<PAGE>
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, 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 0-17605
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 JULY 31, 1995 10,369,264
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
June 30, 1995 and September 30, 1994
Consolidated Statements of Income:
Three and Nine Months Ended June 30, 1995
and 1994
Consolidated Statements of Cash Flows:
Nine Months Ended June 30, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, September 30,
1995 1994
________ _________
(Unaudited)
(Thousands of Dollars)
<S>
ASSETS <C> <C>
Utility Plant, at original cost $482,412 $468,202
Less: Accumulated provision for
depreciation 172,774 164,327
________ ________
309,638 303,875
Construction work in progress 9,039 11,188
________ ________
Total Net Utility Plant 318,677 315,063
________ ________
Other Property and Investments 31,366 28,609
________ ________
Current Assets:
Cash and temporary cash
investments 10,761 602
Accounts receivable, net 26,584 21,412
Fuel supplies 7,583 10,936
Other materials and supplies 1,783 1,550
Recoverable gas costs 86 429
Accrued utility revenues 3,787 5,751
Prepaid taxes --- 3,352
Other 1,957 3,933
_______ _______
Total Current Assets 52,541 47,965
_______ _______
Deferred Gas Costs --- 4,338
Recoverable Pipeline
Transition Costs --- 3,432
Recoverable Environmental
Cleanup Costs 38,084 36,467
Recoverable Income Taxes 27,001 32,198
Recoverable Postretirement
Benefits Costs 2,147 1,419
Other Deferred Debits 10,218 12,027
_______ _______
Total Assets $480,034 $481,518
_______ ________
_______ ________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION> June 30, September 30,
1995 1994
_________ ____________
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,364,779
shares outstanding at June 30, 1995
and 10,287,683 outstanding at
September 30, 1994 $ 51,824 $ 51,438
Capital surplus, paid in 86,331 85,150
Retained earnings 25,080 15,159
Employee stock ownership
plan guarantee (1,800) (2,200)
________ ________
Total Common Shareholders' Equity 161,435 149,547
Long-term debt, net of
current portion 144,416 126,966
_______ _______
Total Capitalization 305,851 276,513
_______ _______
Current Liabilities:
Notes payable to banks 10,900 24,600
Long-term debt, current portion 5,917 26,667
Accounts payable 15,200 17,805
Accrued interest 3,858 4,124
Accrued taxes 8,120 ---
Refundable gas costs 559 106
Pipeline transition costs payable 1,398 573
Other 4,094 4,483
_______ _______
Total Current Liabilities 50,046 78,358
_______ _______
Accumulated Deferred Income Taxes 38,014 41,439
Unfunded Deferred Income Taxes 26,966 32,150
Accumulated Deferred Investment
Tax Credits 9,552 9,835
Reserve for Environmental
Cleanup Costs 35,000 35,000
Unfunded Postretirement
Benefits Costs 2,147 1,419
Deferred Gas Costs 6,417 ---
Other Deferred Credits 6,041 6,804
______ _______
Commitments and Contingencies (Note 3)
Total Capitalization and
Liabilities $480,034 $481,518
________ ________
________ ________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION> Three Months Ended
June 30,
1995 1994
_______ ______
(Thousands of Dollars,
except share information)
<S> <C> <C>
Operating Revenues $ 55,101 $ 53,612
Less: Cost of Gas 28,341 27,384
_______ _______
Revenues, net of cost of gas 26,760 26,228
_______ _______
Other Operating Expenses:
Operations 13,170 13,534
Maintenance 1,505 1,908
Depreciation 4,200 4,562
Federal and state income taxes (568) (1,088)
Taxes other than income taxes 4,858 4,955
Organizational charges 414 ---
_______ _______
Total Other Operating Expenses 23,579 23,871
_______ _______
Operating Income 3,181 2,357
Other Income, net 994 995
_______ _______
Income Before Interest Charges 4,175 3,352
Interest Charges, net 3,920 3,641
_______ _______
Income (Loss) Before
Preferred Dividends 255 (289)
Preferred Dividends --- 274
_______ _______
Net Income (Loss) $ 255 $ (563)
_______ _______
_______ _______
Total Earnings (Loss)
per Common Share $ 0.02 $ (0.05)
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,348,791 10,287,683
__________ __________
__________ __________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION> Nine Months Ended
June 30,
1995 1994
____ ____
(Thousands of Dollars,
except share information)
<S> <C> <C>
Operating Revenues $254,141 $279,767
Less: Cost of Gas 135,284 149,690
_______ _______
Revenues, net of cost of gas 118,857 130,077
_______ _______
Other Operating Expenses:
Operations 40,630 40,272
Maintenance 4,783 5,550
Depreciation 12,621 13,257
Federal and state income taxes 13,917 20,087
Taxes other than income taxes 17,735 19,134
Organizational charges 1,163 ---
_______ _______
Total Other Operating Expenses 90,849 98,300
_______ _______
Operating Income 28,008 31,777
Other Income, net 3,136 2,188
_______ _______
Income Before Interest Charges 31,144 33,965
Interest Charges, net 11,680 10,424
_______ _______
Income Before Preferred Dividends 19,464 23,541
Preferred Dividends --- 823
_______ _______
Net Income $ 19,464 $ 22,718
_______ _______
_______ _______
Total Earnings per Common Share $ 1.89 $ 2.21
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,316,469 10,287,683
__________ __________
__________ __________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION> Nine Months Ended
June 30,
__________________
1995 1994
____ ____
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $19,464 $23,541
Adjusted for the following:
Depreciation 12,621 13,257
Equity earnings from investments (3,637) (2,532)
Deferred income taxes, net (3,656) (1,257)
Deferred gas costs activity and
other non-cash items 14,279 9,089
Changes in working capital:
Accounts receivable and accrued
utility revenues (3,211) (15,357)
Accounts payable (2,605) (1,713)
Accrued taxes 11,472 14,551
Other working capital
(excludes cash) 5,106 9,758
_______ _______
Net cash provided by
operating activities 49,833 49,337
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 386 ---
Premium on common stock 1,254 ---
Issuance of long-term debt 20,000 ---
Retirement of long-term debt (23,300) (5,300)
Financing expenses (261) ---
Increase (decrease) in
short-term debt (13,700) 6,900
Cash dividends-preferred stock --- (823)
Cash dividends-common stock (9,540) (9,104)
________ ________
Net cash used for financing
activities (25,161) (8,327)
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (15,248) (14,042)
Investment in non-utility plant --- (1,000)
Iroquois distribution 735 1,101
_______ ________
Net cash used for plant and other
investments (14,513) (13,941)
________ _______
Net Increase in Cash and Temporary
Cash Investments for the Period 10,159 27,069
Cash and Temporary Cash Investments,
beginning of period 602 6,509
________ ________
Cash and Temporary Cash Investments
end of period $10,761 $33,578
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts
capitalized $10,793 $10,605
Income taxes $ 7,800 $ 8,017
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
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
reports on Form 10-Q for the quarters ended December 31, 1994 and
March 31, 1995. 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, 1995, and its results of operations for the three
and nine months ended June 30, 1995 and 1994 and cash flows for
the nine months ended June 30, 1995 and 1994. The results of
operations for the three and nine months ended June 30, 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 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, 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 June
30, 1995, Yankee Gas has paid and recovered, in accordance with
the July 8, 1994 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' 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 $3.0 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) RATE MATTERS AND REGULATION
On August 2, 1995, the Connecticut Department of Public Utility
Control (DPUC) issued a Final Decision in Docket No. 94-11-12,
DPUC Review of Connecticut Local Distribution Companies' Cost of
Service Study Methodologies. The docket was intended to
investigate the issues surrounding the development of firm
transportation (FT) rates at the state level in response to FERC
Order No. 636. The Decision provides guidelines for the
development of FT rates to be offered by the State's three Local
Distribution Companies (LDCs). Each LDC is required to file
specific FT rate proposals in separate company rate dockets. An
FT rate option will be implemented for the largest commercial and
industrial customers upon the conclusion of the company rate
dockets, and will be available to all commercial and industrial
customers no later than April 1, 1996.
Yankee Gas will be filing its FT rate proposal in the fourth
quarter of fiscal 1995 in order to comply with the decision.
This filing will not address Yankee Gas' revenue requirements and
will maintain the existing margin recovery and rates of return
established in the last rate case decision issued for Yankee Gas
in 1992.
5) ORGANIZATIONAL CHARGES
Organizational charges represent (i) the present value of excess
retirement benefits (above and beyond the Company's standard
employee benefit plans) provided to the Company's former chief
executive officer who retired effective March 1, 1995 and (ii)
outside services related to the Company's transformation efforts
described below.
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 such additional organizational charges has not been
determined at this time.
6) ACQUISITION
On August 8, 1995, the Company acquired BVA Cogen, Inc. (BVA) of
Plymouth, Massachusetts. BVA is a developer of custom-designed
cogeneration systems and the United States distributor for the
Deutz MWM Gas-Driven Engine/Generator sets used for on-site
electrical generation. BVA also provides energy-related services
such as feasibility studies, design engineering, turnkey
installations and ongoing service contracts. Initially, BVA is
expected to provide a minimal earnings contribution to the
Company. Future earnings are not expected to have a material
effect on the Company's results of operations.
7) CAPITALIZATION
On June 30, 1995, Yankee Gas issued $20 million principal amount
of Series D First Mortgage Bonds through a private placement.
The bonds were sold by the initial purchaser to "qualified
institutional buyers" as defined in and pursuant to Rule 144A
under the Securities Act of 1933. The bonds will mature June 1,
2005 and interest is payable at an annual rate of 6.75 percent.
Net proceeds from the sale of the bonds were used to repay
short-term indebtedness incurred to redeem Yankee Gas Series A
Tranche B bonds, which matured April 1, 1995, and to repay short-
term indebtedness incurred for capital expenditures.
On April 4, 1995, the Company filed a Form S-8 Registration
Statement under the Securities Act of 1933, as amended, relating
to shares of the Company's Common Stock, par value $5.00 per
share, issued or reserved for issuance pursuant to awards granted
under the 1991 Yankee Energy Long-Term Incentive Compensation
Plan. The Registration Statement became effective upon filing.
8) TEMPORARY CASH INVESTMENTS
The Company's temporary cash investments consist of highly liquid
investments with insignificant interest rate risk and original
maturities of three months or less at date of acquisition.
9) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
current year classifications.
10) OTHER
The Company issued 33,037 new shares of common stock during the
three months ended June 30, 1995 under its Shareholder Investment
Plan.
<PAGE>
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, 1995, and the related
consolidated statements of income for the three and nine 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
July 26, 1995
<PAGE>
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
reports on Form 10-Q for the quarters ended December 31, 1994 and
March 31, 1995.
FINANCIAL CONDITION
OVERVIEW
Consolidated earnings per share were $0.02 for the three months
ended June 30, 1995 based on 10,348,791 average common shares,
compared to a loss of $0.05 per share for the same period a year
earlier. For the nine months ended June 30, 1995, earnings were
$1.89 per share based on 10,316,469 average common shares
compared to $2.21 per share for the nine months ended June 30,
1994. The Company issued 33,037 new shares of common stock
during the three months ended June 30, 1995 under its Shareholder
Investment Plan. All prior periods per share amounts are based
on 10,287,683 average common shares outstanding.
The increase in earnings for the three month period ended June
30, 1995 was primarily due to an increase in firm sales resulting
from colder weather in April 1995 compared to April 1994. Strong
interruptible sales and transportation contributed to the
earnings increase as gas prices continued to be competitive with
oil for interruptible customers who can use either fuel.
Gas prices have been competitive with oil throughout the year and
resulted in higher interruptible sales and transportation
compared to last year for the three and nine month periods as
well. The higher interruptible sales and transportation have
partially offset the decreases in earnings resulting from weather
that was 15 percent and 14 percent warmer for the three and nine
month periods ended June 30, 1995, respectively, compared to the
same periods a year earlier. This warmer weather, one of the
warmest winters on record, caused firm sales to decrease 11
percent and 10 percent for the three and nine month periods ended
June 30, 1995, respectively, compared to the same periods a year
earlier. Additionaly, lower income tax expense as a result of
lower income from operations and a lower effective tax rate for
the three and nine month periods compared to last year offset the
earnings decline.
RESULTS OF OPERATIONS
COMPARISON OF THE THIRD QUARTER OF FISCAL 1995 WITH THE THIRD
QUARTER OF FISCAL 1994
REVENUES AND SALES
Operating revenues increased $1.5 million in the third 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:
<TABLE>
<CAPTION>
Changes in Operating Revenues
(Millions of Dollars)
Increase/(Decrease)
<S> <C>
Firm and other
(excluding gas cost recoveries):
Sales, transportation and other $ 1.3
_____
Subtotal - Firm and other 1.3
_____
Interruptible (excluding gas cost recoveries):
Sales and transportation 0.8
Margin sharing (0.3)
Subtotal - Interruptible 0.5
____
Total - Excluding gas cost recoveries 1.8
Plus: Gas cost recoveries (0.3)
______
Total change in operating revenues $ 1.5
______
______
</TABLE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
1995 1994 Increase
(Mcf - thousands)
<S> <C> <C> <C>
Firm sales and
transportation 5,798 5,527 271
Interruptible sales
and transportation 3,450 2,263 1,187
______ ______ ______
Total 9,248 7,790 1,458
______ ______ ______
______ ______ ______
</TABLE>
Firm and other revenues (excluding gas cost recoveries) increased
for the third quarter of fiscal 1995 compared to the same period
in fiscal 1994 due to an increase in firm sales resulting from
colder weather in April 1995 compared to April 1994.
Interruptible margin increased $0.5 million for the three months
ended June 30, 1995 compared to the three months ended June 30,
1994 primarily due to competitive gas prices for interruptible
customers who can use alternative fuels.
<PAGE>
Gas cost recoveries decreased due to lower per-unit gas prices in
the third quarter of fiscal 1995 compared to the same period in
fiscal 1994.
COST OF GAS
Cost of gas increased $1.0 million for the three months ended
June 30, 1995 compared to the three months ended June 30, 1994
due to the recovery of transition costs through interruptible
margins earned in excess of target amounts as allowed in the July
8, 1994 DPUC decision. This increase was offset by lower gas
prices in the third quarter of fiscal 1995 compared to the same
period a year earlier.
The components of cost of gas were as follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
1995 1994
(Millions of Dollars)
<S> <C> <C>
Actual gas purchases $34.3 $34.0
Affect of purchased gas adjustment
(PGA) clause (6.0) (6.7)
_____ _____
Total expense $28.3 $27.3
_____ _____
_____ _____
</TABLE>
OTHER OPERATING EXPENSES
Total other operating expenses decreased $0.3 million in the
third quarter of fiscal 1995 compared with the same period in the
prior year as a result of the following items:
Operations and maintenance expenses decreased $0.8 million in the
third quarter of fiscal 1995 compared to the third quarter of
fiscal 1994 due to lower uncollectible accounts expense as a
result of lower accounts receivable and lower maintenance of
mains.
Depreciation expense decreased $0.4 million in the three months
ended June 30, 1995 compared to 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, increased $0.6 million due to higher income from
operations in the third quarter of fiscal 1995 compared to the
same period in fiscal 1994.
Organizational charges for the quarter ended June 30, 1995
represent outside services related to the Company's
transformation efforts.
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.
<PAGE>
Interest charges increased $0.3 million for the three months
ended June 30, 1995 compared to the same period ended June 30,
1994 due to higher interest on the Company's PGA balance in the
current period.
COMPARISON OF THE FIRST NINE MONTHS OF FISCAL 1995 WITH THE FIRST
NINE MONTHS OF FISCAL 1994
REVENUES AND SALES
Operating revenues decreased $25.6 million in the first nine
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:
<TABLE>
<CAPTION>
Changes in Operating Revenues
(Millions of Dollars)
Increase/(Decrease)
<S> <C>
Firm and other
(excluding gas costs recoveries):
Sales, transportation and other $(13.1)
_______
Subtotal - Firm and other (13.1)
_______
Interruptible (excluding gas cost recoveries):
Sales and transportation 3.6
Margin sharing (0.3)
______
Subtotal - Interruptible 3.3
______
Total - Excluding gas cost
recoveries (9.8)
Plus: Gas cost recoveries (15.8)
_______
Total change in operating revenues $(25.6)
_______
_______
</TABLE>
<PAGE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1995 1994 Increase/(Decrease)
(Mcf - thousands)
<S> <C> <C> <C>
Firm sales and
transportation 27,533 30,074 (2,541)
Interruptible sales
and transportation 9,659 6,356 3,303
______ _______ ______
Total 37,192 36,430 763
_______ ______ ______
</TABLE>
Firm and other revenues (excluding gas cost recoveries) decreased
for the first nineths of fiscal 1995 compared to the same period
in fiscal 1994 due to an 11 percent decrease in firm sales
resulting from weather that was 15 percent warmer this year
compared to last year.
Interruptible margin increased $3.3 million for the nine months
ended June 30, 1995 compared to the nine months ended June 30,
1994 primarily due to lower gas prices making gas more economical
for interruptible customers who can use alternative fuels.
Gas cost recoveries decreased due to lower firm sales and lower
per-unit gas costs in fiscal year 1995 compared to fiscal year
1994.
COST OF GAS
Cost of gas decreased $14.4 million for the nine months ended
June 30, 1995 compared to the nine months ended June 30, 1994 due
to lower firm sales and per-unit gas costs offset by the recovery
of transition costs through interruptible margins earned in
excess of target amounts as allowed in the July 8, 1994 DPUC
decision on the implementation of FERC Order No. 636.
The components of cost of gas were as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1995 1994
(Millions of Dollars)
<S> <C> <C>
Actual gas purchases $123.2 $140.9
Affect of purchased gas
adjustment (PGA) clause 12.1 8.8
_____ ______
Total expense $135.3 $149.7
______ ______
______ ______
</TABLE>
OTHER OPERATING EXPENSES
Total other operating expenses decreased $7.5million in the first
nine months of fiscal 1995 compared with the same period in the
prior year as a result of the following items:
<PAGE>
Operations and maintenance expenses decreased $0.4 million in the
first nine months of fiscal 1995 compared with the same period a
year earlier due to lower uncollectible accounts expense and
lower marketing incentives through the first nine months of
fiscal year 1995 compared to the same period a year earlier.
These decreases were offset by higher payroll and benefits
expenses.
Depreciation expense decreased $0.6 million in the first nine
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 $6.2 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 $1.4 million for the nine
months ended June 30, 1995 compared to the nine months ended June
30, 1994 primarily due to lower Connecticut Gross Earnings taxes
resulting from lower revenues in fiscal 1995 offset by higher
municipal taxes.
Organizational charges represent (i) the present value of excess
retirement benefits (above and beyond the Company's standard
employee benefit plans) provided to the Company's former chief
executive officer who retired effective March 1, 1995 and (ii)
outside services related to the Company's transformation efforts
described below.
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 such 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 nine months of fiscal 1995 due to
higher earnings associated with Housatonic's investment in
Iroquois offset by lower interest income earned from temporary
cash investments through the first nine months of fiscal year
1995 compared to the same period a year earlier.
Interest charges increased $1.3 million for the nine months ended
June 30, 1995 compared to the same period ended June 30, 1994 due
to higher levels of short-term debt and higher interest on the
Company's PGA balance in the current period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments at June 30, 1995 totaled $0.8
million. Principal sources of cash for the nine months ended
June 30, 1995 were net income, the overcollection of gas costs
and the timing of the third quarter income tax payments. These
funds were used primarily to reduce short-term debt, bridge long-
term financing, meet sinking fund requirements, dividend payments
and capital expenditures.
Expenditures for utility plant and other investments totaled
$15.2 million for the first nine months of fiscal 1995,
reflecting a $1.2 million increase from the same period in fiscal
1994. As discussed above, during the first nine 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. As of June 30, 1995,
Yankee Gas had a revolving line of credit with a group of five
banks of $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 had uncommitted credit lines of $27
million as of June 30, 1995. At June 30, 1995, Yankee Gas had no
borrowings outstanding on its agreements. In addition, Yankee
Energy had $10.9 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 June
30, 1995, the Company's utility subsidiary, Yankee Gas Services
Company (Yankee Gas), issued $20 million principal amount of
Series D First Mortgage Bonds through a private placement. The
bonds were sold by the initial purchaser to "qualified
institutional buyers" as defined in and pursuant to Rule 144A
under the Securities Act of 1933. The bonds will mature June 1,
2005 and interest is payable at an annual rate of 6.75 percent.
Net proceeds from the sale of the bonds were used to repay
short-term indebtedness incurred to redeem Yankee Gas Series A
Tranche B bonds, which matured April 1, 1995, and to repay short-
term indebtedness incurred for capital expenditures.
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 $3.0 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 nine months ended March 31, 1995, the Company issued
77,096 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.
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
VOLUNTARY EARLY RETIREMENT PROGRAM
On July 5, 1995, Yankee Gas offered a voluntary early
retirement program to its non-bargaining unit employees
who are at least 55 years old and have ten years of
service with the Company. A total of 37 employees are
eligible and they have until August 25, 1995 to accept or
reject the program. The retirement date for those who
accept or reject the program will be October 1, 1995.
RESIGNATION
Philip T. Ashton, retired CEO of the Company, resigned as
chairman and member of Yankee Energy's Board of Directors
effective August 1, 1995 to campaign for a local
political office.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None.
<PAGE>
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 11, 1995 /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President and
Chief Financial Officer
Date: August 11, 1995 /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> JUN-30-1995
<CASH> 10,761
<SECURITIES> 0
<RECEIVABLES> 32,681
<ALLOWANCES> (6,097)
<INVENTORY> 9,366
<CURRENT-ASSETS> 52,541
<PP&E> 491,451
<DEPRECIATION> 172,774
<TOTAL-ASSETS> 480,034
<CURRENT-LIABILITIES> 50,046
<BONDS> 150,333
<COMMON> 51,824
0
0
<OTHER-SE> 109,611
<TOTAL-LIABILITY-AND-EQUITY> 480,034
<SALES> 254,141
<TOTAL-REVENUES> 254,141
<CGS> 135,284
<TOTAL-COSTS> 135,284
<OTHER-EXPENSES> 87,596
<LOSS-PROVISION> 3,253
<INTEREST-EXPENSE> 11,680
<INCOME-PRETAX> 34,081
<INCOME-TAX> 14,617
<INCOME-CONTINUING> 19,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,464
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89
</TABLE>
