UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK
REPURCHASE SAVINGS AND SIMILAR PLANS
PERSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 2006
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 Management 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 MANAGEMENT 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, 2006 and 2005 2
Statement of Changes in Assets Available for Benefits for the Year Ended December 31, 2006 3
Notes to Financial Statements as of December 31, 2006 and 2005 and for the Year Ended
December 31, 2006 4-13
SUPPLEMENTAL SCHEDULES:
Form 5500, Schedule H, Part IV, Line 4i - Schedule of Assets (Held at End of Year)
as of December 31, 2006 14
Form 5500, Schedule H, Part IV, Line 4a - Delinquent Participant Contributions for the Year
Ended December 31, 2006 15
SIGNATURES 16
EXHIBIT INDEX:
Consent of Independent Registered Public Accounting Firm 17
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 and Participants of KeySpan Energy 401(k)
Plan for Management Employees:
We have audited the accompanying statements of assets available for benefits of
KeySpan Energy 401(k) Plan for Management Employees (the "Plan") as of December
31, 2006 and 2005, and the related statement of changes in assets available for
benefits for the year then ended December 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. The Plan is not required to have,
nor were we engaged to perform, an audit of its 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 assets available for benefits of the Plan as of December 31, 2006
and 2005, and the changes in assets available for benefits for the year ended
December 31, 2006 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 (1) assets
(held at end of year) as of December 31, 2006 and (2) the schedule of delinquent
participant contributions are presented for the purpose of additional analysis
and are not a required part of the basic financial statements, but are
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. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in our audit of the basic 2006 financial statements
and, in our opinion, are 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 27, 2007
KEYSPAN ENERGY 401(K) PLAN FOR MANAGEMENT EMPLOYEES
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2006 AND 2005
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2006 2005
ASSETS:
Participant-directed investments
Investments-at fair value $642,045,665 $414,787,061
Investment in Master Trust-at fair value 117,779,215 111,426,731
Nonparticipant-directed investments - 130,789,234
--------------------------- ---------------------------
Total investments 759,824,880 657,003,026
ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE 759,824,880 657,003,026
Adjustments from fair value to contract value for fully
benefit-responsive investments contracts 949,832 1,469,454
--------------------------- ---------------------------
ASSETS AVAILABLE FOR BENEFITS $760,774,712 $658,472,480
=========================== ===========================
See notes to financial statements.
2
KEYSPAN ENERGY 401(K) PLAN FOR MANAGEMENT EMPLOYEES
STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2006
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ADDITIONS:
Investment income:
Net appreciation in fair value of investments $ 52,274,525
Interest 5,157,501
Plan interest in Master Trust 686,278
Dividends 34,019,961
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Net investment income 92,138,265
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Contributions:
Participants 30,456,846
Employer 11,452,281
Rollovers 437,359
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Total contributions 42,346,486
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Total additions 134,484,751
DEDUCTIONS:
Benefits paid to participants (34,125,333)
Plan administration fees (50,220)
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Total deductions (34,175,553)
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INCREASE IN ASSETS 100,309,198
Net assets transferred from the Union Plan 1,993,034
ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 658,472,480
------------------
End of year $ 760,774,712
==================
See notes to financial statements.
3
KEYSPAN ENERGY 401(k) PLAN FOR MANAGEMENT EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2006 AND 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
The following description of the KeySpan Energy 401(k) Plan for Management
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 selected subsidiaries to become
participants of the Plan. In general, all management employees, as defined
in the Plan document, are eligible to participate in the Plan immediately
upon hire. The Plan is a defined contribution plan and is subject to the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). Effective January 1, 2002, the Plan was amended and restated to
incorporate the provisions of a stock bonus plan that meets the
requirements of an Employee Stock Ownership Plan ("ESOP"), pursuant to the
requirements of Section 4975 of the Internal Revenue Code ("IRC").
The Plan consists of two distinct components. The first component is the
profit sharing portion, including a cash or deferred arrangement ("CODA"),
intended to be qualified under Section 401(k) of the IRC, and consists of
all Plan assets and funds, except for Plan assets and funds invested in the
KeySpan Common Stock Fund. The second component of the Plan is the ESOP,
which consists solely of Plan assets and funds invested in the KeySpan
Common Stock Fund.
The Plan Administrator is the KeySpan Investment Review Committee (the
"Committee"). The Committee was appointed by KeySpan's Board of Directors
to act as the Plan's named fiduciary (within the meaning of ERISA) and has
the power and duty to control and manage the operation and administration
of the Plan. The Committee appointed The Vanguard Group ("Vanguard") as the
Plan recordkeeper and custodian. In addition, the Committee appointed The
Vanguard Fiduciary Trust Company 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 Vanguard Fiduciary Trust Company, the
trustee is subject to the same fiduciary responsibility to the Plan's
participants as an independent trustee.
On November 21, 2006, the KeySpan Energy 401(k) Plans Stable Value Fund
Master Trust ("Master Trust") was established. The Master Trust was created
for the sole purpose of holding the JPMorgan Stable Value Fund ("Stable
Value Fund") assets of the Plan and the Stable Value Fund assets of the
KeySpan Energy 401(k) Plan for Union Employees. The Stable Value Fund
through the Master Trust is participant-directed (see Note 5).
Plan Amendments - Effective March 1, 2005, the involuntary cash-out
threshold was reduced from $5,000 to $1,000.
4
During the 1st quarter of 2005, KeySpan divested of the following five
subsidiaries:
Subsidiary Date of Sale
---------- ------------
Granite State Plumbing January 14, 2005
Northern Peabody January 18, 2005
Delta, Inc. January 21, 2005
Binsky and Synder, Inc. January 31, 2005
WDF Greene, Inc. February 11, 2005
Employees under these subsidiaries were no longer eligible to contribute to
the Plan as of the respective dates of sale. These employees are considered
terminated participants and have the same distribution options that are
available to other terminated employees. On February 16, 2005 the Committee
was informed that the aforementioned subsidiaries would be removed from the
participating employer list.
On February 16, 2005, the Committee approved the adoption of ERISA section
404(c) for the mutual funds in the Plan. Section 404(c) of ERISA states
that if a plan sponsor, such as KeySpan, gives participants a broad range
of investment options from which to choose, the opportunity to exercise
control over their accounts, and enough information to make informed
investment decisions, then each participant becomes responsible for the
success or failure of his or her own investment program.
On September 22, 2005, the KeySpan Board of Directors approved an amendment
to the Plan, effective January 1, 2006, allowing participants to invest
Company match into any of the funds available in the Plan. Prior to this
amendment, Company match was initially invested in the KeySpan Common Stock
Fund. As of December 31, 2005, the KeySpan Common Stock Fund, with a
balance of $130,789,234, was represented as a non-participant directed
investment on the Statement of Assets Available for Benefits. As a result
of this amendment, all assets, including the KeySpan Common Stock Fund, are
now fully participant directed.
Effective January 1, 2006, the Plan adopted all relevant provisions of the
Internal Revenue Service ("IRS") regulations applicable for 401(k) plans
that were amended and restated effective December 29, 2004. This
restatement generally applies for the plan year commencing January 1, 2006.
Contributions - All participants of the Plan may elect to have their
compensation reduced by no less than 1% and no more than 50% (in multiples
of 1%) and contributed to the Plan on the participants' behalf by the
Company. Compensation during each year may not be reduced by an amount
greater than the limitation imposed by Section 402(g) of the IRC. Such
contributions reduce the amount of 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 eligible employees contributing to the Plan will receive employer match
contributions and a 10% discount on the purchase of Company Common Stock on
the first of the month following completion of three months of service.
Prior to January 1, 2006, all eligible employees received matching
contributions in Company Common Stock and a 10% discount on Company Stock
for such matching contributions regardless of where employees chose to
invest their contributions. Effective January 1, 2006, participants are
permitted to invest Company match into any of the investment options
available in the Plan.
