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 MARCH 31, 1995 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 0-10721
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 APRIL 30, 1995 10,337,742
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1995 and September 30, 1994
Consolidated Statements of Income:
Three and Six Months Ended March 31, 1995
and 1994
Consolidated Statements of Cash Flows:
Six Months Ended March 31, 1995
and 1994
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 4. Submission of Matters to a Vote
of Security Holders
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
March 31, September 30,
1995 1994
________ _________
(Unaudited)
(Thousands of Dollars)
ASSETS
Utility Plant, at original cost $481,544 $468,202
Less: Accumulated provision for
depreciation 171,490 164,327
________ ________
310,054 303,875
Construction work in progress 6,557 11,188
________ ________
Total Net Utility Plant 316,611 315,063
________ ________
Other Property and Investments 30,199 28,609
________ ________
Current Assets:
Cash and temporary cash
investments 6,039 602
Accounts receivable, net 46,686 21,412
Fuel supplies 4,480 10,936
Other materials and supplies 1,787 1,550
Recoverable gas costs 170 429
Accrued utility revenues 12,098 5,751
Prepaid taxes --- 3,352
Other 2,789 3,933
_______ _______
Total Current Assets 74,049 47,965
_______ _______
Deferred Gas Costs --- 4,338
Recoverable Pipeline
Transition Costs --- 3,432
Recoverable Environmental
Cleanup Costs 38,018 36,467
Recoverable Income Taxes 25,326 32,198
Recoverable Postretirement
Benefits Costs 1,904 1,419
Other Deferred Debits 10,984 12,027
_______ _______
Total Assets $497,091 $481,518
_______ ________
_______ ________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1995 1994
_________ ____________
(Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,331,742
shares outstanding at March 31, 1995
and 10,287,683 outstanding at
September 30, 1994 $ 51,659 $ 51,438
Capital surplus, paid in 85,771 85,150
Retained earnings 28,083 15,159
Employee stock ownership
plan guarantee (1,800) (2,200)
________ ________
Total Common Shareholders' Equity 163,713 149,547
Long-term debt, net of
current portion 124,416 126,966
_______ _______
Total Capitalization 288,129 276,513
_______ _______
Current Liabilities:
Notes payable to banks 11,600 24,600
Long-term debt, current portion 23,917 26,667
Accounts payable 15,479 17,805
Accrued interest 4,038 4,124
Accrued taxes 20,653 ---
Refundable gas costs 95 106
Pipeline transition costs payable 3,249 573
Other 4,031 4,483
_______ _______
Total Current Liabilities 83,062 78,358
_______ _______
Accumulated Deferred Income Taxes 33,639 41,439
Unfunded Deferred Income Taxes 25,296 32,150
Accumulated Deferred Investment
Tax Credits 9,646 9,835
Reserve for Environmental
Cleanup Costs 35,000 35,000
Unfunded Postretirement
Benefits Costs 1,904 1,419
Deferred Gas Costs 13,375 ---
Other Deferred Credits 7,040 6,804
______ _______
Commitments and Contingencies (Note 3)
Total Capitalization and
Liabilities $497,091 $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
March 31,
1995 1994
_______ ______
(Thousands of Dollars,
except share information)
Operating Revenues $116,756 $134,369
Less: Cost of Gas 63,162 74,004
_______ _______
Revenues, net of cost of gas 53,594 60,365
_______ _______
Other Operating Expenses:
Operations 15,017 14,223
Maintenance 1,882 2,075
Depreciation 4,371 4,323
Federal and state income taxes 9,560 13,194
Taxes other than income taxes 7,596 8,574
Organizational charges (Note 4) 593 ---
_______ _______
Total Other Operating Expenses 39,019 42,389
_______ _______
Operating Income 14,575 17,976
Other Income, net 1,223 645
_______ _______
Income Before Interest Charges 15,798 18,621
Interest Charges, net 4,048 3,425
_______ _______
Income Before Preferred Dividends 11,750 15,196
Preferred Dividends --- 274
_______ _______
Net Income $ 11,750 $ 14,922
_______ _______
_______ _______
Total Earnings per Common Share $ 1.14 $ 1.45
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,312,933 10,287,683
__________ __________
__________ __________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
March 31,
1995 1994
____ ____
(Thousands of Dollars,
except share information)
Operating Revenues $199,040 $226,155
Less: Cost of Gas 106,943 122,305
_______ _______
Revenues, net of cost of gas 92,097 103,850
_______ _______
Other Operating Expenses:
Operations 27,615 26,739
Maintenance 3,279 3,642
Depreciation 8,421 8,696
Federal and state income taxes 14,485 21,175
