<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, 1997
---------------------------------------
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
- ---------------------------------------------------------------------
(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
- ---------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
617-647-2300
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(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------
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 24, 1997 was 20,355,655.
<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
- ------------------------------------
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(In thousands, except per share amounts) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $207,856 $213,520 $584,776 $632,740
Operating costs and expenses:
Operating costs 146,796 150,994 419,355 456,760
Selling, general & adminis-
trative expenses 26,497 25,480 55,578 56,100
Depreciation & amortization 15,934 14,458 38,237 38,111
-------- -------- ------- --------
189,227 190,932 513,170 550,971
-------- -------- ------- --------
Operating earnings 18,629 22,588 71,606 81,769
Other income (expense):
Interest income 2,228 2,624 4,333 4,857
Interest expense (8,535) (8,361) (17,325) (17,503)
Equity in loss of AllEnergy (1,821) (1,018) (3,098) (1,018)
Other, net 85 45 58 277
-------- -------- -------- -------
Earnings before income taxes 10,586 15,878 55,574 68,382
Provision for income taxes 1,548 5,954 18,313 25,576
-------- -------- -------- --------
Net earnings $ 9,038 $ 9,924 $ 37,261 $ 42,806
======== ======== ======== ========
Earnings per share $ .44 $ .49 $ 1.82 $ 2.10
======== ======== ======== ========
Dividends per share $ .40 $ .37 $ .80 $ .74
======== ======== ======== ========
</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>
June 30, Dec. 31, June 30,
(In thousands) 1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 170,087 $ 159,804 $ 191,136
Receivables, less allowances 95,392 96,854 100,818
Inventories 43,064 61,271 42,288
Deferred gas costs 17,048 75,337 5,449
Other current assets 6,607 6,396 9,355
---------- ---------- ---------
Total current assets 332,198 399,662 349,046
Property and equipment, at cost 1,466,529 1,450,741 1,396,662
Less--Accumulated depreciation 640,816 612,573 597,224
---------- ---------- ---------
Net property and equipment 825,713 838,168 799,438
Other assets:
Deferred post-retirement health care
costs 86,245 88,563 91,148
Investment in AllEnergy 4,434 2,032 88
Investments 21,608 31,346 23,444
Deferred charges and other costs,
less amortization 47,205 61,844 50,358
---------- --------- ----------
Total other assets 159,492 183,785 165,038
---------- ---------- ----------
Total assets $1,317,403 $1,421,615 $1,313,522
========== ========== ==========
</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
- --------------------------
<CAPTION>
June 30, Dec. 31, June 30,
(In thousands) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 4,583 $ 61,557 $ 5,358
Accounts payable 43,943 74,114 60,860
Accrued expenses 35,420 25,999 31,012
Other current liabilities 59,830 72,722 68,924
---------- ---------- ----------
Total current liabilities 143,776 234,392 166,154
Gas inventory financing 29,990 55,594 23,754
Long-term debt 345,084 347,313 351,356
Reserves and other liabilities:
Deferred income taxes 94,184 93,198 86,564
Post-retirement health care 96,155 96,980 97,759
Coal miners retiree health care 58,949 61,008 63,035
Preferred stock of subsidiary 29,309 29,292 29,275
Other reserves 69,458 75,848 69,001
---------- ---------- ----------
Total reserves and other
liabilities 348,055 356,326 345,634
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 20,442,907 at
June 30, 1997; 20,441,907 at
December 31, 1996 and 20,428,707 at
June 30, 1996 20,443 20,442 20,429
Capital in excess of par value 32,716 33,389 32,923
Retained earnings 399,617 377,714 377,071
Treasury stock at cost - 88,252
shares at June 30, 1997; 138,110
shares at December 31, 1996 and
147,601 shares at June 30, 1996 (2,278) (3,555) (3,799)
---------- ---------- ----------
Total shareholders' equity 450,498 427,990 426,624
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,317,403 $1,421,615 $1,313,522
========== ========== ==========
</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
- ------------------------------------
<CAPTION>
Six months ended June 30,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 37,261 $ 42,806
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 38,237 38,111
Income taxes and tax credits 9,771 3,579
Equity in loss of AllEnergy 3,098 1,018
Other changes in assets and liabilities:
Receivables 1,462 3,916
Inventories 18,207 5,595
Deferred gas costs 58,289 66,490
Accounts payable (30,172) (4,100)
Other (3,702) (10,420)
--------- ---------
Net cash provided by operating activities 132,451 146,995
Cash flows from investing activities:
Capital expenditures (25,915) (45,360)
Investment in AllEnergy (5,500) (1,106)
Investments (1,900) (11,822)
Proceeds on sale of investments - 1,795
Other (727) (640)
--------- ---------
Net cash (used) by investing activities (34,042) (57,133)
Cash flows from financing activities:
Dividends paid (16,257) (14,958)
Changes in notes payable (56,600) (52,000)
Repayment of long-term debt (2,332) (5,445)
Changes in gas inventory financing (25,604) (21,846)
Other 491 2,456
--------- ---------
Net cash used by financing activities (100,302) (91,793)
Net increase (decrease) in cash and cash equivalents (1,893) (1,931)
Cash and cash equivalents at beginning of year 159,804 185,137
--------- ---------
Cash and cash equivalents at end of period 157,911 183,206
Short-term investments 12,176 7,930
--------- ---------
Cash and short-term investments $ 170,087 $ 191,136
========= =========
</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, 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 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 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 and common
equivalent shares outstanding. Quarter and year-to-date shares are 20,499,000
and 20,483,000 respectively, in 1997 and 20,428,000 and 20,414,000,
respectively, 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 and six months ended June 30, would
result in basic earnings per share of $.44 and $1.83 in 1997 and $.49 and $2.12
in 1996, 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>
June 30, Dec. 31, June 30,
(In thousands) 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $ 30,669 $ 49,287 $ 29,704
Other materials, supplies and marine
fuels 12,395 11,984 12,584
-------- -------- --------
$ 43,064 $ 61,271 $ 42,288
======== ======== ========
</TABLE>
3. Supplemental cash flow information
<TABLE>
The following are supplemental disclosures of cash flow information:
<CAPTION>
Six months ended June 30,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $16,762 $16,391
Income taxes $ 8,981 $23,393
</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:
Three months ended June 30,
(In thousands) 1997 1996 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $139,743 $136,520 2%
Midland 68,113 77,000 (12)%
-------- --------
Total $207,856 $213,520 (3)%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $452,281 $479,861 (6)%
Midland 132,495 152,879 (13)%
-------- --------
Total $584,776 $632,740 (8)%
======== ========
</TABLE>
Boston Gas
Unseasonably cold weather, higher gas costs and sales to new customers,
partially offset by lower non-firm sales, contributed to the increase in
revenues for the second quarter of 1997.
Warmer weather and lower average customer usage for the first six months of 1997
decreased revenues by about $34 million. Sales to new customers were partially
offsetting. Year-to-date weather was near normal for 1997, and 3% warmer than
1996, as cold temperatures in the second quarter of 1997 offset 8% warmer than
normal weather in the first quarter.
Midland Enterprises
Weak demand for transportation services contributed to revenue decreases of 12%
and 13% for the second quarter and first half of 1997, respectively. Industry
demand for transportation services remained soft, continuing the weakness
experienced in the second half of 1996.
As a result of the market issues discussed above, ton miles decreased 11% for
the quarter and 12% year-to-date. Coal tonnage decreased 20% and 22% for the
quarter and the first half of 1997, respectively, due entirely to shortfalls in
utility and industrial accounts.
<PAGE>
Form 10-Q
Page 9.
<TABLE>
Operating Earnings:
<CAPTION>
Three months ended June 30,
(In thousands) 1997 1996 Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $11,368 $ 7,840 45%
Midland 9,103 15,612 (42)%
Headquarters (1,842) (864) nm
------- -------
Total $18,629 $22,588 (18)%
======= =======
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston Gas $60,159 $54,605 10%
Midland 14,531 29,623 (51)%
Headquarters (3,084) (2,459) (25)%
------- -------
Total $71,606 $81,769 (12)%
======= =======
</TABLE>
Boston Gas
Second quarter operating earnings increased $3.5 million from 1996, primarily
reflecting higher rates, colder weather and load growth.
Operating earnings for the first six months of 1997 increased $5.6 million from
1996. The increase reflected lower operating expenses related to the warmer
weather, a change in the inter-period allocation of depreciation and property
taxes, as discussed below, and a $2.0 million gain on the settlement of pension
obligations, partially offset by the margin impact of decreased revenues.
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 year-to-date expenses by $2.9 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
Operating earnings for the second quarter and year-to-date decreased by $6.5
million and $15.1 million, respectively, from the record levels of 1996. These
decreases reflected weaker market conditions, as described above, lower grain
rates, and poor operating conditions. Periodic high water conditions on the
Mississippi River early in the second quarter, coupled with record Ohio River
flooding late in the first quarter, combined to raise operating costs and lower
productivity during the first half of 1997.
Other:
In 1997, other income (expense) for the second quarter and year-to-date includes
losses of $1.8 million and $3.1 million, respectively, representing Eastern's
50% share of AllEnergy's operating results. In 1996, other income (expense)
includes a loss for AllEnergy of $1.0 million for both the second quarter and
year-to-date.
<PAGE>
Form 10-Q
Page 10.
A prior year adjustment reduced the 1997 annualized income tax provision rate to
33%, which resulted in an effective tax rate of 15% for the second quarter.
In April 1997, the Federal Court of Appeals for the First Circuit affirmed the
decision of the Federal District Court for Massachusetts decision upholding the
constitutionality of the Coal Industry Retiree Health Benefit Act of 1992 as
applied to Eastern. Eastern has filed an appeal of this decision to the U.S.
Supreme Court and continues its efforts to legislatively and administratively
reduce its liability under the Coal Act.
On May 16, 1997 Boston Gas received a positive decision from the Massachusetts
Department of Public Utilities ("Department") concerning its request for
reconsideration, clarification and recalculation of the Department's November
1996 rate order. The Department granted Boston Gas an additional $1.9 million
rate increase (a $6.3 million increase was granted in the November 1996 Order)
and reduced the productivity factor portion of the Performance-Based Rate
("PBR") formula established in its November 1996 Order by 50 basis points, from
2.00% to 1.50%. Compared to the Department's original decision, these changes
add approximately $3.5 million to revenue next year, increasing to about $8.0
million by 2002, the last year of the plan. On June 5, 1997, Boston Gas filed a
notice of appeal of the Department's orders to the Massachusetts Supreme
Judicial Court. Boston Gas expects the appeal to take approximately one year,
and any relief granted by the court to be prospective.
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 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 and court decisions,
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 flow 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.
<PAGE>
Form 10-Q
Page 11.
Consolidated capital expenditures are budgeted at $78 million, about 70%
of which are for Boston Gas and the balance for Midland.
<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 1997.
<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 25, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 170,087
<SECURITIES> 0
<RECEIVABLES> 113,811
<ALLOWANCES> 18,419
<INVENTORY> 43,064
<CURRENT-ASSETS> 332,198
<PP&E> 1,466,529
<DEPRECIATION> 640,816
<TOTAL-ASSETS> 1,317,403
<CURRENT-LIABILITIES> 143,776
<BONDS> 345,084
<COMMON> 20,443
29,309
0
<OTHER-SE> 430,055
<TOTAL-LIABILITY-AND-EQUITY> 1,317,403
<SALES> 452,281
<TOTAL-REVENUES> 584,776
<CGS> 346,333
<TOTAL-COSTS> 457,160
<OTHER-EXPENSES> 45,059
<LOSS-PROVISION> 9,658
<INTEREST-EXPENSE> 17,325
<INCOME-PRETAX> 55,574
<INCOME-TAX> 18,313
<INCOME-CONTINUING> 37,261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,261
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
</TABLE>
