YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Financial Statements and Schedules
As of December 31, 1999 and 1998
Together with
Report of Independent Public Accountants
YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Financial Statements and Schedules
December 31, 1999 and 1998
Index
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Page
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS............................ 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for
Benefits as of December 31, 1999 and 1998....................... 2
Statements of Changes in Net Assets Available
for Benefits for the Year Ended December 31, 1999 and 1998...... 3
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES......................... 4-9
SUPPLEMENTAL SCHEDULES:
Schedule H - Item 4(i) - Schedule of Assets Held for
Investment Purposes as of December 31, 1999.................... 10
Schedule H - Item 4(j) - Schedule of Reportable Transactions
for the Year Ended December 31, 1999........................... 11
Report of Independent Public Accountants
To the Plan Administrator of the
Yankee Energy System, Inc.
401(k) Employee Stock Ownership Plan:
We have audited the accompanying statements of net assets available for
benefits of Yankee Energy System, Inc. 401(k) Employee Stock Ownership Plan
(the Plan) as of December 31, 1999 and 1998, and the related statements of
changes in net assets available for benefits for the years then ended. These
financial statements and schedules referred to below are the responsibility
of the Plan administrator. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as
of December 31, 1999 and 1998, and the changes in its net assets available
for benefits for the years then ended in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes and reportable transactions are presented for
purposes of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental
schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
May 19, 2000
YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Net Assets Available for Benefits
As of December 31, 1999 and 1998
1999 1998
ASSETS:
Cash................................... $ 124,758 $ -
Short term investments................. 9,806,692 9,614,085
Mutual funds........................... 20,307,099 16,841,819
Common stock........................... 13,951,348 9,467,819
Employer contributions receivable...... 788,730 794,181
Employee contributions receivable...... 211,104 198,166
Accrued interest receivable............ 13,458 10,043
----------- -----------
Total assets........................ 45,203,189 36,926,113
----------- -----------
LIABILITIES:
Overdraft.............................. - 240,257
Note payable - current................. - 200,000
----------- -----------
Total liabilities................... - 440,257
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS........ $45,203,189 $36,485,856
=========== ===========
YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 1999 and 1998
1999 1998
ADDITIONS:
Employee contributions and rollovers..... $ 2,401,378 $ 4,716,661
Employer contributions................... 969,250 832,431
Earnings -
Interest/other (expense) income........ (643,336) 397,705
Dividends.............................. 1,754,831 1,522,234
Net appreciation (depreciation) in
fair value of investments............ 6,875,044 (648,836)
----------- -----------
Total additions....................... 11,357,167 6,820,195
----------- -----------
DEDUCTIONS:
Benefit distributions.................... 2,639,834 2,905,692
Total deductions....................... 2,639,834 2,905,692
Net increase........................... 8,717,333 3,914,503
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year........................... 36,485,856 32,571,353
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year................................. $45,203,189 $36,485,856
=========== ===========
YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements and Schedules
December 31, 1999 and 1998
(1) ESTABLISHMENT OF THE PLAN
The Yankee Energy System, Inc. 401(k) Employee Stock Ownership Plan (the
Plan) was established and effective on July 1, 1989 (the effective date)
following the divestiture of the gas business of the Connecticut Light
and Power Company (CL&P), a wholly-owned subsidiary of Northeast
Utilities (NU), and the related creation of Yankee Energy System, Inc.
(YES). Each transferred gas employee participating in the Northeast
Utilities Tax Reduction Act Employee Stock Ownership Plan (TRAESOP),
Payroll Based Employee Stock Ownership Plan (PAYSOP) or Supplemental
Retirement Savings Plan became a participant in the Plan effective July 1,
1989. Participant account balances and $7,203,056 in assets were
transferred to the Plan on the effective date. The assets were comprised
of NU common stock and cash.
(2) PLAN DESCRIPTION
The following description of the Plan provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
General
The Plan is a defined contribution 401(k) Employee Stock Ownership Plan
established to provide benefits to eligible employees. Participation in
the Plan is voluntary. Union employees become eligible to participate on
the first day of the month following the completion of one year of
service. Non-union employees become eligible to participate on the first
day of the month following the completion of six months of service.
Contributions
Participants contribute between 1% and 15% of compensation subject to
limitations set forth by the Plan. Investment of employee contributions
in the various funds is at the employees' discretion. YES matches 100% of
non-union employee pre-tax contributions annually up to 3% of compensation
and 50% of union employee pre-tax contributions each month up to 5% of
compensation.
Effective January 1, 1998, YES began matching 100% of non-union Yankee
Energy Services Company employee pre-tax contributions annually up to 5%
of compensation.
Benefit payments
Unless a participant elects otherwise, benefit distributions are made in
a lump sum not later than sixty days following the end of the Plan year
following the later of the participant's 65th birthday, the 10th
anniversary of the date on which participation commenced or the
termination of employment. In the event of the death of a participant
prior to distribution, benefits will be paid to a designated beneficiary
in a lump sum.
