<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
---------------------------------------
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 1-2297
EASTERN ENTERPRISES
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1270730
- ----------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 RIVERSIDE ROAD, WESTON, MASSACHUSETTS 02193
- -----------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
617-647-2300
- -----------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------
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
---- ----
The number of shares of Common Stock outstanding of Eastern Enterprises as of
October 26, 1994, was 20,618,044.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Company or group of companies for which report is filed:
EASTERN ENTERPRISES AND SUBSIDIARIES ("Eastern")
<TABLE>
Consolidated Statement of Operations
<CAPTION>
(In thousands, except per share Three months ended September 30, Nine months ended September 30,
amounts) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $206,817 $195,917 $871,455 $824,030
OPERATING COSTS AND EXPENSES:
Operating costs 163,039 155,879 655,206 624,056
Selling, general & adminis-
trative expenses 28,906 33,667 93,243 101,586
Depreciation & amortization 11,116 11,644 45,319 43,284
-------- -------- -------- --------
203,061 201,190 793,768 768,926
-------- -------- -------- --------
OPERATING EARNINGS 3,756 (5,273) 77,687 55,104
OTHER INCOME (EXPENSE):
Interest income 559 646 1,438 2,210
Interest expense (9,701) (8,572) (28,932) (26,268)
Writedown of Ionpure - (13,000) - (13,000)
Other, net 254 (232) 2,306 (720)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES (5,132) (26,431) 52,499 17,326
Provision for income taxes (2,019) (5,433) 20,763 12,035
-------- -------- -------- --------
Net earnings $ (3,113) $(20,998) $ 31,736 $ 5,291
======== ======== ======== ========
EARNINGS PER SHARE $ (.14) $ (.93) $ 1.52 $ .23
======== ======== ======== ========
DIVIDENDS PER SHARE $ .35 $ .35 $ 1.05 $ 1.05
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
Form 10-Q
Page 3.
<TABLE>
Eastern Enterprises and Subsidiaries
- --------------------------
Consolidated Balance Sheet
- --------------------------
<CAPTION>
September 30, December. 31, September 30,
(In thousands) 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 51,720 $ 52,240 $ 76,526
Receivables, less allowances 118,672 145,523 125,768
Inventories 79,508 87,568 102,133
Deferred gas costs 82,417 65,802 49,227
Other current assets 14,111 11,995 17,662
---------- ---------- ----------
Total current assets 346,428 363,128 371,316
INVESTMENTS:
Equity in U.S. Filter 44,615 44,292 -
Other investments 5,735 8,279 8,459
---------- ---------- ----------
Total investments 50,350 52,571 8,459
PROPERTY AND EQUIPMENT, AT COST 1,287,919 1,275,161 1,305,012
Less--Accumulated depreciation 511,144 489,196 504,824
---------- ---------- ----------
Net property and equipment 776,775 785,965 800,188
OTHER ASSETS:
Deferred post-retirement health care
costs 98,513 101,182 101,641
Deferred charges and other costs 37,510 63,600 43,113
Goodwill, less amortization 12,948 13,231 80,323
---------- ---------- ----------
Total other assets 148,971 178,013 225,077
---------- ---------- ----------
TOTAL ASSETS $1,322,524 $1,379,677 $1,405,040
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
Form 10-Q
Page 4.
<TABLE>
Eastern Enterprises and Subsidiaries
- ------------------------------------
Consolidated Balance Sheet
- --------------------------
<CAPTION>
September 30, December. 31, September 30,
(In thousands) 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current debt $ 70,090 $ 114,335 $ 74,184
Accounts payable 56,480 76,161 69,865
Accrued expenses 42,297 31,280 33,317
Other current liabilities 46,048 63,703 41,190
---------- ---------- ----------
Total current liabilities 214,915 285,479 218,556
GAS INVENTORY FINANCING 49,883 59,297 50,987
LONG-TERM DEBT 356,662 328,939 330,536
RESERVES AND OTHER LIABILITIES:
Deferred income taxes 87,894 90,793 113,652
Post-retirement health care 103,069 104,730 106,403
Coal miners retiree health care 59,334 63,060 -
Preferred stock of subsidiary 29,221 29,197 29,191
Other reserves 52,416 54,444 55,430
---------- ---------- ----------
Total reserves and other
liabilities 331,934 342,224 304,676
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 21,651,925 at
September 30, 1994; 21,644,378 at
December 31, 1993 and 23,644,378
at September 30, 1993 21,652 21,644 23,644
Capital in excess of par value 61,978 61,778 113,455
Retained earnings 309,766 299,131 388,996
Treasury stock at cost - 965,181
shares at Sept. 30, 1994; 714,786
shares at December 31, 1993 and
986,307 shares at Sept. 30, 1993 (24,266) (18,815) (25,810)
---------- ---------- ----------
Total shareholders' equity 369,130 363,738 500,285
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,322,524 $1,379,677 $1,405,040
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
Form 10-Q
Page 5.
<TABLE>
Eastern Enterprises and Subsidiaries
- ------------------------------------
Consolidated Statement of Cash Flows
- ------------------------------------
<CAPTION>
Nine months ended September 30,
(In thousands) 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 31,736 $ 5,291
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 45,319 43,284
Income taxes and tax credits (1,928) 2,312
Writedown on Ionpure - 13,000
Other changes in assets and liabilities:
Receivables 26,851 12,190
Inventories 5,665 (9,055)
Deferred gas costs (16,615) (8,359)
Accounts payable (19,681) (9,024)
Other 12,835 1,518
-------- -------
Net cash provided by operating activities 84,182 51,157
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (41,936) (41,449)
Short-term investments 19,964 (16,401)
Proceeds from sale of barge construction business 12,695 -
Other (5,329) (3,829)
------- -------
Net cash provided (used) by investing
activities (14,606) (61,679)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (22,539) (23,768)
Changes in notes payable (42,600) 11,286
Proceeds from issuance of long-term debt 36,000 -
Repayment of long-term debt (8,740) (24,820)
Changes in gas inventory financing (9,414) 2,356
Purchase of treasury shares (7,076) -
Other 1,489 153
-------- --------
Net cash used by financing activities (52,880) (34,793)
-------- --------
Net increase (decrease) in cash and cash equivalents 16,696 (45,315)
Cash and cash equivalents at beginning of year 23,766 91,377
-------- --------
Cash and cash equivalents at end of period 40,462 46,062
Short-term investments 11,258 30,464
-------- --------
CASH AND SHORT-TERM INVESTMENTS $ 51,720 $ 76,526
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
Form 10-Q
Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1994
1. ACCOUNTING POLICIES
It is Eastern's opinion that the financial information contained in this report
reflects all adjustments necessary to present a fair statement of results for
the periods reported. All of these adjustments are of a normal recurring
nature. Results for the periods are not necessarily indicative of results to
be expected for the year, due to the seasonal nature of Eastern's operations.
All accounting policies have been applied in a manner consistent with prior
periods. Such financial information is subject to year-end adjustments and
annual audit by independent public accountants.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q. Therefore these interim
financial statements should be read in conjunction with Eastern's 1993 Annual
Report filed on Form 10-K with the Securities and Exchange Commission.
SHORT-TERM INVESTMENTS
Effective January 1, 1994, Eastern adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," which requires investments in debt and equity securities to
be carried at fair value. Eastern's investment in U.S. Filter is specifically
excluded from SFAS 115 because it is accounted for under the equity method of
accounting.
Pursuant to SFAS 115, Eastern has classified its investments in debt and equity
securities as available for sale. Accordingly, the net unrealized gains and
losses computed in marking these securities to market have been reported within
retained earnings. At September 30, 1994 the difference between the fair value
and the original cost of these securities is immaterial.
EARNINGS PER SHARE
Per share amounts are based on the weighted average number of common shares
outstanding and common equivalent shares. Quarter and year-to-date shares are
20,703,000 and 20,884,000, respectively, in 1994 and 22,696,000 and 22,694,000,
respectively, in 1993.
<PAGE> 7
Form 10-Q
Page 7.
2. INVENTORIES
<TABLE>
The components of inventories were as follows:
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1994 1993 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $ 47,868 $ 53,152 $ 54,018
Other materials, supplies and marine
fuels 15,209 17,984 22,618
Finished products 16,431 16,432 25,497
-------- -------- ---------
$ 79,508 $ 87,568 $ 102,133
======== ======== =========
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
The following are supplemental disclosures of cash flow information:
<CAPTION>
Nine months ended September 30,
(In thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $18,966 $19,296
Income taxes $22,566 $12,845
</TABLE>
<PAGE> 8
Form 10-Q
Page 8.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
RESULTS OF OPERATIONS
- ---------------------
<CAPTION>
REVENUES:
Three months ended September 30,
(In thousands) 1994 1993 Change
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $ 72,114 $ 66,606 8 %
Midland 67,108 56,427 19 %
Water Products Group 67,595 72,884 (7)%
-------- --------
Total $206,817 $195,917 6 %
======== ========
</TABLE>
<TABLE>
<CAPTION> Nine months ended September 30,
(In thousands) 1994 1993 Change
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $509,222 $453,399 12 %
Midland 194,261 189,023 3 %
Water Products Group 167,972 181,608 (8)%
-------- --------
Total $871,455 $824,030 6 %
======== ========
</TABLE>
BOSTON GAS
A $37.7 million annualized rate increase which took effect November 1, 1993
increased revenues by $3.8 million and $28.1 million for the quarter and the
first nine months of 1994, respecively. Colder weather in the Boston Gas
service territory increased year-to- date revenues by $19.2 million. Weather
for first nine months of 1994 was 6.5% colder than normal, compared to the
slightly warmer than normal weather for the same period in 1993. The balance
of the revenue increase was attributable to increased sales to non- firm
customers. Most of the margins on these sales are credited to firm customers.
MIDLAND ENTERPRISES
Revenues for the third quarter of 1994 increased 19% as a result of more
favorable operating and market conditions, increased shipments of coal,
aggregates, ores, towing for others and a favorable resolution, early in the
third quarter, of a contract dispute with a major utility customer. Third
quarter 1993 activity was negatively impacted by the United Mine Workers strike
and severe flooding on the Mississippi and Illinois Rivers. For the first nine
months of 1994, revenues increased 3% reflecting the increased third quarter
activity, partially offset by rate reductions and lower production earlier in
the year. Midland's liquid barge business, which was sold in December 1993,
generated revenues of $3.1 million and $8.8 million in the third quarter and
first nine months of 1993, respectively.
Coal tonnage increased 32% in the third quarter from the comparable period in
1993, primarily reflecting increased demand for utility coal under long-term
contracts as well as the resolution of the contract disagreement and the United
Mine Workers strike, both of which negatively impacted 1993 operations. For
the first nine months of 1994, coal tonnage increased 11% as increased spot
coal
<PAGE> 9
Form 10-Q
Page 9.
shipments and increased third quarter contract activity more than offset weak
demand during the first half of the year. Strong third quarter activity,
redeployment of equipment to other commodities and towing for others resulted
in overall increases in ton miles for the third quarter and first nine months
of 1994 of 30% and 9%, respectively.
WATER PRODUCTS GROUP
Revenues for WaterPro Supplies for the third quarter and first nine months of
1994 increased 15% and 19%, respectively, reflecting WaterPro market share
gains and increased construction activity. Ionpure Technologies, which was
sold effective October 1, 1993, generated revenues of $14.1 million and $40.7
million for the third quarter and first nine months of 1993, respectively.
<TABLE>
OPERATING EARNINGS:
<CAPTION>
Three months ended September 30,
(In thousands) 1994 1993 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $(8,406) $(11,219) 25%
Midland 9,257 5,009 85%
Water Products Group 4,234 1,869 nm
Headquarters (1,329) (932) (43)%
-------- --------
Total $ 3,756 $ (5,273) nm
======== ========
</TABLE>
<TABLE>
Nine months ended September 30,
(In thousands) 1994 1993 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $ 50,069 $ 34,330 46%
Midland 24,153 23,908 1%
Water Products Group 6,783 184 nm
Headquarters (3,318) (3,318) -
------- -------
Total $ 77,687 $ 55,104 41%
======= =======
</TABLE>
BOSTON GAS
Colder than normal weather increased operating earnings by about $1 million for
the first nine months of 1994, after taking into account the higher
workload-related labor and operating costs associated with the unusually cold
first quarter weather. Meaningful expense comparisons to 1993 are difficult to
make due to the impact of the strike on last year's results. The benefit of
the rate increase was partially offset by higher depreciation charges, property
taxes and bad debt expense. Increased sales to new firm customers also
contributed to the improved earnings.
MIDLAND ENTERPRISES
Operating earnings for the third quarter of 1994 increased 85% from the same
period in 1993 due to the significant volume gains discussed above, reduced
operating expenses from ongoing cost reduction and productivity improvement
programs, as well as the absence of increased costs associated with flooding
and the UMW strike in 1993. Operating earnings for the first nine months of
1994 increased 1% from 1993 as the higher third quarter results were largely
offset by reduced utility contract coal revenues in the first half of the year,
as
<PAGE> 10
Form 10-Q
Page 10.
previously discussed, and lower rates associated with non-coal tonnage.
Earnings were also reduced by significantly higher operating costs resulting
from extended periods of winter ice, high water and flooding during the first
four months of 1994 that significantly increased operating costs.
During the second quarter of 1994, Midland recorded a pre-tax gain of $2.3
million on the sale of its Port Allen barge construction and shipyard facility
in Louisiana. This gain is included in Other, net on the Statement of
Operations.
WATER PRODUCTS GROUP
WaterPro Supplies increased its operating earnings for the third quarter and
first nine months of 1994 by $2.0 million and $4.7 million, respectively. Most
of the improvement was attributable to the increased volume, partially offset
by increases in related selling expenses and a small decrease in year-to-date
gross margin percentage.
Operating results for Water Products Group also reflect the sale of Ionpure
Technologies which generated operating losses of $0.3 million and $1.9 million
in the third quarter and first nine months of 1993, respectively.
OTHER
Eastern's consolidated net earnings for the third quarter and first nine months
of 1993 were negatively impacted by an after-tax charge of $10.9 million or
$.48 per share to write down its investment in Ionpure in anticipation of its
exchange of Ionpure for an equity interest in U.S. Filter.
The provision for income taxes for the third quarter of 1993 for non-utility
operations includes approximately $1.4 million to reflect the additional
deferred tax requirements resulting from the increase in the statutory Federal
income tax rate from 34% to 35%, effective January 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Management believes that projected cash flow from operations, in combination
with currently available resources, is more than sufficient to meet Eastern's
1994 capital expenditure and working capital requirements, normal debt
repayments and anticipated dividend payments to shareholders.
In January 1994 Boston Gas issued $36.0 million of Medium-Term Notes with a
weighted average maturity of 24 years and a coupon of 6.94%, the proceeds of
which were used to reduce short-term indebtedness.
On July 28, 1994 Eastern announced a stock repurchase program of up to 2
million shares. About 2.8 million shares have been repurchased under the 3
million share program announced in September, 1990.
Consolidated capital expenditures, principally at Boston Gas, are budgeted at
approximately $60 million for 1994.
<PAGE> 11
Form 10-Q
Page 11.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit 10.1 - Executive Stock Purchase Loan Plan
Exhibit 10.2 - Salary Continuation Agreements between
Eastern and Certain Officers
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K
None
<PAGE> 12
Form 10-Q
Page 12.
SIGNATURES
It is Eastern's opinion that the financial information contained in
this report reflects all adjustments necessary to present a fair statement of
results for the periods reported. All of these adjustments are of a normal
recurring nature. Results for the periods are not necessarily indicative of
results to be expected for the year, due to the seasonal nature of Eastern's
operations. All accounting policies have been applied in a manner consistent
with prior periods. Such financial information is subject to year-end
adjustments and annual audit by independent public accountants.
Pursuant to the requirements of the Securities Exchange Act of 1934,
Eastern has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASTERN ENTERPRISES
By JAMES J. HARPER
-----------------------------
James J. Harper
Vice President and Controller
(Chief Accounting Officer)
By WALTER J. FLAHERTY
-----------------------------
Walter J. Flaherty
Senior Vice President and
Chief Financial Officer
October 28, 1994
<PAGE> 1
Exhibit 10.1
------------
Executive Stock Purchase Loan Plan
----------------------------------
On July 28, 1994, Eastern's Board of Trustees approved a program under
which certain senior officers, including each executive officer of Eastern, may
borrow up to $150,000 to purchase shares of Common Stock of Eastern, either on
the open market or by exercise of stock options, pursuant to an unsecured
promissory note bearing interest at the IRS Applicable Federal Short-Term Rate
in effect at the time of the loan, payable on demand after 210-days prior
notice. Such notes shall be in the form attached hereto and included in this
Exhibit 10.1.
<PAGE> 2
DEMAND PROMISSORY NOTE
$ _________________ WESTON, MASSACHUSETTS
________, 199__
FOR VALUE RECEIVED, the undersigned hereby promises to pay to Eastern
Enterprises, or any successor thereof ("Eastern"), or order, on demand as
specified below, at the principal offices of Eastern at Weston, Massachusetts,
or at such other place as the holder may designate, the principal amount of
$ __________________________, with interest on the unpaid principal balance
from the date hereof until this note is paid in full, and interest on any past
due interest payments from the due date thereof until paid, at a rate of
_______ % per annum. Interest shall be payable on the date on which the
principal amount is due and, in addition, shall be payable in arrears on the
15th day (or, if such day is not a business day, on the next business day
following such 15th day) of each January, April, July and October prior to the
principal amount becoming due.
The undersigned may prepay all or any portion of the principal balance
of this note at any time, without premium or penalty, provided that any
prepayment of all principal shall be accompanied by payment of all accrued
interest.
The unpaid principal balance, along with accrued interest, shall be
due and payable on the 210th day following the date on which written demand
therefor is given to the undersigned (or, if such day is not a business day, on
the next business day following such 210th day). Such demand shall be deemed
given when any written demand for payment hereunder is delivered by hand or is
sent via registered or certified mail, return receipt requested, postage
prepaid, by the holder to the undersigned at the address set forth under his or
her signature below, or to such other address as the undersigned may specify
for such purpose in writing to the holder. Except to the extent expressly
provided in the foregoing sentence, the undersigned hereby waives presentment
for payment, demand, notice of dishonor, protest, notice of protest and all
other demands and notices in connection with the delivery, performance or
enforcement of this note.
In the event that the undersigned fails to pay when due any amount
hereunder or any other obligation to the holder with respect to borrowed money
or the extension of credit, or fails to generally pay his or her debts as they
become due, or upon the insolvency of the undersigned, appointment of a
custodian of any part of the property of the undersigned, assignment for the
benefit of creditors by the undersigned, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against the undersigned (which,
in the case of a proceeding
<PAGE> 3
commenced against the undersigned, is not dismissed within 90 days), the unpaid
principal balance, along with accrued interest, may, at the option of the
holder, be declared immediately due and payable.
The undersigned will pay on demand all costs of collection and
attorneys' fees paid or incurred by the holder hereof in enforcing the
obligations of the undersigned hereunder.
As used herein, the term "holder" shall mean the payee or any endorsee
or assignee of this note.
This note shall have the effect of an instrument executed under seal
and shall be governed by and construed and enforceable in accordance with the
laws of the Commonwealth of Massachusetts, without regard to principles of
conflict of laws.
Attest: __________________________ ______________________________
(Signature)
________________________
(Address)
________________________
________________________
2
<PAGE> 1
Exhibit 10.2
------------
Salary Continuation Agreements
------------------------------
The following executive officers of Eastern have each executed and
delivered a Salary Continuation Agreement with Eastern dated July 28, 1994:
J. Atwood Ives
Richard R. Clayton
Walter J. Flaherty
Chester R. Messer
Fred C. Raskin
Richard J. Klau
L. William Law, Jr.
The Salary Continuation Agreement between Eastern and J. Atwood Ives
is attached hereto and included in this Exhibit 10.2. The Salary Continuation
Agreements for such other executive officers are identical to the attached
agreement. Such agreements supersede prior Salary Continuation Agreements for
such officers.
<PAGE> 2
SALARY CONTINUATION AGREEMENT
AGREEMENT this 28th day of July, 1994, by and between Eastern
Enterprises (the "Association") and J. Atwood Ives (the "Officer");
WITNESSETH
WHEREAS the Officer is an employee of the Association or one of its
subsidiaries; and
WHEREAS the Association believes it to be in its best interests to
minimize the risk of disruption in connection with possible changes in control
by providing certain continued salary payments and other benefits to key
employees, including the Officer;
NOW, THEREFORE, in consideration of these presents and other good and
valuable consideration, the Association and the Officer hereby agree as
follows:
l. Definitions. As used in this Agreement the following terms shall have
the following meanings:
1.1. "Association" means Eastern Enterprises and any successor to all or a
major portion of the property or business of Eastern Enterprises.
l.2. "Applicable Compensation" means the annual salary rate of the Officer
as of the date of the Change of Control (as defined in Section 2.3).
l.3. "Continuation Income" means a monthly amount equal to one-twelfth
(l/12) of the Officer's Applicable Compensation.
l.4. "Normal Retirement Date" means the first day of the calendar month
coincident with or next following the date on which the Officer
attains age sixty-five (65).
l.5. "Spouse" means the person to whom the Officer is married at the time
of his/her death, if the Officer and such spouse had been married for
at least one year prior thereto.
l.6. "Dependent" means, in respect of periods after the Officer's death,
any dependent child of the deceased Officer who is under the age of
nineteen (19) or, if a full-time student, under the age of
twenty-three (23).
2. Payment of Continuation Income.
2.1. Continuation Income, other than as limited in Article Five, shall be
payable to the Officer following a Qualified Termination of Employment
(as defined below), that occurs following a Change of Control (as
defined below).
<PAGE> 3
2.2. Continuation Income shall be payable once each month beginning with
the month following the occurrence of the Qualified Termination of
Employment described in Section 2.l above.
2.3. For purposes of this Agreement, a "Change of Control" shall be deemed
to have occurred if:
(a) after the effective date of this Agreement, any "person" (as
such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934), other than the Association,
becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of the Association; or
(b) within two years after the commencement of a tender offer or
exchange offer for the voting securities of the Association
(other than by the Association), or as a result of a merger,
consolidation, sale of assets or contested election of
trustees or directors, or any combination of the foregoing,
the individuals who were trustees of the Association
immediately prior thereto shall cease to constitute a majority
of the Board of Trustees of the Association or of the board of
trustees or directors of its successor by merger,
consolidation or sale of assets.
2.4 For purposes of this Agreement, "Qualified Termination of Employment"
means a termination of the Officer's employment with the Association
either (a) by the Association other than for Cause (in which event the
burden of proving the existence of Cause would be on the Association),
or (b) by the Officer for Good Reason.
2.5 For purposes of this Agreement, "Cause" means fraud, misappropriation,
embezzlement, or other malfeasance, misfeasance or other act which in
the reasonable opinion of the Compensation Committee casts such
discredit on the Officer or the Association as to justify termination
of the Officer's employment without the payment or provision of
benefits hereunder.
2.6 For purposes of this Agreement, "Good Reason" means the removal of the
Officer from his/her officer position with the Association; the
diminishment by the Association of the Officer's cash compensation
opportunities; the assignment to him/her of duties inconsistent with
his/her positions, duties, responsibilities, reporting requirements or
status within the Association; or any other action by the Association
which results in a diminishment of his/her position, authority,
duties, responsibilities, reporting requirements or status, other than
an insubstantial and inadvertent action that is remedied by the
Association promptly after receipt of notice thereof.
2
<PAGE> 4
3. Payment of Continuation Income to Survivors.
3.1. Continuation Income shall be payable to the Spouse of the Officer in
the event of his/her death after the Qualified Termination of
Employment referred to in Section 2.l hereof equal to the remaining
Continuation Income to which the Officer was entitled. If the Officer
is not survived by his/her Spouse (or if his/her Spouse dies before
the remaining Continuation Income has been paid), such remaining
Continuation Income shall be paid for the benefit of the Officer's
Dependents, if any (as determined at the time such payment commences),
to the legal representatives or custodians of such Dependents in equal
shares.
4. Continuation of Benefits.
4.1. Subject to the provisions of this Section 4.l, if the Officer's
employment by the Association terminates under circumstances entitling
him/her to Continuation Income, he/she shall continue, together with
members of his/her family, to be eligible, for so long as his/her
Continuation Income continues, to receive without additional costs to
him/her or his/her family the same or equivalent medical and dental,
disability, life insurance and other death-benefit coverage to which
he/she or they would have been entitled under the Association's
welfare plans, as hereinafter defined, had he/she remained an employee
until the last day of the month for which he/she receives the last
payment of Continuation Income. For purposes of the preceding
sentence, "welfare plans" include all plans and programs, whether or
not insured, maintained by the Association alone or in conjunction
with other employers for purposes of providing medical and dental,
disability and life insurance and other death benefits with respect to
employees and their beneficiaries, other than any such plan or program
which is qualified under Section 40l(a) of the Internal Revenue Code.
For purposes of determining the level of benefits due the Officer
pursuant to the first sentence of this Section 4.1, the provisions of
the applicable welfare plan as in effect immediately prior to the
Officer's termination of employment shall apply.
4.2. Nothing in this Agreement shall be deemed to affect any rights the
Officer may have to indemnification under the Association's
Declaration of Trust, under any liability insurance policy maintained
by the Association, or under any other applicable agreement, by-law or
provision of law.
4.3. Any legal expenses incurred by the Officer, his/her Spouse or his/her
Dependents in enforcing or interpreting any provisions of this
Agreement shall be paid by the Association.
5. Limitation On and Duration of Payments.
5.1. No Continuation Income will be payable under this Agreement if (a) the
Officer's employment is terminated because of his/her death, (b) the
Officer's employment is
3
<PAGE> 5
terminated on or after attainment of his/her Normal Retirement Date, or (c) the
Officer ceases to be actively employed by the Association on account of a
disability which entitles him/her to receive benefits under any long-term
disability insurance program sponsored by the Association.
5.2. Continuation Income payments shall continue for a maximum period of
eighteen (18) months; provided, that such maximum period shall in no
event extend beyond the date which follows by thirty (30) months the
date on which the Change of Control (as defined in Section 2.3 above)
occurs.
5.3. If periodic payments are being received under the Association's
Retirement Plan or any plan that is a successor thereto or a
replacement thereof for any period for which Continuation Income would
be payable, no Continuation Income payment shall be made in respect of
such period. All Continuation Income payments will cease at such time
as the Officer attains his/her Normal Retirement Date.
5.4. Continuation Income amounts payable to an Officer will be reduced by
any amounts received by the Officer from other employment.
6. Termination, Suspension or Amendment.
6.1 This Agreement may be terminated, suspended or amended at any time by
action of the Compensation Committee of the Board of Trustees,
provided that once a Change in Control, as defined in Section 2.3
above has occurred, the Agreement may not be terminated, suspended or
amended in any manner that adversely affects the benefits or other
rights of the Officer or the benefits or other rights of his/her
Spouse or Dependents (if any) hereunder, other than with the written
consent of the Officer, Spouse or Dependents. Subject to the
foregoing, the Association's obligations under this Agreement with
respect to the Officer shall be absolute and unconditional and shall
not be affected by any circumstances including, without limitation,
any set-off, counterclaim, recoupment, defense or other right which
the Association may have against the Officer or any other person.
Each and every payment made hereunder shall be paid without notice or
demand. Each such payment shall be final and the Association will not
seek to recover all or any part of such payment from the Officer or
from whosoever may be entitled thereto, for any reason whatsoever.
The Officer shall not be obligated to seek other employment in
mitigation of amounts payable or arrangements made under any provision
of this Agreement.
6.2. Subject to Section 6.l above and the last sentence of this Section
6.2, this Agreement shall have a term of three years from the date
first above written, and shall, unless at any time terminated,
suspended or amended by the Compensation Committee in accordance with
Section 6.l, automatically renew for successive three-year terms
following its initial three-year term.
4
<PAGE> 6
6.3. Notwithstanding Section 6.l above, the Compensation Committee of the
Board of Trustees of the Association shall have full power, without
the prior consent of the Officer, his/her Spouse or his/her Dependents
(if any), to reduce the amount of benefits otherwise payable under
this Agreement to the extent (and only to the extent) necessary to
ensure that no such benefit amounts are subject to the excise tax
described in Section 4999 of the Internal Revenue Code of 1986, as
amended.
6.4. This Agreement shall be binding on the Association, its successors and
assigns.
7. Miscellaneous.
7.1 The laws of The Commonwealth of Massachusetts shall govern the
construction and administration of this Agreement.
7.2. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
7.3. This Agreement replaces and supersedes the Salary Continuation
Agreement dated November 27, 1991 between Association and the
Officer.
7.4 Reference is hereby made to the declaration of trust establishing
Eastern Enterprises dated July 18, 1929, as amended, a copy of which
is on file in the office of the Secretary of The Commonwealth of
Massachusetts. The name "Eastern Enterprises" refers to the trustees
under said declaration as trustees and not personally, and no trustee,
shareholder, officer or agent of Eastern Enterprises shall be held to
any personal liability in connection with the affairs of said Eastern
Enterprises, but the trust estate only is liable.
IN WITNESS WHEREOF, the Officer has hereunto put his/her hand and the
Association has caused its duly authorized officer to execute this Agreement,
all as of the date first above written.
EASTERN ENTERPRISES
By: /s/ Richard R. Clayton
-------------------------
/s/ J. Atwood Ives
-------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of earnings and the consolidated balance sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 40,462
<SECURITIES> 11,258
<RECEIVABLES> 136,139
<ALLOWANCES> 17,467
<INVENTORY> 79,508
<CURRENT-ASSETS> 346,428
<PP&E> 1,287,919
<DEPRECIATION> 511,144
<TOTAL-ASSETS> 1,322,524
<CURRENT-LIABILITIES> 214,915
<BONDS> 356,662
<COMMON> 21,652
29,221
0
<OTHER-SE> 347,478
<TOTAL-LIABILITY-AND-EQUITY> 1,322,524
<SALES> 677,194
<TOTAL-REVENUES> 871,455
<CGS> 540,580
<TOTAL-COSTS> 700,231
<OTHER-EXPENSES> 77,597
<LOSS-PROVISION> 12,196
<INTEREST-EXPENSE> 28,932
<INCOME-PRETAX> 52,499
<INCOME-TAX> 20,763
<INCOME-CONTINUING> 31,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,736
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