5
Any contributions invested in Company Common Stock may be transferred to
another investment option immediately. There are no holding periods or
restrictions with respect to Company Common Stock.
Rollover Contributions - If a participant of the Plan receives a
distribution from a qualified savings or profit sharing plan of a previous
employer, a "rollover" contribution by the participant in the amount of the
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, if applicable, and (2) Plan earnings, and charged with
withdrawals and an allocation of Plan losses. Allocations are based on
participant earnings or account balances, as defined. A participant's
benefit is distributed from the participant's vested account as provided in
the Plan document.
Vesting and Forfeitures - Participants will be 100% vested in employer
match, discount, and employer non-elective 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; (iii) the death of the participant; (iv) the
disability of the participant if the participant is receiving disability
benefits under Title II of the Social Security Act; or (v) the termination
or partial termination of the Plan. 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 employer match, discount, and
employer non-elective contributions including any earnings thereon into a
forfeiture account, which is maintained by Vanguard.
As of December 31, 2006 and 2005, forfeited non-vested accounts totaled
$950,929 and $817,230, respectively. These accounts may be used to reduce
future employer contributions and pay Plan administration expenses. During
the year ended December 31, 2006, forfeited non-vested accounts were not
utilized to reduce employer contributions.
Investments - The Plan makes available the funds in which participants may
invest. Such investment options may be changed from time to time.
All eligible employees have an opportunity to acquire shares of Company
Common Stock ($.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,
namely: Vanguard Windsor Fund, Vanguard 500 Index Fund, JPMorgan Stable
Value Fund, 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 Mid-Cap Index Fund, and American Funds Growth Fund of America,
Class R-5. Participants should refer to the applicable fund's prospectus
for a complete description of each fund.
On January 20, 2005 all participant balances in the Vanguard Retirement
Savings Trust, with an expense ratio of 0.30%, were transferred to the
Vanguard Retirement Savings Trust V, which offers an expense ratio of
0.25%. The two funds hold identical investments.
6
On June 13, 2006, the Committee approved the replacement of the Vanguard
Retirement Savings Trust V with the JPMorgan Stable Value Fund. On November
20, 2006, participant balances in the Vanguard Retirement Savings Trust V
totaling $118,636,702 were transferred to the JPMorgan Stable Value Fund.
The JPMorgan Stable Value Fund is a separate account managed by JPMorgan
Investment Management Inc. for the Plan. The master trustee for this
separate account is The Vanguard Fiduciary Trust Company and the custodian
is JP Morgan Chase Bank, N.A. The total fee for this fund is 0.225% which
includes investment management and administrative fees.
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
participant's 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 per participant 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% (the prime rate at the
time the loan is requested) as described in the Plan document. Currently,
participants may also amortize a loan for the purchase of their primary
residence over a fifteen-year period, which also bears interest at the
prime rate plus 1%. The loans are secured by the participant's interest in
the Plan.
Payment of Benefits - Upon termination of service, a participant or
eligible beneficiary whose account balance is greater than $1,000, may
elect to leave their balance in the Plan, receive a lump-sum amount equal
to the value of the participant's vested account, receive annual
installments or a partial distribution, or roll over their balance to an
Individual Retirement Account or another qualified plan.
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, liabilities, and changes therein and
disclosure of contingent assets and liabilities. 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
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 amounts reported in the financial statements.
Adoption of New Accounting Guidance - The financial statements reflect the
retroactive adoption of Financial Accounting Standards Board Staff
Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully
Benefit-Responsive 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 assets available for benefits presents 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
7
value. The statement of changes in 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 reported amount of
assets available for benefits at December 31, 2006 and 2005.
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.
The Master Trust is comprised of the Stable Value Fund which includes a
synthetic guaranteed investment contract ("Synthetic GIC") whose underlying
investments are stated at fair value. Fair value of the underlying
investments is determined taking into account values supplied by reputable
pricing or quotation service or quotations furnished by one or more
reputable sources, such as securities brokers, dealers or investment
bankers, mutual fund administrators or other relevant information. Fair
value of the insurance contracts, known as wrapper contracts, is based on
quoted market prices at the time of valuation versus actual costs of the
contracts. The fair value of wrapper contracts for the Stable Value Fund as
of December 31, 2006 was zero (see Note 4).
