan will receive employer
contributions and a 10% discount on the KeySpan Common Stock Fund ("Company
Common Stock") on the first of the month following completion of twelve
months of service. Additionally, all eligible employees will receive
matching contributions in Company Common Stock regardless of where
employees choose to invest their contributions. The match and discount
amounts may be transferred out of Company Common Stock immediately. There
are no holding periods or restrictions with respect to Company Common
Stock. All other contributions are participant-directed.
All participants of the Plan may elect to have their compensation reduced
by not less than 1% and no more than 50% (in multiples of 1%), not to
exceed the limitation imposed by Section 402(g) of the Internal Revenue
Code, and contributed to the Plan on the participants' behalf by the
Company. Such contributions reduce the amount of the participants' salary
subject to current Federal income tax and, subject to applicable laws,
state and local income taxes. Such contributions are subject to Social
Security taxes.
All contributions under the Plan are held in a trust fund with trustees who
are appointed by the Board of Directors and are members of the Committee.
The Committee is also the administrative committee of the Plan. The Plan
makes available the funds in which participants may invest. Such investment
options may be changed from time to time.
Rollover Contributions - If a participant of the Plan receives a lump-sum
distribution from a qualified savings or profit sharing plan of a previous
employer or plan, a "rollover" contribution by the participant of the
amount of the lump-sum distribution may be made to the Plan.
Participant Accounts - Individual accounts are maintained for each
participant. Each participant's account is credited with the participant's
contribution, the Company's matching contribution and discount on Company
Common Stock, if applicable, and allocations of (1) Company discretionary
contributions and (2) Plan earnings, and charged with an allocation of Plan
losses. Allocations are based on participant earnings or account balances,
as defined. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's vested account as provided in
the Plan Document.
Vesting and Forfeitures - Participants will be 100% vested in employer
match and discount contributions on the earlier to occur of (i) the
participant's completion of three (3) years of service with the Company,
(ii) the participant's retirement from the Company at age fifty-five or
older or (iii) the death of the participant. A participant will be 100%
vested immediately in his or her deferred cash contributions,
rollover/transfer contributions, and earnings thereon, if any. If a
participant does not vest, such participant will forfeit the match and
discount, and any earnings thereon into a forfeiture account that is
maintained by Vanguard.
On December 31, 2003 and 2002, forfeited nonvested accounts totaled $30,709
and $16,852 respectively. These accounts will be used to reduce future
employer contributions. During the year ended December 31, 2003, employer
contributions were reduced by $3,274 from forfeited nonvested accounts.
Effective with the date of acquisition, an employee who was a participant
of Eastern Enterprises, Colonial Gas and EnergyNorth (and all subsidiaries
of the aforementioned companies that participate in the Plan) will be 100%
vested in matching contributions made on the participant's behalf,
including discount on Company Common Stock and discount on dividends
attributable to such stock. An employee who was hired after this date will
be subject to the current KeySpan vesting schedule.
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Investments - All employees who are eligible pursuant to their collective
bargaining agreement have an opportunity to acquire shares of Company
Common Stock ($.01 par value) at a 10% discount. In addition to Company
Common Stock, participants may invest in other investment options
(collectively, the "Funds").
At the direction of the participants, Plan assets are invested in the
KeySpan Common Stock Fund, and/or one or more of the following Funds from
the Vanguard Group, namely: Vanguard Windsor Fund, Vanguard 500 Index Fund,
Vanguard Retirement Savings Trust, Vanguard Explorer Fund, Vanguard
LifeStrategy Conservative Growth Fund, Vanguard LifeStrategy Moderate
Growth Fund, Vanguard LifeStrategy Growth Fund, Vanguard Windsor II Fund,
Vanguard PRIMECAP Fund, Vanguard International Growth Fund, Vanguard Total
Bond Market Index Fund, Vanguard U.S. Growth Fund. Participants should
refer to the applicable Fund's prospectus for a complete description of
each Fund.
Participant Loans - Participants may borrow a minimum of $1,000 and a
maximum amount not to exceed the lesser of $50,000 or 50% of the
participants' account balance from the Plan (only employee deferred cash
contributions, rollover/transfer contributions and earnings thereon are
used to determine the maximum loan amount that can be taken). Currently, no
more than two loans are allowed outstanding at the same time. General
purpose loans are payable over a period not to exceed five years, and bear
interest at the prime rate plus 1% (prime rate at the time the loan is
requested). Currently, participants may also amortize a loan for the
purchase of their primary residence over a fifteen-year period, which bears
interest at the prime rate plus 1%. The loans are secured by the
participants' interest in the Plan.
