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 JUNE 30, 1996 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 JULY 31, 1996 10,449,554
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
June 30, 1996 and September 30, 1995
Consolidated Statements of Income:
Three and Nine Months Ended June 30, 1996
and 1995
Consolidated Statements of Cash Flows:
Nine Months Ended June 30, 1996
and 1995
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
June 30, September 30,
1996 1995
________ _________
(Unaudited)
(Thousands of Dollars)
ASSETS
Utility Plant, at original cost $495,274 $488,540
Less: Accumulated provision for
depreciation 176,982 174,522
________ ________
318,292 314,018
Construction work in progress 10,706 10,852
________ ________
Total Net Utility Plant 328,998 324,870
________ ________
Other Property and Investments 12,792 30,565
________ ________
Current Assets:
Cash and temporary cash
investments 25,081 725
Accounts receivable, net 35,501 22,044
Fuel supplies 5,809 10,611
Other materials and supplies 1,615 1,625
Recoverable gas costs 245 1,713
Accrued utility revenues 5,901 5,638
Prepaid taxes --- 281
Other 3,300 4,069
_______ _______
Total Current Assets 77,452 46,706
_______ _______
Deferred Gas Costs --- 2,261
Recoverable Environmental
Cleanup Costs 32,080 38,331
Recoverable Income Taxes 20,014 27,575
Recoverable Postretirement
Benefits Costs 1,618 2,390
Other Deferred Debits 10,099 6,603
_______ _______
Total Assets $483,053 $479,301
_______ ________
_______ ________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1996 1995
_________ ____________
(Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,449,554
shares outstanding at June 30, 1996
and 10,396,522 outstanding at
September 30, 1995 $ 52,248 $ 51,982
Capital surplus, paid in 87,910 86,862
Retained earnings 31,735 14,709
Employee stock ownership
plan guarantee (1,400) (1,800)
________ ________
Total Common Shareholders' Equity 170,493 151,753
Long-term debt, net of
current portion 112,649 141,049
_______ _______
Total Capitalization 283,142 292,802
_______ _______
Current Liabilities:
Notes payable to banks 5 28,525
Long-term debt, current portion 34,017 5,917
Accounts payable 19,097 18,300
Accrued interest 3,688 3,569
Accrued taxes 13,123 ---
Refundable gas costs --- 697
Other 6,442 6,555
_______ _______
Total Current Liabilities 76,372 63,563
_______ _______
Deferred Gas Costs 8,174 ---
Accumulated Deferred Income Taxes 38,563 39,513
Unfunded Deferred Income Taxes 19,976 27,557
Accumulated Deferred Investment
Tax Credits 9,174 9,457
Reserve for Environmental
Cleanup Costs 35,000 35,000
Unfunded Postretirement
Benefits Costs 3,118 2,390
Other Deferred Credits 9,534 9,019
______ ______
Commitments and Contingencies (Note 3)
Total Capitalization and
Liabilities $483,053 $479,301
________ ________
________ ________
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
June 30,
1996 1995
_______ ______
(Thousands of Dollars,
except share information)
Utility Operating Revenues $ 60,061 $ 55,101
Less: Cost of Gas 31,339 28,341
_______ _______
Utility Revenues, net 28,722 26,760
_______ _______
Nonutility Revenues 72 ---
_______ _______
Total Revenues 28,794 26,760
_______ _______
Other Operating Expenses:
Operations 14,682 13,170
Maintenance 1,547 1,505
Depreciation 4,180 4,200
Federal and state income taxes 411 (568)
Taxes other than income taxes 5,124 4,858
Organizational charges 90 414
_______ _______
Total Other Operating Expenses 26,034 23,579
_______ _______
Operating Income 2,760 3,181
Other Income, net 2,933 994
_______ _______
Income Before Interest Charges 5,693 4,175
Interest Charges, net 3,871 3,920
_______ _______
Net Income $ 1,822 $ 255
_______ _______
_______ _______
Total Earnings
per Common Share $ 0.17 $ 0.02
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,449,554 10,348,791
__________ __________
__________ __________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended
June 30,
1996 1995
____ ____
(Thousands of Dollars,
except share information)
Utility Operating Revenues $297,703 $254,141
Less: Cost of Gas 165,305 135,284
_______ _______
Utility Revenues, net 132,398 118,857
_______ _______
Nonutility Revenues 160 ---
_______ _______
Total Revenues 132,558 118,857
Other Operating Expenses:
Operations 42,647 40,630
Maintenance 4,777 4,783
Depreciation 12,467 12,621
Federal and state income taxes 19,608 13,917
Taxes other than income taxes 19,220 17,735
Organizational charges 208 1,163
_______ _______
Total Other Operating Expenses 98,927 90,849
_______ _______
Operating Income 33,631 28,008
Other Income, net 5,096 3,136
_______ _______
Income Before Interest Charges 38,727 31,144
Interest Charges, net 11,740 11,680
_______ _______
Net Income $ 26,987 $ 19,464
_______ _______
_______ _______
Total Earnings per Common Share $ 2.59 $ 1.89
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,430,410 10,316,469
__________ __________
__________ __________
The accompanying notes are an integral part of these financial
statements.
YANKEE ENERGY SYSTEM, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
June 30,
__________________
1996 1995
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $26,987 $19,464
Adjusted for the following:
Depreciation 12,468 12,621
Equity earnings from investments (2,756) (3,637)
Gain on sale of investment
in Iroquois (2,688) ---
Deferred income taxes, net (2,002) (3,656)
Deferred gas costs activity and
other non-cash items 15,910 14,279
Changes in working capital:
Accounts receivable and accrued
utility revenues (13,720) (3,211)
Accounts payable 797 (2,605)
Accrued taxes 13,404 11,472
Other working capital
(excludes cash) 6,337 5,107
_______ _______
Net cash provided by
operating activities 54,737 49,834
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 265 386
Premium on common stock 944 1,254
Issuance of long-term debt 2,150 20,000
Retirement of long-term debt (2,450) (23,300)
Financing expenses --- (261)
Decrease in
short-term debt (28,520) (13,700)
Cash dividends-common stock (9,957) (9,540)
________ ________
Net cash used for financing
activities (37,568) (25,161)
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (15,634) (15,248)
Other property and investments (1,996) ---
Iroquois distribution 2,625 735
Proceeds from Iroquois sale 22,192 ---
_______ ________
Net cash provided by (used) for
plant and other investments 7,187 (14,513)
________ _______
Net Increase in Cash and Temporary
Cash Investments for the Period 24,356 10,160
Cash and Temporary Cash Investments,
beginning of period 725 602
________ ________
Cash and Temporary Cash Investments
end of period $25,081 $10,762
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts
capitalized $10,046 $10,793
Income taxes $14,213 $ 7,800
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, 1995 (1995 Form 10-K),
including the audited financial statements (and notes thereto)
incorporated by reference therein and the Company's quarterly
reports on Form 10-Q for the quarters ended December 31, 1995 and
March 31, 1996. 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 June 30, 1996, and its results of operations for the three
and nine months ended June 30, 1996 and 1995 and cash flows for
the nine months ended June 30, 1996 and 1995. The results of
operations for the three and nine months ended June 30, 1996 and
1995 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 Services Company (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, hardship
customer receivables, 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 1995 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. Through June 30,
1996, Yankee Gas has paid approximately $14.6 million of
transition costs and an additional $0.4 million are anticipated.
To date, Yankee Gas has collected $28.5 million through a
combination of gas supplier refunds, deferred gas costs credits
and excess interruptible margins. These excess collections of
approximately $13.9 million have been applied against certain
regulatory assets in accordance with a January 3, 1996 DPUC
decision. This decision allows for the recovery of certain
regulatory assets with the stipulation that Yankee Gas would not
increase its rates prior to October 1, 1998.
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' needs 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. 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 $3.25 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 1995 Form 10-K.
4) SUBSEQUENT EVENT - ACQUISITION
On July 18, 1996, Yankee Energy Services Company, a subsidiary of
Yankee Energy System, Inc. (Yankee Energy), acquired Industrial
Combustion, Inc. (ICI) of East Granby, Connecticut with field
offices in Albany, New York and Boston, Massachusetts. ICI is a
manufacturer and service company that provides heating,
ventilating, and air conditioning services and a designer of
automated temperature control systems for the industrial and
commercial market.
5) SALE OF INTEREST IN IROQUOIS
On April 30, 1996, Yankee Energy sold its entire 10.5 percent
interest in the Iroquois Pipeline, an interstate pipeline. The
Company received approximately $22.2 million under the terms of
the sale which resulted in a net after-tax gain of $2.5 million,
or $0.24 per share.
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 June 30, 1996 and the related
consolidated statements of income for the three-month and nine-
month periods then ended and cash flows for the nine-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
July 31, 1996
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. (Yankee Energy or the
Company) 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, 1995, including the
audited consolidated financial statements (and notes thereto)
incorporated by reference therein, and the Company's quarterly
reports on Form 10-Q for the quarters ended December 31, 1995 and
March 31, 1996.
FINANCIAL CONDITION
OVERVIEW
Consolidated earnings per share for the quarter ended June 30,
1996 were $0.17 based on 10,449,554 average common shares,
compared to $0.02 per share for the same period a year
earlier. The earnings for the quarter ended June 30, 1996
include the April 30, 1996 sale of the Company's Iroquois
investment that resulted in a net after-tax gain of $2.5 million
or $0.24 per share. For the nine months ended June 30, 1996,
earnings were $2.59 per share, or $2.35 per share excluding the
gain on the sale of the Company's investment in Iroquois, based
on 10,430,410 average common shares compared to $1.89 per share
for the nine months ended June 30, 1995. The Company issued
3,039 new shares of common stock during the three months ended
June 30, 1996 under its Shareholder Investment Plan.
Excluding the gain on the Iroquois sale, earnings for the three
month period ending June 30, 1996 decreased $0.09 per share
compared to the three month period ending June 30, 1995. This
decrease was primarily due to the reduction in earnings on the
Company's investment in Iroquois which generated approximately
$0.06 per share net after-tax income for the three months ended
June 30, 1995. Additionally, interruptible sales decreased 17
percent for the three months ended June 30, 1996 compared to the
same period a year earlier primarily due to a decrease in
transportation revenue from an electric generation customer.
The increase in earnings for the nine months ended June
30, 1996 was primarily due to weather that was approximately 13
percent colder compared to the same period a year earlier. This
cold weather caused firm sales to increase approximately 15
percent for the nine month period ending June 30, 1996 compared
to the same period a year earlier.
The sale of the Company's investment in Iroquois, an interstate
pipeline, was a critical element of the strategic plan for Yankee
Energy. The Company's strategic plan focuses on placing more
attention and devoting resources to the ongoing development of
its energy services business through the efforts of its
nonregulated subsidiary, Yankee Energy Services Company (YESCo).
In line with the Company's initiative to grow the nonregulated
business, on July 18, 1996 YESCo acquired Industrial Combustion,
Inc. (ICI) of East Granby, Connecticut with field offices in
Albany, New York and Boston, Massachusetts. ICI is a
manufacturer and service company that provides heating,
ventilating, and air conditioning services and a designer of
automated temperature control systems for the industrial and
commercial market.
RESULTS OF OPERATIONS
COMPARISON OF THE THIRD QUARTER OF FISCAL 1996 WITH THE THIRD
QUARTER OF FISCAL 1995
REVENUES AND SALES
Operating revenues increased $4.9 million in the third quarter of
fiscal 1996 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 $ 0.2
_____
Subtotal - Firm and other 0.2
_____
Interruptible/off system sales and
transportation
(excluding gas costs recoveries): ---
_____
Total - Excluding gas cost recoveries 0.2
Plus: Gas cost recoveries 3.0
Amount applied to transition costs 1.7
______
Total change in operating revenues $ 4.9
______
______
The corresponding changes in the Company's throughput were as
follows:
Quarter Ended June 30,
1996 1995 Increase
(Mcf - thousands)
Firm sales and
transportation 6,046 5,842 204
Interruptible/off system
sales and transportation 2,834 3,406 (572)
______ ______ ______
Total 8,880 9,248 (368)
______ ______ ______
______ ______ ______
Firm and other revenues (excluding gas cost recoveries) increased
for the third quarter of fiscal 1996 compared to the same period
in fiscal 1995 due to an increase in firm sales resulting from
favorable economic conditions.
There was no change in interruptible margin for the three months
ended June 30, 1996 compared to the three months ended June 30,
1995 since the volume decrease was from a low margin sale.
Gas cost recoveries increased due to higher firm sales in the
third quarter of fiscal 1996 compared to the same period in
fiscal 1995 and higher per-unit gas costs.
COST OF GAS
Cost of gas increased $3.0 million for the three months ended
June 30, 1996 compared to the three months ended June 30, 1995
due to higher firm sales and per-unit gas costs, along with the
recovery of undercollected gas costs in the third quarter of
fiscal 1996 compared to the same period a year earlier.
The components of cost of gas were as follows:
Quarter Ended June 30,
1996 1995
(Millions of Dollars)
Actual gas purchases $41.9 $34.3
Effect of purchased gas adjustment
(PGA) clause (10.6) (6.0)
_____ _____
Total expense $31.3 $28.3
_____ _____
_____ _____
OTHER OPERATING EXPENSES
Total other operating expenses increased $2.5 million in the
third quarter of fiscal 1996 compared with the same period in the
prior year as a result of the following items:
Operations and maintenance expenses increased $1.6 million in the
third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995. This increase was due to higher uncollectible
accounts expense as a result of increased revenues in fiscal year
1996 attributable to colder weather, and increased expenses
associated with the growth of nonregulated operations.
Federal and state income taxes, including the portion contained
in Other Income, increased $0.9 million due to higher income
from operations in the third quarter of fiscal 1996 compared to
the same period in fiscal 1995.
Taxes other income taxes increased $0.3 million for the three
months ended June 30, 1996 compared to the three months ended
June 30, 1995 primarily due to higher Connecticut Gross Earnings
taxes resulting from increased revenues in the current period
compared to the same period a year earlier.
Other income (excluding federal and state income taxes) increased
$1.9 million in the third quarter of fiscal 1996 compared to the
third quarter of fiscal 1995 primarily due to the gain on the
Iroquois sale. Excluding the gain on the sale of the Company's
interest in Iroquois, other income decreased $0.8 million in the
third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995. This decrease is primarily due to the reduction in
earnings on the Company's Iroquois investment.
COMPARISON OF THE FIRST NINE MONTHS OF FISCAL 1996 WITH THE FIRST
NINE MONTHS OF FISCAL 1995
REVENUES AND SALES
Operating revenues increased $43.7 million in the first nine
months of fiscal 1996 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 $ 13.5
_______
Subtotal - Firm and other 13.5
_______
Interruptible/off system sales and
transportation
(excluding gas cost recoveries): (0.4)
______
Total - Excluding gas cost
recoveries 13.1
Plus: Gas cost recoveries 30.0
Amount applied to
transition costs 0.6
______
Total change in operating revenues $ 43.7
_______
_______
The corresponding changes in the Company's throughput were as
follows:
Nine Months Ended June 30,
1996 1995 Increase/(Decrease)
(Mcf - thousands)
Firm sales and
transportation 30,920 26,815 4,105
Interruptible/off system
sales and
transportation 8,210 10,377 (2,167)
______ ______ _______
Total 39,130 37,192 1,938
______ ______ _______
Firm and other revenues (excluding gas cost recoveries) increased
for the first nine months of fiscal 1996 compared to the same
period in fiscal 1995 due to a 15 percent increase in firm sales
resulting from weather that was 13 percent colder this year
compared to last year.
Interruptible margin decreased $0.4 million for the nine months
ended June 30, 1996 compared to the nine months ended June 30,
1995 primarily due to less usage by interruptible customers who
can use alternative fuels.
Gas cost recoveries increased due to higher firm sales and higher
per-unit gas costs in fiscal year 1996 compared to fiscal year
1995.
COST OF GAS
Cost of gas increased $30.0 million for the nine months ended
June 30, 1996 compared to the nine months ended June 30, 1995 due
to higher firm sales and per-unit gas costs, along with the
recovery of undercollected gas costs in fiscal 1996 compared to
fiscal 1995.
The components of cost of gas were as follows:
Nine Months Ended June 30,
1996 1995
(Millions of Dollars)
Actual gas purchases $149.7 $123.2
Effect of purchased gas
adjustment (PGA) clause 15.6 12.1
_____ ______
Total expense $165.3 $135.3
______ ______
______ ______
OTHER OPERATING EXPENSES
Total other operating expenses increased $8.1 million in the
first nine months of fiscal 1996 compared with the same period in
the prior year as a result of the following items:
Operations and maintenance expenses increased $2.0 million in the
first nine months of fiscal 1996 compared with the same period a
year earlier due to higher uncollectible accounts expense related
to higher revenue and increased expenses associated with the
growth of nonregulated operations through the first nine months
of fiscal year 1996 compared to the same period a year earlier.
These increases were offset by lower payroll and medical expenses
resulting from last year's Business Transformation.
Federal and state income taxes, including the portion contained
in Other Income, increased $5.5 million resulting from higher
pre-tax net income from operations.
Taxes other than income taxes increased $1.5 million for the nine
months ended June 30, 1996 compared to the nine months ended June
30, 1995 primarily due to higher Connecticut Gross Earnings taxes
resulting from higher revenues in fiscal 1996 and higher
municipal taxes.
Other income (excluding federal and state income taxes) increased
$1.8 million in the first nine months of fiscal 1996 primarily
due to the gain on the Iroquois sale and higher interest income
earned from temporary cash investments through the first nine
months of fiscal year 1996 compared to the same period a year
earlier.
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments at June 30, 1996 totaled
$25.1 million. Principal sources of cash for the nine months
ended June 30, 1996 were net income, the overcollection of gas
costs and the proceeds received on the sale of the Company's
interest in Iroquois. These funds were used primarily to reduce
short-term debt, meet sinking fund requirements, dividend
payments and capital expenditures.
Expenditures for utility plant and other investments totaled
$17.6 million for the first nine months of fiscal 1996,
reflecting a $2.4 million increase from the same period in fiscal
1995. During the first nine months of fiscal 1996, construction
additions were supported by short-term debt and cash from
operations.
The seasonal nature of gas revenues, inventory purchases and
construction expenditures may create a need for short-term
borrowing to supplement internally generated funds. As of June
30, 1996, Yankee Gas had a revolving line of credit of $60
million with a group of five banks. Under the agreement, funds
may be borrowed on a short-term revolving basis using either
fixed or variable rate loans. Yankee Gas also had uncommitted
credit lines of $27 million as of June 30, 1996. At June 30,
1996, Yankee Gas had no outstanding borrowings on its agreements.
In addition, Yankee Energy had no outstanding borrowings at June
30, 1996 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. At June
30, 1996, indenture requirements, including the required coverage
ratio, would allow for the issuance of an additional $144 million
of bonds at an assumed interest rate of 7.9 percent.
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 $3.25 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.
Yankee Gas has received approximately $6.2 million in fiscal 1996
from insurance settlements for recovery of coal tar remediation
costs. Total recoveries expected from insurance settlements
cannot be determined at this time. For further information
concerning coal tar remediation, please see note 8, Commitments
and Contingencies, in the 1995 Form 10-K.
For the nine months ended June 30, 1996, the Company issued
52,212 new shares of common stock under the Company's Shareholder
Investment Plan and 820 shares under its Long-Term Incentive
Plan.
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
On May 23, 1996, Yankee Energy elected Professor Patricia M.
Worthy a member of its Board of Directors. Ms. Worthy is a
Professor at Howard University School of Law in Washington,
D.C. Before joining Howard University, she was Chief of
Staff and Legal Counsel to the Mayor of the District of
Columbia and served as Chairman of the Public Service
Commission of the District of Columbia, and prior to that,
Commission. Professor Worthy brings to the Board
significant knowledge of the natural gas industry at a time
of great change within the industry.
Yankee Energy announced on June 18, 1996 that Steven P.
Laden would fill the newly created position of Vice
President of Sales and Marketing. Mr. Laden was formerly
Vice President of Marketing at the Southern Union Company in
Austin, Texas. He has a strong natural gas and energy
services marketing background which the Company believes
will contribute to its growth and success.
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 April 30, 1996, was filed
with the Securities and Exchange Commission during the
quarter covered by this report, reporting in Item 5
Yankee Energy's sale of its 10.5 percent interest in
the Iroquois pipeline. The Company received $22.2
million under the terms of the sale which reflected a
net after-tax gain of $2.5 million, or $0.24 per share,
realized in the third quarter of fiscal 1996.
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: August 12, 1996 /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President and
Chief Financial Officer
Date: August 12, 1996 /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller