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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<S> <C> <C>
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
<S> <C> <C>
Commission File Number 1-5366
EASTERN UTILITIES ASSOCIATES
(Exact name of registrant as specified in its charter)
<S> <C> <C>
Massachusetts 04-1271872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Liberty Square, Boston, Massachusetts
(Address of principal executive offices)
02109
(Zip Code)
(617)357-9590
(Registrant's telephone number including area code)
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
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..........
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<S> <C> <C>
Class Outstanding at July 31, 1994
Common Shares, $5 par value 19,714,980 shares
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EASTERN UTILITIES ASSOCIATES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
<S><C> <C> <C>
Utility Plant and Other Investments:
Utility Plant in Service $ 1,021,769 $ 1,016,453
Less: Accumulated Provision for Depreciation
and Amortization 313,356 296,995
Net Utility Plant in Service 708,413 719,458
Construction Work in Progress 15,990 8,728
Net Utility Plant 724,403 728,186
Investments in Jointly Owned Companies 72,021 73,632
Non-Utility Plant - Net 110,972 104,462
Total Plant and Other Investments 907,396 906,280
Current Assets:
Cash and Temporary Cash Investments 10,066 4,180
Accounts Receivable, Net 84,727 84,839
Notes Receivable 14,569 11,736
Materials and Supplies 11,440 13,133
Other Current Assets 16,817 16,340
Total Current Assets 137,619 130,228
Deferred Debits and Other Non-Current Assets 162,706 166,629
Total Assets $ 1,207,721 $ 1,203,137
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Shares, $5 Par Value $ 98,541 $ 95,163
Other Paid-In Capital 209,292 202,182
Common Share Expense (3,832) (3,822)
Retained Earnings 50,549 39,642
Total Common Equity 354,550 333,165
Non-Redeemable Preferred Stock - Net 6,900 6,900
Redeemable Preferred Stock - Net 25,188 25,053
Long-Term Debt - Net 493,962 496,816
Total Capitalization 880,600 861,934
Current Liabilities:
Long-Term Debt Due Within One Year 5,306 5,415
Notes Payable 35,476 37,168
Preferred Stock Sinking Fund 50 50
Accounts Payable 28,887 36,111
Taxes Accrued 5,387 12,299
Interest Accrued 11,407 10,688
Other Current Liabilities 21,351 19,285
Total Current Liabilities 107,864 121,016
Deferred Credits and Other Non-Current Liabilitie 84,315 82,747
Accumulated Deferred Taxes 134,942 137,440
Total Liabilities and Capitalization $ 1,207,721 $ 1,203,137
<FN>
See accompanying notes to consolidated condensed financial statements.
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EASTERN UTILITIES ASSOCIATES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Number of Shares and Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 137,269 $ 135,263 $ 287,466 $ 272,945
Operating Expenses:
Fuel 23,246 20,413 46,429 40,852
Purchased Power 29,907 33,655 64,809 68,665
Other Operation and Maintenance 44,920 44,289 89,211 82,413
Depreciation and Amortization 11,534 10,893 22,929 22,053
Taxes - Other Than Income 6,127 5,358 12,998 11,786
- Current Income (Credit) 2,558 (473) 8,380 4,532
- Deferred Income 730 3,797 2,893 4,132
Total 119,022 117,932 247,649 234,433
Operating Income 18,247 17,331 39,817 38,512
Other Income - Net 4,470 4,400 9,780 8,595
Income Before Interest Charges 22,717 21,731 49,597 47,107
Interest Charges:
Interest on Long-Term Debt 9,746 10,834 19,519 21,801
Other Interest Expense 2,405 1,415 3,684 2,970
Allowance for Borrowed Funds Used
During Construction (Credit) (204) (517) (549) (904)
Net Interest Charges 11,947 11,732 22,654 23,867
Net Income 10,770 9,999 26,943 23,240
Preferred Dividends of Subsidiaries 584 880 1,167 1,874
Consolidated Net Earnings $ 10,186 $ 9,119 $ 25,776 $ 21,366
Weighted Average Number of
Common Shares Outstanding 19,652,160 18,583,771 19,521,353 17,937,279
Consolidated Earnings Per
Average Common Share $ 0.52 $ 0.49 $ 1.32 $ 1.19
Dividends Paid $ 0.385 $ 0.36 $ 0.745 $ 0.70
<FN>
See accompanying notes to consolidated condensed financial statements.
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EASTERN UTILITIES ASSOCIATES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
1994 1993
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 26,943 $ 23,240
Adjustments to Reconcile Net Income
to Net Cash Provided from Operating Activities:
Depreciation and Amortization 27,498 27,678
Deferred Taxes 3,505 4,477
Gains on Sales of Investments in Energy Savings
Projects Paid for with Notes Receivable (1,830) (1,588)
Investment Tax Credit, Net (590) (667)
Allowance for Other Funds Used During Construction (129) (158)
Other - Net 1,622 3,811
Change in Operating Assets and Liabilities (10,159) (18,371)
Net Cash Provided From Operating Activities 46,860 38,422
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (15,654) (33,523)
Acquisition of Northeast Energy Management, Inc. (8,567)
Increase in Other Investments (327)
Net Cash (Used in) Investment Activities (24,548) (33,523)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuances:
Common Stock 4,584 41,237
Long-Term Debt 7,927 100,000
Redemptions:
Preferred Stock 0 (15,600)
Long-Term Debt (10,954) (112,528)
Premium on Reacquisition and Financing Expenses (607) (8,381)
EUA Common Share Dividends Paid (14,572) (12,573)
Subsidiary Preferred Dividends Paid (1,167) (1,989)
Net Increase in Short-Term Debt (1,637) (22,254)
Net Cash Provided from (Used in) Financing Activities (16,426) (32,088)
Net Increase (Decrease) in Cash and Temporary Cash Inves 5,886 (27,189)
Cash and Temporary Cash Investments
at Beginning of Period 4,180 29,614
Cash and Temporary Cash Investments
at End of Period $ 10,066 $ 2,425
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 20,356 $ 26,406
Income Taxes $ 5,159 $ 6,336
Supplemental schedule of non-cash investing activities:
Conversion of Investments in Energy Savings
Projects to Notes and Leases Receivable $ 3,536 $ 2,843
<FN>
See accompanying notes to consolidated condensed financial statements.
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EASTERN_UTILITIES_ASSOCIATES
NOTES_TO_CONSOLIDATED_CONDENSED_FINANCIAL_STATEMENTS
The accompanying Notes should be read in conjunction with the Notes to
Consolidated Financial Statements incorporated in the Eastern Utilities
Associates (EUA or the Company) 1993 Annual Report on Form 10-K and the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994.
Note A - In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly its
financial position as of June 30, 1994 and December 31, 1993, and the
results of operations for the three and six months ended June 30, 1994
and 1993 and cash flows for the six months ended June 30, 1994 and
1993. Certain reclassifications have been made to prior period
financial statements to conform to current period classifications.
The Consolidated Condensed Statement of Income and the Consolidated
Condensed Statement of Cash Flows for the 1993 periods being reported
herein have been restated to reflect consolidation of EUA Cogenex
Partnerships which were previously accounted for as equity
investments. This restatement had no impact on Consolidated Net
Earnings.
In November 1992, the Financial Accounting Standards Board issued
Statement No. 112, "Employers' Accounting for Post-employment
Benefits." EUA was required to adopt this standard no later than
January 1, 1994. The estimated impact of this standard on EUA is
immaterial and therefore no liability has been recorded.
Note B - Results shown above for the respective interim periods are not neces-
sarily indicative of results to be expected for the fiscal years due
to seasonal factors which are inherent in electric utilities in New
England. A greater proportionate amount of revenues is earned in the
first and fourth quarters (winter season) of most years because more
electricity is sold due to weather conditions, fewer day-light hours,
etc.
Note C - Commitments and Contingencies:
Rate Activity
On March 21, 1994, Montaup Electric Company (Montaup), the wholesale
electric generating and transmission subsidiary of EUA, filed an
application with the Federal Energy Regulatory Commission (FERC) for
authorization to reduce its wholesale rates by $10.1 million, or three
percent. Montaup supplies electricity at wholesale to EUA's retail
electric utilities - Eastern Edison Company, Blackstone Valley
Electric Company and Newport Electric Corporation (Newport) - and to
two non-affiliated municipal utilities. This application is designed
to match more closely Montaup's revenues with its decreasing cost of
doing business resulting from, among other things, a reduced rate
base, lower capital costs and successful cost control efforts.
As part of the rate filing, Montaup is seeking authorization to become
an "all-requirements" supplier for Newport. Previously Montaup
provided only a portion of Newport's electricity requirements.
FERC allowed Montaup to implement the rate reduction effective May 21,
1994 and Montaup began billing Newport as and all-requirements
customer on that date, pending final adjudication and approval.
Item_2. Management's_Discussion_and_Analysis_of_Financial_Condition_and_Results
of_Operations
The following is Management's discussion and analysis of certain
significant factors affecting the Company's earnings and financial condition
for the interim periods presented in this Form 10-Q.
Overview
Consolidated Net Earnings for the quarter ended June 30, 1994 increased
$1.1 million or 11.7% to $10.2 million from second quarter 1993 earnings. Net
Earnings contributions by Business Unit for the second quarter of 1994 and 1993
were as follows (000's):
Three Months Ended June 30,
Increase
1994 1993 (Decrease)
Core Electric Business $ 7,415 $ 6,109 $1,306
Energy Related Business 3,476 2,240 1,236
Corporate (705) 770 (1,475)
Consolidated $10,186 $ 9,119 $1,067
======= ======= =======
Net Earnings of the Core Electric Business for the second quarter of 1994
increased by $1.3 million primarily due to a significant decrease in long-term
debt interest expense and preferred dividend requirements as a result of system
refinancings, and increased kilowatthour (kWh) sales.
Net Earnings of the Energy Related Business Unit increased by
approximately $1.2 million in the second quarter of 1994 as compared to the
same period of a year ago due primarily to investment tax credits utilized in
the second quarter of 1994 by EUA Ocean State Corporation (EUA Ocean State).
The Corporate Business Unit Net Earnings for the second quarter of 1994
compared to the same period in 1993 decreased by approximately $1.5 million due
primarily to the 1993 recognition of investment tax credits by Eastern
Utilities Associates (the Parent Company) related to the EUA Power Corporation
settlement agreement.
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Consolidated Net Earnings for the six months ended June 30, 1994 increased
$4.4 million or 20.6% to $25.8 million from the same period of 1993. Net
Earnings contributions by Business Unit for the first six months of 1994 and
1993 were as follows (000's):
Six Months Ended June 30,
Increase
1994 1993 (Decrease)
Core Electric Business $20,642 $15,717 $4,925
Energy Related Business 5,725 4,205 1,520
Corporate (591) 1,444 (2,035)
Consolidated $25,776 $21,366 $4,410
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Net Earnings of the Core Electric Business for the first half of 1994
increased by $4.9 million primarily due to a significant decrease in long-term
debt interest expense and preferred dividend requirements as a result of 1993
EUA System refinancings and increased kWh sales.
Net Earnings of the Energy Related Business Unit increased by
approximately $1.5 million in the first six months of 1994 as compared to the
same period of a year ago due primarily to tax credits utilized by EUA Ocean
State in the second quarter of the current year, as previously discussed, and
increased business activity of EUA Cogenex Corporation (EUA Cogenex).
The Corporate Business Unit Net Earnings for the first six months of 1994
compared to the same period in 1993 decreased by approximately $2.0 million due
primarily to the 1993 recognition of $2.5 million of investment tax credits as
previously discussed. Offsetting this decrease somewhat was the Parent
Company's recovery of approximately $0.9 million in the first quarter of 1994
resulting from a settlement with the Vermont Electric Generation and
Transmission Cooperative, Inc. (Vermont Co-op) relating to Seabrook Nuclear
Project payments previously withheld by Vermont Co-op.
Operating_Revenues
Operating Revenues for the second quarter of 1994 increased by $2.0
million or 1.5% when compared to the same period of 1993 and may be segmented
by Business Unit operations as follows (000's):
Three Months Ended June 30,
Increase
1994 1993 (Decrease)
Core Electric Business $119,255 $120,013 $ (758)
Energy Related Business 18,014 15,250 2,764
Corporate 0 0 0
Consolidated $137,269 $135,263 $2,006
======= ======= =======
Core Electric Business revenues decreased by $0.8 million due primarily to
a decrease in recoveries of purchased power expense, including the effect of
Montaup Electric Company's (Montaup) rate reduction effective May 21, 1994,
offset somewhat by an increase in the period's recoveries of fuel expense and
increased base revenues (See Operations Expense, below.) A 1.9% increase in
kWh sales caused the base revenue increase in the period.
EUA Cogenex revenues, which account for all of the Energy Related Business
Unit revenues, increased by $2.8 million due primarily to the recognition of
additional energy savings project sales of approximately $1.6 million and to
the acquisition of James L. Day Co. (Day Co.) and Northeast Energy Management,
Inc. (NEM) in December, 1993 and January, 1994, respectively.
Operating Revenues for the first six months of 1994 increased by $14.5
million or 5.3% when compared to the same period of 1993. Operating Revenues
by Business Unit for the first six months of 1994 and 1993 were as follows
(000's):
Six Months Ended June 30,
Increase
1994 1993 (Decrease)
Core Electric Business $251,703 $246,098 $ 5,605
Energy Related Business 35,763 26,847 8,916
Corporate 0 0 0
Consolidated $287,466 $272,945 14,521
======== ======== ======
Core Electric Business revenues increased by $5.6 million due primarily to
increased recoveries of conservation and load management costs of $2.9 million,
an increase in fuel cost recoveries of $4.6 million and increased base revenues
of $2.5 million by EUA's retail subsidiaries, as a result of a 2.4% increase in
kWh sales. Partially offsetting these increases was a decrease of $4.4 million
in recoveries of purchased power expense. (See Operations Expense, below)
EUA Cogenex revenues increased by $8.9 million due primarily to the
recognition of additional energy savings project sales of approximately $6.1
million and to the acquisitions of Day Co. and NEM, as previously discussed.
KWH Sales
Total primary kWh sales of electricity by EUA's Core Electric Business
Unit increased by 1.9% in the second quarter of 1994 compared to the same
period last year driven by an increase of 5.3% to industrial customers.
Year-to-date June 30, 1994 sales of electricity increased by 2.4% compared to
the same period of 1993 with increases of 1.8% in residential sales, 1.3% in
commercial sales and 4.0% in industrial sales. The 1994 industrial sales
performance is an indication of improving economic conditions in EUA's service
territory. Despite the strong performance of kWh sales, the Company
anticipates that the economic recovery will remain slow for the foreseeable
future.
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Operations_Expense
Fuel expense of the Core Electric Business for the second quarter and
first six months of 1994 increased from that of the same periods in 1993 by
approximately $2.8 million or 13.9% and $5.6 million or 13.7%, respectively.
These increases are due primarily to increased generation by company owned
units in 1994 as a result of scheduled outages experienced in the first half of
1993. Offsetting these increases somewhat were decreases in the average cost
of fuel in the respective periods of 10% and 4.3%. Canal Unit 2, a 584
megawatt unit, which is 50% owned by EUA's indirect subsidiary Montaup, began a
scheduled outage on February 13, 1993 and returned to service on April 5,
1993. Somerset Unit No. 6, a wholly-owned unit of Montaup was out of service
for essentially all of 1993 due to unanticipated waterwall restoration.
Purchased Power demand expense for the second quarter and six months ended
June 30, 1994 decreased $3.7 million or 11.1% and $3.9 million or 5.6%,
respectively. These decreases are attributable primarily to decreases in
amounts billed to Montaup and Newport Electric Corporation (Newport) by their
suppliers aggregating approximately $4.5 million and $4.2 million for the
respective periods. Newport is being billed as an all requirements customer of
Montaup as a part of Montaup's current application to the Federal Energy
Regulatory Commission, implemented on May 21, 1994 pending final adjudication
and approval. Offsetting these decreases somewhat were increases in
conservation and load management costs recorded as purchased power expense of
$0.7 million in both the three and six month periods ended June 30, 1994.
Other Operation and Maintenance expenses for the quarter and six months
ended June 30, 1994 increased approximately $0.6 million or 1.4% and $6.8
million or 8.2%, respectively, from the same periods in 1993. The six month
increase is due primarily to increased EUA Cogenex expenses of approximately
$5.3 million due, in part, to its aforementioned acquisitions of Day Co. and
NEM. Core Electric Business expenses for the six month period increased due
primarily to increased conservation and load management expenses of $2.2
million, increased maintenance expense at Seabrook Unit 1 of $0.6 million due
to an unscheduled outage on April 5, 1994, originally scheduled for April 16
and an increase of $0.5 million in insurance expense. Seabrook Unit 1 returned
to service July 31, 1994. These increases were partially offset by a $2.4
decrease in Canal Unit 2 maintenance expenses due to its February - April 1993
outage (see above).
Income Taxes
The EUA System's composite federal and state effective tax rate was
approximately 26.2% and 32.7%, respectively, for the quarter and six months
ended June 30, 1994 compared to approximately 29.5% and 31.4%, respectively,
for the same periods in 1993. The decrease in the quarter is primarily due to
$1.3 million of tax credits recorded by EUA Ocean State related to its
partnership investment in Ocean State Power Corporation. This amount represent
approximately one-third of the total investment tax credits available to EUA
Ocean State and it is anticipated that similar amounts will be recognized in
the third and fourth quarters of 1994. The six month increase is primarily
attributable to the recognition by the Parent Company of $2.5 million of
investment tax credits in the first half of 1993 related to the EUA Power
settlement agreement.
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Other_Income_and (Deductions) -_Net
Other Income and (Deductions)-Net increased $1.2 million or 13.8% in the
current year-to-date period as compared to the corresponding period in the
prior year due primarily to the $0.9 million Vermont Co-op settlement
previously discussed. The second quarter of 1994 did not significantly change
from the like period of 1993.
Interest_Charges
Interest on Long-Term Debt for the second quarter and six months ended
1994 decreased approximately $1.1 million or 10.0% and $2.3 million or 10.5%,
respectively, as compared to the same periods of 1993. The periods' decreases
are due primarily to Eastern Edison Company's (Eastern Edison) refinancings of
$195 million of long-term debt in 1993 at substantially lower interest rates.
An additional refinancing by Newport for its 12% and 8.5% Series Energy
Facilities Revenue Bonds aggregating $7.9 million in January 1994 in exchange
for its currently outstanding variable rate Electric Energy Facilities Revenue
Bonds also contributed to the periods' decrease. Offsetting these decreases
somewhat was additional interest incurred since the issuance in October 1993 by
EUA Cogenex of $50 million of Unsecured Notes at 7% .
Preferred Dividends of Subsidiaries
Preferred Dividend requirements in the second quarter and first half of
1994 decreased $0.3 million or 33.6% and $0.7 million or 37.7%, respectively,
as a result of Eastern Edison's redemption of all of its outstanding 4.64%,
8.32%, 9.00% and 9.80% series of Preferred Stock aggregating $41.6 million.
Eastern Edison subsequently issued $30 million of 6 5/8% series Preferred Stock.
Liquidity_and_Sources_of_Capital
The EUA system's need for permanent capital is primarily related to
investments in facilities required to meet the needs of its existing and future
customers.
Traditionally, cash construction requirements not met with internally
generated funds are financed through short-term borrowings which are ultimately
funded with permanent capital. At June 30, 1994, EUA System companies
maintained short-term lines of credit with various banks aggregating
approximately $140 million. Outstanding short-term Debt at June 30, 1994 and
December 31, 1993 by Business Unit was as follows (000's):
June 30, 1994 December 31, 1993
Core Electric Business $ 0 $ 0
Energy Related Business 21,204 8,588
Corporate 14,272 28,580
Consolidated $35,476 $37,168
======= =======
For the six months ended June 30, 1994 and 1993, internally generated
funds available after the payment of dividends amounted to approximately $42.2
and $40.2 million, respectively, while the EUA System's cash construction
requirements amounted to approximately $15.6 million and $33.5 million,
respectively, for the same period. In addition to construction expenditures,
energy related investments of EUA Cogenex amounted to approximately $8.6
million in the first half of 1994. Various laws, regulations and contract
provisions limit the use of EUA's internally generated funds such that the
funds generated by one subsidiary are not generally available to fund the
operations of another subsidiary.
On January 6, 1994 Newport issued $7.9 million of variable rate Electric
Energy Facilities Revenue refunding Bonds due 2011. With the proceeds, Newport
redeemed its 12% and 8.5% Series Energy Facilities Revenue Bonds aggregating
$7.9 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 15, 1994, EUA Cogenex Corporation (EUA Cogenex) commenced a
lawsuit in the United States District Court for the District of Massachusetts
(the EUA Cogenex lawsuit) against Onsite Energy Corporation (Onsite) in
connection with the partnership between EUA Cogenex and Onsite known as
EUA/Onsite L.P. (the Partnership). In addition to damages for breach of
fiduciary duties and breach of the partnership agreement by Onsite and other
matters, the EUA Cogenex lawsuit seeks to enforce two agreements between EUA
Cogenex and Onsite relating to the management of the partnership and cash and
accounting control functions for the partnership.
On June 27, 1994, Onsite commenced a lawsuit (the Onsite lawsuit) against
EUA Cogenex in the California Superior Court for the County of San Diego
seeking dissolution of the Partnership and a partnership accounting as well as
bringing various claims for damages against EUA Cogenex for not less than
$8,000,000.
On July 21, 1994, the U.S. District Court for the District of
Massachusetts approved an agreement and stipulation between Onsite and EUA
Cogenex. Such stipulation was entered as an order of the court and returned to
EUA Cogenex the accounting and cash control functions for the Partnership,
which Onsite had attempted to assume. The agreement can be terminated by
either party upon fourteen days notice to the other.
Unless EUA Cogenex and Onsite are able to reach an overall settlement
satisfactory to EUA Cogenex, EUA Cogenex intends vigorously to pursue its
claims against Onsite as well as its defenses against Onsite's allegations.
Item_6. Exhibits_and_Reports_on_Form_8-K
(a) Exhibits - None
(b) Reports on Form 8-K
- none filed in the quarter ended June 30, 1994
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SIGNATURES
Pursuant to the requirements 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_Utilities_Associates______
(Registrant)
Date: August_11,_1994 /s/ Richard M. Burns
Richard M. Burns, Comptroller
(on behalf of the Registrant and
as Chief Accounting Officer)
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