Payment of Benefits - On termination of service due to death, disability,
or retirement, a participant may elect to receive either a lump-sum amount
equal to the value of the participant's vested account, or annual
installments. For termination of service for other reasons, a participant
may receive the value of the participant's vested account as a lump-sum
distribution.
Trustees - The Vanguard Group was appointed to act as the trustee under the
Plan to receive and hold Company Common Stock and the investment of
contributions in the other funds as described herein and in the Plan
Document. Pursuant to a trust document executed by the trustee, the trustee
is subject to the same fiduciary responsibility to the Plan's participants
as an independent trustee. The Committee continues to be the Plan
Administrator and trustee for the KeySpan Energy Preferred Stock Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets available for benefits and changes therein.
Actual results could differ from those estimates.
Risks and Uncertainties - The Plan provides for various investment options.
The Plan's mutual funds invest in various securities including U.S.
Government securities, corporate debt instruments and corporate stocks.
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
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possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect participants'
account balances and the amount reported in the statement of assets
available for plan benefits.
Investment Valuation and Income Recognition - The Plan's investments are
stated at fair value. Shares of mutual funds are valued at quoted closing
market prices, which represent the net asset value of shares held by the
Plan on the last business day of the year.
Amounts for securities that have no quoted market price represent estimated
fair value. Many factors are considered in arriving at that fair value. The
approximate value of the KeySpan Common Stock Fund is the quoted market
price of the Company's common stock. The KeySpan Common Stock Fund is
divided into fund units. Each unit represents a portion of ownership in the
fund and consists primarily of shares of Company Common Stock and a small
cash balance so that transactions can be processed daily. The KeySpan
Preferred Stock is not publicly traded, is recorded at par value of $100
and pays a 6 % dividend semi-annually. Fair value of the common collective
trust has been estimated by Vanguard based on the underlying assets of the
portfolio.
Purchases and sales of securities are recorded on a trade-date basis.
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis.
Participant loans are valued at outstanding loan balances.
Administrative Expenses - Expenses for the administration of the Plan are
paid for either by the plan sponsor or the Plan as stated in the plan
document. KeySpan and its subsidiaries are allocated for their expenses
related to administration of the Plan as well as matching contributions on
Company Common Stock. Discount on Company Common Stock for KeySpan and its
subsidiaries are allocated to KeySpan only.
Payment of Benefits - Benefits to participants are recorded when paid.
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3. INVESTMENTS
The following investments represented five percent or more of the Plan's
assets available as of December 31, 2003 and 2002:
2003 2002
KeySpan Stock Funds -
*KeySpan Common Stock Fund, 2,587,302 and
2,293,165 units, respectively** $94,876,360 $80,581,813
Common and Collective Trust -
Vanguard Retirement Savings Trust, 117,802,011
and 109,380,719 shares, respectively** 117,802,011 109,380,719
Mutual Funds:
Vanguard PRIMECAP Fund, 1,522,871 and
1,445,173 shares, respectively** 80,773,101 55,870,398
Vanguard 500 Index Fund, 359,760 and
325,575 shares, respectively** 36,936,510 26,420,412
Vanguard Windsor Fund, 2,157,870 and
2,063,144 shares, respectively** 35,086,969 24,757,726
Vanguard Windsor Fund II, 1,318,174 and
1,253,239 shares, respectively** 34,918,418 26,067,376
*Nonparticipant directed
**Permitted party-in-interest
During the year ended December 31, 2003, the Plan's investments (including
gains and losses on investments brought and sold, as well as held during
the year) appreciated in value by $63,493,656 as follows:
KeySpan Common Stock $ 4,366,846
Mutual Funds 59,126,810
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Net Appreciation of Investments $63,493,656
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4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the assets as of December 31, 2003 and 2002 and the
significant components of changes in assets for the year ended December 31,
2003 relating to the non participant-directed investments is as follows:
2003
KeySpan Common Stock Fund
Assets, beginning of year $80,581,813
Changes in assets:
Net appreciation in investment 4,366,846
Dividend income 4,275,949
Employer contributions 3,178,023
Participant contributions 6,313,363
Participant loan repayments 4,024,574
Net assets transferred in (out) 283,387
Benefits paid to participants (2,129,545)
Participant loan withdrawals (3,164,016)
Transfers to participant-directed investments (2,854,034)
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Net change 14,294,547
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End of year $94,876,360
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5. FEDERAL INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Plan
Administrator, by a letter dated January 15, 2003, that the Plan is
qualified and the Trust established under the Plan is tax-exempt, under the
appropriate sections of the Internal Revenue Code ("IRC"). The Plan has
been amended since receiving the determination letter; however, the Company
and the Plan Administrator believe that the Plan is currently designed and
being operated in compliance with the applicable requirements of the IRC.
