<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 MARCH 31, 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 APRIL 30, 1996 10,449,554
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1996 and September 30, 1995
Consolidated Statements of Income:
Three and Six Months Ended March 31, 1996
and 1995
Consolidated Statements of Cash Flows:
Six Months Ended March 31, 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 4. Submission of Matters to a Vote
of Security Holders
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>
March 31, September 30,
1996 1995
________ _________
(Unaudited)
(Thousands of Dollars)
<S>
ASSETS <C> <C>
Utility Plant, at original cost $491,412 $488,540
Less: Accumulated provision for
depreciation 174,447 174,522
________ ________
316,965 314,018
Construction work in progress 9,954 10,852
________ ________
Total Net Utility Plant 326,919 324,870
________ ________
Other Property and Investments 32,368 30,565
________ ________
Current Assets:
Cash and temporary cash
investments 369 725
Accounts receivable, net 65,651 22,044
Fuel supplies 2,787 10,611
Other materials and supplies 1,671 1,625
Recoverable gas costs 747 1,713
Accrued utility revenues 15,965 5,638
Prepaid taxes --- 281
Other 4,344 4,069
_______ _______
Total Current Assets 91,534 46,706
_______ _______
Deferred Gas Costs --- 2,261
Recoverable Environmental
Cleanup Costs 37,230 38,331
Recoverable Income Taxes 21,681 27,575
Recoverable Postretirement
Benefits Costs 1,375 2,390
Other Deferred Debits 10,421 6,603
_______ _______
Total Assets $521,528 $479,301
_______ ________
_______ ________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION> March 31, September 30,
1996 1995
_________ ____________
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,446,515
shares outstanding at March 31, 1996
and 10,396,522 outstanding at
September 30, 1995 $ 52,233 $ 51,982
Capital surplus, paid in 87,813 86,862
Retained earnings 33,309 14,709
Employee stock ownership
plan guarantee (1,400) (1,800)
________ ________
Total Common Shareholders' Equity 171,955 151,753
Long-term debt, net of
current portion 142,649 141,049
_______ _______
Total Capitalization 314,604 292,802
_______ _______
Current Liabilities:
Notes payable to banks 12,410 28,525
Long-term debt, current portion 4,017 5,917
Accounts payable 20,727 18,300
Accrued interest 3,577 3,569
Accrued taxes 27,590 ---
Refundable gas costs --- 697
Other 7,240 6,555
_______ _______
Total Current Liabilities 75,561 63,563
_______ _______
Deferred Gas Costs 19,411 ---
Accumulated Deferred Income Taxes 33,792 39,513
Unfunded Deferred Income Taxes 21,646 27,557
Accumulated Deferred Investment
Tax Credits 9,269 9,457
Reserve for Environmental
Cleanup Costs 35,000 35,000
Unfunded Postretirement
Benefits Costs 2,875 2,390
Other Deferred Credits 9,370 9,019
______ _______
Commitments and Contingencies (Note 3)
Total Capitalization and
Liabilities $521,528 $479,301
________ ________
________ ________
</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
March 31,
1996 1995
_______ ______
(Thousands of Dollars,
except share information)
<S> <C> <C>
Operating Revenues $139,572 $116,756
Less: Cost of Gas 80,547 63,162
_______ _______
Revenues, net of cost of gas 59,025 53,594
_______ _______
Other Operating Expenses:
Operations 14,807 15,017
Maintenance 1,744 1,882
Depreciation 4,137 4,371
Federal and state income taxes 11,492 9,560
Taxes other than income taxes 8,464 7,596
Organizational charges 25 593
_______ _______
Total Other Operating Expenses 40,669 39,019
_______ _______
Operating Income 18,356 14,575
Other Income, net 887 1,223
_______ _______
Income Before Interest Charges 19,243 15,798
Interest Charges, net 3,917 4,048
_______ _______
Net Income $ 15,326 $ 11,750
_______ _______
_______ _______
Total Earnings per Common Share $ 1.47 $ 1.14
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,432,707 10,312,933
__________ __________
__________ __________
</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> Six Months Ended
March 31,
1996 1995
____ ____
(Thousands of Dollars,
except share information)
<S> <C> <C>
Operating Revenues $237,730 $199,040
Less: Cost of Gas 133,966 106,943
_______ _______
Revenues, net of cost of gas 103,764 92,097
_______ _______
Other Operating Expenses:
Operations 27,966 27,615
Maintenance 3,231 3,279
Depreciation 8,287 8,421
Federal and state income taxes 19,197 14,485
Taxes other than income taxes 14,095 12,877
Organizational charges 118 593
_______ _______
Total Other Operating Expenses 72,894 67,270
_______ _______
Operating Income 30,870 24,827
Other Income, net 2,163 2,142
_______ _______
Income Before Interest Charges 33,033 26,969
Interest Charges, net 7,869 7,760
_______ _______
Net Income $ 25,164 $ 19,209
_______ _______
_______ _______
Total Earnings per Common Share $ 2.42 $ 1.86
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,420,839 10,300,308
__________ __________
__________ __________
</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> Six Months Ended
March 31,
__________________
1996 1995
____ ____
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $25,164 $19,209
Adjusted for the following:
Depreciation 8,287 8,421
Equity earnings from investments (2,641) (2,494)
Deferred income taxes, net (6,498) (7,896)
Deferred gas costs activity and
other non-cash items 21,339 21,145
Changes in working capital:
Accounts receivable and accrued
utility revenues (54,465) (31,624)
Accounts payable 2,427 (2,326)
Accrued taxes 28,108 24,005
Other working capital
(excludes cash) 8,769 9,353
_______ _______
Net cash provided by
operating activities 30,490 37,793
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 250 221
Premium on common stock 1,185 699
Retirement of long-term debt (2,450) (5,300)
Issuance of long-term debt 2,150 ---
Decrease in short-term debt (16,115) (13,000)
Cash dividends-preferred stock --- ---
Cash dividends-common stock (6,561) (6,282)
________ ________
Net cash used for financing
activities (21,541) (23,662)
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (9,880) (9,429)
Other property and investments (1,000) ---
Iroquois distribution 1,575 735
_______ ________
Net cash used for plant and other
investments (9,305) (8,694)
________ _______
Net (Decrease)/Increase in Cash and Temporary
Cash Investments for the Period (356) 5,437
Cash and Temporary Cash Investments,
beginning of period 725 602
________ ________
Cash and Temporary Cash Investments
end of period $ 369 $ 6,039
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts
capitalized $ 6,952 $ 7,400
Income taxes $ 6,304 $ 2,470
</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, 1995 (1995 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, 1995
(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, 1996, and its results of operations for the three
and six months ended March 31, 1996 and 1995 and cash flows for
the six months ended March 31, 1996 and 1995. The results of
operations for the three and six months ended March 31, 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
The Company's wholly-owned subsidiary, 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 March 31,
1996, Yankee Gas has paid and recovered, in accordance with the
July 8, 1994 DPUC decision, approximately $14.6 million of
transition costs and an additional $0.4 million are anticipated.
To date, Yankee Gas has collected $26.8 million through a
combination of gas supplier refunds, deferred gas costs credits
and excess interruptible margins. These excess collections of
approximately $12.2 million have been applied against certain
deferred expense items in accordance with a January 3, 1996 DPUC
decision. Please see Part II, Item 6b for a further description
of this decision.
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. 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 $3.5 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 1995 Form 10-K.
4) ORGANIZATIONAL CHARGES
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. To date, the Company has incurred $5.5 million of
organizational charges of which $5.4 million was recorded in
fiscal year 1995. Management does not anticipate additional
significant charges in connection with business transformation.
5) 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.
6) OTHER
The Company issued 24,147 new shares of common stock during the
three months ended March 31, 1996 under its Shareholder
Investment Plan and 300 shares under its Long-Term Incentive
Plan.
7) SUBSEQUENT EVENT - SALE OF INTEREST IN IROQUOIS
On April 30, 1996 Yankee Energy sold its entire 10.5 percent
interest in the Iroquois Pipeline. The Company received
approximately $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, to be realized in the third quarter of fiscal year 1996.
<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 March 31, 1996, and the related
consolidated statements of income for the three month 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
May 1, 1996
<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, 1995, 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, 1995.
FINANCIAL CONDITION
OVERVIEW
Consolidated earnings per share for the quarter ended March 31,
1996 were $1.47 based on 10,432,707 average common shares,
compared to $1.14 per share earned for the same period a year
earlier. For the six months ended March 31, 1996, earnings were
$2.42 per share based on 10,420,839 average common shares
compared to $1.86 per share for the six months ended March 31,
1995. The Company issued 24,147 new shares of common stock
during the three months ended March 31, 1996 under its
Shareholder Investment Plan and 300 shares under its Long-Term
Incentive Plan.
The increase in earnings for the three and six month periods
ended March 31, 1996 were due to weather that was approximately
14 and 16 percent colder respectively, compared to the same
periods a year earlier. This colder weather caused firm sales to
increase approximately 16 and 18 percent for the three and six
month periods ended March 31, 1996 respectively, compared to the
same periods a year earlier. This contributed to an increase in
operating margin of $5 million or 10 percent and $12 million or
13 percent for the three and six month periods ended March 31,
1996 respectively, compared to the same periods a year earlier.
The Company recorded higher income tax expense as a result of
higher pre-tax net income partially offset by a lower effective
tax rate created by the true-up of book vs. tax differences
related to the calendar 1995 tax return for the three month
period ended March 31, 1996 compared to the same period a year
earlier. For the six months ended March 31, 1996 the Company
recorded a higher income tax expense compared to the six months
ended March 31, 1995, primarily due to higher pre-tax net income.
RESULTS OF OPERATIONS
COMPARISON OF THE SECOND QUARTER OF FISCAL 1996 WITH THE SECOND
QUARTER OF FISCAL 1995
REVENUES AND SALES
Operating revenues increased $22.8 million in the second 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:
<TABLE>
<CAPTION>
Changes in Operating Revenues
(Millions of Dollars)
Increase/(Decrease)
<S> <C>
Firm and other
(excluding gas cost recoveries):
Sales, transportation and other $ 6.5
_____
Subtotal - Firm and other 6.5
_____
Interruptible/off system sales and
transportation
(excluding gas cost recoveries): (0.1)
_____
Total - Excluding gas cost recoveries 6.4
Plus: Gas cost recoveries 17.4
Amount applied to transition costs (1.0)
_____
Total change in operating revenues $ 22.8
______
______
</TABLE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995 Increase/(Decrease)
(Mcf - thousands)
<S> <C> <C> <C>
Firm sales and
transportation 14,471 12,429 2,042
Interruptible/off system
sales and
transportation 2,275 3,466 (1,191)
______ ______ ______
Total 16,746 15,895 851
______ ______ ______
______ ______ ______
</TABLE>
Firm and other revenues (excluding gas cost recoveries) increased
for the second quarter of fiscal 1996 compared to the same period
in fiscal 1995 due to a 16 percent increase in firm sales
resulting from weather that was 14 percent colder this year
compared to last year.
Interruptible margin decreased $0.1 million for the three months
ended March 31, 1996 compared to the three months ended March 31,
1995 primarily due to colder weather resulting in less usage by
interruptible customers who can use alternative fuels.
Gas cost recoveries increased due to higher firm sales in the
second quarter of fiscal 1996 compared to the same period in
fiscal 1995 and higher per-unit gas costs.
<PAGE>
COST OF GAS
Cost of gas increased $17.4 million for the three months ended
March 31, 1996 compared to the three months ended March 31, 1995
due to higher firm sales and per-unit gas costs along with the
recovery of undercollected gas costs in the second quarter of
fiscal 1996 compared to the same period a year earlier.
The components of cost of gas were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995
(Millions of Dollars)
<S> <C> <C>
Actual gas purchases $61.6 $48.0
Effect of purchased gas adjustment
(PGA) clause 19.0 15.2
_____ _____
Total expense $80.6 $63.2
_____ _____
_____ _____
</TABLE>
OTHER OPERATING EXPENSES
Total other operating expenses increased $1.6 million in the
second quarter of fiscal 1996 compared with the same period in
the prior year as a result of the following items:
Operations and maintenance expenses decreased $0.3 million in the
second quarter of fiscal 1996 compared to the second quarter of
fiscal 1995 due to the effect of higher outside services expenses
recorded in 1995. These expenses were primarily related to the
Company-wide business transformation and were partially offset by
higher uncollectible accounts expense as a result of increased
revenues in fiscal year 1996 due to colder weather.
Federal and state income taxes, including the portion contained
in Other Income, increased $1.8 million due to higher income from
operations offset by a lower effective tax rate created by the
true-up of book vs. tax differences related to the calendar 1995
tax return in the second quarter of fiscal 1996 compared to the
same period in fiscal 1995.
Taxes other than income taxes increased $0.9 million for the
three months ended March 31, 1996 compared to the three months
ended March 31, 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) decreased
$0.5 million in the second quarter of fiscal 1996 compared to the
second quarter of fiscal 1995 due to lower earnings associated
with Housatonic's investment in Iroquois Gas Transmission System,
L.P. (Iroquois) primarily related to additional remediation
costs. These expenses were incurred primarily as a result of
certain environmental allegations by State and Federal
authorities. For further information see the 1995 Form 10-K. A
premium associated with the early retirement of a NorConn
Properties, Inc. (NorConn) note contributed to the decrease in
other income.
Interest charges decreased $0.1 million for the three months
ended March 31, 1996 compared to the same period ended March 31,
1995 due to a decrease in long-term debt.
COMPARISON OF THE FIRST SIX MONTHS OF FISCAL 1996 WITH THE FIRST
SIX MONTHS OF FISCAL 1995
REVENUES AND SALES
Operating revenues increased $38.6 million in the first six
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:
<TABLE>
<CAPTION>
Changes in Operating Revenues
(Millions of Dollars)
Increase/(Decrease)
<S> <C>
Firm and other
(excluding gas costs recoveries):
Sales, transportation and other $ 13.3
_______
Subtotal - Firm and other 13.3
_______
Interruptible/off system sales
and transportation
(excluding gas cost recoveries): (0.5)
_______
Total - Excluding gas cost recoveries 12.8
Plus: Gas cost recoveries 27.0
Amount applied to transition
costs (1.2)
_______
Total change in operating revenues $ 38.6
_______
_______
</TABLE>
<PAGE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Six Months Ended March 31,
1996 1995 Increase/(Decrease)
(Mcf - thousands)
<S> <C> <C> <C>
Firm sales and
transportation 24,875 20,975 3,900
Interruptible/off system
sales and
transportation 5,374 6,969 (1,595)
______ _______ ______
Total 30,249 27,944 2,305
_______ ______ ______
</TABLE>
Firm and other revenues (excluding gas cost recoveries) increased
for the first six months of fiscal 1996 compared to the same
period in fiscal 1995 due to an 18 percent increase in firm sales
resulting from weather that was 16 percent colder this year
compared to last year.
Interruptible margin decreased $0.5 million for the six months
ended March 31, 1996 compared to the six months ended March 31,
1995 primarily due to colder weather resulting in less usage by
interruptible customers who can use alternative fuels.
Gas cost recoveries increased due to higher firm sales in the
second 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 $27.0 million for the six months ended
March 31, 1996 compared to the six months ended March 31, 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:
<TABLE>
<CAPTION>
Six Months Ended March 31,
1996 1995
(Millions of Dollars)
<S> <C> <C>
Actual gas purchases $107.8 $ 88.9
Effect of purchased gas
adjustment (PGA) clause 26.2 18.0
_____ ______
Total expense $134.0 $106.9
______ ______
______ ______
</TABLE>
OTHER OPERATING EXPENSES
Total other operating expenses decreased $5.6 million in the
first six months of fiscal 1996 compared with the same period in
the prior year as a result of the following items:
<PAGE>
Operations and maintenance expenses increased $0.3 million in the
first six months of fiscal 1996 compared with the same period a
year earlier due to higher uncollectible accounts expense related
to higher revenue. This increase was partially offset by lower
payroll and benefits expenses in the first six months of this
fiscal year compared to the first six months of last fiscal year.
Federal and state income taxes, including the portion contained
in Other Income, increased $4.6 million resulting primarily from
higher pre-tax net income from operations compared to last year.
Taxes other than income taxes increased $1.2 million for the six
months ended March 31, 1996 compared to the six months ended
March 31, 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) decreased
$0.1 million in the first six months of fiscal 1996 due to lower
earnings associated with Housatonic's investment in Iroquois due
to remediation expenses. This decrease is also due to a premium
paid as a result of the retirement of long-term debt by NorConn.
Interest charges decreased $0.1 million for the six months ended
March 31, 1996 compared to the same period ended March 31, 1995
due to a decrease in long-term debt partially offset by increased
interest on the Company's PGA balance.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments at March 31, 1996 totaled
$0.4 million. Principal sources of cash for the six months ended
March 31, 1996 were net income and the overcollection of gas
costs. 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,
1996, 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
$10.9 million for the first six months of fiscal 1996, reflecting
a $1.5 million increase from the same period in fiscal 1995.
During the first six months of fiscal 1996, construction
additions were supported by short-term debt.
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 March 31, 1996,
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 to $27
million as of March 31, 1996. At March 31, 1996, Yankee Gas had
$1.5 million outstanding on its agreements. In addition, Yankee
Energy had $10.9 million outstanding at March 31, 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 March
31, 1996, indenture requirements, including the required coverage
ratio, would allow for the issuance of an additional $141 million
of bonds at an assumed interest rate of 7.6 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 $3.5 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, 1996, the Company issued
49,173 new shares of common stock under the Company's Shareholder
Investment Plan and 820 shares under its Long-Term Incentive
Plan.
<PAGE>
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
23, 1996, the following directors were elected to three-year
terms expiring at the 1999 Annual Meeting: Sanford Cloud, Jr. and
Nicholas L. Trivisonno. Mr. Cloud received 8,615,974 votes for
and 215,920 votes against. Mr. Trivisonno received 8,637,380
votes for and 194,514 votes against. Directors continuing in
office are Frederick M. Lowther, Leonard A. O'Connor, Emery G.
Olcott, Eileen S. Kraus and Branko Terzic. Shareholders also
ratified the appointment of Arthur Andersen LLP as the Company's
independent auditors. Arthur Andersen LLP received 8,511,756
votes for and 181,703 votes against with 138,434 votes abstain.
A Non-Employee Director Deferred Compensation Plan (the "Plan")
was approved at the 1996 Annual Meeting. The vote was 7,664,101
for, 678,323 against with 446,327 abstain and 43,143 no votes.
The purpose of the Plan is to attract and retain non-employee
directors capable of furthering the future success of the Company
and to further align their interests with the Company's other
shareholders by increasing their proprietary interest in the
Company.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
One report on Form 8-K, dated January 24, 1996, was filed with
the Securities and Exchange Commission during the quarter covered
by this report, reporting in Item 5 the recovery of certain
deferred expense items through the application of transition
credits in exchange for Yankee Gas agreeing not to increase its
rates before October 1, 1998.
<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: May 14, 1996 /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President and
Chief Financial Officer
Date: May 14, 1996 /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller
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