SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________
FORM 10-Q
__________
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1993 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________TO________
COMMISSION FILE NUMBER 0-17605
YANKEE ENERGY SYSTEM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-1236430
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
599 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450-1030
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (203) 639-4000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
NUMBER OF SHARES OF COMMON STOCK ($5.00 PAR VALUE)
OUTSTANDING AT JANUARY 31, 1994 10,287,683
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December
31, 1993 and September 30, 1993 2-3
Consolidated Statements of Income -
Three Months Ended December 31, 1993
and 1992 4
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1993
and 1992 5
Notes to Consolidated Financial
Statements 6
Report on Review by Independent
Public Accountants 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-11
PART 11. OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
PART 1. FINANCIAL INFORMATION
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1993 1993
____ ____
(UNAUDITED)
(Thousands of Dollars)
ASSETS
Utility Plant, at original cost $ 449,817 $ 445,912
Less: Accumulated provision for
depreciation 153,446 149,300
_________ _________
296,371 296,612
Construction work in progress 13,040 11,772
_________ _________
Total Net Utility Plant 309,411 308,384
_________ _________
Other Property and Investments 23,306 23,543
_________ _________
Current Assets:
Cash and temporary cash investments 364 6,509
Accounts receivable, net 42,096 20,214
Fuel supplies 12,922 15,702
Other materials and supplies 1,912 2,393
Accrued utility revenues 21,147 5,016
Prepaid taxes --- 3,894
Other 2,485 4,618
_________ _________
Total Current Assets 80,926 58,346
_________ _________
Deferred Gas Costs and Other 4,388 7,385
Recoverable Pipeline
Transition Costs 8,188 7,531
Recoverable Environmental
Cleanup Costs 36,050 36,104
Receivable from Customers for
Unrecovered Income Taxes (Note 3) 30,906 ---
Receivable from Customers for
Unrecovered Postretirement
Benefits (Note 3) 355 ---
________ __________
Total Assets $ 493,530 $ 441,293
________ __________
________ __________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1993 1993
____ ____
(UNAUDITED)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,287,683
shares outstanding at December 31, 1993
and September 30, 1993 $ 51,438 $ 51,438
Capital surplus, paid in 84,979 84,930
Retained earnings 14,170 8,796
Employee stock ownership
plan guarantee (2,200) (2,600)
_________ _______
Total Common Shareholders' Equity 148,387 142,564
Preferred stock subject to
mandatory redemption 15,000 15,000
Long-term debt, net of
current portion 148,333 153,633
________ _______
Total Capitalization 311,720 311,197
________ _______
Current Liabilities:
Notes payable to banks 13,498 ---
Long-term debt, current portion 8,667 8,667
Accounts payable 20,200 16,739
Accrued interest 4,307 4,081
Accrued taxes 5,502 ---
Refundable energy costs 2,096 3,703
Pipeline transition costs payable 1,181 2,691
Other 4,092 4,026
________ ________
Total Current Liabilities 59,543 39,907
________ ________
Accumulated Deferred Income Taxes 39,140 38,441
Unfunded Deferred Income Taxes(Note 3) 30,892 ---
Accumulated Deferred Investment
Tax Credits 10,118 10,212
Reserve for Environmental Cleanup Costs 35,000 35,000
Unfunded Postretirement Benefits(Note 3) 355 ---
Other Deferred Credits 6,762 6,536
_______ _______
Commitments and Contingencies (Note 2)
Total Capitalization and
Liabilities $ 493,530 $ 441,293
________ ________
________ ________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
__________________
1993 1992
____ ____
(Thousands of Dollars, Except
Share Information)
Operating Revenues $ 91,786 $ 90,984
Less: Cost of Gas 48,302 48,589
______ ______
Revenues, net of cost of gas 43,484 42,395
______ ______
Other Operating Expenses:
Operations 12,515 12,283
Maintenance 1,567 1,318
Depreciation 4,372 4,060
Federal and state income taxes 7,981 6,742
Taxes other than income taxes 5,605 6,302
______ ______
Total Other Operating Expenses 32,040 30,705
______ ______
Operating Income 11,444 11,690
Other Income, net 547 481
______ ______
Income Before Interest Charges 11,991 12,171
Interest Charges, net 3,358 4,085
______ ______
Income Before Preferred Dividends 8,633 8,086
Preferred Dividends 274 274
______ _____
Net Income $ 8,359 $ 7,812
______ _____
______ _____
Total Earnings per Common Share $ 0.81 $ 0.76
______ _____
______ _____
Average Common Shares
Outstanding 10,287,683 10,287,683
___________ __________
___________ __________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
1993 1992
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 8,633 $ 8,086
Adjusted for the following:
Depreciation 4,372 4,060
Iroquois equity earnings (906) (712)
Deferred income taxes net 623 4,184
Deferred gas cost activity and other
non-cash items 2,001 6,133
Changes in working capital:
Accounts receivable and accrued
utility revenues (38,013) (35,014)
Accounts payable 3,461 5,449
Accrued taxes 9,396 4,780
Other working capital
(excludes cash) 3,499 5,281
________ _______
Net cash provided by (used for)
operating activities (6,934) 2,247
_________ _______
CASH FLOWS FROM FINANCING ACTIVITES:
Net proceeds from common stock issuance --- 21,663
Long-term debt issuance --- 20,000
Retirement of long-term debt (5,300) (5,750)
Increase (decrease) in short-term debt 13,498 (15,300)
Cash dividends-preferred stock (274) (274)
Cash dividends-common stock (2,983) (2,846)
_________ ________
Net cash provided by financing
activities 4,941 17,493
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (5,253) (3,533)
Other property and investments --- (217)
Iroquois distribution 1,101 ---
_______ _______
Net cash used for plant and other
investments (4,152) (3,750)
________ _______
NET INCREASE (DECREASE) IN CASH
FOR THE PERIOD (6,145) 15,990
Cash, beginning of period 6,509 462
________ _______
Cash, end of period $ 364 $ 16,452
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 3,397 $ 3,519
Income taxes $ 22 $ 22
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1) GENERAL
The accompanying unaudited consolidated financial statements
should be read in conjunction with the Annual Report of
Yankee Energy System, Inc. (Yankee Energy or the Company) on
Form 10-K for the fiscal year ended September 30, 1993 (1993
Form 10-K) including the audited financial statements (and
notes thereto) incorporated by reference therein. In the
opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to
present fairly the financial position of the Company as of
December 31, 1993, and its results of operations and cash
flows for the three months ended December 31, 1993 and 1992.
The results of operations for the three months ended
December 31, 1993 and 1992 are not necessarily indicative of
the results expected for a full year, due mainly to the
highly seasonal nature of the gas business.
2) COMMITMENTS AND CONTINGENCIES
TRANSITION COSTS - ORDER NO. 636: The three major pipeline
systems serving Yankee Gas, Iroquois Gas Transmission
System, Tennessee Gas Pipeline Company, and Algonquin Gas
Transmission Company and its affiliate, Texas Eastern
Transmission Company, have all restructured their services
pursuant to Federal Energy Regulatory Commission (FERC)
Order 636. Through December 31, 1993, Yankee Gas has paid
approximately $7.0 million of transition costs. These
payments, as well as an additional $1.2 million representing
an additional transition cost liability likely to be
incurred by Yankee Gas, have been deferred for future
recovery. This estimate of $8.2 million may be subject to
revision following future FERC orders. Yankee Gas'
management anticipates full recovery of transition costs in
a manner consistent with past Connecticut Department of
Public Utility Control (DPUC) practices.
There have been no other material developments in this area.
For a detailed description of the items that comprise
commitments and contingencies of the Company, see the 1993
Form 10-K.
3) ADOPTION OF NEW ACCOUNTING STANDARDS
INCOME TAXES: Effective October 1, 1993, Yankee Energy
adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109).
FAS 109 supersedes previously issued income tax accounting
standards. Yankee Energy recorded, as of October 1, 1993,
an additional deferred tax liability and a regulatory asset,
representing the probable future rate recovery from
customers when such deferred tax liability becomes payable.
The deferred tax liability primarily represents certain
temporary differences between the book and tax basis of
utility plant for which deferred taxes had not previously
been recorded in accordance with the regulatory rate
practices of the DPUC. The adoption of FAS 109 did not
have a material effect on the Company's results
of operations or financial position.
POSTRETIREMENT BENEFITS: Effective October 1, 1993, Yankee
Energy adopted the provisions of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (FAS 106). The
provisions of FAS 106 require that Yankee Energy record the
cost of postretirement benefits over the employees' active
service periods rather than on an as-paid basis as was
Yankee Energy's prior practice. Yankee Energy's
unrecognized transitional benefit obligation liability was
approximately $20 million as of October 1, 1993. Yankee
Energy's annual costs for postretirement benefit obligations
other than pension, including amortization of the transition
obligation over a twenty-year period, will be approximately
$3.1 million in fiscal 1994, based on the provisions of FAS
106. A one percentage point increase in the inflation rate
from the assumed rate would increase the unrecognized
transitional benefit obligation liability by approximately
$3.3 million as of October 1, 1993, and would increase the
service cost and interest cost components of postretirement
benefit cost by approximately $0.5 million annually. The
DPUC is allowing $1.728 million of associated expenses to be
recovered in rates and has indicated its objective to grant
full rate recovery within a reasonable time frame of all
FAS 106 related expenses. On this basis, the Company is
deferring for future recovery the difference between the
annual estimated expense and the portion currently being
collected in rates. The adoption of FAS 106 increased
assets and liabilities but did not have a negative impact on
the Company's results of operations or financial position.
4) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform
with current year classifications.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of
Yankee Energy System, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Yankee Energy System, Inc. (a Connecticut corporation) and
subsidiaries (the Company) as of December 31, 1993, and the
related consolidated statements of income and cash flows for the
three-month period then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
Arthur Andersen & Co.
Hartford, Connecticut
January 31, 1994
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
This section contains management's assessment of the financial
condition of Yankee Energy System, Inc. (the Company or Yankee
Energy) and the principal factors which had an impact on the
results of operations in the periods presented. This discussion
should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended September 30, 1993, including the
audited consolidated financial statements (and notes thereto)
incorporated by reference therein.
FINANCIAL CONDITION
Overview
Consolidated earnings per share for the quarter ended December
31, 1993 were $0.81 compared to $0.76 for the quarter ended
December 31, 1992, a seven percent increase. This increase in
earnings per share reflects a $0.5 million increase in earnings
for common shares for the three month period. The earnings per
share are summarized as follows:
Quarter Ended December 31,
1993 1992
____ ____
Yankee Gas $.77 $.73
Other subsidiary companies .04 .03
___ ___
Total $.81 $.76
____ ____
____ ____
Earnings for common shares increased for the three months ended
December 31, 1993 compared to the same period ended December 31,
1992 due primarily to higher revenues from the Company's utility
subsidiary, Yankee Gas Services Company (Yankee Gas), as a result
of slightly higher firm sales, an increase in interruptible
margins due to lower gas prices and the effect of an adjustment
to the allowance for borrowed funds used during construction in
fiscal 1993. Firm sales increased despite weather that was one
percent warmer than the comparable quarter last year. In
addition, earnings growth occurred in the non-regulated
subsidiaries of the Company. Housatonic Corporation
(Housatonic), one of the four non-regulated subsidiaries and
holder of a 10.5 percent equity interest in the Iroquois Gas
Transmission System (Iroquois), achieved earnings improvement due
to the Iroquois Pipeline being fully operational during the first
quarter of fiscal 1994 compared to two months in the comparable
quarter last year.
RESULTS OF OPERATIONS
COMPARISON OF THE FIRST QUARTER OF FISCAL 1994 WITH THE FIRST
QUARTER OF FISCAL 1993
REVENUES AND SALES
Operating revenues increased $0.8 million in the first quarter of
fiscal 1994 compared with the same period in the prior fiscal
year. The components of the change in operating revenues are as
follows:
Changes in
Operating Revenues
Increase/Decrease
(Millions of Dollars)
Firm and other (excluding gas cost recoveries):
Regulatory decision $0.2
Sales, transportation and other 0.4
___
Subtotal - Firm and other 0.6
___
Interruptible sales and transportation
(excluding gas cost recoveries): 0.5
___
Total - Excluding gas cost recoveries 1.1
Plus: Gas cost recoveries (0.3)
____
Total change in operating revenues $0.8
____
____
The corresponding changes in the Company's throughput were as
follows:
Quarter Ended December 31,
(Mcf - thousands)
1993 1992 Increase
____ ____ ________
Firm sales and transportation 9,821 9,781 40
Interruptible sales and transportation 2,582 2,025 557
_____ ______ ___
Total 12,403 11,806 597
______ ______ ___
______ ______ ___
Firm and other revenues (excluding gas cost recoveries) increased
for the first quarter of fiscal 1994 compared to the same period
in fiscal 1993 due to slightly higher firm sales despite weather
that was one percent warmer this year compared to last year.
Interruptible margin increased $0.5 million for the three months
ended December 31, 1993 compared to the three months ended
December 31, 1992 primarily due to lower gas costs.
Gas cost recoveries decreased due to lower gas prices causing a
lower recovery of purchased gas from firm customers for the first
quarter of fiscal 1994 compared to the first quarter of fiscal
1993.
EXPENSES
Cost of gas decreased $0.3 million for the three months ended
December 31, 1993 compared to the three months ended December 31,
1992 due to lower per unit gas costs.
The components of cost of gas were as follows:
Quarter Ended December 31,
1993 1992
____ ____
(Millions of Dollars)
Actual gas purchases $46.7 $47.2
Affect of purchased gas adjustment
(PGA) clause 1.6 1.4
_____ _____
Total expense $48.3 $48.6
_____ _____
_____ _____
Operations and maintenance expenses increased $0.5 million in the
first quarter of fiscal 1994 compared to the first quarter of
fiscal 1993. The increase was due primarily to the effect of an
insurance refund received in 1993 which lowered operations
expense in that quarter and the timing of outside legal services
in 1994 partially offset by lower uncollectible accounts
expense in the current year.
Federal and state income taxes, including the portion contained
in Other Income, increased $1.4 million due to higher taxable
income, and a one percent increase in the federal income tax rate
in the first quarter 1994 compared to the same period in fiscal
1993.
Taxes other than income taxes decreased $0.7 million for the
three months ended December 31, 1993 compared to the three months
ended December 31, 1992 primarily due to the additional accrued
unemployment tax expense recorded in fiscal 1993 associated with
claims paid to Yankee Gas bargaining unit employees during a ten-
week work stoppage.
Interest charges decreased $0.7 million for the three months
ended December 31, 1993 compared to the same period ended
December 31, 1992 due to an adjustment to the allowance for
borrowed funds used during construction in fiscal 1993 and lower
interest in fiscal 1994 on the Company's PGA balance.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for utility plant and other investments totaled $5.3
million for the first three months of fiscal 1994, reflecting a
$1.6 million increase from the same period in fiscal 1993. This
increase was due primarily to the deferral of construction
activities in the first quarter of fiscal 1993 resulting from a
ten-week work stoppage during that period. During the first
three months of fiscal 1994, construction additions were
supported by short-term debt. Internally generated cash flows
decreased during fiscal 1994 primarily due to the payment of $2.2
million of transition costs without concurrent PGA collection,
increased accrued utility revenue and the absence of the
significant over recovery of gas costs that occurred in the first
quarter of fiscal 1993.
The seasonal nature of gas revenues, inventory purchases and
construction expenditures create a need for short-term borrowing
to supplement internally generated funds. Yankee Gas has
arranged a $40 million revolving line of credit with a group of
five banks whereby funds may be borrowed on a short-term
revolving basis using either fixed or variable rate loans.
Yankee Gas also has another $22 million of credit lines available
on an uncommitted basis. At December 31, 1993, Yankee Gas had
$9.3 million outstanding on its agreements. In addition, Yankee
Energy has $4.2 million outstanding at December 31, 1993 on a
$7.0 million committed line of credit.
The long-term credit needs of Yankee Gas are being met by a first
mortgage bond indenture which provides for the issuance of bonds
from time to time, subject to certain issuance tests.
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None.
b. Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
YANKEE ENERGY SYSTEM, INC.
__________________________
(Registrant)
Date February 14, 1994 /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President, Treasurer and
Chief Financial Officer
Date February 14, 1994 /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller