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 March 31, 1996 --------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ------------------------ 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 ------------------------------------------------------------------------ (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 April 29, 1996 was 20,255,619. 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 Earnings - ---------------------------------- Three months ended March 31, (In thousands, except per share amounts) 1996 1995 --------------------------------------------------------------------------- ------------------ ------------------ Revenues $419,220 $366,968 Operating costs and expenses: Operating costs 305,766 257,686 Selling, general and administrative expenses 30,620 29,169 Depreciation and amortization 23,653 21,251 -------- -------- 360,039 308,106 -------- -------- Operating earnings 59,181 58,862 Other income (expense): Interest income 2,233 660 Interest expense (9,142) (10,004) Other, net 232 95 -------- -------- Earnings before income taxes 52,504 49,613 Provision for income taxes 19,622 18,974 -------- -------- Net earnings $ 32,882 $ 30,639 ======== ======== Earnings per share $ 1.61 $ 1.51 ======== ======== Dividends per share $ .37 $ .35 ======== ======== The accompanying notes are an integral part of these financial statements. Form 10-Q Page 3. Eastern Enterprises and Subsidiaries - ------------------------------------ Consolidated Balance Sheet - -------------------------- March 31, Dec. 31, March 31, (In thousands) 1996 1995 1995 - ------------------------------------------------------------ ------------------ ----------------- ------------------ ASSETS Current assets: Cash and short-term investments $ 201,696 $ 191,211 $ 63,651 Receivables, less reserves 171,925 104,735 151,565 Inventories 23,773 47,883 39,484 Deferred gas costs - 71,940 17,272 WaterPro net assets held for sale - - 51,462 Investment in U.S. Filter - - 47,137 Other current assets 6,379 9,117 7,278 ---------- ---------- ---------- Total current assets 403,773 424,886 377,849 Property and equipment, at cost 1,372,050 1,356,097 1,304,184 Less--accumulated depreciation 584,550 563,337 538,016 ---------- ---------- ---------- Net property and equipment 787,500 792,760 766,168 Other assets: Deferred post-retirement health care costs 91,224 93,830 96,605 Investments 13,729 13,821 13,559 Deferred charges and other costs, less amortization 50,335 52,045 45,498 ---------- ---------- ---------- Total other assets 155,288 159,696 155,662 ---------- ---------- ---------- Total assets $1,346,561 $1,377,342 $1,299,679 ========== ========== ========== The accompanying notes are an integral part of these financial statements. Form 10-Q Page 4. Eastern Enterprises and Subsidiaries - ------------------------------------ Consolidated Balance Sheet - -------------------------- March 31, Dec. 31, March 31, (In thousands) 1996 1995 1995 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current debt $ 16,553 $ 57,193 $ 14,355 Accounts payable 54,837 64,960 47,158 Accrued expenses 59,254 26,795 48,908 Other current liabilities 73,688 75,913 67,268 ---------- ---------- ---------- Total current liabilities 204,332 224,861 177,689 Gas inventory financing 19,187 45,600 33,583 Long-term debt 355,512 357,675 363,891 Reserves and other liabilities: Deferred income taxes 84,480 89,102 92,503 Post-retirement health care 98,079 98,717 102,220 Coal miners retiree health care 64,020 65,025 57,265 Preferred stock of subsidiary 29,267 29,262 29,237 Other reserves 69,139 71,336 50,394 ---------- ---------- ---------- Total reserves and other liabilities 344,985 353,442 331,619 Shareholders' equity: Common stock, $1.00 par value Authorized shares -- 50,000,000 Issued shares -- 20,405,167 at March 31, 1996; 20,385,587 at December 31, 1995 and 20,652,725 at March 31, 1995 20,405 20,386 20,653 Capital in excess of par value 32,198 31,488 37,928 Retained earnings 374,037 348,821 347,745 Treasury stock at cost - 159,088 shares at March 31, 1996; 191,547 shares at December 31, 1995 and 521,822 shares at March 31, 1995 (4,095) (4,931) (13,429) ---------- ---------- ---------- Total shareholders' equity 422,545 395,764 392,897 ---------- ---------- ---------- Total liabilities and shareholders' equity $1,346,561 $1,377,342 $1,299,679 ========== ========== ========== The accompanying notes are an integral part of these financial statements. Form 10-Q Page 5. Eastern Enterprises and Subsidiaries - ------------------------------------ Consolidated Statement of Cash Flows - ------------------------------------ Three months ended March 31, (In thousands) 1996 1995 --------------------------------------------------------------------------- ------------------ ------------------ Cash flows from operating activities: Net earnings $ 32,882 $ 30,639 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 23,653 21,251 Income taxes and tax credits 17,376 15,187 Other changes in assets and liabilities: Receivables (67,189) (54,472) Inventories 24,109 20,723 Deferred gas costs 74,599 72,431 Accounts payable (10,123) (2,823) Other 7,341 2,188 -------- -------- Net cash provided by operating activities 102,648 105,124 Cash flows from investing activities: Capital expenditures (19,242) (11,956) Short-term investments 6,074 (38) Proceeds on sale of investments 1,795 - Other 420 174 -------- -------- Net cash used by investing activities (10,953) (11,820) Cash flows from financing activities: Dividends paid (7,470) (7,154) Changes in notes payable (40,700) (53,530) Repayment of long-term debt (1,479) (901) Changes in gas inventory financing (26,413) (19,995) Repurchase of stock - (8,301) Other 926 543 -------- -------- Net cash used by financing activities (75,136) (89,338) Net increase in cash and cash equivalents 16,559 3,966 Cash and cash equivalents at beginning of year 185,137 51,674 -------- -------- Cash and cash equivalents at end of period 201,696 55,640 Short-term investments - 8,011 -------- -------- Cash and short-term investments $201,696 $ 63,651 ======== ======== The accompanying notes are an integral part of these financial statements. Form 10-Q Page 6. EASTERN ENTERPRISES AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS March 31, 1996 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 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. 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 1995 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 shares outstanding and common equivalent shares (20,399,000 shares in 1996 and 20,301,000 shares in 1995). Form 10-Q Page 7. 2. Inventories The components of inventories were as follows: March 31, Dec. 31, March 31, (In thousands) 1996 1995 1995 ----------------------------------------------------------- ----------------- ----------------- ----------------- Supplemental gas supplies $10,437 $35,136 $26,824 Other materials, supplies and marine fuels 13,336 12,747 12,660 ------- ------- ------- $23,773 $47,883 $39,484 ======= ======= ======= 3. Supplemental cash flow information The following are supplemental disclosures of cash flow information: Three months ended March 31, (In thousands) 1996 1995 ----------------------------------------------------------------------------------------------------------------- Cash paid during the year for: Interest, net of amounts capitalized $ 1,478 $ 1,652 Income taxes $ 2,462 $ 4,087 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 March 31, (In thousands) 1996 1995 Change ----------------------------------------------------------------------------------------------------------- Boston Gas $343,341 $294,241 17% Midland 75,879 72,727 4% -------- -------- Total $419,220 $366,968 14% ======== ======== Operating Earnings: Three months ended March 31, (In thousands) 1996 1995 Change ------------------------------------------------------------------------------------------------------------ Boston Gas $46,765 $44,558 5% Midland 14,011 15,300 (8)% Headquarters (1,595) (996) (60)% ------- ------- Total $59,181 $58,862 1% ======= ======= Boston Gas Weather in the Boston Gas service territory was 3% colder than normal during the first quarter of 1996, compared to 4% warmer than normal in 1995. This colder weather was the primary factor increasing revenues by $49 million. Higher gas costs, increased non-firm sales and sales to new firm customers also contributed. The corresponding increase in gross margin, partially offset by higher charges for depreciation and retiree benefits, lower capitalized expenses, increased operating expenses related to the colder weather and higher property taxes, increased operating earnings by $2 million. Benefits from Boston Gas' ongoing reengineering program more than offset wage increases. Midland Enterprises Higher transportation rates, particularly for non-coal commodities, increased 1996 revenues by 4% to $76 million, a first quarter record for Midland. Severe weather conditions early in 1996, as compared with unseasonably good conditions for the same period in 1995, resulted in a 2% decline in total ton miles. Ton miles and tonnage were down 6% and 8%, respectively, for non-coal commodities, particularly grain and other dry cargo. Coal ton miles increased 5% reflecting longer trip lengths, while coal tonnage declined 5%. In addition to the reduced volume, the poor operating conditions increased insurance and maintenance costs. As a result, operating earnings declined $1.3 million or 8%. Headquarters Expenses related to the development of AllEnergy Marketing Company, a new unregulated retail energy marketing business, increased Headquarters' operating loss in the first quarter of 1996 to $1.6 million. Form 10-Q Page 9. 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 1996 capital expenditure and working capital requirements, potential funding of its Coal Act and environmental liabilities, normal debt repayments and anticipated divided payments to shareholders. Consolidated capital expenditures are budgeted at approximately $110 million, about 55% of which are for Boston Gas and the balance primarily for Midland. Form 10-Q Page 10. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the registrant was held on April 25, 1996, at which the shareholders voted to elect the following Trustees for terms of office expiring at the 1999 Annual Meeting of Shareholders: Thomas W. Jones, with 16,938,326 shares voting for and 80,208 shares withholding authority; Rina K. Spence, with 16,938,338 shares voting for and 80,208 shares withholding authority; The shareholders also voted at such meeting to approve the Eastern Enterprises 1996 Non-Employee Trustees' Stock Option Plan, with 15,498,466 shares voting for such approval, 1,249,416 shares voting against, 273,141 shares abstaining and 1 share not voting. Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits None. (b) Report on Form 8-K There were no reports on Form 8-K filed in the first quarter of 1996. Form 10-Q Page 11. 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. 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) April 29, 1996.