Fair value of the common collective trust has been estimated based on the
underlying assets of the portfolio. The fair value of wrapper contracts for
the Vanguard Retirement Savings Trust V as of December 31, 2005 was zero.
Amounts for securities that have no quoted market price represent estimated
fair value. The fair value of the KeySpan Common Stock Fund is based on
quoted market prices and cash balances. The estimated fair value of the
KeySpan Common Stock Fund may differ from the quoted market price of the
Company's Common Stock because 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.
Participant loans are valued at outstanding loan balances, which
approximate fair value.
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.
Management fees and operating expenses are charged to Plan participants and
are reflected as a reduction of investment return in the mutual funds. Such
management fees and operating expenses are deducted from income earned on a
daily basis.
Administrative Expenses - Expenses for the administration of the Plan are
paid for by either the Plan Sponsor, the Plan as stated in the Plan
document, or participants as described above in the section entitled
Investment Valuation and Income Recognition.
Transfers - Along with the Plan, the Company also sponsors a 401(k) Plan
for Union Employees. If employees change their status from management to
union or from union to management, their account balances are transferred
into the corresponding Plan. For the year ended December 31, 2006, net
transfers to the Plan totaled $1,993,034.
Payment of Benefits - Benefits to participants are recorded when paid.
There have been no amounts accrued but not yet paid as of December 31, 2006
and 2005.
8
3. INVESTMENTS
The following investments at fair value represent 5% of more of the Plan's
assets available as of December 31, 2006 and 2005:
2006 2005
KeySpan Common Stock Fund -
KeySpan Common Stock Fund, 3,634,800 and
3,679,022 units, respectively** $148,990,459 $130,789,234
Master Trust Investment -
JPMorgan Stable Value Fund, 117,779,215 and
0 shares, respectively**(1) 117,779,215 __
Common and Collective Trust -
Vanguard Retirement Savings Trust V, 0 and
111,426,731 shares, respectively**(2) __ 111,426,731
Mutual Funds:
Vanguard PRIMECAP Fund, 1,590,343 and
1,529,644 shares, respectively** 109,654,149 99,901,073
Vanguard 500 Index Fund, 429,522 and
435,416 shares, respectively** 56,091,330 50,038,058
Vanguard Windsor Fund, 2,915,462 and
2,800,609 shares, respectively** 54,344,216 48,030,447
Vanguard Windsor Fund II, 1,717,059 and
1,603,073 shares, respectively** 59,667,817 50,224,287
Vanguard Explorer Fund 524,953 and
475,925 shares, respectively** 39,219,256 35,746,724
** Permitted party-in-interest
(1) The contract value was $118,729,047 and $0 at 12/31/06 and 12/31/05
respectively.
(2) The contract value was $0 and $112,896,185 at 12/31/06 and 12/31/05
respectively.
