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, 1994 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, 1995 10,298,685
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
December 31, 1994 and
September 30, 1994
Consolidated Statements of Income:
Three Months Ended December 31, 1994
and 1993
Consolidated Statements of Cash Flows:
Three Months Ended December 31, 1994
and 1993
Notes to Consolidated Financial
Statements
Report on Review by Independent
Public Accountants
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART 1. FINANCIAL INFORMATION
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1994 1994
___________ ____________
(UNAUDITED)
(Thousands of Dollars)
ASSETS
Utility Plant, at original cost $473,407 $468,202
Less: Accumulated provision for
depreciation 167,672 164,327
_______ _______
305,735 303,875
Construction work in progress 10,534 11,188
_______ _______
Total Net Utility Plant 316,269 315,063
_______ _______
Other Property and Investments 28,809 28,609
_______ _______
Current Assets:
Cash and temporary cash
investments 1,201 602
Accounts receivable, net 34,663 21,412
Fuel supplies 10,228 10,936
Other materials and supplies 1,483 1,550
Recoverable gas costs 443 429
Accrued utility revenues 15,955 5,751
Prepaid taxes --- 3,352
Other 1,885 3,933
_______ _______
Total Current Assets 65,858 47,965
_______ _______
Deferred Gas Costs 1,630 4,338
Recoverable Pipeline
Transition Costs --- 3,432
Recoverable Environmental
Cleanup Costs 37,660 36,467
Recoverable Income Taxes 27,534 32,198
Recoverable Postretirement
Benefits Costs 1,773 1,419
Other Deferred Debits 11,770 12,027
_______ _______
Total Assets $491,303 $481,518
_______ _______
_______ _______
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1994 1994
___________ ____________
(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, 1994
and September 30, 1994 $ 51,438 $ 51,438
Capital surplus, paid in 85,080 85,150
Retained earnings 19,478 15,159
Employee stock ownership
plan guarantee (1,800) (2,200)
_______ _______
Total Common Shareholders'
Equity 154,196 149,547
Long-term debt, net of
current portion 124,416 126,966
_______ _______
Total Capitalization 278,612 276,513
________ _______
Current Liabilities:
Notes payable to banks 37,200 24,600
Long-term debt, current portion 23,917 26,667
Accounts payable 17,981 17,805
Accrued interest 4,356 4,124
Accrued taxes 3,665 ---
Refundable gas costs --- 106
Pipeline transition costs payable --- 573
Other 3,746 4,483
_______ _______
Total Current Liabilities 90,865 78,358
_______ _______
Accumulated Deferred Income Taxes 40,778 41,439
Unfunded Deferred Income Taxes 27,492 32,150
Accumulated Deferred Investment
Tax Credits 9,740 9,835
Reserve for Environmental
Cleanup Costs 35,000 35,000
Unfunded Postretirement
Benefits Costs 1,773 1,419
Other Deferred Credits 7,043 6,804
_______ _______
Commitments and Contingencies (Note 2)
Total Capitalization and
Liabilities $491,303 $481,518
________ ________
________ ________
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,
__________________
1994 1993
____ ____
(Thousands of Dollars,
Except Share Information)
Operating Revenues $ 82,284 $ 91,786
Less: Cost of Gas 43,781 48,302
______ ______
Revenues, net of cost of gas 38,503 43,484
______ ______
Other Operating Expenses:
Operations 12,598 12,515
Maintenance 1,397 1,567
Depreciation 4,050 4,372
Federal and state income taxes 4,926 7,981
Taxes other than income taxes 5,281 5,605
______ ______
Total Other Operating Expenses 28,252 32,040
______ ______
Operating Income 10,251 11,444
Other Income, net 919 547
______ ______
Income Before Interest Charges 11,170 11,991
Interest Charges, net 3,711 3,358
______ ______
Income Before Preferred Dividends 7,459 8,633
Preferred Dividends --- 274
______ ______
Net Income $ 7,459 $ 8,359
______ ______
______ ______
Total Earnings per Common Share $ 0.73 $ 0.81
______ ______
______ ______
Common Shares
Outstanding (Average) 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,
__________________
1994 1993
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 7,459 $ 8,633
Adjusted for the following:
Depreciation 4,050 4,372
Equity earnings from investments (1,013) (906)
Deferred income taxes, net (605) 623
Deferred gas costs activity and other
non-cash items 5,422 1,344
Changes in working capital:
Accounts receivable and accrued
utility revenues (23,455) (38,013)
Accounts payable 176 3,461
Accrued taxes 7,017 9,396
Other working capital
(excludes cash) 1,582 4,156
______ ______
Net cash provided by (used for)
operating activities 633 (6,934)
______ ______
CASH FLOWS FROM FINANCING ACTIVITES:
Retirement of long-term debt (5,300) (5,300)
Increase in short-term debt 12,600 13,498
Cash dividends-preferred stock --- (274)
Cash dividends-common stock (3,138) (2,983)
______ ______
Net cash provided by
financing activities 4,162 4,941
______ ______
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (4,931) (5,253)
Iroquois distribution 735 1,101
______ ______
Net cash used for plant and other
investments (4,196) (4,152)
______ ______
NET INCREASE (DECREASE) IN CASH
FOR THE PERIOD 599 (6,145)
Cash, beginning of period 602 6,509
______ ______
Cash, end of period $ 1,201 $ 364
______ ______
______ ______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts
capitalized $ 3,525 $ 3,397
Income taxes $ 25 $ 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, 1994 (1994 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, 1994, and its results
of operations and cash flows for the three months ended December
31, 1994 and 1993. The results of operations for the three
months ended December 31, 1994 and 1993 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 No. 636. Iroquois was
designed and constructed as a transportation-only pipeline, and
as such, its restructuring has very minimal impact. Through
December 31, 1994, Yankee Gas has paid and recovered, in
accordance with the July 8, 1994 Department of Public Utility
Control (DPUC) decision, substantially all transition costs
billed to date. The Company expects its ultimate liability for
transition costs to be between $11 and $15 million, depending
upon the results of filings by the pipeline systems.
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 1994 Form 10-K.
3) ADOPTION OF NEW ACCOUNTING STANDARD
POSTEMPLOYMENT BENEFITS: Effective October 1, 1994, Yankee
Energy adopted the provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112). This standard requires that
the cost of benefits, such as unemployment compensation,
severance benefits and disability benefits, provided to former or
inactive employees be recognized on the accrual basis of
accounting. Previously, the Company recognized postemployment
benefit costs when paid. The cumulative effect of this change in
accounting principle did not materially impact 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, 1994, 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 LLP
Hartford, Connecticut
January 31, 1995
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, 1994, 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, 1994 were $0.73 compared to $0.81 for the same period a year
earlier based on 10,287,683 average common shares outstanding for
both periods. The decrease in first quarter earnings compared to
the same period ended December 31, 1993 was due to weather that
was 17 percent warmer than last year and 15 percent warmer than
normal. This warmer weather caused a 10 percent reduction in
firm gas heating sales and contributed to a reduction in
operating margin of $5 million or 11.5 percent. This reduction
in margin was partially offset by increased margin from
interruptible sales resulting from a decrease in natural gas
prices. Additionally, the Company recorded lower income tax
expense this quarter resulting from a lower effective tax rate
compared to last year.
RESULTS OF OPERATIONS
COMPARISON OF THE FIRST QUARTER OF FISCAL 1995 WITH THE FIRST
QUARTER OF FISCAL 1994
REVENUES AND SALES
Operating revenues decreased $9.5 million in the first quarter of
fiscal 1995 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
(Millions of Dollars)
Increase/(Decrease)
Firm and other (excluding gas cost recoveries):
Sales, transportation and other $(5.8)
______
Subtotal - Firm and other (5.8)
______
Interruptible sales and transportation
(excluding gas cost recoveries): 0.8
______
Total - Excluding gas cost recoveries (5.0)
Plus: Gas cost recoveries (4.5)
______
Total change in operating revenues $(9.5)
______
______
The corresponding changes in the Company's throughput were as
follows:
Quarter Ended December 31,
(Mcf - thousands)
1994 1993 Increase(Decrease)
Firm sales
and transportation 8,860 9,821 (961)
Interruptible sales and
transportation 3,189 2,583 606
______ ______ _____
Total 12,049 12,404 (355)
______ ______ _____
______ ______ _____
Firm and other revenues (excluding gas cost recoveries) decreased
for the first quarter of fiscal 1995 compared to the same period
in fiscal 1994 due to a 10 percent decrease in firm sales
resulting from weather that was 17 percent warmer this year
compared to last year.
Interruptible margin increased $0.8 million for the three months
ended December 31, 1994 compared to the three months ended
December 31, 1993 primarily due to lower gas costs making gas
more economical for interruptible customers who can use
alternative fuels.
Gas cost recoveries decreased due to lower firm sales in the
first quarter of fiscal 1995 compared to the same period in
fiscal 1994 and lower per-unit gas costs.
COST OF GAS
Cost of gas decreased $4.5 million for the three months ended
December 31, 1994 compared to the three months ended December 31,
1993 due to lower firm sales and per-unit gas costs offset by the
undercollection of gas costs in fiscal 1994.
The components of cost of gas were as follows:
Quarter Ended December 31,
1994 1993
(Millions of Dollars)
Actual gas purchases $40.9 $46.7
Affect of purchased gas adjustment
(PGA) clause 2.9 1.6
_____ _____
Total expense $43.8 $48.3
_____ _____
_____ _____
OTHER OPERATING EXPENSES
Total other operating expenses decreased $3.8 million in the
first three months of fiscal 1995 compared with the same period
in the prior year as a result of the following items:
Depreciation expense decreased $0.3 million in the first
quarter of fiscal 1995 compared with the same period a year
earlier due to a change in the estimated accrual rate for cost of
removal.
Federal and state income taxes, including the portion contained
in Other Income, decreased $3.2 million resulting from a lower
effective tax rate this year compared to last year.
Taxes other than income taxes decreased $0.3 million for the
three months ended December 31, 1994 compared to the three months
ended December 31, 1993 primarily due to lower Connecticut Gross
Earnings taxes resulting from lower revenues in fiscal 1995
offset by higher municipal taxes.
Other income (excluding federal and state income taxes) increased
$0.2 million in the first three months of fiscal 1995 due to
higher earnings associated with Housatonic's investment in
Iroquois and interest income from loans to certain customers by
Yankee Financial.
Interest charges increased $0.4 million for the three months
ended December 31, 1994 compared to the same period ended
December 31, 1993 due to higher levels of short-term debt in the
current period.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for utility plant and other investments totaled $4.9
million for the first three months of fiscal 1995, reflecting a
$0.3 decrease from the same period in fiscal 1994. During the
first three months of fiscal 1995, construction additions were
supported by short-term debt. Internally generated cash flows
increased during the first three months of fiscal 1995 primarily
due to decreased accounts receivable and accrued utility revenues
associated with the warmer weather in this quarter compared to
the same period a year earlier.
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. On
February 2, 1995, the line of credit was increased to $60
million. Yankee Gas also has another $22 million of credit lines
available on an uncommitted basis. At December 31, 1994, Yankee
Gas had $25.1 million outstanding on its agreements. In
addition, Yankee Energy had $12.1 million outstanding at December
31, 1994 on its $15.0 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. The
Company is expecting to refinance the $18 million first mortgage
bond maturing in April, 1995. This amount is classified as
"long-term debt, current portion" in the accompanying balance
sheets.
On January 31, 1995, the Company issued 11,002 new shares of
common stock under the Company's Shareholder Investment Plan
which is described in a registration statement filed by the
Company (No. 33-56323) and declared effective by the Securities
and Exchange Commission on January 13, 1995.
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
One report on Form 8-K, dated December 6, 1994, was filed with
the Securities and Exchange Commission during the quarter covered
by this report, relating to a change in the Company's Chief
Executive Officer position effective March 1, 1995.
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 ___________ /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President, Treasurer and
Chief Financial Officer
Date ___________ /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller