<PAGE>
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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, 1995
----------------
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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
<S> <C>
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
</TABLE>
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 $738.7 million as of February 22, 1996.
There were 20,239,699 shares of Common Stock, par value $1.00 per share,
outstanding as of February 22, 1996.
----------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended December
31, 1995 are incorporated by reference into Part II of this Report.
Portions of the Registrant's 1996 definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 25, 1996 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.
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<PAGE>
EASTERN ENTERPRISES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
PART I
Item 1. Business............................................... K-1
Boston Gas Company.................................... K-1
Midland Enterprises Inc. ............................. K-5
General............................................... K-8
Item 2. Properties............................................. K-9
Item 3. Legal Proceedings...................................... K-9
Item 4. Submission of Matters to a Vote of Security Holders.... K-9
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters.................................. K-10
Item 6. Selected Financial Data................................ K-10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... K-10
Item 8. Financial Statements and Supplementary Data............ K-16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... K-36
PART III
Item 10. Directors and Executive Officers of the Registrant..... K-36
Item 11. Executive Compensation................................. K-36
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................ K-36
Item 13. Certain Relationships and Related Transactions......... K-36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.............................................. K-36
</TABLE>
<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. In April 1995 Eastern completed the sale of its subsidiary, WaterPro
Supplies Corporation ("WaterPro"), for $52.9 million in cash, which
approximated book value. The sale of WaterPro completed the disposition of
Eastern's Water Products Group, which consisted of WaterPro and another
subsidiary, Ionpure Technologies Corporation ("Ionpure"), which was sold in
1993. As described in Note 10 of Notes to Financial Statements, 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
internally generated funds and through the issuance of their own funded debt,
which is not guaranteed by Eastern. The debt instruments relating to Boston
Gas and Midland borrowings generally 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 of Notes to
Financial Statements. Such information is incorporated herein by reference.
1(C) DESCRIPTION OF BUSINESS
BOSTON GAS COMPANY
Boston Gas is engaged in the transportation and sale of natural gas to over
515,000 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. Boston
Gas is the largest natural gas distribution company in New England, has been
in business for 173 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.
Boston Gas provides both local transportation services and gas supply for
all customer classes. All residential customers and most commercial/industrial
("C&I") customers currently purchase combined or "bundled" supply and
transportation services from Boston Gas. Local transportation service is
offered on an unbundled basis to large commercial/industrial customers, who
may purchase gas supply from Boston Gas or other sources.
Boston Gas' services are available on a firm and non-firm basis. Firm
transportation services and sales are provided under rate tariffs filed with
the Massachusetts Department of Public Utilities ("DPU") that typically
obligate Boston Gas to provide service without interruption throughout the
year. Non-firm transportation services and sales are generally provided to
large commercial/industrial customers who can use gas and oil interchangeably.
Non-firm services, including sales to other gas companies for resale, are
provided through individually negotiated contracts and, in most cases, the
price charged takes into account the price of the customer's alternative fuel.
Margin on non-firm throughput and off-system sales, in excess
K-1
<PAGE>
of a threshold based upon the prior year's experience, is shared between firm
customers and shareholders, 75% and 25%, respectively.
MARKETS AND COMPETITION
Boston Gas competes with other fuel distributors, primarily oil dealers,
throughout its service territory. Over the last five years, Boston Gas has
increased its share in the total stationary energy market from 28% to 35%.
This market share compares to the national average of approximately 43% and
may represent a growth opportunity for Boston Gas. However, actual experience
cannot be predicted with certainty, and will depend on such factors as the
price of competitive energy sources and customer perceptions of relative
value.
<TABLE>
<CAPTION>
1995 Customer Base
[PIE CHART--PLOT POINTS BELOW]
<S> <C>
Residential............................................ 92%
C & I.................................................. 8%
</TABLE>
<TABLE>
<CAPTION>
1995 Firm Throughput
[PIE CHART--PLOT POINTS BELOW]
<S> <C>
Residential Sales...................................... 42%
C & I Sales............................................ 40%
C & I Transportation................................... 18%
</TABLE>
Residential customers comprise 92% of its customer base, while
commercial/industrial establishments account for the remaining 8%.
Volumetrically, residential customers account for 29% of total throughput and
42% of firm throughput, while commercial/industrial customers account for 71%
of total throughput and 58% of firm throughput. Approximately half of the
commercial/industrial customers' total throughput is transportation.
In 1993, the DPU approved Boston Gas' proposal to unbundle local
transportation service and gas sales for its largest commercial/industrial
customers. Unbundling allows customers to purchase local transportation from
Boston Gas on a basis separate from the purchase of gas supply, which the
customer may buy from it or third parties. This unbundling initiative extended
to eligible customers direct access to gas supplies and interstate pipeline
capacity, as authorized by the Federal Energy Regulatory Commission ("FERC")
in Order 636. As a result of Order 636, Boston Gas has seen increasing
competition from other gas suppliers into its service territory. In 1995, 103
of the approximately 450 eligible customers purchased gas supplies from third
parties. In response to such perceived trends, in 1994 Boston Gas initiated a
large-scale reengineering effort to reduce costs, increase productivity, and
improve customer service.
K-2
<PAGE>
GAS THROUGHPUT
The following table, in billions of cubic feet of natural gas at 1,000 Btu
per cubic foot ("BCF"), provides information with respect to the volumes of
gas throughput by Boston Gas during the three years 1993-1995:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Residential....................................... 39.7 41.4 41.9
Commercial/industrial............................. 48.1 46.7 49.1
Off-system sales.................................. 6.6 7.6 2.1
-------- -------- --------
Total sales....................................... 94.4 95.7 93.1
Transportation of customer-owned gas.............. 47.5 48.7 51.7
Less: Off-system sales............................ (6.6) (7.6) (2.1)
-------- -------- --------
Total throughput................................. 135.3 136.8 142.7
======== ======== ========
Firm throughput.................................. 94.9 95.5 95.3
======== ======== ========
</TABLE>
No customer, or group of customers under common control, accounted for 3% or
more of the total firm revenues in 1995.
GAS SUPPLY
The following table in BCF provides statistical information with respect to
Boston Gas' sources of supply during 1993-1995:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Natural gas pipeline purchases.................... 93.4 92.2 86.3
Liquefied natural gas ("LNG") purchases........... 3.1 5.1 13.4
-------- -------- --------
Total purchases.................................. 96.5 97.3 99.7
Change in storage gas............................. 3.5 0.4 (4.0)
Company use, unbilled and other................... (5.6) (2.0) (2.6)
-------- -------- --------
Total sales...................................... 94.4 95.7 93.1
======== ======== ========
</TABLE>
Boston Gas purchases approximately 60% 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 long-term contracts. FERC-approved tariffs
provide for fixed demand charges for the firm capacity rights under these
contracts. The interstate pipeline companies that provide firm transportation
service to Boston Gas' service territory, the peak daily and annual capacity
and the contract expiration dates are as follows:
<TABLE>
<CAPTION>
Capacity in BCF
----------------- Expiration
Pipeline Daily Annual Dates
- -------- ------- -------- ----------
<S> <C> <C> <C>
Algonquin Gas Transmission Company
("Algonquin").................................. 0.28 87.4 1997-2012
Tennessee Gas Pipeline Company ("Tennessee").... 0.18 66.9 2000-2012
------- --------
0.46 154.3
======= ========
</TABLE>
K-3
<PAGE>
In addition, Boston Gas has firm capacity contracts on interstate pipelines
upstream of the Algonquin and Tennessee pipelines to transport natural gas
purchased by Boston Gas from producing regions to the Algonquin and Tennessee
pipelines. The expiration dates for these contracts are similar to those
included in the above table.
Boston Gas has contracted with pipeline companies and others for the storage
of natural gas in underground storage fields located in Pennsylvania, New
York, Maryland and West Virginia. These contracts provide for storage capacity
of 17.3 BCF and peak day capacity of 0.16 BCF. Boston Gas utilizes its
existing capacity contracts to transport gas from the storage fields to its
service territory. Supplemental supplies of LNG and propane are purchased and
produced from foreign and domestic sources.
Peak day throughput in BCF was 0.69, 0.65 and 0.64 in 1995, 1994 and 1993,
respectively. Boston Gas provides for peak period demand through a least cost
portfolio of pipeline, storage and supplemental supplies. Boston Gas considers
its peak day sendout capacity, based on its total supply resources, to be
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
transportation and sales 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, including the demand charges for capacity on the interstate
pipeline system.
In February 1995 the DPU ordered all large gas and electric utilities to
file incentive rate proposals as soon as possible. The order signaled a
significant departure from established DPU practice of setting rates to
reflect all allowed costs of service. In the second quarter of 1996 Boston Gas
intends to file an incentive rate proposal consistent with the DPU's
directives. As part of its rate restructuring proposal, Boston Gas will offer
unbundled transportation and sales service to a broader range of customers.
As more customers elect to purchase gas from third parties, a greater amount
of upstream pipeline capacity under contract may be idle, unless it can be
remarketed or assigned. The recoverability of cost for any such idle capacity
will be an issue for the DPU to address for all utilities subject to its
jurisdiction. While there can be no assurance, it is Boston Gas' position that
it should be afforded the opportunity to recover prudently incurred, non-
mitigable stranded capacity cost.
Boston Gas and Eastern were granted an intrastate exemption from the
provisions of the Public Utility Holding Company Act of 1935 under Section
3(a)(1) thereof, pursuant to an order of the Securities and Exchange
Commission dated February 28, 1955, as amended by orders dated November 3,
1967 and August 28, 1975.
SEASONALITY AND WORKING CAPITAL
Boston Gas' revenues, earnings and cash flows are highly seasonal as the
demand for most of its transportation services and sales is directly related
to temperature conditions. The majority of Boston Gas' earnings is generated
in the first quarter with a seasonal loss occurring in the third quarter.
Since the bulk of its revenues is 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 is financed
through short-term borrowings. Short-term borrowings are also required from
time to time to finance normal business operations. As a result, short-term
borrowings are generally highest during the late fall and early winter.
K-4
<PAGE>
ENVIRONMENTAL MATTERS
Boston Gas may have or share responsibility under applicable environmental
law for the remediation of certain former manufactured gas plant ("MGP")
sites, as described in Note 11 of Notes to Financial Statements. A subsidiary
of New England Electric System has assumed responsibility for remediating 11
of the 15 such sites owned by Boston 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 MGP sites over separate,
seven-year amortization periods without a return on the unamortized balance.
Boston Gas does not possess at this time sufficient information to reasonably
determine the ultimate cost to it of such remediation and no assurance can be
given with respect to future recoverability of such costs. However, in light
of the factors discussed above, Boston Gas believes that it is not probable
that such costs will materially affect its financial condition or results of
operations.
EMPLOYEES
As of December 31, 1995, Boston Gas had 1,500 employees, 73% of whom were
organized in local unions with which Boston Gas has collective bargaining
agreements that expire in 1999. The 10% reduction in staffing from the prior
year was accomplished through attrition and early retirement and severance
programs for both management and union employees associated with Boston Gas'
ongoing reengineering program.
PROPERTIES
Boston Gas owns or leases facilities which enable it 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 leases one such facility in Lynn,
Massachusetts. In addition, Boston Gas leases a storage facility in Salem,
Massachusetts. Boston Gas also owns propane-air facilities at several
locations throughout its service territory.
On December 31, 1995, Boston Gas' distribution system included approximately
5,800 miles of gas mains, 397,000 services and 525,000 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.
In 1995, Boston Gas' capital expenditures were $57.3 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 $60 million
for similar purposes in 1996.
MIDLAND ENTERPRISES INC.
Midland, through its wholly-owned subsidiaries (together "Midland"), is
engaged 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.
K-5
<PAGE>
SALES
The following table indicates the tonnage transported (in millions) for the
period 1993-1995:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Dry cargo............................................ 66.2 66.9 60.9
Liquid cargo......................................... -- -- 1.6
-------- -------- --------
Total tonnage...................................... 66.2 66.9 62.5
======== ======== ========
</TABLE>
Tonnage in 1995 declined slightly due in part to a softening of the domestic
coal market in the second half of 1995 and reduced shipments of aggregates.
The record tonnage in 1994 increased 7% over 1993, despite the absence of the
liquid business, 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 coal miners strike.
Ton miles are the product of tons and distance transported. The following
charts depict 1995 tonnage by commodity and ton miles of cargo transported for
the period 1991--1995:
<TABLE>
<CAPTION>
1995 Tonnage by Commodity
[PIE CHART--PLOT POINTS BELOW]
<S> <C>
Coal..................................................64%
Other.................................................30%
Grain................................................. 6%
</TABLE>
<TABLE>
<CAPTION>
Ton Miles by Commodity
(in billions) 1991 1992 1993 1994 1995
[BAR CHART--PLOT POINTS BELOW]
<S> <C> <C> <C> <C> <C>
Coal......................... 15.6 15.2 14.0 15.2 15.2
Grain........................ 6.2 6.3 4.8 4.4 5.2
Other........................ 8.7 9.3 11.8 15.7 16.4
Liquid....................... 1.7 1.6 1.6 0.0 0.0
--- --- --- --- ---
Total..................... 32.2 32.4 32.2 35.3 36.8
</TABLE>
"Other" includes sand, stone, gravel, iron, scrap, steel, coke, phosphate,
towing for others, and other dry cargo.
For the second straight year, Midland set a new ton mile record with 1995
ton miles increasing 4% over 1994. As noted above, although 1995 tonnage
declined slightly, longer trip lengths associated with increased movements of
non-coal tonnage, predominantly on the Mississippi River, resulted in
increased overall production. Ton miles in 1994 increased 10% over 1993,
reflecting the 7% increase in tonnage noted above. In addition to changes in
ton miles transported, Midland's revenues and net income 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.
K-6
<PAGE>
The following table summarizes Midland's backlog of transportation and
terminalling business under long-term contracts:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
------ ------
<S> <C> <C> <C>
Tons (in millions)........................................ 156.2 168.8
Revenues (in millions).................................... $485.3 $422.8
Portions of revenue backlog not expected to be filled
within the current year.................................. 72% 77%
</TABLE>
The 1995 revenue backlog (which is based on contracts that extend beyond
December 31, 1996) is shown at prices in effect on December 31, 1995, 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 7% decline in tonnage backlog from
1994 is partly due to the scheduled expiration of several long-term contracts
in 1996 that have not yet been renewed and therefore were excluded from the
calculation. The backlog calculation includes contracts awarded but not yet
signed of 14.2 million tons and $67.2 million in revenue at December 31, 1995;
there were no such contracts at December 31, 1994. The increase in the revenue
backlog reflects higher average market rates on newly negotiated contracts and
the change in contract mix, reflecting longer hauls at higher rates per ton.
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.
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 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 the early 1990's, competition among major
barge line companies was intense due to an imbalance between barge supply and
customer demand, impacted by economic conditions as well as by occasionally
weak grain and export coal markets. This in turn led to revenue and margin
erosion and prompted the initiation of cost and productivity improvements and
curtailment of new barge construction by many operators. During the second
half of 1994, however, barge demand and supply moved closer to equilibrium as
both domestic import demand and export requirements increased significantly.
This trend, which continued in 1995, led to improved rates and margins.
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 and high fixed-cost nature of Midland's
business, the negotiation of long-term contracts facilitates steady and
efficient utilization of equipment. Midland's long-term transportation and
terminalling contracts expire at various dates from January 1997 through June
2003. During 1995, approximately 34% 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 that excuse
performance by the parties to the contracts when performance is prevented by
circumstances beyond their reasonable control. Many of these contracts
K-7
<PAGE>
have provisions for termination for specified causes, such as material breach
of 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 that 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 1995. 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 costs per ton mile for barge
transportation are generally below those of 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.
PROPERTIES
As of December 31, 1995, Midland's marine equipment consisted of 2,354 dry
cargo barges and 84 towboats. Approximately half of this equipment is either
mortgaged to secure Midland's equipment financing obligations or chartered
under long-term leases from third parties.
In 1995, Midland's capital expenditures were $20.9 million. These
expenditures were made principally for the purchase of new barges and for
renewal of equipment. In 1996 Midland expects to spend approximately $48
million for capital equipment, with the increase due primarily to the purchase
of new barges.
EMPLOYEES
As of December 31, 1995, Midland employed 1,400 persons, of whom
approximately 34% are represented by labor unions.
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 of Notes to Financial
Statements.
EMPLOYEES
Eastern and its wholly-owned subsidiaries employed 3,000 employees at
December 31, 1995.
K-8
<PAGE>
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 of Notes to Financial Statements 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 1995.
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.
<TABLE>
<CAPTION>
Office Held
Name Title Age Since
---- ----- --- -----------
<C> <S> <C> <C>
J. Atwood Ives.......... Chairman and Chief Executive 59 1991
Officer
Richard R. Clayton...... President and Chief Operating 57 1991
Officer
Walter J. Flaherty...... Senior Vice President and Chief 47 1992
Financial Officer
Chester R. Messer....... Senior Vice President--President of 54 1988
Boston Gas Company
Fred C. Raskin.......... Senior Vice President--President of 47 1991
Midland Enterprises Inc.
L. William Law, Jr...... Senior Vice President, General 51 1995
Counsel and Secretary
</TABLE>
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.
Richard R. Clayton joined Eastern in 1987 as Executive Vice President and
Chief Administrative Officer. 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.
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.
K-9
<PAGE>
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, 1995 was 5,400.
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, 1995. Such information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Five-Year Financial Summary" appearing on page 31 of the annual report to
shareholders for the year ended December 31, 1995. Such information is
incorporated herein by reference.
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.
1995 COMPARED TO 1994
OVERVIEW
The Company reported net earnings of $53.9 million, or $2.66 per share, in
1995 compared to net earnings of $51.1 million, or $2.46 per share, in 1994.
Net earnings from continuing operations before extraordinary item were $60.4
million, or $2.98 per share, in 1995, reflecting increases of 55% and 59%,
respectively, over the comparable results in 1994. Excluding the gain on the
sale of Eastern's United States Filter Corporation ("U.S. Filter") investment
and the provision for environmental expenses from 1995 results, earnings and
earnings per share from continuing operations increased by approximately 33%
and 36%, respectively, over the prior year, which was adjusted to exclude the
gain on the sale of a barge construction and repair facility.
Earnings from discontinued operations in 1994 reflect the net earnings of
WaterPro which was sold in 1995 and the after-tax gain realized on the
settlement of Eastern's lawsuit relating to its 1989 purchase of Ionpure (see
Note 10). In the fourth quarter of 1995, Eastern accrued a pretax charge of
$10.0 million to increase its accrual, first recorded in 1993, for the
estimated undiscounted liability for health care and death benefit premiums
imposed by the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"),
primarily due to a subsequent assignment to Eastern of additional miners and
their beneficiaries. As described in Note 12, this charge has been reported as
an extraordinary item of $6.5 million or $.32 per share.
<TABLE>
<CAPTION>
1995 1994 Change
(In millions) ------ ------ ------
<S> <C> <C> <C>
REVENUES:
Boston Gas $653.1 $660.2 (1)%
Midland 296.3 264.7 12 %
------ ------
Total $949.4 $924.9 3 %
====== ======
The increase in consolidated revenues from 1994 to 1995 primarily reflects
significant increases in Midland's rates for transporting non-coal
commodities.
<CAPTION>
1995 1994 Change
(In millions) ------ ------ ------
<S> <C> <C> <C>
OPERATING EARNINGS:
Boston Gas $ 61.7 $ 65.8 (6)%
Midland 57.8 35.8 62 %
Headquarters (5.8) (4.2) (36)%
------ ------
Total $113.7 $ 97.4 17 %
====== ======
</TABLE>
K-10
<PAGE>
The increase in operating earnings from 1994 to 1995 primarily reflects
increased non-coal transportation rates and ideal operating conditions at
Midland, partially offset by the impact of demand-related factors and warmer
weather as well as costs associated with early retirement and severance
programs at Boston Gas and higher unallocated headquarters expense.
Other income in 1995 includes a $20.6 million gain on the sale of Eastern's
U.S. Filter investment and increased interest income on higher cash balances,
partly offset by a $15.0 million provision for environmental expenses, as
described in Notes 8 and 11. Other income for 1994 includes a $2.3 million
gain on the sale of Midland's barge construction and repair facility in
Louisiana.
The effective tax rate in 1995 was 10% lower than in 1994, principally
because the gain on the sale of the U.S. Filter investment was offset by a
realized tax loss on the sale of WaterPro which had been written down in 1993.
BOSTON GAS
Revenues in 1995 decreased by $7.1 million as increased sales to new and
existing firm customers were more than offset by demand-related factors
involving a reduction in weather-adjusted gas consumption. Weather for 1995
was 100.0% of normal, which was 0.6% warmer than 1994. Increased revenues from
non-firm sales and transportation were partially offsetting.
Operating earnings decreased $4.1 million from 1994. Sales to new firm
customers and the recognition of lost margins associated with conservation
programs increased operating earnings, partly offsetting the impact of reduced
demand and warmer weather. Higher operating costs, primarily reflecting non-
recurring charges associated with early retirement and severance programs for
both management and union employees were partially offset by the related
reduction in labor costs and reduced weather-related workload during the first
half of the year. These reductions were part of Boston Gas' ongoing
reengineering program focused on improving customer service and lowering
operating costs.
MIDLAND ENTERPRISES
Revenues and operating earnings increased by $31.6 million and $22.0
million, respectively, in 1995 over 1994, primarily reflecting higher
transportation rates. Partially offsetting were reduced revenues resulting
from contractual rate reductions on long-term utility coal contracts.
Operating earnings benefited from continued productivity improvements and
excellent operating conditions.
Ton miles increased 4% to a new record level, although total tonnage
transported declined 1%, due to significantly longer trip lengths. Coal
tonnage declined 1%, with coal shipments under long-term contracts increasing
4% and spot coal tonnage declining 17%, reflecting a weak second half market.
Non-coal ton miles increased 8% although tonnage was essentially unchanged
from 1994. Midland's focus on longer haul, higher margin non-coal commodities
more than offset the weakness in the spot coal market. As a result, grain
tonnage increased 18% with ores and steel tonnage up over 20% as compared to
1994. Operating results from terminal and support operations were relatively
unchanged from 1994 levels.
K-11
<PAGE>
1994 COMPARED TO 1993
<TABLE>
<CAPTION>
1994 1993 Change
(In millions) ------ ------ ------
<S> <C> <C> <C>
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 primarily 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.
<CAPTION>
1994 1993 Change
(In millions) ------ ------ ------
<S> <C> <C> <C>
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%
====== ======
</TABLE>
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 cost reduction
and productivity improvement programs and better operating conditions,
partially offset by lower contracted rates for coal transportation. A
seventeen-week work stoppage at Boston Gas, record flooding in the Midwest and
the UMW strike 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
higher 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.
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 for discussion of these matters. The latter two charges are included in
the loss from discontinued operations for 1993.
BOSTON GAS
A $37.7 million annualized rate increase, which took effect November 1,
1993, increased 1994 revenues by $29.9 million. Although temperatures varied
widely relative to normal over the course of 1994, they averaged 1.5% warmer
than in 1993 and 0.6% colder than normal in 1994.
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.
K-12
<PAGE>
MIDLAND ENTERPRISES
Revenues and operating earnings increased $9.8 million and $2.8 million,
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.
Tonnage 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 costs and carrying
charges associated with this facility. As mentioned earlier, in December 1993
Midland sold its liquid barge business at a pretax gain of $8.0 million. These
transactions are included in other income.
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
1996 capital expenditure and working capital requirements, potential funding
of its Coal Act and environmental liabilities, normal debt repayments and
anticipated dividends to shareholders.
In addition to cash and short-term investments of $191.2 million at December
31, 1995, Eastern maintains a $100.0 million long-term credit agreement plus
other lines, all of which are available for general corporate purposes. At
December 31, 1995 there were no borrowings outstanding under any of these
facilities.
Consolidated capital expenditures for 1996 are budgeted at approximately
$108 million, about 55% of which are for Boston Gas and the balance for
Midland.
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, the loss on the sale of Ionpure and substantial share repurchases.
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.
In June 1995 Boston Gas filed a shelf registration for the issuance through
December 1997 of up to $100.0 million of Medium-Term Notes for the funding of
future capital expenditures and the refinancing of currently outstanding
indebtedness. In the fourth quarter of 1995 Boston Gas issued $60.0 million of
Medium-Term Notes, Series C, with a weighted average maturity of 26 years and
coupon of 7.08%. As described in Note 3, the proceeds from this issuance were
used to complete an in-substance defeasance which will reduce future interest
expense by more than $1 million annually.
K-13
<PAGE>
In April 1995 Eastern sold WaterPro for $52.9 million in cash. In addition,
in November 1995 Eastern sold its investment in U.S. Filter common stock for
$65.5 million in cash.
To meet working capital requirements which reflect the seasonal nature of
the gas distribution business, Boston Gas had notes outstanding of $52.0
million at December 31, 1995, a decrease of $10.5 million from the prior year,
primarily reflecting lower balances for deferred gas costs. Boston Gas also
maintains a bank credit agreement which supports the issuance of up to $90.0
million of commercial paper to fund its inventory of gas supplies. At December
31, 1995 Boston Gas had $45.6 million of commercial paper outstanding for this
purpose.
Eastern repurchased 320,800, 603,500 and 1,739,900 shares of its common
stock for $8.4 million, $14.6 million and $46.0 million, respectively, in
1995, 1994 and 1993.
<TABLE>
<CAPTION>
Year-End Common Shares
Outstanding (in millions) 1991 1992 1993 1994 1995
[BAR CHART--PLOT POINTS BELOW]
<S> <C> <C> <C> <C> <C>
Total.................... 22.5 22.6 20.9 20.4 20.2
</TABLE>
<TABLE>
<CAPTION>
Capital Structure
(in millions) 1991 1992 1993 1994 1995
[BAR CHART--PLOT POINTS BELOW]
<S> <C> <C> <C> <C> <C>
Equity...................... 327 357 329 366 357
Debt........................ 503 518 364 374 396
--- --- --- --- ---
Total.................... 830 875 693 740 753
</TABLE>
K-14
<PAGE>
OTHER MATTERS
Eastern may have or share responsibility for environmental remediation
and/or ongoing maintenance of certain non-utility sites associated with former
operations, the most significant of which is a former coal tar processing
facility, as described in Note 11. Eastern has accrued a reserve of
approximately $25 million in total at December 31, 1995 to cover the
remediation and maintenance of these sites. However, Eastern does not possess
at this time sufficient information to reasonably determine or estimate the
ultimate cost to it of such remediation and maintenance.
Boston Gas may have or share responsibility for environmental remediation of
certain former manufactured gas plant ("MGP") sites, as described in Note 11.
A subsidiary of New England Electric System has assumed responsibility for
remediating 11 of the 15 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 MGP sites
over separate, seven-year amortization periods without a return on the
unamortized balance. Eastern does not possess at this time sufficient
information to reasonably determine the ultimate cost to Boston Gas of such
remediation, and no assurance can be given with respect to the future
recoverability of such costs. However, particularly in light of the factors
discussed, Eastern currently believes that it is not probable that such costs
will materially affect its financial condition or results of operations.
Eastern has accrued pretax charges of $80.0 million for its estimated
undiscounted liability for health care and death benefit premiums under the
Coal Act. As discussed in Note 12, its obligations for these premiums could
range from zero to more than $115 million.
K-15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Operations K-17
Consolidated Balance Sheets K-18
Consolidated Statements of Cash Flows K-20
Consolidated Statements of Shareholders' Equity K-21
Notes to Financial Statements K-22
Unaudited Quarterly Financial Information K-34
Independent Auditors' Report K-35
Management's Report on Responsibility K-35
</TABLE>
K-16
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
(In thousands, except per share amounts) -------- -------- --------
<S> <C> <C> <C>
REVENUES $949,412 $924,850 $869,215
OPERATING COSTS AND EXPENSES:
Operating costs 668,701 668,287 642,603
Selling, general and administrative expenses 105,473 100,332 96,024
Depreciation and amortization 61,504 58,856 53,199
-------- -------- --------
OPERATING EARNINGS 113,734 97,375 77,389
OTHER INCOME (EXPENSE):
Interest income 5,633 1,953 3,213
Interest expense (38,536) (38,516) (35,039)
Other, net 4,103 2,553 (1,056)
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 84,934 63,365 44,507
Provision for income taxes 24,553 24,458 18,485
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM 60,381 38,907 26,022
Earnings (loss) from discontinued operations, net
of tax -- 12,212 (58,182)
Extraordinary provision for coal miners retiree
health care, net of tax (6,500) -- (45,500)
-------- -------- --------
NET EARNINGS (LOSS) $ 53,881 $ 51,119 $(77,660)
======== ======== ========
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM $2.98 $1.87 $1.15
Discontinued operations, net of tax -- .59 (2.58)
Extraordinary provision for coal miners retiree
health care, net of tax (.32) -- (2.02)
-------- -------- --------
NET EARNINGS (LOSS) PER SHARE $2.66 $2.46 $(3.45)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-17
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
(In thousands) ---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 191,211 $ 59,641
Receivables, less reserves of $16,009 in 1995 and
$16,091 in 1994 104,735 97,093
Inventories 47,883 60,207
Deferred gas costs 71,940 66,865
WaterPro net assets held for sale -- 51,462
Investment in U.S. Filter -- 44,847
Other current assets 9,117 8,054
---------- ----------
TOTAL CURRENT ASSETS 424,886 388,169
PROPERTY AND EQUIPMENT, AT COST 1,356,097 1,293,733
Less--accumulated depreciation 563,337 518,110
---------- ----------
NET PROPERTY AND EQUIPMENT 792,760 775,623
OTHER ASSETS:
Deferred post-retirement health care costs 93,830 97,589
Investments 13,821 5,531
Deferred charges and other costs, less amortization 52,045 72,407
---------- ----------
TOTAL OTHER ASSETS 159,696 175,527
---------- ----------
TOTAL ASSETS $1,377,342 $1,339,319
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
(In thousands) ---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current debt $ 57,193 $ 67,774
Accounts payable 64,960 49,974
Accrued expenses 26,795 22,915
Other current liabilities 75,913 71,774
---------- ----------
TOTAL CURRENT LIABILITIES 224,861 212,437
GAS INVENTORY FINANCING 45,600 53,578
LONG-TERM DEBT 357,675 365,488
RESERVES AND OTHER LIABILITIES:
Deferred income taxes 89,102 91,534
Post-retirement health care 98,717 102,382
Coal miners retiree health care 65,025 58,155
Preferred stock of subsidiary 29,262 29,229
Other reserves 71,336 52,382
---------- ----------
TOTAL RESERVES AND OTHER LIABILITIES 353,442 333,682
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.00 par value; Authorized shares--
50,000,000;
Issued shares--20,385,587 in 1995 and 20,651,925
in 1994 20,386 20,652
Capital in excess of par value 31,488 37,712
Retained earnings 348,821 321,880
Treasury stock at cost--191,547 shares in 1995 and
241,395 shares in 1994 (4,931) (6,110)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 395,764 374,134
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,377,342 $1,339,319
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
(In thousands) -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS (LOSS) $ 53,881 $ 51,119 $(77,660)
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
Extraordinary provision for coal miners
retiree health care, net of tax 6,500 -- 45,500
Depreciation and amortization 61,504 58,856 53,199
Income taxes and tax credits (1,119) 7,452 7,993
Net gain on sale of assets (20,990) (2,403) (8,447)
Provision for environmental expenditures 15,000 175 5,715
Other changes in assets and liabilities:
Receivables (3,942) 19,087 (5,519)
Inventories 12,337 8,534 (7,874)
Deferred gas costs 17,764 (23,901) (24,934)
Accounts payable 14,986 (13,679) 743
Other (3,269) 14,264 (8,251)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 152,652 114,674 35,116
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (78,385) (57,883) (61,450)
Short-term investments 1,900 22,017 (14,411)
Proceeds on sale of WaterPro 52,864 -- --
Proceeds on sale of U.S. Filter investment 65,479 -- --
Proceeds on sale of barge construction
business -- 12,695 --
Proceeds on sale of liquid barge business -- -- 14,950
Other (1,725) (6,619) (2,101)
-------- -------- --------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 40,133 (29,790) (63,012)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (28,365) (29,779) (31,697)
Changes in notes payable (10,530) (43,770) 51,356
Changes in gas inventory financing (7,978) (5,719) 10,666
Proceeds from issuance of long-term debt 60,000 50,000 --
Repayment of long-term debt (66,520) (14,990) (24,661)
Repurchase of stock (8,357) (14,574) (46,039)
Other 2,428 1,885 857
-------- -------- --------
NET CASH USED BY FINANCING ACTIVITIES (59,322) (56,947) (39,518)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 133,463 27,937 (67,414)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,674 23,737 91,151
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR 185,137 51,674 23,737
SHORT-TERM INVESTMENTS 6,074 7,967 27,991
-------- -------- --------
CASH AND SHORT-TERM INVESTMENTS $191,211 $ 59,641 $ 51,728
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-20
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Capital In
Stock Excess of Retained Treasury
$1 Par value Par Value Earnings Stock Total
(In thousands) ------------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1992 $23,635 $112,050 $408,739 $(26,518) $517,906
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
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
Net earnings -- -- 53,881 -- 53,881
Dividends declared--
$1.42 per share -- -- (28,668) -- (28,668)
Repurchase of stock -- -- -- (8,357) (8,357)
Retirement of stock (300) (7,422) -- 7,722 --
Unearned compensation
related to the
issuance of restricted
stock, net -- 374 -- 51 425
Unrealized gains on
investments available
for sale, net -- -- 1,728 -- 1,728
Issuance of stock 34 824 -- 1,763 2,621
------- -------- -------- -------- --------
Balance at December 31,
1995 $20,386 $ 31,488 $348,821 $ (4,931) $395,764
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-21
<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
is reflected as discontinued operations (See Note 10).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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:
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
(In thousands) ------- -------
<S> <C> <C>
Supplemental gas supplies $35,136 $46,844
Other materials, supplies and marine fuel 12,747 13,363
------- -------
$47,883 $60,207
======= =======
</TABLE>
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) or average cost method.
Investment in U.S. Filter: In November 1995 Eastern sold its 3,041,092 shares
of United States Filter Corporation ("U.S. Filter") common stock in a public
offering for $65,479,000 in cash. The transaction resulted in a pretax and net
gain of $20,581,000 or $1.02 per share. In 1995, Eastern accounted for its
investment in U.S. Filter under the cost method and classified this investment
as a security available for sale.
Other current liabilities include the following:
<TABLE>
<CAPTION>
December 31 ,
---------------
1995 1994
(In thousands) ------- -------
<S> <C> <C>
Pipeline refunds due utility customers $13,173 $18,720
Coal miners retiree health care premiums 13,100 10,538
Reserves for insurance claims 13,037 8,809
Pipeline transition costs regulatory liability 9,510 11,560
Dividend payable 7,470 7,154
</TABLE>
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.
Earnings per share: Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding. Such shares
amounted to 20,285,000 in 1995, 20,789,000 in 1994 and 22,530,000 in 1993.
Fully diluted earnings per share were not materially different from primary
earnings per share.
K-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1995 1994
------------ ------------
<S> <C> <C>
Boston Gas 5.1% 5.2%
Midland 4.0% 3.9%
Headquarters 10.9% 12.4%
</TABLE>
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.
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Boston Gas $653,073 $660,158 $614,294
Midland 296,339 264,692 254,921
-------- -------- --------
$949,412 $924,850 $869,215
======== ======== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
OPERATING EARNINGS:
Boston Gas $ 61,662 $65,791 $49,063
Midland 57,828 35,805 33,001
Headquarters (5,756) (4,221) (4,675)
-------- ------- -------
$113,734 $97,375 $77,389
======== ======= =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
IDENTIFIABLE ASSETS, NET OF
DEPRECIATION AND RESERVES:
Boston Gas $ 829,482 $ 833,620 $ 834,440
Midland 365,654 345,625 373,144
Headquarters 182,206 160,074 155,607
---------- ---------- ----------
$1,377,342 $1,339,319 $1,363,191
========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Boston Gas $57,322 $53,504 $47,057
Midland 20,900 4,337 14,191
Headquarters 163 42 202
------- ------- -------
$78,385 $57,883 $61,450
======= ======= =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION:
Boston Gas $38,264 $35,809 $27,566
Midland 22,896 22,659 25,288
Headquarters 344 388 345
------- ------- -------
$61,504 $58,856 $53,199
======= ======= =======
</TABLE>
Headquarters operating expenses reflect unallocated corporate general and
administrative expenses. Headquarters identifiable assets primarily include
cash, short-term investments, WaterPro net assets held for sale and the
investment in U.S. Filter.
K-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Boston Gas' operations are subject to Massachusetts statutes applicable to
gas utilities. Its revenues, earnings and cash flows are highly seasonal as
most of its firm sales and transportation are directly related to temperature
levels. Boston Gas purchases pipeline gas supplies from a variety of domestic
and Canadian producers and marketers, using a combination of long-term
commitments, firm winter service agreements and spot purchases. Boston Gas has
diversified its pipeline gas supplies across major North American producing
regions, including western Canada.
A substantial portion of Midland's operations relate to long-term
transportation contracts. Based on past experience and its competitive
position, management considers that the simultaneous loss of several of its
largest customers, while possible, is unlikely to happen.
3. LONG-TERM OBLIGATIONS AND CURRENT DEBT
Credit agreement and lines of credit: Eastern maintains a credit agreement
with a group of banks, which provides for the borrowing by Eastern and its
subsidiaries of up to $100,000,000 at any time through December 29, 2000. The
interest rate for borrowings is the agent bank's prime rate or, at Eastern's
option, various alternatives. The agreement requires a facility fee of 1/8 of
1% of the commitment. At December 31, 1995 and 1994 no borrowings were
outstanding. Boston Gas utilizes the credit agreement to back its commercial
paper borrowings. In addition, Eastern and Boston Gas have various uncommitted
lines of credit which are utilized for working capital needs and provide for
interest at the bank's prime rate or, at Eastern's option, various
alternatives. Included in current debt were $52,000,000 and $62,530,000 of
commercial paper and notes payable with a weighted average interest rate of
5.93% at December 31, 1995 and 1994, respectively.
Gas inventory financing: Boston Gas maintains a long-term 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 $45,600,000 and
$53,578,000 of commercial paper outstanding to fund its inventory of gas
supplies at December 31, 1995 and 1994, 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 the agent bank's
prime rate or, at Boston Gas' option, various alternatives. The agreement
requires a facility fee of 1/12 of 1% on the commitment. No borrowings were
outstanding under this agreement during 1995 and 1994.
Description of long-term debt:
<TABLE>
<CAPTION>
December 31,
LONG-TERM DEBT: ------------------
1995 1994
(In thousands) -------- --------
<S> <C> <C>
BOSTON GAS:
8.75%-9.00% Sinking Fund Debentures, due 2001 $ -- $ 60,000
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 50,000
6.80%-7.25% Medium-Term Notes, Series C, due
2012-2025 60,000 --
First Mortgage Bonds-8.375% Series, due 1996 -- 2,880
Capital leases 4,281 5,690
Less--current portion (1,509) (1,890)
-------- --------
BOSTON GAS LONG-TERM DEBT 212,772 216,680
-------- --------
</TABLE>
K-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
December 31,
LONG-TERM DEBT (CONTINUED): ------------------
1995 1994
(In thousands) -------- --------
<S> <C> <C>
MIDLAND:
First Preferred Ship Mortgage Bonds--9.9% Series,
due 2008 48,648 48,758
8.1%-9.85% Medium-Term Notes, Series A, due 2002-
2012 71,000 71,000
Capital leases 28,939 32,404
Less--current portion (3,684) (3,354)
-------- --------
MIDLAND LONG-TERM DEBT 144,903 148,808
-------- --------
TOTAL LONG-TERM DEBT $357,675 $365,488
======== ========
</TABLE>
In 1995, Boston Gas filed a shelf registration covering the issuance through
1997 of up to $100,000,000 of Medium-Term Notes. In October and November 1995,
Boston Gas issued $60,000,000 of Medium-Term Notes, Series C, with a weighted
average maturity of 26 years and coupon of 7.08%. The proceeds from this
issuance were used to complete an in-substance defeasance of $60,000,000
principal amount of 8.75%-9.00% Debentures due 2001. In connection with the
defeasance Boston Gas has irrevocably requested that the Debenture Trustee
call the Debentures on the first date that they can be redeemed with lower
cost debt. In December 1995, Boston Gas deposited $65,136,000 of U.S.
government securities into an irrevocable trust to cover the principal amount
called, the call premiums of $1,161,000 and interest to the date of call of
$3,975,000. As a result of the in-substance defeasance, the debt has been
considered extinguished; accordingly, the government securities and
$60,000,000 principal amount of Debentures due 2001 were removed from the
balance sheet at December 31, 1995. Pursuant to regulatory accounting, the in-
substance defeasance transaction resulted in the deferral of $2,250,000 as
debt issuance costs to be amortized over the lives of the newly issued Medium-
Term Notes.
On September 1, 1995 Boston Gas redeemed all of the outstanding principal
amount of 8.375% First Mortgage Bonds due 1996 at a redemption price of 100%.
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 7.20%. 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.
Midland's First Preferred Ship Mortgage Bonds and Medium-Term Notes are
secured by certain transportation equipment.
Boston Gas' and Midland's Medium-Term Notes are not callable prior to
maturity. Midland's First Preferred Ship Mortgage Bonds are not callable until
April 1, 1998.
Capital leases consist of property and equipment lease obligations with a
weighted average interest rate of 9.78%. Minimum lease payments under these
agreements are due in installments through 2003.
Debt payment requirements and maturities, net of amounts acquired in
advance, are $5,193,000, $5,374,000, $4,895,000, $10,395,000 and $10,947,000
for 1996 through 2000, respectively.
K-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Five-year operating lease 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 $13,603,000 in 1995, $13,165,000 in 1994 and $12,189,000 in 1993.
Future minimum lease commitments under operating leases are $11,421,000,
$7,586,000, $3,851,000, $2,910,000, $2,139,000 for 1996 through 2000,
respectively, and cumulatively $5,702,000 thereafter.
4. PREFERRED STOCK OF SUBSIDIARY
Boston Gas has outstanding 1,200,000 shares of 6.421% Cumulative Preferred
Stock, which is non-voting and has a liquidation value of $25 per share. The
preferred stock requires 5% annual sinking fund payments beginning on
September 1, 1999 with a final redemption on September 1, 2018. The preferred
stock is not callable prior to 2003.
5. STOCK PLANS
Eastern has two stock option plans which provide 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. In the third quarter of
1995, the right to exercise SARs was effectively eliminated.
Shares available for future grants under these stock option plans were
1,036,428 at December 31, 1995, 98,988 at December 31, 1994 and 199,334 at
December 31, 1993. Stock options exercisable at December 31, 1995 and 1994
were 451,159 and 438,291, respectively. SARs exercisable at December 31, 1994
were 124,150.
Option activity during the past three years was as follows:
<TABLE>
<CAPTION>
Average Stock
option price options SARs
------------ ------- -------
<S> <C> <C> <C>
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)
------- -------
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
Granted 26.96 106,250 --
Exercised 24.94 (33,662) (20,140)
Surrendered 21.94 (20,140) (7,200)
Canceled 26.93 (23,550) (5,400)
------- -------
OUTSTANDING AT DECEMBER 31, 1995 $26.13 683,609 95,220
======= =======
</TABLE>
Under restricted stock plans for key employees and non-employee trustees,
Eastern awarded 2,800 shares in 1995, 6,000 shares in 1994 and 4,000 shares in
1993. Eastern recognized compensation expense
K-26
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of $425,000 in 1995, $450,000 in 1994 and $367,000 in 1993 in accordance with
the vesting terms of these and prior awards. Shares available for future
awards under these plans were 40,500 at December 31, 1995 and 42,500 at
December 31, 1994.
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 First National Bank of Boston, the current
Rights Agent, 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
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Interest on long-term debt $ 33,257 $ 32,430 $ 31,326
Other, including amortization of debt expense 3,852 5,092 3,488
Less--capitalized interest (499) (932) (1,164)
Subsidiary preferred stock dividends 1,926 1,926 1,389
-------- -------- --------
INTEREST EXPENSE $ 38,536 $ 38,516 $ 35,039
======== ======== ========
INTEREST PAYMENTS $ 35,552 $ 35,336 $ 34,040
======== ======== ========
8. OTHER INCOME (EXPENSE)
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Gain on sale of U.S. Filter investment $ 20,581 $ -- $ --
Provision for environmental expenses (15,000) (175) (5,715)
Shutdown and subsequent sale of barge con-
struction facility -- 2,300 (3,500)
Gain on sale of liquid barge business -- -- 7,988
Other (1,478) 428 171
-------- -------- --------
$ 4,103 $ 2,553 $ (1,056)
======== ======== ========
</TABLE>
K-27
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The table below reconciles the statutory U.S. Federal income tax provision
from continuing operations to the recorded income tax provision:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
State taxes, net of Federal benefit 3 4 4
Capital loss utilization (9) - -
Deferred tax effect of change in
statutory rate - - 3
-------- -------- --------
Effective rate 29% 39% 42%
======== ======== ========
</TABLE>
The capital loss utilization in 1995 reflects the gain on the sale of the
U.S. Filter investment offset by the tax loss on the sale of WaterPro, which
had been written down in 1993.
Following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1994 1993
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Federal $ 21,024 $ 18,059 $ 9,598
State 5,160 821 1,197
-------- -------- --------
TOTAL CURRENT PROVISION 26,184 18,880 10,795
Federal (806) 3,194 6,370
State (825) 2,384 1,320
-------- -------- --------
TOTAL DEFERRED PROVISION (1,631) 5,578 7,690
-------- -------- --------
PROVISION FOR INCOME TAXES $ 24,553 $ 24,458 $ 18,485
======== ======== ========
TAX PAYMENTS $ 25,298 $ 17,951 $ 10,809
======== ======== ========
</TABLE>
Significant items making up deferred tax liabilities and deferred tax assets
are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
(In thousands) --------- ---------
<S> <C> <C>
Coal miners retiree health care $ 26,865 $ 24,043
Unbilled revenue 24,637 30,978
Environmental reserves 8,400 4,091
Bad debt reserve 6,249 6,285
Other 23,109 21,916
--------- ---------
TOTAL DEFERRED TAX ASSETS 89,260 87,313
Accelerated depreciation (136,307) (131,310)
Deferred gas costs (16,296) (23,455)
Other (26,004) (25,245)
--------- ---------
TOTAL DEFERRED TAX LIABILITIES (178,607) (180,010)
--------- ---------
TOTAL DEFERRED TAXES $ (89,347) $ (92,697)
========= =========
</TABLE>
K-28
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. DISCONTINUED OPERATIONS
In April 1995 Eastern completed the sale of its subsidiary, WaterPro
Supplies Corporation ("WaterPro"), for $52,864,000 in cash, which approximated
book value. The sale of WaterPro completed the disposition of Eastern's Water
Products Group, which consisted of WaterPro and Ionpure Technologies
Corporation ("Ionpure"). Ionpure was sold in 1993.
Following is a summary of results of operations for the Water Products Group
through the measurement date of October 31, 1994 and the estimated loss on
disposition:
<TABLE>
<CAPTION>
1994 1993
(In thousands) -------- --------
<S> <C> <C>
Revenues $189,125 $230,632
======== ========
Earnings (loss) before income taxes $17,544 $(61,129)
Provision (benefit) for income taxes 2,832 (2,947)
-------- --------
Earnings (loss) from operations of discontinued opera-
tions 14,712 (58,182)
-------- --------
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)
======== ========
</TABLE>
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.
Earnings (loss) from operations of discontinued operations include the
following:
<TABLE>
<CAPTION>
1994 1993
(In thousands) ------- --------
<S> <C> <C>
Operations $ 6,591 $ (2,094)
Writedown of WaterPro goodwill -- (45,000)
Sale of Ionpure 1,038 (9,300)
Settlement of lawsuit relating to Ionpure acquisition,
net of
legal costs 7,083 (1,788)
------- --------
$14,712 $(58,182)
======= ========
</TABLE>
11. ENVIRONMENTAL MATTERS
Eastern is aware of certain non-utility sites, associated with former
operations, for which it may have or share environmental remediation
responsibility or ongoing maintenance. Specifically, Eastern has a reserve of
approximately $25 million in total at December 31, 1995 to cover the
remediation and maintenance of these sites, the principal of which is a former
coal tar processing facility (the "Facility") in Everett, Massachusetts. While
Eastern has provided reserves to cover the estimated probable costs of
remediation and maintenance for environmental sites based on the information
available at the present time, the extent of Eastern's potential liability at
such sites is not yet determined.
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 it 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 Massachusetts
Department of Environmental Protection ("DEP") in 1989 which requires that
K-29
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 pay 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 have
identified compounds that may be associated with coal tar and/or oil in soil
and ground water at the site and adjacent areas, including the riverbed. 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. During 1995 Eastern conducted and
received the results of certain sediment sampling which confirmed findings of
contamination in the riverbed. Additional sampling has been ordered by the
DEP. Consequently, during 1995 Eastern provided an additional $15,000,000 of
environmental expense for the potential remediation of the riverbed. However,
in light of uncertainties as to the full 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 recover remediation costs from its insurers.
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 15
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 a limited contribution by
Boston Gas. Boston Gas is working with 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, and no assurance can
be given with respect to the future recoverability of such costs. However,
management 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 current ability to recover all other such costs incurred.
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 ("Coal Act"). In July and September 1995, Eastern received SSA notices
relating to an additional group of retired coal miners and their
beneficiaries. The total amount of premiums requested aggregates in excess of
$12,000,000 to cover the period from February 1, 1993 through September 30,
1996, and primarily relates to retired miners who are said to have worked for
Eastern's Coal Division prior to the transfer of those
K-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
operations to a subsidiary in 1965. Eastern is challenging in the courts 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 mid-1995 a federal district court ordered a 10% reduction
in health care premiums under the Coal Act in NCA v. Shalala; such decision
has been appealed.
In 1993 Eastern recorded a reserve of $70,000,000 ($45,500,000 net of tax
or $2.02 per share) to provide for its estimated undiscounted obligations
under the Coal Act with respect to notices received from the SSA in that year.
Principally due to the additional notices received, in 1995 Eastern recorded
an additional reserve of $10,000,000 ($6,500,000 net of tax or $.32 per
share). These reserves have been accounted for as extraordinary items.
Management has estimated that Eastern's obligation could range from zero to
more than $115 million depending on the outcome of its constitutional
challenge or its claim against Peabody, or other factors including
administrative review of assigned individuals, the availability of transfers
from the Abandoned Mine Reclamation Fund to pay for the health care premiums
of unassigned miners and their beneficiaries, the resetting of premiums,
medical inflation rates, Medicare reimbursements, other changes in government
health care programs and possible changes in the terms of the Coal Act.
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 post-retirement 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:
Pensions
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Service cost $ 4,705 $ 4,792 $ 4,282
Interest cost on projected benefit obligation 10,803 10,005 9,791
Actual return on plan assets (29,924) (6,540) (21,690)
Net amortization and deferral 19,011 (3,903) 10,674
-------- -------- --------
Total net pension cost of company-
administered plans 4,595 4,354 3,057
Multi-employer union retirement and welfare
plans 293 309 377
-------- -------- --------
TOTAL NET PENSION COST $ 4,888 $ 4,663 $ 3,434
======== ======== ========
</TABLE>
K-31
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Health Care
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Service cost $ 864 $ 907 $ 1,566
Interest cost on accumulated benefits
obligation 6,615 6,038 8,035
Actual return on plan assets 2,352 (755) (282)
Net amortization and deferral (4,706) (2,739) (1,183)
Amortization and deferral of deferred costs 3,760 3,472 (2,275)
-------- -------- --------
TOTAL RETIREE HEALTH CARE COST $ 8,885 $ 6,923 $ 5,861
======== ======== ========
</TABLE>
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, 1995 and 1994 using actuarial measurement dates as of October 1,
1995 and 1994:
<TABLE>
<CAPTION>
Pensions Health Care
------------------ --------------------
1995 1994 1995 1994
(In thousands) -------- -------- --------- ---------
<S> <C> <C> <C> <C>
ACCUMULATED BENEFIT OBLIGATION:
Vested benefits $124,240 $113,306 $ 77,797 $ 75,983
Non-vested benefits 13,975 15,195 17,017 15,069
-------- -------- --------- ---------
138,215 128,501 94,814 91,052
Effect of future salary increases 18,720 18,896 -- --
-------- -------- --------- ---------
PROJECTED BENEFIT OBLIGATION
("PBO") $156,935 $147,397 $ 94,814 $ 91,052
======== ======== ========= =========
PLAN ASSETS AT FAIR VALUE $174,883 $155,808 $ 13,963 $ 11,611
Less PBO 156,935 147,397 94,814 91,052
-------- -------- --------- ---------
PLAN ASSETS IN EXCESS OF (LESS
THAN) PBO 17,948 8,411 (80,851) (79,441)
Unrecognized net obligation at
December 31, 1985
being amortized over 15 years 2,136 2,542 -- --
Unrecognized net gain (24,129) (12,498) (6,112) (7,119)
Unrecognized prior service cost
(benefit) 14,988 16,313 (14,354) (15,822)
Amounts contributed to plans dur-
ing fourth quarter 2,881 534 2,600 --
Unfunded accumulated benefits (2,318) (2,591) -- --
-------- -------- --------- ---------
NET ASSET (RESERVE) AT DECEMBER
31 $ 11,506 $ 12,711 $ (98,717) $(102,382)
======== ======== ========= =========
</TABLE>
The above vested health care benefits include $70,412,000 and $66,544,000
for retirees in 1995 and 1994, 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. Boston Gas contributed $2,600,000 to the VEBA in 1995. Plan
assets are invested in equity securities, fixed-income investments and money
market instruments. Following are the assumptions used in the actuarial
measurements:
<TABLE>
<CAPTION>
1995 1994
---------- -----
<S> <C> <C>
Discount rate 7.5% 7.5%
Return on plan assets 8.5% 8.5%
Increase in future compensation 4.75%-5.0% 5.0%
Health care inflation trend 10.0% 11.0%
</TABLE>
The health care inflation trend is assumed to drop gradually to 5% over 5
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 $79,000 and $7,325,000,
respectively, in 1995 and $73,000 and $7,227,000, respectively, in 1994.
K-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. The difference
between the fair value and the original cost of these securities is a net
unrealized gain of $2,361,000 and $633,000, respectively, in 1995 and 1994.
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
Cash, short-term investments and current debt: The carrying amounts
approximate fair value because of the short maturity of those instruments.
Current debt includes notes payable, gas inventory financing and other
miscellaneous short-term liabilities.
Other current assets and investments: Other current assets and investments
include marketable securities classified as available for sale. Pursuant to
SFAS 115 the carrying value is the fair value.
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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
(In thousands) ----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and short-term investments $191,211 $191,211 $ 59,641 $ 59,641
Marketable securities and investments 14,791 14,791 3,606 3,606
Short-term debt 97,600 97,600 116,108 116,108
Long-term debt 362,868 412,061 370,732 372,869
Preferred stock of subsidiary 29,262 28,829 29,229 26,250
</TABLE>
K-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
For the three months ended
-------------------------------------
(In thousands, except per share Mar 31, June 30, Sept 30, Dec 31
amounts) -------- -------- -------- --------
<S> <C> <C> <C> <C>
1995:
Revenues $366,968 $198,876 $133,444 $250,124
Operating earnings 58,862 19,143 3,215 32,514
Earnings (loss) before income taxes 49,613 11,342 (4,152) 28,131
EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEM 30,639 7,075 (2,559) 25,226
Extraordinary item, net of tax -- -- -- (6,500)
-------- -------- -------- --------
NET EARNINGS (LOSS) $ 30,639 $ 7,075 $ (2,559) $ 18,726
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM $1.51 $.35 $(.13) $1.25
Extraordinary item, net of tax -- -- -- (.32)
----- ---- ----- -----
NET EARNINGS (LOSS) PER SHARE $1.51 $.35 $(.13) $ .93
===== ==== ===== =====
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
===== ==== ===== ====
</TABLE>
K-34
<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, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
January 24, 1996.
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 Walter J. Flaherty James J. Harper Vice
and Chief Executive Senior Vice President President and Controller
Officer and Chief Financial
Officer
K-35
<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 1996 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 first
full paragraph on page 13 of the 1996 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 1996 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 11 of the
1996 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.
K-36
<PAGE>
(3) LIST OF EXHIBITS
<TABLE>
<C> <S>
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 (filed as Exhibit 4.1.1 to Annual Report of
Eastern on Form 10-K for year ended December 31, 1994).*
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 --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)).*
10.5 --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)
10.5.1 --Amendment to Eastern's Deferred Compensation Plan for Trustees, dated
December 8, 1995. (a)
10.6 --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)
10.7 --Eastern's 1995 Stock Option Plan (filed as Exhibit 10.9 to Annual
Report of Eastern on Form 10-K for year ended December 31, 1994).*(a)
10.8 --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)
10.8.1 --Amendment to Eastern's Supplemental Executive Retirement Plan, dated
December 8, 1995.(a)
10.9 --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)
10.9.1 --Amendment to Trust Agreement between Eastern and Shawmut Bank of
Boston, N.A. (filed as Exhibit 10.2 to Quarterly Report of Eastern on
Form 10-Q for quarter June 30, 1995).*
10.9.2 --Amendment to Trust Agreement between Eastern and the Key Trust
Company of Ohio, N.A., as successor trustee, dated December 8, 1995.
10.10 --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)
10.11 --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)
10.12 --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)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.13 --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)
10.14 --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)
10.15 --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)
10.16 --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)
10.16.1 --Amendment to Eastern's Headquarters Retirement Plan, dated April 27,
1995 (filed as Exhibit 10.1 to Quarterly Report of Eastern on Form
10-Q for quarter June 30, 1995).*(a)
10.17 --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)
10.17.1 --Amendment to Midland Enterprises Inc. Salaried Retirement Plan,
dated November 4, 1994 (filed as Exhibit 10.19.1 to Annual Report of
Eastern on Form 10-K for year ended December 31, 1994).*(a)
10.18 --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)
10.18.1 --Amendment to Boston Gas Company Retirement Plan, dated December 5,
1994 (filed as Exhibit 10.20.1 to Annual Report of Eastern on Form
10-K for year ended December 31, 1994).*(a)
10.19 --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)
10.19.1 --Trust Agreement made as of April 28, 1995 between Eastern and the
Key Trust Company of Ohio, N.A., as successor trustee.
10.20 --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)
10.20.1 --Amendment to Eastern's Retirement Plan for Non-Employee Trustees,
dated December 8, 1995.(a)
10.21 --Eastern's 1996 Non-Employee Trustees' Stock Option Plan.(a)
10.22 --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)
10.23 --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)
10.24 --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)
10.24.1 --Amendment to Eastern's Deferred Compensation Plan, dated December 8,
1995).(a)
10.25 --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, 1995. With the exception of the sections
captioned "Five-Year Financial Summary" appearing on page 31 and
"Stock Price Range" and "Per Share Dividends Declared" appearing on
the inside back cover of the said annual report, which are
incorporated by reference in Items 5 and 6 of this Form 10-K. Said
annual report is not deemed filed as part of this report.
21.1 --Subsidiaries of the registrant.
27. --Eastern's Financial Data Schedule.
</TABLE>
- --------
* 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>
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 1995.
<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, 1996.
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, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ J. Atwood Ives Chairman and Chief Executive Officer
- ------------------------------------- and Trustee
J. ATWOOD IVES
/s/ Richard R. Clayton President and Chief Operating
- ------------------------------------- Officer and Trustee
RICHARD R. CLAYTON
/s/ Walter J. Flaherty Senior Vice President and Chief
- ------------------------------------- Financial Officer
WALTER J. FLAHERTY
/s/ James R. Barker Trustee
- -------------------------------------
JAMES R. BARKER
/s/ Samuel Frankenheim Trustee
- -------------------------------------
SAMUEL FRANKENHEIM
/s/ Dean W. Freed Trustee
- -------------------------------------
DEAN W. FREED
/s/ Robert P. Henderson Trustee
- -------------------------------------
ROBERT P. HENDERSON
/s/ Leonard R. Jaskol
- ------------------------------------- Trustee
LEONARD R. JASKOL
/s/ Thomas W. Jones
- ------------------------------------- Trustee
THOMAS W. JONES
/s/ Rina K. Spence Trustee
- -------------------------------------
RINA K. SPENCE
/s/ David B. Stone Trustee
- -------------------------------------
DAVID B. STONE
</TABLE>
<PAGE>
EASTERN ENTERPRISES AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1995
(SUBMITTED IN ANSWER TO ITEMS 14(A)(1) AND (2) OF FORM 10-K,
SECURITIES AND EXCHANGE COMMISSION)
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EASTERN ENTERPRISES AND SUBSIDIARIES:
Report of independent public accountants on schedules...................... F-2
Consent of independent public accountants.................................. F-2
</TABLE>
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.
F-1
<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 24, 1996. 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 24, 1996 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 24, 1996, included in, and
incorporated by reference into, Eastern Enterprises Annual Report on this Form
10-K for the year ended December 31, 1995, 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, 1996 Arthur Andersen LLP
F-2
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Additions Deductions
----------------- ----------
Charges
Charged for Which
Balance to Costs Charged Reserves Balance
December 31, and to Other Were December 31,
Description 1994 Expenses Accounts Created 1995
- ----------- ------------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets--
Reserves for doubtful
accounts.............. $ 16,091 $14,768 $ 0 $(14,849) $ 16,009
======== ======= ======= ======== ========
Reserves for loss on
investments........... $ 19 $ 0 $ 0 $ 0 $ 19
======== ======= ======= ======== ========
Reserves included in li-
abilities--
Reserve for post-re-
tirement health care.. $102,382 $ 1,150 $ 3,974 $ (8,789) $ 98,717
Reserve for coal miners
retiree health care... 68,693 10,000 0 (568) 78,125
Reserves for employee
benefits.............. 12,453 11,039 169 (7,222) 16,439
Reserves for environ-
mental expenses....... 9,850 15,350 1,920 (764) 26,356
Reserves for insurance
claims................ 9,890 8,978 5,876 (10,611) 14,133
Other.................. 18,753 5,642 (1,008) (4,850) 18,537
-------- ------- ------- -------- --------
Total liability re-
serves............... $222,021 $52,159 $10,931 $(32,804) $252,307
======== ======= ======= ======== ========
</TABLE>
F-3
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
Additions Deductions
----------------- ----------
Charges
Charged for Which
Balance to Costs Charged Reserves Balance
December 31, and to Other Were December 31,
Description 1993 Expenses Accounts Created 1994
- ----------- ------------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
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 li-
abilities--
Reserve for post-re-
tirement 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 environ-
mental 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 re-
serves............... $225,035 $24,852 $1,462 $(29,328) $222,021
======== ======= ====== ======== ========
</TABLE>
F-4
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Additions Deductions
----------------- ----------
Charges
Charged for Which
Balance to Costs Charged Reserves Balance
December 31, and to Other Were December 31,
Description 1992 Expenses Accounts Created 1993
- ----------- ------------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
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 li-
abilities--
Reserve for post-re-
tirement 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 environ-
mental 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 re-
serves............... $152,894 $99,506 $ 165 $(27,530) $225,035
======== ======= ====== ======== ========
</TABLE>
F-5
<PAGE>
EXHIBIT INDEX
See Item 14(a)(3), "List of Exhibits," for statement of the location of
exhibits incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
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 (incorporated by reference).
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 --Firm Gas Transportation Agreement between Boston Gas Company and
Iroquois Gas Transmission System, L.P., dated as of February 7, 1991
(incorporated by reference).
10.5 --Eastern's Deferred Compensation Plan for Trustees, as amended
(incorporated by reference).
10.5.1 --Amendment to Eastern's Deferred Compensation Plan for Trustees,
dated December 8, 1995.
10.6 --Eastern's 1982 Stock Option Plan, as amended (incorporated by
reference).
10.7 --Eastern's 1995 Stock Option Plan (incorporated by reference).
10.8 --Eastern's Supplemental Executive Retirement Plan, as amended
(incorporated by reference).
10.8.1 --Amendment to Eastern's Supplemental Executive Retirement Plan, dated
December 8, 1995.
10.9 --Trust Agreement between Eastern and Shawmut Bank of Boston N.A., as
amended (incorporated by reference).
10.9.1 --Amendment to Trust Agreement between Eastern and Shawmut Bank of
Boston, N.A. (incorporated by reference).
10.9.2 --Amendment to Trust Agreement between Eastern and the Key Trust
Company of Ohio, N.A., as successor trustee, dated December 8, 1995.
10.10 --Eastern's Executive Incentive Compensation Plan, as amended
(incorporated by reference).
10.11 --Salary Continuation Agreements between Eastern and certain officers,
as amended (incorporated by reference).
10.12 --Agreement dated November 27, 1991 between Eastern and J. Atwood Ives
(incorporated by reference).
10.13 --Agreement dated October 25, 1991 between Eastern and Richard R.
Clayton (incorporated by reference).
10.14 --Agreement dated April 28,1994, between Eastern and J. Atwood Ives
(incorporated by reference).
10.15 --Agreement dated April 28, 1994, between Eastern and Richard R.
Clayton (incorporated by reference).
10.16 --Eastern's Headquarters Retirement Plan, as amended and restated
(incorporated by reference).
10.16.1 --Amendment to Eastern's Headquarters Retirement Plan, dated April 27,
1995 (incorporated by reference).
10.17 --Midland Enterprises Inc. Salaried Retirement Plan, as amended and
restated (incorporated by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
10.17.1 --Amendment to Midland Enterprises Inc. Salaried Retirement Plan,
dated November 4, 1994 (incorporated by reference).
10.18 --Boston Gas Company Retirement Plan, as amended and restated
(incorporated by reference).
10.18.1 --Amendment to Boston Gas Company Retirement Plan, dated December 5,
1994 (incorporated by reference).
10.19 --Trust Agreement made as of October 2, 1987 between Eastern and The
Bank of New York, as amended (incorporated by reference).
10.19.1 --Trust Agreement made as of April 28, 1995 between Eastern and the
Kely Trust Company of Ohio, N.A., as successor trustee.
10.20 --Eastern's Retirement Plan for Non-Employee Trustees, as amended
(incorporated by reference).
10.20.1 --Amendment to Eastern's Retirement Plan for Non-Employee Trustees,
dated December 8, 1995.
10.21 --Eastern's 1996 Non-Employee Trustees' Stock Option Plan.
10.22 --Eastern's 1992 Restricted Stock Plan (incorporated by reference).
10.23 --Eastern's Restricted Stock Plan for Non-Employee Trustees
(incorporated by reference).
10.24 --Eastern's 1994 Deferred Compensation Plan (incorporated by
reference).
10.24.1 --Amendment to Eastern's Deferred Compensation Plan, dated December 8,
1995.
10.25 --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, 1995.
21.1 --Subsidiaries of the registrant.
27. --Eastern's Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 10.5.1
EASTERN ENTERPRISES
DEFERRED COMPENSATION PLAN FOR TRUSTEES
AMENDMENT
Pursuant to paragraph 9 of the Eastern Enterprises Deferred Compensation
Plan for Trustees (as amended, the "Plan"), the Plan is hereby amended by
adding to paragraph 8 thereof, effective immediately, the following new
subparagraph:
"Notwithstanding the foregoing, Eastern in its sole discretion may
establish a so-called "rabbi" trust or similar trust, whether or not
conforming to Rev. Proc. 92-64, or may avail itself of any such trust which
it has previously established, to provide for the payment of benefits
hereunder, subject to such terms as the Board of Trustees may determine (a
"trust"). In the event Eastern establishes a trust in respect of the Plan
or causes a pre-existing trust to cover the Plan, and at the time of a
Change of Control such trust (i) has not been terminated or revoked and
(ii) is not "fully funded" (as hereinafter defined), Eastern shall promptly
deposit in such trust cash sufficient to cause the trust to be "fully
funded" as of the date of the deposit. For purposes of this subparagraph,
any such trust shall be deemed "fully funded" as of any date if, as of that
date, the fair market value of the assets held in trust is not less than
(1) the aggregate of the balances, determined as of such date, of all Cash
Accounts and Share Unit Accounts hereunder, plus (2) the aggregate of the
account balances, determined as of such date, under all other individual-
account type plans and arrangements provided for through the trust, plus
(3) the aggregate of the benefits then in pay status or otherwise payable
under all other plans and arrangements provided for through the trust, as
determined in accordance with the rules set forth in such plans and
arrangements (or, with respect to any such plan or arrangement where no
such rules are set forth, the aggregate of the present value of all accrued
benefits under such plan or arrangement, determined by applying the
interest and mortality assumptions used in determining lump sum present
values under the qualified defined benefit pension plan maintained by
Eastern, or if no such qualified plan is then maintained by Eastern, by
applying the assumptions used prior to the Change of Control in determining
Eastern's pension expense under FAS 87 or any successor pronouncement with
respect to such plan or arrangement). For purposes of this subparagraph, a
Change of Control will be deemed to have occurred if (i) after January 1,
1988 any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934), other than Eastern, becomes a beneficial
owner directly or indirectly of securities representing twenty-five percent
(25%) or more of the combined voting power of the then outstanding voting
securities of Eastern; or (ii) within two years after the commencement of a
tender offer or exchange offer for the voting securities of Eastern (other
than by Eastern), or as a result of a merger, consolidation, sale of assets
or contested election of trustees or directors, or any combination of the
foregoing, the individuals who were trustees of Eastern immediately prior
thereto shall cease to constitute a majority of the Board of Trustees of
Eastern or of the board of trustees or directors of its successor by
merger, consolidation or sale of assets."
In Witness Whereof, Eastern Enterprises has caused this instrument of
amendment to be executed by its duly authorized officer this 8th day of
December, 1995.
Eastern Enterprises
/s/ Richard R. Clayton
By:__________________________________
Title: President
<PAGE>
EXHIBIT 10.8.1
EASTERN ENTERPRISES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDMENT
Pursuant to Section 14 of the Eastern Enterprises Supplemental Executive
Retirement Plan (as amended, the "Plan"), the Plan is hereby amended by
deleting the second subparagraph of Section 12 (begins: "Notwithstanding the
foregoing . . .") and replacing it with the following text, effective
immediately:
"Notwithstanding the foregoing, Eastern in its sole discretion may
establish a so-called "rabbi" trust or similar trust, whether or not
conforming to Rev. Proc. 92-64, or may avail itself of any such trust which
it has previously established, to provide for the payment of benefits
hereunder, subject to such terms as the Board of Trustees may determine (a
"trust"). In the event Eastern establishes a trust in respect of the Plan
or causes a pre-existing trust to cover the Plan, and at the time of a
Change of Control such trust (i) has not been terminated or revoked and
(ii) is not "fully funded" (as hereinafter defined), Eastern shall promptly
deposit in such trust cash sufficient to cause the trust to be "fully
funded" as of the date of the deposit. For purposes of this subparagraph,
any such trust shall be deemed "fully funded" as of any date if, as of that
date, the fair market value of the assets held in trust is not less than
(1) the aggregate present value as of that date of all benefits then in pay
status under the Plan (including benefits not yet commenced but in respect
of Participants who have retired under circumstances entitling them to
benefits hereunder) plus (2) the aggregate present value as of that date of
all benefits that would be payable under the Plan if all other Participants
were deemed to have retired on that date plus (3) the aggregate present
value as of that date of all benefits payable (as determined under rules
similar to the rules described in (1) and (2)) under all other defined-
benefit type plans and arrangements provided for through the trust, plus
(4) the aggregate of the account balances, determined as of such date,
under all individual-account type plans and arrangements provided for
through the trust. In applying clauses (1), (2) and (3) of the previous
sentence, present value shall be determined by using the interest and
mortality assumptions used in determining lump sum present values under the
qualified defined benefit pension plan maintained by Eastern, or if no such
qualified plan is then maintained by Eastern, by applying the assumptions
used prior to the Change of Control in determining Eastern's pension
expense under FAS 87 or any successor pronouncement with respect to such
plan or arrangement."
In Witness Whereof, Eastern Enterprises has caused this instrument of
amendment to be executed by its duly authorized officer this 8th day of
December, 1995.
Eastern Enterprises
/s/ Richard R. Clayton
By: _________________________________
Title: President
<PAGE>
EXHIBIT 10.9.2
EASTERN ENTERPRISES
AMENDMENT OF TRUST AGREEMENT
Amendment dated December 8, 1995 of the Trust Agreement established January
29, 1987 by and between Eastern Enterprises (then Eastern Gas and Fuel
Associates) ("Eastern") and Shawmut Bank of Boston, N.A. as trustee, as
previously amended February 21, 1991 and as further amended effective as of
July 1, 1995 to substitute as trustee (the "Trustee") Key Trust Company of
Ohio, N.A. and to make certain other changes (as so amended, the "Trust
Agreement"):
Whereas Eastern wishes to amend the Trust Agreement to provide for the
payment of benefits under certain deferred compensation arrangements in
addition to those already listed by name in the Trust Agreement, and to make
certain other changes; and
Whereas Eastern has reserved the right to make such amendment under Section
10(a) of the Trust Agreement;
Now, Therefore, in consideration of these premises, the Trust Agreement is
hereby amended as follows, effective as of the date first set forth above:
1. The first "Whereas" clause is amended by adding the words "or other
deferred compensation benefits" after the words "supplemental retirement
income benefits".
2. The first "Whereas" clause is further amended by deleting the words "(the
"Trustees Retirement Plan")" and substituting therefor the words:, "the
Deferred Compensation Plan for Trustees, the Deferred Compensation Plan for
Certain Management Employees, and the 1994 Deferred Compensation Plan".
3. Section 1(b) is amended by inserting, after the word "SERP", the
following words:, "the Deferred Compensation Plan for Certain Management
Employees, or the 1994 Deferred Compensation Plan,".
4. Section 1(e) is amended by deleting the words, "including the Trustees
Retirement Plan," and substituting therefor the words: "(including the
Retirement Plan for Non-Employee Trustees, the Deferred Compensation Plan for
Trustees, the Deferred Compensation Plan for Certain Management Employees, and
the 1994 Deferred Compensation Plan)".
5. Section 2(a) is amended by adding at the end thereof, immediately
following the words "as those terms are used in the SERP", the following
additional proviso:"; and further provided, that no such modification or
supplement upon or following a Change of Control shall (i) expand the list of
plans or other compensation or benefit arrangements (as set forth on the most
recent Schedule A delivered to the Trustee prior to the Change of Control)
under which compensation or benefits may be provided from assets of the Trust,
or (ii) add any person as a Trust Beneficiary who was not an employee or
trustee of Eastern prior to the Change of Control."
In Witness Whereof, Eastern Enterprises and the Trustee have caused this
instrument of amendment to be executed by their duly authorized officers as of
the date set forth above.
EASTERN ENTERPRISES
/s/ Richard R. Clayton
By: _________________________________
Title: President
KEY TRUST COMPANY OF OHIO, N.A.
/s/ Meg H. Halloran
By: _________________________________
Title: Trust Officer
/s/ Kathryn L. Kaesberg
and: ________________________________
Title: Vice President
<PAGE>
EXHIBIT 10.19.1
EASTERN ENTERPRISES
MASTER TRUST WITH KEY TRUST COMPANY OF OHIO, N.A.
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Article I Participation in the Trust................................... 2
Article II Powers and Duties of the Trustee............................. 3
Article III Valuation of the Funds....................................... 9
Article IV Additions to and Withdrawals from the Trust.................. 10
Article V Accounts and Records......................................... 11
Article VI Compensation and Expenses of the Trustee..................... 11
Article VII Resignation, Removal and Substitution of Trustee............. 11
Article VIII Amendment or Termination..................................... 12
Article IX General Provisions........................................... 12
</TABLE>
1
<PAGE>
EASTERN ENTERPRISES
MASTER TRUST WITH
KEY TRUST COMPANY OF OHIO, N.A.
This Trust Agreement ("Agreement") entered into as of the close of business
on April 28, 1995, by and between EASTERN ENTERPRISES, an unincorporated
voluntary association (commonly referred to as a Massachusetts business
trust), (the "Company") acting through its duly appointed Retirement Committee
(the "Committee") and KEY TRUST COMPANY OF OHIO, N.A., (the "Trustee") in
order to hold and invest the assets of certain employee benefit plans meeting
the requirements of Section 401 (a) of the Internal Revenue Code of 1986, as
amended, (the "Code") established by the Company and certain of its
subsidiaries and affiliates.
Witnesseth:
Whereas the Company has previously established a trust to hold the assets of
certain employee benefit plans established by the Company and its subsidiaries
and affiliates; and
Whereas the Company wishes to amend, restate and continue in the form of
this Agreement, with a successor trustee, the agreement (the "Prior
Agreement") under which the aforesaid trust has been maintained; and
Whereas the Company wishes to appoint Key Trust Company of Ohio, N.A. to act
as Trustee under this Agreement and Key Trust Company of Ohio, N.A. is willing
to accept said appointment;
Now, Therefore, it is agreed that the Prior Agreement be amended and
restated effective as of the 1st day of July, 1995, as follows:
ARTICLE I
Participation in the Trust
1.1. The trust under this Agreement with Key Trust Company of Ohio, N.A. as
Trustee (the "Master Trust") is a continuation of a trust previously
established and maintained with The Bank of New York as trustee. Under the
Master Trust as herein continued, the Trustee shall receive, hold, administer,
invest and reinvest all assets transferred or contributed to it from time to
time with respect to those employee pension benefit plans meeting the
requirements set forth in Section 1.3 hereof which are described on Exhibit A
attached hereto and made a part hereof (collectively "Participating Plans" or
individually a "Participating Plan"). The Committee, which is a "named
fiduciary" as that term is defined in the Employee Retirement Income Security
Act of 1974 as the same has been and may hereafter be amended ("ERISA"), may
from time to time amend Exhibit A in writing, any such amendment to be treated
as incorporated in this Agreement upon delivery to the Trustee. Amounts
contributed or transferred to the Master Trust may include both employer and
employee contributions. The Trustee shall accept as contributions to the
Master Trust only cash or such other assets as are reasonably acceptable to
it. The assets so received together with all investments made with respect
thereto and proceeds thereof and all earnings and profits thereon, less
payments, transfers or other distributions shall be held, managed and
administered by the Trustee pursuant to the terms hereof without distinction
between principal and income, and may be held in a single fund or in two or
more Investment Funds (as defined in Section 2.2, below) in accordance with
Section 2.2. The Company or the Committee shall identify at the time any
transfer or contribution is made to this Master Trust the share of the
contribution or transferred amount that is allocable to each Participating
Plan; and if there are two or more Investment Funds, the portion of the
allocable share of each Participating Plan that is to be invested in each
Investment Fund.
1.2. Except as hereinafter provided, the assets of each Participating Plan
allocated to any Investment Fund shall be commingled with the assets of other
Participating Plans allocated to such Investment Fund. However, the Trustee
shall maintain a separate account for each Participating Plan that will show
the share
2
<PAGE>
of such Participating Plan in the Master Trust and in each Investment Fund, in
accordance with Section 3.3. Prior to any segregation thereof, the share of
each Participating Plan in each Investment Fund shall be an undivided interest
in the assets of such Investment Fund, and the income gains and losses of each
Investment Fund shall be allocated proportionately among the shares therein of
each Participating Plan, unless the Committee shall direct in writing that a
special sub-fund or sub-funds be created within an Investment Fund to hold
assets allocable solely to a particular Participating Plan. If any such sub-
fund is created, income, and gains and losses with respect to the assets held
in such sub-fund shall be allocated solely to the share of such Participating
Plan. Except as may otherwise be permitted by ERISA and the provisions of the
Code applicable to qualified plans and trusts (including rulings and
regulations thereunder), (i) at no time prior to the satisfaction of all
liabilities of a Participating Plan with respect to participants in such plan
and their beneficiaries entitled to benefits thereunder shall any part of the
share of such Participating Plan in the Master Trust be used for or diverted to
any purpose other than the exclusive benefit of such participants and their
beneficiaries, and defraying reasonable expenses of administering such
Participating Plan and the Master Trust, (ii) such share shall not be
assignable in whole or in part by a Participating Plan or by any person,
natural or legal, having a beneficial interest in a Participating Plan, except
in a reversion otherwise permitted by law upon the termination of such
Participating Plan and the satisfaction of all liabilities thereunder.
Notwithstanding (i) and (ii) above, nothing herein shall prohibit the return of
contributions made by reason of a mistake of fact, or conditioned on initial
qualification of a Participating Plan that does not so qualify, or conditioned
on deductibility where the deduction is disallowed. The Master Trust shall, to
the extent of the share of each Participating Plan, be a part of such Plan.
1.3. An employee pension benefit plan shall be eligible to become a
Participating Plan hereunder only if all of the following requirements are met:
(a) such plan is established and/or maintained by the Company or a
subsidiary or affiliate thereof;
(b) the Master Trust established hereunder has been duly adopted as a
trust under such plan;
(c) such plan and this Master Trust constitute a qualified plan and trust
under Section 401 (a) of the Code, exempt from federal income taxation
under Section 501 (a) of the Code; and
(d) such plan is permitted to commingle its assets with assets of other
such qualified plans through the medium of this Master Trust so long as
this Master Trust is such a qualified and exempt trust.
1.4. An eligible plan may, with the consent of the Company or the Committee,
become a Participating Plan by the acquisition of an undivided interest in the
Master Trust or one or more of the Investment Funds maintained hereunder. A
plan shall cease to be a Participating Plan upon withdrawal of all its interest
in the Master Trust. Any company whose Participating Plan adopts and accepts
this Agreement shall be deemed thereby to appoint the Company or the Committee
its exclusive agent to exercise on its behalf all of the powers and authority
conferred upon the Company or the Committee by the terms of this Agreement
including, but not limited to, the power to amend this Agreement and to
terminate the trust created hereunder. The authority of the Company and the
Committee to act as such agent shall continue with respect to all funds
contributed by each Participating Plan and the income therefrom until and
unless the amount of such funds and income has been distributed by the Trustee
as hereinafter provided.
1.5. In the event of a conflict between the provisions of the Master Trust
and a Participating Plan, the provisions of the Master Trust shall control.
ARTICLE II
Powers and Duties of the Trustee
2.1. The Trustee shall have only those responsibilities specifically imposed
upon it by the provisions of this Agreement and neither any Participating Plan
nor any other instrument to which the Trustee is not
3
<PAGE>
a party, including but not limited to any agreement entered into between the
Committee and an Investment Manager appointed pursuant to Section 2.2(b)
below, shall impose any duties or obligations upon the Trustee with respect to
the Master Trust without the Trustee's written consent.
The Trustee shall discharge its duties under this Agreement solely in the
interest of Participating Plan participants and beneficiaries and with the
care, skill, prudence and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and with like
aims.
The Trustee shall have the following powers and duties, which shall be
exercised by the Trustee in its sole discretion free from limitations imposed
by any state law on investments of trust funds, except as otherwise provided
in this Article II:
(a) The Trustee may sell, write options on, lease for any term or terms
(with or without option to purchase), transfer or exchange all or any part
of the property held by it in the Master Trust and all property that may
from time to time be substituted therefor or added thereto, at such prices
and upon such terms and conditions and in such manner as it shall deem
advisable.
(b) The Trustee shall invest and reinvest all or such part of the Master
Trust as it shall deem advisable in such notes, debentures, bonds, stocks,
limited partnership interests, trust certificates and other securities or
options thereon, including stocks and other securities issued by the
Company or any subsidiary or affiliate thereof (all of which are herein
called "securities"), loans, time and savings deposits (including savings
deposits and certificates of deposit in Society National Bank or its
affiliates if such deposits bear a reasonable rate of interest), commercial
paper (including participation in pooled commercial paper accounts),
annuity and insurance contracts (including, but not limited to, retirement
income contracts or contracts of the deposit administration type or for the
accumulation of interest), real estate, real estate mortgages and other
kinds of property of every kind and description, as the Trustee may deem
proper and suitable. The Trustee may invest in units of The Society
National Bank Multiple Investment Trust for Employee Benefit Trusts or the
Society National Bank EB Managed Guaranteed Investment Contract Fund or in
units of any other group or common trust fund heretofore or hereafter
created and administered by the Trustee, its affiliates, any Investment
Manager appointed hereunder or another fiduciary hereunder (provided such
other fiduciary qualifies as an investment manager under Section 3(38) of
ERISA), irrespective of the proportion of the Master Trust represented by
any such investment, the provisions of any Participating Plan or any
delegation of authority resulting therefrom; provided, however, that any
such collective trust fund shall have been determined by the Internal
Revenue Service to be a "pooled fund arrangement" as described in Revenue
Ruling 81-100. As long as the Trustee holds any group or common trust fund
units hereunder, the instruments establishing such common trust fund
(including all amendments thereto) shall be deemed to have been adopted and
made a part of this Master Trust, and each Participating Plan.
(c) The Trustee may (i) exercise any exchange privileges, conversion
privileges and/or subscription rights available in connection with any
property at any time held by it; (ii) consent to, or dissent from, the
reorganization, consolidation, merger or readjustment of the finances of,
or the sale, mortgage, pledge or lease of the property of, any corporation,
company or organization, any of the securities of which may at any time be
held by it; (iii) deposit any property held hereunder with any protective,
reorganization or similar committee and delegate discretionary power
thereto; and (iv) do any act with reference to the matters in this
paragraph, including but not limited to the exercise of options, making of
agreements or subscriptions and the payment of expenses, assessments or
subscriptions, which the Trustee may deem necessary or advisable in
connection therewith.
(d) The Trustee may retain for such time as it may deem advisable any
property acquired by it pursuant to the preceding paragraph or transferred
to it by a Participating Plan, whether or not such property would normally
be purchased as an investment hereunder.
(e) The Trustee may vote any stock or other securities and exercise any
right appurtenant to any stock, other securities or other property held
hereunder, either in person or by general or limited proxy, power of
attorney or other instrument.
4
<PAGE>
(f) The Trustee may hold securities in bearer form and may register
securities and other property held in the Master Trust in its own name or
in the name of a nominee, combine certificates representing securities with
certificates of the same issue held by the Trustee in other fiduciary
capacities, and deposit, or arrange for deposit of property with any
depository but the books and records of the Trustee shall at all times show
that all such securities are part of the Master Trust.
(g) The Trustee may manage, operate, repair and improve any real or
personal property held by it in the Master Trust.
(h) The Trustee may (i) renew or extend or participate in the renewal or
extension of any debt owing to the Master Trust, upon such terms as it may
deem advisable, and agree to a reduction in the rate of interest on any
such debt or to any other modification or change in the terms of any
mortgage or of any guarantee pertaining thereto, in such manner and to such
extent as it may deem advisable for the protection of the Master Trust or
the preservation of the value of the investment; (ii) waive any default
whether in the performance of any covenant or condition of any evidence of
such indebtedness or mortgage or the performance of any guarantee or
enforce any rights available to the Trustee by reason of any such default
in such manner and to such extent as it may deem advisable; (iii) exercise
and enforce any and all rights of foreclosure, bid in property at
foreclosure, take a deed in lieu of foreclosure with or without paying a
consideration therefor and in connection therewith release the obligation
on any note or other evidence of indebtedness secured by such mortgage; and
(iv) exercise and enforce in any action, suit or proceeding at law or in
equity any rights or remedies in respect to any such debt, mortgage or
guarantee.
(i) The Trustee may hold in its or its affiliates banking department
uninvested and unproductive of income, without liability for interest
thereon, except such as may be allowed in accordance with its regulations,
such part of the Master Trust as is reasonable under the circumstances.
(j) The Trustee may settle, compromise or submit to arbitration any
claims, debts or damages due to or owing from the Master Trust, commence,
and defend suits or legal proceedings, and act, in its capacity as Trustee,
as the named party in all suits or legal proceedings brought by or against
the Master Trust.
(k) The Trustee may make, execute and deliver, as Trustee, with or
without a provision for no individual liability on its part, any and all
conveyances, notes, contracts, waivers, releases, leases, assignments,
mortgages, options, powers of attorney or other instruments in writing that
the Trustee may deem necessary or advisable in administering the Master
Trust.
(l) The Trustee may employ suitable agents and counsel (who may be
counsel for the Company or a subsidiary or affiliate thereof) and pay their
reasonable compensation and expenses.
(m) The Trustee may, with the prior written authorization of the
Committee, lend any securities held in the Master Trust (including any
Investment Fund created pursuant to Section 2.2 if the Investment Manager
has consented) to broker-dealer(s) or bank(s), and in connection therewith
enter into any securities loan agreement(s), be entitled to receive a
reasonable fee as it and the Committee may agree, to deliver to any such
broker-dealer(s), or bank(s), such securities and to permit the loaned
securities to be transferred into the name of and voted by the borrower or
others.
(n) The Trustee may form or join with others in the formation of such
corporations as shall be deemed advisable in connection with the
administration or distribution of the assets of this Master Trust and
transfer to any such corporation such property as the Trustee shall in its
discretion deem advisable.
(o) The Trustee may transfer such portion of the Master Trust as the
Committee shall direct to any insurance company for one or more policies,
annuity or other contracts, whether or not they are group contracts,
including contracts which provide for the allocation of amounts thereunder
to the insurance company's general account and/or to one or more of its
separate accounts maintained for the collective investment of assets of
qualified retirement plans.
(p) Without limitation of the foregoing, the Trustee may do all such
acts, execute all such instruments, undertake all such proceedings and
exercise all such rights, powers and privileges in
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relation to any assets constituting a part of the Master Trust, as it may
deem necessary or advisable to carry out the purposes of this Agreement.
2.2. The Committee shall have the following powers and responsibilities with
respect to the assets held in the Master Trust.
(a) The Committee may direct the Trustee from time to time to divide and
redivide the assets held in the Master Trust into two or more funds
("Investment Funds"), which Investment Funds shall bear such designation as
the Committee shall determine. At the time of the first division and of
each redivision, the Committee may specify the part of the assets held in
the Master Trust to be allocated to each Investment Fund, and the Committee
may reallocate all or any part of such assets between or among the
Investment Funds from time to time.
(b) From time to time the Committee may designate an Investment Manager,
who shall be (i) registered as an Investment Adviser under the Investment
Advisers Act of 1940, (ii) a bank, as defined in that Act, or (iii) an
insurance company qualified to perform investment services under the laws
of more than one State of the United States, and who acknowledges in
writing to the Company and the Trustee that it is a fiduciary with respect
to the assets of the Master Trust under such Investment Manager's control
with authority to direct the investment and reinvestment of an Investment
Fund or Funds specified in such notice and with such additional authority
as may be specified therein. The Investment Manager shall not be the agent
of the Trustee. The Committee may by similar notice modify or terminate
such designation and authority from time to time. So long as, and to the
extent that, any such designation is in effect, the Trustee (i) shall
invest, reinvest and retain the Investment Fund assigned to an Investment
Manager in accordance with the instructions received from such Investment
Manager, and (ii) with respect to assets in such Investment Fund shall
follow any instructions received by it from such Investment Manager as to
the exercise by the Trustee of its powers under subsections (a) through (e)
of Section 2.1 of this Article II. So long as, and to the extent that, no
such designation is in effect, the Trustee shall invest, reinvest and
retain, in accordance with its own discretion, subject to subsection (c) of
this Section 2.2, that part of the Master Trust not assigned to an
Investment Manager.
(c) The Committee may designate itself as the fiduciary responsible for
and having the authority to direct the investment and reinvestment of an
Investment Fund and to exercise with respect thereto the powers granted to
an Investment Manager. In the case of any such designation the Committee
shall be treated (with respect to its investment responsibilities and
authority) as an Investment Manager for purposes of this Agreement.
(d) The Committee may designate an Investment Fund as a special purpose
or limited purpose fund that is to be managed (whether by the Committee,
the Trustee or an Investment Manager) in accordance with special objectives
or limitations or investment practices (such as, but not limited to,
approximating the results of a designated market index).
2.3. When Investment Funds have been established pursuant to Section 2.2:
(a) The Committee shall regularly notify each designated Investment
Manager of the anticipated cash requirements for disbursements from the
Investment Fund or Funds under its direction, and the Investment Manager
shall direct the Trustee to hold cash funds uninvested in such amounts and
for such periods of time as may appear to be reasonably necessary to meet
such cash requirements. Notwithstanding the appointment of an Investment
Manager the Trustee is authorized in its discretion to invest and reinvest
the cash forming a part of any Investment Fund, which it has not been
directed to hold uninvested or as to which specific investment directions
have not otherwise been received, in such certificates of deposit of
Society National Bank, variable demand notes, corporate money market
instruments such as commercial paper and U.S. Treasury bills and notes,
repurchase agreements or other evidences of indebtedness which are payable
on demand or which generally have a maturity date of not more than fifteen
(15) months from the time of acquisition and including units of any common
trust fund holding any such investments administered by the Trustee, as the
Trustee in its sole discretion deems suitable for the account. The Trustee
is subject to the fiduciary
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<PAGE>
responsibility provisions of ERISA with respect to, but does not guarantee,
any such obligation, deposit, note, or other investment made by it from
loss, depreciation, or diminution in value.
(b) The Investment Manager shall place the buy or sell orders pertaining
to the investments which are subject to the direction of the Investment
Manager with the brokers, or other persons through whom such transactions
shall be accomplished. The Trustee's sole duty and obligation relating to
investments which are subject to the direction of the Investment Manager
shall be to accept and pay for any property of any nature whatsoever that
it may be directed by the Investment Manager to accept and pay for, and to
deliver against payment therefor, any property of any nature whatsoever
which it may be directed by such Investment Manager to deliver against
payment therefor. The Trustee shall use its best efforts to consummate any
such acceptance and payment, or delivery against payment, as it may be
directed so to do, and this shall constitute the Trustee's sole duty with
respect to such trading.
(c) Payment of the costs of the acquisition, sale or exchange of any
security or other property for an Investment Fund shall be charged to such
Investment Fund. In the absence of a direction from the Committee to the
contrary, other payments and disbursements from the Master Trust shall be
charged to such part of the Master Trust as the Trustee deems advisable.
(d) All instructions from an Investment Manager (or from persons
authorized by an Investment Manager) to the Trustee shall be in writing and
shall be complete in all reasonable and necessary details. The Trustee may,
in its discretion, accept directions by telephone or telegraph confined in
writing or by any other means of communication which it believes to be
genuine (including communications received through the facilities of an
institutional delivery system of a depository) provided that the Trustee
shall not be liable for executing or failing to execute any such directions
or for any mistake in the execution of any such instruction, nor shall the
Trustee have any duty to question such instructions or incur liability for
following such instructions, except in each case for liability arising out
of its negligence or willful default.
(e) In the event that an Investment Manager appointed hereunder is
authorized and empowered by the Committee to invest and reinvest all or any
part of the Master Trust allocated to its Investment Fund in units of any
common, collective or commingled trust fund maintained by said Investment
Manager, as a qualified trust under the provisions of Section 401(a) and
exempt under the provisions of Section 501(a) of the Code then,
notwithstanding any provision in this Agreement expressed or implied to the
contrary, upon direction of the Investment Manager, the Trustee shall make
such transfers to the Investment Manager, as trustee of a common,
collective or commingled trust fund described above, as are necessary to
implement the foregoing.
(f) Notwithstanding the provisions of this Agreement which place
restrictions upon the actions of the Trustee, or the Investment Manager, to
the extent monies or other assets are utilized to acquire units of any
collective or group trust, the terms of the common, collective or group
trust indenture shall solely govern the investment duties, responsibilities
and powers of the trustee of such common, collective or group trust, and to
the extent required by law, such terms, responsibilities and powers shall
be incorporated herein by reference and shall be part of this Agreement.
The Trustee shall have no duty or responsibility as to the safekeeping of
such assets or as to the investment and reinvestment of the same, except
that the Trustee shall require such statements and reports from such
Investment Manager as may be necessary to enable the Trustee to carry out
its recordkeeping and reporting duties under this Agreement. The Trustee
shall enter into and execute such agreements, receipts and releases as
shall be required to carry out the directions of the Committee with respect
to the transfer of any assets of the Master Trust to or from an Investment
Manager.
(g) To the extent that provisions of Sections 2.2 and 2.3 are
inconsistent with other provisions of Article II hereof, the provisions of
Sections 2.2 and 2.3 shall be controlling.
2.4 Income received by the Master Trust shall be added periodically to the
principal of the Master Trust, by the Trustee. The profits and losses of the
Master Trust shall be allocated to the principal of the Master Trust.
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2.5. Notwithstanding anything herein to the contrary, the Trustee may enter
into a transaction or retain a trust investment which may, or in fact does,
give rise to unrelated business taxable income either through the exercise of
the Trustee's sole investment authority hereunder or pursuant to the
directions of the Committee or an Investment Manager.
2.6. No person dealing with the Master Trust or the Trustee shall be
required to inquire as to the authority of the Trustee to do any act or to see
to the application of funds or other property paid or delivered to or upon the
order of the Trustee, and any issuing insurance company may treat as binding
and conclusive upon it any action which the Trustee may take with respect to
any annuity or insurance contract held by the Trustee.
2.7. Neither the Trustee nor the Committee (except insofar as it shall act
as an Investment Manager) shall be responsible for the investment of any part
of the Master Trust allocated to an Investment Manager. Except as required by
ERISA, the Trustee shall be under no duty to question or make inquiry as to
any direction, notification or order or failure to give a direction,
notification or order by the Committee or an Investment Manager and shall be
under no duty to make any review of investments acquired for an Investment
Fund managed by the Committee or an Investment Manager and under no duty at
any time to make any recommendation with respect to disposing of or continuing
to retain any such investments.
The Company hereby indemnifies and holds the Trustee or its nominee harmless
from any and all actions, claims, demands, liabilities, losses, damages or
reasonable expenses of whatsoever kind and nature in connection with or
arising out of (1) any action taken or omitted in good faith, or any
investment or disbursement of any part of the Master Trust made by the
Trustee, in accordance with the directions of the Committee or any inaction
with respect to any Committee managed Investment Fund or with respect to any
investment previously made at the direction of the Committee in the absence of
directions from the Committee therefor, or (2) any action taken or omitted in
good faith by the Trustee with respect to an Investment Fund managed by an
Investment Manager in accordance with any direction of the Investment Manager
or any inaction with respect to any such Investment Fund in the absence of
directions from the Investment Manager, or (3) any action taken in good faith
by the Trustee pursuant to a notification of an order to purchase or sell
securities issued by an Investment Manager or the Committee directly to a
broker or a dealer, or (4) any failure by the Trustee to pay for any property
purchased by an Investment Manager for the Master Trust by reason of the
insufficiency of funds in the Master Trust; provided, that nothing in this
paragraph shall be deemed to indemnify or hold harmless the Trustee or its
nominee with respect to, or relieve the Trustee or its nominee from, liability
arising out of its misfeasance or negligence.
Anything hereinabove to the contrary notwithstanding, the Company shall have
no responsibility to the Trustee or its nominee under the foregoing
indemnification if the Trustee or such nominee knowingly participated in or
knowingly concealed any act or omission of the Committee or any Investment
Manager knowing that such act or omission constituted a breach of fiduciary
responsibility, or if the Trustee or such nominee fails to perform any of the
duties undertaken by it under the provisions of this Agreement, or if the
Trustee or such nominee fails to act in conformity with the directions of an
authorized representative of the Investment Manager or the Committee;
provided, however, that if the Trustee or a nominee has knowledge of a breach
committed by an Investment Manager, the sole responsibility of the Trustee or
such nominee, except as otherwise provided in ERISA, shall be to notify the
Company in writing thereof and the Company shall thereafter assume full
responsibility to all persons interested in the Master Trust to remedy said
breach.
2.8. No allocation or delegation by the Company or the Committee of any of
their respective powers, authorities, or responsibilities hereunder to the
Trustee shall become effective unless such allocation or delegation is
specifically set forth in this Agreement or shall first be accepted by the
Trustee in a writing signed by it and delivered to the Company or the
Committee as the case may be.
2.9. The Committee shall provide the Trustee with copies of the plan
documents for all Participating Plans and all agreements with all Investment
Managers appointed by the Committee and all other documents amending or
supplementing such documents and agreements and the Trustee shall be
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entitled to rely upon the Committee's attention to that obligation and shall be
under no duty to inquire of the Committee as to the existence of any such
documents and agreements not provided by the Committee hereunder.
ARTICLE III
Valuation of the Funds
3.1. Fair Market Value Determination. Subject to Section 3.2 below, the
assets of each Participating Plan, Investment Fund and the total assets of the
Master Trust shall be valued by the Trustee, for the purpose of establishing
the fair market value thereof, as of the last business day of each calendar
month or such other date or dates as may be agreed upon by the Company or
Committee and the Trustee (hereinafter referred to as a "Valuation Date") in
accordance with the following procedure:
(a) All securities and other property held therein shall be valued at
fair market value or, if the market value is not readily ascertainable,
shall be valued at such amount as shall be deemed by the Trustee to
represent the fair market value thereof.
(b) An asset purchased but not paid for shall not be included for
valuation purposes as an asset held until paid for and delivered to the
Trustee, provided the Trustee may in its discretion include such an asset
for valuation purposes as though the asset was paid for and delivered.
(c) An asset sold but not delivered shall be included for valuation
purposes as an investment held until delivered to the purchaser and the
proceeds received, provided the Trustee may in its discretion exclude such
an asset for valuation purposes as though the asset was delivered to the
purchaser and the proceeds received.
(d) To the value thus determined there shall be added (i) interest
accrued but not collected on any interest bearing obligation and dividends
declared but not collected on stock, which, if sold, would be sold ex-
dividend, (ii) the uninvested cash balance held therein.
(e) From the aggregate value so obtained there shall be deducted all
accrued charges and expenses and any reserve for contingencies or
unliquidated liabilities which are appropriate under sound accounting
principles.
3.2. Valuation of Investments Directed or Made by the Committee or Investment
Managers. Notwithstanding anything herein to the contrary, with respect to any
asset acquired by or at the direction of the Committee or an Investment
Manager, the Trustee will only be responsible for valuing such asset if the
asset is publicly traded or reported on a pricing service to which the Trustee
subscribes. The Committee or, if so designated by the Committee, the Investment
Manager, will be responsible for valuing all other assets so acquired for all
purposes of the Master Trust.
3.3. Allocation to Participating Plans. Subject to Sections 1.1 and 1.2,
above, the Trustee shall maintain a separate bookkeeping account
("Participating Plan Account") reflecting the share in the Master Trust of each
Participating Plan. As of each Valuation Date, the Trustee shall adjust each
Participating Plan Account to appropriately reflect the fair market value
thereof and the net cost thereof and in making such adjustments shall
specifically take into account the following factors properly attributable to
such monthly period in accordance with generally accepted accounting
principles: (a) benefits paid from each Participating Plan; (b) costs and
expenses allocable thereto; (c) realized gains and losses allocable thereto;
(d) income (whether received or accrued) allocable thereto; and (e)
contributions to each such Participating Plan. If the share of a Participating
Plan is invested in more than one Investment Fund, separate sub- accounts shall
be maintained in a similar manner to reflect the share of the Participating
Plan in each such Investment Fund.
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ARTICLE IV
Additions to and Withdrawals from the Trust
4.1. Additions to and withdrawals from the Master Trust shall be deemed to
be made and shall be accounted for as though being made only as of a Valuation
Date, and only upon the basis of the value on such date. The Committee shall
have the right from time to time to direct the Trustee to accept additions to
or make withdrawals from the Master Trust.
4.2. The Trustee shall make such payments from the Master Trust at such time
or times and to such person or persons, trusts, corporations or other
organizations as the Committee shall direct in writing, including (a) direct
payments to a participant in a Participating Plan or the beneficiary of such a
participant, (b) payment to an insurance company to purchase an annuity
contract for such a participant or beneficiary, (c) payment to a trustee of a
trust maintained as part of another plan (or to the issuer of an annuity
contract that is part of such a plan) for the benefit of such a participant or
beneficiary and (d) payments of administrative expenses of a Participating
Plan; provided however, that (i) such written directions shall designate the
Participating Plan from which each payment is made and the Trustee shall
charge the payment to the Participating Plan Account of such Participating
Plan and (ii) no payment from a Participating Plan shall exceed the share in
the Master Trust of such Participating Plan on the date such payment is made.
Any amount so paid or delivered to a paying agent shall be held in trust by
such paying agent until disbursed in accordance with the Participating Plan
with respect to which the payment or distribution is made.
4.3. Upon written direction from the Committee, the Trustee shall segregate,
transfer and deliver such part of the share of a Participating Plan in the
Master Trust as may be specified in such direction to any other tax-qualified
trust established as part of the Participating Plan for the purpose of funding
benefits thereunder, or, if the Committee shall so direct, shall hold such
segregated share, in trust, as a separate trust governed by the same
provisions as the terms of this Agreement, as if such Participating Plan (a
"Segregated Plan") were the sole Participating Plan thereunder, or if there is
more than one Segregated Plan, as if such Segregated Plans as the Committee
shall so direct were the sole Participating Plans thereunder, except that if
an entity other than the Company has adopted a Segregated Plan or Plans as the
sponsoring employer in lieu of the Company, and has also adopted such separate
trust as part of the Segregated Plan or Plans, such adopting entity shall
thereafter be deemed to be "the Company" under the provisions of such separate
trust. The adoption of any Segregated Plan or Plans and of any such separate
trust by an entity other than the Company shall be evidenced by a written
instrument signed by such entity and delivered to the Trustee.
4.4. If a Participating Plan shall cease to meet any of the requirements for
participation set forth in Article I hereof, the entire interest of such
Participating Plan in the Master Trust shall be paid out to the trust
described in Section 4.3 as of the Valuation Date next succeeding the date of
the Trustee's receipt of notice of that fact, whether or not any notice of
intention to withdraw such interest shall have been given.
4.5. In the event that it shall become necessary to make a physical
segregation of the assets of the Master Trust allocable to any Participating
Plan Account, there shall be set apart to such Participating Plan Account from
the Master Trust such assets as the Trustee shall determine, with the approval
of the Committee, having a then fair market value equal to the fair market
value credited to the Participating Plan Account as of the Valuation Date with
respect to which such segregation is made. If the Committee approves a
distribution in any form other than cash or directs such a distribution under
Section 4.2 or Section 4.3, then the Company shall undertake to discharge any
responsibility which may be imposed under any Participating Plan or by
applicable law to ensure compliance with any Federal or State securities laws,
requirements or restrictions in connection therewith.
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ARTICLE V
Accounts and Records
5.1. The Trustee shall keep accurate and detailed accounts and records of
all investments, receipts, disbursement and other transactions involving the
Master Trust as the Committee and the Trustee shall agree upon, and all such
accounts and records shall be open to inspection at any reasonable time by any
person designated by the Committee. Within forty-five (45) days following the
close of each calendar year and at such other times as may be required by the
Committee the Trustee shall render an account to the Committee, setting forth
all receipts, disbursements and other transactions effected by it during such
year, together with an inventory of all investments held in the Master Trust
at the end of the year.
5.2. The Trustee from time to time may, but shall not be required to, settle
its account by delivering to the Committee one or more copies of a written
account setting forth in detail all the transactions of the Master Trust
during any preceding period for which an account has not theretofore been
filed pursuant to this Section. The Committee may approve any such account by
written notice of approval delivered to the Trustee, and shall be deemed to
have approved any such account by failure to express objection thereto in a
writing delivered to the Trustee within sixty days following the due date
(including extensions provided by law) for the filing of the Annual
Return/Report for each Participating Plan with respect to the latest period
covered by any such account. In the event of such written approval, or
approval by such failure to object, such account shall be final and the
Trustee shall be forever released and discharged as to the Company with
respect to all errors, if any, as may be set forth in such account as though
such account had been settled by the decree of a court of competent
jurisdiction unless such errors were caused by the Trustee's own bad faith,
fraud, or willful misconduct.
ARTICLE VI
Compensation and Expenses of the Trustee
6.1. The Trustee shall be entitled to receive reasonable fees for its
services hereunder in accordance with the schedule of fees attached hereto and
incorporated herein as Exhibit B (which Exhibit may be amended prospectively
at any time upon ninety (90) days prior written notice to the Committee) and
shall be entitled to receive reimbursement for all reasonable expenses
incurred by it in the administration of this Agreement. Unless paid directly
by the Company, any proper charges and disbursements incurred by the Trustee
in the performance of its duties hereunder, including fees for legal services
rendered to the Trustee whether during or after the time it is acting
hereunder, shall be paid from the Master Trust. All taxes of any and all kinds
whatsoever that may be levied or assessed under existing or future laws upon
or in respect of the Master Trust or the income thereof shall be a charge
against the Master Trust; provided, however, in the event that the Company
shall notify the Trustee that, in the opinion of its counsel, any such taxes
are unlawfully or excessively assessed or threatened to be assessed, the
Trustee shall, at the expense of the Company, join with the Company to contest
the validity of such assessment in any manner deemed appropriate by the
Company or its counsel.
ARTICLE VII
Resignation, Removal and Substitution of Trustee
7.1. The Trustee at the time acting hereunder may resign and be discharged
from the Master Trust created hereby by giving sixty (60) days' notice in
writing to the Company, unless the Company shall accept as adequate a shorter
notice. Any Trustee hereunder may be removed by the Company at any time with
or without cause upon sixty (60) days' written notice, unless the Trustee
shall accept as adequate a shorter notice. Such resignation or removal, as the
case may be, shall take effect at such time as a successor Trustee shall have
been appointed and shall have accepted such appointment, as hereinafter
provided. Any Trustee so resigning or removed shall make no surrender charge
with respect thereto.
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7.2. In the case of the resignation or removal of the Trustee or in case a
vacancy shall arise in the trusteeship from any cause, a successor Trustee
shall be appointed by the Board of Trustees of the Company, and an instrument
in writing advising of such appointment shall be delivered to the successor
Trustee so appointed and to the Trustee ceasing to act if it be in existence.
7.3. Any successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and the Trustee an instrument in writing accepting such
appointment, and thereupon n such successor Trustee, without any further act,
deed or conveyance, shall become vested with all of the estates, properties,
rights, powers and duties of its predecessor in the Master Trust hereunder with
like effect as if originally named as Trustee herein; but nevertheless, on the
written request of the Company or of the successor Trustee, the Trustee ceasing
to act shall execute and deliver any instrument transferring to such successor
Trustee, upon the Trusts herein expressed, all of its estates, properties,
rights and powers hereunder, and shall duly assign, transfer and deliver the
property held in the Master Trust to such successor Trustee. No successor
Trustee shall have any duty or obligation to inquire into the administration of
the Trust hereunder by any prior Trustee nor be responsible for any act or
failure to act of any prior Trustee.
ARTICLE VIII
Amendment or Termination
8.1. Subject to the limitations set forth in Section 1.2 of Article I hereof,
the Company has reserved, and does hereby reserve, the right at any time, (a)
to terminate this Master Trust and any trust created hereby, in whole or in
part, or (b) to amend this Agreement and any trust created hereby in any
respect. Any such termination or amendment shall be expressed in an instrument
executed by the Company and, in the case of an amendment, by the Trustee. Such
instrument shall become effective as of the date designated in such instrument
or, if no such date is designated, upon the date of the execution of such
instrument. If the Trustee is unable or unwilling to execute any such
amendment, it may resign or be removed by the Company as above provided. No
amendment to this Agreement shall affect the Trustee's rights, duties or
responsibilities unless the Trustee consents thereto in writing.
ARTICLE IX
General Provisions
9.1. Except as otherwise provided in a Participating Plan or in Section 1.2
of Article I hereof, no interest or expectancy of the Participating Plans or
any participant or beneficiary thereunder in the assets, earnings and profits
of the Master Trust shall be transferable or assignable or subject to
alienation, encumbrance, garnishment, attachment, anticipation, execution or
levy of any kind, voluntary or involuntary, while in the possession or control
of the Trustee, except as may otherwise be required by law.
9.2. This Agreement and the Master Trust shall be construed, regulated and
administered according to ERISA and, to the extent not preempted thereby, the
laws of the State of Ohio.
9.3. The Trustee shall be fully protected in relying upon a certification
signed by one or more of the members of the Committee (as shall be designated
in a written instrument signed by all the members of the Committee and filed
with the Trustee) with respect to any instruction, direction or approval of the
Committee, and in continuing to rely upon such certification and/or instrument
until a subsequent one is filed with the Trustee. The Trustee shall be fully
protected in relying upon the genuineness of any instrument, certificate, or
paper reasonably believed by it to be genuine and to be signed or presented by
the proper person(s), and the Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such writing but
may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained. The Trustee shall have no duty to see to the
proper application of any part of the Master Trust if distributions are made in
accordance with the written directions of the Committee as herein provided, nor
shall the Trustee be responsible for the adequacy of
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the Master Trust to meet and discharge any and all distributions and
liabilities under any Participating Plan. All persons dealing with the Trustee
are released from inquiry into the decisions or authority of the Trustee and
from seeing to the application of any moneys, securities, or other property
paid or delivered to the Trustee.
9.4. In accepting the trust hereby created, the Trustee acts solely as
trustee hereunder and not in its individual capacity, and all persons, other
than the Company, having any claim against the Trustee by reason of the
transactions contemplated hereby shall look only to the assets of the Master
Trust for payment or satisfaction thereof.
9.5. In any application to the courts for an interpretation of this
Agreement or for an accounting by the Trustee, only the Trustee and the
Company shall be necessary parties; and, unless otherwise ordered by the court
entertaining jurisdiction thereover, no employee shall be entitled to any
notice or service of process. Any final judgment entered in such an action or
proceeding shall be conclusive upon all persons claiming under this Master
Trust.
9.6. The Trustee, in accordance with the written instructions of the
Company, shall withhold any tax which by any present or future law is required
to be withheld from any payment made hereunder.
9.7. The Trust created by this document shall be known as the Eastern
Enterprises Master Trust.
9.8. Reference is hereby made to the Declaration of Trust establishing
Eastern Gas and Fuel Associates (now known as Eastern Enterprises) dated July
18, 1929, as amended, a copy of which is on file in the office of the
Secretary of the Commonwealth of Massachusetts. The name Eastern Enterprises
refers to the trustees under said Declaration of Trust as trustees and not
personally; and no trustee, shareholder, officer or agent of Eastern
Enterprises shall be held to any personal liability in connection with the
affairs of said Eastern Enterprises but the trust estate only is liable.
In Witness Whereof, the Company and the Trustee have caused this Master
Trust Agreement to be executed this 28th day of April 1995, on their behalf by
their duly authorized officers as of the date first above written.
Eastern Enterprises
/s/ L.W. Law, Jr.
By: _________________________________
Senior Vice President
And
/s/ J. Scholtens
_____________________________________
Treasurer
Key Trust Company of Ohio, N.A.
/s/ M. H. Halloran
By: _________________________________
Trust Officer
And
/s/ J. Ruff
_____________________________________
Vice President
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EXHIBIT A
TO THE
EASTERN ENTERPRISES
MASTER TRUST WITH
KEY TRUST COMPANY OF OHIO, N.A.
The following is a listing of the employee pension benefit plans of the
Company which shall be permitted to invest in the Master Trust.
1. Eastern Enterprises Headquarters Retirement Plan.
2. Boston Gas Company Retirement Plan.
3. Midland Enterprises Inc. Salaried Retirement Plan.
14
<PAGE>
EXHIBIT 10.20.1
EASTERN ENTERPRISES
RETIREMENT PLAN FOR NON-EMPLOYEE TRUSTEES
AMENDMENT
Pursuant to paragraph IX of the Eastern Enterprises Retirement Plan for Non-
Employee Trustees (as amended, the "Plan"), the Plan is hereby amended by
deleting the last three sentences of paragraph V thereof (begins:
"Notwithstanding the foregoing........'') and replacing them with the following
text, effective immediately:
"Notwithstanding the foregoing, Eastern in its sole discretion may
establish a so-called "rabbi" trust or similar trust, whether or not
conforming to Rev. Proc. 92-64, or may avail itself of any such trust which
it has previously established, to provide for the payment of benefits
hereunder, subject to such terms as the Board of Trustees may determine (a
"trust"). In the event Eastern establishes a trust in respect of the Plan
or causes a pre-existing trust to cover the Plan, and at the time of a
Change of Control such trust (i) has not been terminated or revoked and
(ii) is not "fully funded" (as hereinafter defined), Eastern shall promptly
deposit in such trust cash sufficient to cause the trust to be "fully
funded" as of the date of the deposit. For purposes of this subparagraph,
any such trust shall be deemed "fully funded" as of any date if, as of that
date, the fair market value of the assets held in trust is not less than
(1) the aggregate present value as of that date of all benefits then in pay
status under the Plan (including benefits not yet commenced but in respect
of Participants who have retired under circumstances entitling them to
benefits hereunder) plus (2) the aggregate present value as of that date of
all benefits that would be payable under the Plan if all other Participants
were deemed to have retired on that date plus (3) the aggregate present
value as of that date of all benefits payable (as determined under rules
similar to the rules described in (1) and (2)) under all other defined-
benefit type plans and arrangements provided for through the trust, plus
(4) the aggregate of the account balances, determined as of such date,
under all individual-account type plans and arrangements provided for
through the trust. In applying clauses (1), (2) and (3) of the previous
sentence, present value shall be determined by using the interest and
mortality assumptions used in determining lump sum present values under the
qualified defined benefit pension plan maintained by Eastern, or if no such
qualified plan is then maintained by Eastern, by applying the assumptions
used prior to the Change of Control in determining Eastern's pension
expense under FAS 87 or any successor pronouncement with respect to such
plan or arrangement."
In Witness Whereof, Eastern Enterprises has caused this instrument of
amendment to be executed by its duly authorized officer this 8th day of
December, 1995.
Eastern Enterprises
/s/ Richard R. Clayton
By___________________________________
Title: President
1
<PAGE>
EXHIBIT 10.21
EASTERN ENTERPRISES
1996 NON-EMPLOYEE TRUSTEES' STOCK OPTION PLAN
1. Purpose. The purpose of this 1996 Non-Employee Trustees' Stock Option
Plan (the "Plan") is to advance the interests of Eastern Enterprises
("Eastern") by enhancing the ability of Eastern to attract and retain non-
employee trustees who are in a position to make significant contributions to
the success of Eastern and to reward those trustees for such contributions
through ownership of shares of beneficial interest ("Stock") of Eastern.
2. Administration. The Plan shall be administered by the Board of Trustees
(the "Board") of Eastern. The Board may delegate the administration of the
Plan to a committee, in which case all references to "the Board" hereunder,
other than in Section 10(d), shall refer to the committee. The Board shall
have authority, consistent with the Plan (a) to issue options granted in
accordance with the formula set forth in this Plan to Eligible Trustees (as
defined below); (b) to prescribe the form or forms of instruments evidencing
awards and any other instruments required under the Plan and to change such
forms from time to time; (c) to adopt, amend and rescind rules and regulations
for the administration of the Plan; and (d) to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise
in connection with the Plan. All decisions, determinations and interpretations
of the Board shall be binding on all parties concerned. Transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"). To the extent any provision of the Plan or action by the
Board fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board.
3. Effective Date and Term of Plan. The Plan shall become effective on the
date (the "Effective Date") on which the Plan is approved by the shareholders
of Eastern. No option shall be granted under the Plan after the day (the
"Final Date") which follows the fourth annual shareholders meeting after the
Effective Date, but options previously granted may extend beyond that date.
4. Shares Subject to the Plan.
(a) Number of Shares. Subject to adjustment as provided in Section 4(c),
the aggregate number of shares of Stock that may be delivered upon the
exercise of options granted under the Plan shall be 75,000. If any option
granted under the Plan terminates without having been exercised in full,
the number of shares of Stock as to which such option was not exercised
shall be available for future grants within the limits set forth in this
Section 4(a).
(b) Shares to be Delivered. Stock delivered under the Plan shall be
previously issued Stock acquired by Eastern or authorized but theretofore
unissued shares. No fractional shares shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, split-up or
combination of shares, recapitalization or other change in Eastern's
capital, after the Effective Date, the number and kind of shares or
securities of Eastern subject to options then outstanding or subsequently
granted under the Plan, the maximum number of shares or securities that may
be delivered under the Plan, the exercise price, and other relevant
provisions shall be appropriately adjusted by the Board, whose
determination shall be binding on all persons.
5. Eligibility of Trustees for Stock Options. Trustees eligible to receive
options under the Plan ("Eligible Trustees") shall be those trustees who are
not and have not been for five years employees of Eastern or of any subsidiary
of Eastern.
1
<PAGE>
6. Terms and Conditions of Options.
(a) Number of Options. Each individual who is an Eligible Trustee on the
day (the "meeting grant date") following any annual meeting of Eastern's
shareholders that occurs on or after the Effective Date and on or before
the Final Date shall automatically be granted on such meeting grant date an
option to purchase 1,100 shares of Stock, subject to adjustment as provided
in Section 4. In addition, each individual who becomes an Eligible Trustee
(other than by election at an annual meeting of Eastern's shareholders) on
a date (the "interim grant date") that falls between meeting grant dates
and prior to the Final Date shall automatically be granted on the interim
grant date an option for 550 shares of Stock, subject to adjustment as
provided in Section 4.
(b) Exercise Price. The per-share exercise price of each option shall be
100% of the fair market value per share of Stock on the date the option is
granted.
(c) Duration of Options. The latest date on which an option may be
exercised shall be the tenth anniversary of the date the option was
granted.
(d) Exercisability. Each option granted under the Plan shall become
exercisable as to one-half of the shares subject to the option on each of
the first and second anniversaries of the grant date.
Any exercise of an option must be in writing, signed by the proper person
and delivered or mailed to Eastern, accompanied by (1) any documents
required by the Board and (2) payment in full as provided below for the
number of shares for which the option is exercised.
(e) Payment for and Delivery of Stock. The exercise price of Stock
purchased on exercise of an option must be paid for as follows: (1) in cash
or by check (acceptable to Eastern in accordance with guidelines
established by the Board for this purpose), bank draft or money order
payable to the order of Eastern, (2) through the delivery of shares of
Stock that have been outstanding and held by the option holder for at least
six months and which have a fair market value on the last business day
preceding the date of exercise equal to the exercise price, or (3) by any
combination of the permissible forms of payment.
Eastern shall not be obligated to deliver any shares of Stock pursuant to
the exercise of any option (a) until, in the opinion of Eastern's counsel,
all applicable Federal and state laws and regulations have been complied
with, (b) 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 (c) 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
Eligible Trustee 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 Eligible Trustee 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 Board 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 Eligible Trustee or other person
exercising the option shall take any action reasonably requested by Eastern
in such connection. An Eligible Trustee or other person entitled to
exercise an option shall have the rights of a shareholder only as to shares
actually acquired by him or her under the Plan.
If an option is exercised by any person other than the Eligible Trustee,
Eastern will be under no obligation to deliver Stock pursuant to such
exercise until Eastern is satisfied as to the authority of the person
exercising the option.
8. Termination of Options. If an Eligible Trustee ceases to be a trustee of
Eastern for any reason (including death) (a "termination"), all options
awarded to the Eligible Trustee under the Plan and then held by the Eligible
Trustee shall, to the extent such options were exercisable immediately prior
to termination, continue to be exercisable by the Eligible Trustee (or in the
event of the Eligible Trustee's death, by his or her executor or administrator
or the person or persons to whom the option is transferred
2
<PAGE>
by will or the applicable laws of descent and distribution) for a period of
one year following termination or until the tenth anniversary of the date of
grant if earlier; provided, that if termination is by reason of retirement
pursuant to an established retirement policy of the Board, all options held by
the retiring trustee shall become exercisable (to the extent not already
exercisable) immediately prior to retirement. Except as provided in the
preceding sentence, all options awarded to an Eligible Trustee and held at
time of termination shall promptly expire.
9. Certain Corporate Transactions. 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 shall thereupon terminate, but at least
twenty days prior to the effective date of any such consolidation or merger,
the Board shall either (a) make all outstanding options immediately
exercisable or (b) arrange to have the surviving company grant replacement
options to the Eligible Trustees.
10. General Provisions.
(a) Documentation of Options. Options will be evidenced by written
instruments prescribed by the Board from time to time. Such instruments may
be in the form of agreements, to be executed by both an Eligible Trustee
and Eastern, or certificates, letters or similar instruments, which need
not be executed by an Eligible Trustee but acceptance of which will
evidence agreement to the terms thereof.
(b) Nontransferability of Options. Options may not be transferred by an
Eligible Trustee otherwise than by will or the laws of descent and
distribution, and during the Eligible Trustee's lifetime shall be
exercisable only by the Eligible Trustee.
(c) Effect. Neither adoption of the Plan nor the grant of options to an
Eligible Trustee shall confer upon any person any right to continued status
as a trustee or affect Eastern's right to adopt other plans or arrangements
under which stock may be issued to trustees.
(d) Amendment; Termination. The Board may at any time terminate the Plan
as to any further grants of options. The Board may at any time or times
amend the Plan for any purpose which may at the time be permitted by law;
provided, that except to the extent expressly required or permitted by the
Plan, no such amendment will, without the approval of the shareholders of
Eastern, effectuate a change for which shareholder approval is required in
order for awards under the Plan to continue to qualify under Rule 16b-3
promulgated under Section 16 of the Exchange Act.
3
<PAGE>
EXHIBIT 10.24.1
EASTERN ENTERPRISES
1994 DEFERRED COMPENSATION PLAN
AMENDMENT
Pursuant to Article XI of the Eastern Enterprises 1994 Deferred Compensation
Plan (the "Plan"), the Plan is hereby amended by deleting the last sentence of
Article VII (begins: "Notwithstanding the foregoing . . .") and replacing it
with the following text, effective immediately:
"Notwithstanding the foregoing, the Company in its sole discretion may
establish a so-called "rabbi" trust or similar trust, whether or not
conforming to Rev. Proc. 92-64, or may avail itself of any such trust which it
has previously established, to provide for the payment of benefits hereunder,
subject to such terms as the Board of Trustees may determine (a "trust"). In
the event the Company establishes a trust in respect of the Plan or causes a
pre-existing trust to cover the Plan, and at the time of a Change of Control
such trust (i) has not been terminated or revoked and (ii) is not "fully
funded" (as hereinafter defined), the Company shall promptly deposit in such
trust cash sufficient to cause the trust to be "fully funded" as of the date
of the deposit. For purposes of this subparagraph, any such trust shall be
deemed "fully funded" as of any date if, as of that date, the fair market
value of the assets held in trust is not less than (1) the aggregate of the
balances, determined as of such date, of all Accounts hereunder, plus (2) the
aggregate of the account balances, determined as of such date, under all other
individual-account type plans and arrangements provided for through the trust,
plus (3) the aggregate of the benefits then in pay status or otherwise payable
under all other plans and arrangements provided for through the trust, as
determined in accordance with the rules set forth in such plans and
arrangements (or, with respect to any such plan or arrangement where no such
rules are set forth, the aggregate of the present value of all accrued
benefits under such plan or arrangement, determined by applying the interest
and mortality assumptions used in determining lump sum present values under
the qualified defined benefit pension plan maintained by the Company, or if no
such qualified plan is then maintained by the Company, by applying the
assumptions used prior to the Change of Control in determining the Company's
pension expense under FAS 87 or any successor pronouncement with respect to
such plan or arrangement). For purposes of this subparagraph, a "Change of
Control" will be deemed to have occurred if (i) after January 1, 1988 any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934), other than the Company, becomes a beneficial owner
directly or indirectly of securities representing twenty-five percent (25%) or
more of the combined voting power of the then outstanding voting securities of
the Company; or (ii) within two years after the commencement of a tender offer
or exchange offer for the voting securities of the Company (other than by the
Company), or as a result of a merger, consolidation, sale of assets or
contested election of trustees or directors, or any combination of the
foregoing, the individuals who were trustees of the Company immediately prior
thereto shall cease to constitute a majority of the Board of Trustees of the
Company or of the board of trustees or directors of its successor by merger,
consolidation or sale of assets."
In Witness Whereof, Eastern Enterprises has caused this instrument of
amendment to be executed by its duly authorized officer this 8th day of
December, 1995.
Eastern Enterprises
/s/ Richard R. Clayton
By: _________________________________
Title: President
<PAGE>
EXHIBIT 13.1
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES:
Boston Gas............ $653,073 $660,158 $614,294 $594,330 $527,928
Midland............... 296,339 264,692 254,921 263,617 267,044
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES...... 949,412 924,850 869,215 857,947 794,972
Operating costs and ex-
penses................. 835,678 827,475 791,826 761,691 720,930
OPERATING EARNINGS:
Boston Gas............ 61,662 65,791 49,063 63,120 39,291
Midland............... 57,828 35,805 33,001 38,277 40,471
Headquarters.......... (5,756) (4,221) (4,675) (5,141) (5,720)
---------- ---------- ---------- ---------- ----------
TOTAL OPERATING
EARNINGS........... 113,734 97,375 77,389 96,256 74,042
OTHER INCOME (EXPENSE):
Interest income....... 5,633 1,953 3,213 4,703 7,169
Interest expense...... (38,536) (38,516) (35,039) (33,537) (29,700)
Other, net............ 4,103 2,553 (1,056) (2,414) (2,546)
---------- ---------- ---------- ---------- ----------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 84,934 63,365 44,507 65,008 48,965
Provision for income
taxes.................. 24,553 24,458 18,485 23,896 16,664
---------- ---------- ---------- ---------- ----------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM AND
ACCOUNTING CHANGES..... 60,381 38,907 26,022 41,112 32,301
Earnings (loss) from
discontinued opera-
tions, net of
tax(/1/)............... -- 12,212 (58,182) (3,206) (3,674)
Extraordinary item, net
of tax(/2/)............ (6,500) -- (45,500) -- --
Cumulative effect of ac-
counting changes(/3/).. -- -- -- 8,209 (7,922)
---------- ---------- ---------- ---------- ----------
NET EARNINGS (LOSS)..... $ 53,881 $ 51,119 $ (77,660) $ 46,115 $ 20,705
========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings from
continuing operations
before extraordinary
item and accounting
changes.............. $ 2.98 $ 1.87 $ 1.15 $ 1.81 $ 1.43
Earnings (loss) from
discontinued
operations, net of
tax(/1/)............. -- .59 (2.58) (.14) (.16)
Extraordinary item,
net of tax(/2/)...... (.32) -- (2.02) -- --
Effect of accounting
changes(/3/)......... -- -- -- .37 (.35)
---------- ---------- ---------- ---------- ----------
Net earnings (loss)... $ 2.66 $ 2.46 $ (3.45) $ 2.04 $ .92
========== ========== ========== ========== ==========
Dividends declared...... $ 1.42 $ 1.40 $ 1.40 $ 1.40 $ 1.40
Shareholders' equity.... 19.60 18.33 17.38 22.89 22.31
FINANCIAL STATISTICS AND
RATIOS:
Cash from operating
activities........... $ 152,652 $ 114,674 $ 35,116 $ 44,470 $ 45,945
Capital expenditures.. 78,385 57,883 61,450 80,538 106,134
Total assets.......... 1,377,342 1,339,319 1,363,191 1,397,850 1,305,995
Long-term debt........ 357,675 365,488 328,939 357,109 327,361
Shareholders' equity.. 395,764 374,134 363,738 517,906 502,886
Debt/equity ratio..... 47/53 49/51 47/53 41/59 39/61
Return on total
capital(/4/)......... 10.9% 8.3% 5.8% 7.1% 6.2%
Return on
equity(/4/).......... 15.7% 10.5% 5.9% 8.1% 6.4%
Shares outstanding at
year end............. 20,194 20,411 20,930 22,621 22,543
</TABLE>
- --------
(1) Includes Water Products Group.
(2) Provision for coal miners retiree health care of $10,000 and $70,000 pretax
in 1995 and 1993, respectively.
(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.
1
<PAGE>
Stock Price Range
<TABLE>
<CAPTION>
Quarter 1995 1994
- ------------------------------------------------
HIGH LOW High Low
---------------------------------
<S> <C> <C> <C> <C>
First........... $27 3/4 $25 1/4 $27 3/4 $23 3/4
Second.......... 30 27 5/8 27 1/8 22 3/8
Third........... 32 5/8 29 26 5/8 22 1/4
Fourth.......... 35 1/2 29 3/8 28 25
</TABLE>
Per Share Dividends Declared
<TABLE>
<CAPTION>
Quarter 1995 1994
- -----------------------------------------
<S> <C> <C>
First........................ $ .35 $ .35
Second....................... .35 .35
Third........................ .35 .35
Fourth....................... .37 .35
Total...................... $1.42 $1.40
</TABLE>
2
<PAGE>
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.
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
-----------------------------
<S> <C>
Boston Gas Company.............................. Massachusetts
Midland Enterprises Inc. ....................... Delaware
14 subsidiaries engaged in water transportation
and related activities.........................
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of earnings and the consolidated balance sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 185,137
<SECURITIES> 6,074
<RECEIVABLES> 120,744
<ALLOWANCES> 16,009
<INVENTORY> 47,883
<CURRENT-ASSETS> 424,886
<PP&E> 1,356,097
<DEPRECIATION> 563,337
<TOTAL-ASSETS> 1,377,342
<CURRENT-LIABILITIES> 224,861
<BONDS> 357,675
29,262
0
<COMMON> 20,386
<OTHER-SE> 375,378
<TOTAL-LIABILITY-AND-EQUITY> 1,377,342
<SALES> 653,073
<TOTAL-REVENUES> 949,412
<CGS> 506,661
<TOTAL-COSTS> 729,593
<OTHER-EXPENSES> 81,581
<LOSS-PROVISION> 14,768
<INTEREST-EXPENSE> 38,536
<INCOME-PRETAX> 84,934
<INCOME-TAX> 24,553
<INCOME-CONTINUING> 60,381
<DISCONTINUED> 0
<EXTRAORDINARY> (6,500)
<CHANGES> 0
<NET-INCOME> 53,881
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.66
</TABLE>
