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, 1995
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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
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(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
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The number of shares of Common Stock outstanding of Eastern Enterprises as of
July 21, 1995 was 20,151,668.
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")
Consolidated Statement of Operations
- ------------------------------------
(In thousands, except per share Three months ended June 30, Six months ended June 30,
amounts) 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Revenues $198,876 $191,793 $565,844 $564,261
Operating costs and expenses:
Operating costs 140,142 138,352 397,828 406,312
Selling, general & adminis-
trative expenses 25,309 25,324 54,478 53,111
Depreciation & amortization 14,282 13,861 35,533 33,456
-------- -------- -------- --------
179,733 177,537 487,839 492,879
-------- -------- -------- --------
Operating earnings 19,143 14,256 78,005 71,382
Other income (expense):
Interest income 1,409 392 2,069 736
Interest expense (9,250) (9,641) (19,254) (19,053)
Other, net 40 2,963 135 2,737
-------- -------- -------- --------
Earnings from continuing
operations before income taxes 11,342 7,970 60,955 55,802
Provision for income taxes 4,267 2,955 23,241 21,925
-------- -------- -------- --------
Earnings from continuing
operations 7,075 5,015 37,714 33,877
Earnings from discontinued
operations, net of tax - 1,146 - 972
-------- -------- -------- --------
Net earnings $ 7,075 $ 6,161 $ 37,714 $ 34,849
======== ======== ======== ========
Earnings per share from
continuing operations $ .35 $ .24 $ 1.86 $ 1.62
Discontinued operations - .05 - .04
-------- -------- -------- --------
Net earnings per share $ .35 $ .29 $ 1.86 $ 1.66
======== ======== ========= ========
Dividends per share $ .35 $ .35 $ .70 $ .70
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
Form 10-Q
Page 3.
Eastern Enterprises and Subsidiaries
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Consolidated Balance Sheet
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June 30, Dec. 31, June 30,
(In thousands) 1995 1994 1994
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ASSETS
Current assets:
Cash and short-term investments $ 123,742 $ 60,854 $ 51,723
Receivables, less allowances 95,304 97,093 130,574
Inventories 46,045 60,207 52,888
Deferred gas costs 27,000 66,865 44,214
WaterPro net assets held for sale - 51,462 48,352
Other current assets 8,234 6,841 7,233
---------- ---------- ----------
Total current assets 300,325 343,322 334,984
Investments:
U.S. Filter 57,781 44,847 44,441
Other investments 13,706 5,531 5,876
---------- ---------- ----------
Total investments 71,487 50,378 50,317
Property and equipment, at cost 1,313,085 1,293,733 1,262,964
Less--Accumulated depreciation 547,327 518,110 501,491
---------- ---------- ----------
Net property and equipment 765,758 775,623 761,473
Other assets:
Deferred post-retirement health care
costs 95,484 97,589 99,607
Deferred charges and other costs,
less amortization 46,965 72,407 41,238
---------- ---------- ----------
Total other assets 142,449 169,996 140,845
---------- ---------- ----------
Total assets $1,280,019 $1,339,319 $1,287,619
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Form 10-Q
Page 4.
Eastern Enterprises and Subsidiaries
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Consolidated Balance Sheet
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June 30, Dec. 31, June 30,
(In thousands) 1995 1994 1994
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 5,450 $ 67,774 $ 39,425
Accounts payable 42,687 49,981 50,625
Accrued expenses 25,501 22,908 25,294
Other current liabilities 73,337 71,774 57,664
---------- ---------- ----------
Total current liabilities 146,975 212,437 173,008
Gas inventory financing 31,978 53,578 36,692
Long-term debt 362,935 365,488 361,836
Reserves and other liabilities:
Deferred income taxes 92,676 91,534 89,638
Post-retirement health care 101,968 102,382 103,431
Coal miners retiree health care 56,341 58,155 60,628
Preferred stock of subsidiary 29,245 29,229 29,213
Other reserves 53,621 52,382 49,205
---------- ---------- ----------
Total reserves and other
liabilities 333,851 333,682 332,115
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 20,661,975 at
June 30, 1995; 20,651,925 at
December 31, 1994 and 21,651,925
at June 30, 1994 20,662 20,652 21,652
Capital in excess of par value 38,134 37,712 61,951
Retained earnings 358,626 321,880 319,913
Treasury stock at cost - 510,547
shares at June 30, 1995; 241,395
shares at December 31, 1994 and
754,240 shares at June 30, 1995 (13,142) (6,110) (19,548)
---------- ---------- ----------
Total shareholders' equity 404,280 374,134 383,968
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,280,019 $1,339,319 $1,287,619
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Form 10-Q
Page 5.
Eastern Enterprises and Subsidiaries
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Consolidated Statement of Cash Flows
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Six months ended June 30,
(In thousands) 1995 1994
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Cash flows from operating activities:
Net earnings $ 37,714 $ 34,849
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Discontinued operations non-cash charges
and working capital changes - (972)
Depreciation and amortization 35,533 33,456
Income taxes and tax credits 3,452 5,645
Other changes in assets and liabilities:
Receivables 5,589 (15,928)
Inventories 14,163 18,249
Deferred gas costs 39,865 21,588
Accounts payable (7,293) (13,039)
Other 13,532 3,070
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Net cash provided by operating activities 142,555 86,918
Cash flows from investing activities:
Capital expenditures (24,918) (20,046)
Short-term investments (37) 12,955
Proceeds from sale of WaterPro 52,864 -
Proceeds from sale of barge construction business - 12,695
Other (891) (2,560)
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Net cash provided by investing activities 27,018 3,044
Cash flows from financing activities:
Dividends paid (14,256) (15,194)
Changes in notes payable (62,530) (74,500)
Proceeds from issuance of long-term debt - 36,000
Repayment of long-term debt (1,688) (2,898)
Changes in gas inventory financing (21,600) (22,605)
Purchase of treasury shares (8,357) (1,961)
Other 1,588 1,120
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Net cash used by financing activities (106,843) (80,038)
Net increase (decrease) in cash and cash equivalents 62,730 9,924
Cash and cash equivalents at beginning of year 51,674 23,737
--------- --------
Cash and cash equivalents at end of period 114,404 33,661
Short-term investments 9,338 18,062
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Cash and short-term investments $ 123,742 $ 51,723
========= ========
The accompanying notes are an integral part of these financial statements.
Form 10-Q
Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
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. Except for the
accounting for the investment in U.S. Filter, as described below, 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.
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 1994 Annual
Report filed on Form 10-K with the Securities and Exchange Commission.
Investment in U.S. Filter
Eastern holds 3,041,092 common shares, which as of December 31, 1994 represented
18% of the voting stock of U.S. Filter. Since Eastern's acquisition of U.S.
Filter stock in December 1993, the latter has made several acquisitions which
have reduced Eastern's ownership percentage. Additionally, on April 26, 1995
U.S. Filter issued 6,000,000 common shares pursuant to a registration statement
filed with the Securities and Exchange Commission. This issuance reduced
Eastern's voting interest to approximately 13%. Accordingly, beginning in the
first quarter of 1995, Eastern is accounting for its investment in U.S. Filter
under the cost method. Eastern previously accounted for this investment under
the equity method. Eastern has classified the U.S. Filter investment as a
security available for sale. Accordingly, the net unrealized gain of $12,934,000
computed in marking this security to market is reflected as a component of
shareholder's equity.
Earnings per share
Per share amounts are based on the weighted average number of common shares
outstanding and common equivalent shares. Quarter and year-to-date shares are
20,232,000 and 20,267,000, respectively, in 1995 and 20,969,000 and 20,975,000,
respectively, in 1994.
Form 10-Q
Page 7.
2. Inventories
The components of inventories were as follows:
June 30, Dec. 31, June 30,
(In thousands) 1995 1994 1994
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Supplemental gas supplies $ 32,795 $ 46,844 $ 37,731
Other materials, supplies and marine
fuels 13,250 13,363 15,157
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$ 46,045 $ 60,207 $ 52,888
======== ======== ========
3. Supplemental cash flow information
The following are supplemental disclosures of cash flow information:
Six months ended June 30,
(In thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest, net of amounts capitalized $17,412 $17,393
Income taxes $20,194 $17,692
4. Contingencies
In July 1995 Eastern received notice from the Social Security Administration
("SSA") claiming that Eastern is responsible for health benefit premiums for an
additional group of retired coal miners and their beneficiaries under the
federal Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"). In 1993
Eastern recorded a reserve of $70,000,000 to provide for its estimated
undiscounted obligations under the Coal Act with respect to the miners and
beneficiaries assigned to Eastern at that time. This amount was reflected as an
extraordinary item of $45,500,000, net of tax. As more fully discussed in Note
12 of Notes to Financial Statements in Eastern's 1994 Annual Report, its
obligation could range from zero to more than $100 million. Due to a lack of
information about the recent assignment of the additional group of retired
miners and their beneficiaries and other issues, it is not known what the
ultimate cost of such assignment, if any, will be to Eastern, and no additional
provision has been made at this time.
Form 10-Q
Page 8.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Revenues:
Three months ended June 30,
(In thousands) 1995 1994 Change
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Boston Gas $129,615 $122,806 6 %
Midland 69,261 68,987 -
-------- --------
Total $198,876 $191,793 4 %
======== ========
Six months ended June 30,
(In thousands) 1995 1994 Change
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Boston Gas $423,856 $437,108 (3)%
Midland 141,988 127,153 12 %
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Total $565,844 $564,261 -
======== ========
Boston Gas
Warmer weather for the first six months of 1995 and other demand-related factors
decreased year-to-date revenues by $48 million. Weather for the first six months
of 1995 was slightly warmer than normal, as the 4% warmer than normal first
quarter weather was largely offset by 9% colder than normal weather during the
second quarter. In contrast, weather for first six months of 1994 was 8% colder
than normal, as the extremely cold first quarter was partially offset by 10%
warmer than normal temperatures in the second quarter. The impact of weather and
other demand-related factors was partially offset by the pass through of higher
gas costs, interruptible sales and sales to new firm customers.
Midland Enterprises
Revenues for the second quarter of 1995 were about the same as for 1994, as
higher rates offset a 6% decline in ton miles. Severe flooding on the
Mississippi River above St. Louis and the Illinois Waterway, from late May to
mid-June, contributed to the reduction in volume. For the first six months of
1995, revenues increased 12%, reflecting an improved market environment and
generally favorable operating conditions. Year-to-date ton miles increased 6% in
1995, reflecting strong first quarter production as compared to 1994 when severe
winter icing and floods negatively impacted operations.
Coal tonnage decreased 6% in the second quarter from the comparable period in
1994, due to reduced spot transportation, reflecting utilization of equipment in
non-coal markets and a mild winter which reduced utility requirements for coal.
For the first six months of 1995, coal tonnage increased 4%, with coal tonnage
under long-term contracts up 12% due to the settlement in July 1994 of a
contract dispute with a major customer that had curtailed shipments in the first
half of 1994. Non-coal tonnage increased 2% for the first six months of 1995,
reflecting the strong export grain market.
Form 10-Q
Page 9.
Operating Earnings:
Three months ended June 30,
(In thousands) 1995 1994 Change
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Boston Gas $ 8,247 $ 5,353 54 %
Midland 12,543 9,871 27 %
Headquarters (1,647) (968) (70)%
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Total $19,143 $14,256 34 %
======= =======
Six months ended June 30,
(In thousands) 1995 1994 Change
- ----------------------------------------------------------------------------------------------------------
Boston Gas $52,805 $58,475 (10)%
Midland 27,843 14,896 87 %
Headquarters (2,643) (1,989) (33)%
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Total $78,005 $71,382 9 %
======= =======
Boston Gas
The impact of warmer weather and other demand-related factors, partially offset
by lower operating expenses related to the warmer weather and on-going cost
containment measures, decreased operating earnings for the first six months of
1995 by about $8 million. Sales to new firm customers, the recognition of lost
margins associated with conservation programs and the recognition of revenues
associated with a reimbursement from New England Electric System for
environmental remediation expenditures more than offset increased charges for
depreciation, property taxes and an early retirement program. The early
retirement program was associated with an ongoing comprehensive corporate
reengineering project focused on improving customer service and lowering
operating costs.
Midland Enterprises
Operating earnings for the second quarter and first six months of 1995 were
favorably impacted by higher rates, particularly for grain, and improved
productivity. While volumes and operating efficiencies were negatively impacted
by flooding on the Mississippi River and Illinois Waterway during the second
quarter of 1995, operating conditions were generally better during the first
half of 1995 than during the previous year. Winter ice, high water and flooding
significantly increased operating costs during the first four months of 1994. As
a result, comparative operating earnings increased by 27% and 87% for the second
quarter and first six months of 1995, respectively.
During the second quarter of 1994, Midland recorded a pre-tax gain of $2.3
million on the sale of its Port Allen barge construction and shipyard facility
in Louisiana. This gain is included in Other, net on the Consolidated Statement
of Operations.
Form 10-Q
Page 10.
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
1995 capital expenditure and working capital requirement, normal debt repayments
and anticipated dividend payments to shareholders.
On April 10, 1995 Eastern completed the previously announced sale of its
wholly-owned subsidiary, WaterPro Supplies Corporation, for $52.9 million in
cash.
On June 13, 1995 Boston Gas filed a shelf registration for the issuance of up to
$100 million of medium-term notes through December 1997 for the funding of
future capital expenditures and the refinancing of currently outstanding
indebtedness.
Consolidated capital expenditures are budgeted at approximately $82 million,
two-thirds of which are for Boston Gas and the balance for Midland.
In July 1995 Eastern received notice from the Social Security Administration
claiming that Eastern is responsible for health benefit premiums for an
additional group of retired coal miners and their beneficiaries under the
federal Coal Industry Retiree Health Benefit Act of 1992. As described in Note 4
of Notes to Financial Statements, the liability for these premiums could result
in an addition to the reserve and would be treated as an extraordinary item. No
provision has been made at this time because the amount of the additional
reserve, if any, cannot be reasonably estimated.
Form 10-Q
Page 11.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit 10.1 - Amendment, effective July 1, 1995, to Eastern's
Headquarters Retirement Plan.
Exhibit 10.2 - Amendment, effective July 1, 1995, to Trust
Agreement between Eastern and Shawmut Bank, N.A., dated
January 29, 1987.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Eastern filed a Report on Form 8-K, dated April 20, 1995,
reporting the completion of the sale of stock of WaterPro
Supplies Corporation.
Form 10-Q
Page 12.
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
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James J. Harper
Vice President and Controller
(Chief Accounting Officer)
By WALTER J. FLAHERTY
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Walter J. Flaherty
Senior Vice President and
Chief Financial Officer
July 28, 1995