UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission File Number 1-2297
EASTERN ENTERPRISES
9 Riverside Road, Weston, Massachusetts 02193
(617) 647-2300
Massachusetts 04-1270730
(State of organization) (I.R.S. Employer
Identification No.)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock, par value $1.00 per share New York Stock Exchange
Common Stock Purchase Rights, no par value Boston Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendments to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $539.2 million as of February 27, 1995.
There were 20,250,503 shares of Common Stock, par value $1.00 per share,
outstanding as of February 27, 1995.
Documents Incorporated by Reference
Portions of the annual report to shareholders for the year ended December 31,
1994 are incorporated by reference into Part II of this Report.
Portions of the Registrant's 1995 definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 27, 1995 are incorporated by
reference into Part III of this Report.
Exhibits to Form 10-K and Financial Statement Schedules have been included
only in copies of the Form 10-K filed with the Securities and Exchange
Commission.
<PAGE>
EASTERN ENTERPRISES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
TABLE OF CONTENTS
Page
PART I No.
Item 1. Business 1
Boston Gas Company 1
Midland Enterprises Inc. 6
Discontinued Operations 9
General 9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
PART II
Item 5. Market For Registrant's Common
Equity and Related Stockholder
Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 12
Item 8. Financial Statements and
Supplementary Data 16
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 34
PART III
Item 10. Directors and Executive Officers
of the Registrant 34
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain
Beneficial Owners and
Management 34
Item 13. Certain Relationships and
Related Transactions 34
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K 34
<PAGE>
PART I
Item 1. Business
1(a) General
Eastern Enterprises ("Eastern") is an unincorporated voluntary association
(commonly referred to as a "Massachusetts business trust") established and
existing under a Declaration of Trust dated July 18, 1929, as from time to
time amended.
Eastern's principal subsidiaries are Boston Gas Company ("Boston Gas") and
Midland Enterprises Inc. ("Midland"). Boston Gas is a regulated utility that
distributes natural gas in and around Boston, Massachusetts. Midland is
engaged in barge transportation, principally on the Ohio and Mississippi
river systems. On November 8, 1994, Eastern announced its intention to sell
its subsidiary, WaterPro Supplies Corporation ("WaterPro"). The anticipated
sale will complete the disposition of Eastern's Water Products Group, which
had consisted of WaterPro and another subsidiary, Ionpure Technologies
Corporation ("Ionpure"), which was sold as of October 1, 1993. As described
in Note 10 appearing on pages 27 and 28, the Water Products Group has been
accounted for as a discontinued operation.
Eastern provides management and staff services to its operating subsidiaries.
Boston Gas and Midland are financed primarily through their own funded debt,
which is not guaranteed by Eastern. Many of the debt instruments relating to
Boston Gas and Midland borrowings contain restrictive covenants, including
restrictions on the payment of dividends to Eastern. In the opinion of
management, none of these restrictions has any material impact upon the
operations of Eastern and its subsidiaries.
1(b) Financial Information About Industry Segments
Information with respect to this item may be found in Note 2 appearing on
page 22. Such information is incorporated herein by reference.
1(c) Description of Business
Boston Gas Company
Boston Gas is engaged in the transportation, distribution and sale of natural
gas to residential, commercial, and industrial customers in Boston,
Massachusetts, and 73 other communities in eastern and central Massachusetts.
Boston Gas also sells gas for resale in Massachusetts and other states (see
"Competition" section). Boston Gas has one subsidiary, Massachusetts LNG
Incorporated ("Mass LNG"), which holds a long-term lease on two liquefied
natural gas ("LNG") facilities. Boston Gas is the largest natural gas
distribution company in New England, has been in business for 172 years and
is the second oldest gas company in the United States. Since 1929, all of the
common stock of Boston Gas has been owned by Eastern.
Gas Sales and Transportation
Gas is sold and transported for "firm" and "non-firm" customers. Principal
uses of natural gas include central, space and water heating, cooking,
drying, steam generation and a variety of industrial applications.
"Firm" sales and transportation services are generally provided without
interruption throughout the year, although uninterrupted seasonal services
are available to firm customers for periods of less than 365 days. Firm
services are provided under either filed rate schedules or through
individually negotiated contracts. Firm sales and transportation of natural
gas used for central or space heating are directly related to weather
conditions. Consequently, temperature variations can have a significant
impact, both favorable and unfavorable, upon Boston Gas' revenues and
earnings. Compared to normal, actual billing temperatures were 1% colder, 1%
warmer and 4% colder in 1994, 1993 and 1992, respectively.
"Non-firm" sales and transportation services are generally provided to large
commercial and industrial customers who can use gas and oil interchangeably
or to other gas distribution utilities for resale. Non-firm services are
dependent upon a number of factors, including the price of gas compared to
competing fuels, gas supply availability, weather conditions and system
capacity, both local and interstate. Non-firm services
<PAGE>
are provided through individually negotiated contracts and, in most cases,
the price charged takes into account the price of the customer's alternative
fuel, which is generally residual fuel oil. Beginning November 1, 1993, gross
margins from non-firm sales and transportation services ($10.9 million in
1994 and $8.2 million in 1993) in excess of a threshold based upon the prior
season's experience are shared between firm customers and shareholders, 75%
and 25%, respectively.
The following table provides information with respect to the volumes of gas
sold and transported by Boston Gas during the three years 1992-1994. The
table is in billions of cubic feet ("BCF") of natural gas at 1,000 B.T.U. per
cubic foot.
Years Ended December 31,
1994 1993 1992
Firm Sales and Transportation
Residential Heating 37.8 38.1 37.9
Residential Non-Heating 3.6 3.8 3.9
Commercial 25.1 26.0 25.8
Industrial 4.8 5.0 4.9
Seasonal Firm Contracts 10.4 10.0 6.4
Total Firm Sales 81.7 82.9 78.9
Firm Transportation 13.8 12.4 7.4
Total Firm Throughput 95.5 95.3 86.3
Non-Firm Sales and Transportation
Interruptible 6.4 8.1 14.5
Special Sales for Resale 7.6 2.1 4.2
Total Non-Firm Sales 14.0 10.2 18.7
Non-Firm Transportation 34.9 39.3 27.3
Total Non-Firm Throughput 48.9 49.5 46.0
Total Throughput 144.4 144.8 132.3
Residential heating sales include all gas sold to customers having central or
space heating. Commercial sales include all gas sold to retail establishments
and commercial properties including central-metered apartment houses and
condominiums with five or more units. The growth in Boston Gas' firm
transportation services, as depicted below, reflects changes in the gas
industry (see "Gas Supply" and "Competition" sections).
FIRM THROUGHPUT (in BCF)
[Bar Chart--plot points below]
1990 1991 1992 1993 1994
Sales 65.4 64.3 78.9 82.9 81.7
Transportation 0.0 0.0 7.4 12.4 13.8
65.4 64.3 86.3 95.3 95.5
<PAGE>
Boston Gas' operations are subject to Massachusetts statutes applicable to
gas utilities as described in the "Regulation" section. Facility expansion is
regulated by the Massachusetts Department of Public Utilities ("DPU").
Municipal, state and federal authorities have jurisdiction over the use of
public ways, land and waters for gas mains and other distribution facilities.
Gas Supply
The following table provides statistical information with respect to Boston
Gas' sources of supply during 1992-1994. The table is in BCF of natural gas
at 1,000 B.T.U. per cubic foot.
Years Ended December 31,
1994 1993 1992
Natural Gas Purchases 92.2 86.3 94.1
LNG Purchases 4.2 13.4 12.4
Total Purchases 96.4 99.7 106.5
Change in Storage Gas 4.5 (4.0) (5.2)
Company Use, Unbilled and Other (5.2) (2.6) (3.7)
Total Sales 95.7 93.1 97.6
Boston Gas purchases approximately 70% of its pipeline gas supplies directly
from domestic and Canadian producers and marketers pursuant to long-term
contracts which have been reviewed and approved by the DPU. Boston Gas
purchases its remaining pipeline supplies from domestic sources pursuant to
short-term, firm winter service agreements and on a spot basis. Boston Gas
has diversified its pipeline gas supplies across major North American
producing regions, including on and off-shore Gulf of Mexico and
mid-continent areas in the United States, as well as from western Canada.
Pipeline supplies are transported on interstate pipeline systems to Boston
Gas' service territory pursuant to transportation agreements approved by the
Federal Energy Regulatory Commission ("FERC"). Boston Gas has also contracted
with pipeline companies and others for the storage of natural gas and related
transportation services from underground storage fields located in West
Virginia, New York and Pennsylvania. Supplemental supplies of LNG and propane
are purchased and produced from foreign and domestic sources.
All interstate pipelines serving Boston Gas have implemented service
restructuring plans on terms and conditions approved pursuant to FERC Order
No. 636. FERC Order No. 636, issued April 8, 1992, required interstate
pipeline companies to unbundle gas sales contracts into separate gas sales,
transportation and storage services. Accordingly, Boston Gas' firm bundled
service with Algonquin Gas Transmission Company ("Algonquin"), a wholly-owned
subsidiary of Texas Eastern Transmission Corporation ("Texas Eastern"), was
converted to an annual firm transportation entitlement of 87.4 BCF.
Similarly, Boston Gas' firm bundled sales service with Texas Eastern has been
converted into an annual firm transportation entitlement of 102.3 BCF; and
its firm bundled sales service with Tennessee Gas Pipeline Company
("Tennessee") has been converted to an annual transportation and storage
entitlement of 79.4 BCF. In addition, Boston Gas has firm entitlements on
interstate pipelines upstream of Tennessee, Texas Eastern, and Algonquin,
with direct access to supply areas. Together, these transportation
entitlements are used to transport natural gas purchased by Boston Gas from
producing regions described above and from underground storage facilities to
its service territory. Boston Gas holds direct entitlements to 17.2 BCF of
storage capacity with Tennessee, Texas Eastern and others. The underlying
transportation and storage agreements with Algonquin, Texas Eastern, and
Tennessee have terms generally expiring no earlier than November 1996, April
2012, and November 2000, respectively. Boston Gas is provided rights of first
refusal under FERC Order No. 636 to extend the terms of the majority of these
transportation and storage contracts. Boston Gas considers the service
reliability of its current natural gas portfolio to be comparable to that
existing prior to FERC Order No. 636.
In addition to its domestic supply arrangements, Boston Gas has three
contracts for the purchase of Canadian gas supplies. Boston Gas' contract
with Boundary, Inc. provides for the purchase of 3.8 BCF of gas annually and
expires in January 2003. Boston Gas also has contracts with Alberta Northeast
Gas, Ltd. to purchase up to 4.8 BCF of gas annually, and with Imperial Oil of
Canada, Ltd. for the purchase of 12.8 BCF of gas annually. These contracts
expire in November 2003 and April 2007, respectively. Boston Gas has
<PAGE>
contracted with Iroquois Gas Transmission System, Tennessee and Algonquin to
transport these gas supplies from the Canadian border to delivery points in
Boston Gas' service territory.
Boston Gas has contracts, expiring in 1998, with Distrigas of Massachusetts
Corporation ("DOMAC") for the purchase of an annual quantity of up to 2.0 BCF
of LNG and for 1.0 BCF of LNG storage capacity and related vaporization
services. Boston Gas also purchases LNG from DOMAC on a spot basis when
prices are competitive with alternative supplies. DOMAC's affiliate,
Distrigas Corporation, imports the LNG from Algeria pursuant to agreements
with Sonatrach, the Algerian National Energy Company.
Boston Gas relies on supplemental supplies of storage gas, LNG and propane to
meet firm sendout requirements which are greater than its firm pipeline
capacity entitlements. The number of days that peak sendout can be maintained
is limited by the capacity of Boston Gas' storage facilities for supplemental
gas supplies and the rate at which these supplies can be sent out and
subsequently replenished. Boston Gas owns or leases facilities which enable
it to store the equivalent of 4.6 BCF of natural gas in liquid form as LNG
and vaporize it for use during periods of high demand. The inventory for
these facilities is provided by liquefaction of pipeline gas and from
purchased LNG. Over the past five years, increased pipeline capacity has
reduced Boston Gas' dependence on these more costly supplemental supplies.
Boston Gas considers its peak day sendout capability, based on its total
supply resources, adequate to meet the requirements of its firm customers.
Regulation
Boston Gas' operations are subject to Massachusetts statutes applicable to
gas utilities. Rates, the territorial limit of Boston Gas' service area,
purchase of gas, pipeline safety regulations, issuance of securities and
affiliated party transactions are regulated by the DPU. Rates for firm sales
and transportation provided by Boston Gas are subject to approval by, and are
on file with, the DPU. In addition, Boston Gas has a cost of gas adjustment
clause which allows for the adjustment of billing rates for firm gas sales to
enable it to recover the actual cost of gas delivered to firm customers.
On October 30, 1993, the DPU allowed Boston Gas an annual revenue increase of
$37.7 million, effective November 1, 1993, and also approved several rate
design changes that reduce the volatility of its margins attributable to
weather. The DPU also ordered a four-year phase-in of the cost of
post-retirement benefits other than pensions. Boston Gas began billing the
second year phase-in on November 1, 1994.
Changes stemming from FERC Order 636 are being considered at state levels.
The DPU has initiated a proceeding to review alternative regulatory
approaches, including regulation that is incentive or performance based.
Boston Gas and Eastern were granted an intrastate exemption from the
provisions of the Public Utility Holding Company Act of 1935 ("the Act")
under Section 3(a)(1) thereof, pursuant to an order of the Securities and
Exchange Commission (the "SEC") dated February 28, 1955, as amended by orders
dated November 3, 1967 and August 28, 1975. On February 7, 1989, the SEC
issued a proposed rule under the Act which would provide limits for
non-utility related diversification by intrastate public utility holding
companies, such as Eastern, that are exempt under the Act. Since its proposal
in 1989, the SEC has taken no action with respect to this proposed rule.
Eastern and Boston Gas cannot predict whether this proposed rule will be
adopted or whether it will affect their exemption under the Act.
Seasonality and Working Capital
Boston Gas' revenues, earnings and cash flows are highly seasonal as most of
its firm sales and transportation are directly related to temperature
conditions. The majority of Boston Gas' earnings are generated in the first
quarter with a seasonal loss occurring in the third quarter. Since the bulk
of its revenues are billed in the November through April heating season,
significant cash flows are generated from late winter to early summer. In
addition, through the cost of gas adjustment clause, Boston Gas bills its
customers over the heating season for pipeline demand charges paid by Boston
Gas over the entire year. This difference, along with other costs of gas
distributed but unbilled, is reflected as deferred gas costs and results in
short-term borrowings. Short-term borrowings are also required from time to
time to finance normal business operations. As a result of all factors,
short-term borrowings are generally highest during the late fall and early
winter.
<PAGE>
Competition
Boston Gas competes with suppliers of fuel oil and electricity for
residential, commercial and industrial customers. In addition, Boston Gas
faces competition from other suppliers of natural gas for large commercial
and industrial applications. Boston Gas' marketing efforts emphasize the
continuing environmental benefits of natural gas, together with its
reliability and long-term economic value as compared to oil and electricity.
The clean burning nature of natural gas combustion and the absence of on-site
fuel storage problems are major environmental advantages for natural gas.
Boston Gas increased annualized firm throughput by an estimated 3.8 BCF
during 1994 through volume additions of 2.3 BCF in the firm residential and
commercial/industrial markets and additions of 1.5 BCF through special
contracts and transportation arrangements.
Increased activity in new residential construction, together with the
accelerated marketing efforts to encourage conversion to natural gas,
resulted in the addition of approximately 5,300 residential heating
customers. Approximately 45% of Boston Gas' existing residential customers do
not use gas for central heating, representing a prime marketing opportunity.
Boston Gas targets this group through special programs with the objective of
increasing the rate of heating conversion to natural gas. No customer, or
group of customers under common control, accounted for 3% or more of the
total firm revenues in 1994.
Considerable growth opportunity exists in the commercial and industrial
markets, where Boston Gas' market penetration is only two-thirds the national
average due to historical capacity limitations and the relatively late
introduction of natural gas into New England. Despite low oil prices in 1994,
the environmental advantages of natural gas and customers' desire for
long-term value and price stability generated the highest level of new sales
in this market segment in the past five years.
In June 1992, FERC granted Boston Gas the authority to make sales for resale
in interstate commerce under the terms of a blanket marketing certificate.
This additional sales authority allows Boston Gas to maximize the use of its
supply entitlements, thereby minimizing the cost of gas to firm customers and
making its sales rates more competitive.
FERC Order No. 636 and other regulatory changes have increased competition
among existing and new suppliers of natural gas in Boston Gas' service area,
particularly in the large commercial and industrial sectors (see "Gas
Supply"). Boston Gas provides firm and interruptible transportation-only
service to customers who may engage in direct purchases of natural gas from
other suppliers. Firm transportation tariffs provide equal gross margin
opportunity for Boston Gas regardless of whether the customer purchases gas
directly from Boston Gas or purchases gas from a third party and arranges for
transportation-only service on Boston Gas' distribution system. These
services allow flexibility for customers and encourage conversions to natural
gas, while providing increased opportunities for Boston Gas to increase
throughput on its system and generate increased margins. Boston Gas has also
received DPU approval to enter into contracts designed to compete for
commercial and industrial customers with alternative energy options. As a
result of these factors, Boston Gas believes it is well positioned to respond
to such competition.
Boston Gas continues to pursue market opportunities in natural gas-powered
vehicles as the passage of federal legislation has enhanced opportunities in
this market. The City of Boston Fire Department recently removed restrictions
which barred natural gas vehicles from city tunnels and major bridges, thus
making the use of these vehicles more practical. Boston Gas achieved
significant progress in 1994 through cooperative efforts with state and
federal government agencies to obtain access to federal funding grants for
fueling station infrastructure development. This funding will help provide
additional commercial and municipal fleet fueling sites in the near future.
Boston Gas' program in this market includes the installation of two Boston
Gas-owned fueling stations, conversion of 103 Boston Gas vehicles and the
establishment of pilot programs with a number of large fleet operators for
on-site fueling to demonstrate the advantage of choosing natural gas to meet
alternative fuel vehicle requirements.
Environmental Matters
Boston Gas may have or share responsibility for environmental remediation of
certain former manufactured gas plant sites, as described in Note 11
appearing on pages 28 and 29. A subsidiary of New England Electric System has
assumed responsibility for remediating 11 of the 15 such sites owned by Boston
<PAGE>
Gas, subject to a limited contribution by Boston Gas. A 1990 regulatory
settlement with the DPU provides for recovery by Boston Gas of environmental
costs associated with such sites over separate, seven-year amortization
periods without a return on the unamortized balance. Although Boston Gas does
not possess at this time sufficient information to reasonably determine the
ultimate cost to it of such remediation, it believes that it is not probable
that such costs will materially affect its financial condition or results of
operations.
Properties
Boston Gas and Mass LNG own or lease facilities which enable them to liquefy
natural gas in periods of low demand, store the resulting LNG and vaporize it
for use in periods of high demand. Boston Gas owns and operates such a
facility in Dorchester, Massachusetts, and Mass LNG leases one such facility
in Lynn, Massachusetts, and a storage facility in Salem, Massachusetts. In
addition, Boston Gas owns propane-air facilities at several locations
throughout its service territory.
On December 31, 1994, Boston Gas' distribution system included approximately
5,700 miles of gas mains, 397,000 services and 522,000 active customer
meters.
Boston Gas' mains and services are generally located on public ways or
private property not owned by it. Boston Gas' occupation of such property is
generally pursuant to easements, licenses, permits or grants of location.
Except as stated above, the principal items of property of Boston Gas are
owned in fee. A portion of the utility properties and franchises of Boston
Gas is pledged as security for its First Mortgage Bonds.
In 1994, Boston Gas' capital expenditures were $53.5 million. Capital
expenditures were principally made for improvements to the distribution
system, for system expansion to meet customer demand and for productivity
enhancement initiatives. Boston Gas plans to spend approximately $58 million
for similar purposes in 1995.
Employees
As of December 31, 1994, Boston Gas had 1,700 employees, 71% of whom were
organized in six local unions with which Boston Gas has collective bargaining
agreements. In 1993, after a seventeen-week work stoppage, Boston Gas entered
into six-year labor contracts with the bargaining units, which provided for,
among other things, annual wage increases of approximately 4%, updated work
rules and changed health care coverage to a managed care program with cost
sharing.
Midland Enterprises Inc.
Midland is primarily engaged through wholly-owned subsidiaries (together
"Midland") in the operation of a fleet of barges and towboats, principally on
the Ohio and Mississippi Rivers and their tributaries, the Gulf Intracoastal
Waterway and the Gulf of Mexico. Midland transports bulk commodities, a major
portion of which is coal. Midland also performs repair work on marine
equipment and operates two coal dumping terminals, a phosphate rock and
phosphate chemical fertilizer terminal, and a marine fuel supply facility. In
December 1993 Midland sold Chotin, its liquid barge operations, including its
sole contract and trade name. In June 1994 Midland sold its barge
construction and repair facility located in Louisiana.
Sales
The following table indicates the tonnages transported (in millions) for the
period 1992--1994:
Years ended December 31,
1994 1993 1992
Dry Cargo 69.6 60.9 60.8
Liquid Cargo -- 1.6 1.6
Total Tonnage 69.6 62.5 62.4
<PAGE>
Tonnage in 1994 increased 11% over 1993 to a record 69.6 million tons,
despite the absence of the liquid business, primarily due to a stronger
economy as evidenced by increased shipments of coal, aggregates, ores, steel
products and scrap. Coal tonnage in 1993 was negatively impacted by a
prolonged United Mine Workers strike that disrupted coal shipments. Tonnage
in 1993 increased slightly over 1992 due to increased shipments of non-coal
commodities.
The following chart summarizes the ton miles of cargo transported (in
billions) for the period 1990-1994:
TON MILES BY COMMODITY (in billions)
[Bar chart--plot points below]
1990 1991 1992 1993 1994
Coal 14.1 15.6 15.2 14.0 15.2
Grain 7.0 6.2 6.3 4.8 4.4
Other* 8.8 8.6 9.3 11.9 15.7
Liquid 2.0 1.7 1.6 1.5 0.0
Total 32.0 32.1 32.4 32.2 35.3
* Other includes sand, stone, gravel, iron, scrap, steel, coke,
phosphate, towing for others, and other dry cargo.
Ton miles are the product of tons and distance transported. The record ton
miles in 1994 reflected the 11% increase in tonnage noted above. The slight
decline in ton miles from 1992 to 1993 reflected shorter average hauls of
approximately equal tonnage. In addition to changes in ton miles transported,
Midland's revenues and earnings are affected by other factors such as
competitive conditions, weather and the segment of the river system traveled,
as described in the "Seasonality" and "Competition" sections.
The following table summarizes Midland's backlog of transportation and
terminalling business under long-term contracts:
Years ended December 31,
1994 1993
Tons (in millions) 168.8 165.5
Revenues (in millions) $422.8 $585.5
Portions of revenue backlog not
expected to be filled within the
current fiscal year 77% 80%
The 1994 revenue backlog (which is based on contracts that extend beyond
December 31, 1995) is shown at prices in effect on December 31, 1994, which
are subject to escalation/de-escalation provisions. Since services under many
of the long-term contracts are based on customer requirements, Midland has
estimated its backlog based on its forecast of the anticipated requirements
of these long-term contract customers. The 1994 revenue backlog decline from
1993 primarily reflects the amended terms of a contract with Gulf Power
Company, which was in dispute at December 31, 1993. As amended, the
contract's term and average trip length were reduced, accounting for a 35%
decline in the revenue backlog. Other long-term contract extensions and
additions were partially offsetting. The tonnage backlog was reduced 11% as a
result of the Gulf Power contract amendment. However, this reduction was more
than offset by other long-term contract additions and extensions, including
the five-year contract extension with the Cincinnati Gas & Electric Company,
Midland's largest customer, negotiated early in 1994.
The only significant raw material required by Midland is the diesel fuel to
operate its towboats. Diesel fuel is purchased from a variety of sources and
Midland regards the availability of diesel fuel as adequate for its
operations.
<PAGE>
Seasonality
Revenues during winter months tend to be lower than revenues for the
remainder of the year due to the freezing of some northern rivers and
waterways during winter months, increased coal consumption by electric
utilities during the summer months, and the seasonal fall harvest of grain.
Competition
Midland's marine transportation business competes on the basis of price,
service and equipment availability. Midland's primary competitors include
other barge lines and railroads, including one integrated rail-barge carrier.
There are a number of companies offering transportation services on the
waterways served by Midland. In recent years, competition among major barge
line companies has been intense due to an imbalance between barge supply and
customer demand, impacted by economic conditions as well as at times by weak
grain and coal export markets. This in turn has led to revenue and margin
erosion, prompted cost and productivity improvements and some industry
consolidation. During the second half of 1994, however, barge demand and
supply moved closer to equilibrium with rates and margins improving. However,
it is uncertain whether these short-term gains will be sustained.
Barge operators have maintained relatively low rate structures due to ongoing
improvements in operating efficiencies and productivity. Consequently, the
barge industry has generally been able to retain its competitive position
with alternate methods of transportation for bulk commodities when the origin
and destination of such movements are contiguous to navigable waterways.
Due to the capital-intensive, high fixed-cost nature of Midland's business,
the negotiation of long-term contracts, which facilitate steady and efficient
utilization of equipment is important to profitable operations. Midland's
long-term transportation and terminalling contracts expire at various dates
from January 1996 through June 2003. During 1994, approximately 38% of
Midland's consolidated revenues resulted from these contracts. A substantial
portion of the contracts provide for rate adjustments based on changes in
various costs, including diesel fuel costs, and, additionally, contain "force
majeure" clauses which excuse performance by the parties to the contracts
when performance is prevented by circumstances beyond their reasonable
control. Many of these contracts have provisions for termination for
specified causes, such as material breach of the contract, environmental
restrictions on the burning of coal, or loss by the customer of an underlying
commodity supply contract. Penalties for termination for such causes are not
generally specified. However, some contracts provide that in the event of an
uncured material breach by Midland which results in termination of the
contract, Midland would be responsible for reimbursing its customer for the
differential between the contract price and the cost of substituted
performance.
No customer, or group of customers under common control, accounted for 10% or
more of the total revenues in 1994. On the basis of past experience and its
competitive position, Midland considers that the simultaneous loss of several
of its largest customers, while possible, is unlikely to happen.
Towboats, such as those operated by Midland, are capable of moving in one tow
(barge configuration) approximately 22,500 tons of cargo (equivalent to 225
one hundred-ton capacity railroad cars) on the Ohio River and upper
Mississippi River and approximately 60,000 tons (equivalent to 600 one
hundred-ton capacity railroad cars) on the lower Mississippi River, where
there are no locks to transit. Average rates charged per ton mile for barge
transportation are generally substantially below those charged by railroads.
Environmental Matters
Midland is subject to the provisions of the Federal Water Pollution Control
Act, the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, the Superfund Amendment and Reauthorization Act, the Resource
Conservation and Recovery Act of 1976, and the Oil Pollution Act of 1990,
which permit the Coast Guard and the Environmental Protection Agency to
assess penalties and clean-up costs for oil, hazardous substance, and
hazardous waste discharges. Some of these acts also allow third parties to
seek damages for losses caused by such discharges. Compliance with these acts
has had no material effect on Midland's capital expenditures, earnings, or
competitive position, and no such effect is anticipated.
<PAGE>
Properties
As of December 31, 1994, Midland's marine equipment consisted of 2,378 dry
cargo barges and 90 towboats. A substantial portion of this equipment is
either mortgaged to secure Midland's equipment financing obligations or
chartered under long-term leases from third parties.
In 1994, Midland's capital expenditures were $4.3 million. These expenditures
were made principally for renewal of existing equipment. In 1995 Midland
expects to spend approximately $25 million for capital equipment. The increase
in capital expenditures reflects primarily the replacement of barges.
Employees
As of December 31, 1994, Midland employed 1,300 persons, of whom
approximately 35% are represented by labor unions. One of Midland's labor
contracts expires in July 1995.
Discontinued Operations
As previously noted, in November 1994 Eastern announced its intention to sell
WaterPro. On March 2, 1995, Eastern signed a purchase and sale agreement to
sell WaterPro at a cash price approximately equivalent to book value, subject
to certain post-closing adjustments. The closing is scheduled to occur in the
second quarter of 1995.
WaterPro is a wholesale distributor of components for the repair, improvement
and expansion of municipal water supply and wastewater collection systems.
WaterPro, headquartered in Edina, Minnesota, operates 28 distribution centers
serving 20 states and has approximately 300 employees.
The primary products distributed by WaterPro include pipes, fire hydrants,
valves, fittings, meters and other water system components which are
purchased from a variety of sources, including nationally branded products
made by prominent manufacturers. WaterPro regards these sources as adequate.
Components are typically warehoused by WaterPro and then sold to contractors,
as well as cities, towns and private water utilities for new systems,
rehabilitation and improvement to existing lines and system expansion.
WaterPro's business is affected by housing starts and related construction
activity, municipal infrastructure spending levels and seasonal weather
conditions.
Competition in WaterPro's business is intense and is based principally on
price, service and product offering.
General
Environmental Matters
Certain information with respect to Eastern's compliance with Federal and state
environmental statutes may be found in Item 1(c) under "Boston Gas Company" and
"Midland Enterprises Inc." and Note 11 appearing on pages 28 and 29.
Employees
Eastern and its wholly-owned subsidiaries employed 3,000 employees for
continuing operations at December 31, 1994.
Item 2. Properties
Information with respect to this item may be found in Item 1(c) under "Boston
Gas Company" and "Midland Enterprises Inc." Such information is incorporated
herein by reference.
Item 3. Legal Proceedings
Information with respect to certain legal proceedings may be found in Notes
11 and 12 appearing on pages 28 through 29 and in Item 1(c) hereof under
"Boston Gas Company" and "Midland Enterprises Inc." Such information is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Securities Holders
No matter was submitted to a vote of security holders in the fourth quarter
of 1994.
<PAGE>
Executive Officers of the Registrant
General
The table below identifies the executive officers of Eastern, who are
appointed annually and serve at the pleasure of Eastern's Trustees.
Office
Held
Name Title Age Since
J. Atwood Ives Chairman and Chief Executive Officer 58 1991
Richard R. Clayton President and Chief Operating Officer 56 1991
Walter J. Flaherty Senior Vice President and Chief
Financial Officer 46 1992
Richard J. Klau Senior Vice President--President of
WaterPro Supplies Corporation 46 1991
Chester R. Messer Senior Vice President--President of
Boston Gas Company 53 1988
Fred C. Raskin Senior Vice President--President of
Midland Enterprises Inc. 46 1991
L. William Law, Senior Vice President, General Counsel
Jr. and Secretary 50 1995
Business Experience
Prior to joining Eastern in 1991, J. Atwood Ives was Vice Chairman, Chief
Financial Officer and a member of the Office of the Chairman of General Cinema
Corporation (now Harcourt General, Inc.) and The Neiman Marcus Group, Inc.
Prior to joining Eastern in 1987 as Executive Vice President and Chief
Administrative Officer, Richard R. Clayton was Chairman, President and Chief
Executive Officer of Vermont Castings, Inc. He was Executive Vice President
and Chief Operating Officer of Eastern from 1990 to 1991.
Walter J. Flaherty was Senior Vice President-Administration of Boston Gas
from 1988 until joining Eastern in 1991 as its Senior Vice President and
Chief Administrative Officer. He has been an employee of Eastern or its
subsidiaries since 1971.
Richard J. Klau was President of Ionpure from 1989 to 1991. Prior to joining
Ionpure in 1989, he was Vice President and General Manager of the Process
Water Division of Millipore Corporation.
Chester R. Messer was Executive Vice President of Boston Gas in 1988. He was
elected a Senior Vice President of Eastern in 1988, when he became President
of Boston Gas. He has been an employee of Boston Gas since 1963.
Fred C. Raskin was Executive Vice President of Midland from 1988 to 1991. He
was elected a Senior Vice President of Eastern in 1991, when he became
President of Midland. He has been an employee of Eastern or its subsidiaries
since 1978.
L. William Law, Jr. has been General Counsel and Secretary of Eastern since
1987. He was elected Senior Vice President in 1995. He has been an employee
of Eastern or its subsidiaries since 1975.
PART II.
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Eastern's common stock is traded on the New York, Boston and Pacific Stock
Exchanges (ticker symbol EFU). The approximate number of shareholders at
December 31, 1994 was 5,100.
Information with respect to this item may be found in the sections captioned
"Cash Dividends Per Share" and "Stock Price Range" appearing on the inside
back cover of the annual report to shareholders for the year ended December
31, 1994. Such information is incorporated herein by reference.
<PAGE>
Item 6. Selected Financial Data
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands, except per share amounts) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Boston Gas $ 660,158 $ 614,294 $ 594,330 $ 527,928 $ 554,509 $ 559,692
Midland 264,692 254,921 263,617 267,044 269,061 233,958
Total revenues 924,850 869,215 857,947 794,972 823,570 793,650
Operating costs and expenses 827,475 791,826 761,691 720,930 742,924 720,485
Operating earnings:
Boston Gas 65,791 49,063 63,120 39,291 40,179 45,900
Midland 35,805 33,001 38,277 40,471 43,950 34,535
Headquarters (4,221) (4,675) (5,141) (5,720) (3,483) (7,270)
Total operating earnings 97,375 77,389 96,256 74,042 80,646 73,165
Other income (expense):
Interest income 1,901 3,213 4,703 7,169 10,877 9,469
Interest expense (38,464) (35,039) (33,537) (29,700) (27,022) (24,818)
Other, net 2,553 (1,056) (2,414) (2,546) 2,052 3,215
Earnings from continuing operations before
income taxes 63,365 44,507 65,008 48,965 66,553 61,031
Provision for income taxes 24,458 18,485 23,896 16,664 21,891 18,994
Earnings from continuing operations before
extraordinary item and accounting changes 38,907 26,022 41,112 32,301 44,662 42,037
Earnings (loss) from discontinued
operations, net((1)) 12,212 (58,182) (3,206) (3,674) 19,292 14,516
Extraordinary item net of tax((2)) -- (45,500) -- -- -- --
Cumulative effect of accounting
changes((3)) -- -- 8,209 (7,922) -- --
Net earnings (loss) $ 51,119 $ (77,660) $ 46,115 $ 20,705 $ 63,954 $ 56,553
Financial statistics and ratios:
Cash from operating activities $ 114,674 $ 35,116 $ 44,470 $ 45,945 $ 76,911 $ 83,630
Capital expenditures 57,883 61,450 80,538 106,134 93,552 88,884
Total assets 1,339,319 1,363,191 1,397,850 1,305,995 1,184,399 1,141,487
Long-term debt 365,488 328,939 357,109 327,361 296,578 260,367
Shareholders' equity 374,134 363,738 517,906 502,886 513,160 498,017
Debt/equity ratio 49/51 47/53 41/59 39/61 37/63 34/66
Return on total capital((4)) 8.3% 5.8% 7.1% 6.2% 7.6% 7.5%
Return on equity((4)) 10.5% 5.9% 8.1% 6.4% 8.8% 8.7%
Shares outstanding at December 31 20,411 20,930 22,621 22,543 22,504 23,213
Per share data:
Earnings from continuing operations before
extraordinary item and accounting
changes $ 1.87 $ 1.15 $ 1.81 $ 1.43 $ 1.93 $ 1.81
Earnings (loss) from discontinued
operations, net .59 (2.58) (.14) (.16) .84 .62
Extraordinary item net of tax((2)) -- (2.02) -- -- -- --
Effect of accounting changes((3)) -- -- .37 (.35) -- --
Net earnings (loss) $ 2.46 $ (3.45) $ 2.04 $ .92 $ 2.77 $ 2.43
Dividends declared $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.40
Shareholders' equity 18.33 17.38 22.89 22.31 22.80 21.45
<FN>
(1) Includes Eastern's 15.01% investment in Peabody Holding Company, Inc.,
sold in 1990.
(2) Provision for coal miners retiree health care of $70,000 pretax.
(3) Accounting changes relating to income taxes in 1992 and retiree health
care in 1991.
(4) Based on earnings from continuing operations before extraordinary item
and accounting changes.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following commentary should be read in conjunction with the Consolidated
Financial Statements and accompanying Notes to Financial Statements.
1994 COMPARED TO 1993
Overview
The Company had net earnings of $51.1 million, or $2.46 per share, in 1994
compared to a net loss of $77.7 million, or $3.45 per share, in 1993. Net
earnings from continuing operations, which consist of Eastern's two
continuing business segments--Boston Gas and Midland, were $38.9 million, or
$1.87 per share, in 1994, reflecting increases of 50% and 63%, respectively,
over the comparable results of $26.0 million, or $1.15 per share, in 1993. As
a result of Eastern's announced intention to sell WaterPro Supplies, the
financial statements for 1994 and prior periods have been restated to account
for Eastern's Water Products Group, which consisted of Ionpure Technologies,
prior to its sale in 1993, and WaterPro, as a discontinued operation. See
Note 10. Eastern's financial results for 1993 and 1994 reflect a number of
one-time gains and charges as well as the impact of unusual operating
conditions that had a material effect on earnings in both years. Adjusting
for these year-to-year variations, management estimates that earnings and
earnings per share from continuing operations increased by approximately 14%
and 23%, respectively, over 1993 results.
The net loss in 1993 included the effects of three substantial charges
totaling $99.8 million, net of tax, or $4.43 per share, relating to an
extraordinary provision for coal miners retiree health care obligations
($45.5 million, net of tax, or $2.02 per share), a write-down of WaterPro's
goodwill ($45.0 million, with no tax benefit, or $2.00 per share) and the
loss on the sale of Ionpure ($9.3 million, net of tax, or $.41 per share).
See Notes 12 and 10, respectively, for discussion of these matters. The
latter two charges are included in the loss from discontinued operations for
1993. In addition, the combined effects of a seventeen-week work stoppage at
Boston Gas, severe flooding throughout the Midwest and a strike by the United
Mine Workers ("UMW") significantly reduced operating results in 1993.
Included in 1994 is an after-tax gain of $8.0 million, or $.38 per share,
resulting from the settlement of Eastern's lawsuit relating to its 1989
acquisition of Ionpure, offset in part by costs relating to the anticipated
sale of WaterPro. This net gain is reflected in earnings from discontinued
operations. Included in earnings from continuing operations is a gain of $1.5
million, or $.07 per share, resulting from the sale of Midland's barge
construction and repair facility. Unusual weather patterns in 1994 had a
negative impact on earnings and partially offset the combined favorable
impact of these one-time items. Although record cold temperatures early in
1994 generated higher sales to Boston Gas firm customers, the margin benefit
of those sales was more than offset by increased costs for both Boston Gas
and Midland caused by the extreme weather. In addition, significantly warmer
than normal weather materially reduced revenue and operating earnings at
Boston Gas in the fourth quarter of 1994.
(In millions) 1994 1993 Change
Revenues:
Boston Gas $660.2 $614.3 7%
Midland 264.7 254.9 4%
Total $924.9 $869.2 6%
The increase in consolidated revenues from 1993 to 1994 reflects the impact
of Boston Gas' November 1993 rate increase and significantly increased
tonnages transported by Midland, partly offset by lower freight rates and the
absence of revenues from its liquid barge business, which was sold in
December 1993.
(In millions) 1994 1993 Change
Operating Earnings:
Boston Gas $65.8 $49.1 34%
Midland 35.8 33.0 8%
Headquarters (4.2) (4.7) 10%
Total $97.4 $77.4 26%
The improvement in operating earnings from 1993 to 1994 primarily reflects
the impact of Boston Gas' 1993 rate increase, partially offset by higher
depreciation and property taxes, and at Midland, the effect of
<PAGE>
cost reduction and productivity improvement programs and better operating
conditions, partially offset by lower rates for coal transportation
contracts. A seventeen-week work stoppage at Boston Gas, record flooding in
the Midwest and the UMW strike, which increased operating costs and disrupted
traffic patterns at Midland, decreased operating earnings in 1993.
Earnings from continuing operations before income taxes increased to $63.4
million in 1994 from $44.5 million in 1993, primarily reflecting the increase
in operating earnings described above, with higher interest expense and lower
interest income offset by higher other income, as described in Note 8. The
increase in interest expense reflects additional borrowings at Boston Gas and
a full year of dividends paid on its preferred stock. The repurchase of
shares in the fourth quarter of 1993 reduced funds available for investment
in 1994, resulting in lower interest income in 1994. The effective tax rate
in 1993 was 3% higher than in 1994 because of the additional deferred tax
requirements resulting from the 1% increase in the federal tax rate,
effective January 1, 1993.
As mentioned earlier, the 1993 net loss included an extraordinary provision
of $70.0 million ($45.5 million, net of tax, or $2.02 per share) for coal
miners retiree health care representing the estimated undiscounted liability
for health care and death benefit premiums imposed by the Coal Industry
Retiree Health Benefit Act of 1992, as described in Note 12.
Boston Gas
A $37.7 million annualized rate increase, which took effect November 1, 1993,
increased 1994 revenues by $29.9 million. Increased sales to new and existing
firm customers increased Boston Gas' revenues by $7.5 million. Although
temperatures varied widely relative to normal over the course of 1994, they
averaged 1.5% warmer than in 1993 and only 0.6% colder than normal in 1994.
The record cold weather during the first quarter more than offset 18% warmer
than normal weather in the fourth quarter, increasing revenues for the year
by $5.5 million. The balance of the revenue increase was attributable to
increased sales to non-firm customers. Most of the gross margins on these
sales are credited to firm customers.
Operating earnings increased by $16.7 million as the benefit of the rate
increase, stable labor conditions and sales of gas to new firm customers were
partially offset by higher depreciation, property taxes and bad debts. In
total, the weather decreased 1994 operating earnings by about $3 million,
reflecting higher workload-related labor and operating costs associated with
the unusually cold weather in the first quarter, partially offset by
additional gross margins attributable to the weather.
Midland Enterprises
Revenues and operating earnings increased 4% and 8%, respectively, in 1994
over 1993 due to significant increases in dry cargo transportation, reduced
operating and administrative expenses achieved through ongoing cost reduction
and productivity programs, as well as the absence of increased costs
associated with inefficiencies caused by the Mississippi River flooding and
the UMW strike in 1993. Partially offsetting were contractual and market rate
reductions negotiated early in 1994, the absence of the liquid barge
business, which contributed 5% and 7% of 1993 revenues and operating
earnings, respectively, and higher operating expenses associated with
flooding and severe winter icing conditions early in 1994. Reflecting
improved market and operating conditions, revenues and operating earnings for
the second half of 1994 increased by 12% and 48%, respectively, over the
comparable period in 1993.
Tonnages and ton miles increased 11% and 10%, respectively, in 1994 as
increased shipments of coal, aggregates, ores and towing for others more than
offset the sale of Midland's liquid barge business, which accounted for
approximately 5% of ton miles in 1993. Coal tonnage increased 11% from 1993,
reflecting a significant increase in spot shipments and increased demand for
utility coal under long-term contracts. Excluding the liquid barge business,
non-coal tonnage increased 20% over 1993, despite a 15% reduction in grain
tonnage, primarily as a result of increased shipments of aggregates, steel,
scrap and ores. The reduction in grain tonnage reflected management's
decision to de-emphasize its commitment to the grain market and to
concentrate on other business areas, principally on the Ohio and the lower
Mississippi rivers.
In June 1994 Midland recognized a pretax gain of $2.3 million on the sale of
its barge construction and repair facility in Louisiana. Midland had recorded
a $3.5 million reserve in December 1993 for the shutdown
<PAGE>
costs and carrying charges associated with this facility. As mentioned
earlier, Midland sold its liquid barge business at a pretax gain of $8.0
million in December 1993. These transactions are included in "Other income."
Discontinued Operations--Water Products Group
As described in Note 10, Eastern's Water Products Group has been accounted
for as a discontinued operation as a result of the decision to sell WaterPro.
For the ten months ended October 31, 1994, WaterPro's revenues increased 19%
from the comparable period in 1993 and its operating earnings increased from
$2.8 million to $7.8 million, reflecting market share gains, improved
productivity and increased construction activity. Earnings from discontinued
operations in 1994 also include $9.0 million received in settlement of a
lawsuit relating to Eastern's acquisition of Ionpure and related legal
expenses. Revenues from discontinued operations in 1993 include $40.7 million
from Ionpure through its sale, effective October 1, 1993. The loss from
discontinued operations in 1993 includes a $45.0 million write-down of
WaterPro's goodwill, an operating loss of $1.9 million at Ionpure and a loss
of $13.0 million on the sale of Ionpure. The estimated loss of $2.5 million,
net of tax, from disposition of the Water Products Group reflects the
anticipated losses through the closing date plus the estimated expenses
associated with the sale of WaterPro.
1993 COMPARED TO 1992
(In millions) 1993 1992 Change
Revenues:
Boston Gas $614.3 $594.3 3%
Midland 254.9 263.6 (3)%
Total $869.2 $857.9 1%
Consolidated revenues increased slightly in 1993. Although a variety of
market and economic factors affected the change, continued growth in the
Boston Gas firm customer base offset decreases in coal and grain
transportation at Midland.
(In millions) 1993 1992 Change
Operating Earnings:
Boston Gas $49.1 $63.1 (22)%
Midland 33.0 38.3 (14)%
Headquarters (4.7) (5.1) 8%
Total $77.4 $96.3 (20)%
Consolidated operating earnings decreased from 1992, due primarily to the
absence of a one-time benefit in 1992 that resulted from a modification to
the gas cost recovery mechanism at Boston Gas that increased operating
earnings by $11.6 million. In addition, record flooding in the Midwest and
strikes by the UMW and Boston Gas union employees decreased revenues and
increased operating expenses.
Earnings from continuing operations before income taxes decreased from $65.0
million in 1992 to $44.5 million in 1993, primarily reflecting the decrease
in operating earnings described above, lower interest income and higher
interest expense. Interest income decreased due to lower investment balances
and rates. The increase in interest expense primarily reflected additional
dividends paid on subsidiary preferred stock. The higher income tax rate in
1993 resulted from the 1% increase in the federal statutory rate, as
described in Note 9.
The loss from discontinued operations for 1993 reflected the write-down of
WaterPro goodwill and the loss on the sale of Ionpure, as described above.
Net earnings of $46.1 million in 1992 decreased to a loss of $77.7 million in
1993, reflecting the above-described 1993 extraordinary provision charge for
coal miners retiree health care and the absence of the $8.2 million benefit
recorded in 1992 for a change in the accounting for income taxes, as
described in Note 9.
Boston Gas
Increased sales to Boston Gas firm customers, primarily to an electric
utility on a seasonal-firm basis, increased revenue by $21.8 million and
operating earnings by $4.9 million. Relatively low residual oil prices
throughout 1993 limited sales to non-firm customers and reduced comparative
revenues by nearly $15.0
<PAGE>
million. However, the November 1993 rate increase and the pass through of
higher gas costs were somewhat offsetting. The weather in 1993, which was
4.5% warmer than 1992, was 1.3% warmer than normal, decreasing revenues by
$9.8 million and operating earnings by $1.7 million.
Excluding the $11.6 million benefit in 1992 of the modification to the gas
cost recovery mechanism, operating earnings decreased by $2.4 million as the
partial impact of the rate increase in combination with the benefit of
ongoing load growth offset much of the increased expenses attributable
primarily to the work stoppage.
Midland
Midland's transportation revenues decreased in 1993 primarily as a result of
reduced coal and grain shipments caused by the severe flooding on the
Mississippi and Illinois Rivers and reduced exports of both commodities, the
curtailment of coal shipments under a major long-term contract and lower
deliveries to electric utilities caused by the UMW strike. Midland's tonnage
and ton miles were unchanged from 1992 despite several significant events
that negatively affected the barge industry in general and Midland
specifically. A decline in coal tonnage from 1992 primarily reflected reduced
shipments to electric utilities due to the UMW strike (resolved in December),
disruption in river traffic caused by flooding, and the cessation of coal
shipments under a long-term contract. An increase in non-coal tonnage,
despite a significant reduction in grain tonnage, served to replace the lower
coal volume, although at lower margins. Benefits of cost savings programs
helped to offset much of the lost margins. Higher coal terminal throughput
was offset by lower phosphate terminalling.
In addition to restricting tonnage and altering traffic patterns, flooding
increased operating costs and shifted business to less profitable markets.
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 dividends to shareholders.
In addition to cash and short-term investments in excess of $60 million,
Eastern also maintains a $100 million long-term revolving credit agreement
plus other lines, all of which are available for general corporate purposes.
At December 31, 1994 there were no borrowings outstanding under any of these
facilities.
Eastern's capital structure is depicted in the chart below. The decrease in
equity in 1993 reflects the impact of non-cash charges associated with the
provision for coal miners retiree health care, the write-down of WaterPro
goodwill and the loss on the sale of Ionpure. Through a combination of
increased equity and debt, Eastern expects to continue its policy of
capitalizing Boston Gas and Midland with approximately equal amounts of
equity and long-term debt. Both subsidiaries maintain "A" ratings with the
major rating agencies.
CAPITAL STRUCTURE ($ in millions)
[Bar chart--plot points below]
1990 1991 1992 1993 1994
Debt 297 327 357 329 365
Equity 513 503 518 364 374
Total Capital 810 830 875 693 740
L-T Debt/Total Capital 37% 39% 41% 47% 49%
<PAGE>
During 1994 Boston Gas issued $50.0 million of Medium-Term Notes Series B,
with a weighted average maturity of 21 years and coupon of 7.20%.
To meet working capital requirements which reflect the seasonal nature of the
gas distribution business, Boston Gas had notes outstanding of $62.5 million
at December 31, 1994, a decrease of $43.8 million from the prior year,
primarily reflecting the use of proceeds from the issuance of medium-term
notes.
Boston Gas also maintains a bank credit agreement which supports the issuance
of up to $90 million of commercial paper to fund its inventory of gas
supplies. At December 31, 1994, Boston Gas had outstanding $53.6 million of
commercial paper for this purpose.
Consolidated capital expenditures are budgeted at approximately $83 million
for 1995, two-thirds of which are for Boston Gas and the balance for Midland.
During 1994 Eastern repurchased 603,500 shares of its common stock for $14.6
million.
OTHER MATTERS
Boston Gas may have or share responsibility for environmental remediation of
certain former manufactured gas plant sites, as described in Note 11. A
subsidiary of New England Electric System has assumed responsibility for
remediating eleven of the fifteen such sites owned by Boston Gas, subject to
a limited contribution by the latter. A 1990 regulatory settlement agreement
provides for recovery by Boston Gas of environmental costs associated with
such sites over separate, seven-year amortization periods without a return on
the unamortized balance. Although Eastern does not possess at this time
sufficient information to reasonably determine the ultimate cost to Boston
Gas of such remediation, it believes that it is not probable that such costs
will materially affect Eastern's financial condition or results of
operations.
Eastern may share responsibility for environmental remediation in the
vicinity of a former coal tar processing facility in Everett, Massachusetts,
as described in Note 11. Eastern does not possess at this time sufficient
information to reasonably determine or estimate the ultimate cost to it of
such remediation.
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Statements of Operations 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Shareholders' Equity 20
Notes to Financial Statements 21
Unaudited Quarterly Financial Information 32
Independent Auditors' Report 33
Management's Report on Responsibility 33
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(In thousands, except per
share amounts) 1994 1993 1992
Revenues $924,850 $869,215 $857,947
Operating costs and
expenses:
Operating costs 668,287 642,603 619,754
Selling, general and
administrative expenses 100,332 96,024 94,392
Depreciation and
amortization 58,856 53,199 47,545
Operating earnings 97,375 77,389 96,256
Other income (expense):
Interest income 1,901 3,213 4,703
Interest expense (38,464) (35,039) (33,537)
Other, net 2,553 (1,056) (2,414)
Earnings from continuing
operations before income
taxes 63,365 44,507 65,008
Provision for income taxes 24,458 18,485 23,896
Earnings from continuing
operations before
extraordinary item and
accounting change 38,907 26,022 41,112
Earnings (loss) from
discontinued operations,
net of tax 12,212 (58,182) (3,206)
Earnings (loss) before
extraordinary item and
accounting change 51,119 (32,160) 37,906
Extraordinary provision
for coal miners retiree
health care, net of tax -- (45,500) --
Cumulative effect of
change in accounting for
income taxes -- -- 8,209
Net earnings (loss) $ 51,119 $(77,660) $ 46,115
Earnings per share from
continuing operations
before extraordinary
item and accounting
change $1.87 $1.15 $1.81
Discontinued operations .59 (2.58) (.14)
Extraordinary provision
for coal miners retiree
health care, net of tax -- (2.02) --
Cumulative effect of
change in accounting for
income taxes -- -- .37
Net earnings (loss) per
share $2.46 $(3.45) $2.04
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(In thousands) 1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 60,854 $ 52,211
Receivables, less reserves of $16,091 in 1994 and $13,945 in 1993 97,093 116,180
Inventories 60,207 71,136
Deferred gas costs 66,865 65,802
WaterPro net assets held for sale 51,462 46,632
Other current assets 6,841 11,762
Total current assets 343,322 363,723
Investments:
U.S. Filter 44,847 44,292
Other investments 5,531 8,279
Total investments 50,378 52,571
Property and equipment, at cost 1,293,733 1,267,972
Less--accumulated depreciation 518,110 485,827
Net property and equipment 775,623 782,145
Other assets:
Deferred post-retirement health care costs 97,589 101,182
Deferred charges and other costs, less amortization 72,407 63,570
Total other assets 169,996 164,752
Total assets $1,339,319 $1,363,191
Liabilities and Shareholders' Equity
Current liabilities:
Current debt $ 67,774 $ 114,335
Accounts payable 49,981 63,660
Accrued expenses 22,908 20,754
Other current liabilities 71,774 70,643
Total current liabilities 212,437 269,392
Gas inventory financing 53,578 59,297
Long-term debt 365,488 328,939
Reserves and other liabilities:
Deferred income taxes 91,534 90,783
Post-retirement health care 102,382 104,730
Coal miners retiree health care 58,155 63,060
Preferred stock of subsidiary 29,229 29,197
Other reserves 52,382 54,055
Total reserves and other liabilities 333,682 341,825
Commitments and contingencies
Shareholders' equity:
Common stock $1.00 par value; Authorized shares--50,000,000;
Issued shares--20,651,925 in 1994 and 21,644,378 in 1993 20,652 21,644
Capital in excess of par value 37,712 61,778
Retained earnings 321,880 299,131
Treasury stock at cost--241,395 shares in 1994 and 714,786 shares
in 1993 (6,110) (18,815)
Total shareholders' equity 374,134 363,738
Total liabilities and shareholders' equity $1,339,319 $1,363,191
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 51,119 $(77,660) $ 46,115
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Discontinued operations non-cash charges and
working capital changes (4,830) 54,651 2,148
Extraordinary provision for coal miners retiree health
care, net of tax -- 45,500 --
Accounting change for income taxes -- -- (8,209)
Depreciation and amortization 58,856 53,199 47,545
Income taxes and tax credits 7,452 7,993 8,774
Other changes in assets and liabilities:
Receivables 19,087 (5,519) (14,461)
Inventories 8,534 (7,874) (14,649)
Deferred gas costs (1,063) (24,934) (26,994)
Accounts payable (13,679) 743 4,431
Other (10,802) (10,983) (230)
Net cash provided by operating activities 114,674 35,116 44,470
Cash flows from investing activities:
Capital expenditures (57,883) (61,450) (80,538)
Short-term investments 22,017 (14,411) 20,769
Proceeds on sale of liquid barge business -- 14,950 --
Proceeds on sale of barge construction business 12,695 -- --
Other (6,619) (2,101) (6,688)
Net cash used by investing activities (29,790) (63,012) (66,457)
Cash flows from financing activities:
Dividends paid (29,779) (31,697) (31,634)
Issuance of preferred stock by subsidiary -- -- 29,436
Changes in notes payable (43,770) 51,356 (1,474)
Changes in gas inventory financing (5,719) 10,666 17,461
Proceeds from issuance of long-term debt 50,000 -- 53,000
Repayment of long-term debt (14,990) (24,661) (25,157)
Repurchase of stock (14,574) (46,039) --
Other 1,885 857 764
Net cash provided (used) by financing activities (56,947) (39,518) 42,396
Net increase (decrease) in cash and cash equivalents 27,937 (67,414) 20,409
Cash and cash equivalents at beginning of year 23,737 91,151 70,742
Cash and cash equivalents at end of year 51,674 23,737 91,151
Short-term investments 9,180 28,474 14,063
Cash and short-term investments $ 60,854 $ 52,211 $105,214
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Capital In
Stock Excess Of Retained Treasury
(In thousands) $1 Par Value Par Value Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $23,613 $112,622 $394,651 $(28,000) $502,886
Add (deduct):
Net earnings -- -- 46,115 -- 46,115
Dividends declared--$1.40 per share -- -- (31,660) -- (31,660)
Foreign currency translation
adjustment -- -- (367) -- (367)
Unearned compensation related to the
issuance of restricted stock, net -- (1,079) -- 1,371 292
Issuance of stock 22 507 -- 111 640
Balance at December 31, 1992 23,635 112,050 408,739 (26,518) 517,906
Add (deduct):
Net loss -- -- (77,660) -- (77,660)
Dividends declared--$1.40 per share -- -- (31,711) -- (31,711)
Repurchase of stock -- -- -- (46,039) (46,039)
Retirement of stock (2,000) (50,732) -- 52,732 --
Foreign currency translation
adjustment -- -- (237) -- (237)
Unearned compensation related to the
issuance of restricted stock, net -- 262 -- 105 367
Issuance of stock 9 198 -- 905 1,112
Balance at December 31, 1993 21,644 61,778 299,131 (18,815) 363,738
Add (deduct):
Net earnings -- -- 51,119 -- 51,119
Dividends declared--$1.40 per share -- -- (29,003) -- (29,003)
Repurchase of stock -- -- -- (14,574) (14,574)
Retirement of stock (1,000) (24,312) -- 25,312 --
Unearned compensation related to the
issuance of restricted stock, net -- 345 -- 105 450
Unrealized gains, on investments
available for sale, net -- -- 633 -- 633
Issuance of stock 8 (99) -- 1,862 1,771
Balance at December 31, 1994 $20,652 $ 37,712 $321,880 $ (6,110) $374,134
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
The consolidated financial statements include the accounts of Eastern
Enterprises ("Eastern"), Boston Gas Company ("Boston Gas") and Midland
Enterprises Inc. ("Midland"). Financial information for Water Products Group,
consisting of WaterPro Supplies Corporation ("WaterPro") and Ionpure
Technologies Corporation ("Ionpure"), has been restated to conform to
discontinued operations presentation (See Note 10).
Certain prior year financial statement information has been reclassified to
be consistent with the current presentation. All material intercompany
balances and transactions have been eliminated in consolidation. Certain
accounting policies followed by Eastern and its subsidiaries are described
below:
Cash and short-term investments: Highly liquid instruments with original
maturities of three months or less are considered cash equivalents.
Inventories: Inventories are valued at the lower of cost or market using the
first-in, first-out (FIFO) or average cost method. The components of
inventories were as follows:
December 31,
(In thousands) 1994 1993
Supplemental gas supplies $46,844 $53,152
Other materials, supplies and marine fuel 13,363 17,984
$60,207 $71,136
Investment in U.S. Filter: Eastern holds 3,041,092 shares or 18% of the
voting stock of U.S. Filter. Eastern accounts for its investment in U.S.
Filter using the equity method, with a lag of one fiscal quarter. The
difference of approximately $20 million between the carrying value of
Eastern's investment and its share of the underlying net assets of U.S.
Filter is being amortized over a period of 40 years.
Other current liabilities: Included in other current liabilities were:
December 31,
(In thousands) 1994 1993
Pipeline refunds due utility customers $18,720 $ 8,029
Pipeline transition costs regulatory
liability 11,560 24,174
Reserves for insurance claims 8,809 8,285
Dividends payable 7,154 7,930
Coal miners retiree health care 10,538 6,940
Revenue recognition: Boston Gas' revenues are recorded when billed. Boston
Gas defers the cost of any firm gas that has been distributed, but is
unbilled at the end of a period, to the period in which the gas is billed to
customers. Midland recognizes revenue on tows in progress on the percentage
of completion method based on miles traveled.
Depreciation and amortization: Depreciation and amortization are provided
using the straight-line method at rates designed to allocate the cost of
property and equipment over their estimated useful lives. Because the rates
of depreciation on commercial equipment vary with each property unit, it is
impractical to state each rate individually. Depreciation and amortization as
a percentage of average depreciable assets was as follows:
Years Ended
December 31,
1994 1993
Boston Gas 5.2% 4.0%
Midland 3.9% 4.2%
Headquarters 12.4% 11.2%
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings per share: Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding. Such shares
amounted to 20,789,000 in 1994, 22,530,000 in 1993 and 22,654,000 in 1992.
Fully diluted earnings per share were not materially different from primary
earnings per share.
2. Business Segment Information
Operating results and other financial data are presented for Eastern's two
business segments: Boston Gas, a local gas distribution company serving
eastern and central Massachusetts, and Midland, a barge transportation
company operating on the inland waterways.
(In thousands) 1994 1993 1992
Revenues:
Boston Gas $ 660,158 $ 614,294 $ 594,330
Midland 264,692 254,921 263,617
$ 924,850 $ 869,215 $ 857,947
Operating earnings:
Boston Gas $ 65,791 $ 49,063 $ 63,120
Midland 35,805 33,001 38,277
Headquarters (4,221) (4,675) (5,141)
$ 97,375 $ 77,389 $ 96,256
Identifiable assets, net
of depreciation and
reserves:
Boston Gas $ 833,620 $ 834,440 $ 738,604
Midland 345,625 373,144 395,097
Headquarters 160,074 155,607 264,149
$1,339,319 $1,363,191 $1,397,850
Capital expenditures:
Boston Gas $ 53,504 $ 47,057 $ 51,136
Midland 4,337 14,191 29,327
Headquarters 42 202 75
$ 57,883 $ 61,450 $ 80,538
Depreciation and
amortization:
Boston Gas $ 35,809 $ 27,566 $ 22,493
Midland 22,659 25,288 24,607
Headquarters 388 345 445
$ 58,856 $ 53,199 $ 47,545
Operating loss under "Headquarters" reflects unallocated corporate general
and administrative expenses. Identifiable assets under "Headquarters" include
primarily cash, short-term investments, WaterPro net assets held for sale and
the investment in U.S. Filter.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Long-Term Obligations and Current Debt
Credit agreement and lines of credit: In 1994 Eastern negotiated a credit
agreement with a group of banks which provides for the borrowing by Eastern
and certain subsidiaries of up to $100,000,000 at any time through December
31, 1999. In addition, Boston Gas maintains committed lines of credit
totaling $40,000,000. At December 31, 1994 and 1993 no borrowings were
outstanding under credit agreements. The interest rate for borrowings is the
agent bank's prime rate or, at Eastern's option, various alternatives. The
agreement and lines require facility or commitment fees, which average 1/8 of
1% of the commitment. Boston Gas utilizes the credit agreement and the lines
of credit to back its commercial paper borrowings. In addition, Eastern and
Boston Gas have various uncommitted lines of credit which are utilized for
short-term borrowings and provide for interest at federal funds, money market
or prime rates. Included in current debt were $62,530,000 and $106,300,000 of
commercial paper and notes payable with weighted average interest rates of
5.93% and 3.50% at December 31, 1994 and 1993, respectively.
Gas inventory financing: Boston Gas maintains a credit agreement with a group
of banks which provides for the borrowing of up to $90,000,000 for the
exclusive purpose of funding its inventory of gas supplies or for backing
commercial paper issued for the same purpose. All costs related to this
funding are recoverable from customers. Boston Gas had $53,578,000 and
$59,297,000 of commercial paper outstanding to fund its inventory of gas
supplies at December 31, 1994 and 1993, respectively. Since the commercial
paper is supported by the credit agreement, these borrowings have been
classified as non-current in the accompanying consolidated balance sheets.
The credit agreement includes a one-year revolving credit which may be
converted to a two-year term loan at the option of Boston Gas if the one-year
revolving credit is not renewed by the banks. Boston Gas may select interest
rate alternatives based on prime or Eurodollar rates and requires a facility
fee of 1/10 of 1% on the commitment. No borrowings were outstanding under
this agreement during 1994 and 1993.
Description of long-term debt:
Long-term debt: December 31,
(In thousands) 1994 1993
Boston Gas:
7.95%-9% Sinking Fund Debentures,
due 1997-2001 $ 60,000 $ 63,142
8.33%-9.75% Medium-Term Notes, Series A,
due 2005-2022 100,000 100,000
6.93-8.50% Medium-Term Notes, Series B,
due 2006-2024 50,000 --
First Mortgage Bonds-8.375% Series,
due 1996 2,880 3,360
Capital leases 5,690 7,008
Less--current portion (1,890) (2,165)
216,680 171,345
Midland:
First Preferred Ship Mortgage Bonds-
9.9% Series, due 2008 48,758 48,692
8.1%-9.85% Medium-Term Notes,
Series A, due 2002-2012 71,000 75,000
Promissory Note, due 1995 -- 3,031
8.8% Ship Financing Bond, due 1996 -- 938
Capital leases 32,404 35,804
Less--current portion (3,354) (5,871)
148,808 157,594
$365,488 $328,939
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1994 Boston Gas issued $50,000,000 of Medium-Term Notes, Series B, with a
weighted average maturity of 21 years and coupon of 7.2%. The Series B Notes
include $12,000,000 maturing in 2006 with a put option at par in 1999 and an
interest rate step up from 8.09% to 8.59% in 1999. Proceeds from the
issuances reduced current debt.
Boston Gas' First Mortgage Bonds are secured by a first mortgage lien on a
portion of Boston Gas' utility properties and franchises.
Midland's First Preferred Ship Mortgage Bonds and Medium-Term Notes are
secured by certain transportation equipment.
Capital leases consist of property and equipment lease obligations with a
weighted average interest rate of 9.68%. Minimum lease payments under these
agreements are due in installments through 2003.
Five-year operating lease and sinking fund commitments: In addition to the
property and equipment financed under capital leases, Eastern and its
subsidiaries lease certain facilities, vessels and equipment under long-term
operating leases which expire on various dates through the year 2008. Total
rentals charged to expense were $10,882,000 in 1994, $10,131,000 in 1993 and
$8,653,000 in 1992.
Future minimum lease commitments under operating leases are $9,547,000,
$8,586,000, $5,372,000, $2,633,000, $1,925,000 for 1995 through 1999,
respectively, and $7,176,000 thereafter.
Sinking fund requirements and maturities, net of amounts acquired in advance
are $5,243,000, $7,593,000, $13,086,000, $12,975,000 and $18,482,000 for 1995
through 1999, respectively.
4. Preferred Stock of Subsidiary
In 1992 Boston Gas sold 1,200,000 shares of variable-term cumulative
preferred stock, which is non-voting and has a liquidation value of $25 per
share. In 1993, Boston Gas selected a Final Term ending September 1, 2018 and
fixed the annual dividend rate at 6.421%, payable quarterly. The Final Term
requires 5% annual sinking fund payments beginning on September 1, 1999. The
preferred stock cannot be called prior to 2003.
5. Stock Plans
Eastern has a stock option plan which provides for the issuance of
non-qualified stock options, incentive stock options and stock appreciation
rights ("SARs") to its officers and key employees. Options and SARs may be
granted at prices not less than fair market value on the date of grant for
periods not extending beyond ten years from the date of grant. Exercise of an
option requires surrender of the related SAR, if any. Exercise of an SAR
requires surrender of the related option.
Shares available for future grants under the stock option plans were 98,988
at December 31, 1994, 199,334 at December 31, 1993 and 188,806 at December
31, 1992. Stock options exercisable at December 31, 1994 and 1993 were
438,291 and 389,188 respectively. SARs exercisable at December 31, 1994 and
1993 were 124,150 and 121,100, respectively.
Option activity during the past three years was as follows:
Average Stock
option price options SARs
Outstanding at December 31, 1991 $25.72 631,281 169,595
Granted 27.06 2,000 --
Exercised 21.79 (20,569) (22,647)
Surrendered 21.49 (22,647) (1,850)
Canceled 28.47 (5,220) (2,410)
Outstanding at December 31, 1992 $26.00 584,845 142,688
Exercised 21.93 (10,109) (8,588)
Surrendered 21.97 (8,588) (120)
Canceled 29.16 (1,940) (970)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Average Stock
option price options SARs
Outstanding at December 31, 1993 $26.12 564,208 133,010
Granted 24.24 108,000 --
Exercised 20.38 (7,547) (150)
Surrendered 21.69 (150) --
Canceled 29.29 (9,800) (4,900)
Outstanding at December 31, 1994 $25.83 654,711 127,960
Under Restricted Stock Plans for key employees and non-employee trustees,
Eastern awarded 6,000 shares in 1994, 4,000 shares in 1993 and 52,500 shares
in 1992. Eastern recognized compensation expense of $450,000 in 1994,
$367,000 in 1993 and $292,000 in 1992 in accordance with the vesting terms of
these awards. Shares available for future awards under these plans were
42,500 shares at December 31, 1994 and 48,500 at December 31, 1993.
6. Common Stock Purchase Rights
On February 22, 1990, Eastern declared a distribution to shareholders of
record on March 5, 1990, pursuant to the terms of a Common Stock Rights
Agreement between Eastern and the Rights Agent (currently The First National
Bank of Boston), of one common stock purchase right for each outstanding
share of common stock. Each right would initially entitle the holder to
purchase one share of common stock at an exercise price of $100.00, subject
to adjustment to prevent dilution. The rights become exercisable on the 10th
business day after a person acquires 20% or more of Eastern's stock or
commences a tender offer for 20% or more of Eastern's stock, or on the 10th
business day after Eastern's Board of Trustees determines that a shareholder
owning at least 10% of Eastern's stock is an "adverse person," based on
criteria specified in the rights agreement. The rights may be redeemed by
Eastern at a price of $.01 at any time prior to the 10th day after a 20%
position has been acquired. The rights will expire on March 5, 2000.
If Eastern is acquired in a merger or other business combination, each right
will entitle its holder to purchase common shares of the acquiring company
having a market value of twice the exercise price of each right (i.e., at a
50% discount). If an acquiror purchases 20% of Eastern's common stock or has
been determined to be an "adverse person," each right will entitle its holder
to purchase a number of Eastern's common shares having a market value of
twice the right's exercise price.
7. Interest Expense
Years Ended December 31,
(In thousands) 1994 1993 1992
Interest on long-term debt $32,430 $31,326 $31,781
Other, including amortization of
debt expense 5,040 3,488 2,988
Less--capitalized interest (932) (1,164) (1,637)
Subsidiary preferred stock
dividends 1,926 1,389 405
Interest expense $38,464 $35,039 $33,537
Interest payments $36,686 $34,040 $33,002
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Other Income (Expense)
Years Ended December 31,
(In thousands) 1994 1993 1992
Shutdown and subsequent sale of
barge construction facility $2,600 $(3,500) $ --
Gain on sale of liquid barge
business -- 7,988 --
Provision for environmental expenses (725) (5,715) (2,500)
Other 678 171 86
$2,553 $(1,056) $(2,414)
9. Income Taxes
The table below reconciles the statutory U.S. Federal income tax provision
from continuing operations to the recorded income tax provision:
Years Ended December 31,
(In thousands) 1994 1993 1992
Statutory rate 35% 35% 34%
Computed provision for income taxes
at statutory Federal rate $22,178 $15,577 $22,103
Increase (decrease) from statutory
rate resulting principally from:
State taxes, net of Federal benefit 2,083 1,636 2,165
Deferred tax effect of change in
statutory rate -- 1,419 --
Other, net 197 (147) (372)
Provision for income taxes $24,458 $18,485 $23,896
Effective rate 39% 42% 37%
Following is a summary of the provision for income taxes:
Years Ended December 31,
(In thousands) 1994 1993 1992
Current:
Federal $18,059 $ 9,598 $14,059
State 821 1,197 3,677
Total current provision 18,880 10,795 17,736
Deferred:
Federal 3,194 6,370 5,560
State 2,384 1,320 600
Total deferred provision 5,578 7,690 6,160
Provision for income taxes $24,458 $18,485 $23,896
Tax payments $17,951 $10,809 $ 6,656
Effective January 1, 1992, Eastern adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes" by recording a
credit to income of approximately $8,209,000 or $.37 per share, which
represents the net decrease to the deferred tax liabilities for non-utility
operations as of that date. This amount has been reflected in the
consolidated statement of operations as the cumulative effect of the
accounting change. The cumulative effect for Boston Gas and the impact of the
1993 tax increase have been recorded as a regulatory asset and are being
recovered in accordance with Boston Gas' 1993 rate order.
The Revenue Reconciliation Act of 1993 increased the statutory Federal income
tax rate from 34% to 35%, effective January 1, 1993. The provision for income
tax in 1993 includes approximately $447,000 for the impact of the rate change
on current earnings, and approximately $1,419,000 to reflect the additional
deferred tax requirements for non-utility operations as of January 1, 1993,
in accordance with SFAS 109.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Significant items making up deferred tax liabilities and deferred tax assets
are as follows:
December 31,
(In thousands) 1994 1993
Assets:
Unbilled revenue $ 30,978 $ 30,924
Coal miners retiree health care 24,043 24,500
Bad debt reserve 6,285 5,429
Regulatory liabilities 5,233 5,494
Deferred investment tax credits 5,213 5,437
Other 15,561 12,464
Total deferred tax assets 87,313 84,248
Liabilities:
Accelerated depreciation (131,310) (130,005)
Deferred gas costs (23,455) (23,861)
Other (25,245) (17,830)
Total deferred tax liabilities (180,010) (171,696)
Total deferred taxes $ (92,697) $ (87,448)
10. Discontinued Operations
On November 8, 1994, Eastern announced its intention to sell WaterPro. On
March 2, 1995, Eastern signed a purchase and sale agreement to sell WaterPro
at a cash price approximately equivalent to book value, subject to certain
post-closing adjustments. The sale of WaterPro, which is scheduled to close
in the second quarter of 1995, will complete the disposition of Eastern's
Water Products Group, which consisted of WaterPro and Ionpure prior to the
sale of the latter in 1993. The disposal of Water Products Group has been
accounted for as a discontinued operation and accordingly, its net assets and
operating results for both the current and prior periods are segregated and
reported as discontinued operations in the accompanying consolidated
financial statements.
Following is a summary of results of operations for the Water Products Group
through the measurement date of October 31, 1994 and the estimated gain or
loss on disposition:
(In thousands) 1994 1993 1992
Revenues $189,125 $230,632 $233,487
Earnings (loss) before income taxes $ 17,544 $(61,129) $ (1,977)
Provision (benefit) for income taxes 2,832 (2,947) 1,229
Earnings (loss) from operations of
discontinued operations 14,712 (58,182) (3,206)
Loss on disposition before income taxes (3,850) -- --
Benefit for income taxes 1,350 -- --
Loss on disposition (2,500) -- --
Net earnings (loss) from discontinued
operations $ 12,212 $(58,182) $ (3,206)
The tax provision from operations in 1994 includes a benefit of $1,760,000
related to a tax examination of Ionpure concluded during that year. The net
loss on disposition of $2,500,000 reflects an accrual for estimated expenses
on the sale of WaterPro, including anticipated losses from operations from
the measurement date through the expected disposal date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings (loss) from operations of discontinued operations include the
following:
(In thousands) 1994 1993 1992
Operations $6,591 $(2,094) $(2,150)
Writedown of WaterPro goodwill -- (45,000) --
Sale of Ionpure 1,038 (9,300) --
Settlement of lawsuit concerning
Ionpure acquisition,
net of legal costs 7,083 (1,788) (1,056)
$14,712 $(58,182) $(3,206)
11. Environmental Matters
Boston Gas, like many other companies in the natural gas industry, is party
to governmental actions requiring investigation and possible remediation of
former manufactured gas plant ("MGP") sites. Boston Gas currently owns
fifteen former MGP sites. Massachusetts Electric Company ("MEC"), a
wholly-owned subsidiary of New England Electric System ("NEES"), has assumed
full responsibility for remediating one such MGP site in Lynn, Massachusetts,
pursuant to the decision of the First Circuit Court of Appeals in John S.
Boyd Inc. et al. v. Boston Gas Company, et al., which affirmed that NEES and
its subsidiaries are responsible for remediating the site as prior owners and
operators. Pursuant to a settlement agreement between MEC and Boston Gas (the
"Settlement Agreement"), MEC has also assumed responsibility for remediating
ten other sites owned by Boston Gas, subject to limited contribution by
Boston Gas. Boston Gas is working with the Massachusetts Department of
Environmental Protection (the "DEP") to determine the extent of remediation
which may be required at the four former MGP sites currently owned by Boston
Gas and not covered by the Settlement Agreement or the Boyd decision. Boston
Gas is aware of other former MGP sites located within Boston Gas' service
territory but not currently owned by Boston Gas. A 1990 settlement agreement
with the Massachusetts Department of Public Utilities provides for recovery
by Boston Gas through the cost of gas adjustment clause of any environmental
response costs associated with MGP sites over separate, seven-year
amortization periods without a return on the unamortized balance. Due to
uncertainties as to the extent and sources of releases of compounds, as well
as the nature and extent of any required remediation, management does not
possess at this time sufficient information to reasonably determine the
ultimate cost to Boston Gas of remediation at such sites, but believes that
it is not probable that such costs will materially affect Eastern's financial
condition or results of operations, particularly given Boston Gas' limited
financial exposure due to the Settlement Agreement as well as its ability to
recover all such costs incurred.
Eastern is aware of certain non-utility sites, associated with operations in
which it is no longer involved, for which it may have or share environmental
remediation responsibility. While Eastern has provided reserves that cover
some anticipated costs of remediation of the site of a former coal tar
processing facility in Everett, Massachusetts (the "Facility") and believes
that it has provided adequate reserves to cover the estimated costs of
remediation of the other such sites, the extent of Eastern's potential
liability at such sites is not yet determinable.
The Facility, which was located on a 10-acre parcel of land formerly owned by
Eastern, was operated by predecessors of Allied-Signal, Inc. from the early
1900s until 1937 and by Koppers Company, predecessor of Beazer East, Inc.
(and Eastern's controlling stockholder until 1951) from 1937 until 1960 when
the Facility was shut down. The Facility processed coal tar purchased from
Eastern's adjacent by-product coke plant, also shut down in 1960. Eastern,
Beazer and Allied-Signal entered into an Administrative Consent Order with
the DEP in 1989 which requires that they jointly investigate and develop a
remedial response plan for the Facility site, including any area where a
release from that site may have come to be located. The companies have
entered into a cost-sharing agreement under which each company has agreed to
bear one-third of the costs of compliance with the Consent Order, while
preserving any claims it may have against the other companies. In 1993 the
companies completed preliminary remedial measures, including abatement of
seepage of materials into the adjacent Island End River, a 29-acre tidal
river which is part of Boston harbor. Studies
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
have identified compounds that may be associated with coal tar and/or oil in
soil and ground water at the site and adjacent areas and in the Island End
River sediments. The National Oceanic and Atmospheric Administration and the
Coast Guard are working with the DEP in connection with further investigation
and possible remediation of river sediment conditions. In addition, the U.S.
Environmental Protection Agency is currently evaluating the Facility site and
the Island End River for possible designation as a federal priority Superfund
site. In light of uncertainties as to the extent and sources of releases of
compounds, the nature of any required remediation, the area and volume of
soil, ground water and/or sediments that may be included, the possibility of
participation by additional potentially responsible parties and the
apportionment of liability, Eastern does not possess at this time sufficient
information to reasonably determine or estimate the ultimate cost to it of
such remedial measures. Eastern is recovering certain costs of its legal
defense and may be entitled to recovery of remediation costs from its
insurers with respect to this matter.
12. Coal Miners Retiree Health Care
In September 1993 Eastern received notice from the Social Security
Administration ("SSA") claiming that Eastern is responsible for health care
and death benefit premiums for certain retired coal miners and their
beneficiaries under the federal Coal Industry Retiree Health Benefit Act of
1992 (the "Coal Act"). The amount of premiums requested aggregates in excess
of $5,000,000 to cover an initial 20 month period ending September 30, 1994,
and relates to retired miners who are said to have worked for Eastern's Coal
Division prior to the transfer of those operations to a subsidiary in 1965.
Eastern has not yet received a bill for subsequent periods. Eastern has filed
a lawsuit in the Federal District Court for Massachusetts challenging the
constitutionality of the Coal Act as applied to it, and asserting a claim
against Peabody Holding Company, Inc. ("Peabody"), to which Eastern sold its
coal subsidiaries in 1987, that any liabilities under the Coal Act should be
borne by Peabody and such subsidiaries. Eastern has posted security to delay
payment of premiums pending the outcome of its constitutional challenge.
Eastern is aware of several other lawsuits challenging the constitutionality
of the Coal Act.
In 1993 Eastern recorded a reserve of $70,000,000 to provide for its
estimated undiscounted obligations under the Coal Act. This amount was
reflected as an extraordinary item of $45,500,000 net of tax or $2.02 per
share, in accordance with the conclusions of the Financial Accounting
Standard Board's Emerging Issues Task Force, which has determined that any
entity such as Eastern which no longer has operations in the coal industry
should account for its entire obligation under the Coal Act as an
extraordinary item. Eastern's obligation could range from zero to more than
$100 million depending on the outcome of its constitutional challenge or its
claim against Peabody, or other factors including administrative review of
assigned individuals, medical inflation rates, Medicare reimbursements and
other changes in government health care programs.
13. Retiree Benefits
Eastern and its subsidiaries, through various company administered plans and
other union retirement and welfare plans under collective bargaining
agreements, provide retirement benefits for the majority of their employees,
including pension and certain health care and life insurance benefits. Normal
retirement age is 65 but provision is made for earlier retirement. Pension
benefits for salaried plans are based on salary and years of service, while
union retirement and welfare plans are based on negotiated benefits and years
of service. Employees hired before 1993 who are participants in the pension
plans become eligible for health care benefits if they reach retirement age
while working for Eastern. The funding of retirement and employee benefit
plans is in accordance with the requirements of the plans and collective
bargaining agreements and, where applicable, in sufficient amounts to satisfy
the "Minimum Funding Standards" of the Employee Retirement Income Security
Act ("ERISA"). The net cost for these plans and agreements charged to expense
was as follows:
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pensions
Years Ended December 31,
(In thousands) 1994 1993 1992
Service cost $ 4,792 $ 4,282 $ 3,852
Interest cost on projected benefit
obligation 10,005 9,791 8,940
Actual return on plan assets (6,540) (21,690) (12,945)
Net amortization and deferral (3,903) 10,674 2,572
Total net pension cost of
company-administered plans 4,354 3,057 2,419
Multi-employer union retirement and
welfare plans 309 377 321
Total net pension cost $ 4,663 $ 3,434 $ 2,740
Health Care
Years Ended December 31,
(In thousands) 1994 1993 1992
Service cost $ 907 $ 1,566 $ 1,459
Interest cost on accumulated benefits
obligation 6,038 8,035 8,847
Actual return on plan assets (755) (282) (173)
Net amortization and deferral (2,739) (1,183) (247)
Boston Gas deferral 3,472 (2,275) (4,447)
Total retiree health care cost $ 6,923 $ 5,861 $ 5,439
The following table sets forth the funded status of company-administered
plans and amounts recorded in Eastern's consolidated balance sheet as of
December 31, 1994 and 1993 using actuarial measurement dates as of October 1,
1994 and 1993:
Pensions Health Care
(In thousands) 1994 1993 1994 1993
Accumulated benefit
obligation:
Vested benefits $113,306 $104,355 $ 75,983 $ 67,492
Non-vested benefits 15,195 13,275 15,069 15,741
128,501 117,630 91,052 83,233
Effect of future salary
increases 18,896 18,820 -- --
Projected benefit obligation
("PBO") $147,397 $136,450 $ 91,052 $ 83,233
Plan assets at fair value $155,808 $152,925 $ 11,611 $ 10,856
Less PBO 147,397 136,450 91,052 83,233
Plan assets in excess of (less
than) PBO 8,411 16,475 (79,441) (72,377)
Unrecognized net obligation at
December 31, 1985 being
amortized over 15 years 2,542 2,951 -- --
Unrecognized net (gain) loss (12,498) (19,638) (7,119) (15,171)
Unrecognized prior service
cost (benefit) 16,313 15,837 (15,822) (17,182)
Amounts contributed to plans
during fourth quarter 534 476 -- --
Unfunded accumulated benefits (2,591) (1,291) -- --
Net asset (reserve) at $ $
December 31 12,711 14,810 $(102,382) $(104,730)
The above vested health care benefits include $66,544,000 and $58,380,000 for
retirees in 1994 and 1993, respectively. To fund health care benefits under
its collective bargaining agreements Boston Gas maintains a Voluntary
Employee Beneficiary Association ("VEBA"), to which it makes contributions
from time to time. Plan assets are invested in equity securities,
fixed-income investments and money market instruments.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Following are the assumptions used in the actuarial measurements:
1994 1993
Discount rate 7.5% 7.5%
Return on plan assets 8.5% 8.5%
Increase in future compensation 5.0% 5.0%
Health care inflation trend 11.0% 12.0%
The health care inflation trend is assumed to drop gradually to 5% after 6
years. A one-percentage-point increase in the assumed health care cost trend
would have increased the net periodic post-retirement benefit cost charged to
expense and the accumulated benefit obligation by $73,000 and $7,227,000 and,
$62,000 and $6,440,000, respectively, in 1994 and 1993.
14. Fair Values of Financial Instruments
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 other than those accounted for under the equity method to be
carried at fair value or amortized cost for debt securities expected to be
held to maturity. 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 as a component of shareholders' equity. At December
31, 1994 the difference between the fair value and the original cost of these
securities is a net gain of $633,000.
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
Cash, short-term investments and debt: The carrying amounts approximate fair
value because of the short maturity of those instruments. Short-term debt
includes notes payable, gas inventory financing and other miscellaneous
short-term liabilities.
Long-term debt and preferred stock of subsidiary: The fair values are based
on currently quoted market prices.
The carrying amounts and estimated fair values of Eastern's financial
instruments are as follows:
December 31,
(In thousands) 1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and short-term
investments $ 60,854 $ 60,854 $ 52,211 $ 52,211
Short-term debt 116,108 116,108 165,596 165,596
Long-term debt 370,732 372,869 336,975 384,850
Preferred stock of
subsidiary 29,229 26,250 29,197 30,600
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. Unaudited Quarterly Financial Information
For the three months ended
(In thousands, except per June Sept
share amounts) Mar 31, 30, 30, Dec 31
1994:
Revenues $372,468 $191,793 $139,222 $221,367
Operating earnings (loss) 57,126 14,256 (478) 26,471
Earnings (loss) from
continuing operations
before income taxes 47,832 7,970 (9,413) 16,976
Earnings (loss) from
continuing operations 28,862 5,015 (5,594) 10,624
Earnings (loss) from
discontinued operations (174) 1,146 2,481 8,759
Net earnings (loss) $ 28,688 $ 6,161 $ (3,113) $ 19,383
Earnings (loss) per share
from continuing operations $1.38 $.24 $(.27) $.52
Earnings (loss) per share
from discontinued
operations (.01) .05 .13 .42
Net earnings (loss) per share $1.37 $29 $(.14) $.94
1993:
Revenues $324,077 $195,312 $123,033 $226,793
Operating earnings (loss) 49,230 12,832 (7,142) 22,469
Earnings (loss) from
continuing operations
before income taxes 41,109 5,184 (14,652) 12,866
Earnings (loss) from
continuing operations
before extraordinary item 25,340 3,581 (10,370) 7,471
Loss from discontinued
operations (2,315) (317) (10,628) (44,922)
Extraordinary item net of
tax -- -- -- (45,500)
Net earnings (loss) $ 23,025 $ 3,264 $(20,998) $(82,951)
Earnings (loss) per share
from continuing operations
before extraordinary item $1.12 $.16 $(.46) $ .33
Loss per share from
discontinued operations (.10) (.02) (.47) (1.99)
Extraordinary item net of tax -- -- -- (2.02)
Net earnings (loss) per
share $1.02 $.14 $(.93) $(3.68)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of Eastern Enterprises:
We have audited the accompanying consolidated balance sheets of Eastern
Enterprises (a Massachusetts voluntary association) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eastern Enterprises and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As explained in Note 9 to the consolidated financial statements, effective
January 1, 1992 the company changed its method of accounting for income
taxes. As explained in Note 14 to the consolidated financial statements,
effective January 1, 1994 the company changed its method of accounting for
securities.
Arthur Andersen LLP
Boston, Massachusetts
January 25, 1995 (except with respect to the matter discussed in Note 10, as
to which the date is March 2, 1995).
MANAGEMENT'S REPORT ON RESPONSIBILITY
The management of Eastern Enterprises is responsible for the preparation,
integrity and fair presentation of the company's financial statements. These
statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on management's
informed judgments and estimates. The financial statements have been audited
by the independent accounting firm of Arthur Andersen LLP which was given
unrestricted access to all financial records and related data.
Eastern maintains a system of internal control over financial reporting which
is designed to provide reasonable assurance to the company's management and
Board of Trustees regarding the preparation of reliable financial statements
and the safeguarding of assets. The system includes a documented
organizational structure and division of responsibility, an internal audit
staff, the careful selection and development of personnel and established
policies and procedures, including policies to foster a strong ethical
climate and control environment, which are communicated throughout Eastern.
The Audit Committee of the Board of Trustees, consisting solely of outside
trustees, meets periodically with management, internal auditors and the
independent auditors to review internal accounting controls, and the
accounting principles and practices used to report financial condition and
the results of operations. The Audit Committee also annually recommends to
the Board of Trustees the selection of independent auditors.
J. Atwood Ives
Chairman and
Chief Executive Officer
Walter J. Flaherty
Senior Vice President and
Chief Financial Officer
James J. Harper
Vice President and Controller
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this item may be found in the section captioned
"Information With Respect to Nominees and Trustees" appearing on pages 4
through 6 of the 1995 definitive Proxy Statement. Such information is
incorporated herein by reference. See also the item captioned "Executive
Officers of the Registrant" at the end of Part I hereof.
Item 11. Executive Compensation
Information with respect to this item may be found in the section captioned
"Compensation of Executive Officers" appearing on pages 8 through the second
full paragraph on page 13 of the 1995 definitive Proxy Statement. Such
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this item may be found in the sections captioned
"Information With Respect to Certain Shareholders" appearing on pages 2 and 3
and "Stock Ownership of Trustees and Executive Officers" appearing on page 7
of the 1995 definitive Proxy Statement. Such information is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item may be found in the last paragraph in
the section captioned "Compensation of Trustees" appearing on page 12 of the
1995 definitive Proxy Statement. Such information is incorporated herein by
reference.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) List of Financial Statements and Financial Statement
Schedules
Exhibits and Financial Statement Schedules to the Form 10-K have been
included only with the copies of the Form 10-K filed with the SEC. A copy of
this Form 10-K, including a list of exhibits and Financial Statement
Schedules is available free of charge upon written request to: Corporate
Relations Department, Eastern Enterprises, 9 Riverside Road, Weston, MA
02193.
<PAGE>
TRUSTEES AND OFFICERS
Trustees Officers
J. Atwood Ives(1) Thomas W. Jones(2) J. Atwood Ives
Chairman and President and Chairman and
Chief Executive Officer Chief Operating Officer Chief Executive Officer
Eastern Enterprises Teachers Insurance and Richard R. Clayton
Richard R. Clayton Annuity Association/ President and
President and College Retirement Chief Operating Officer
Chief Operating Officer Equities Fund Walter J. Flaherty
Eastern Enterprises New York, NY Senior Vice President and
Nelson J. Darling, Jr.(2,3) Harold T. Miller(1,3,4) Chief Financial Officer
Trustee and Director Retired Chairman and Richard J. Klau
Boston, MA Chief Executive Officer Senior Vice President and
Samuel Frankenheim(2,3) Houghton Mifflin Company President, WaterPro
Counsel Boston, MA Supplies Corporation
Ropes & Gray William J. Pruyn Chester R. Messer
Boston, MA Retired Chairman Senior Vice President and
Dean W. Freed(1,2) Eastern Enterprises President, Boston Gas
Director and William G. Salatich(1,4) Company
Retired Chairman President Fred C. Raskin
EG&G, Inc. William G. Salatich Senior Vice President and
Wellesley, MA Consulting Inc. President, Midland
Robert P. Henderson(1,3,4) Northfield, IL Enterprises Inc.
Chairman Rina K. Spence(3,4) L. William Law, Jr.
Greylock Management Corp. President and Senior Vice President,
Boston, MA Chief Executive Officer General Counsel and
Leonard R. Jaskol(4) RKS Health Ventures Secretary
Chairman and Cambridge, MA Michael J. Cawley
Chief Executive Officer Vice President--
Lydall, Inc. Risk Management
Manchester, CT James J. Harper
Vice President and
Controller
Jane W. McCahon
Vice President--
(1) Executive Committee Corporate Relations
(2) Audit Committee Jean A. Scholtens
(3) Nominating Committee Vice President and
(4) Compensation Committee Treasurer
<PAGE>
(3) LIST OF EXHIBITS
3.1 -- Declaration of Trust of Eastern Enterprises, as amended through April
27, 1989 (filed as Exhibit 3.1 to Quarterly Report of Eastern
Enterprises on Form 10-Q for the quarter ended June 30, 1989).*
3.2 -- By-Laws of Eastern Enterprises, as amended through July 23, 1992
(filed as Exhibit 3.1 to Quarterly Report of Eastern on Form 10-Q for
the quarter ended June 30, 1992).*
(NOTE: Eastern agrees to furnish to the Securities and Exchange
Commission upon request a copy of any instrument with respect to
long-term debt of Eastern or any of its subsidiaries. Such instruments
are not filed herewith since no such instrument authorizes securities
in an amount greater than 10% of the total assets of Eastern and its
subsidiaries on a consolidated basis.)
4.1 -- Common Stock Rights Agreement between Eastern and The Bank of New
York, dated as of February 22, 1990, and Exhibits attached thereto
(filed as Exhibits to Form 8-K of Eastern dated March 1, 1990).*
4.1.1 -- Agreement between Eastern and The First National Bank of Boston, dated
January 30, 1995, with respect to Common Stock Rights Agreement.
10.1 -- Gas Transportation Contract between Boston Gas Company and Tennessee
Gas Pipeline Company dated as of September 1, 1993 (filed as Exhibit
10.1 to Annual Report of Boston Gas Company on Form 10-K for the year
ended December 31, 1993 (File no. 2-23416)).*
10.2 -- Gas Transportation Contracts between Boston Gas Company and Texas
Eastern Transmission Corporation dated December 30, 1993 (filed as
Exhibits 10.2 and 10.3 to Annual Report of Boston Gas Company on Form
10-K for the year ended December 31, 1993 (File no. 2-23416)).*
10.3 -- Gas Transportation Contracts between Boston Gas Company and Algonquin
Gas Transmission Company dated December 30, 1993 (filed as Exhibits
10.4 and 10.5 to Annual Report of Boston Gas Company on Form 10-K for
the year ended December 31, 1993 (File no. 2-23416)).*
10.4 -- Gas Sales Contract between Boston Gas Company and Esso Resources
Canada, Limited, dated as of May 1, 1989, as amended, (filed as
Exhibits 10.12 and 10.12.1 to the Annual Report of Boston Gas Company
on Form 10-K for the year ended December 31, 1989 (File no.
2-23416)).*
10.5 -- Gas Sales Agreement between Boston Gas Company and Alberta Northeast
Gas Limited, dated as of February 7, 1991 (filed as Exhibit 10.16 to
the Annual Report of Boston Gas Company on Form 10-K for the year
ended December 31, 1990 (File no. 2-23416)).*
10.6 -- Firm Gas Transportation Agreement between Boston Gas Company and
Iroquois Gas Transmission System, L.P., dated as of February 7, 1991
(filed as Exhibit 10.17 to the Annual Report of Boston Gas Company on
Form 10-K for the year ended December 31, 1990 (File no. 2-23416)).*
10.7 -- Eastern's Deferred Compensation Plan for Trustees, as amended (filed
as Exhibit 10.7 to Annual Report of Eastern on Form 10-K for the year
ended December 31, 1993).*(a)
10.8 -- Eastern's 1982 Stock Option Plan, as amended (filed as Exhibit 10.2 to
Quarterly Report of Eastern on Form 10-Q for the quarter ended March
31, 1992).*(a)
10.9 -- Eastern's 1995 Stock Option Plan. (a)
10.10 -- Eastern's Supplemental Executive Retirement Plan, as amended (filed as
Exhibit 10.1 to Quarterly Report of Eastern on Form 10-Q for the
quarter ended March 31, 1994).*(a)
10.11 -- Trust Agreement between Eastern and Shawmut Bank of Boston, N.A., as
amended (filed as Exhibit 10.12 to the Annual Report of Eastern on
Form 10-K for the year ended December 31, 1990).*(a)
10.12 -- Eastern's Executive Incentive Compensation Plan, as amended (filed as
Exhibit 10.3 to Quarterly Report of Eastern on Form 10-Q for the
quarter ended March 31, 1992).*(a)
10.13 -- Salary Continuation Agreements between Eastern and certain officers
(filed as Exhibit 10.2 to Quarterly Report of Eastern on Form 10-Q for
quarter ended September 30, 1994).*(a)
<PAGE>
10.14 -- Agreement dated November 27, 1991 between Eastern and J. Atwood Ives
(filed as Exhibit 10.14 to the Annual Report of Eastern on Form 10-K
for the year ended December 31, 1991).*(a)
10.15 -- Agreement dated October 25, 1991 between Eastern and Richard R.
Clayton (filed as Exhibit 10.15 to the Annual Report of Eastern on
Form 10-K for the year ended December 31, 1991).*(a)
10.16 -- Agreement dated April 28, 1994 between Eastern and J. Atwood Ives
(filed as Exhibit 10.2 to Quarterly Report of Eastern on Form 10-Q for
the quarter ended March 31, 1994).*(a)
10.17 -- Agreement dated April 28, 1994 between Eastern and Richard R. Clayton
(filed as Exhibit 10.3 to Quarterly Report of Eastern on Form 10-Q for
the quarter ended March 31, 1994).*(a)
10.18 -- Eastern's Headquarters Retirement Plan, as amended and restated (filed
as Exhibit 10.1 to Quarterly Report of Eastern on Form 10-Q for the
quarter ended September 30, 1991).*(a)
10.18.1-- Amendment to Eastern's Headquarters Retirement Plan, dated October
27,1994. (a)
10.19 -- Midland Enterprises Inc. Salaried Retirement Plan, as amended and
restated (filed as Exhibit 10.2 to Quarterly Report of Eastern on Form
10-Q for the quarter ended September 30, 1991).*(a)
10.19.1-- Amendment to Midland Enterprises Inc. Salaried Retirement Plan, dated
November 4, 1994.(a)
10.20 -- Boston Gas Company Retirement Plan, as amended and restated (filed as
Exhibit 10.3 to Quarterly Report of Eastern on Form 10-Q for the
quarter ended September 30, 1991).*(a)
10.20.1-- Amendment to Boston Gas Company Retirement Plan, dated December 5,
1994. (a)
10.21 -- Trust Agreement made as of October 2, 1987 between Eastern and The
Bank of New York, as amended (filed as Exhibit 10.19 to the Annual
Report of Eastern on Form 10-K for the year ended December 31,
1990).*(a)
10.22 -- Eastern's Retirement Plan for Non-Employee Trustees, as amended (filed
as Exhibit 10.22 to Annual Report of Eastern on Form 10-K for the year
ended December 31, 1992).*(a)
10.23 -- Eastern's 1992 Restricted Stock Plan (filed as Exhibit 10.1 to
Quarterly Report of Eastern on Form 10-Q for the quarter ended March
31, 1992).*(a)
10.24 -- Eastern's Restricted Stock Plan for Non-Employee Trustees (filed as
Exhibit 10.24 to Annual Report of Eastern on Form 10-K for the year
ended December 31, 1992).*(a)
10.25 -- Eastern's 1994 Deferred Compensation Plan (filed as Exhibit 10.22 to
Annual Report of Eastern on Form 10-K for year ended December 31,
1993).*(a)
10.26 -- Eastern's Executive Stock Purchase Loan Plan (filed as Exhibit 10.1 to
Quarterly Report of Eastern on Form 10-Q for quarter ended September
30, 1994).*(a)
13.1 -- Portions incorporated herein of annual report to shareholders for the
year ended December 31, 1994. With the exception of the sections
captioned "Cash Dividends Per Share" and "Stock Price Range" appearing
on the inside back cover of the said annual report which are
incorporated by reference in Item 5 of this Form 10-K, said annual
report is not deemed filed as part of this report.
21.1 -- Subsidiaries of the registrant.
Eastern will furnish a copy of any exhibit not included herewith to any
holder of Eastern's common stock upon payment of the cost of reproduction and
mailing.
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed in the fourth quarter of 1994.
*Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
Regulations under the Securities and Exchange Act of 1934, reference is made
to the document previously filed with the Commission.
(a) Indicates a management contract or compensatory plan or arrangement.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EASTERN ENTERPRISES
Registrant
By /s/ JAMES J. HARPER
JAMES J. HARPER
Vice President and Controller
(Chief Accounting Officer)
Date: March 15, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 15th day of March, 1995.
SIGNATURE TITLE
/s/ J. ATWOOD IVES
-----------------------
J. ATWOOD IVES Chairman and Chief Executive Officer and Trustee
/s/ RICHARD R. CLAYTON
-----------------------
RICHARD R. CLAYTON President and Chief Operating Officer and Trustee
/s/ WALTER J. FLAHERTY
-----------------------
WALTER J. FLAHERTY Senior Vice President and Chief Financial Officer
/s/ NELSON J. DARLING, JR.
-----------------------
NELSON J. DARLING, JR. Trustee
/s/ SAMUEL FRANKENHEIM
-----------------------
SAMUEL FRANKENHEIM Trustee
/s/ DEAN W. FREED
-----------------------
DEAN W. FREED Trustee
/s/ ROBERT P. HENDERSON
-----------------------
ROBERT P. HENDERSON Trustee
/s/ LEONARD R. JASKOL
-----------------------
LEONARD R. JASKOL Trustee
/s/ THOMAS W. JONES
-----------------------
THOMAS W. JONES Trustee
/s/ HAROLD T. MILLER
-----------------------
HAROLD T. MILLER Trustee
/s/ WILLIAM J. PRUYN
-----------------------
WILLIAM J. PRUYN Trustee
/s/ WILLIAM G. SALATICH
-----------------------
WILLIAM G. SALATICH Trustee
/s/ RINA K. SPENCE
-----------------------
RINA K. SPENCE Trustee
<PAGE>
EASTERN ENTERPRISES AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1994
(SUBMITTED IN ANSWER TO ITEMS 14(A)(1) AND (2) OF FORM 10-K,
SECURITIES AND EXCHANGE COMMISSION)
FINANCIAL STATEMENTS
Page
EASTERN ENTERPRISES AND SUBSIDIARIES:
Report of independent public accountants on schedules F-2
Consent of independent public accountants F-2
SCHEDULES (PAGES F-3 THROUGH F-5)
II Valuation and qualifying accounts and reserves
Schedules not listed above are omitted as not applicable or not required
under the rules of Regulation S-X.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO EASTERN ENTERPRISES:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Eastern Enterprises Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 25, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the index on page F-1 are the responsibility of Eastern's
management and are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Boston, Massachusetts
January 25, 1995 ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports, dated January 25, 1995, included in, and
incorporated by reference into, Eastern Enterprises Annual Report on this
Form 10-K for the year ended December 31, 1994, into Eastern's previously
filed Post-Effective Amendment No. 1 to Form S-16 Registration Statement No.
2-71614 on Form S-3 and Form S-8 Registration Statements No. 2-77146, No.
33-19990, No. 33-40862 and No. 33-56424.
Boston, Massachusetts
March 15, 1995 ARTHUR ANDERSEN LLP
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Year Ended December 31, 1994
(Thousands)
Additions Deductions
Charges
for
Balance Charged Which Balance
December to Costs Charged Reserves December
31, and to Other Were 31,
Description 1993 Expenses Accounts Created 1994
Reserves
deducted from
assets--
Reserves for
doubtful
accounts $ 13,945 $15,864 $ 0 $(13,718) $ 16,091
Reserves for
loss on
investments $ 19 $ 0 $ 0 $ 0 $ 19
Reserves
included in
liabilities--
Reserve for
post-retirement
health
care $104,730 $ 1,103 $ 2,186 $ (5,637) $102,382
Reserve for
coal miners
retiree health
care 70,000 0 0 (1,307) 68,693
Reserves for
employee
benefits 10,661 8,716 1,279 (8,203) 12,453
Reserves for
environmental
expenses 10,866 175 125 (1,316) 9,850
Reserves for
insurance
claims 9,167 7,004 2,127 (8,408) 9,890
Other 19,611 7,854 (4,255) (4,457) 18,753
Total
liability
reserves $225,035 $24,852 $ 1,462 $(29,328) $222,021
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Year Ended December 31, 1993
(Thousands)
Additions Deductions
Charges
for
Balance Charged Which Balance
December to Costs Charged Reserves December
31, and to Other Were 31,
Description 1992 Expenses Accounts Created 1993
Reserves
deducted from
assets--
Reserves for
doubtful
accounts $ 11,835 $13,127 $ 0 $(11,017) $ 13,945
Reserves for
loss on
investments $ 19 $ 0 $ 0 $ 0 $ 19
Reserves
included in
liabilities--
Reserve for
post-retirement
health
care $102,221 $ 1,331 $ 6,805 $ (5,627) $104,730
Reserve for
coal miners
retiree health
care 0 70,000 0 0 70,000
Reserves for
employee
benefits 11,473 8,635 (692) (8,755) 10,661
Reserves for
environmental
expenses 6,746 5,639 (159) (1,360) 10,866
Reserves for
insurance
claims 9,202 6,369 1,098 (7,502) 9,167
Other 23,252 7,532 (6,887) (4,286) 19,611
Total
liability
reserves $152,894 $99,506 $ 165 $(27,530) $225,035
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Year Ended December 31, 1992
(Thousands)
Additions Deductions
Charges
for
Balance Charged Which Balance
December to Costs Charged Reserves December
31, and to Other Were 31,
Description 1991 Expenses Accounts Created 1992
Reserves
deducted from
assets--
Reserves for
doubtful
accounts $ 10,443 $12,444 $ 0 $(11,052) $ 11,835
Reserves for
loss on
investments $ 19 $ 0 $ 0 $ 0 $ 19
Reserves
included in
liabilities--
Reserve for
post-retirement
health
care $102,181 $10,040 $ 432 $(10,432) $102,221
Reserves for
employee
benefits 10,897 9,300 (130) (8,594) 11,473
Reserves for
environmental
expenses 7,367 2,500 282 (3,403) 6,746
Reserves for
insurance
claims 10,235 7,032 232 (8,297) 9,202
Other 13,034 3,762 15,844 (9,388) 23,252
Total
liability
reserves $143,714 $32,634 $16,660 $(40,114) $152,894
<PAGE>
EXHIBIT INDEX
See Item 14(a)(3), "List of Exhibits," for statement of the location of
exhibits incorporated by reference.
Exhibit
3.1 -- Declaration of Trust of Eastern Enterprises, as amended through April
27, 1989 (incorporated by reference).
3.2 -- By-Laws of Eastern Enterprises, as amended through July 23, 1992
(incorporated by reference).
4.1 -- Common Stock Rights Agreement between Eastern and The Bank of New
York, dated as of February 22, 1990, and Exhibits attached thereto
(incorporated by reference).
4.1.1-- Agreement between Eastern and The First National Bank of Boston, dated
January 30, 1995.
10.1 -- Gas Transportation Contract between Boston Gas Company and Tennessee
Gas Pipeline Company dated as of September 1, 1993 (incorporated by
reference).
10.2 -- Gas Transportation Contracts between Boston Gas Company and Texas
Eastern Transmission Corporation dated December 30, 1993 (incorporated
by reference).
10.3 -- Gas Transportation Contracts between Boston Gas Company and Algonquin
Gas Transmission Company dated December 30, 1993 (incorporated by
reference).
10.4 -- Gas Sales Contract between Boston Gas Company and Esso Resources
Canada, Limited, dated as of May 1, 1989, as amended (incorporated by
reference).
10.5 -- Gas Sales Agreement between Boston Gas Company and Alberta Northeast
Gas Limited, dated as of February 7, 1991 (incorporated by reference).
10.6 -- Firm Gas Transportation Agreement between Boston Gas Company and
Iroquois Gas Transmission System, L.P., dated as of February 7, 1991
(incorporated by reference).
10.7 -- Eastern's Deferred Compensation Plan for Trustees, as amended
(incorporated by reference).
10.8 -- Eastern's 1982 Stock Option Plan, as amended (incorporated by
reference).
10.9 -- Eastern's 1995 Stock Option Plan.
10.10 -- Eastern's Supplemental Executive Retirement Plan, as amended
(incorporated by reference).
10.11 -- Trust Agreement between Eastern and Shawmut Bank of Boston N.A., as
amended (incorporated by reference).
10.12 -- Eastern's Executive Incentive Compensation Plan, as amended
(incorporated by reference).
10.13 -- Salary Continuation Agreements between Eastern and certain officers,
as amended (incorporated by reference).
10.14 -- Agreement dated November 27, 1991 between Eastern and J. Atwood Ives
(incorporated by reference).
10.15 -- Agreement dated October 25, 1991 between Eastern and Richard R.
Clayton (incorporated by reference).
10.16 -- Agreement dated April 28, 1994, between Eastern and J. Atwood Ives
(incorporated by reference).
10.17 -- Agreement dated April 28, 1994, between Eastern and Richard R. Clayton
(incorporated by reference).
10.18 -- Eastern's Headquarters Retirement Plan, as amended and restated
(incorporated by reference).
10.18.1-- Amendment to Eastern's Headquarters Retirement Plan dated October 27,
1994.
10.19 -- Midland Enterprises Inc. Salaried Retirement Plan, as amended and
restated (incorporated by reference).
10.19.1-- Amendment to Midland Enterprises Inc. Salaried Retirement Plan, dated
November 4, 1994.
10.20 -- Boston Gas Company Retirement Plan, as amended and restated
(incorporated by reference).
10.20.1-- Amendment to Boston Gas Company Retirement Plan, dated December 5,
1994.
10.21 -- Trust Agreement made as of October 2, 1987 between Eastern and The
Bank of New York, as amended (incorporated by reference).
10.22 -- Eastern's Retirement Plan for Non-Employee Trustees, as amended
(incorporated by reference).
10.23 -- Eastern's 1992 Restricted Stock Plan (incorporated by reference).
10.24 -- Eastern's Restricted Stock Plan for Non-Employee Trustees
(incorporated by reference).
<PAGE>
10.25 -- Eastern's 1994 Deferred Compensation Plan (incorporated by reference).
10.26 -- Eastern's Executive Stock Purchase Loan Plan (incorporated by
reference).
13.1 -- Portions incorporated herein of annual report to shareholders for the
year ended December 31, 1994.
21.1 -- Subsidiaries of the registrant.
EXHIBIT 4.1.1
AGREEMENT
AGREEMENT dated as of the 30th day of January, 1995, by and between Eastern
Enterprises, a Massachusetts voluntary association (the "Trust"), and The
First National Bank of Boston ("FNBB").
W I T N E S S E T H
WHEREAS, the Trust is party to a Common Stock Rights Agreement dated as of
February 22, 1990, by and between the Trust and The Bank of New York as
Rights Agent (the "Rights Agreement");
WHEREAS, The Bank of New York has resigned as Rights Agent under the Rights
Agreement, effective as of January 30, 1995; and
WHEREAS, the parties hereto desire to enter into this agreement to confirm
the appointment of FNBB as successor Rights Agent under the Rights Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
1. The parties acknowledge and agree that FNBB shall be the successor Rights
Agent under the Rights Agreement, effective as of January 30, 1995, and
accordingly, pursuant to Section 21 of such Agreement, shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent under such Agreement, without further act or
deed, and, except as the context in the Rights Agreement otherwise requires,
shall be deemed to be the "Rights Agent" for all purposes of such Agreement.
2. FNBB represents and warrants that it is a corporation organized and doing
business under the laws of the United States, The Commonwealth of
Massachusetts, or the State of New York (or of any other State of the United
States so long as it is authorized to do business as a banking institution in
The Commonwealth of Massachusetts or the State of New York), in good
standing, having a principal office in The Commonwealth of Massachusetts or
the State of New York, which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by
federal or state authority and which has a combined capital and surplus of at
least $50,000,000.
3. Section 25 of the Rights Agreement is hereby amended, effective January
30, 1995, by deleting the address of The Bank of New York set forth therein
and substituting therefor the following:
"THE FIRST NATIONAL BANK OF BOSTON
Attention: Shareholder Services Division
150 Royall Street
Canton, MA 02021"
4. Section 31 of the Rights Agreement is hereby amended, effective January
30, 1995, by deleting such Section in its entirety and substituting therefor
the following:
"Section 31. Governing Law.
This Agreement and each Rights Certificate issued hereunder shall be deemed
to be a contract made under the laws of The Commonwealth of Massachusetts and
for all purposes shall be governed by and construed in accordance with the
laws of said Commonwealth applicable to contracts to be made and performed
entirely within said Commonwealth."
5. Reference is hereby made to the declaration of trust establishing the
Trust dated July 18, 1929, as amended, a copy of which is on file in the
office of the Secretary of State of The Commonwealth of Massachusetts. The
name "Eastern Enterprises" refers to the trustees under such declaration as
trustees and not personally. No trustee, shareholder, officer or agent of the
Trust shall be held to any personal liability in connection with the affairs
of the Trust and only the trust estate may be liable.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and set their respective hands and seals, all as of the day and year
first above written.
EASTERN ENTERPRISES
By: /s/ L. William Law, Jr.
Title: General Counsel
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Colleen H. Shea
Title: Administration Manager
Exhibit 10.9
EASTERN ENTERPRISES
1995 Stock Option Plan
1. Purpose of the Plan; Certain Definitions. The purpose of this plan (the
"Plan") is to attract, retain and motivate those employees of Eastern
Enterprises ("Eastern") or its subsidiaries whose efforts are determined by
the Compensation Committee of the Board of Trustees of Eastern (the
"Committee") to have an important bearing on the success of the business of
Eastern and its subsidiaries ("Eligible Employees"). This purpose will be
advanced by encouraging the ownership by such employees of shares of
beneficial interest ("Stock") of Eastern. The term "Participant" means an
Eligible Employee to whom an award is made under the Plan.
2. Administration of the Plan. The Plan shall be administered by the
Committee. All members of the Committee shall be appointed by the Board of
Trustees to serve at the Board's pleasure. All members of the Committee shall
be both "disinterested" within the meaning of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended, and, to the extent required
in order to qualify the Plan under Section 162(m)(4)(C) of the Internal
Revenue Code of 1986, as amended (the "Code") (including any applicable
transition rules), "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Code.
The Committee shall have authority, consistent with the Plan,
(a) to determine which Eligible Employees shall be granted options;
(b) to determine whether the options granted to any Eligible Employees
shall be incentive stock options, as defined in Section 422(b) of the Code
("incentive stock options"), or non-statutory stock options, or both;
(c) to determine whether stock appreciation rights shall be included in any
or all options granted to an Eligible Employee, either concurrently with the
grant of an option, or at any time thereafter during the term of such option,
all in accordance with Section 8;
(d) to determine whether any or all options granted to an Eligible Employee
shall be exercisable with shares of Stock ("shares") or other permissible
forms of payment in accordance with Section 7(c);
(e) to determine the time or times when options shall be granted and the
number of shares subject to each option;
(f) to determine the option price of the shares subject to each option;
(g) to prescribe the time or times when each option becomes exercisable and
the duration of the exercise period;
(h) to prescribe the form or forms of the instruments evidencing any
options granted under the Plan and to change such forms from time to time;
(i) to adopt, amend and rescind rules and regulations for the
administration of the Plan, the options and stock appreciation rights and for
its own acts and proceedings; and
(j) to decide all questions and settle all controversies and disputes which
may arise in connection with the Plan.
All decisions, determinations and interpretations of the Committee shall be
binding upon all parties concerned.
3. Limitations. The Stock which may be issued and sold under the Plan shall
not exceed in the aggregate 1,000,000 shares, except as such total number may
be adjusted pursuant to Section 16 below. To the extent that any option
granted under the Plan shall expire or terminate unexercised or for any
reason become unexercisable as to any shares subject thereto, such shares
shall thereafter be available for further grants under the Plan, within the
limit specified above. Stock delivered upon the exercise of options may, as
determined by the Board of Trustees, be previously issued Stock acquired by
Eastern or authorized but theretofore unissued shares. The Board of Trustees
and the officers of Eastern shall take appropriate action required for such
delivery.
The maximum number of shares for which any Participant may be awarded options
in any calendar year is 250,000. The maximum number of shares as to which any
Participant may be awarded stock appreciation rights in any calendar year is
likewise 250,000. For purposes of the limitations described in this
paragraph, the cancellation and regrant, or the repricing, of an option or a
stock appreciation right shall be treated as a new grant, and both the old
and the new grants shall count against the applicable limit (to the extent
occurring in the same calendar year). The limitations described in this
paragraph shall be subject to adjustment to reflect stock splits,
recapitalizations and other corporate changes to the extent consistent with
continued qualification of the Plan under Section 162(m)(4)(C) of the Code,
and shall be construed consistent with regulations (including proposed
regulations) issued under Section 162(m) of the Code.
<PAGE>
4. Participants. Participants shall be selected from time to time by the
Committee in its discretion only from among Eligible Employees. The Committee
may grant an option or stock appreciation right to any Eligible Employee who
is then a Participant or to any other Eligible Employees in accordance with
the Committee's determination from time to time.
5. Option Price. The option price per share with respect to each option shall
be determined by the Committee but shall not be less than the fair market
value of the Stock at the time the option is granted, as determined by the
Committee.
6. Option Period. Each option shall, subject to Sections 10, 11 and 12
specify the period during which it may be exercised, which period shall not
in any event exceed 10 years from the date the option is granted.
7. Exercise of Options.
(a) Each option shall be made exercisable at such time or times, whether or
not in installments, as the Committee shall prescribe at the time the option
is granted. In the case of an option not immediately exercisable in full, the
Committee may at any time accelerate the time at which all or any part of the
option may be exercised.
The instruments evidencing options intended to be incentive stock options
shall contain such other provisions relating to exercise and other matters as
are required of incentive stock options under the applicable provisions of
the Code and applicable regulations (including proposed regulations), as from
time to time in effect.
(b) A person electing to exercise an option shall give written notice to
Eastern, as specified by the Committee, of his or her election and of the
number of shares he or she has elected to purchase, such notice to be
accompanied by any relevant documents required by the Committee, and shall at
the time of such exercise tender the purchase price of the shares he or she
has elected to purchase in accordance with paragraph (c) below. If the notice
of election to purchase is given by the executor or administrator of a
deceased Participant, or by the person or persons to whom the option has been
transferred by the Participant's will or the applicable laws of descent and
distribution, Eastern shall be under no obligation to deliver shares pursuant
to such exercise unless and until it is satisfied that the person or persons
giving such notice is or are entitled to exercise the option.
(c) Except as hereafter provided in this paragraph (c), the purchase price
for shares subject to an option shall be payable to Eastern by cash
(including check, bank draft or money order acceptable to the Committee and
payable to the order of Eastern). If so provided by the Committee, an option
may be made exercisable (i) by the delivery of shares of Stock (duly owned by
the Participant and for which the Participant has good title free of any
liens and encumbrances, and which, if acquired by the Participant from
Eastern, shall have been held for at least six months) having a fair market
value equal to the purchase price of the Stock to be purchased by exercise of
the option, or (ii) by delivery of a promissory note of the Participant to
Eastern, such note to be payable on such terms as are specified by the
Committee, or (iii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to Eastern sufficient funds to
pay the exercise price, or (iv) by any combination of the foregoing
permissible forms of payment. If the price is paid in whole or in part in
shares of Stock, such shares shall be valued at their fair market value at
the time of exercise, as determined by the Committee. If the purchase price
is paid in whole or in part in shares of Stock, the certificate for such
shares shall be accompanied by appropriate instruments of transfer in form
acceptable to the Committee. If an incentive stock option is to be
exercisable, in whole or in part, other than by payment in cash as described
above, the Committee shall so specify at the time the option is granted and
an appropriate provision shall be included in the instrument evidencing the
option.
8. Award and Exercise of Stock Appreciation Rights; Limitations.
(a) A stock appreciation right is a right granted to the holder to receive,
pursuant to the terms of the right, an amount payable in shares of Stock or,
at the election of the Committee, cash or a combination of cash and shares of
Stock, in each case equal to the increase in the value of the shares covered
by the option to which the stock appreciation right is related, as more
particularly set forth below in this Section 8. References in the Plan to the
exercise of stock options shall include the exercise of any stock
appreciation rights which are granted with such options.
(b) Any option granted under the Plan, or any replacement or other option
under the Plan, may contain such provisions relating to stock appreciation
rights, not inconsistent with this Section 8 and other provisions of the
Plan, as the Committee shall deem advisable. Any such option accompanied by a
stock appreciation
<PAGE>
right shall provide for the surrender of any unexercised stock appreciation
right to the extent that the option which it accompanies, or to which it is
related, is exercised.
(c) A stock appreciation right shall be exercisable when the related option
is surrendered, and only to the extent the related option is, at the time,
exercisable. No stock appreciation right shall be exercisable earlier than
six months after the date of grant.
(d) An exercisable stock appreciation right shall entitle the holder to
exercise such right or any portion thereof (and to surrender unexercised the
accompanying option to which it relates, or any portion thereof) and to
receive in satisfaction of such exercise, subject to the limitations below,
an amount, payable as provided for below, having an aggregate value, as
determined by the Committee, equal to (x) minus (y), where (x) is the fair
market value, on the date of exercise of the stock appreciation right, of the
shares of Stock subject to that portion of the accompanying option which is
surrendered, and (y) is the option price of such shares. The Committee shall
be entitled in its sole discretion to elect, at any time before or after
exercise of any stock appreciation right by the holder, to discharge
Eastern's obligation in respect thereof (i) by the delivery of shares of
Stock or (ii) by the payment of cash or partially by the payment of cash and
partially by the delivery of shares of Stock. The total value of payments
under (ii) above shall equal the aggregate value of the shares of Stock
deliverable under (i) above. No fractional shares will be delivered.
(e) Unless otherwise consented to or unless otherwise required by the
Committee at any time, any full or partial exercise by an Eastern Trustee or
officer (as defined for this purpose by the applicable regulations of the
Securities and Exchange Commission) of a stock appreciation right to be
satisfied in cash, in full or partial settlement of the right so exercised at
the time, shall be made only during the period beginning on the third
business day following the date of release for publication of quarterly or
annual (as the case may be) summary statements of sales and earnings of
Eastern and its subsidiaries, and ending on the twelfth business day
following such date.
(f) The Committee may, in its discretion, as it deems such to be in the
best interests of Eastern, impose other conditions and limitations upon the
exercise of a stock appreciation right, and upon Eastern's obligations under
the Plan in respect of stock appreciation rights, which conditions may
include a condition or limitation that the stock appreciation right may only
be exercised in accordance with further rules and regulations adopted by the
Committee from time to time. Such rules and regulations may govern the right
to exercise stock appreciation rights granted prior to the adoption or
amendment of such rules and regulations as well as stock appreciation rights
granted thereafter. Without limiting the foregoing, the Committee may specify
that stock appreciation rights may be exercised by the holder thereof only
with the consent of the Committee, or that stock appreciation rights may be
exercised by the holder thereof without such consent, or that such stock
appreciation rights shall be exercised automatically by the occurrence of an
event, by the passage of time or in any other way.
9. Delivery of Shares. Eastern shall not be obligated to deliver any shares
pursuant to the exercise of any option unless and until (i) in the opinion of
Eastern's counsel, all applicable Federal and state laws and regulations have
been complied with; (ii) in the event the outstanding Stock is at the time
listed upon any stock exchange, the shares to be delivered have been listed
or authorized to be added to the list upon official notice of issuance upon
such exchange; and (iii) all other legal matters in connection with the
issuance and delivery of shares have been approved by Eastern's counsel.
Without limiting the generality of the foregoing, Eastern may require from
the Participant or other person exercising the option such investment
representation or such agreement, if any, as counsel for Eastern may consider
necessary in order to comply with the Securities Act of 1933 and may require
that the Participant or such other person agree that any sale of the shares
will be made only on the New York Stock Exchange or in such other manner as
is permitted by the Committee and that he or she will notify Eastern when he
or she makes any disposition of the shares whether by sale, gift or
otherwise. Eastern shall use its best efforts to effect any compliance and
listing, and the Participant or other person exercising the option shall take
any action reasonably requested by Eastern in such connection. A Participant
or other person entitled to exercise an option or stock appreciation right
shall have the rights of a shareholder only as to shares actually acquired by
him or her under the Plan.
10. Rights in Event of Death. In the event of a Participant's death at a time
when he or she is entitled to exercise an option, then at any time or times
on or before the latest date on which the Participant could have exercised
the option had he or she remained in the employ of Eastern or a subsidiary
such option may be exercised, as to all or any of the shares which the
Participant was entitled to purchase at the time of his or her death, by the
Participant's executor or administrator or the person or persons to whom the
option is transferred by will or the applicable laws of descent and
distribution. If a Participant dies before an option previously granted to
him or her
<PAGE>
has become exercisable and the Participant is then in the employ of Eastern
or one of its subsidiaries, such option shall be deemed to have been
exercisable by such Participant immediately prior to his or her death to the
extent the Participant could have exercised the option had he or she remained
in the employ of Eastern or one of its subsidiaries until the time when the
option would first have become exercisable to any extent.
11. Retirement and Disability. In the event of a Participant's retirement or
disability at a time when he or she is entitled to exercise an option, then
at any time or times on or before the latest date on which the Participant
could have exercised the option had he or she remained in the employ of
Eastern or a subsidiary the Participant may exercise such option as to all or
any of the shares which he or she was entitled to purchase at the time of
retirement or disability. For purposes of this Section, retirement or
disability means termination of employment with Eastern or any subsidiary if
such termination constitutes retirement or disability as provided for at the
time of such termination under any retirement or disability program then
maintained by Eastern or such subsidiary.
12. Other Termination of Employment. In the event the employment of a
Participant terminates for any reason other than his or her death, disability
or retirement, the Participant may, unless discharged for cause which in the
opinion of the Committee casts such discredit on the Participant or Eastern
as to justify immediate termination of the option, exercise the option after
the date when his or her employment terminated, but only within three months
after the date of termination or such longer period as the Committee, in its
sole discretion, shall provide for either at the time the option is granted
or in an amendment to the option. In no event, however, may any option
granted under the Plan be exercised after the latest date on which the
Participant could have exercised had he or she remained in the employ of
Eastern or a subsidiary.
13. Replacement Options. Eastern may grant options under the Plan on terms
differing from those provided for hereinabove where such options are granted
in substitution for options held by employees of other companies who
concurrently become employees of Eastern or a subsidiary as the result of a
merger or consolidation of the employing company with Eastern or a
subsidiary, or the acquisition by Eastern or a subsidiary of property or
stock of the employing company. The Committee may direct that the substitute
options be granted on such terms and conditions as it considers appropriate
in the circumstances.
14. Non-transferability of Options. Options may not be transferred by the
Participant otherwise than by will or the laws of descent and distribution,
and during the Participant's lifetime shall be exercisable only by the
Participant.
15. Use of Proceeds. The proceeds received by Eastern from the sale of shares
pursuant to the Plan will be used for the general purposes of Eastern, except
that any shares of Stock included in such proceeds may be held by Eastern as
treasury shares.
16. Changes in Stock. In the event of a stock dividend, split-up or
combination of shares, recapitalization or merger in which Eastern is the
surviving company, or other similar capital change, the number and kind of
shares or securities of Eastern subject to the Plan and to options and stock
appreciation rights then outstanding and to be granted hereunder, the maximum
number of shares or securities which may be issued or sold under the Plan,
option prices and other relevant provisions shall be appropriately adjusted
by the Board of Trustees of Eastern, whose determination shall be binding on
all persons. In the event of a consolidation or a merger in which Eastern is
not the surviving company, or in the event its outstanding shares are
converted into securities of another entity or exchanged for other
consideration, or in the event of the complete liquidation of Eastern, all
outstanding options and stock appreciation rights shall thereupon terminate,
but at least twenty days prior to the effective date of any such
consolidation or merger, the Board of Trustees of Eastern shall either (a)
make all outstanding options and stock appreciation rights immediately
exercisable or (b) arrange to have the surviving company grant replacement
options to the Participants.
17. Employment Rights. The adoption of the Plan does not confer upon any
employee of Eastern or a subsidiary any right to continued employment with
Eastern or a subsidiary, as the case may be, nor does it interfere in any way
with the right of Eastern or a subsidiary to terminate the employment of any
of its employees at any time.
18. Amendments. The Committee may at any time discontinue granting options
and stock appreciation rights under the Plan. The Board of Trustees of
Eastern may at any time or times amend the Plan or amend any outstanding
option or stock appreciation right for the purpose of satisfying the
requirements of any changes in applicable laws or regulations or for any
other purpose which may be at the time permitted by law, provided that no
such amendment shall, without the approval of the shareholders of Eastern,
effect a change to the Plan that would require shareholder approval in order
for the Plan to continue to qualify as exempt under Rule 16b-3 or to continue
to qualify under Sections 162(m)(4)(C) and 422 of the Code, and no such
amendment shall adversely affect the rights of any Participant (without his
or her consent) under any option or stock appreciation right theretofore
granted.
<PAGE>
19. Tax Withholding. The Committee may require, as a condition to the
exercise of any option or stock appreciation right hereunder, that the
Participant or other person exercising the same pay to Eastern all taxes
required to be withheld in connection with such exercise. Without limiting
the foregoing, the Committee in its discretion may permit such tax
withholding to be satisfied through the holding back of shares otherwise
deliverable upon exercise or through the tendering to Eastern of shares
previously acquired by the person exercising the option or stock appreciation
right.
20. Effective Date and Duration of Plan. The Plan shall become effective upon
its adoption by the Board of Trustees of Eastern subject to approval within
twelve months thereafter by vote of the holders of at least a majority of the
shares of the outstanding Stock of Eastern. No options may be granted under
the Plan after December 31, 2004.
Exhibit 10.18.1
EASTERN ENTERPRISES HEADQUARTERS
RETIREMENT PLAN
Amendment
Pursuant to Section 14.01 of the Eastern Enterprises Headquarters Retirement
Plan, said Plan is hereby amended as follows:
1. Effective July 1, 1994, Section 2.03 is amended by inserting the following
at the end of the first paragraph thereof:
"Notwithstanding the foregoing, the Annual Earnings of an Eligible Employee
who is participating in the Employer's 'Sales Department Compensation
Program' as of each Earnings Measurement Date shall mean such Employee's
annual salary rate plus the annual performance bonus awarded to him under
such program for the calendar year immediately preceding such Earnings
Measurement Date."
2. Effective July 1, 1994, Section 2.03 is amended further by deleting the
last paragraph thereof and substituting the following therefor:
"For each Plan Year ending before July 1, 1994, a Member's Annual Earnings
shall be limited for all purposes under the Plan to $200,000 (or such larger
amount as the Secretary of the Treasury may determine for such Plan Year
under section 401(a)(17) of the Code). For each Plan Year beginning after
June 30, 1994 (and for each prior Plan Year in which Annual Earnings are
taken into account in computing benefits in any Plan Year beginning after
June 30, 1994), Annual Earnings shall be limited for all purposes under the
Plan to $150,000 (or such larger amount as the Secretary of the Treasury may
determine for such Plan Year under section 401(a)(17) of the Code.) In
applying the above limitations, the special rules of Section 5.06 below shall
apply. In addition, the family aggregation rules of Code section 414(q)(6)
shall apply, except that in applying such rules, the term 'family' shall
include only the spouse of the Member and any lineal descendants who have not
attained age 19 before the close of the Plan Year."
3. Effective July 1, 1993, Section 2.11 is amended by deleting subsections
(c) and (d) and by substituting the following therefor:
"(c) employed in a location to which the Plan has not been specifically
extended by the Board of Trustees,
(d) considered an Employee solely by reason of the leased-employee rules of
section 414(n) of the Code and the second sentence of paragraph 2.12, or
(e) employed to perform or complete a specific project, and classified as a
temporary employee for other purposes of the Employer."
4. Section 2.11 is amended further by inserting the following sentences at
the end thereof:
"Effective July 1, 1993, any Employee who is employed by Midland Enterprises
Inc. or a subsidiary thereof with a salary grade of 18 or 19 shall be
considered an Eligible Employee under this Plan. Effective January 1, 1994,
the term Eligible Employee shall also include the employee(s) of WaterPro
Supplies Corporation listed on Schedule A."
5. Effective July 1, 1994, Section 2.19(d) is amended by inserting,
immediately following subparagraph (iii), the following subparagraph (iv):
"(iv) pursuant to an approved leave of absence under the terms of the Family
and Medical Leave Act, but only to the extent required by that Act as
reasonably determined by the Administrator,".
6. Effective July 1, 1994, Section 2.19 is further amended by inserting the
following at the end thereof:
"Notwithstanding the foregoing and except as otherwise provided by law, no
more than 501 Hours of Service will be credited to any Employee on account of
any single continuous period during which the Employee performs no duties.
Except as hereinafter provided, Hours of Service to be credited to an
Employee under (a), (b) or (c) above will be calculated and credited pursuant
to paragraphs (b) and (c) of section 2530.200b-2 of the Department of Labor
Regulations, which are incorporated herein by reference."
<PAGE>
7. Effective July 1, 1994, Article V is amended by adding at the end thereof
the following new section:
"5.06 Members Subject to Limitations on Annual Earnings. Notwithstanding
anything to the contrary in Sections 5.01 through 5.05,
(a) in the case of a Member whose Annual Earnings for any Plan Year prior
to July 1, 1989 exceeded $200,000, the Member's accrued benefit at any time
after June 30, 1989 and before July 1, 1994, and the amount of benefits
determined for the Member under Sections 5.01 through 5.05 at any time during
such period, shall be the greater of:
(1) the amount determined under the applicable formula taking into
account the Member's total Years of Benefit Service, or
(2) the Member's accrued benefit as of June 30, 1989.
(b) in the case of a Member whose Annual Earnings for any Plan Year prior
to July 1, 1994, exceeded $150,000, the Member's accrued benefit at any time
after June 30, 1994, and the amount of benefits determined for the Member
under Sections 5.01 through 5.05 at any time after that date shall be the
greater of:
(1) the amount determined under the applicable formula taking into account
the Member's total Years of Benefit Service, or
(2) the sum of (i) the Member's accrued benefit as of June 30, 1994,
determined after giving effect to Section 5.06(a), and (ii) the amount
determined under the applicable formula as of the date benefits are
determined, taking into account only Years of Benefit Service after June 30,
1994.
(c) For purposes of (b)(2) above, Years of Benefit Service shall be
determined by treating the Year of Benefit Service that includes June 30,
1994 as consisting of two fractional years, the earlier of which shall be
included in Years of Benefit Service in determining the Member's accrued
benefit as of June 30, 1994 and the later of which shall be included in Years
of Benefit Service after June 30, 1994."
8. Effective July 1, 1994, Article VII is renamed "Forms of Benefit".
9. Effective with respect to individuals whose annuity starting date (as
defined in Code section 417(f)(2)) is on or after July 1, 1994, Article VII
is further amended by adding the following at the end thereof:
"7.07 Optional Forms of Benefit for Non-Married Members. In lieu of a monthly
benefit payable for his lifetime only, a Member who is not married on his
annuity starting date may elect (in the manner prescribed by the
Administrator) to receive:
(a) a reduced monthly benefit during his lifetime with one-half of such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime, or
(b) a reduced monthly benefit during his lifetime with two-thirds of such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime, or
(c) a reduced monthly benefit during his lifetime with the entire such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime.
Notwithstanding any other provision of the Plan to the contrary, the
provisions of this Section 7.07 shall apply only with respect to
Beneficiaries who are "designated beneficiaries" within the meaning of Code
section 401(a)(9)(E) and the rules promulgated thereunder, and the forms of
benefit described in (b) and (c) above shall be available only with respect
to Beneficiaries whose age is such as to satisfy the incidental death benefit
requirements under section 401(a)(9) of the Code (as construed by said
rules)."
10. Effective January 1, 1993, Article VII is amended further by adding at
the end thereof the following:
"7.08 Direct Rollovers. Notwithstanding any provision of the Plan to the
contrary that may otherwise limit a distributee's election under this Section
7.08, for distributions made on or after January 1, 1993, a distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an eligible rollover distribution, subject to the limitations
imposed in temporary Treasury Regulation section 1.401(a)(31)-1T, paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover. For purposes of this Section 7.08, the following definitions
shall apply:
(a) An 'eligible rollover distribution' is any distribution of all or any
portion of the distributee's benefit, provided such portion is equal to or in
excess of $200, except that an eligible rollover distribution does not
<PAGE>
include the following: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives
of the distributee and the distributee's beneficiary, or for a specified
period of ten years or more, or any distribution to the extent such
distribution is required under Code section 401(a)(9).
(b) With respect to a distributee other than the Member's surviving
spouse, an 'eligible retirement plan' is an individual retirement account
described in Code section 408(a), an individual retirement annuity described
in Code section 408(b), an annuity plan described in Code section 403(a), or
a qualified trust described in Code section 401(a). With respect to a
distributee who is a Member's surviving spouse, an eligible retirement plan
is an individual retirement account or an individual retirement annuity.
(c) A 'distributee' includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is an alternate payee under a
Qualified Domestic Relations Order described in Section 2.24A above, are
distributees with regard to the interest of the spouse or former spouse.
(d) A 'direct rollover' is a payment by the Plan to the eligible
retirement plan specified by the distributee."
11. Effective July 1, 1994, Section 9.02 is amended by adding immediately
after the phrase "Member's severance from service for any reason" the
following: ", including death".
12. Effective July 1, 1994, Section 9.02 is amended further by deleting the
first sentence of the second paragraph thereof in its entirety and by
substituting the following therefor:
"For purposes of determining the present value of an individual's benefit or
the actuarial equivalency of an individual's benefit or the actuarial
equivalency of alternative forms under this paragraph, the same interest and
mortality assumptions as are specified in paragraph 15.04 shall be applied to
the Member's accrued benefit payable commencing at the later of retirement or
the Member's Normal Retirement Date, provided that the interest assumption
used for purposes of this paragraph 9.02 shall not be greater than the
schedule of immediate and deferred interest rate(s) which would be used by
the Pension Benefit Guaranty Corporation, as of the beginning of the Plan
Year in which the lump sum is paid, for purposes of determining the present
value of benefits on plan termination."
13. Effective July 1, 1994, Section 15.04 is amended by deleting the phrase
"retires, separates from service or dies" in the second sentence thereof and
by substituting the following therefor: "separates from service (whether by
death, retirement or otherwise)".
14. Effective January 1, 1994, the Plan is amended by inserting the following
at the end thereof:
Exhibit 10.19.1
MIDLAND ENTERPRISES INC. SALARIED RETIREMENT PLAN
First Amendment
Pursuant to Section 14.01 of the Midland Enterprises Inc. Salaried Retirement
Plan, said Plan is hereby amended as follows:
1. Effective July 1, 1994, Section 2.03 is amended by inserting the following
at the end of the first paragraph thereof:
"Notwithstanding the foregoing, the Annual Earnings of an Eligible Employee
who is participating in the Employer's 'Sales Department Compensation
Program' as of each Earnings Measurement Date shall mean such Employee's
annual salary rate plus the annual performance bonus awarded to him under
such program for the calendar year immediately preceding such Earnings
Measurement Date."
2. Effective July 1, 1994, Section 2.03 is amended further by deleting the
last paragraph thereof and substituting the following therefor:
"For each Plan Year ending before July 1, 1994, a Member's Annual Earnings
shall be limited for all purposes under the Plan to $200,000 (or such larger
amount as the Secretary of the Treasury may determine for such Plan Year
under section 401(a)(17) of the Code). For each Plan Year beginning after
June 30, 1994 (and for each prior Plan Year in which Annual Earnings are
taken into account in computing benefits in any Plan Year beginning after
June 30, 1994), Annual Earnings shall be limited for all purposes under the
Plan to $150,000 (or such larger amount as the Secretary of the Treasury may
determine for such Plan Year under section 401(a)(17) of the Code.) In
applying the above limitations, the special rules of Section 5.06 below shall
apply. In addition, the family aggregation rules of Code section 414(q)(6)
shall apply, except that in applying such rules, the term 'family' shall
include only the spouse of the Member and any lineal descendants who have not
attained age 19 before the close of the Plan Year."
3. Effective July 1, 1993, Section 2.11 is amended by deleting subsections
(c) and (d) and by substituting the following therefor:
"(c) employed in a location to which the Plan has not been specifically
extended by the Board of Directors,
(d) considered an Employee solely by reason of the leased-employee rules of
section 414(n) of the Code and the second sentence of paragraph 2.12, or
(e) employed to perform or complete a specific project or projects and
classified as a temporary employee for other purposes of the Employer."
4. Effective July 1, 1993, Section 2.11 is amended further by inserting after
the second sentence, the following:
"Effective on or after July 1, 1993, any Employee who is employed by Midland
Enterprises Inc. or a subsidiary thereof with a salary grade level of 18 or
19 shall not be considered an Eligible Employee under the Plan."
5. Effective July 1, 1994, Section 2.19(d) is amended by inserting,
immediately following subparagraph (iii), the following subparagraph (iv):
"(iv) pursuant to an approved leave of absence under the terms of the Family
and Medical Leave Act, but only to the extent required by that Act as
reasonably determined by the Administrator,".
6. Effective July 1, 1994, Section 2.19 is further amended by inserting the
following at the end thereof:
"Notwithstanding the foregoing and except as otherwise provided by law, no
more than 501 Hours of Service will be credited to any Employee on account of
any single continuous period during which the Employee performs no duties.
Except as hereinafter provided, Hours of Service to be credited to an
Employee under (a), (b) or (c) above will be calculated and credited pursuant
to paragraphs (b) and (c) of section 2530.200b-2 of the Department of Labor
Regulations, which are incorporated herein by reference."
<PAGE>
7. Effective July 1, 1994, Article V is amended by adding at the end thereof
the following new section:
"5.06 Members Subject to Limitations on Annual Earnings. Notwithstanding
anything to the contrary in Sections 5.01 through 5.05,
(a) in the case of a Member whose Annual Earnings for any Plan Year prior
to July 1, 1989 exceeded $200,000, the Member's accrued benefit at any time
after June 30, 1989 and before July 1, 1994, and the amount of benefits
determined for the Member under Sections 5.01 through 5.05 at any time during
such period, shall be the greater of:
(1) the amount determined under the applicable formula taking into account
the Member's total Years of Benefit Service, or
(2) the Member's accrued benefit as of June 30, 1989.
(b) in the case of a Member whose Annual Earnings for any Plan Year prior
to July 1, 1994, exceeded $150,000, the Member's accrued benefit at any time
after June 30, 1994, and the amount of benefits determined for the Member
under Sections 5.01 through 5.05 at any time after that date shall be the
greater of:
(1) the amount determined under the applicable formula taking into account
the Member's total Years of Benefit Service, or
(2) the sum of (i) the Member's accrued benefit as of June 30, 1994, deter-
mined after giving effect to Section 5.06(a), and (ii) the amount determined
under the applicable formula as of the date benefits are determined, taking into
account only Years of Benefit Service after June 30, 1994.
(c) For purposes of (b)(2) above, Years of Benefit Service shall be
determined by treating the Year of Benefit Service that includes June 30,
1994 as consisting of two fractional years, the earlier of which shall be
included in Years of Benefit Service in determining the Member's accrued
benefit as of June 30, 1994 and the later of which shall be included in Years
of Benefit Service after June 30, 1994."
8. Effective July 1, 1994, Article VII is renamed "Forms of Benefit".
9. Effective with respect to individuals whose annuity starting date (as
defined in Code section 417(f)(2)) is on or after July 1, 1994, Article VII
is further amended by adding the following at the end thereof:
"7.07 Optional Forms of Benefit for Non-Married Members. In lieu of a monthly
benefit payable for his lifetime only, a Member who is not married on his
annuity starting date may elect (in the manner prescribed by the
Administrator) to receive:
(a) a reduced monthly benefit during his lifetime with one-half of such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime, or
(b) a reduced monthly benefit during his lifetime with two-thirds of such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime, or
(c) a reduced monthly benefit during his lifetime with the entire such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime.
Notwithstanding any other provision of the Plan to the contrary, the provisions
of this Section 7.07 shall apply only with respect to Beneficiaries who are
"designated beneficiaries" within the meaning of Code section 401(a)(9)(E) and
the rules promulgated thereunder, and the forms of benefit described in (b) and
(c) above shall be available only with respect to Beneficiaries whose age is
such as to satisfy the incidental death benefit requirements under section
401(a)(9) of the Code (as construed by said rules)."
10. Effective January 1, 1993, Article VII is amended further by adding at
the end thereof the following:
"7.08 Direct Rollovers. Notwithstanding any provision of the Plan to the
contrary that may otherwise limit a distributee's election under this Section
7.08, for distributions made on or after January 1, 1993, a distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an eligible rollover distribution, subject to the limitations
imposed in temporary Treasury Regulation section 1.40(a)(31)-1T, paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover. For purposes of this Section 7.08, the following definitions
shall apply:
(a) An 'eligible rollover distribution' is any distribution of all or any
portion of the distributee's benefit, provided such portion is equal to or in
excess of $200, except that an eligible rollover distribution does not
<PAGE>
include the following: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives
of the distributee and the distributee's beneficiary, or for a specified
period of ten years or more, or any distribution to the extent such
distribution is required under Code section 401(a)(9).
(b) With respect to a distributee other than the Member's surviving
spouse, an 'eligible retirement plan' is an individual retirement account
described in Code section 408(a), an individual retirement annuity described
in Code section 408(b), an annuity plan described in Code section 403(a), or
a qualified trust described in Code section 401(a). With respect to a
distributee who is a Member's surviving spouse, an eligible retirement plan
is an individual retirement account or an individual retirement annuity.
(c) A 'distributee' includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is an alternate payee under a
Qualified Domestic Relations Order described in Section 2.24A above, are
distributees with regard to the interest of the spouse or former spouse.
(d) A 'direct rollover' is a payment by the Plan to the eligible
retirement plan specified by the distributee."
11. Effective July 1, 1994, Section 9.02 is amended by adding immediately
after the phrase "Member's severance from service for any reason" the
following:, "including death".
12. Effective July 1, 1994, Section 9.02 is amended further by deleting the
first sentence of the second paragraph thereof in its entirety and by
substituting the following therefor:
"For purposes of determining the present value of an individual's benefit or
the actuarial equivalency of an individual's benefit or the actuarial
equivalency of alternative forms under this paragraph, the same interest and
mortality assumptions as are specified in paragraph 15.04 shall be applied to
the Member's accrued benefit payable commencing at the later of retirement or
the Member's Normal Retirement Date, provided that the interest assumption
used for purposes of this paragraph 9.02 shall not be greater than the
schedule of immediate and deferred interest rate(s) which would be used by
the Pension Benefit Guaranty Corporation, as of the beginning of the Plan
Year in which the lump sum is paid, for purposes of determining the present
value of benefits on plan termination."
13. Effective July 1, 1994, Section 15.04 is amended by deleting the phrase
"retires, separates from service or dies" in the second sentence thereof and
by substituting the following therefor: "separates from service (whether by
death, retirement or otherwise)".
IN WITNESS WHEREOF, Midland Enterprises Inc. has caused this instrument to be
duly executed as of this 4th day of November, 1994.
MIDLAND ENTERPRISES INC.
By: /s/ W. H. Ferguson
Title: V.P. Human Resources
Exhibit 10.20.1
BOSTON GAS COMPANY RETIREMENT PLAN
First Amendment
Pursuant to Section 14.01 of the Boston Gas Company Retirement Plan, said
Plan is hereby amended as follows:
1. Effective July 1, 1994, Section 2.03 is amended by deleting the last
paragraph thereof and substituting the following therefor:
"For each Plan Year ending before July 1, 1994, a Member's Annual Earnings
shall be limited for all purposes under the Plan to $200,000 (or such larger
amount as the Secretary of the Treasury may determine for such Plan Year
under section 401(a)(17) of the Code). For each Plan Year beginning after
June 30, 1994 (and for each prior Plan Year in which Annual Earnings are
taken into account in computing benefits in any Plan Year beginning after
June 30, 1994), Annual Earnings shall be limited for all purposes under the
Plan to $150,000 (or such larger amount as the Secretary of the Treasury may
determine for such Plan Year under section 401(a)(17) of the Code.) In
applying the above limitations, the special rules of Section 5.06 below shall
apply. In addition, the family aggregation rules of Code section 414(q)(6)
shall apply, except that in applying such rules, the term 'family' shall
include only the spouse of the Member and any lineal descendants who have not
attained age 19 before the close of the Plan Year."
2. Effective July 1, 1993, Section 2.11 is amended by deleting subsections
(c) and (d) and by substituting the following therefor:
"(c) employed in a location to which the Plan has not been specifically
extended by the Board of Directors,
(d) considered an Employee solely by reason of the leased-employee rules of
section 414(n) of the Code and the second sentence of paragraph 2.12, or
(e) employed to perform or complete a specific project or projects, and
classified as a temporary employee for other purposes of the Employer."
3. Effective July 1, 1994, Section 2.19(d) is amended by inserting,
immediately following subparagraph (iii), the following subparagraph (iv):
"(iv) pursuant to an approved leave of absence under the terms of the Family
and Medical Leave Act, but only to the extent required by that Act as
reasonably determined by the Administrator,".
4. Effective July 1, 1994, Section 2.19 is further amended by inserting the
following at the end thereof:
"Notwithstanding the foregoing and except as otherwise provided by law, no
more than 501 Hours of Service will be credited to any Employee on account of
any single continuous period during which the Employee performs no duties.
Except as hereinafter provided, Hours of Service to be credited to an
Employee under (a), (b) or (c) above will be calculated and credited pursuant
to paragraphs (b) and (c) of section 2530.200b-2 of the Department of Labor
Regulations, which are incorporated herein by reference."
5. Effective July 1, 1994, Article V is amended by adding at the end thereof
the following new section:
"5.06 Members Subject to Limitations on Annual Earnings. Notwithstanding
anything to the contrary in Sections 5.01 through 5.05,
(a) in the case of a Member whose Annual Earnings for any Plan Year prior
to July 1, 1989 exceeded $200,000, the Member's accrued benefit at any time
after June 30, 1989 and before July 1, 1994, and the amount of benefits
determined for the Member under Sections 5.01 through 5.05 at any time during
such period, shall be the greater of:
(1) the amount determined under the applicable formula taking into account
the Member's total Years of Benefit Service, or
(2) the Member's accrued benefit as of June 30, 1989.
(b) in the case of a Member whose Annual Earnings for any Plan Year prior
to July 1, 1994, exceeded $150,000, the Member's accrued benefit at any time
after June 30, 1994, and the amount of benefits determined for the Member
under Sections 5.01 through 5.05 at any time after that date shall be the
greater of:
(1) the amount determined under the applicable formula taking into account
the Member's total Years of Benefit Service, or
<PAGE>
(2) the sum of (i) the Member's accrued benefit as of June 30, 1994, determined
after giving effect to Section 5.06(a), and (ii) the amount determined under the
applicable formula as of the date benefits are determined, taking into account
only Years of Benefit Service after June 30, 1994.
(c) For purposes of (b)(2) above, Years of Benefit Service shall be
determined by treating the Year of Benefit Service that includes June 30,
1994 as consisting of two fractional years, the earlier of which shall be
included in Years of Benefit Service in determining the Member's accrued
benefit as of June 30, 1994 and the later of which shall be included in Years
of Benefit Service after June 30, 1994."
6. Effective July 1, 1994, Article VII is renamed "Forms of Benefit".
7. Effective with respect to individuals whose annuity starting date (as
defined in Code section 417(f)(2)) is on or after July 1, 1994, Article VII
is further amended by adding the following at the end thereof:
"7.07 Optional Forms of Benefit for Non-Married Members. In lieu of a monthly
benefit payable for his lifetime only, a Member who is not married on his
annuity starting date may elect (in the manner prescribed by the
Administrator) to receive:
(a) a reduced monthly benefit during his lifetime with one-half of such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime, or
(b) a reduced monthly benefit during his lifetime with two-thirds of such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime, or
(c) a reduced monthly benefit during his lifetime with the entire such
reduced benefit to continue after his death to his designated Beneficiary for
the Beneficiary's lifetime.
Notwithstanding any other provision of the Plan to the contrary, the provisions
of this Section 7.07 shall apply only with respect to Beneficiaries who are
"designated beneficiaries" within the meaning of Code section 401(a)(9)(E) and
the rules promulgated thereunder, and the forms of benefit described in (b) and
(c) above shall be available only with respect to Beneficiaries whose age is
such as to satisfy the incidental death benefit requirements under section
401(a)(9) of the Code (as construed by said rules)."
8. Effective January 1, 1993, Article VII is amended further by adding at the
end thereof the following:
"7.08 Direct Rollovers. Notwithstanding any provision of the Plan to the
contrary that may otherwise limit a distributee's election under this Section
7.08, for distributions made on or after January 1, 1993, a distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an eligible rollover distribution, subject to the limitations
imposed in temporary Treasury Regulation section 1.401(a)(31)-1T, paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover. For purposes of this Section 7.08, the following definitions
shall apply:
(a) An 'eligible rollover distribution' is any distribution of all or any
portion of the distributee's benefit, provided such portion is equal to or in
excess of $200, except that an eligible rollover distribution does not
include the following: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives
of the distributee and the distributee's beneficiary, or for a specified
period of ten years or more, or any distribution to the extent such
distribution is required under Code section 401(a)(9).
(b) With respect to a distributee other than the Member's surviving spouse
an 'eligible retirement plan' is an individual retirement account described
in Code section 408(a), an individual retirement annuity described in Code
section 408(b), an annuity plan described in Code section 403(a), or a
qualified trust described in Code section 401(a). With respect to a
distributee who is a Member's surviving spouse, an eligible retirement plan
is an individual retirement account or an individual retirement annuity.
(c) A 'distributee' includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is an alternate payee under a
Qualified Domestic Relations Order described in Section 2.24A above, are
distributees with regard to the interest of the spouse or former spouse.
(d) A 'direct rollover' is a payment by the Plan to the eligible
retirement plan specified by the distributee."
9. Effective July 1, 1994, Section 9.02 is amended by adding immediately
after the phrase "Member's severance from service for any reason" the
following: ", including death".
<PAGE>
10. Effective July 1, 1994, Section 9.02 is amended further by deleting the
first sentence of the second paragraph thereof in its entirety and by
substituting the following therefor:
"For purposes of determining the present value of an individual's benefit or
the actuarial equivalency of an individual's benefit or the actuarial
equivalency of alternative forms under this paragraph, the same interest and
mortality assumptions as are specified in paragraph 15.04 shall be applied to
the Member's accrued benefit payable commencing at the later of retirement or
the Member's Normal Retirement Date, provided that the interest assumption
used for purposes of this paragraph 9.02 shall not be greater than the
schedule of immediate and deferred interest rate(s) which would be used by
the Pension Benefit Guaranty Corporation, as of the beginning of the Plan
Year in which the lump sum is paid, for purposes of determining the present
value of benefits on plan termination."
11. Effective July 1, 1994, Section 15.04 is amended by deleting the phrase
"retires, separates from service or dies" in the second sentence thereof and
by substituting the following therefor: "separates from service (whether by
death, retirement or otherwise)".
12. Effective May 21, 1993, the Plan is amended by inserting at the end
thereof, the following Exhibit A:
"Exhibit A
Reference is made to the 1993 negotiated changes to the Boston Gas Company
Union Pension Plan (the "Union Plan"). For purposes of determining whether
the Normal Retirement Benefit of a Member under Section 5.01 of the Plan, as
calculated before applying the last two sentences of that Section (the
"tentative normal retirement benefit"), is less than the normal retirement
benefit to which the Member would have been entitled under the Union Plan
assuming membership in that plan, the benefits under the two plans shall be
compared as follows:
(a) The normal retirement benefit under the Union Plan shall be determined
taking into account, to the extent applicable, the benefit increase scheduled
for March 25, 1996 and converting the resulting projected benefit to a level
benefit using the actuarial assumptions applicable for determining actuarial
equivalency under the Plan.
(b) The present value of the Member's tentative normal retirement benefit
under the Plan shall be compared to the present value of the benefit
determined under (a) above. If the present value of the Member's tentative
normal retirement benefit exceeds the present value of the benefit determined
under (a) above, the Member's Normal Retirement Benefit under Section 5.01
shall equal the Member's tentative normal retirement benefit.
(c) If the present value of the benefit determined under (a) above exceeds
the present value of the Member's tentative normal retirement benefit, the
Member's Normal Retirement Benefit under Section 5.01 shall be the benefit
determined under (a) above.
(d) In determining the Early Retirement Benefit under Section 5.03 of any
Member whose Normal Retirement Benefit is determined under (c) above, the
following steps shall be taken:
(i) First, compare (A) the present value at early retirement of the
Member's tentative normal retirement benefit, reduced using the early
retirement factors set forth in Section 5.03, plus the Member's Social
Security supplement under Section 5.031, to (B) the present value at early
retirement of the benefit determined under (a) above, similarly reduced for
early retirement using the 5.03 factors.
(ii) If the amount determined under (i)(A) exceeds the amount determined
under (i)(B), the benefit payable to the Member at early retirement shall
equal the Member's tentative normal retirement benefit reduced as prescribed
under Section 5.03, including the Member's Social Security supplement under
Section 5.031.
(iii) If the amount determined under (i)(B) exceeds the amount determined
under (i)(A), the benefit payable to the Member at early retirement shall be
the actuarial equivalent of the amount determined under (i)(B) and the Member
shall not be entitled to the separate Social Security supplement under
Section 5.031.
IN WITNESS WHEREOF, Boston Gas Company has caused this instrument to be duly
executed as of this 5th day of December, 1994.
BOSTON GAS COMPANY
By: /s/ Chester R. Messer
Title: /s/ President
<PAGE>
EXHIBIT 13.1
Cash Dividends Per Share
Quarter 1994 1993
First $ .35 $ .35
Second .35 .35
Third .35 .35
Fourth .35 .35
Total $1.40 $1.40
Stock Price Range
Quarter 1994 1993
High Low High Low
First $27-3/4 $23-3/4 $29-3/8 $26-3/8
Second 27-1/8 22-3/8 30 26-3/8
Third 26-5/8 22-1/4 29-1/4 25-7/8
Fourth 28 25 29 25-1/2
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The following table shows all direct and indirect subsidiaries of the
registrant except (1) subsidiaries which, considered in the aggregate as a
single subsidiary, do not constitute a significant subsidiary, and (2)
certain consolidated wholly-owned multiple subsidiaries carrying on the same
line of business as to which certain summary information appears below.
Jurisdiction of
Incorporation
Boston Gas Company Massachusetts
Midland Enterprises Inc. Delaware
14 subsidiaries engaged in water transportation and
related activities
Water Products Group Incorporated Massachusetts
WaterPro Supplies Corporation Massachusetts