During 2006, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value by $52,274,525 as follows:
KeySpan Common Stock Fund $20,332,869
American Funds Growth Fund of America 868,782
Vanguard PRIMECAP Fund 5,530,906
Vanguard 500 Index Fund 6,735,602
Vanguard Windsor Fund 4,035,563
Vanguard Windsor II Fund 5,499,991
Vanguard Total Bond Market Index Fund (214,741)
Vanguard LifeStrategy Moderate Growth Fund 3,020,990
Vanguard Explorer Fund (324,352)
Vanguard International Growth Fund 2,725,965
Vanguard LifeStrategy Growth Fund 1,857,839
Vanguard LifeStrategy Conservative Growth Fund 627,115
Vanguard Mid-Cap Index Fund 1,577,996
------------------
Net appreciation in fair value of investments $52,274,525
==================
9
4. SYNTHETIC GUARANTEED INVESTMENT CONTRACT
The Plan provides a stable value investment option to participants that
includes a Synthetic GIC which is made up of wrapper contracts that
guarantee principal and accumulated interest and a portfolio of financial
instruments that are owned by the Plan. The Synthetic GIC contract includes
underlying assets which are held in the Master Trust owned by the Plan and
utilizes benefit-responsive wrapper contracts issued by AIG Financial
Products Corp., Royal Bank of Canada, State Street Bank and Trust Company,
and UBS AG, proportionately. The contracts provide that participants
execute plan transactions at contract value. Contract value represents
contributions made to the fund, plus earnings, less participant
withdrawals. The interest rates are reset quarterly based on the current
yield of the underlying investments and the spread between the market value
and contract value, but the rate cannot be less than 0%. Certain events
such as a plan termination or a plan merger initiated by the Plan Sponsor
which result in a material and adverse effect on the wrapper contracts may
limit the ability of the Plan to transact at contract value or may allow
for the termination of the wrapper contracts at less than contract value.
At this time, the Plan Sponsor believes that any events that may limit the
ability of the Plan to transact at contract value are remote.
Average yields:
Based on annualized earnings (1) 0.14%
Based on interest rate credited to participants (2) 5.31%
(1) Computed by dividing the annualized one-day actual earnings of the
investments on the last day of the plan year by the fair value of the
investments on the same date.
(2) Computed by dividing the annualized one-day earnings credited to
participants on the last day of the plan year by the fair value of the
investments on the same date.
5. INVESTMENTS IN MASTER TRUST
The Master Trust was created for the sole purpose of holding the Stable
Value Fund assets of the Plan and the Stable Value Fund assets of the
KeySpan Energy 401(k) Plan for Union Employees. The Vanguard Fiduciary
Trust Company is the master trustee and holds the investment assets of the
Master Trust as a commingled fund in which each separate plan is deemed to
have a proportionate undivided interest in the investments in which they
participate. At December 31, 2006, the Plan's interest in the net assets of
the Master Trust was approximately 45%.
The following table summarizes the net assets of the Master Trust as of
December 31, 2006:
INVESTMENTS
JPMorgan Stable Value Fund at fair value $263,550,190
Adjustment from fair value to contract value for fully benefit-responsive 2,125,404
investment contracts ---------
NET ASSETS OF THE MASTER TRUST AT CONTRACT VALUE $265,675,594
Plan's investment in Master trust, at fair value $117,779,215
Plan's percentage in Master Trust net assets 44.69%
10
The KeySpan Energy 401(k) Plan for Union Employees investment
in Master Trust, at fair value $145,770,975
The KeySpan Energy 401(k) Plan for Union Employees percentage
interest in Master Trust net assets 55.31%
The following table summarizes the investment income of the Master Trust
for the period beginning November 20, 2006 through December 31, 2006:
INVESTMENT INCOME
Interest income $1,538,086
NET INVESTMENT INCOME FROM MASTER TRUST - BY PLAN
The KeySpan Energy 401(k) Plan for Management Employees $686,278
The KeySpan Energy 401(k) Plan for Union Employees $851,808
6. FEDERAL INCOME TAX STATUS
The IRS 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 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 for income taxes has been
included in the Plan's financial statements.
7. EXEMPT PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of mutual funds and a common collective
trust managed by the asset custodian and recordkeeper, Vanguard, with The
Vanguard Fiduciary Trust Company as Trustee, as defined by the Plan
document, and therefore these transactions qualify as exempt
party-in-interest transactions. In addition, the Stable Value Fund managed
by JP Morgan Investment Management Inc., with The Vanguard Fiduciary Trust
Company as trustee, Vanguard as recordkeeper, and JP Morgan Chase Bank N.A.
as asset custodian also qualifies as an exempt-party-in-interest
transaction. Fees paid for investment management services are charged to
Plan participants and are included as a reduction of the return earned on
each fund. The Plan's transactions involving Company Common Stock 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 IRC and the rules and
prohibited transactions of ERISA.
