<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, 1997 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, 1997 10,449,794
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1997 and September 30, 1996
Consolidated Statements of Income:
Three and Six Months Ended March 31, 1997
and 1996
Consolidated Statements of Cash Flows:
Six Months Ended March 31, 1997
and 1996
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,
1997 1996
________ ___________
(Unaudited)
(Thousands of Dollars)
<S>
ASSETS <C> <C>
Utility Plant, at original cost $513,326 $499,446
Less: Accumulated provision for
depreciation 185,035 177,943
________ ________
328,291 321,503
Construction work in progress 10,961 13,985
________ ________
Total Net Utility Plant 339,252 335,488
________ ________
Other Property and Investments 16,481 14,894
________ ________
Current Assets:
Cash and temporary cash
investments 5,889 7,853
Accounts receivable, net 61,977 25,623
Fuel supplies 2,819 11,465
Other materials and supplies 1,984 1,706
Accrued utility revenues 14,266 5,775
Prepaid taxes --- 2,925
Other 2,910 4,373
_______ _______
Total Current Assets 89,845 59,720
_______ _______
Deferred Gas Costs --- 3,948
Recoverable Environmental
Cleanup Costs 31,282 34,370
Recoverable Income Taxes 12,802 14,559
Recoverable Postretirement
Benefits Costs 1,979 1,861
Other Deferred Debits 13,179 13,909
_______ _______
Total Assets $504,820 $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> March 31, September 30,
1997 1996
_________ ____________
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,449,794
shares outstanding at March 31, 1997
and 10,449,554 outstanding at
September 30, 1996 $ 52,249 $ 52,248
Capital surplus, paid in 87,952 87,947
Retained earnings 38,835 23,271
Employee stock ownership
plan guarantee (1,000) (1,400)
________ ________
Total Common Shareholders' Equity 178,036 162,066
Long-term debt, net of
current portion 108,632 109,282
_______ _______
Total Capitalization 286,668 271,348
_______ _______
Current Liabilities:
Notes payable to banks 16,800 20,300
Long-term debt, current portion 34,017 34,017
Accounts payable 15,194 22,571
Accrued interest 3,494 3,494
Accrued taxes 21,052 ---
Pipeline transition costs payable 5,182 422
Other 5,963 7,411
_______ _______
Total Current Liabilities 101,702 88,215
_______ _______
Deferred Gas Costs 4,099 ---
Accumulated Deferred Income Taxes 46,703 49,934
Unfunded Deferred Income Taxes 12,677 14,488
Accumulated Deferred Investment
Tax Credits 8,891 9,080
Reserve for Environmental
Cleanup Costs 35,000 35,000
Unfunded Postretirement
Benefits Costs 2,438 3,361
Other Deferred Credits 6,642 7,323
______ _______
Commitments and Contingencies (Note 3)
Total Capitalization and
Liabilities $504,820 $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
March 31,
1997 1996
_______ ______
(Thousands of Dollars,
except share information)
<S> <C> <C>
Revenues
Utility revenues $126,570 $139,510
Nonutility revenues 998 49
_______ _______
Total Revenues 127,568 139,559
_______ _______
Operating Expenses:
Cost of Gas/Goods Sold 71,735 80,534
Operations 14,338 14,832
Maintenance 1,718 1,744
Depreciation 4,331 4,137
Taxes other than income taxes 7,677 8,464
_______ _______
Total Operating Expenses 99,799 109,711
_______ _______
Operating Income 27,769 29,848
Other Income (Expenses):
Other Income, net 71 1,047
Interest expense, net (3,458) (3,917)
_______ _______
Income Before Income Taxes 24,382 26,978
Provision For Income Taxes 10,904 11,652
_______ _______
Net Income $ 13,478 $ 15,326
_______ _______
_______ _______
Total Earnings per Common Share $ 1.29 $ 1.47
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,449,634 10,432,707
__________ __________
__________ __________
</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,
1997 1996
____ ____
(Thousands of Dollars,
except share information)
<S> <C> <C>
Revenues
Utility revenues $221,201 $237,641
Nonutility revenues 2,048 116
_______ _______
Total Revenues 223,249 237,757
_______ _______
Operating Expenses:
Cost of Gas/Goods Sold 122,992 133,993
Operations 27,925 28,084
Maintenance 3,318 3,231
Depreciation 8,534 8,287
Taxes other than income taxes 13,549 14,095
________ ________
Total Operating Expenses 176,318 187,690
_______ _______
Operating Income 46,931 50,067
Other Income (Expense):
Other Income, net 72 2,481
Interest Expense, net (6,829) (7,869)
_______ _______
Income Before Income Taxes 40,174 44,679
Provision For Income Taxes 17,817 19,515
_______ _______
Net Income $ 22,357 $ 25,164
_______ _______
_______ _______
Total Earnings per Common Share $ 2.14 $ 2.42
_______ _______
_______ _______
Common Shares
Outstanding (Average) 10,449,594 10,420,839
__________ __________
__________ __________
</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,
__________________
1997 1996
____ ____
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $22,357 $25,164
Adjusted for the following:
Depreciation 8,534 8,286
Equity earnings from investments (117) (2,641)
Deferred income taxes, net (3,473) (6,498)
Deferred gas costs activity and
other non-cash items 11,337 22,293
Changes in working capital:
Accounts receivable and accrued
utility revenues (44,845) (54,886)
Accounts payable (7,377) 2,427
Accrued taxes 23,977 27,871
Other working capital
(excludes cash) 11,899 8,770
_______ _______
Net cash provided by
operating activities 22,292 30,786
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1 251
Premium on common stock --- 890
Retirement of long-term debt (650) (2,450)
Issuance of long-term debt --- 2,150
Decrease in short-term debt (3,500) (16,115)
Cash dividends-common stock (6,792) (6,563)
________ ________
Net cash used for financing
activities (10,941) (21,837)
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (11,619) (9,880)
Other property and investments (1,696) (1,000)
Iroquois distribution --- 1,575
_______ ________
Net cash used for plant and other
investments (13,315) (9,305)
________ _______
Net (Decrease)/Increase in Cash and Temporary
Cash Investments for the Period (1,964) (356)
Cash and Temporary Cash Investments,
beginning of period 7,853 725
________ ________
Cash and Temporary Cash Investments
end of period $ 5,889 $ 369
________ _______
________ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts
capitalized $ 6,743 $ 6,952
Income taxes $ 1,279 $ 6,304
</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, 1996 (1996
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, 1996 (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, 1997, and its results of operations for the three
and six months ended March 31, 1997 and 1996 and cash flows
for the six months ended March 31, 1997 and 1996. The
results of operations for the three and six months ended
March 31, 1997 and 1996 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 include
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 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 No. 71.
3) COMMITMENTS AND CONTINGENCIES
TRANSITION COSTS - ORDER NO. 636: The three major pipeline
systems serving Yankee Gas (Iroquois Gas Transmission System
(Iroquois), 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 March 31, 1997, Yankee Gas has paid approximately
$17.8 million of transition costs and an additional $5.2
million are anticipated. To date, Yankee Gas has collected
$39.9 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 March 31, 1997, excess
collections of approximately $18.8 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 March 31, 1997 had approximately 650
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. 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 $2.75 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>
<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, 1997 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
April 29, 1997
<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, 1996, 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, 1996.
FINANCIAL CONDITION
OVERVIEW
Consolidated earnings per share for the quarter ended March 31,
1997 were $1.29 compared to $1.47 per share earned for the same
period a year earlier. For the six months ended March 31, 1997,
earnings were $2.14 per share compared to $2.42 per share for the
six months ended March 31, 1996.
The decrease in earnings for the three and six month periods
ended March 31, 1997 was due to weather that was approximately 10
and 8 percent warmer respectively, compared to the same periods a
year earlier. This warmer weather caused firm sales to decrease
approximately 6 and 4 percent for the three and six month periods
ended March 31, 1997 respectively, compared to the same periods a
year earlier. This decrease was offset by an increase in firm
transportation as a result of customer conversion to
transportation-only service.
The Company recorded lower income tax expense as a result of
lower pre-tax net income for the three and six month periods
ended March 31, 1997 compared to the three and six month periods
ended March 31, 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE SECOND QUARTER OF FISCAL 1997 WITH THE SECOND
QUARTER OF FISCAL 1996
REVENUES AND SALES
Utility operating revenues decreased $12.9 million and were
partially offset by a $1.0 million increase in non-utility
revenues in the second 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. For a detailed description of
YESCo, see page 1 of the 1996 Form 10-K. 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 sales and other $ (4.7)
Transportation 2.0
_____
Subtotal firm sales, transportation and
other (excluding gas cost recoveries): (2.7)
Interruptible/off-system sales and
transportation
(excluding gas cost recoveries): (0.7)
Non-utility operations 1.0
_____
Total - Excluding gas cost recoveries (2.4)
Plus: Gas cost recoveries (9.4)
Amount applied to transition costs (0.2)
_____
Total change in operating revenues $(12.0)
______
______
</TABLE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996 Increase/(Decrease)
(Mcf - thousands)
<S> <C> <C> <C>
Firm sales and
transportation 13,618 14,471 (853)
Interruptible/off-system
sales and
transportation 2,938 2,275 663
______ ______ ______
Total 16,556 16,746 (190)
______ ______ ______
______ ______ ______
</TABLE>
Firm sales and other revenues (excluding gas cost recoveries)
decreased for the second quarter of fiscal 1997 compared to the
same period in fiscal 1996 due to a 15 percent decrease in firm
sales resulting from weather that was 10 percent warmer this year
compared to last year. This decrease was partially offset by an
increase in firm transportation as a result of customer
conversion to transportation-only service.
Interruptible margin decreased $0.7 million for the three months
ended March 31, 1997 compared to the three months ended March 31,
1996 primarily due to higher gas prices.
Gas cost recoveries decreased due to lower firm sales in the
second quarter of fiscal 1997 compared to the same period in
fiscal 1996.
OPERATING EXPENSES
Total operating expenses decreased $9.9 million in the second
quarter of fiscal 1997 compared with the same period in the prior
year as a result of the following items:
- Cost of gas/goods sold decreased $8.8 million for the
three months ended March 31, 1997 compared to the three
months ended March 31, 1996 due to lower firm sales
offset by higher per-unit gas costs, in the second
quarter of fiscal 1997 compared to the same period a
year earlier. This decrease was also partially offset
by an increase in non-utility subsidiary project
activity.
- Operations and maintenance expenses decreased $0.5
million in the second quarter of fiscal 1997 compared
to the second quarter of fiscal 1996 due primarily to a
decrease in uncollectible expense due to lower revenues
and lower Yankee Gas payroll as a result of the
Company's business transformation. This decrease was
partially offset by an increase in non-utility
subsidiary activity.
- Taxes other than income taxes decreased $0.8 million
for the three months ended March 31, 1997 compared to
the three months ended March 31, 1996 primarily due to
lower Connecticut Gross Earnings taxes resulting from
lower revenues in the current period compared to the
same period a year earlier. This decrease was offset
by an increase in municipal property taxes due to
higher assessments.
OTHER INCOME, NET decreased $1.0 million in the second quarter of
fiscal 1997 compared to the second quarter of fiscal 1996 due to
the absence of earnings associated with the equity investment
which Housatonic formerly held in Iroquois, which was sold on
April 30, 1996.
INTEREST charges decreased $0.5 million for the three months
ended March 31, 1997 compared to the same period ended March 31,
1996 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 $0.7 million primarily
due to lower taxable income as a result of warmer weather for the
three months ended March 31, 1997 compared to the three months
ended March 31, 1996.
COMPARISON OF THE FIRST SIX MONTHS OF FISCAL 1997 WITH THE FIRST
SIX MONTHS OF FISCAL 1996
REVENUES AND SALES
Utility operating revenues decreased $16.4 million and were
partially offset by a $1.9 million increase in non-utility
revenues in the first six months of fiscal 1997 compared with the
same period in the prior fiscal year. The increase in non-
utility revenues was due primarily to YESCo acquisitions. 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 sales and other $ (7.4)
Transportation 2.9
_______
Subtotal firm sales, transporation
and other
(excluding gas costs recoveries): (4.5)
Interruptible/off-system sales
and transportation
(excluding gas cost recoveries): (0.5)
Non-utility operations 1.9
_______
Total - Excluding gas cost recoveries (3.1)
Plus: Gas cost recoveries (11.9)
Amount applied to transition
costs 0.5
_______
Total change in operating revenues $(14.5)
_______
_______
</TABLE>
<PAGE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Six Months Ended March 31,
1997 1996 Increase/(Decrease)
(Mcf - thousands)
<S> <C> <C> <C>
Firm sales and
transportation 23,940 24,875 (935)
Interruptible/off system
sales and
transportation 6,524 5,374 1,150
______ _______ ______
Total 30,464 30,249 215
_______ ______ ______
</TABLE>
Firm sales and other revenues (excluding gas cost recoveries)
decreased for the first six months of fiscal 1997 compared to the
same period in fiscal 1996 due to an 11 percent decrease in firm
sales resulting from weather that was 8 percent warmer this year
compared to last year. This decrease was partially offset by an
increase in firm transportation as a result of customer
conversion to transportation-only service.
Interruptible margin decreased $0.5 million for the six months
ended March 31, 1997 compared to the six months ended March 31,
1996 primarily due to higher gas prices.
Gas cost recoveries decreased due to lower firm sales in the
second quarter of fiscal 1997 compared to the same period in
fiscal 1996.
OPERATING EXPENSES
Total operating expenses decreased $11.4 million in the first six
months of fiscal 1997 compared with the same period in the prior
year as a result of the following items:
- Cost of gas/goods sold decreased $11.0 million for the
six months ended March 31, 1997 compared to the six
months ended March 31, 1996 due to lower firm sales
offset by higher per-unit gas costs in fiscal 1997
compared to fiscal 1996. This decrease was partially
offset by an increase in non-utility subsidiary project
activity.
- Operations and maintenance expenses decreased $0.1
million in the first six months of fiscal 1997 compared
with the same period a year earlier due primarily to
lower uncollectible expense as a result of lower
revenues this fiscal year compared to last fiscal year
and lower Yankee Gas payroll as a result of the
Company's business transformation. This decrease was
partially offset by an increase in non-utility
subsidiary activity.
- Taxes other than income taxes decreased $0.5 million
for the six months ended March 31, 1997 compared to the
six months ended March 31, 1996 primarily due to lower
Connecticut Gross Earnings taxes resulting from lower
revenues in fiscal 1997. This decrease was offset by
an increase in municipal property taxes due to higher
assessments.
OTHER INCOME, NET decreased $2.4 million in the first six months
of fiscal 1997 due to the absence of earnings associated with the
equity investment which Housatonic formerly held in Iroquois,
which was sold on April 30, 1996.
INTEREST charges decreased $1.0 million for the six months ended
March 31, 1997 compared to the same period ended March 31, 1996
due to lower levels of debt and lower interest expense on Yankee
Gas' PGA balance in the current period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments at March 31, 1997 totaled
$5.9 million. Principal sources of cash for the six months ended
March 31, 1997 were operating activities. These funds were used
primarily to reduce short-term debt, meet sinking fund
requirements, dividend payments and capital expenditures. The
large accounts receivable balance as of March 31, 1997 is typical
due to the highly seasonal nature of the Company's revenues.
Yankee Gas 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
$11.6 million for the first six months of fiscal 1997, reflecting
a $1.7 million increase from the same period in fiscal 1996.
During the first six 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 March 31, 1997,
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 March 31, 1997. At March 31, 1997, Yankee Gas had
$16.8 million outstanding on its agreements. Yankee Energy had no
amount outstanding at March 31, 1997 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, 1997 the indenture requirement for the required coverage
ratio would allow for the issuance of an additional $174 million
of bonds at an assumed interest rate of 8.1 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 $2.75 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 $8.9 million for the
recovery of coal tar remediation costs from insurance settlements
as of March 31, 1997. Future recoveries expected from insurance
settlements cannot be determined at this time but they are not
expected to be significant. For further information concerning
coal tar remediation, please see the 1996 Form 10-K.
<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
January 31, 1997, the following directors were elected
to three-year terms expiring at the 2000 Annual
Meeting: Frederick M. Lowther and Emery G. Olcott. Mr.
Lowther received 8,619,204 votes for and 183,907 votes
against. Mr. Olcott received 8,623,219 votes for and
179,892 votes against. Directors continuing in office
are Sanford Cloud, Jr., Eileen S. Kraus, Branko Terzic,
Nicholas L. Trivisonno, and Patricia M. Worthy. Mr.
Leonard A. O'Connor completed his term as director and
did not stand for re-election at the 1997 Annual
Meeting. Shareholders also ratified the appointment of
Arthur Andersen LLP as the Company's independent
auditors. Arthur Andersen LLP received 8,481,992 votes
for, 216,939 votes against with 104,180 votes abstain.
The 1996 Long-Term Incentive Compensation Plan (the
"Plan") was approved at the 1997 Annual Meeting. The
vote was 6,788,913 for, 1,690,334 against with 323,864
abstaining. The purposes of the Plan are: (i) to
attract and retain outstanding executives in key
management positions, (ii) to promote the achievement
of long-term corporate goals through the use of
performance-based incentives, (iii) to create parallel
interests between executives and shareholders by
providing for some portion of executive compensation in
the form of common stock, and (iv) to reward
performance and to foster Company identification on the
part of key middle managers.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None.
<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 13, 1997
___________________________
Michael E. Bielonko
Vice President and
Chief Financial Officer
Date: May 13, 1997
___________________________
Nicholas A. Rinaldi
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 5889
<SECURITIES> 0
<RECEIVABLES> 69959
<ALLOWANCES> 7982
<INVENTORY> 4803
<CURRENT-ASSETS> 89845
<PP&E> 524287
<DEPRECIATION> 185035
<TOTAL-ASSETS> 504820
<CURRENT-LIABILITIES> 101702
<BONDS> 142649
0
0
<COMMON> 52249
<OTHER-SE> 125787
<TOTAL-LIABILITY-AND-EQUITY> 504820
<SALES> 223249
<TOTAL-REVENUES> 223249
<CGS> 122922
<TOTAL-COSTS> 122922
<OTHER-EXPENSES> 50123
<LOSS-PROVISION> 3203
<INTEREST-EXPENSE> 6829
<INCOME-PRETAX> 40174
<INCOME-TAX> 17817
<INCOME-CONTINUING> 22357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22357
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.14
</TABLE>
