1
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
For the quarterly period ended September 30,1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
Commission File Number 0-8480
EASTERN EDISON COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1123095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Mulberry Street, Brockton, Massachusetts
(Address of principal executive offices)
02402
(Zip Code)
(508)580-1213
(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 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..........
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Outstanding at October 31, 1994
Common Shares, $25 par value 2,891,357 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS September 30, December 31,
1994 1993
Utility Plant in Service $ 786,048 $ 784,664
Less: Accumulated Provision for Depreciation
and Amortization 240,651 226,391
Net Utility Plant in Service 545,397 558,273
Construction Work in Progress 14,946 6,779
Net Utility Plant 560,343 565,052
Current Assets:
Cash and Temporary Cash Investments 18,427 697
Accounts Receivable - Associated Companies 16,024 11,220
- Other 34,332 37,153
Materials and Supplies 6,759 9,838
Other Current Assets 11,113 10,848
Total Current Assets 86,655 69,756
Deferred Debits and Other Non-Current Assets 101,890 107,465
Total Assets $ 748,888 $ 742,273
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $25 Par Value $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (43) (43)
Retained Earnings 108,537 103,515
Total Common Equity 228,027 223,005
Redeemable Preferred Stock - Net 29,665 29,670
Preferred Stock Redemption Cost (4,557) (4,846)
Long-Term Debt - Net 264,201 264,134
Total Capitalization 517,336 511,963
Current Liabilities:
Accounts Payable - Associated Companies 4,597 4,221
- Other 21,046 22,611
Taxes Accrued 1,109 4,225
Interest Accrued 7,573 6,136
Other Current Liabilities 14,309 10,150
Total Current Liabilities 48,634 47,343
Deferred Credits and Other Non-Current Liabilities 64,274 65,361
Accumulated Deferred Taxes 118,644 117,606
Total Liabilities and Capital $ 748,888 $ 742,273
<FN>
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Operating Revenues $ 108,154 $ 107,968 $ 320,544 $ 314,325
Operating Expenses:
Fuel 24,077 24,315 70,458 65,124
Purchased Power 33,105 30,326 90,829 90,929
Other Operation and Maintenance 24,420 25,177 74,207 76,588
Depreciation and Amortization 6,391 6,719 19,263 20,007
Taxes - Other Than Income 2,471 2,494 8,071 6,811
- Current Income 2,844 5,633 10,605 11,546
- Deferred Income (Credit) 1,431 (765) 3,870 1,830
Total 94,739 93,899 277,303 272,835
Operating Income 13,415 14,069 43,241 41,490
Allowance for Other Funds
Used During Construction 56 87 167 225
Other Income and (Deductions) - Net 798 384 1,618 1,001
Income Before Interest Charges 14,269 14,540 45,026 42,716
Interest Charges:
Interest on Long-Term Debt 4,636 5,272 13,852 17,885
Other Interest Expense 923 966 3,695 1,850
Allowance for Borrowed Funds Used
During Construction(Credit) (61) (109) (212) (261)
Net Interest Charges 5,498 6,129 17,335 19,474
Net Income 8,771 8,411 27,691 23,242
Preferred Dividend Requirements 496 717 1,490 2,413
Consolidated Net Earnings $ 8,275 $ 7,694 $ 26,201 $ 20,829
<FN>
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
1994 1993
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 27,691 $ 23,242
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 21,811 22,368
Amortization of Nuclear Fuel 2,225 3,935
Deferred Taxes 3,820 1,780
Investment Tax Credit, Net (690) (804)
Allowance for Other Funds Used During Construction (167) (225)
Other - Net (1,165) (2,475)
Change in Operating Assets and Liabilities 2,121 (4,469)
Net Cash Provided From Operating Activities 55,646 43,352
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (15,632) (18,649)
Net Cash (Used in) Investing Activities (15,632) (18,649)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuances:
Long-Term Debt 0 195,000
Preferred Stock 0 30,000
Redemptions:
Long-Term Debt 0 (200,000
Preferred Stock 0 (35,600)
Premium on Reacquisition & Financing Expenses (62) (11,060)
Common Stock Dividends Paid to EUA (20,731) (16,770)
Preferred Dividends Paid (1,491) (2,757)
Net Cash (Used in) Financing Activities (22,284) (41,187)
Net Increase (Decrease) in Cash and Temporary
Cash Investments 17,730 (16,484)
Cash and Temporary Cash Investments at
Beginning of Period 697 25,519
Cash and Temporary Cash Investments at
End of Period $ 18,427 $ 9,035
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 13,291 $ 22,010
Income Taxes $ 12,292 $ 6,504
<FN>
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY'S
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying Notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in Eastern Edison Company's
(Eastern Edison or the Company) 1993 Annual Report on Form 10-K and the
Company's Quarterly Reports on Form 10-Q for the periods ended March 31, and
June 30, 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 the
financial position as of September 30, 1994 and December 31, 1993, and
the results of operations for the three and nine months ended
September 30, 1994 and 1993 and cash flows for the nine months ended
September 30, 1994 and 1993. Certain reclassifications have been made
to prior period financial statements to conform with current
classifications.
In November 1992, the Financial Accounting Standards Board issued
Statement No. 112, "Employers' Accounting for Post-employment
Benefits." The Company was required to adopt this standard no later
than January 1, 1994. The estimated impact of this standard on the
Company 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 Eastern Edison,
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
rates to Eastern Edison and its affiliated retail electric utilities -
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.
Note C - Commitments and Contingencies (Cont'd):
FERC allowed Montaup to implement the rate reduction effective May 21,
1994 and Montaup began billing Newport as an all-requirements customer
on that date, pending final adjudication and approval. A settlement
in principle was reached with all but two intervenors. Montaup expects
that during November the Settlement Agreement will be filed with the
FERC.
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
Third quarter and nine months ended September 30, 1994 Consolidated Net
Earnings increased approximately $0.6 million or 7.6% and approximately $5.4
million or 25.8%, respectively, as compared to the same periods of a year ago.
Decreases in interest expense and preferred dividend requirements resulting
from Eastern Edison's 1993 financing activity, growth in kilowatthour (kWh)
sales of electricity and lower operations and maintenance expenses as discussed
below were the major contributors toward these increases. Total retail kWh
sales posted gains of 3.3% and 2.8% in the third quarter and year-to-date
periods, respectively, indicating economic recovery in the Company's service
territory. Despite this strong sales performance, the Company anticipates a
slow economic recovery for the foreseeable future.
Operating Revenues
Operating Revenues for the third quarter and nine months ended September
30, 1994 as compared to the same periods during 1993 increased by approximately
$0.2 million and $6.2 million, respectively. The primary impacts that resulted
in these increases were as follows: (i) increased recoveries of fuel expense of
approximately $0.2 million and $5.4 million, respectively, resulting from
higher generation of company-owned units in 1994 and increased wholesale
requirements of Montaup Electric Company (Montaup); (ii) increased recoveries
of conservation and load management expenses of approximately $0.2 million and
$1.8 million, respectively, (iii) increased base rate revenue of approximately
$2.9 million and $0.6 million, respectively, resulting from respective
increases in retail kWh sales of 3.3% and 2.8%; and, (iv) increased
transmission line rental revenue of $0.6 million in the year-to-date period.
These increases were partially offset by a decrease in purchased power-demand
expense recoveries of approximately $3.1 million and $3.9 million, in the
respective periods due primarily to the $10.1 million revenue reduction
application by Montaup implemented on May 21, 1994 pending further adjudication
and final approval.
Operations Expense
Fuel expense for the third quarter and nine months ended September 30,
1994 as compared to the same periods in 1993 decreased by $0.2 million and
increased $5.3 million, respectively. The year-to-date increase was due
primarily to increased generation by Company owned units in 1994 as a result of
greater availability of such units in 1994 and greater requirements associated
with kWh sales growth. Canal Unit 2, which is 50% owned by Montaup, began a
scheduled outage on February 13, 1993 and returned to service on April 5, 1993
while Somerset Unit 6, a wholly owned unit of Montaup had been out of service
for essentially all of 1993 due to waterwall restoration.
Purchased Power demand expense for the third quarter of 1994 increased by
approximately $2.8 million or 9.2%, effectively offsetting the $2.9 million
decrease experienced in the first six months of the year. The increase in the
quarter includes a full quarter's impact of the of Montaup's M-14 rate
reduction application of $10.1 million annually implemented on May 21, 1994.
Commencing on the implementation date, Newport became an all requirements
customer of Montaup. As an all requirements customer, Newport's purchased
power contracts' expense is now borne by Montaup. This shift to Montaup has
offset reductions through June of 1994 in Montaup's purchased power expense
caused by lower costs billed by suppliers and increased company owned
generation.
Other Operation and Maintenance expenses for the third quarter 1994 did
not significantly change from the like period of 1993, however such expense for
the nine months ended September 30, 1994 decreased by approximately $2.4
million from the same period in 1993. The year-to-date decrease was primarily
due to decreases in maintenance expenses of the Canal 2, Somerset, and
Millstone III generating units aggregating approximately $4.3 million and
approximately $1.3 million of EUA Service Corporation expenses which, under a
new billing methodology adopted in July 1993, are no longer recognized in other
operating and maintenance expense. Partially offsetting these decreases were
increases in 1994 of approximately $2.1 million of conservation and load
management expense and approximately $0.8 million of maintenance expenses
incurred during Seabrook Unit 1's outage from early April through July of this
year. Montaup is a 2.9% joint owner of the Seabrook Project.
Other Income and (Deductions)-Net
Other Income and (Deductions)-Net increased by $0.4 million or over 100%
and $0.6 million or 61.6% in the quarter and year-to-date periods ended
September 30, 1994 when compared to 1993. Both periods' increases are
primarily related to the current recognition of capitalized costs on nuclear
fuel contract buy-out costs previously deferred.
Interest Charges
Interest on long-term debt decreased by $0.6 million or 12.1% and $4.0
million or 22.6%, respectively, in the third quarter and nine months ended
September 30, 1994 as compared to the same periods in 1993. These decreases
are due to Eastern Edison's refinancings of $195 million of long-term debt in
1993 at substantially lower interest rates.
Other Interest Expense was relatively unchanged in the third quarter and
increased by $1.8 million in the year-to-date period ended September 30, 1994.
The nine month increase was a result of the recognition of approximately $1.0
million in interest related to Internal Revenue Service audits and the
allocation methodology adopted in mid 1993 of EUA Service Corporation
expenses. Under this new methodology, a portion of such expenses are being
allocated to other interest expense that had previously been recorded as other
operating expenses.
Preferred Dividend Requirements
Preferred Dividend Requirements decreased $0.2 million or 30.8% and $0.9
million or 38.3% in the three and nine month periods ended September 30, 1994
as compared to the same periods of 1993. These decreases are 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 and subsequent
issuance of $30 million of 6 5/8% series of Preferred Stock.
Liquidity and Sources of Capital
Eastern Edison's and Montaup's need for permanent capital is primarily
related to the construction of facilities required to meet the needs of their
existing and future customers.
Traditionally, cash construction requirements not met with internally gen
erated funds are obtained through short-term borrowings which are ultimately
funded with permanent capital. EUA System companies, including Eastern Edison
and Montaup, maintain short-term lines of credit with various banks aggregating
approximately $140 million. These credit lines are available to other
affiliated companies under joint credit line arrangements. At September 30,
1994 and at December 31, 1993 these unused EUA System short-term lines of
credit amounted to approximately $108.4 million and $102.8 million,
respectively. Year-to-date September 30, 1994 and 1993, internally generated
funds amounted to $32.3 and $30.7 million, respectively, while cash
construction requirements for the same periods were $15.6 and $18.6 million,
respectively.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
- None filed in the quarter ended September 30, 1994
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 under
signed thereunto duly authorized.
Eastern Edison Company
(Registrant)
Date: November 10, 1994 /s/ Richard M. Burns
Richard M. Burns, Vice President
(on behalf of the Registrant and
as Chief Accounting Officer)