<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 March 31, 1997
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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
April 25, 1997 was 20,339,833.
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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 Earnings
- ----------------------------------
<CAPTION>
Three months ended March 31,
(In thousands, except per share amounts) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $376,920 $419,220
Operating costs and expenses:
Operating costs 272,559 305,766
Selling, general and administrative expenses 29,081 30,620
Depreciation and amortization 22,303 23,653
-------- --------
323,943 360,039
-------- --------
Operating earnings 52,977 59,181
Other income (expense):
Interest income 2,105 2,233
Interest expense (8,790) (9,142)
Equity in loss of AllEnergy (1,277) -
Other, net (27) 232
-------- --------
Earnings before income taxes 44,988 52,504
Provision for income taxes 16,765 19,622
-------- --------
Net earnings $ 28,223 $ 32,882
======== ========
Earnings per share $ 1.38 $ 1.61
======== ========
Dividends per share $ .40 $ .37
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 3.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
<CAPTION>
March 31, Dec. 31, March 31,
(In thousands) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 174,492 $ 159,804 $ 201,696
Receivables, less reserves 149,846 96,854 171,925
Inventories 37,452 61,271 23,773
Deferred gas costs 26,791 75,337 -
Other current assets 5,242 6,396 6,379
---------- ---------- ----------
Total current assets 393,823 399,662 403,773
Property and equipment, at cost 1,456,749 1,450,741 1,372,050
Less--accumulated depreciation 629,376 612,573 584,550
---------- ---------- ----------
Net property and equipment 827,373 838,168 787,500
Other assets:
Deferred post-retirement health care
costs 87,404 88,563 91,224
Investment in AllEnergy 4,255 2,032 -
Other investments 26,158 31,346 13,729
Deferred charges and other costs,
less amortization 53,992 61,844 50,335
---------- ---------- ----------
Total other assets 171,809 183,785 155,288
---------- ---------- ----------
Total assets $1,393,005 $1,421,615 $1,346,561
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 4.
Eastern Enterprises and Subsidiaries
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<TABLE>
Consolidated Balance Sheet
- --------------------------
<CAPTION>
March 31, Dec. 31, March 31,
(In thousands) 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 43,679 $ 61,557 $ 16,553
Accounts payable 51,308 74,114 54,837
Accrued expenses 52,075 25,999 59,254
Other current liabilities 66,021 72,722 73,688
---------- --------- ---------
Total current liabilities 213,083 234,392 204,332
Gas inventory financing 34,636 55,594 19,187
Long-term debt 346,081 347,313 355,512
Reserves and other liabilities:
Deferred income taxes 93,473 93,198 84,480
Post-retirement health care 96,606 96,980 98,079
Coal miners retiree health care 59,938 61,008 64,020
Preferred stock of subsidiary 29,301 29,292 29,267
Other reserves 70,383 75,848 69,139
---------- --------- ---------
Total reserves and other
liabilities 349,701 356,326 344,985
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares - 20,442,907 at
March 31, 1997; 20,441,907 at
December 31, 1996 and 20,405,167
at March 31, 1996 20,443 20,442 20,405
Capital in excess of par value 33,654 33,389 32,198
Retained earnings 398,073 377,714 374,037
Treasury stock at cost - 103,074
shares at March 31, 1997; 138,110
shares at December 31, 1996 and
159,088 shares at March 31, 1996 (2,666) (3,555) (4,095)
---------- ---------- ----------
Total shareholders' equity 449,504 427,990 422,545
Total liabilities and
shareholders' equity $1,393,005 $1,421,615 $1,346,561
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 5.
Eastern Enterprises and Subsidiaries
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<TABLE>
Consolidated Statement of Cash Flows
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<CAPTION>
Three months ended March 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 28,223 $ 32,882
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 22,303 23,653
Income taxes and tax credits 16,837 17,376
Equity in loss of AllEnergy 1,277 -
Other changes in assets and liabilities:
Receivables (52,991) (67,189)
Inventories 23,819 24,109
Deferred gas costs 48,546 74,599
Accounts payable (22,806) (10,123)
Other 6,558 7,341
-------- --------
Net cash provided by operating activities 71,766 102,648
Cash flows from investing activities:
Capital expenditures (12,038) (19,242)
Investment in AllEnergy (3,500) -
Investments (3,585) 6,074
Proceeds on sale of investments - 1,795
Other (65) 420
-------- --------
Net cash used by investing activities (19,188) (10,953)
Cash flows from financing activities:
Dividends paid (8,122) (7,470)
Changes in notes payable (17,400) (40,700)
Repayment of long-term debt (1,423) (1,479)
Changes in gas inventory financing (20,958) (26,413)
Other 1,091 926
-------- --------
Net cash used by financing activities (46,812) (75,136)
Net increase in cash and cash equivalents 5,766 16,559
Cash and cash equivalents at beginning of year 159,804 185,137
-------- --------
Cash and cash equivalents at end of period 165,570 201,696
Short-term investments 8,922 -
-------- --------
Cash and short-term investments $174,492 $201,696
======== ========
</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
March 31, 1997
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 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. 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 1996 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 shares
outstanding and common equivalent shares (20,467,000 shares in 1997 and
20,399,000 shares in 1996).
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," effective
for periods ending after December 15, 1997. Restating Eastern's reported
earnings per share for the three months ended March 31, 1997 and 1996 would
result in basic earnings per share of $1.39 and $1.63, respectively.
The SFAS No. 128 calculation of diluted earnings per share is equivalent to the
fully diluted earnings per share calculation, which is not materially different
from the primary and basic earnings per share calculations.
<PAGE>
Form 10-Q
Page 7.
2. Inventories
<TABLE>
The components of inventories were as follows:
<CAPTION>
March 31, Dec. 31, March 31,
(In thousands) 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $25,017 $49,287 $10,437
Other materials, supplies and marine
fuels 12,435 11,984 13,336
------- ------- -------
$37,452 $61,271 $23,773
======= ======= =======
</TABLE>
3. Supplemental cash flow information
<TABLE>
The following are supplemental disclosures of cash flow information:
<CAPTION>
Three months ended March 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $ 1,631 $ 1,478
Income taxes $ 160 $ 2,462
</TABLE>
<PAGE>
Form 10-Q
Page 8.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Revenues: Three months ended March 31,
(In thousands) 1997 1996 Change
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $312,538 $343,341 (9)%
Midland 64,382 75,879 (15)%
-------- --------
Total $376,920 $419,220 (10)%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Earnings: Three months ended March 31,
(In thousands) 1997 1996 Change
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $48,791 $46,765 4%
Midland 5,428 14,011 (61)%
Headquarters (1,242) (1,595) 22%
------- -------
Total $52,977 $59,181 (10)%
======= =======
</TABLE>
Boston Gas
Weather in the Boston Gas service territory was 8% warmer than normal in the
first quarter of 1997, and 9% warmer than 1996. The impact of warmer weather
decreased revenues by $36 million, partially offset by $11 million in sales to
new customers.
The corresponding decrease in gross margin during the first quarter was offset
by lower operating expenses related to the warmer weather, a change in the
inter-period allocation of depreciation and property taxes and a $2.0 million
gain on the settlement of pension obligations.
To better match expenses against gross margin, on January 1, 1997 Boston Gas
changed the inter-period allocation of depreciation and property taxes to be
based on firm throughput volumes, as opposed to firm sales volumes, reflecting
the increasing importance of unbundled transportation service. This change
reduced 1997 first quarter expenses by $3.6 million, as compared to 1996. These
expenses will be increased by a like amount over the remainder of 1997,
predominantly in the third quarter.
Midland Enterprises
Extremely poor operating conditions, the expiration of coal transportation
contracts and weaker demand for transportation services decreased revenues and
operating earnings by $11.5 million and $8.6 million, respectively, in the first
quarter of 1997, as compared to the record levels of 1996.
In contrast to moderate flooding in 1996, the Ohio River, a key operating area,
sustained thirty-year record flood levels in March of 1997. Segments of the
river were closed at various times, which significantly affected production and
operating costs. Similar conditions affected the Mississippi River and its other
tributaries. Continued flooding on the Mississippi River is expected in the
<PAGE>
Form 10-Q
Page 9.
second quarter. In addition, operating costs were impacted by fuel prices which
averaged 19% higher than in 1996.
Industry demand for transportation services remained soft, continuing the
weakness experienced in the second half of 1996. Additionally, Midland did not
renew several multi-year utility coal contracts in 1996. Available replacement
tonnage was not fully offsetting, both in terms of volume and pricing.
As a result of the operating and market issues discussed above, tonnage and ton
miles declined 18.1% and 13.8%, respectively, from 1996 levels. Total coal
tonnage declined 23.2%, with multi-year contract coal tonnage down 29.0%.
Non-coal tonnage and ton miles declined 8.6% and 7.1%, respectively, as compared
with 1996, primarily reflecting decreases in coke, ores and towing for others.
Other
In 1997, other income (expense) includes a loss of $1.3 million, representing
Eastern's 50% share of AllEnergy's operating results.
In April, 1997, the First Circuit Court of Appeals affirmed the District Court's
decision upholding the constitutionality of the Coal Industry Retiree Health
Benefit Act of 1992 as it applies to Eastern. Eastern is considering filing an
appeal of this decision to the Supreme Court.
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, 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 Company's service area, changes in market conditions for barge
transportation, adverse operating conditions on the inland waterways,
uncertainties regarding the start-up of AllEnergy, including expense levels and
customer acceptance, changes in interest rates, regulatory decisions, including
without limitation, decisions on Boston Gas' request for reconsideration of the
Massachusetts Department of Public Utilities rate restructuring order, and
developments with respect to Eastern's previously-disclosed environmental and
Coal Act liabilities. All of these factors are difficult to predict and are
generally beyond the control of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that projected cash flows from operations, in combination
with currently available resources, is more than sufficient to meet Eastern's
1997 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 are budgeted at $83 million, about 62%
of which are for Boston Gas and the balance for Midland.
<PAGE>
Form 10-Q
Page 10.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the registrant was held on April
24, 1997, at which the shareholders voted to elect the following
Trustees for terms of office expiring at the 2000 Annual Meeting of
Shareholders:
Richard R. Clayton, with 17,459,890 shares voting for and
105,550 shares withholding authority;
Leonard R. Jaskol, with 17,461,441 shares voting for
and 105,550 shares withholding authority;
David B. Stone, with 17,457,222 shares voting for
and 105,550 shares withholding authority;
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
None.
(b) Report on Form 8-K
There were no reports on Form 8-K filed in the first quarter
of 1997.
<PAGE>
Form 10-Q
Page 11.
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. 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 WALTER J. FLAHERTY
-------------------------
Walter J. Flaherty
Senior Vice President and
Chief Financial Officer
By JAMES J. HARPER
------------------------
James J. Harper
Vice President and Controller
(Chief Accounting Officer)
April 28, 1997.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 174,492
<SECURITIES> 0
<RECEIVABLES> 167,921
<ALLOWANCES> 18,075
<INVENTORY> 37,452
<CURRENT-ASSETS> 393,823
<PP&E> 1,456,749
<DEPRECIATION> 629,376
<TOTAL-ASSETS> 1,393,005
<CURRENT-LIABILITIES> 213,083
<BONDS> 346,081
<COMMON> 20,443
29,301
0
<OTHER-SE> 429,061
<TOTAL-LIABILITY-AND-EQUITY> 1,393,005
<SALES> 312,538
<TOTAL-REVENUES> 376,920
<CGS> 239,099
<TOTAL-COSTS> 294,646
<OTHER-EXPENSES> 21,761
<LOSS-PROVISION> 6,735
<INTEREST-EXPENSE> 8,790
<INCOME-PRETAX> 44,988
<INCOME-TAX> 16,765
<INCOME-CONTINUING> 28,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,223
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
