<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 DECEMBER 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 JANUARY 31, 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 - December
31, 1996 and September 30, 1996
Consolidated Statements of Income -
Three Months Ended December 31, 1996
and 1995
Consolidated Statements of Cash Flows -
Three Months Ended December 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 11. 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>
DECEMBER 31, SEPTEMBER 30,
1996 1996
____ ____
(UNAUDITED)
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Utility Plant, at original cost $ 504,577 $ 499,446
Less: Accumulated provision for
depreciation 181,540 177,943
_________ _________
323,037 321,503
Construction work in progress 14,164 13,985
_________ _________
Total Net Utility Plant 337,201 335,488
_________ _________
Other Property and Investments 15,932 14,894
_________ _________
Current Assets:
Cash and temporary cash investments 2,877 7,853
Accounts receivable, net 46,102 25,623
Fuel supplies 9,900 11,465
Other materials and supplies 1,722 1,706
Accrued utility revenues 16,761 5,775
Prepaid taxes --- 2,925
Other 5,117 4,373
_________ _________
Total Current Assets 82,479 59,720
_________ _________
Deferred Gas Costs 5,710 3,948
Recoverable Environmental
Cleanup Costs 33,915 34,370
Recoverable Income Taxes 14,381 14,559
Recoverable Postretirement
Benefits Costs 1,827 1,861
Other Deferred Debits 11,830 13,909
________ __________
Total Assets $ 503,275 $ 478,749
________ __________
________ __________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
____ ____
(UNAUDITED)
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,449,554
shares outstanding at December 31, 1996
and September 30, 1996 $ 52,248 $ 52,248
Capital surplus, paid in 87,953 87,947
Retained earnings 28,754 23,271
Employee stock ownership
plan guarantee (1,000) (1,400)
________ _______
Total Common Shareholders' Equity 167,955 162,066
Long-term debt, net of current portion 108,882 109,282
________ _______
Total Capitalization 276,837 271,348
________ _______
Current Liabilities:
Notes payable to banks 26,700 20,300
Long-term debt, current portion 34,017 34,017
Accounts payable 28,745 22,571
Accrued interest 3,579 3,494
Accrued taxes 4,193 ---
Other 8,649 7,833
________ ________
Total Current Liabilities 105,883 88,215
________ ________
Accumulated Deferred Income Taxes 51,836 49,934
Unfunded Deferred Income Taxes 14,282 14,488
Accumulated Deferred Investment
Tax Credits 8,986 9,080
Reserve for Environmental Cleanup Costs 35,000 35,000
Unfunded Postretirement Benefits Costs 3,649 3,361
Other Deferred Credits 6,802 7,323
_______ _______
Commitments and Contingencies (Note 3)
Total Capitalization and
Liabilities $ 503,275 $ 478,749
________ ________
________ ________
</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
DECEMBER 31,
__________________
1996 1995
____ ____
(Thousands of Dollars, Except
Share Information)
<S> <C> <C>
Revenues:
Utility Revenues $ 94,632 $ 98,133
Non-utility revenues 1,050 65
______ ______
Total Revenues 95,682 98,198
______ ______
Operating Expenses:
Cost of gas 50,758 53,419
Operations 14,086 13,200
Maintenance 1,600 1,487
Depreciation 4,203 4,150
Taxes other than income taxes 5,873 5,631
Organizational charges --- 93
______ ______
Total Operating Expenses 76,520 77,980
______ ______
Operating Income 19,162 20,218
Other Income (Expense):
Other Income, net 2 1,434
Interest expense, net (3,371) (3,952)
______ ______
Income Before Income taxes 15,793 17,700
Provision For Income Taxes 6,914 7,863
______ ______
Net Income $ 8,879 $ 9,837
______ _____
______ _____
Total Earnings per Common Share $ 0.85 $ 0.95
______ _____
______ _____
Common Shares
Outstanding (Average) 10,449,554 10,408,970
___________ __________
___________ __________
</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>
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
____ ____
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,879 $ 9,837
Adjusted for the following:
Depreciation 4,203 4,150
Equity earnings from investments (64) (1,396)
Deferred income taxes, net 1,779 1,523
Deferred gas cost activity and other
non-cash items 394 3,223
Changes in working capital:
Accounts receivable and accrued
utility revenues (31,465) (41,100)
Accounts payable 6,174 5,325
Accrued taxes 7,118 7,766
Other working capital
(excludes cash) 1,945 2,916
________ _______
Net cash used for
operating activities (1,037) (7,756)
_________ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium on common stock issuance --- 475
Issuance of common stock --- 128
Retirement of long-term debt (400) (2,550)
Increase (decrease) in short-term debt 6,400 16,691
Cash dividends-common stock (3,396) (3,278)
_________ ________
Net cash provided by financing
activities 2,604 11,466
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (5,628) (4,896)
Other property and investments (915) (39)
Iroquois distribution --- 1,575
_______ _______
Net cash used for plant and other
investments (6,543) (3,360)
________ _______
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS FOR THE
PERIOD (4,976) 350
Cash and Temporary Cash Investments,
beginning of period 7,853 725
________ _______
Cash and Temporary Cash Investments,
end of period $ 2,877 $ 1,075
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 3,254 $ 3,319
Income taxes $ --- $ 3,256
</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. (YES or the Company) on Form 10-K
for the fiscal year ended September 30, 1996 (1996 Form 10-
K), including the audited financial statements (and notes
thereto) incorporated by reference therein. In the opinion
of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present
fairly the financial position of the Company as of December
31, 1996, and its results of operations and cash flows for
the three months ended December 31, 1996 and 1995. The
results of operations for the three months ended December
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 71). FAS 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 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 1996 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 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)
directive. Yankee Gas has concurrently replaced the gas
supply traditionally obtained from the pipeline companies'
merchant services with firm purchases directly from
producers and/or marketing companies. Order No. 636
acknowledges that the restructuring of the pipelines'
traditional services will cause pipelines to incur
transition costs in several areas and provides mechanisms
for the pipelines to fully recover prudently incurred
transition costs attributable to the implementation of Order
No. 636.
On July 8, 1994, the DPUC issued a decision on the
implementation of FERC Order No. 636 by the Connecticut
Local Distribution Companies (LDC's). The DPUC is allowing
the LDC's to offset the transition costs billed by pipelines
under Order No. 636 with recoveries from capacity release
activity, refunds of deferred gas costs for the 1992-93
period and all subsequent annual deferred gas costs, gas
supplier refunds, off-system sales margin and interruptible
margin earned in excess of target amounts.
Through December 31, 1996, Yankee Gas has paid approximately
$17.6 million of transition costs and an additional $0.4
million are anticipated. To date, Yankee Gas has collected
$34.8 million through a combination of credits received from
gas supplier refunds, deferred gas costs, excess
interruptible margin, off-system sales margin, and capacity
release activity.
On January 3, 1996, the DPUC approved a Settlement Agreement
between Yankee Gas and the Office of Consumer Counsel (OCC).
This Settlement Agreement provides for the retention of
overcollected transition cost credits to offset certain
deferred regulatory assets. As a result of this Settlement
Agreement, Yankee Gas has stipulated that, except in the
event of certain circumstances which would adversely affect
Yankee Gas' financial condition, it will not increase its
rates prior to October 1, 1998. As of December 31, 1996,
excess collections of approximately $17.2 million were
applied against the deferred regulatory assets specified in
the Settlement Agreement.
FIRM TRANSPORTATION: On August 2, 1995, the 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 LDC's, one of which is Yankee Gas.
On January 24, 1996, the DPUC issued a Final Decision on
Docket 92-02-19 Reopen I. This decision enabled Yankee Gas
to implement FT rates and services as contemplated in the
DPUC August 2, 1995 decision referenced above. The Decision
allows Yankee Gas to offer a broad array of service options
to commercial and industrial FT customers. Yankee Gas
implemented these new FT rates and services on April 1,
1996, and as of December 31, 1996 had approximately 400
customers under the new FT service. Existing customers who
switch to transportation tariffs will result in decreased
revenues for Yankee Gas as the portion of revenues
representing gas costs will now be borne directly by the
customer who will buy their own gas directly. Yankee Gas,
however, does not expect customer conversions to
transportation services to affect its net income because the
cost of gas has traditionally been a pass through item with
no income impact.
This Decision did not address Yankee Gas' revenue
requirement; Yankee Gas will maintain the existing margin
recovery and rates of return established in the last rate
case decision issued for Yankee Gas in 1992.
On August 25, 1996, Yankee Gas filed an application with the
DPUC for a Financial and Operation Review (Review). This
Review is required under Connecticut statute if Yankee Gas
has not undergone a rate proceeding within the last four
years. Since Yankee Gas' last rate application was approved
on August 26, 1992, this Review is necessary to comply with
the statute. Hearings have been tentatively scheduled for
April 1997 and a Final Decision is scheduled to take place
in July 1997. Yankee Gas is not able to determine at this
time the financial or operational impact of any decisions
which may result from the Review, but they are not expected
to have a material impact on earnings.
GAS SUPPLY HEDGING ACTIVITIES: Yankee Gas has gas service
agreements with two customers to supply gas at fixed prices.
Because Yankee Gas 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 Yankee Gas 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, Yankee Gas is acting as an agent
using its credit to provide fixed pricing to its customers
using a commodity swap. Yankee Gas' 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 Yankee Gas 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 Yankee Gas 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. Yankee Gas is
responsible for margin calls collateralizing the commodity
swap contract from August 17, 1994 through the term of the
gas service agreement. Currently, Yankee Gas has a letter
of credit in the amount of $2.25 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 1996
Form 10-K.
4) FORWARD-LOOKING STATEMENTS
This report may contain statements which, to the extent they
are not recitations of historical fact, constitute "forward-
looking statements" within the meaning of the Securities
Litigation Reform Act of 1995 (Reform Act). All such
forward-looking statements are intended to be subject to the
safe harbor protection provided by the Reform Act. A number
of important factors affecting the Company's business and
financial results could cause actual results to differ
materially from those stated in the forward-looking
statements. Those factors include developments in the
legislative, regulatory and competitive environment, gas
industry restructuring and certain environmental matters as
well as such other factors as set forth in the Company's
Form 10-K for the year ended September 30, 1996.
5) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
6) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform
with current year classifications.
<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 December 31, 1996 and the
related consolidated statements of income and cash flows for the
three-month period then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Hartford, Connecticut
January 31, 1997
<PAGE>
<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. (YES 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, 1996, including the audited
consolidated financial statements (and notes thereto)
incorporated by reference therein.
FINANCIAL CONDITION
OVERVIEW
Consolidated earnings per share was $0.85 for the three months
ended December 31, 1996 based on 10,449,554 average common
shares, compared to $0.95 per share for the same period a year
earlier based on 10,408,970 average common shares.
The decrease in earnings for the three month period ended
December 31, 1996, was primarily due to a decrease in firm sales
resulting from weather that was 5 percent warmer than last year
and 3 percent warmer than normal. The warmer weather caused a 1
percent decrease in firm gas heating sales. Interruptible sales
increased 16 percent this fiscal year versus last fiscal year and
had little effect on margin.
RESULTS OF OPERATIONS
COMPARISON OF THE FIRST QUARTER OF FISCAL 1997 WITH THE FIRST
QUARTER OF FISCAL 1996
REVENUES AND SALES
Utility operating revenues decreased $3.5 million and were
partially offset by a $1.0 million increase in non-utility
revenues in the first quarter of fiscal 1997 compared with the
same period in the prior fiscal year. The increase in
non-utility revenues was due primarily to Yankee Energy Services
Company (YESCo) acquisitions. The components of the change in
operating revenues are as follows:
<PAGE>
<TABLE>
<CAPTION>
Changes in
Operating Revenues
Increase/(Decrease)
(Millions of Dollars)
<S> <C>
Firm and other
(excluding gas cost recoveries):
Sales, transportation and other $(1.6)
Interruptible/off-system (excluding gas
cost recoveries):
Sales and transportation 0.1
Non-utility operations 1.0
_____
Total - Excluding gas cost recoveries (0.5)
Plus: Gas cost recoveries (2.7)
Amount applied to transition costs 0.7
_____
Total change in operating revenues $(2.5)
______
______
</TABLE>
The corresponding changes in the Company's utility throughput
were as follows:
<TABLE>
<CAPTION>
Quarter Ended December 31,
(Mcf - thousands)
1996 1995 Increase/(Decrease)
<S> <C> <C> <C>
Firm sales
and transportation 10,324 10,403 (79)
Interruptible/off-system
sales and
transportation 3,585 3,100 485
______ _____ ______
Total 13,909 13,503 406
______ ______ ______
______ ______ ______
</TABLE>
Firm and other revenues (excluding gas cost recoveries) decreased
for the first quarter of fiscal 1997 compared to the same period
in fiscal 1996 due to a 1 percent decrease in firm sales
resulting from weather that was 5 percent warmer this year
compared to last year.
Interruptible margin increased $0.1 million for the three months
ended December 31, 1996 compared to the three months ended
December 31, 1995 primarily due to the availability of gas usage
for interruptible customers which was caused by the warmer
weather.
Gas cost recoveries decreased due to lower firm sales partially
offset by higher per-unit gas costs in the first quarter of
fiscal 1997 compared to the same period in fiscal 1996.
OPERATING EXPENSES
Total operating expenses decreased $1.5 million in the first
quarter of fiscal 1997 compared with the same period in the prior
year as a result of the following items:
- Cost of gas decreased $2.7 million for the three months
ended December 31, 1996 compared to the three months
ended December 31, 1995 due to an undercollection of
gas costs resulting from higher per unit gas costs, and
lower unbilled fuel recoveries for fiscal 1997 versus
fiscal 1996.
- Operations and maintenance expenses increased $1.0
million in the first quarter of fiscal 1997 compared to
the first quarter of fiscal 1996 due primarily to an
increase in non-utility subsidiary activity offset by
payroll decreases in Yankee Gas as a result of the
Company's business transformation.
- Taxes other than income taxes increased $0.2 million in
the first quarter of fiscal year 1997 compared to the
first quarter of fiscal year 1996. The 1997 increase
was primarily due to an increase in municipal property
taxes due to higher assessments.
OTHER INCOME, NET decreased $1.4 million in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996 due to
earnings associated with the equity investment Housatonic
formerly held in Iroquois, which was sold on April 30, 1996.
INTEREST charges decreased $0.6 million for the three months
ended December 31, 1996 compared to the same period ended
December 31, 1995 due to lower levels of debt and lower interest
expense on Yankee Gas' Purchased Gas Adjustment (PGA) balance in
the current period.
INCOME TAXES, FEDERAL AND STATE decreased $0.9 million primarily
due to lower taxable income as a result of warmer weather for the
three months ended December 31, 1996 compared to the three months
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments at December 31, 1996 totaled
$2.9 million. Principal source of cash for the three months
ended December 31, 1996 was net income. 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 $5.6
million for the first three months of fiscal 1997. During the
first three months of fiscal 1997, 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 December 31,
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 December 31, 1996. At December 31,
1996, Yankee Gas had $27 million outstanding on its agreements.
Yankee Energy had no amount outstanding at December 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
December 31, 1996, the indenture requirement, for the required
coverage ratio, would allow for the issuance of an additional
$201 million of bonds at an assumed interest rate of 7.6 percent.
Yankee Gas has entered into fixed revenue-rate contracts with two
customers for the delivery of natural gas. Yankee Gas has hedged
these commitments with the purchase of natural gas swaps. In
order to satisfy certain provisions of the arrangement, Yankee
Gas has provided a letter of credit for $2.25 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 recorded approximately $5.8 million for the
recovery of coal tar remediation costs from insurance settlements
as of December 31, 1996. The entire recovery was recorded in
fiscal 1996. Total recoveries expected from insurance
settlements cannot be determined at this time. For further
information concerning coal tar remediation, please see the 1996
Form 10-K.
<PAGE>
PART II OTHER INFORMATION
Item 5. OTHER INFORMATION
The Company announced on December 5, 1996, that Michael
E. Bielonko, Vice President and Chief Financial Officer
was appointed to the newly-created position of
President - Yankee Energy Services Company and R.M.
Services, Inc. Mr. Bielonko will continue his duties
as Chief Financial Officer until a replacement is
named.
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: February 12, 1997 /s/ Michael E. Bielonko
____________________________
Michael E. Bielonko
Vice President and
Chief Financial Officer
Date: February 12, 1997 /s/ Nicholas A. Rinaldi
_____________________________
Nicholas A. Rinaldi
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,877
<SECURITIES> 0
<RECEIVABLES> 38,971
<ALLOWANCES> 7,131
<INVENTORY> 11,622
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<PP&E> 518,741
<DEPRECIATION> 181,540
<TOTAL-ASSETS> 503,275
<CURRENT-LIABILITIES> 105,883
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0
0
<COMMON> 52,248
<OTHER-SE> 115,707
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<SALES> 95,682
<TOTAL-REVENUES> 95,682
<CGS> 50,758
<TOTAL-COSTS> 50,758
<OTHER-EXPENSES> 24,324
<LOSS-PROVISION> 1,438
<INTEREST-EXPENSE> 3,371
<INCOME-PRETAX> 15,793
<INCOME-TAX> 6,914
<INCOME-CONTINUING> 8,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,879
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
