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 June 30, 1995
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 July 31, 1995
Common Shares, $25 par value 2,891,357 shares
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS June 30, December 31,
1995 1994
Utility Plant in Service $ 786,166 $ 782,837
Less: Accumulated Provision for Depreciation
and Amortization 241,355 228,241
Net Utility Plant in Service 544,811 554,596
Construction Work in Progress 17,167 6,759
Net Utility Plant 561,978 561,355
Current Assets:
Cash and Temporary Cash Investments 6,800 11,265
Accounts Receivable - Associated Companies 30,028 18,061
- Other 34,628 37,979
Materials and Supplies 8,318 9,644
Other Current Assets 5,345 5,952
Total Current Assets 85,119 82,901
Deferred Debits and Other Non-Current Assets 104,582 111,789
Total Assets $ 751,679 $ 756,045
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 111,273 105,574
Total Common Equity 230,763 225,064
Redeemable Preferred Stock - Net 29,665 29,665
Preferred Stock Redemption Cost (3,927) (4,408)
Long-Term Debt - Net 229,268 229,224
Total Capitalization 485,769 479,545
Current Liabilities:
Long-Term Debt Due Within One Year 35,000 35,000
Notes Payable 6,087
Accounts Payable - Associated Companies 5,381 5,749
- Other 24,447 24,578
Taxes Accrued 196 1,411
Interest Accrued 5,245 5,486
Other Current Liabilities 2,137 16,360
Total Current Liabilities 78,493 88,584
Deferred Credits and Other Non-Current Liab. 65,062 68,260
Accumulated Deferred Taxes 122,355 119,656
Total Liabilities and Capitalization $ 751,679 $ 756,045
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Operating Revenues $ 104,415 $ 102,002 $ 210,734 $ 212,390
Operating Expenses:
Fuel 23,641 23,244 45,923 46,381
Purchased Power 31,469 27,795 63,445 57,724
Other Operation and Maintenance 24,633 25,400 47,742 49,822
Voluntary Retirement Incentive 2,413 2,413
Depreciation and Amortization 6,555 6,457 13,110 12,872
Taxes - Other Than Income 2,479 2,633 5,360 5,565
- Current Income 2,015 2,498 5,244 7,761
- Deferred Income 85 970 2,271 2,439
Total 93,290 88,997 185,508 182,564
Operating Income 11,125 13,005 25,226 29,826
Allowance for Other Funds
Used During Construction 151 62 282 111
Other Income (Deductions) - Net 544 433 875 820
Income Before Interest Charges 11,820 13,500 26,383 30,757
Interest Charges:
Interest on Long-Term Debt 4,636 4,636 9,272 9,216
Other Interest Expense 879 1,875 1,603 2,772
Allowance for Borrowed Funds Used
During Construction(Credit) (132) (83) (224) (151)
Net Interest Charges 5,383 6,428 10,651 11,837
Net Income 6,437 7,072 15,732 18,920
Preferred Dividend Requirements 497 497 994 994
Consolidated Net Earnings $ 5,940 $ 6,575 $ 14,738 $ 17,926
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30,
1995 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 15,732 $ 18,920
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 15,705 13,741
Amortization of Nuclear Fuel 1,936 1,471
Deferred Taxes 2,237 2,406
Investment Tax Credit, Net (471) (460)
Allowance for Other Funds Used During Construction (282) (111)
Other - Net 1,697 (884)
Change in Operating Assets and Liabilities (22,860) (4,455)
Net Cash Provided From Operating Activities 13,694 30,628
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (14,694) (9,683)
Net Cash (Used in) Investing Activities (14,694) (9,683)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in Short-Term Debt 6,087
Common Stock Dividends Paid to EUA (8,558) (13,532)
Preferred Dividends Paid (994) (994)
Premium on Reacquisition & Financing Expenses (61)
Net Cash (Used in) Financing Activities (3,465) (14,587)
Net (Decrease) Increase in Cash and Temporary
Cash Investments (4,465) 6,358
Cash and Temporary Cash Investments at
Beginning of Period 11,265 697
Cash and Temporary Cash Investments at
End of Period $ 6,800 $ 7,055
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 9,155 $ 9,202
Income Taxes $ 3,584 $ 11,229
See accompanying notes to consolidated condensed financial statements.
EASTERN_EDISON_COMPANY
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) 1994 Annual Report on Form 10-K and the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995.
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 June 30, 1995 and December 31, 1994, and the
results of operations for the three and six months ended June 30, 1995
and 1994 and cash flows for the six months ended June 30, 1995 and
1994. Certain reclassifications have been made to prior period
financial statements to conform with current classifications.
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
to EUA's retail electric utilities - Eastern Edison, Blackstone Valley
Electric Company (Blackstone) and Newport Electric Corporation
(Newport) - and to two non-affiliated municipal utilities. This
application was 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 interest costs and successful cost
control efforts.
On May 21, 1994, Montaup began billing the reduced rates and on April
14, 1995 FERC approved a settlement agreement between Montaup and the
intervenors in the case calling for an annual reduction of
approximately $13.9 million (inclusive of the filed $10.1 million
reduction).
Montaup refunded to its customers the difference collected between the
$10.1 million filed reduction and the $13.9 million settled reduction
in April 1995. Montaup had previously reserved for this refund.
Maine Yankee
During the refueling-and-maintenance shutdown of the Maine Yankee
Nuclear Generating plant that started in early February of 1995, Maine
Yankee Atomic Power Company (Maine Yankee), the owner of the plant,
detected an increased rate of degradation of the plant's steam
generator tubes in excess of the number expected and started
evaluating several courses of action.
On April 7, 1995, Maine Yankee announced its intention to further
explore sleeving all 17,000 steam generator tubes and on May 22, 1995
the Maine Yankee Board of Directors authorized a sleeving project to
go forward. Although testing of all tubes revealed that approximately
40% of the tubes were free of defects, Maine Yankee is in the process
of sleeving all of the tubes as a preventative safety measure.
Sleeving involves the inserting of a tube of slightly smaller diameter
into the defective tube; the sleeve is welded in place and acts as a
new tube. Sleeving is a proven technology and must meet rigorous
federal standards of safety and licensing. This sleeving project is
expected to be completed in December 1995.
Montaup owns 4% of the Common Stock of Maine Yankee. Montaup's share
of the current estimated cost of the sleeving project is approximately
$1.6 million and is recoverable through rates.
Other
In December 1992, Montaup commenced a declaratory judgment action in
which it sought to have the Massachusetts Superior Court determine its
rights under the Power Purchase Agreement between it and Aquidneck
Power Limited Partnership (Aquidneck). Montaup sought a declaration
that the Power Purchase Agreement was binding on the parties according
to its terms. Aquidneck asserted that Montaup had either an expressed
or implied obligation to negotiate new terms and conditions to the
Power Purchase Agreement.
In April 1995 Montaup filed a motion for summary judgement and in June
1995 the court granted Montaup's motion. In July, Aquidneck filed for
appeal of the court's decision.
Montaup, EUA and EUA Service intend to vigorously contest the appeal
and continue to believe that Aquidneck's claims have no basis in law.
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 three and six months ended June 30,
1995 were $5.9 million and $14.7 million, respectively, as compared to $6.6
million and $17.9 million for the respective periods of a year ago. Earnings
for both periods of 1995 include a one-time charge of approximately $1.5
million, on an after tax basis, related to the voluntary retirement incentive
offer accepted by 16 employees of Eastern Edison and Montaup (on an EUA System
basis, 49 employees accepted the offer). Also impacting 1995 earnings was
Montaup's $13.9 million annual wholesale rate reduction effective May 21, 1994
and a year-to-date decrease in retail kilowatthour sales of 1.0%. Offsetting
these impacts somewhat were lower litigation expenses resulting from recently
received favorable court decisions and lower interest expense.
Kilowatthour Sales
A 1.4% increase in retail sales in the second quarter of 1995 partially
offset dismal first quarter sales results. For the year-to-date period, retail
sales were 1.0% below those of the same period of 1994. Increases in kWh sales
to industrial customers of 4.9% in the year-to-date period, however, is an
indication of economic recovery in the Company's service territory. Despite
this strong sales performance, the Company anticipates a slow economic recovery
for the foreseeable future. Total Energy sales for the three and six months
ended June 30, 1995 decreased 21.1% and 17.1% respectively, due mainly to
decreased energy sales to the New England Power Pool and decreased short-term
unit contract energy sales. Power purchase contracts of Montaup totaling 41mw
which expired in October 1994 resulted in lower kilowatthours available to
Montaup for interchange and short-term energy sales. These interchange and
short-term energy sales essentially recover fuel costs only and have little or
no earnings impact.
Voluntary Retirement Incentive Offer
On March 15, 1995, EUA announced a corporate reorganization which, among
other things, consolidated management of Eastern Edison, Blackstone and
Newport. As part of the reorganization, a voluntary retirement incentive was
offered to sixty-six EUA System employees, including 22 employees of Eastern
Edison and Montaup. Forty-nine of those eligible for the program, including 16
employees of Eastern Edison and Montaup, accepted the incentive and retired
effective June 1, 1995. The cost to the Company of this incentive program
amounted to a one-time $2.4 million pre-tax ($1.5 million after-tax) charge to
second quarter 1995 earnings. The estimated payback period is approximately 18
months.
Operating_Revenues
Operating Revenues increased for the second quarter of 1995 by $2.4
million and decreased for the six months ended June 30, 1995 by $1.7 million as
compared to the same periods in 1994. The changes in both periods were due
primarily to the net impacts of recoveries of increased fuel and purchased
power expenses aggregating $4.1 million and $5.3 million for the respective
periods, decreased Eastern Edison base rate recoveries of $400,000 and $1.3
million, respectively, and the impact of Montaup's $13.9 million annual
wholesale rate reduction effective May 21, 1994.
Operations_Expense
Fuel expense for the second quarter of 1995 increased by approximately
$400,000 or 1.7% as compared to the same period in 1994. Fuel expense for the
six months ended June 30, 1995 as compared to the same period in 1994 decreased
$500,000 or 1.0%. These changes were caused by the net impacts of decreases in
total energy generated and purchased of 21.1% and 17.1% for the second quarter
and year-to-date periods, respectively, and increases of 30.5% and 19.6% in the
average cost of fuel for the respective periods.
Purchased Power demand expense for the second quarter and for the six
months ended June 30, 1995 increased approximately $3.7 million or 13.2% and
$5.7 million or 9.9%, respectively, as compared to the same periods in 1994.
These increases are due primarily to the impact of Newport's purchased power
contracts assumed by Montaup effective May 21, 1994 coincident with Newport
becoming an all-requirements customer of Montaup, aggregating approximately
$1.5 million and $5.3 million in the respective periods and increased billings
from the Ocean State Power Project and the Yankee nuclear units aggregating
$3.9 million and $5.1 million in the respective periods. These increases were
offset somewhat by decreases of approximately $2.1 million and $4.2 million for
the respective periods resulting from power purchase contracts totaling 41mw
which expired in October 1994.
Other Operation and Maintenance expenses for the second quarter and six
months ended June 30, 1995 decreased by approximately $800,000 or 3.0% and $2.1
million or 4.2%, respectively, from the same periods in 1994. These decreases
were primarily due to decreases in litigation expense resulting from recently
received favorable court decisions, offset somewhat by increased indirect
expenses including jointly owned unit expense, power contract expenses and FAS
106 expenses.
Interest Charges
Net interest charges decreased by $1.0 million and $1.2 million
respectively, in the second quarter and six months ended June 30, 1994 as
compared to the same periods in 1994. Other Interest expense was greater in
1994 due to interest expense provisions recorded in June 1994 aggregating $1.0
million related to Internal Revenue Service audits.
Electric Utility Industry Restructuring
On July 17, 1995, Eastern Edison Company, along with other members of the
Electric Industry Restructuring Roundtable (the Massachusetts Roundtable) in
Massachusetts filed a set of principles with the Massachusetts Department of
Public Utilities (MDPU) addressing industry restructuring.
The Massachusetts Roundtable consists of a number of different utilities,
industrial users, environmental groups and consumer advocates. These
principles are intended to be statements of the consensus position by the
signatories of the interdependent principles that should underlie any electric
industry restructuring proposal and include but are not limited to principles
addressing stranded cost recovery, unbundling of services and demand side
management programs. The filing was submitted on the condition it be approved
in full by the MDPU. The MDPU is assessing the principles and is expected to
make recommendations to implement a competitive environment in the industry.
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 $150 million. These credit lines are available to other
affiliated companies under joint credit line arrangements. At June 30, 1995
and at December 31, 1994 these unused EUA System short-term lines of credit
amounted to approximately $106.9 million and $118.3 million, respectively. The
Company had outstanding short-term debt of $6.1 million and zero at June 30,
1995 and December 31, 1994, respectively.
The Company's year-to-date June 30, 1995 internally generated funds
amounted to $25.5 while its cash construction requirements for the same period
were $14.7.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
See Notes to Consolidated Condensed Financial Statements, Note C -
Commitments and Contingencies under Other for a discussion of a legal
proceeding involving Montaup.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) A Consent to Action in Lieu of a Special Meeting of Stockholders
(Consent to Action) was executed July 19, 1995 by Eastern
Utilities Associates, the holder of the entire issued and
outstanding Common Stock of the Company and the only class of
stock entitled to vote at the Special Meeting of Stockholders.
(b) David H. Gulvin was elected a Director of the Company and the
following continued as Directors:
Donald G. Pardus
John R. Stevens
Robert G. Powderly
John D. Carney
(c) The only matters voted on in the Consent to Action were the
reducing of the number of Directors of the Company from eight to
five and the election of David H. Gulvin as Director of the
Company.
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, 1995
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: August_11,_1995 /s/_Richard_M._Burns______________
Richard_M._Burns,_Vice_President
(on_behalf_of_the_Registrant_and
as Chief_Accounting_Officer)