<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ----------------
Commission File Number 1-2297
EASTERN ENTERPRISES
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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
October 25, 1996 was 20,304,041.
<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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $133,950 $133,444 $766,690 $699,288
Operating costs and expenses:
Operating costs 96,345 96,336 553,105 494,164
Selling, general & adminis-
trative expenses 22,102 23,306 78,202 77,784
Depreciation & amortization 10,577 10,587 48,688 46,120
-------- ------- ------- -------
129,024 130,229 679,995 618,068
-------- ------- ------- -------
Operating earnings 4,926 3,215 86,695 81,220
Other income (expense):
Interest income 2,413 1,489 7,270 3,558
Interest expense (8,325) (9,168) (25,828) (28,422)
Other, net 1,524 312 783 447
-------- ------- ------- -------
Earnings (loss) before
income taxes 538 (4,152) 68,920 56,803
Provision (credit) for
income taxes (161) (1,593) 25,415 21,648
-------- ------- ------- -------
Net earnings (loss) $ 699 $ (2,559) $ 43,505 $ 35,155
======== ======== ======== ========
Earnings (loss) per share $ .03 $ (.13) $ 2.13 $ 1.73
======== ======== ======== ========
Dividends per share $ .37 $ .35 $ 1.11 $ 1.05
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 3.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
(In thousands)
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 171,035 $ 191,211 $ 115,183
Receivables, less allowances 55,888 104,735 57,858
Inventories 61,427 47,883 57,489
Deferred gas costs 44,773 71,940 64,632
Investment in U.S. Filter - - 72,986
Other current assets 12,679 9,117 9,077
---------- ---------- ----------
Total current assets 345,802 424,886 377,225
Property and equipment, at cost 1,423,020 1,356,097 1,328,477
Less--Accumulated depreciation 603,043 563,337 551,961
---------- ---------- ----------
Net property and equipment 819,977 792,760 776,516
Other assets:
Deferred post-retirement health care
costs 89,808 93,830 94,340
Investments 29,871 13,821 14,540
Deferred charges and other costs,
less amortization 53,358 52,045 46,226
---------- ---------- ----------
Total other assets 173,037 159,696 155,106
---------- ---------- ----------
Total assets $1,338,816 $1,377,342 $1,308,847
========== ========== ==========
</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>
Sept. 30, Dec. 31, Sept. 30,
1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 18,604 $ 57,193 $ 9,193
Accounts payable 52,241 64,960 42,156
Accrued expenses 31,153 26,795 31,339
Other current liabilities 67,142 75,913 75,040
---------- ---------- ----------
Total current liabilities 169,140 224,861 157,728
Gas inventory financing 49,159 45,600 43,982
Long-term debt 350,118 357,675 358,874
Reserves and other liabilities:
Deferred income taxes 90,752 89,102 93,829
Post-retirement health care 97,401 98,717 101,482
Coal miners retiree health care 62,169 65,025 55,453
Preferred stock of subsidiary 29,284 29,262 29,254
Other reserves 71,489 71,336 56,789
---------- ---------- ----------
Total reserves and other
liabilities 351,095 353,442 336,807
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares - 20,441,907 at
September 30, 1996; 20,385,587 at
December 31, 1995 and 20,674,865 at
September 30, 1995 20,442 20,386 20,675
Capital in excess of par value 33,043 31,488 38,591
Retained earnings 369,368 348,821 365,080
Treasury stock at cost - 137,866
shares at September 30, 1996;
191,547 shares at December 31,
1995 and 500,749 shares at
September 30, 1995 (3,549) (4,931) (12,890)
---------- ---------- ----------
Total shareholders' equity 419,304 395,764 411,456
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,338,816 $1,377,342 $1,308,847
========== ========== ==========
</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>
Nine months ended September 30, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 43,505 $ 35,155
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 48,688 46,120
Income taxes and tax credits (1,087) 1,256
Other changes in assets and liabilities:
Receivables 48,846 43,035
Inventories (13,545) 2,718
Deferred gas costs 27,167 25,071
Accounts payable (12,719) (7,817)
Other (7,925) 6,923
--------- ---------
Net cash provided by operating activities 132,930 152,461
Cash flows from investing activities:
Capital expenditures (76,492) (48,155)
Investments (21,146) 965
Proceeds on sale of WaterPro - 52,864
Proceeds on sale of investments 3,090 -
Other (1,695) (673)
--------- --------
Net cash provided (used) by investing activities (96,243) 5,001
Cash flows from financing activities:
Dividends paid (22,462) (21,309)
Changes in notes payable (38,300) (58,430)
Repayment of long-term debt (6,445) (5,503)
Changes in gas inventory financing 3,559 (9,596)
Purchase of treasury shares - (8,357)
Other 2,805 2,233
--------- ---------
Net cash used by financing activities (60,843) (100,962)
Net increase (decrease) in cash and cash equivalents (24,156) 56,500
Cash and cash equivalents at beginning of year 185,137 51,674
--------- ---------
Cash and cash equivalents at end of period 160,981 108,174
Short-term investments 10,054 7,009
--------- ---------
Cash and short-term investments $ 171,035 $ 115,183
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 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. Such financial
information is subject to year-end adjustments and annual audit by independent
public accountants. All accounting policies have been applied in a manner
consistent with prior periods. However, due to the immateriality of AllEnergy
Marketing Company, Inc. ("AllEnergy Inc."), its results have been restated on
the equity method to provide comparability with Eastern's continuing involvement
in the marketing of retail energy services through a joint venture, AllEnergy
Marketing Company, L.L.C. ("AllEnergy LLC").
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 20,457,000
and 20,428,000, respectively, in 1996 and 20,277,000 and 20,270,000
respectively, in 1995.
<PAGE>
Form 10-Q
Page 7.
2. Inventories
<TABLE>
The components of inventories were as follows:
(In thousands)
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $ 48,728 $ 35,136 $ 44,443
Other materials, supplies and marine
fuels 12,699 12,747 13,046
-------- -------- --------
$ 61,427 $ 47,883 $ 57,489
======== ======== ========
</TABLE>
3. Supplemental cash flow information
<TABLE>
The following are supplemental disclosures of cash flow information:
(In thousands)
<CAPTION>
Nine months ended September 30, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $17,645 $19,190
Income taxes $28,023 $20,842
</TABLE>
4. Contingencies
In September 1996 Eastern received notices from the Social Security
Administration ("SSA") claiming that Eastern is responsible for health benefit
premiums for an additional group of retired coal miners and their beneficiaries
under the federal Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act").
In 1993 and 1995 Eastern recorded reserves aggregating $80,000,000 to provide
for its estimated undiscounted obligations under the Coal Act with respect to
the miners and beneficiaries assigned to Eastern. These amounts were reflected
as extraordinary items totaling $52,000,000, net of tax. As more fully discussed
in Note 12 of Notes to Financial Statements in Eastern's 1995 Annual Report, its
obligation could range from zero to more than $115 million. Due to a lack of
information about the recent assignment of the additional group of retired
miners and their beneficiaries and other issues, it is not known what the
ultimate cost of such assignment, if any, will be to Eastern, and no additional
provision has been made at this time.
<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 September 30, 1996 1995 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $ 59,453 $ 56,958 4 %
Midland 74,497 76,486 (3)%
-------- --------
Total $133,950 $133,444 -
======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1996 1995 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $539,314 $480,814 12 %
Midland 227,376 218,474 4 %
-------- --------
Total $766,690 $699,288 10 %
======== ========
</TABLE>
Boston Gas
Third quarter revenues increased by $2.5 million, primarily reflecting higher
sales to non-firm customers.
For the first nine months of 1996, higher customer usage, due principally to
colder billing temperatures, and increased sales to non-firm and new firm
customers contributed to the $58.5 million increase in revenues. Weather for the
first nine months of 1996 was 3% colder than normal, in contrast to slightly
warmer than normal weather for the first nine months of 1995.
Midland Enterprises
Revenues for the third quarter of 1996 were 3% below 1995, reflecting an 8%
decline in ton miles. Weak foreign demand for coal and the lack of stored grain
combined with a late harvest lowered demand for the transportation of export
coal and grain during the quarter. Year-to-date revenues increased 4% over last
year on 1% fewer ton miles, as improved market rates, particularly for non-coal
commodities, more than offset the impact of lower volume.
Lower export coal shipments resulted in a 2% decline in third quarter coal ton
miles. Coal tonnage increased 7%, as long haul export movements were replaced by
shorter haul spot shipments. Year-to-date coal ton miles and tonnage increased
4% and 2%, respectively, reflecting slightly longer average hauls and a new
Midland record for tons of coal transported. Third quarter and year-to-date
non-coal tonnage declined 9% and 5%, respectively, mainly due to reduced export
activity coupled with reduced towing services for others. Reductions in grain
and aggregate tonnage were largely offset by increased shipments of coke, scrap
and steel products.
<PAGE>
Form 10-Q
Page 9.
<TABLE>
<CAPTION>
Operating Earnings:
(In thousands)
Three months ended September 30, 1996 1995 Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $(8,749) $(10,800) 19 %
Midland 14,663 15,726 (7)%
Headquarters (988) (1,711) 42 %
------- --------
Total $ 4,926 $ 3,215 53 %
======= ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1996 1995 Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $45,856 $42,005 9 %
Midland 44,286 43,569 2 %
Headquarters (3,447) (4,354) 21 %
------- -------
Total $86,695 $81,220 7 %
======= =======
</TABLE>
Boston Gas
The $2 million increase in operating earnings for the third quarter reflects the
lack of severance costs incurred in 1995 and the margin impact of increased
demand and load growth, partially offset by higher operating expenses.
Operating earnings for the first nine months of 1996 increased by about $4
million, as compared to 1995, primarily reflecting the margin impact of colder
weather, increased demand and sales to new customers. The absence of severance
costs and lower consulting expenses also contributed to the increase in
operating earnings. Higher charges for depreciation, lower capitalized expenses
and higher property taxes were partially offsetting.
Midland Enterprises
Although Midland's third quarter operating earnings declined 7% from the record
third quarter in 1995, they are the second highest third quarter earnings on
record. The decrease reflected lower ton miles, higher operating costs due to
traffic pattern inefficiencies resulting from the reduction in export tonnage
and higher fuel prices.
Year-to-date operating earnings increased 2% over 1995, setting a new earnings
record. Increased volume and rates for iron, scrap and steel and strong second
quarter export coal demand contributed to the improved year-to-date results. The
16% increase in diesel prices was partially offset by fuel adjustment clauses in
Midland's long-term contracts.
<PAGE>
Form 10-Q
Page 10.
Interest Income and Expense and Other, Net:
Interest income increased $0.9 million for the third quarter and $3.7 million
for the first nine months of 1996, reflecting higher cash and investment
balances resulting from the sale of WaterPro Supplies in April 1995 and the sale
of Eastern's investment in U. S. Filter Corp in November 1995. Interest expense
decreased 9% for both the third quarter and the first nine months of 1996,
reflecting lower average rates principally due to the refinancing of $60 million
of Boston Gas debentures in December 1995 and lower balances of short term
obligations.
For the third quarter of 1996, Other, net includes gains of $1.1 million on the
disposition of Eastern's equity interest in the Maritimes and Northeast Pipeline
and $0.9 million on the sale of U.S. Filter stock, partially offset by $0.8
million equity in the losses of AllEnergy Inc. Year-to-date results included
$1.8 million equity in the loss of AllEnergy Inc., partially offset by gains on
the sale of U.S. Filter stock and other securities.
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 LLC, including
expense levels and customer acceptance, changes in interest rates, 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
$108 million, of which $76 million have already been expended. About 55% of the
projected total are for Boston Gas and the balance primarily for Midland.
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.
<PAGE>
Form 10-Q
Page 11.
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.
On September 18, 1996, Eastern and New England Electric System ("NEES") formed
AllEnergy LLC, an unregulated retail energy marketing company that is intended
to provide a comprehensive array of energy commodities and related products and
services to customers in the Northeast. AllEnergy LLC combines Eastern's and
NEES' existing unregulated retail energy marketing subsidiaries, AllEnergy Inc.
and NEES Energy, Inc., respectively, and is owned equally by both companies. The
participation of NEES and NEES Energy, Inc. in the joint venture is subject to
approval by the Securities and Exchange Commission.
In September 1996 Eastern received notices from the Social Security
Administration claiming that Eastern is responsible for health benefit premiums
for an additional group of retired coal miners and their beneficiaries under the
federal Coal Industry Retiree Health Benefit Act of 1992. As described in Note 4
of Notes to Financial Statements, the liability for these additional premiums
could result in an addition to Eastern's reserve for such Coal Act liability and
would be recorded as an extraordinary item. No provision has been made at this
time because the amount of the additional reserve, if any, cannot be reasonably
estimated.
On October 24, 1996, Eastern's Board of Trustees voted to increase the quarterly
cash dividend from $.37 per share to $.40 per share, payable on January 3, 1997
to shareholders of record as of December 2, 1996.
<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 third
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
October 25, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 171,035
<SECURITIES> 0
<RECEIVABLES> 73,981
<ALLOWANCES> 18,093
<INVENTORY> 61,427
<CURRENT-ASSETS> 345,802
<PP&E> 1,423,020
<DEPRECIATION> 603,043
<TOTAL-ASSETS> 1,338,816
<CURRENT-LIABILITIES> 169,140
<BONDS> 350,118
<COMMON> 20,442
29,284
0
<OTHER-SE> 398,862
<TOTAL-LIABILITY-AND-EQUITY> 1,338,816
<SALES> 539,314
<TOTAL-REVENUES> 766,690
<CGS> 430,157
<TOTAL-COSTS> 601,520
<OTHER-EXPENSES> 59,786
<LOSS-PROVISION> 10,636
<INTEREST-EXPENSE> 25,828
<INCOME-PRETAX> 68,920
<INCOME-TAX> 25,415
<INCOME-CONTINUING> 43,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,505
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
</TABLE>
