<PAGE>
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, 1995
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
Commission File Number 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
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(Address of principal executive offices)
(Zip Code)
617-647-2300
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(Registrant's telephone number, including area code)
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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 31, 1995 was 20,174,116.
<PAGE>
Form 10-Q
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) 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $133,444 $139,222 $699,288 $703,483
Operating costs and expenses:
Operating costs 96,336 105,459 494,164 511,770
Selling, general & adminis-
trative expenses 23,306 23,507 77,784 76,618
Depreciation & amortization 10,587 10,734 46,120 44,191
-------- -------- -------- --------
130,229 139,700 618,068 632,579
-------- -------- -------- --------
Operating earnings (loss) 3,215 (478) 81,220 70,904
Other income (expense):
Interest income 1,489 536 3,558 1,272
Interest expense (9,168) (9,700) (28,422) (28,753)
Other, net 312 229 447 2,966
-------- -------- -------- --------
Earnings (loss) from continuing
operations before income taxes (4,152) (9,413) 56,803 46,389
Provision (credit) for income
taxes (1,593) (3,819) 21,648 18,106
-------- -------- -------- --------
Earnings (loss) from continuing
operations (2,559) (5,594) 35,155 28,283
Earnings from discontinued
operations, net of tax - 2,481 - 3,453
-------- -------- -------- --------
Net earnings (loss) $ (2,559) $ (3,113) $ 35,155 $ 31,736
======== ======== ======== ========
Earnings (loss) per share from
continuing operations $ (.13) $ (.27) $ 1.73 $ 1.35
Discontinued operations - .13 - .17
-------- -------- -------- --------
Net earnings (loss) per share $ (.13) $ (.14) $ 1.73 $ 1.52
======== ======== ========= ========
Dividends per share $ .35 $ .35 $ 1.05 $ 1.05
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 3.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 116,665 $ 60,854 $ 51,626
Investment in U.S. Filter 72,986 44,847 44,615
Receivables, less allowances 57,858 97,093 81,725
Inventories 57,489 60,207 63,076
Deferred gas costs 64,632 66,865 82,417
WaterPro net assets held for sale - 51,462 50,833
Other current assets 7,595 6,841 13,968
---------- ---------- ----------
Total current assets 377,225 388,169 388,260
Property and equipment, at cost 1,328,477 1,293,733 1,278,480
Less--Accumulated depreciation 551,961 518,110 507,009
---------- ---------- ----------
Net property and equipment 776,516 775,623 771,471
Other assets:
Deferred post-retirement health care
costs 94,340 97,589 98,513
Investments 14,540 5,531 5,735
Deferred charges and other costs,
less amortization 46,226 72,407 37,404
---------- ---------- ----------
Total other assets 155,106 175,527 141,652
---------- ---------- ----------
Total assets $1,308,847 $1,339,319 $1,301,383
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 4.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 9,193 $ 67,774 $ 70,090
Accounts payable 42,156 49,981 39,886
Accrued expenses 31,339 22,908 28,063
Other current liabilities 75,040 71,774 55,688
---------- ---------- ----------
Total current liabilities 157,728 212,437 193,727
Gas inventory financing 43,982 53,578 49,883
Long-term debt 358,874 365,488 356,662
Reserves and other liabilities:
Deferred income taxes 93,829 91,534 87,963
Post-retirement health care 101,482 102,382 103,069
Coal miners retiree health care 55,453 58,155 59,334
Preferred stock of subsidiary 29,254 29,229 29,221
Other reserves 56,789 52,382 52,394
---------- ---------- ----------
Total reserves and other
liabilities 336,807 333,682 331,981
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 20,674,865 at
September 30, 1995; 20,651,925 at
December 31, 1994 and 21,651,925 at
September 30, 1994 20,675 20,652 21,652
Capital in excess of par value 38,591 37,712 61,978
Retained earnings 365,080 321,880 309,766
Treasury stock at cost - 500,749
shares at September 30, 1995;
241,395 shares at December 31,
1994 and 965,181 shares at
September 30, 1994 (12,890) (6,110) (24,266)
---------- ---------- ----------
Total shareholders' equity 411,456 374,134 369,130
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,308,847 $1,339,319 $1,301,383
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 5.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Statement of Cash Flows
- ------------------------------------
<CAPTION>
Nine months ended September 30,
(In thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 35,155 $ 31,736
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Discontinued operations non-cash charges
and working capital changes - (3,453)
Depreciation and amortization 46,120 44,191
Income taxes and tax credits 1,256 (2,026)
Other changes in assets and liabilities:
Receivables 43,035 34,458
Inventories 2,718 8,060
Deferred gas costs 25,071 (16,615)
Accounts payable (7,817) (23,777)
Other 6,923 9,984
-------- --------
Net cash provided by operating activities 152,461 82,558
Cash flows from investing activities:
Capital expenditures (48,155) (39,589)
Short-term investments 965 19,964
Proceeds from sale of WaterPro 52,864 -
Proceeds from sale of barge construction business - 12,695
Other (673) (5,663)
-------- --------
Net cash provided (used) by investing activities 5,001 (12,593)
Cash flows from financing activities:
Dividends paid (21,309) (22,539)
Changes in notes payable (58,430) (42,600)
Proceeds from issuance of long-term debt - 36,000
Repayment of long-term debt (5,503) (8,740)
Changes in gas inventory financing (9,596) (9,414)
Purchase of treasury shares (8,357) (7,076)
Other 2,233 1,035
-------- --------
Net cash used by financing activities (100,962) (53,334)
Net increase in cash and cash equivalents 56,500 16,631
Cash and cash equivalents at beginning of year 51,674 23,737
--------- --------
Cash and cash equivalents at end of period 108,174 40,368
Short-term investments 8,491 11,258
--------- --------
Cash and short-term investments $ 116,665 $ 51,626
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
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. Except for the
accounting for the investment in U.S. Filter, as described below, 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 1994 Annual
Report filed on Form 10-K with the Securities and Exchange Commission.
Investment in U.S. Filter
Eastern holds 3,041,092 common shares, which as of December 31, 1994 represented
18% of the voting stock of U.S. Filter. Since Eastern's acquisition of U.S.
Filter stock in December 1993, the latter has made several acquisitions which
have reduced Eastern's ownership percentage. Additionally, on April 26, 1995
U.S. Filter issued 6,000,000 common shares pursuant to a registration statement
filed with the Securities and Exchange Commission. This issuance reduced
Eastern's voting interest to approximately 13%. Accordingly, beginning in the
first quarter of 1995, Eastern began accounting for its investment in U.S.
Filter under the cost method. Eastern previously accounted for this investment
under the equity method. Eastern has classified the U.S. Filter investment as a
security available for sale. Accordingly, the net unrealized gain of $28,139,000
computed in marking this security to market is reflected as a component of
shareholder's equity. See note 5 concerning Eastern's intention to sell its U.S.
Filter shares.
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
20,277,000 and 20,270,000, respectively, in 1995 and 20,703,000 and 20,884,000,
respectively, in 1994.
<PAGE>
Form 10-Q
Page 7.
2. Inventories
<TABLE>
The components of inventories were as follows:
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1995 1994 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $ 44,443 $ 46,844 $ 47,868
Other materials, supplies and marine
fuels 13,046 13,363 15,208
-------- -------- -------
$ 57,489 $ 60,207 $ 63,076
======== ======== ========
</TABLE>
3. Supplemental cash flow information
<TABLE>
The following are supplemental disclosures of cash flow information:
<CAPTION>
Nine months ended September 30,
(In thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $19,190 $18,966
Income taxes $20,842 $22,566
</TABLE>
4. Contingencies
In July and September 1995 Eastern received notice from the Social Security
Administration ("SSA") claiming that Eastern is responsible for health benefit
premiums for an additional group of retired coal miners and their beneficiaries
under the federal Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act").
In 1993 Eastern recorded a reserve of $70,000,000 to provide for its estimated
undiscounted obligations under the Coal Act with respect to the miners and
beneficiaries assigned to Eastern at that time. This amount was reflected as an
extraordinary item of $45,500,000, net of tax. As more fully discussed in Note
12 of Notes to Financial Statements in Eastern's 1994 Annual Report, its
obligation could range from zero to more than $100 million. Due to a lack of
information about the recent assignment of the additional group of retired
miners and their beneficiaries and other issues, it is not known what the
ultimate cost of such assignment, if any, will be to Eastern, and no additional
provision has been made at this time.
5. Subsequent event
On November 1, 1995 Eastern announced its intention to sell, subject to
satisfactory price and market conditions, its 3,041,092 shares of U.S. Filter
common stock in a public offering. Accordingly, the U.S. Filter investment has
been classified as a current asset.
<PAGE>
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) 1995 1994 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $ 56,958 $ 72,114 (21)%
Midland 76,486 67,108 14 %
-------- --------
Total $133,444 $139,222 (4)%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
(In thousands) 1995 1994 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $480,814 $509,222 (6)%
Midland 218,474 194,261 12 %
-------- --------
Total $699,288 $703,483 (1)%
======== ========
</TABLE>
Boston Gas
Warmer weather and other demand-related factors decreased year-to-date revenues
by $49 million. For the first nine months of 1995, weather was slightly warmer
than normal, in contrast to 7% colder than normal weather for the comparable
period in 1994. The impact of weather and other demand-related factors was
partially offset by sales to new firm customers and slightly higher gas costs.
Lower sales to non-firm customers and lower gas costs reduced third quarter
revenues.
Midland Enterprises
Revenues for the third quarter and first nine months of 1995 increased by 14%
and 12%, respectively, reflecting significantly higher spot transportation
rates. Ton miles increased by 4% and 6% for the quarter and year-to-date,
respectively, reflecting longer trip lengths and the strong first quarter
activity as compared to 1994, when severe winter icing and flooding negatively
impacted operations.
Coal tonnage declined 8% in the third quarter from the comparable period in
1994, with related ton miles down 2%, due to plant downtime for several utility
customers under long-term contract and closure of the Illinois Waterway for
repairs during August and September. Longer average trip lengths for spot coal
shipments were partially offsetting. For the first nine months, coal tonnage was
unchanged from 1994 as strong shipments in the first quarter of 1995 offset
weaker demand later in the year. Non-coal ton mile increases of 10% and 13% for
the quarter and year-to-date, respectively, reflected significantly longer trip
lengths.
<PAGE>
Form 10-Q
Page 9.
<TABLE>
Operating Earnings:
<CAPTION>
Three months ended September 30,
(In thousands) 1995 1994 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $(10,800) $(8,406) (28)%
Midland 15,726 9,257 70 %
Headquarters (1,711) (1,329) (29)%
------- -------
Total $ 3,215 $ (478) nm
======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
(In thousands) 1995 1994 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $42,005 $50,069 (16)%
Midland 43,569 24,153 80 %
Headquarters (4,354) (3,318) (31)%
------- -------
Total $81,220 $70,904 15 %
======= =======
</TABLE>
Boston Gas
The impact of warmer weather and other demand-related factors, partially offset
by lower operating expenses related to the warmer weather and ongoing cost
containment measures, decreased operating earnings for the first nine months of
1995 by about $8 million. Sales to new firm customers and the recognition of
lost margins associated with conservation programs approximately offset
increased charges for depreciation, property taxes and early retirement and
severance costs associated with an ongoing comprehensive corporate reengineering
project focused on improving customer service and lowering operating costs. The
decrease in third quarter operating earnings is almost entirely due to severance
costs.
Midland Enterprises
Operating earnings increased by 70% and 80% for the third quarter and first nine
months of 1995, respectively, primarily reflecting higher spot rates. Operating
conditions were generally better during the first nine months of 1995 than
during the previous year, despite flooding on the Mississippi River and Illinois
Waterway during the second quarter of 1995. Winter ice, high water and flooding
hindered operations and significantly increased operating costs during the first
four months of 1994.
Other:
Interest income increased almost threefold this year for the third quarter and
first nine months over prior periods reflecting higher cash and short term
investment balances and generally higher interest rates.
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 Consolidated Statement
of Operations.
<PAGE>
Form 10-Q
Page 10.
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
1995 capital expenditure and working capital requirements, normal debt
repayments and anticipated dividend payments to shareholders.
On April 10, 1995 Eastern completed the previously announced sale of its
wholly-owned subsidiary, WaterPro Supplies Corporation, for $52.9 million in
cash.
On June 13, 1995 Boston Gas filed a shelf registration for the issuance of up to
$100 million of medium-term notes through December 1997 for the funding of
future capital expenditures and the refinancing of currently outstanding
indebtedness. In October 1995 Boston Gas issued $30.0 million of Medium-Term
Notes with a weighted average maturity of 28 years and a coupon of 7.23%.
On November 1, 1995 Eastern announced its intention to sell, subject to
satisfactory price and market conditions, its 3,041,092 shares of U.S. Filter
common stock in a public offering.
Consolidated capital expenditures are budgeted at approximately $80 million,
three-quarters of which are for Boston Gas and the balance for Midland.
In July and September 1995 Eastern received notices from the Social Security
Administration claiming that Eastern is responsible for health benefit premiums
for an additional group of retired coal miners and their beneficiaries under the
federal Coal Industry Retiree Health Benefit Act of 1992. As described in Note 4
of Notes to Financial Statements, the liability for these additional premiums
could result in an addition to the reserve and would be treated as an
extraordinary item. No provision has been made at this time because the amount
of the additional reserve, if any, cannot be reasonably estimated.
<PAGE>
Form 10-Q
Page 11.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
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 period reported. All of these adjustments are of a normal
recurring nature. Results for the period 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 other than changes disclosed in Notes to Financial
Statements. 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
November 3, 1995
<TABLE> <S> <C>
<PAGE>
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 108,174
<SECURITIES> 8,491
<RECEIVABLES> 75,050
<ALLOWANCES> 17,192
<INVENTORY> 57,489
<CURRENT-ASSETS> 377,225
<PP&E> 1,328,477
<DEPRECIATION> 551,961
<TOTAL-ASSETS> 1,308,847
<CURRENT-LIABILITIES> 157,728
<BONDS> 358,874
<COMMON> 20,675
29,254
0
<OTHER-SE> 390,781
<TOTAL-LIABILITY-AND-EQUITY> 1,308,847
<SALES> 480,814
<TOTAL-REVENUES> 699,288
<CGS> 375,484
<TOTAL-COSTS> 540,025
<OTHER-EXPENSES> 64,838
<LOSS-PROVISION> 10,645
<INTEREST-EXPENSE> 26,977
<INCOME-PRETAX> 56,803
<INCOME-TAX> 21,648
<INCOME-CONTINUING> 35,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,155
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