Therefore, no provision of income taxes has been included in the Plan's
statement of changes in assets available for benefits.
6. RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds and a common and
collective trust managed by the asset custodian, trustee, and recordkeeper,
the Vanguard Group, as defined by the Plan and therefore these transactions
qualify as party-in-interest transactions. The Plan's investment in Company
Common Stock during the Plan year ended December 31, 2003 and 2002 are also
party-in-interest transactions. Certain employees and officers of the
Company, who may also be participants in the Plan, perform administrative
services to the Plan at no cost to the Plan. These party-in-interest
transactions are not deemed prohibited because they are covered by
statutory and administrative exemptions from the Code and the rules and
prohibited transactions of ERISA.
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At December 31, 2003 and 2002, the Plan held units 2,587,302 and 2,293,165
units, respectively, of KeySpan Common Stock with a cost basis of
$77,542,651 and $66,763,708, respectively. During the year ended December
31, 2003, the Plan recorded dividend income of $4,275,949.
7. PLAN TERMINATION
Although the Company has not expressed any intent to do so, it may
terminate the Plan at any time, subject to the terms and conditions of each
respective collective bargaining agreement. In the event of Plan
termination, the accounts of all participants affected shall become fully
vested and nonforfeitable. Assets remaining in the trust fund will be
distributed to the participants and beneficiaries in proportion to their
respective account balances.
8. SUBSEQUENT EVENTS
Effective January 1, 2004, the match for Ravenswood Local 1-2 Members was
changed from 1/3 of the first $30 to 1/3 of the first $45 of weekly
contributions.
Effective June 1, 2004, KeySpan Energy Delivery New England Local 12012-03
members hired after April 15, 1993 will be given a match of $0.50 on each
$1.00 that the employee contributes to the Plan, up at a maximum employee
contribution of 7%.
******
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KEYSPAN ENERGY 401(k) PLAN FOR UNION EMPLOYEES
FORM 5500, SCHEDULE H, PART IV, LINE 4i -
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2003
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Identity of Issue, Borrower,
Lessor or Similar Party, and
Description of Investment Including
Maturity Date, Rate of Interest, Collateral, Number of Market
Par or Maturity Value Cost** Units/Shares Value
*KeySpan Common Stock Fund $77,542,651 2,587,302 $94,876,360
*KeySpan Preferred Stock Fund 5,265,513 52,656 5,265,560
*Vanguard Funds:
Vanguard Retirement Savings Trust 117,802,011 117,802,011
Vanguard PRIMECAP Fund 1,522,871 80,773,101
Vanguard 500 Index Fund 359,760 36,936,510
Vanguard Windsor Fund 2,157,870 35,086,969
Vanguard Windsor II Fund 1,318,174 34,918,418
Vanguard Total Bond Market Index Fund 2,048,488 21,119,913
Vanguard LifeStrategy Moderate Growth Fund 1,086,771 18,051,260
Vanguard Explorer Fund 374,730 24,589,758
Vanguard International Growth Fund 442,323 7,134,662
Vanguard U.S. Growth Fund 462,672 7,014,115
Vanguard LifeStrategy Growth Fund 317,492 5,765,650
Vanguard LifeStrategy Conservative Growth Fund 250,594 3,643,633
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492,977,920
*Participant loans receivable
(maturing 2004 to 2020 at interest rates of 5.0% to 11.0%) 25,499,700
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Total $518,477,620
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*Permitted party-in-interest.
**Cost information is not required for participant-directed investments and,
therefore, is not included.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Committee has duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
KeySpan Energy 401(k) Plan for
Union Employees
BY: /s/ Michael J. Taunton
Michael J. Taunton
Senior Vice President and Treasurer
KeySpan Corporation
Date: June 28, 2004
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Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-40472 of KeySpan Corporation on Form S-8 of our report dated June 28, 2004,
appearing in this Annual Report on Form 11-K of the KeySpan Energy 401(k) Plan
for Union Employees for the year ended December 31, 2003.
/s/ Deloitte & Touche LLP
New York, New York
June 28, 2004
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