At December 31, 2006 and 2005, the Plan held 3,634,800 and 3,679,022 units,
respectively, of the KeySpan Common Stock Fund, with a cost basis of
$124,608,474 and $122,548,236, respectively. During the year ended December
31, 2006, the Plan recorded dividend income for the KeySpan Common Stock
Fund of $6,868,449.
11
8. NON-EXEMPT PARTY-IN-INTEREST TRANSACTIONS
In November 2006, the Department of Labor ("DOL") completed a review of the
Plan and identified certain transactions in which the DOL believed that
employee contributions from some subsidiary payrolls were deposited later
than required under DOL regulation 2510.3-102. The contributions identified
in these transactions totaled $1,294,374. The DOL calculated lost earnings
attributable to these transactions totaling eight hundred ninety-one
dollars ($891). In light of this deminimus amount and to avoid the cost of
a protracted administrative proceeding, the Company has deposited this
amount into the Plan as a discretionary employer contribution to pay Plan
expenses.
9. PLAN TERMINATION
Although the Company has not expressed any intent to do so, it may
terminate the Plan at any time. In the event of Plan termination, the
accounts of all participants affected shall become fully vested and
non-forfeitable. Assets remaining in the trust fund will be distributed to
the participants and beneficiaries in proportion to their respective
account balances.
10. PLAN SPONSOR MERGER
On February 25, 2006, KeySpan entered into an Agreement and Plan of Merger
(the "Merger Agreement"), with National Grid plc, a public limited company
incorporated under the laws of England and Wales ("Parent") and National
Grid US8, Inc., a New York Corporation ("Merger Sub"), pursuant to which
Merger Sub will merge with and into KeySpan (the "Merger"), with KeySpan
continuing as the surviving company and thereby becoming an indirect
wholly-owned subsidiary of the Parent. Pursuant to the Merger Agreement, at
the effective time of the Merger, each outstanding share of KeySpan common
stock, par value $0.01 per share of KeySpan (the "Shares"), other than
treasury shares and shares held by the Parent and its subsidiaries, shall
be canceled and shall be converted into the right to receive $42.00 in
cash, without interest.
Consummation of the Merger is subject to various closing conditions,
including but not limited to the receipt of requisite regulatory approvals
from certain United States federal and state public utility, antitrust and
other regulatory authorities, many of which have been filed or obtained.
KeySpan and National Grid plc will continue to pursue all required
approvals and anticipate that the Merger will be consummated in mid-2007.
We are, however, unable to predict the outcome of these regulatory
proceedings and no assurance can be given that the Merger will occur or the
timing of its completion. For more information on the Merger see KeySpan's
reports filed with the Securities and Exchange Commission during 2007.
Upon completion of the Merger participants in the Plan who own units of the
KeySpan Common Stock Fund will receive cash in their Plan accounts
representing the number of units held multiplied by the unitized value of
the fund on the Merger date. The unitized value of the fund may differ from
the transaction price of $42.00 per share. See the section above entitled
Investment Valuation and Income Recognition for a further description of
the unitized pricing in the KeySpan Common Stock Fund.
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11. SUBSEQUENT EVENTS
Effective March 31, 2007, in accordance with the Pension Protection Act,
all restrictions with respect to transfers into the KeySpan Common Stock
Fund were eliminated. Participant transfers resulting in the purchase of
Company Common Stock in the KeySpan Common Stock Fund are not eligible to
receive a 10% discount.
12. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of assets available for benefits and the
statement of changes in assets available for benefits per the financial
statements to Form 5500 as of December 31, 2006 and 2005 and for the year
ended December 31, 2006:
Statements of assets available for benefits:
Assets available for benefits per the
financial statements $ 760,774,712 $ 658,472,480
Less: Loans to participants deemed distributed for tax purposes (61,219) -
Less: Adjustment from contract value to fair value for
fully benefit-responsive investment contracts (949,832) (1,469,454)
-------------- -------------
Net assets available for benefits per the Form 5500, at fair value $ 759,763,661 $ 657,003,026
============== =============
Statement of changes in assets available for benefits:
Increase in assets per the financial statements $ 100,309,198
Less: Deemed loan defaults included on Form 5500, Schedule H, Line 2g (61,219)
Less: Adjustment from contract value to fair value for
fully benefit-responsive wrap contracts (949,832)
--------------
Net income per Form 5500 $ 99,298,147
==============
The line item for the value of interest in common/collective trusts as
presented on the asset and liability statement as of December 31, 2005 on
Schedule H, Form 5500 differs from the investment line item on the
financial statements by $1,469,454. This amount represents the difference
between investments at fair value per the financial statements versus
contract value as presented on Form 5500.
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KEYSPAN ENERGY 401(k) PLAN FOR MANAGEMENT EMPLOYEES
FORM 5500, SCHEDULE H, PART IV, LINE 4i--
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Description of Investment,
Including Maturity Date,
(b) Identity of Issue, Borrower, Rate of Interest, Collateral,
(a) Lessor or Similar Party Par or Maturity Value (d) Cost Shares (e) Current Value
* KeySpan Common Stock Fund Common Stock ** 3,634,800 $ 148,990,459
American Funds Growth Fund of America Mutual Fund ** 501,149 16,467,749
* Vanguard Funds:
* Vanguard PRIMECAP Fund Mutual Fund ** 1,590,343 109,654,149
* Vanguard 500 Index Fund Mutual Fund ** 429,522 56,091,330
* Vanguard Windsor Fund Mutual Fund ** 2,915,462 54,344,216
* Vanguard Windsor II Fund Mutual Fund ** 1,717,059 59,667,817
* Vanguard Total Bond Market Index Fund Mutual Fund ** 3,294,785 32,914,906
* Vanguard LifeStrategy Moderate Growth Fund Mutual Fund ** 1,623,947 33,063,570
* Vanguard Explorer Fund Mutual Fund ** 524,953 39,219,256
* Vanguard International Growth Fund Mutual Fund ** 1,503,812 35,880,949
* Vanguard LifeStrategy Growth Fund Mutual Fund ** 734,250 17,526,552
* Vanguard LifeStrategy Conservative Growth Fund Mutual Fund ** 618,880 10,267,213
* Vanguard Mid-Cap Index Fund Mutual Fund ** 861,221 17,034,946
-----------------
631,123,113
* Participant loans receivable Participant loans (maturing 2007 to 2021 at 10,922,552
interest rates ranging from 5.0% to 10.5%) -----------------
Total $ 642,045,665
=================
* Permitted party-in-interest.
** Cost information is not required for participant-directed investments and,
therefore, is not included.
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KEY KEYSPAN ENERGY 401(k) PLAN FOR MANAGEMENT EMPLOYEES
FORM 5500 SCHEDULE H, PART IV, LINE 4a -
DELINQUENT PARTICIPANT CONTRIBUTIONS
YEAR ENDED DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Participant
Relationship to Contributions
Plan, Employer, Transferred
Identity of or Other Party- Late to the
Party Involved in-Interest Description of Transactions Plan
KeySpan Employer/ In November 2006, the Department of Labor ("DOL") completed a $1,294,374
Corporation Plan Sponsor review of the Plan and identified certain transactions in which
the DOL believed that employee contributions from some subsidiary
payrolls were deposited later than required under DOL regulation
2510.3-102. The contributions identified in these transactions
totaled $1,294,374. The DOL calculated lost earnings attributable
to these transactions totaling eight hundred ninety-one dollars
($891). In light of this deminimus amount and to avoid the cost
of a protracted administrative proceeding, the Company has
deposited this amount into the Plan as a discretionary employer
contribution to pay Plan expenses.
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SIGNATURES
The Plan. 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 annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
KeySpan Energy 401(k) Plan for
Management Employees
BY: /s/ Michael J. Taunton
--------------------------
Michael J. Taunton
Senior Vice President and Treasurer
KeySpan Corporation
Date: June 27, 2007
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