Vesting
Non-union employees become 100% vested upon commencing participation in
the Plan. Union employees shall at all times be fully vested in employee
contributions and will vest in the employer contributions in accordance
with the following schedule:
Years of Service Vesting %
---------------- ---------
1 20%
2 40%
3 60%
4 80%
5 or more 100%
The account balances of union employees, as of June 3, 1989, formerly
participating in the NU Supplemental Retirement Savings Plan and NU
TRAESOP and PAYSOP became fully vested on July 1, 1989.
Notwithstanding the foregoing, union participants shall be fully vested
in employer contributions upon reaching age 65 or in the event of death
or total disability. Any union employee forfeitures will be used to
reduce future employer contributions.
Loans
Participants may borrow up to the lesser of 50% of the participant's
vested interest in his or her total account or $50,000, reduced by the
highest outstanding balance of loans from the Plan during the one-year
period preceding the date of the loan.
Investment options
The Plan consists of fifteen funds as follows:
Cash Fund
Represents a cash fund which is used as a temporary account for
overnight transactions and features an investment sweep option to
earn interest daily.
Merrill Lynch Retirement Preservation Trust
Provides preservation of participants' investments, liquidity and
current income that is typically higher than money market funds.
Merrill Lynch Growth Fund Investment and Retirement Class A
Invests in securities, primarily equities.
Northeast Utilities Stock Fund
Maintains Northeast Utilities stock belonging to transferred CL&P
and Northeast Utilities Service Company (NUSCO) employees formerly
participating in the NU Supplemental Retirement Savings Plan.
Merrill Lynch Basic Value Fund Class A
Invests in securities, primarily equities.
Merrill Lynch Capital Fund Class A
Invests in equity securities, corporate bonds and money market
securities.
YES, Inc. Loan Fund
Represents a clearing account for participant loans.
Merrill Lynch Global Allocation Fund Class A
Invests in U.S. and foreign equity, debt and money market
securities.
YES, Inc. Allocation Fund
Represents the employer matching fund, which invests in Yankee
Energy System, Inc. common stock.
YES, Inc. Voluntary Stock Fund
Invests in Yankee Energy System, Inc. common stock.
MFS Strategic Income Fund
Invests in foreign and domestic fixed-income securities.
Alliance Premier Growth Fund
Invests in a limited number of primarily large U.S. company common
stocks and other equity securities.
Lord Abbett Developing Growth Fund
Invests in small company stocks.
AIM International Equity Fund
Invests in primarily foreign equity securities.
Merrill Lynch S&P 500 Index Fund
Invests in securities listed on Standard & Poor's 500 Index.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The accompanying financial statements and schedules of the Plan have been
prepared on the accrual basis of accounting.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States and the Department of
Labor Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 requires management of
the plan to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year classifications.
Administrative expenses
Administrative expenses of the Plan are paid from the Plan assets unless
paid by YES. Administrative expenses of approximately $81,000 and $70,500
were paid by YES in 1999 and 1998, respectively and are included in other
(expense) income.
Valuation of investments
The Plan's investments are stated at fair value. Securities traded on the
national securities exchange are valued at the last reported sales price
on the last business day of the plan year. Investments traded in the
over-the-counter market and listed securities for which no sale was
reported on that date are valued at the last reported bid price.
(4) INVESTMENTS
The fair market value of individual investments that represent 5% or more
of the Plan's total net assets as of December 31, 1999 and 1998 are as
follows:
1999 1998
---- ----
Yankee Energy System, Inc. common stock $12,584,879 $8,225,105
Merrill Lynch Retirement Preservation Trust 8,764,392 8,563,481
Merrill Lynch Basic Value Fund Class A 5,638,242 5,543,301
Merrill Lynch Growth Fund Investment and
Retirement Class A 5,333,466 5,300,316
Alliance Premiere Growth Fund 2,944,643 *
Merrill Lynch Capital Fund Class A * 2,610,466
*Denotes amount has been omitted as it does not represent 5% or more of
the Plan's total net assets.
During 1999, the Plan's investments increased in fair value by $6,875,044
as follows:
Increase
in Fair Value
During Year
-------------
Fair value as determined by quoted market value:
Mutual funds $ 2,025,484
YES common stock 4,529,061
NU common stock 320,499
-----------
$ 6,875,044
===========
During 1998, the Plan's investments decreased in fair value by $(648,836)
as follows:
Net (Decrease)
Increase
in Fair Value
During Year
-------------
Fair value as determined by quoted market value:
Mutual funds $(1,706,391)
YES common stock 676,909
NU common stock 380,646
-----------
$ (648,836)
===========
(5) NEW ACCOUNTING LITERATURE
Statement of Position 99-3
The Accounting Standards Executive Committee issued Statement of Position
(SOP) 99-3, "Accounting For and Reporting of Certain Defined Contribution
Plan Investments and Other Disclosure Matters," which eliminates the
requirement for a defined contribution plan to disclose participant
directed investment programs. The statement was adopted for the 1999
financial statements and as such, the 1998 financial statements have been
reclassified to eliminate the participant directed fund investment
program disclosures.
(6) NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to the nonparticipant-directed investments
is as follows:
December 31,
1999 1998
---- ----
Assets:
Cash $ 124,758 $ -
Short Term Investments 1,042,300 1,050,604
Common Stock 8,670,418 6,304,760
Employer Contributions Receivable 770,058 775,986
Accrued Interest Receivable 13,458 10,043
----------- ----------
Liabilities:
Overdrafts - 240,257
Notes Payable - Current - 200,000
----------- ----------
$10,620,992 $7,701,136
=========== ==========
Year Ended
December 31, 1998
-----------------
Changes in Net Assets:
Contributions $ 677,421
Net Appreciation 2,984,212
Reimbursement Income/Other (655,283)
Benefit Distributions (86,494)
----------
$2,919,856
==========
(7) TAX STATUS
The Plan obtained its latest determination letter on March 20, 1996 in
which the Internal Revenue Service stated that the form of the Plan, as
then designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended since the determination
letter was received. However, the Plan administrator believes that the
Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code. Therefore, the Plan
administrator believes that the Plan is qualified.
(8) VOTING RIGHTS
Each participant is entitled to exercise voting rights attributable to
the shares allocated to his account and is notified by Merrill Lynch
Trust Company (the Trustee) prior to the time that such rights are to be
exercised. The Trustee is not permitted to vote any share for which
instructions have not been given by a participant. The Trustee is
required, however, to vote any unallocated shares on behalf of the
collective best interest of plan participants and beneficiaries.
(9) TERMINATION OF THE PLAN
YES may suspend, terminate, or completely discontinue contributions under
the Plan with respect to its employees subject to the provisions of the
Employee Retirement Income Security Act of 1974 relating to plan
terminations.
Upon termination or partial termination of the Plan, the rights of all
affected participants to their accounts to the date of such termination
shall be fully vested to the extent funded.
(10) SUBSEQUENT EVENT
Effective March 1, 2000, YES merged with NU. The Plan was merged into the
Northeast Utilities 401(k) Plan on May 1, 2000.
<TABLE>
Schedule I
EIN# 06-1236430
PLAN# 001
YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Schedule H - Item 4(i) - Schedule of Assets Held for Investment Purposes
As of December 31, 1999
<CAPTION>
(c) Description of
investment, including
maturity date, rate of
(b) Identity of issue, borrower, interest, collateral,
(a) lessor or similar party par or maturity value (d) Current value
Common Stock:
<S> <C> <C> <C>
*
Yankee Energy System, Inc. 286,430 shares $12,584,879
* Northeast Utilities 66,456 shares 1,366,469
-----------
Total Common Stock 13,951,348
-----------
Mutual Funds:
* Merrill Lynch Growth Fund Investment
and Retirement Class A 194,509 shares 5,333,466
* Merrill Lynch Basic Value Fund Class A 147,791 shares 5,638,242
* Merrill Lynch Capital Fund Class A 69,938 shares 2,242,917
* Merrill Lynch Global Allocation Fund Class A 46,244 shares 648,334
* Merrill Lynch S&P 500 Index Fund 88,272 shares 1,590,671
Lord Abbett Developing Growth Fund 46,674 shares 954,949
AIM International Equity Fund 23,150 shares 643,802
Alliance Premier Growth Fund 80,676 shares 2,944,643
MFS Strategic Income Fund 42,827 shares 310,075
-----------
Total Mutual Funds 20,307,099
-----------
Short-Term Investments:
* Merrill Lynch Retirement Preservation Trust 8,764,393 shares 8,764,392
* YES, Inc. Loan Fund 1,042,300 shares 1,042,300
-----------
Total Short-Term Investments 9,806,692
-----------
Total Investments $44,065,139
===========
*Indicates a party-in-interest.
</TABLE>
<TABLE>
Schedule II
EIN# 06-1236430
PLAN# 001
YANKEE ENERGY SYSTEM, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
Schedule H - Item 4(j) - Schedule of Reportable Transactions
For the Year Ended December 31, 1999
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(h) Current
(f)Expense value of
incurred asset on (i) Net
(a) Identity of (b) Description (c) Purchase (d) Selling (e) Lease with (g) Cost of transaction gain
party involved of asset price price rental transaction asset date or (loss)
Merrill Lynch Retirement $2,196,399 $ - $ - $ - $2,196,399 $2,196,399 $ -
Preservation
Trust
Merrill Lynch Retirement - 2,095,491 - - 2,985,491 2,095,491 -
Preservation
Trust
Merrill Lynch Pending 2,288,915 - - - 2,288,915 2,288,915 -
Settlement
Fund
Merrill Lynch Pending - 2,288,915 - - 2,288,915 2,288,915 -
Settlement
Fund
The accompanying notes are an integral part of this schedule.
</TABLE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report dated May 19, 2000 in this Form 11-K into Yankee Energy System,
Inc. 401(k) Employee Stock Ownership Plan's previously filed Registration
Statement File No. 33-52077.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
June 26, 2000