Taxes other than income taxes 12,877 14,178
Organizational charges (Note 4) 593 ---
_______ _______
Total Other Operating Expenses 67,270 74,430
_______ _______
Operating Income 24,827 29,420
Other Income, net 2,142 1,193
_______ _______
Income Before Interest Charges 26,969 30,613
Interest Charges, net 7,760 6,783
_______ _______
Income Before Preferred Dividends 19,209 23,830
Preferred Dividends --- 548
_______ _______
Net Income $ 19,209 $ 23,282
_______ _______
_______ _______
Total Earnings per Common Share $ 1.86 $ 2.26
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,300,308 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)
Six Months Ended
March 31,
__________________
1995 1994
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $19,209 $23,830
Adjusted for the following:
Depreciation 8,421 8,696
Equity earnings from investments (2,494) (1,666)
Deferred income taxes, net (7,896) (4,800)
Deferred gas costs activity and
other non-cash items 21,145 13,653
Changes in working capital:
Accounts receivable and accrued
utility revenues (31,624) (53,272)
Accounts payable (2,326) 3,887
Accrued taxes 24,005 29,572
Other working capital
(excludes cash) 9,353 10,630
_______ _______
Net cash provided by
operating activities 37,793 30,530
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 221 ---
Premium on common stock 699 ---
Retirement of long-term debt (5,300) (5,300)
Increase (decrease) in
short-term debt (13,000) 6,000
Cash dividends-preferred stock --- (548)
Cash dividends-common stock (6,282) (5,966)
________ ________
Net cash used for financing
activities (23,662) (5,814)
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (9,429) (8,193)
Investment in non-utility plant --- (1,000)
Iroquois distribution 735 1,101
_______ ________
Net cash used for plant and other
investments (8,694) (8,092)
________ _______
Net Increase in Cash and Temporary
Cash Investments for the Period 5,437 16,624
Cash and Temporary Cash Investments,
beginning of period 602 6,509
________ ________
Cash and Temporary Cash Investments
end of period $ 6,039 $23,133
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts
capitalized $ 7,400 $ 7,230
Income taxes $ 2,470 $ 1,609
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 and the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1994
(First Quarter Form 10-Q). 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 March 31, 1995, and its results of operations for the three
and six months ended March 31, 1995 and 1994 and cash flows for
the six months ended March 31, 1995 and 1994. The results of
operations for the three and six months ended March 31, 1995 and
1994 are not necessarily indicative of the results expected for a
full year, due mainly to the highly seasonal nature of the gas
business.
2) ACCOUNTING FOR THE EFFECTS OF REGULATION
Yankee Gas is subject to regulation by the Connecticut Department
of Public Utility Control (DPUC). The Company prepares its
financial statements in accordance with generally accepted
accounting principles which includes the provisions of Statement
of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (FAS No. 71). FAS No. 71
requires a cost-based, rate-regulated enterprise such as Yankee
Gas to reflect the impact of regulatory decisions in its
financial statements. The DPUC, through the rate regulation
process, can create regulatory assets that result when costs are
allowed for ratemaking purposes in a period other than the period
in which the costs would be charged to expense by an unregulated
enterprise.
Following the provisions of FAS No. 71, the Company has recorded
regulatory assets or liabilities as appropriate primarily related
to deferred gas costs, pipeline transition costs, environmental
cleanup costs, income taxes and postretirement benefits costs.
The specific amounts related to these items are disclosed in the
consolidated balance sheets. For additional information about
these items see the 1994 Form 10-K.
Yankee Gas continues to be subject to cost-of-service based rate
regulation by the DPUC. Based upon current regulation and recent
regulatory decisions, the Company believes that its use of
regulatory accounting is appropriate and in accordance with the
provisions of FAS No. 71.
3) 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
March 31, 1995, 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
approximately $15 million, depending upon the results of filings
by the pipeline systems.
GAS SUPPLY HEDGING ACTIVITIES: The Company has gas service
agreements with two customers to supply gas at fixed prices.
Because the Company purchases gas on a variable price basis, it
has found it necessary to hedge gas prices with derivatives to
respond to customers' need for long term fixed pricing. Both
agreements are similar in structure in that the Company executed
a commodity swap contract with a commodity trading firm. Under a
master commodity swap agreement, the price of a specified
quantity of gas is fixed over the term of the gas service
agreement with the customer. In both cases, the Company is
acting as an agent using its credit to provide fixed pricing to
its customers using a commodity swap. The Company's results of
operations are unaffected by the hedge transaction given that it
passes through the cost of the hedge to either the commodity
trading firm or its customer depending on the difference in the
fixed and floating prices for gas. Also, the customers are
accountable for all costs incurred by the Company to execute and
maintain the commodity swap contract.
Of the two gas service hedging agreements currently in force,
only one is material relative to the significance of gas volumes
being hedged. This agreement has a ten year term and requires
the Company to supply approximately one BCF of gas per year, with
relatively low margin, at a fixed price beginning August 1, 1995.
The price is allowed to escalate by a predetermined rate every
year after the first year. The commodity swap contract for this
hedging agreement was executed August 17, 1994. Although gas
purchases under the contract will not commence until August 1995,
the Company is responsible for margin calls collateralizing the
commodity swap contract from August 17, 1994 through the term of
the gas service agreement. Currently, the Company has a letter
of credit in the amount of $1.5 million issued to the commodity
trading firm collateralizing the commodity contract.
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.
4) ORGANIZATIONAL CHARGES
Organizational charges represent the present value of excess
retirement benefits, above and beyond the Company's normal
employee benefit plans, provided to the former chief executive
officer who retired effective March 1, 1995.
The Company is currently undergoing a company-wide business
transformation review, the objectives of which are to improve the
efficiency of business processes, reduce costs and increase
revenues. It is anticipated that the Company will incur
additional organizational charges in fiscal 1995. The amount of
any additional organizational charges has not been determined at
this time.
5) OTHER
The Company issued 44,059 new shares of common stock during the
three months ended March 31, 1995 under its Shareholder
Investment Plan.
On January 20, 1995, the name of Yankee Energy Production
Services, Inc. was changed to Yankee Energy Services Company to
better reflect the services provided by the subsidiary company.
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 March 31, 1995, and the related
consolidated statements of income for the three and six month
periods then ended and cash flows for the six 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
April 28, 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, and the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1994.
FINANCIAL CONDITION
OVERVIEW
Consolidated earnings per share for the quarter ended March 31,
1995 were $1.14 based on 10,312,993 average common shares,
compared to $1.45 per share earned for the same period a year
earlier. For the six months ended March 31, 1995, earnings were
$1.86 per share based on 10,300,308 average common shares
compared to $2.26 per share for the six months ended March 31,
1994. The Company issued 44,059 new shares of common stock
during the three months ended March 31, 1995 under its
Shareholder Investment Plan. All prior periods per share amounts
are based on 10,287,683 average common shares outstanding.
The decreases in earnings for the three and six month periods
ended March 31, 1995 were due to weather that was approximately
18 and 17 percent warmer respectively, compared to the same
periods a year earlier. This warmer weather caused firm sales to
decrease approximately 15 and 14 percent for the three and six
month periods ended March 31, 1995 respectively, compared to the
same periods a year earlier. Higher operating expenses in fiscal
1995 compared to fiscal 1994 also contributed to the decrease in
earnings for the three and six month periods ended March 31,
1995. These decreases in earnings were partially offset by
higher interruptible sales compared to last year as gas prices
continued to be competitive with oil for interruptible customers
who can use either fuel. Additionally, the Company recorded
lower income tax expense as a result of lower income from
operations and a lower effective tax rate for both periods
compared to last year.
RESULTS OF OPERATIONS
COMPARISON OF THE SECOND QUARTER OF FISCAL 1995 WITH THE SECOND
QUARTER OF FISCAL 1994
REVENUES AND SALES
Operating revenues decreased $17.6 million in the second 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 $ (8.7)
_____
Subtotal - Firm and other (8.7)
_____
Interruptible sales and transportation
(excluding gas cost recoveries): 2.0
_____
Total - Excluding gas cost recoveries (6.7)
Plus: Gas cost recoveries (10.9)
______
Total change in operating revenues $(17.6)
______
______
The corresponding changes in the Company's throughput were as
follows:
Quarter Ended March 31,
1995 1994 Increase/(Decrease)
(Mcf - thousands)
Firm sales and
transportation 12,875 14,726 (1,851)
Interruptible sales
and transportation 3,020 1,510 1,510
______ ______ ______
Total 15,895 16,236 (341)
______ ______ ______
______ ______ ______
Firm and other revenues (excluding gas cost recoveries) decreased
for the second quarter of fiscal 1995 compared to the same period
in fiscal 1994 due to a 15 percent decrease in firm sales
resulting from weather that was 18 percent warmer this year
compared to last year.
Interruptible margin increased $2.0 million for the three months
ended March 31, 1995 compared to the three months ended March 31,
1994 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
second 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 $10.8 million for the three months ended
March 31, 1995 compared to the three months ended March 31, 1994
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 March 31,
1995 1994
(Millions of Dollars)
Actual gas purchases $48.0 $60.2
Affect of purchased gas adjustment
(PGA) clause 15.2 13.8
_____ _____
Total expense $63.2 $74.0
_____ _____
_____ _____
OTHER OPERATING EXPENSES
Total other operating expenses decreased $3.4 million in the
second quarter of fiscal 1995 compared with the same period in
the prior year as a result of the following items:
Operations and maintenance expenses increased $0.6 million in the
second quarter of fiscal 1995 compared to the second quarter of
fiscal 1994 due to higher outside services primarily related to
the Company's transformation efforts.
Federal and state income taxes, including the portion contained
in Other Income, decreased $3.6 million due to lower income from
operations and a lower effective tax rate in the second quarter
of fiscal 1995 compared to the same period in fiscal 1994.
Taxes other than income taxes decreased $1.0 million for the
three months ended March 31, 1995 compared to the three months
ended March 31, 1994 primarily due to lower Connecticut Gross
Earnings taxes resulting from lower revenues in the current
period compared to the same period a year earlier.
Organizational charges represent the present value of excess
retirement benefits above and beyond the Company's normal
employee benefit plans provided to the former chief executive
officer who retired effective March 1, 1995.
The Company is currently undergoing a company-wide business
transformation review, the objectives of which are to improve the
efficiency of business processes, reduce costs and increase
revenues. It is anticipated that the Company will incur
additional organizational charges in fiscal 1995. The amount of
any additional organizational charges has not been determined at
this time.
Other income (excluding federal and state income taxes) increased
$0.6 million in the second quarter of fiscal 1995 compared to the
second quarter of fiscal 1994 due to higher earnings associated
with Housatonic's investment in Iroquois.
Interest charges increased $0.6 million for the three months
ended March 31, 1995 compared to the same period ended March 31,
1994 due to higher levels of short-term debt and higher interest
on the Company's PGA balance in the current period.
COMPARISON OF THE FIRST SIX MONTHS OF FISCAL 1995 WITH THE FIRST
SIX MONTHS OF FISCAL 1994
REVENUES AND SALES
Operating revenues decreased $27.1 million in the first six
months 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 costs recoveries):
Sales, transportation and other $(14.5)
_______
Subtotal - Firm and other (14.5)
_______
Interruptible sales and transportation
(excluding gas cost recoveries): 2.9
_______
Total - Excluding gas cost recoveries (11.6)
Plus: Gas cost recoveries (15.5)
_______
Total change in operating revenues $(27.1)
_______
_______
The corresponding changes in the Company's throughput were as
follows:
Six Months Ended March 31,
1995 1994 Increase/(Decrease)
(Mcf - thousands)
Firm sales and
transportation 21,734 24,547 (2,813)
Interruptible sales
and transportation 6,210 4,093 2,117
______ _______ ______
Total 27,944 28,640 (696)
_______ ______ ______
Firm and other revenues (excluding gas cost recoveries) decreased
for the first six months of fiscal 1995 compared to the same
period in fiscal 1994 due to a 14 percent decrease in firm sales
resulting from weather that was 17 percent warmer this year
compared to last year.
Interruptible margin increased $2.9 million for the six months
ended March 31, 1995 compared to the six months ended March 31,
1994 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
second 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 $15.4 million for the six months ended
March 31, 1995 compared to the six months ended March 31, 1994
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:
Six Months Ended March 31,
1995 1994
(Millions of Dollars)
Actual gas purchases $ 88.9 $106.8
Affect of purchased gas
adjustment (PGA) clause 18.0 15.5
_____ ______
Total expense $106.9 $122.3
______ ______
______ ______
OTHER OPERATING EXPENSES
Total other operating expenses decreased $7.2 million in the
first six months of fiscal 1995 compared with the same period in
the prior year as a result of the following items:
Operations and maintenance expenses increased $0.5 million in the
first six months of fiscal 1995 compared with the same period a
year earlier due to higher payroll and benefits expenses as well
as outside services primarily related to the Company's
transformation efforts. These increases were offset by lower
uncollectible accounts expense in the first six months of this
fiscal year compared to the first six months of last fiscal year.
Depreciation expense decreased $0.3 million in the first six
months 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 $6.8 million resulting from lower
income from operations and a lower effective tax rate this year
compared to last year.
Taxes other than income taxes decreased $1.3 million for the six
months ended March 31, 1995 compared to the six months ended
March 31, 1994 primarily due to lower Connecticut Gross Earnings
taxes resulting from lower revenues in fiscal 1995 offset by
higher municipal taxes.
Organizational charges represent the present value of excess
retirement benefits above and beyond the Company's normal
employee benefit plans provided to the former chief executive
officer who retired effective March 1, 1995.
The Company is currently undergoing a company-wide business
transformation review, the objectives of which are to improve the
efficiency of business processes, reduce costs and increase
revenues. It is anticipated that the Company will incur
additional organizational charges in fiscal 1995. The amount of
any additional organizational charges has not been determined at
this time.
Other income (excluding federal and state income taxes) increased
$0.9 million in the first six months of fiscal 1995 due to higher
earnings associated with Housatonic's investment in Iroquois.
Interest charges increased $1.0 million for the six months ended
March 31, 1995 compared to the same period ended March 31, 1994
due to higher levels of short-term debt in the current period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments at March 31, 1995 totaled
$6.0 million. Principal sources of cash for the six months ended
March 31, 1995 were net income, the overcollection of gas costs
and the timing of the second quarter income tax payments. These
funds were used primarily to reduce short-term debt, meet sinking
fund requirements, dividend payments and capital expenditures.
Additionally, cash flows decreased as a result of the large
accounts receivable balance as of March 31, 1995, which is
typical due to the highly seasonal nature of the Company's
revenues. The Company expects that cash provided from accounts
receivable will increase in the next six months as those balances
are converted into cash.
Expenditures for utility plant and other investments totaled $9.4
million for the first six months of fiscal 1995, reflecting a
$1.2 million increase from the same period in fiscal 1994. As
discussed above, during the first six months of fiscal 1995,
construction additions were supported by cash from operations.
The seasonal nature of gas revenues, inventory purchases and
construction expenditures create a need for short-term borrowing
to supplement internally generated funds. During the second
quarter of fiscal 1995, Yankee Gas increased its revolving line
of credit with a group of five banks to $60 million. Under the
agreement, funds may be borrowed on a short-term revolving basis
using either fixed or variable rate loans. Yankee Gas also
increased its uncommitted credit lines to $27 million during this
quarter. Yankee Gas increased its lines of credit at this time
to meet sinking fund requirements and general operating expenses.
At March 31, 1995, Yankee Gas had no borrowings outstanding on
its agreements. In addition, Yankee Energy had $11.6 million
outstanding at March 31, 1995 on its $15 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. On April
1, 1995, the Company redeemed $18 million of Series A First
Mortgage Bonds which matured on that date with a combination of
surplus cash and short-term debt. This amount is classified as
"long-term debt, current portion" in the accompanying balance
sheets. The Company plans to issue approximately $20 million
principal amount bonds with a ten-year maturity on or after July
1, 1995. The proceeds will be used to repay short-term debt that
was incurred to redeem the $18 million Series A First Mortgage
Bonds.
The Company has entered into fixed revenue-rate contracts with
two customers for the delivery of natural gas. The Company has
hedged these commitments with the purchase of natural gas swaps.
In order to satisfy certain provisions of the arrangement, the
Company has provided a letter of credit for $1.5 million. The
Company's results of operations are unaffected by the hedge
transaction given that it passes through the cost of the hedge to
either the commodity trading firm or its customer depending on
the difference in the fixed and floating prices for gas.
For the six months ended March 31, 1995, the Company issued
44,059 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Yankee Energy Shareholders on
February 24, 1995, the following directors were elected
to three-year terms expiring at the 1998 Annual Meeting:
Eileen S. Kraus, Philip T. Ashton and Branko Terzic.
Directors continuing in office are Thomas H. O'Brien,
Nicholas L. Trivisonno, Frederick M. Lowther, Leonard A.
O'Connor and Emery G. Olcott. Shareholders also ratified
the appointment of Arthur Andersen LLP as the Company's
independent auditors.
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
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: May 12, 1995 /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President and
Chief Financial Officer
Date: May 12, 1995 /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller