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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 September 30, 1994
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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
---- ----
The number of shares of Common Stock outstanding of Eastern Enterprises as of
October 26, 1994, was 20,618,044.
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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 September 30, Nine months ended September 30,
amounts) 1994 1993 1994 1993
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REVENUES $206,817 $195,917 $871,455 $824,030
OPERATING COSTS AND EXPENSES:
Operating costs 163,039 155,879 655,206 624,056
Selling, general & adminis-
trative expenses 28,906 33,667 93,243 101,586
Depreciation & amortization 11,116 11,644 45,319 43,284
-------- -------- -------- --------
203,061 201,190 793,768 768,926
-------- -------- -------- --------
OPERATING EARNINGS 3,756 (5,273) 77,687 55,104
OTHER INCOME (EXPENSE):
Interest income 559 646 1,438 2,210
Interest expense (9,701) (8,572) (28,932) (26,268)
Writedown of Ionpure - (13,000) - (13,000)
Other, net 254 (232) 2,306 (720)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES (5,132) (26,431) 52,499 17,326
Provision for income taxes (2,019) (5,433) 20,763 12,035
-------- -------- -------- --------
Net earnings $ (3,113) $(20,998) $ 31,736 $ 5,291
======== ======== ======== ========
EARNINGS PER SHARE $ (.14) $ (.93) $ 1.52 $ .23
======== ======== ======== ========
DIVIDENDS PER SHARE $ .35 $ .35 $ 1.05 $ 1.05
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
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Page 3.
Eastern Enterprises and Subsidiaries
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Consolidated Balance Sheet
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September 30, December. 31, September 30,
(In thousands) 1994 1993 1993
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ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 51,720 $ 52,240 $ 76,526
Receivables, less allowances 118,672 145,523 125,768
Inventories 79,508 87,568 102,133
Deferred gas costs 82,417 65,802 49,227
Other current assets 14,111 11,995 17,662
---------- ---------- ----------
Total current assets 346,428 363,128 371,316
INVESTMENTS:
Equity in U.S. Filter 44,615 44,292 -
Other investments 5,735 8,279 8,459
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Total investments 50,350 52,571 8,459
PROPERTY AND EQUIPMENT, AT COST 1,287,919 1,275,161 1,305,012
Less--Accumulated depreciation 511,144 489,196 504,824
---------- ---------- ----------
Net property and equipment 776,775 785,965 800,188
OTHER ASSETS:
Deferred post-retirement health care
costs 98,513 101,182 101,641
Deferred charges and other costs 37,510 63,600 43,113
Goodwill, less amortization 12,948 13,231 80,323
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Total other assets 148,971 178,013 225,077
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TOTAL ASSETS $1,322,524 $1,379,677 $1,405,040
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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Eastern Enterprises and Subsidiaries
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Consolidated Balance Sheet
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September 30, December. 31, September 30,
(In thousands) 1994 1993 1993
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current debt $ 70,090 $ 114,335 $ 74,184
Accounts payable 56,480 76,161 69,865
Accrued expenses 42,297 31,280 33,317
Other current liabilities 46,048 63,703 41,190
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Total current liabilities 214,915 285,479 218,556
GAS INVENTORY FINANCING 49,883 59,297 50,987
LONG-TERM DEBT 356,662 328,939 330,536
RESERVES AND OTHER LIABILITIES:
Deferred income taxes 87,894 90,793 113,652
Post-retirement health care 103,069 104,730 106,403
Coal miners retiree health care 59,334 63,060 -
Preferred stock of subsidiary 29,221 29,197 29,191
Other reserves 52,416 54,444 55,430
---------- ---------- ----------
Total reserves and other
liabilities 331,934 342,224 304,676
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 21,651,925 at
September 30, 1994; 21,644,378 at
December 31, 1993 and 23,644,378
at September 30, 1993 21,652 21,644 23,644
Capital in excess of par value 61,978 61,778 113,455
Retained earnings 309,766 299,131 388,996
Treasury stock at cost - 965,181
shares at Sept. 30, 1994; 714,786
shares at December 31, 1993 and
986,307 shares at Sept. 30, 1993 (24,266) (18,815) (25,810)
---------- ---------- ----------
Total shareholders' equity 369,130 363,738 500,285
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,322,524 $1,379,677 $1,405,040
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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Eastern Enterprises and Subsidiaries
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Consolidated Statement of Cash Flows
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Nine months ended September 30,
(In thousands) 1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 31,736 $ 5,291
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 45,319 43,284
Income taxes and tax credits (1,928) 2,312
Writedown on Ionpure - 13,000
Other changes in assets and liabilities:
Receivables 26,851 12,190
Inventories 5,665 (9,055)
Deferred gas costs (16,615) (8,359)
Accounts payable (19,681) (9,024)
Other 12,835 1,518
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Net cash provided by operating activities 84,182 51,157
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (41,936) (41,449)
Short-term investments 19,964 (16,401)
Proceeds from sale of barge construction business 12,695 -
Other (5,329) (3,829)
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Net cash provided (used) by investing
activities (14,606) (61,679)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (22,539) (23,768)
Changes in notes payable (42,600) 11,286
Proceeds from issuance of long-term debt 36,000 -
Repayment of long-term debt (8,740) (24,820)
Changes in gas inventory financing (9,414) 2,356
Purchase of treasury shares (7,076) -
Other 1,489 153
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Net cash used by financing activities (52,880) (34,793)
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Net increase (decrease) in cash and cash equivalents 16,696 (45,315)
Cash and cash equivalents at beginning of year 23,766 91,377
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Cash and cash equivalents at end of period 40,462 46,062
Short-term investments 11,258 30,464
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CASH AND SHORT-TERM INVESTMENTS $ 51,720 $ 76,526
======== ========
The accompanying notes are an integral part of these financial statements.
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Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1994
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.
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 1993 Annual
Report filed on Form 10-K with the Securities and Exchange Commission.
SHORT-TERM INVESTMENTS
Effective January 1, 1994, Eastern adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," which requires investments in debt and equity securities to
be carried at fair value. Eastern's investment in U.S. Filter is specifically
excluded from SFAS 115 because it is accounted for under the equity method of
accounting.
Pursuant to SFAS 115, Eastern has classified its investments in debt and equity
securities as available for sale. Accordingly, the net unrealized gains and
losses computed in marking these securities to market have been reported within
retained earnings. At September 30, 1994 the difference between the fair value
and the original cost of these securities is immaterial.
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
20,703,000 and 20,884,000, respectively, in 1994 and 22,696,000 and 22,694,000,
respectively, in 1993.
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2. INVENTORIES
The components of inventories were as follows:
September 30, December 31, September 30,
(In thousands) 1994 1993 1993
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Supplemental gas supplies $ 47,868 $ 53,152 $ 54,018
Other materials, supplies and marine
fuels 15,209 17,984 22,618
Finished products 16,431 16,432 25,497
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$ 79,508 $ 87,568 $ 102,133
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3. SUPPLEMENTAL CASH FLOW INFORMATION
The following are supplemental disclosures of cash flow information:
Nine months ended September 30,
(In thousands) 1994 1993
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Cash paid during the year for:
Interest, net of amounts capitalized $18,966 $19,296
Income taxes $22,566 $12,845
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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REVENUES:
Three months ended September 30,
(In thousands) 1994 1993 Change
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Boston Gas $ 72,114 $ 66,606 8 %
Midland 67,108 56,427 19 %
Water Products Group 67,595 72,884 (7)%
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Total $206,817 $195,917 6 %
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Nine months ended September 30,
(In thousands) 1994 1993 Change
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Boston Gas $509,222 $453,399 12 %
Midland 194,261 189,023 3 %
Water Products Group 167,972 181,608 (8)%
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Total $871,455 $824,030 6 %
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BOSTON GAS
A $37.7 million annualized rate increase which took effect November 1, 1993
increased revenues by $3.8 million and $28.1 million for the quarter and the
first nine months of 1994, respecively. Colder weather in the Boston Gas
service territory increased year-to- date revenues by $19.2 million. Weather
for first nine months of 1994 was 6.5% colder than normal, compared to the
slightly warmer than normal weather for the same period in 1993. The balance
of the revenue increase was attributable to increased sales to non- firm
customers. Most of the margins on these sales are credited to firm customers.
MIDLAND ENTERPRISES
Revenues for the third quarter of 1994 increased 19% as a result of more
favorable operating and market conditions, increased shipments of coal,
aggregates, ores, towing for others and a favorable resolution, early in the
third quarter, of a contract dispute with a major utility customer. Third
quarter 1993 activity was negatively impacted by the United Mine Workers strike
and severe flooding on the Mississippi and Illinois Rivers. For the first nine
months of 1994, revenues increased 3% reflecting the increased third quarter
activity, partially offset by rate reductions and lower production earlier in
the year. Midland's liquid barge business, which was sold in December 1993,
generated revenues of $3.1 million and $8.8 million in the third quarter and
first nine months of 1993, respectively.
Coal tonnage increased 32% in the third quarter from the comparable period in
1993, primarily reflecting increased demand for utility coal under long-term
contracts as well as the resolution of the contract disagreement and the United
Mine Workers strike, both of which negatively impacted 1993 operations. For
the first nine months of 1994, coal tonnage increased 11% as increased spot
coal
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shipments and increased third quarter contract activity more than offset weak
demand during the first half of the year. Strong third quarter activity,
redeployment of equipment to other commodities and towing for others resulted
in overall increases in ton miles for the third quarter and first nine months
of 1994 of 30% and 9%, respectively.
WATER PRODUCTS GROUP
Revenues for WaterPro Supplies for the third quarter and first nine months of
1994 increased 15% and 19%, respectively, reflecting WaterPro market share
gains and increased construction activity. Ionpure Technologies, which was
sold effective October 1, 1993, generated revenues of $14.1 million and $40.7
million for the third quarter and first nine months of 1993, respectively.
OPERATING EARNINGS:
Three months ended September 30,
(In thousands) 1994 1993 Change
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Boston Gas $(8,406) $(11,219) 25%
Midland 9,257 5,009 85%
Water Products Group 4,234 1,869 nm
Headquarters (1,329) (932) (43)%
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Total $ 3,756 $ (5,273) nm
======== ========
Nine months ended September 30,
(In thousands) 1994 1993 Change
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Boston Gas $ 50,069 $ 34,330 46%
Midland 24,153 23,908 1%
Water Products Group 6,783 184 nm
Headquarters (3,318) (3,318) -
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Total $ 77,687 $ 55,104 41%
======= =======
BOSTON GAS
Colder than normal weather increased operating earnings by about $1 million for
the first nine months of 1994, after taking into account the higher
workload-related labor and operating costs associated with the unusually cold
first quarter weather. Meaningful expense comparisons to 1993 are difficult to
make due to the impact of the strike on last year's results. The benefit of
the rate increase was partially offset by higher depreciation charges, property
taxes and bad debt expense. Increased sales to new firm customers also
contributed to the improved earnings.
MIDLAND ENTERPRISES
Operating earnings for the third quarter of 1994 increased 85% from the same
period in 1993 due to the significant volume gains discussed above, reduced
operating expenses from ongoing cost reduction and productivity improvement
programs, as well as the absence of increased costs associated with flooding
and the UMW strike in 1993. Operating earnings for the first nine months of
1994 increased 1% from 1993 as the higher third quarter results were largely
offset by reduced utility contract coal revenues in the first half of the year,
as
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Page 10.
previously discussed, and lower rates associated with non-coal tonnage.
Earnings were also reduced by significantly higher operating costs resulting
from extended periods of winter ice, high water and flooding during the first
four months of 1994 that significantly increased operating costs.
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 Statement of
Operations.
WATER PRODUCTS GROUP
WaterPro Supplies increased its operating earnings for the third quarter and
first nine months of 1994 by $2.0 million and $4.7 million, respectively. Most
of the improvement was attributable to the increased volume, partially offset
by increases in related selling expenses and a small decrease in year-to-date
gross margin percentage.
Operating results for Water Products Group also reflect the sale of Ionpure
Technologies which generated operating losses of $0.3 million and $1.9 million
in the third quarter and first nine months of 1993, respectively.
OTHER
Eastern's consolidated net earnings for the third quarter and first nine months
of 1993 were negatively impacted by an after-tax charge of $10.9 million or
$.48 per share to write down its investment in Ionpure in anticipation of its
exchange of Ionpure for an equity interest in U.S. Filter.
The provision for income taxes for the third quarter of 1993 for non-utility
operations includes approximately $1.4 million to reflect the additional
deferred tax requirements resulting from the increase in the statutory Federal
income tax rate from 34% to 35%, effective January 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
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Management believes that projected cash flow from operations, in combination
with currently available resources, is more than sufficient to meet Eastern's
1994 capital expenditure and working capital requirements, normal debt
repayments and anticipated dividend payments to shareholders.
In January 1994 Boston Gas issued $36.0 million of Medium-Term Notes with a
weighted average maturity of 24 years and a coupon of 6.94%, the proceeds of
which were used to reduce short-term indebtedness.
On July 28, 1994 Eastern announced a stock repurchase program of up to 2
million shares. About 2.8 million shares have been repurchased under the 3
million share program announced in September, 1990.
Consolidated capital expenditures, principally at Boston Gas, are budgeted at
approximately $60 million for 1994.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit 10.1 - Executive Stock Purchase Loan Plan
Exhibit 10.2 - Salary Continuation Agreements between
Eastern and Certain Officers
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K
None
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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 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. 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
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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
October 28, 1994