<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-2297
EASTERN ENTERPRISES
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1270730
--------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 RIVERSIDE ROAD, WESTON, MASSACHUSETTS 02193
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(Address of principal executive offices)
(Zip Code)
617-647-2300
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(Registrant's telephone number, including area code)
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares of Common Stock outstanding of Eastern Enterprises as of
July 25, 1996 was 20,281,106.
<PAGE>
Form 10-Q
Page 2.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Company or group of companies for which report is filed:
EASTERN ENTERPRISES AND SUBSIDIARIES ("Eastern")
<TABLE>
Consolidated Statement of Operations
- ------------------------------------
(In thousands, except per share amounts)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $214,636 $198,876 $633,856 $565,844
Operating costs and expenses:
Operating costs 152,074 140,142 457,840 397,828
Selling, general & adminis-
trative expenses 26,534 25,309 57,154 54,478
Depreciation & amortization 14,458 14,282 38,111 35,533
-------- -------- -------- --------
193,066 179,733 553,105 487,839
-------- -------- -------- --------
Operating earnings 21,570 19,143 80,751 78,005
Other income (expense):
Interest income 2,624 1,409 4,857 2,069
Interest expense (8,361) (9,250) (17,503) (19,254)
Other, net 45 40 277 135
-------- -------- -------- --------
Earnings before income taxes 15,878 11,342 68,382 60,955
Provision for income taxes 5,954 4,267 25,576 23,241
-------- -------- -------- --------
Net earnings $ 9,924 $ 7,075 $ 42,806 $ 37,714
======== ======== ======== ========
Earnings per share $ .49 $ .35 $ 2.10 $ 1.86
======== ======== ========= ========
Dividends per share $ .37 $ .35 $ .74 $ .70
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 3.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
(In thousands)
<CAPTION>
June 30, Dec. 31, June 30,
1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 191,380 $ 191,211 $ 122,421
Receivables, less allowances 100,730 104,735 95,304
Inventories 42,288 47,883 46,045
Deferred gas costs 5,449 71,940 27,000
Investment in U.S. Filter - - 57,781
Other current assets 10,033 9,117 9,555
---------- ---------- ----------
Total current assets 349,880 424,886 358,106
Property and equipment, at cost 1,396,730 1,356,097 1,313,085
Less--Accumulated depreciation 597,224 563,337 547,327
---------- ---------- ----------
Net property and equipment 799,506 792,760 765,758
Other assets:
Deferred post-retirement health care
costs 91,148 93,830 95,484
Investments 23,478 13,821 13,706
Deferred charges and other costs,
less amortization 50,324 52,045 46,965
---------- ---------- ----------
Total other assets 164,950 159,696 156,155
---------- ---------- ----------
Total assets $1,314,336 $1,377,342 $1,280,019
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 4.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
(In thousands)
<CAPTION>
June 30, Dec. 31, June 30,
1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 5,358 $ 57,193 $ 5,450
Accounts payable 60,894 64,960 42,687
Accrued expenses 31,792 26,795 25,501
Other current liabilities 68,924 75,913 73,337
---------- --------- ----------
Total current liabilities 166,968 224,861 146,975
Gas inventory financing 23,754 45,600 31,978
Long-term debt 351,356 357,675 362,935
Reserves and other liabilities:
Deferred income taxes 86,564 89,102 92,676
Post-retirement health care 97,759 98,717 101,968
Coal miners retiree health care 63,035 65,025 56,341
Preferred stock of subsidiary 29,275 29,262 29,245
Other reserves 69,001 71,336 53,621
---------- ---------- ----------
Total reserves and other
liabilities 345,634 353,442 333,851
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 20,428,707 at
June 30, 1996; 20,385,587 at
December 31, 1995 and 20,661,975 at
June 30, 1995 20,429 20,386 20,662
Capital in excess of par value 32,923 31,488 38,134
Retained earnings 377,071 348,821 358,626
Treasury stock at cost - 147,601
shares at June 30, 1996; 191,547
shares at December 31, 1995 and
510,547 shares at June 30, 1995 (3,799) (4,931) (13,142)
--------- ---------- ----------
Total shareholders' equity 426,624 395,764 404,280
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,314,336 $1,377,342 $1,280,019
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 5.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Statement of Cash Flows
- ------------------------------------
(In thousands)
<CAPTION>
Six months ended June 30, 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 42,806 $ 37,714
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 38,111 35,533
Income taxes and tax credits 3,446 3,452
Other changes in assets and liabilities:
Receivables 4,005 5,589
Inventories 5,595 14,163
Deferred gas costs 66,490 62,703
Accounts payable (4,066) (7,293)
Other (10,186) (9,306)
-------- --------
Net cash provided by operating activities 146,201 142,555
Cash flows from investing activities:
Capital expenditures (45,428) (24,918)
Investments (11,822) (37)
Proceeds on sale of WaterPro - 52,864
Proceeds on sale of investments 1,795 -
Other (640) (891)
-------- --------
Net cash provided (used) by investing activities (56,095) 27,018
Cash flows from financing activities:
Dividends paid (14,958) (14,256)
Changes in notes payable (52,000) (62,530)
Repayment of long-term debt (5,445) (1,688)
Changes in gas inventory financing (21,846) (21,600)
Purchase of treasury shares - (8,357)
Other 2,456 1,588
-------- ---------
Net cash used by financing activities (91,793) (106,843)
Net increase (decrease) in cash and cash equivalents (1,687) 62,730
Cash and cash equivalents at beginning of year 185,137 51,674
-------- ---------
Cash and cash equivalents at end of period 183,450 114,404
Short-term investments 7,930 8,017
--------- ---------
Cash and short-term investments $ 191,380 $ 122,421
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1. Accounting policies
It is Eastern's opinion that the financial information contained in this report
reflects all adjustments necessary to present a fair statement of results for
the periods reported. All of these adjustments are of a normal recurring nature.
Results for the periods are not necessarily indicative of results to be expected
for the year, due to the seasonal nature of Eastern's operations. All accounting
policies have been applied in a manner consistent with prior periods. Such
financial information is subject to year-end adjustments and annual audit by
independent public accountants.
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 information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q. Therefore these interim
financial statements should be read in conjunction with Eastern's 1995 Annual
Report filed on Form 10-K with the Securities and Exchange Commission.
Earnings per share
Per share amounts are based on the weighted average number of common and common
equivalent shares outstanding. Quarter and year-to-date shares are 20,428,000
and 20,414,000, respectively, in 1996 and 20,232,000 and 20,267,000,
respectively, in 1995.
<PAGE>
Form 10-Q
Page 7.
2. Inventories
<TABLE>
The components of inventories were as follows:
(In thousands)
<CAPTION>
June 30, Dec. 31, June 30,
1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $ 29,704 $ 35,136 $ 32,795
Other materials, supplies and marine
fuels 12,584 12,747 13,250
-------- -------- -------
$ 42,288 $ 47,883 $ 46,045
======== ======== ========
</TABLE>
3. Supplemental cash flow information
<TABLE>
The following are supplemental disclosures of cash flow information:
(In thousands)
<CAPTION>
Six months ended June 30, 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $16,391 $17,412
Income taxes $23,393 $20,194
</TABLE>
<PAGE>
Form 10-Q
Page 8.
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
<CAPTION>
Revenues:
(In thousands)
Three months ended June 30, 1996 1995 Change
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $136,520 $129,615 5 %
Midland 77,000 69,261 11 %
AllEnergy 1,116 - nm
-------- --------
Total $214,636 $198,876 8 %
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1996 1995 Change
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $479,861 $423,856 13 %
Midland 152,879 141,988 8 %
AllEnergy 1,116 - nm
-------- --------
Total $633,856 $565,844 12 %
======== ========
</TABLE>
Boston Gas
Higher average customer usage and increased sales to new firm customers
contributed to the increase in revenues for the second quarter and first six
months of 1996.
Colder weather for the first six months of 1996 and other demand-related factors
increased year-to-date revenues by $30 million. Weather for the first six months
of 1996 was 4% colder than normal, in contrast to slightly warmer than normal
weather for the first six months of 1995.
Midland Enterprises
Midland achieved records for ton miles, revenues and operating earnings for the
second quarter and six months ended June 30, 1996.
Ton miles increased 7% for the quarter and 2% for the first half of 1996,
compared to the same periods in 1995. The increased volume and improved market
rates, particularly for non-coal commodities, increased revenues by 11% and 8%,
respectively, for the quarter and six months. While seasonal second quarter
flooding was less disruptive in 1996, the current year was impacted by severe
winter weather and flooding in the first quarter that significantly impacted
navigation, resulting in lost volume and substantially higher operating costs.
A 4% increase in second quarter coal shipments brought 1996 first-half coal
tonnage close to last year's record level, despite curtailed shipments in the
first quarter due to adverse operating conditions. For the first six months of
1996, coal ton miles increased 8%, reflecting longer average hauls associated
with increased shipments of spot coal. Non-coal tonnage for the first six months
<PAGE>
Form 10-Q
Page 9.
declined 3% due to the adverse weather in the first quarter, a decrease in grain
available for shipment and disposition in March 1996 of some of the equipment
used in towing for others.
AllEnergy
AllEnergy Marketing Company, Eastern's new unregulated retail energy marketing
business, began operations in the second quarter of 1996.
<TABLE>
<CAPTION>
Operating Earnings:
(In thousands)
Three months ended June 30, 1996 1995 Change
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $ 7,840 $ 8,247 (5)%
Midland 15,612 12,543 24 %
AllEnergy (423) - nm
Headquarters (1,459) (1,647) 11 %
------- -------
Total $21,570 $19,143 13 %
======= =======
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1996 1995 Change
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $54,605 $52,805 3 %
Midland 29,623 27,843 6 %
AllEnergy (1,018) - nm
Headquarters (2,459) (2,643) 7 %
------- -------
Total $80,751 $78,005 4 %
======= =======
</TABLE>
Boston Gas
Second quarter operating earnings decreased $400 thousand from 1995, reflecting
higher non-labor operating expenses, partially offset by increased demand and
load growth.
Operating earnings for the first six months of 1996 increased by about $2
million, as compared to 1995, reflecting the margin impact of increased revenues
and the benefits of Boston Gas' ongoing reengineering program. Higher charges
for depreciation, lower capitalized expenses and higher property taxes were
partially offsetting.
Midland Enterprises
Operating earnings for the second quarter and first six months of 1996 increased
by 24% and 6%, respectively, reflecting increased volume and improved rates, as
described above, as well as improved operating efficiencies from increased fleet
utilization. These benefits were partially offset by higher operating costs
resulting from the aforementioned poor operating conditions in the first quarter
of 1996 and higher fuel prices.
<PAGE>
Form 10-Q
Page 10.
AllEnergy
The operating loss reported by AllEnergy reflects continuing investment spending
relating to the development of its unregulated retail energy marketing business.
AllEnergy intends to provide a wide range of energy and energy-related products
and services, initially to commercial and industrial customers in Massachusetts
and other New England states. These products and services are intended to
include the sale of energy commodities such as natural gas, electricity, fuel
oil and propane, as well as energy related services such as price-risk
management and demand-side management.
Interest Income and Expense:
Interest income increased $1.2 million for the second quarter and $2.8 million
for the first six months of 1996, reflecting higher cash balances resulting from
the sale of WaterPro Supplies in April 1995 and Eastern's investment in U. S.
Filter Corp in November 1995. Interest expense decreased 10% for the second
quarter and decreased 9% for first six months of 1996, reflecting lower average
rates principally due to the refinancing of $60 million in debentures in
December 1995 and lower balances of short term obligations.
Forward Looking Information:
This report and other company reports and statements issued or made from time to
time contain certain "forward looking statements" concerning projected future
financial performance or concerning expected plans or future operations. Eastern
cautions that actual results and developments may differ materially from such
projections or expectations.
Investors should be aware of important factors that could cause actual results
to differ materially from the forward-looking projections or expectations. These
factors include, but are not limited to: temperatures above or below normal in
Boston Gas' service territory, adverse operating conditions on the inland
waterways, uncertainties regarding the start-up of AllEnergy, including expense
levels and customer acceptance, changes in interest rates, adverse regulatory
decisions, and developments with respect to Eastern's previously-disclosed
environmental and Coal Act liabilities, all of which are difficult to predict
and are generally beyond Eastern's control.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that projected cash flow from operations, in combination
with currently available capital 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 dividend payments to shareholders.
Consolidated capital expenditures for 1996 are estimated to total
approximately $110 million, about 55% of which are for Boston Gas and the
balance primarily for Midland.
<PAGE>
Form 10-Q
Page 11.
On May 17, 1996, Boston Gas filed a restructuring and performance-based
regulation ("PBR") proposal with the Massachusetts Department of Public
Utilities. As part of this proposal, Boston Gas has requested a $30 million rate
increase to become effective December 1, 1996.
In the restructuring proposal, Boston Gas has proposed to unbundle its services
through the opening of its distribution system to competition. Under the plan,
all customers, on a phased basis, would be allowed a choice among alternate gas
suppliers. Boston Gas has proposed to cease the purchasing and reselling of gas
(commonly referred to as the "merchant function") by the year 2000 and thus to
become a "distribution-only" company. In general, PBR would set future rates
according to a pre-determined formula. Any savings or productivity gains
achieved by Boston Gas in excess of target levels would increase operating
earnings, while any shortfalls would result in lower earnings. Boston Gas has
proposed that the PBR plan last for five years.
<PAGE>
Form 10-Q
Page 12.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed in the second
quarter of 1996.
<PAGE>
Form 10-Q
Page 13.
SIGNATURES
It is Eastern's opinion that the financial information contained in
this report reflects all adjustments necessary to present a fair statement of
results for the period reported. All of these adjustments are of a normal
recurring nature. Results for the period are not necessarily indicative of
results to be expected for the year, due to the seasonal nature of Eastern's
operations. All accounting policies have been applied in a manner consistent
with prior periods other than changes disclosed in Notes to Financial
Statements. Such financial information is subject to year-end adjustments and
annual audit by independent public accountants.
Pursuant to the requirements of the Securities Exchange Act of 1934,
Eastern has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASTERN ENTERPRISES
By JAMES J. HARPER
------------------------------
James J. Harper
Vice President and Controller
(Chief Accounting Officer)
By WALTER J. FLAHERTY
------------------------------
Walter J. Flaherty
Senior Vice President and
Chief Financial Officer
July 26, 1996
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 191,380
<SECURITIES> 0
<RECEIVABLES> 120,780
<ALLOWANCES> 20,050
<INVENTORY> 42,288
<CURRENT-ASSETS> 349,880
<PP&E> 1,396,730
<DEPRECIATION> 597,224
<TOTAL-ASSETS> 1,314,336
<CURRENT-LIABILITIES> 166,968
<BONDS> 351,356
<COMMON> 20,429
29,275
0
<OTHER-SE> 406,195
<TOTAL-LIABILITY-AND-EQUITY> 1,314,336
<SALES> 480,977
<TOTAL-REVENUES> 633,856
<CGS> 380,098
<TOTAL-COSTS> 495,771
<OTHER-EXPENSES> 43,307
<LOSS-PROVISION> 9,733
<INTEREST-EXPENSE> 16,663
<INCOME-PRETAX> 68,382
<INCOME-TAX> 25,576
<INCOME-CONTINUING> 42,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,806
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.10
</TABLE>
