<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _____________
Commission file number 2-39895
Midland Enterprises Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-2284434
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
300 Pike Street; Cincinnati, Ohio 45202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 513-721-4000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
________________________ ________________________
________________________ ________________________
Securities registered pursuant to Section 12(g) of the Act:
None
___________________________________________________________________
___________________________________________________________________
(TITLE OF CLASS)
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. / x /
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE
COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE
AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE
WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.)
Not Applicable
___________________________________________________________________
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE
ONLY TO CORPORATE REGISTRANTS).
<PAGE> 2
March 18, 1996 - 15 1/2 SHARES
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE
DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2)
ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED
PURSUANT TO RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. (THE
LISTED DOCUMENTS SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION
PURPOSES.)
The Registrant meets the conditions set forth in General Instruction J
(1) (a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
<PAGE> 3
PART I
ITEM 1. BUSINESS
(a) GENERAL
Midland Enterprises Inc. (the "Registrant"), incorporated under the laws of the
State of Delaware in 1961, is a wholly-owned subsidiary of Eastern Enterprises
("Eastern") of Weston, Massachusetts. The Registrant is primarily engaged
through wholly-owned subsidiaries in the operation of a fleet of towboats,
tugboats and barges, principally on the Ohio and Mississippi Rivers and their
tributaries, the Gulf Intracoastal Waterway and in the Gulf of Mexico. The
Registrant's barge line subsidiaries transport bulk commodities, a major portion
of which is coal. The Registrant, through other subsidiaries, also performs
repair work on marine equipment and operates two coal dumping terminals, a
phosphate rock and phosphate chemical fertilizer terminal, and a marine fuel
supply facility. In December, 1993, the Company sold its liquid barges and in
conjunction, Chotin, a subsidiary, sold its liquid contract and trade name. In
June 1994, the Company sold its barge construction facility located in
Louisiana.
Substantially all of the barges, towboats and tugboats operated by the
Registrant's barge line subsidiaries are owned by and chartered from the
Registrant. A substantial portion of this equipment is mortgaged or leased and
the payments under related charter agreements with its subsidiaries are pledged
to secure long-term debt or to meet lease payments.
The Registrant's barge line subsidiaries are The Ohio River Company ("ORCO"),
Orgulf Transport Co. ("Orgulf"), Red Circle Transport Co. ("Red Circle"), and
Orsouth Transport Co.("Orsouth"). The Registrant's other principal subsidiaries,
all of whose outstanding stock is owned by the Registrant, are Eastern
Associated Terminals Company ("EATCO"), Hartley Marine Corp. ("Hartley"), The
Ohio River Terminals Company ("ORTCO") and West Virginia Terminals Inc.
(b) INDUSTRY SEGMENTS
Registrant's only reportable industry segment is barge transportation.
(c) (1) (i) PRINCIPAL SERVICES AND MARKETS
ORCO is the largest of the Registrant's subsidiaries, accounting for 63% of the
Registrant's total 1995 tonnage transported. ORCO operates principally on the
Ohio River and certain of its tributaries. The principal commodity transported
by ORCO is coal, primarily for electric utilities. Grain, stone, sand, gravel,
iron, steel, scrap, and coke are the other groups of commodities which ORCO
carries in significant amounts. ORCO leases office facilities in Cincinnati,
Ohio.
Orgulf operates principally on the Mississippi and Ohio Rivers, and the Illinois
Waterway, transporting principally coal, primarily for electric utilities, and
grain. Stone, gravel, scrap, steel, coke and ores constitute the other
significant commodities transported.
Orsouth operates principally on the Tennessee-Tombigbee and Gulf Intracoastal
Waterways, and the Black Warrior and Mississippi Rivers transporting principally
coal and ores.
Red Circle is engaged primarily in the offshore transportation of phosphate rock
in the Gulf of Mexico and grain from Louisiana to Puerto Rico. EATCO operates a
terminal on leased land at Tampa, Florida. Hartley operates shipyard facilities
at Paducah, Kentucky, sells fuel at Point Pleasant, West Virginia, and provides
towing services principally on the Ohio River and its tributaries. ORTCO owns
and operates a coal dumping facility in Huntington, West Virginia. West Virginia
Terminals Inc. leases and operates a coal dumping facility in Kenova, West
Virginia.
1
<PAGE> 4
The following table indicates the tonnages transported by the Registrant's
subsidiaries for the period 1993 - 1995:
<TABLE>
<CAPTION>
TONNAGES TRANSPORTED (IN MILLIONS)
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Dry Cargo....................... 66.2 66.9 60.9
Liquid Cargo.................... - - 1.6
---- ---- ----
Total Tonnage........... 66.2 66.9 62.5
==== ==== ====
</TABLE>
Tonnage in 1995 declined slightly due in part to a softening of the domestic
coal market in the second half of 1995 and reduced shipments of aggregates. The
record tonnage in 1994 increased 7% over 1993, despite the absence of the liquid
business, due to a stronger economy as evidenced by increased shipments of coal,
aggregates, ores, steel products and scrap. Coal tonnage in 1993 was negatively
impacted by a prolonged coal miners strike.
The next table summarizes the ton miles of cargo transported by Registrant's
subsidiaries for the period 1993 - 1995.
<TABLE>
<CAPTION>
TON MILES TRANSPORTED (IN BILLIONS)
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Coal............................ 15.2 15.2 14.0
Grain........................... 5.2 4.4 4.8
Liquid.......................... - - 1.5
Other*.......................... 16.4 15.7 11.9
---- ---- ----
Total Ton miles......... 36.8 35.3 32.2
==== ==== ====
</TABLE>
* Other includes sand, stone, gravel, iron, scrap, steel, coke, phosphate,
towing for others, and other dry cargo.
Ton miles are the product of tons and distance transported. For the second
straight year, Midland set a new ton mile record with 1995 ton miles increasing
4% over 1994. As noted above, although 1995 tonnage declined slightly, longer
trip lengths associated with increased movements of non-coal tonnage,
predominantly on the Mississippi River, resulted in increased overall
production. Ton miles in 1994 increased 10% over 1993, reflecting the 7%
increase in tonnage noted above. In addition to changes in ton miles
transported, Registrant's revenues and net income are affected by other factors
such as competitive conditions, weather and the segment of the river system
traveled. See "Seasonality and Competition".
(c) (1) (ii) STATUS OF PRODUCT OR SEGMENT
No significant new product, service or segment requiring a material amount of
assets was developed.
(c) (1) (iii) RAW MATERIALS
The only significant raw material required by the Registrant is the diesel fuel
to operate towboats. Diesel fuel is purchased from a variety of sources and the
Registrant regards the availability of diesel fuel as adequate for presently
planned operations.
(c) (1) (v) SEASONALITY
Due to the freezing of some northern rivers and waterways during winter months,
increased coal consumption by electric utilities during the summer months, and
the seasonal fall harvest of grain, winter month revenues tend to be lower than
revenues for the remainder of the year.
(c) (1) (vi) WORKING CAPITAL
No unusual working capital requirements are normally encountered.
2
<PAGE> 5
(c) (1) (vii) CUSTOMERS
No customer, or group of customers under common control, accounted for 10% or
more of the total revenues in 1995. On the basis of past experience and its
competitive position, the Registrant considers that the loss of several of its
subsidiaries' largest customers simultaneously, while possible, is unlikely to
happen. The Registrant's subsidiaries have long-term transportation and
terminalling contracts which expire at various dates from January 1997 through
June 2003. During 1995, approximately 34% of the Registrant's consolidated
revenues resulted from these contracts. A substantial portion of the contracts
provide for rate adjustments based on changes in various costs, including diesel
fuel costs, and, additionally, contain "force majeure" clauses which excuse
performance by the parties to the contracts when performance is prevented by
circumstances beyond their reasonable control. Many of these contracts have
provisions for termination for specified causes, such as material breach of the
contract, environmental restrictions on the burning of coal, or loss by the
customer of an underlying commodity supply contract. Penalties for termination
for such causes are not generally specified. However, some contracts provide
that in the event of an uncured material breach by Registrant's subsidiary which
results in termination of the contract, Registrant's subsidiary would be
responsible for reimbursing its customer for the differential between the
contract price and the cost of substituted performance. Due to the
capital-intensive, high fixed cost nature of the Registrant's business, the
negotiation of long-term contracts which facilitate steady and efficient
utilization of equipment is important to profitable operations.
(c) (1) (viii) BACKLOG
The backlog of transportation and terminalling business under long-term
contracts is summarized in the next table:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
December 31,
Tons (in millions) 156.2 168.8
Revenues (in millions) $485.3 $422.8
Portions of revenue backlog not expected to be filled
within the current fiscal year 72% 77%
</TABLE>
The 1995 revenue backlog (which is based on contracts that extend beyond
December 31, 1996) is shown at prices current as of December 31, 1995 which are
subject to escalation/de-escalation provisions. Since services under many of the
long-term contracts are based on customer requirements, Midland has estimated
its backlog based on its forecast of the requirements of these long-term
contract customers. The 7% decline in tonnage backlog from 1994 partially
reflects the expiration of several long-term contracts in 1996 that have not yet
been renewed and therefore were excluded from the calculation. Also negatively
impacting the calculation are the elapsing terms of current long-term contracts
as they draw closer to maturity. The 1995 backlog calculation includes 14.2
million tons and $67.2 million in revenue pertaining to long-term contracts
awarded but not yet signed. There were no awarded contracts to include for the
1994 backlog calculation. The increase in the revenue backlog reflects higher
average market rates on newly negotiated contracts, and the change in contract
mix reflecting longer average hauls with associated higher rates per ton.
(c) (1) (ix) GOVERNMENT CONTRACTS
The Registrant has no material portion of business subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
Government.
(c) (1) (x) COMPETITION
Improvements in operating efficiencies have permitted barge operators to
maintain relatively low rate structures. Consequently, the barge industry has
generally been able to retain its competitive position with alternate methods of
transportation for bulk commodities when the origin and destination of such
movements are contiguous to navigable waterways.
3
<PAGE> 6
Primary competitors of the Registrant's barge line subsidiaries include other
barge lines and railroads (including one integrated rail-barge carrier). There
are a number of companies offering transportation services on the waterways
served by the Registrant. In recent years, competition among major barge line
companies was intense due to an imbalance between barge supply and demand,
impacted by occasionally weak grain and coal export markets. This in turn led to
revenue and margin erosion and prompted improvements in cost and productivity,
and some industry consolidation. During the second half of 1994, however, barge
demand and supply moved closer to equilibrium with improved rates and margins as
both domestic import demand and export requirements increased significantly.
This trend continued in 1995.
Many railroads operating in areas served by the inland waterways compete for
cargoes carried by river barges. In many cases, these railroads offer unit train
service (pursuant to which an entire train is committed to the customer) and
dedicated equipment service (pursuant to which equipment is set aside for the
exclusive use of a particular customer) for coal, grain and other bulk
commodities. In addition, rates charged by both railroads and river barge
operators are sometimes designed to reflect special circumstances and
requirements of the individual shippers. As a result, it is difficult to compare
rates charged for movements of the various commodities between specific points.
Towboats, such as those which comprise the Registrant's fleet, are capable of
moving in one tow (barge configuration) approximately 22,500 tons of
cargo (equivalent to 225 one hundred-ton capacity railroad cars) on the Ohio
River and on the Upper Mississippi River and approximately 60,000 tons
(equivalent to 600 one hundred-ton capacity railroad cars) on the Lower
Mississippi River, where there are no locks to transit, at average costs per ton
mile which are generally below those of railroads.
(c) (1) (xi) RESEARCH
No significant amount was spent during the last fiscal year on research to
improve existing services or develop new services. The task of improving and
developing services is a continuing assignment of various operating departments
of Registrant's subsidiaries, but such efforts are not segregated and would not
generally be regarded as research activities.
(c) (1) (xii) COMPLIANCE WITH ENVIRONMENTAL STATUTES
The Registrant and/or its subsidiaries are subject to the provisions of the
Federal Water Pollution Control Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Superfund Amendment and
Reauthorization Act, the Resource Conservation and Recovery Act of 1976, and the
Oil Pollution Act of 1990, which permit the Coast Guard and the Environmental
Protection Agency to assess penalties and clean-up costs for oil, hazardous
substance, and hazardous waste discharges. Some of these acts also allow third
parties to seek damages for losses caused by such discharges. Compliance with
these acts has had no material effect on the Registrant's capital expenditures,
earnings, or competitive position; and no such effect is anticipated.
(c) (1) (xiii) EMPLOYEES
As of December 31, 1995, Registrant and its subsidiaries employed approximately
1,400 persons, of whom approximately 34% are represented by labor unions.
(d) FOREIGN OPERATIONS
Registrant does not engage in material operations in foreign countries, and no
material portion of Registrant's revenues is derived from customers in foreign
countries.
4
<PAGE> 7
ITEM 2. PROPERTIES
(a) As of December 31, 1995, the Registrant's floating equipment consisted of
2,354 barges and 84 boats. See "Principal Services and Markets" for other owned
or leased properties.
Capital expenditures for the Registrant in 1995 totalled approximately $20.9
million. These expenditures were made principally for the purchase of new barges
and for renewal of equipment.
(b) NOT APPLICABLE.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not required
5
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
The Registrant's common stock is held solely by Eastern and is not traded in any
market. Dividends were declared in the amount of $27,559,453 in 1995 and
$17,050,000 in 1994.
The payment of dividends is subject to the restrictions described in Note 4 to
the Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
Not required. Reference Management Narrative Analysis following Item 7. The
Registrant meets the conditions set forth in General Instruction J (1) (a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Revenues and operating earnings increased by $31.6 million and $22.0 million,
respectively, in 1995 over 1994 due to significant increases in margin on spot
transportation rates, mainly reflecting strong demand for non-coal import and
export tonnage on the Mississipi River. Ongoing programs to increase fleet
productivity and control costs as well as generally good operating conditions
also contributed to the improved results. Partially offsetting were reduced
revenues from contractual rate reductions on long-term utility coal contracts
negotiated in 1994. Administrative expenses increased in 1995 due to higher
consulting, computer related and compensation costs.
Ton miles increased 4% to a new record level, although total tonnage transported
declined 1%, due to significantly longer trip lengths associated with the
aforementioned spot traffic on the Mississippi River. Total coal tonnage
declined 1%, with coal shipments under long-term contracts increasing 4% and
spot coal tonnage declining 17%, reflecting a weak second half market. Non-coal
ton miles increased 8%, although related tonnage was essentially unchanged from
1994. The Company's focus on long haul higher margin non-coal commodities more
than offset the weakness in the coal market. As a result, grain tonnage
increased 18% with ores and steel product tonnage up over 20% as compared to
1994. Results from terminal and support operations were largely unchanged from
1994 levels.
During the second quarter of 1994, Midland recorded a pretax gain of $2.3
million on the sale of its barge construction and repair facility in Louisiana.
This gain is included in "Other income" on the Consolidated Statements of
Income. Lower net financing expenses, mainly associated with increased interest
on short term investments and balances with parent, also contributed to the
improved Earnings before income taxes.
Including the pretax items and operating results discussed above, Earnings
before extraordinary items for 1995 increased 90% over 1994.
In the fourth quarter of 1995, Midland recorded a pretax charge of $4.6 million
representing the estimated undiscounted liability for health care and death
benefit premiums imposed by the Coal Industry Retiree Health Benefit Act of 1992
("Coal Act"). As described in Note 11 of Notes to Financial Statements, this
charge has been reported as an extraordinary item of approximately $3.0 million
net of tax.
6
<PAGE> 9
1994 COMPARED TO 1993
Midland's 1994 revenues increased $9.8 million with related ton miles up 10%
compared to 1993, reflecting increased shipments of coal, aggregates, ores and
towing of tramp barges. Revenues generated from the increase in volume were
partially offset by rate reductions negotiated early in the year, business mix
changes from an increased percentage of backhauls and increased towing of tramp
barges. Midland's liquid barge business, which was sold in December 1993,
contributed 5% of Midland's revenues and ton miles in 1993.
Coal tonnage increased 11% from 1993, reflecting increased demand for utility
coal under long term contracts as well as from spot purchases. Coal tonnage
destined for export to the Gulf of Mexico also increased significantly over
1993. During 1993 coal shipments were negatively impacted by the United Mine
Workers (UMW) strike and the record flooding on the Mississippi River system.
Non-coal tonnage increased 11% over 1993 despite a 15% reduction in grain
tonnage, as Midland emphasized increased shipments of aggregates, steel, scrap,
and ores much of which were imported materials representing backhaul
opportunities originating at the Gulf of Mexico. Grain tonnage was negatively
impacted by 1993's flooding and crop damage as well as poor export markets
during the first half of 1994, although 1994 second half grain volume and
margins showed seasonal improvement.
Operating results of Midland's terminalling and support facilities were
improved, led by increased coal terminalling, reflecting metallurgical coal
demand by the steel industry, and increased phosphate product terminalling as
export markets rebounded from 1993. During the second quarter of 1994 Midland
sold its barge construction and repair facility located in Louisiana.
Operating earnings increased $2.8 million over 1993 due to the significant
volume gains discussed above, reduced operating and administrative expenses from
ongoing cost reduction and productivity programs, as well as the absence of
increased costs associated with inefficiencies caused by the UMW strike and
Mississippi River flooding that occurred in 1993. Partially offsetting were
higher operating expenses in 1994 associated with flooding and severe winter
icing conditions that occurred in the first quarter, the absence of operating
earnings from the liquid barge business and contractual and market rate
reductions negotiated early in 1994.
In June 1994 Midland recognized a pretax gain of $2.3 million on the sale of its
barge construction facility in Louisiana. Midland had recorded a $3.5 million
reserve in December 1993 for the shutdown costs and carrying charges associated
with this facility. In addition, in December 1993 Midland sold its liquid barge
business, as mentioned earlier, at a pretax gain of $8.0 million. These
transactions are included in "Other income."
Midland's 1993 net earnings were impacted by the increase in the statutory
Federal income tax rate from 34% to 35%, effective January 1, 1993, that
resulted in additional deferred tax requirements and an increase to the 1993 tax
provision of approximately $1.8 million. As a result of this adjustment and the
above changes in operating earnings and other income, net earnings increased 15%
over 1993.
LIQUIDITY AND CAPITAL RESOURCES
Debt payments, dividends to Parent, and capital expenditures of $20.9 million
were primarily funded from cash provided by operating activities in 1995. The
increase in cash and cash equivalents reflected Midland's higher level of
operating earnings and non-cash reserves relating to the coal miners retiree
health care provision and other reserves discussed below. Proceeds from asset
dispositions in 1995 included the sale of one towboat for $2.5 million. Accounts
payable and other accrued liabilities increased in 1995 due in part to higher
accruals related to capital projects in process and adjustments to or the
establishment of reserves for the estimated future expenditures related to
several large marine and longshoreman accident and liability claims that
occurred in 1995 or prior.
Planned capital expenditures for 1996 are estimated at $48.0 million, the
majority of which pertains to purchase commitments for new open hopper barges.
Management believes that projected cash flow from operations, in combination
with currently available resources, is more than sufficient to meet Midland's
1996 capital expenditure and working capital requirements, normal repayments and
anticipated dividends to parent.
7
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item appears on page F-1 of this report. Such
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Not required.
ITEM 11. EXECUTIVE COMPENSATION
Not required.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not required.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not required.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Information with respect to these items appears on page F-1 of this report. Such
information is incorporated herein by reference.
(3) LIST OF EXHIBITS
3.1 Certificate of Incorporation of Midland Enterprises Inc. (filed
as Exhibit 3.1 to Registration Statement of Midland Enterprises
Inc. on Form S-1 (Registration No. 2-39895, as filed May 5,
1971).(1)
3.2 By-Laws of Midland Enterprises Inc. (filed as Exhibit 3.2 to
Annual Report of Midland Enterprises Inc. on Form 10-K for the
year ended December 31, 1984).(1)
- ---------------------
(1) Not filed herewith. In accordance with Rule 12-b-32 of the General Rules and
Regulations under the Securities Act of 1934, reference is made to the document
previously filed with the Commission.
8
<PAGE> 11
4.1 Indenture between Midland Enterprises Inc. and Shawmut Bank, N.A.
dated as of April 1, 1988 (filed as Exhibit 4.2 to Registration
Statement No. 33-20789).(1)
4.2 Indenture between Midland Enterprises Inc. and The First National
Bank of Boston dated as of April 2, 1990 (filed as Exhibit 4.2 to
Registration Statement No. 33-32120).(1)
(NOTE: The Registrant agrees to furnish to the Securities and
Exchange Commission upon request a copy of any instrument with
respect to any long-term debt of the Registrant.)
24.1 Consent of Independent Public Accountants.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed in the fourth quarter of 1995.
- ------------------
(1) Not filed herewith. In accordance with Rule 12-b-32 of the General Rules and
Regulations under the Securities Act of 1934, reference is made to the document
previously filed with the Commission.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MIDLAND ENTERPRISES INC.
(Registrant)
BY /s/ R. L. DOETTLING
---------------------------
R. L. DOETTLING
SENIOR VICE PRESIDENT, FINANCE AND ADMINISTRATION
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
DATE MARCH 18, 1996
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 18th day of March, 1996.
BY: /s/ F. C. RASKIN BY: /s/ R. L. DOETTLING
--------------------------- ---------------------------
F. C. RASKIN R. L. DOETTLING
PRESIDENT; DIRECTOR SENIOR VICE PRESIDENT, FINANCE
(PRINCIPAL EXECUTIVE OFFICER) AND ADMINISTRATION; DIRECTOR;
(PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
BY: /s/ P. E. HUBBARD BY: /s/ S. A. FRASHER
--------------------------- ---------------------------
P. E. HUBBARD S. A. FRASHER
SENIOR VICE PRESIDENT, SALES SENIOR VICE PRESIDENT, OPERATIONS;
AND MARKETING; DIRECTOR DIRECTOR
Supplemental information to be Furnished With Reports Filed Pursuant to Section
15 (3) of the Act by Registrants Which Have Not Registered Securities Pursuant
to Section 12 of the Act.
No annual reports to security holders covering the Registrant's last fiscal year
nor any proxy materials have been sent to the Registrant's security holders.
10
<PAGE> 13
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
(INFORMATION REQUIRED BY ITEMS 8 AND 14 (a) (1) AND (2) OF FORM 10-K)
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993 F-3
Consolidated Balance Sheets -- December 31, 1995 and 1994 F-4
Consolidated Statements of Stockholder's Investment for
the years ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8
SCHEDULE:
II - Valuation and Qualifying Accounts and Reserves F-18
</TABLE>
Schedules other than that listed above have been omitted as the information has
been included in the consolidated financial statements and related notes, or is
not applicable or not required.
F-1
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Midland Enterprises Inc.:
We have audited the accompanying consolidated balance sheets of MIDLAND
ENTERPRISES INC. (a Delaware corporation and a wholly-owned subsidiary of
Eastern Enterprises) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midland Enterprises Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
January 23, 1996
F-2
<PAGE> 15
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
(000 Omitted)
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
REVENUES (NOTE 1) ............................ $ 296,339 $ 264,692 $ 254,920
--------- --------- ---------
OPERATING COSTS AND EXPENSES:
Operating expenses ...................... $ 183,462 $ 177,478 $ 168,140
Depreciation and amortization (Note 6) .. 22,897 22,659 25,287
Selling, general and administrative
expenses ........................... 11,983 10,855 11,659
Overhead allocation from parent (Note 1) 2,830 2,551 2,560
Taxes, other than income ................ 17,339 15,344 14,273
--------- --------- ---------
$ 238,511 $ 228,887 $ 221,919
--------- --------- ---------
OPERATING EARNINGS ...................... $ 57,828 $ 35,805 $ 33,001
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income from Parent (Note 1) .... $ 4,404 $ 2,888 $ 2,374
Interest income other ................... 752 120 27
Gain on sale of liquid barge business ... -- -- 7,988
Closing of barge construction facility .. -- -- (3,500)
Gain on sale of barge construction
facility including $851,000 of
curtailment gains .................. -- 2,300 --
Gain (Loss) on sale of assets and
other, net ......................... 332 (298) 164
--------- --------- ---------
$ 5,488 $ 5,010 $ 7,053
--------- --------- ---------
INTEREST EXPENSE:
Long-term debt .......................... $ 14,624 $ 15,406 $ 15,879
Other, including amortization of
debt expense ....................... 551 576 360
Interest capitalized during construction
(Note 6) ........................... -- (39) (581)
--------- --------- ---------
$ 15,175 $ 15,943 $ 15,658
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES ................. $ 48,141 $ 24,872 $ 24,396
PROVISION FOR INCOME TAXES (NOTE 5) .......... 17,592 8,805 10,419
--------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEM ........... $ 30,549 $ 16,067 $ 13,977
Extraordinary item Net of Tax (Note 11) ...... (2,990) -- --
NET EARNINGS ................................. $ 27,559 $ 16,067 $ 13,977
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 16
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
------
<TABLE>
<CAPTION>
(000 OMITTED)
1995 1994
-------- --------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 1) ........ $ 25,728 $ 4,088
Receivables -
Trade, less allowances of $685,000
in 1995 and $469,000 in 1994 ......... 25,030 24,690
Parent (Note 1 and 4) ................ 60,358 61,866
Other ................................ 5,044 610
Materials, supplies and fuel (Note 1) ..... 7,977 8,299
Prepaid expenses .......................... 1,637 2,550
-------- --------
Total current assets ................. $125,774 $102,103
-------- --------
PROPERTY AND EQUIPMENT, AT COST (NOTES 4 AND 6):
Towboats and barges ....................... $536,605 $534,707
Terminals and other facilities ............ 47,652 42,340
Land ...................................... 4,600 4,600
-------- --------
Total property and equipment, at cost $588,857 $581,647
Less - Accumulated depreciation ........... 306,415 293,375
-------- --------
Net property and equipment ........... $282,442 $288,272
-------- --------
OTHER ASSETS:
Deferred pension charges (Note 2) ......... $ 12,794 $ 11,835
Unamortized debt expense, deferred
maintenance and other (Notes 1 and 6) ... 5,002 5,281
-------- --------
Total other assets ................... $ 17,796 $ 17,116
-------- --------
TOTAL ASSETS ......................... $426,012 $407,491
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 17
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
LIABILITITES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
(000 OMITTED)
1995 1994
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) ..................... $ 3,684 $ 3,354
Accounts payable -
Trade ....................................................... 17,516 11,705
Reserve for insurance claims (Note 1) .......................... 13,037 8,809
Accrued expenses ............................................... 5,469 2,771
Interest payable ............................................... 4,147 3,819
Other taxes payable ............................................ 4,367 3,327
Income taxes payable (Note 5) .................................. 1,451 918
Other current liabilities ...................................... 10,983 6,408
-------- --------
Total current liabilities ................................... $ 60,654 $ 41,111
-------- --------
LONG-TERM DEBT (NOTE 4) ........................................... $144,903 $148,808
-------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes (Note 5) ................................. $ 54,268 $ 54,644
Unamortized investment tax credits (Note 5) ................... 3,524 4,161
Post-retirement health care (Note 3) ........................... 8,726 8,713
Coal miners retiree health care (Note 11) ...................... 3,700 --
Other reserves ................................................. 1,331 1,148
-------- --------
Total reserves & deferred credits ........................... $ 71,549 $ 68,666
-------- --------
COMMITMENTS (NOTE 7)
STOCKHOLDER'S EQUITY (NOTE 4):
Common stock, $100 par value -
Authorized Shares - 1,000
Issued Shares - 15 1/2 ...................................... $ 1 $ 1
Capital in excess of par value ................................. 52,519 52,519
Retained earnings .............................................. 96,386 96,386
-------- --------
Total stockholder's equity .................................. $148,906 $148,906
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ......... $426,012 $407,491
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 18
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000 OMITTED EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Retained
Outstanding Par Value Earnings Total
-------------------- --------- --------- ---------
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1992: 15.5 $ 1 $ 52,519 $ 93,478 $ 145,998
Net Earnings ............. 0.0 0 0 13,977 13,977
Dividends to Parent ...... 0.0 0 0 (10,086) (10,086)
---- --------- --------- --------- ---------
BALANCE DECEMBER 31, 1993: 15.5 $ 1 $ 52,519 $ 97,369 $ 149,889
Net Earnings ............. 0.0 0 0 16,067 16,067
Dividends to Parent ...... 0.0 0 0 (17,050) (17,050)
---- --------- --------- --------- ---------
BALANCE DECEMBER 31, 1994: 15.5 $ 1 $ 52,519 $ 96,386 $ 148,906
Net Earnings ............. 0.0 0 0 27,559 27,559
Dividends to Parent ...... 0.0 0 0 (27,559) (27,559)
---- --------- --------- --------- ---------
BALANCE DECEMBER 31, 1995: 15.5 $ 1 $ 52,519 $ 96,386 $ 148,906
==== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 19
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
(000 Omitted)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ............................... $ 27,559 $ 16,067 $ 13,977
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Extraordinary provision for coal miners
retire health care, net of tax ...... 2,990 -- --
Depreciation and amortization ........... 22,896 22,269 25,287
Deferred and current income taxes ....... 157 (5,661) 2,992
Net gain on sale of assets .............. (475) (2,522) (8,125)
Other changes in assets and liabilities:
Trade and other receivables .......... (389) 409 577
Materials, supplies and fuel ......... 322 4,666 2,508
Accounts payable ..................... 5,811 (1,266) 623
Accrued expenses and other current
liabilities ....................... 9,879 (1,412) 3,148
Post-retirement health care .......... 14 593 (18)
Other ................................ (93) (3,922) (647)
-------- -------- --------
Net cash provided by operating
activities ........................ $ 68,671 $ 29,221 $ 40,322
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................... $(20,900) $ (4,337) $(14,191)
(Increase) decrease in Parent receivable ... 1,508 (4,914) (25,843)
Proceeds from sale of liquid barge
business ................................ -- -- 14,950
Proceeds from sale of barge building
facility ................................ -- 11,155 --
Proceeds from other asset dispositions ..... 3,561 1,293 638
-------- -------- --------
Net cash provided by (used in)
investing activities ................. $(15,831) $ 3,197 $(24,446)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ................ $ (3,641) $(11,368) $ (5,792)
Cash dividends paid to Parent .............. (27,559) (17,050) (10,086)
-------- -------- --------
Net cash used in financing activities ... $(31,200) $(28,418) $(15,878)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ................................. $ 21,640 $ 4,000 $ (2)
Cash and cash equivalents at beginning of
period ...................................... 4,088 88 90
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .... $ 25,728 $ 4,088 $ 88
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized ..... $ 14,629 $ 15,617 $ 15,299
Income taxes ............................. $ 17,087 $ 13,882 $ 7,639
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 20
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SIGNIFICANT ACCOUNTING POLICIES
Midland Enterprises Inc. (the "Company") is a wholly-owned subsidiary of Eastern
Enterprises ("Eastern") of Weston, Massachusetts. The Company's principal
business is barge transportation of bulk commodities on the Ohio and Mississippi
Rivers and their tributaries. The major commodity transported is coal, which
accounts for nearly two thirds of the Company's tonnage, the majority of which
is transported to various electric utilities in the eastern half of the United
States. The Company also provides bulk terminalling and shipyard repair services
at select locations which accounts for less than 10% of its consolidated
revenues. A substantial amount of the Company's operations relate to long-term
transportation and terminalling contracts. Based on past experience and its
competitive position, management considers that the simultaneous loss of several
of its subsidiaries' largest customers, while possible, is unlikely to happen.
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 and 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.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany balances and transactions have been
eliminated. The significant accounting policies followed by the Company and its
subsidiaries are described below:
Note 2 - Retirement and employee benefit plans
Note 3 - Post-retirement benefits other than pensions
Note 5 - Income taxes
Note 6 - Property and equipment
Note 11 - Extraordinary Item
(a) Cash Equivalents - Cash equivalents are comprised of highly liquid
investment instruments with original maturities of three months or
less. Such short-term investments are classified as Investments
Available for sale and are valued at market in accordance with SFAS
No. 115. Unrealized gains/losses on Investments Available for sale
are immaterial.
(b) Transactions with Parent - Parent receivables represent advances to
Eastern which bear interest at the prime rate for 1993 and at the
applicable Federal rate as defined in the Internal Revenue Code for
1994 and 1995; 6.4% at December 31, 1995, 5.75% at December 31,
1994, 6% at December 31, 1993. The Company was also charged a
corporate overhead allocation from its parent computed on several
factors including direct corporate management time, revenues,
capitalization and employees, which management believes is a
reasonable method of allocation.
(c) Materials, Supplies and Fuel - Materials, supplies and fuel are
stated at the lower of cost (first-in, first-out or average) or
market.
(d) Unamortized Debt Expense - Unamortized debt expense represents fees
and discounts incurred in obtaining long-term debt. Such costs are
being amortized over the terms of the respective bond issues.
(e) Accounting for Income on Tows in Progress - The Company recognizes
income on tows in progress on the percentage of completion method by
relating the number of miles completed to date to the total miles to
be traveled.
F-8
<PAGE> 21
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Reserve for Insurance Claims - The Company is self-insured for
personal injury and property claims, which are insured above a
deductible amount of $600,000 per occurrence. The Company's estimate
of liability for the self-insured claims is included in the "Reserve
for Insurance Claims" in the Consolidated Balance Sheets. Payments
made for losses incurred are netted against the related liability
for the loss.
(g) Reclassifications - Certain reclassifications of previously reported
amounts have been made to conform with current classifications.
(h) Environmental Matters - Accruals for environmental matters are
recorded in operating expenses when it is probable that a liability
has been incurred and the amount of the liability can be reasonably
estimated. Accrued liabilities are exclusive of claims against third
parties and are not discounted.
(2) RETIREMENT AND EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries, through various Company-administered plans and
union-administered plans, provide retirement benefits for substantially all of
their employees. Normal retirement age is 65, but provision is made for earlier
retirement. Benefits under non-union plans are based on salary or wages and
years of service, while benefits under union plans are based on negotiated
amounts and years of service.
The funding of retirement and employee benefit plans is in accordance with the
requirements of the plans and collective bargaining agreements and, where
applicable, is in sufficient amount to satisfy the "Minimum Funding Standards"
of the Employee Retirement Income Security Act of 1974.
The net pension cost for these plans and agreements charged to income was as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(000 OMITTED)
--------------------------
<S> <C> <C> <C>
Company-administered plans $ 86 $ 374 $ 280
Multi-employer union retirement
and welfare plans 294 309 369
------- ------- -------
Total Net Pension Cost $ 380 $ 683 $ 649
======= ======= =======
</TABLE>
The net pension cost for Company-administered plans consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(000 OMITTED)
--------------------------
<S> <C> <C> <C>
Service cost $ 1,280 $ 1,518 $ 1,490
Interest cost on projected benefit
obligation 1,821 1,661 1,592
Actual return on plan assets (7,094) (1,551) (4,682)
Net amortization and deferral 4,079 (1,254) 1,880
------- ------- -------
Total Net Pension Cost $ 86 $ 374 $ 280
======= ======= =======
</TABLE>
The assumptions used to determine the annual pension expense and the projected
benefit obligation at the end of the year were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Assumed discount rate 7.5% 7.5% 7.5%
Assumed rate of compensation increase 4.8% 5.0% 5.0%
Expected rate of return on plan assets 8.5% 8.5% 8.5%
</TABLE>
F-9
<PAGE> 22
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RETIREMENT AND EMPLOYEE BENEFIT PLANS (CONTINUED)
During 1993 and 1995 the Company settled portions of its defined benefit pension
obligation through the purchase of annuity contracts from insurance companies.
In compliance with the provisions of Statement of Financial Accounting Standards
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans," the Company recognized a pre-tax gain of $603,267 and
$215,968 in 1993 and 1995, respectively.
In 1994 the Company recognized pension curtailment gains of $796,861 relating to
the closing and sale of certain operations, primarily Port Allen Marine.
The following table sets forth the funded status of the Company-administered
plans and amounts recognized in the consolidated balance sheets as of December
31, 1995 and 1994 respectively, utilizing actuarial measurement dates as of
October 1, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------------
(000 OMITTED)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations,
including:
Vested benefits $ 17,107 $ 15,271
Non-vested benefits 2,532 2,373
-------- --------
$ 19,639 $ 17,644
Effect of future salary increases 4,368 4,476
-------- --------
Projected benefit obligations for services
rendered to date $ 24,007 $ 22,120
======== ========
Plan assets at fair value, primarily listed
stocks and bonds $ 42,215 $ 35,791
Less - Projected benefit obligations 24,007 22,120
-------- --------
Excess of plan assets over projected benefit
obligations $ 18,208 $ 13,671
Unrecognized net obligation at December 31,
1985 being amortized over 13 - 15 years (299) (379)
Unrecognized net actuarial gain (6,013) (2,053)
Unrecognized prior service cost 829 329
Amounts contributed to plans during fourth quarter 26 221
Unfunded accumulated benefits (78) (83)
-------- --------
Net Pension Assets $ 12,673 $ 11,706
======== ========
</TABLE>
Certain of the Company's subsidiaries participate in one or more multi-employer
pension plans, and contribute to such plans in amounts required by the
applicable union contracts. Contribution levels are negotiated between the
subsidiaries and the unions. A subsidiary would be required under the Federal
law to compute its liability for, and accelerate its funding of, its
proportionate share of a multi-employer plan's unfunded vested benefits (if any)
upon its withdrawal from, or the termination of, such a plan.
F-10
<PAGE> 23
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company and its subsidiaries, through various Company-administered plans and
other union retirement and welfare plans under collective bargaining agreements,
provide certain health care and life insurance benefits for retired employees.
The Company's employees, who are participants in the pension plans, become
eligible for these benefits if they reach retirement age while working for the
Company.
The net post-retirement benefit cost of these plans and agreements charged to
expense was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------
1995 1994 1993
------- ------- -------
(000 OMITTED)
<S> <C> <C> <C>
Service cost $ 126 $ 160 $ 249
Interest cost on accumulated benefit obligation 733 591 760
Net amortization and deferral 51 (126) 47
------- ------- -------
Net periodic post-retirement benefit costs $ 910 $ 625 $ 1,056
======= ======= =======
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets as of December 31, 1995
and 1994 (using a measurement date of October 1, 1995 and 1994):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
-------- --------
(000 OMITTED)
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 8,233 $ 6,718
Fully eligible plan participants 1,411 1,562
Other active plan participants 2,250 1,923
-------- --------
$ 11,894 $ 10,203
Plan assets at fair value - -
-------- --------
Accumulated benefit obligation in excess of
plan assets $ 11,894 $ 10,203
Unrecognized net (gain) (4,869) (3,449)
Unrecognized prior service cost 1,701 1,959
-------- --------
Post-retirement health care reserve $ 8,726 $ 8,713
======== ========
</TABLE>
In 1994 the Company recognized post-retirement benefit curtailment gains of
$410,455 relating to the closing and sale of certain operations.
The weighted average discount rate used in determining the accumulated benefit
obligation was 7.5%. A 10% and 11% increase in cost of covered health care
benefits has been assumed for 1995 and 1994, respectively. This rate of increase
is assumed to drop gradually to 5% after 5 years. A one percentage point
increase in the assumed health care cost trend would have increased the net
periodic post-retirement benefit cost by $60,000 in 1995 and $54,000 in 1994 and
the accumulated post-retirement benefit obligation by $772,000 and $675,000 in
1995 and 1994 respectively.
F-11
<PAGE> 24
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS
(a) Summary of Long-term Debt - Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
--------- ---------
(000 OMITTED)
<S> <C> <C>
First Preferred Ship Mortgage Bonds -
9.9% Series, payable in annual amounts of
$5,000,000 beginning in 1999 to 2008 ..... $ 50,000 $ 50,000
8.1%-9.85% Medium Term Notes, Series A,
due 2002-2012 ............................ 71,000 71,000
--------- ---------
Total Mortgage Bonds ............... $ 121,000 $ 121,000
--------- ---------
Obligations under Capital Leases and Other -
BA Leasing & Capital Corporation (Successor
to Wells Fargo Leasing Corporation) ...... $ 6,230 $ 7,164
Security Pacific Equipment Leasing, Inc. ....... 14,299 15,885
Westinghouse Credit Corporation ................ 8,410 9,355
Other (including unamortized debt discount) .... (812) (878)
--------- ---------
$ 28,127 $ 31,526
--------- ---------
Less:
Current Portion of Long-Term Debt Included Above $ 3,684 $ 3,354
Monies on Deposit (d) .......................... 540 364
--------- ---------
$ 4,224 $ 3,718
--------- ---------
Total Long-Term Debt ..................... $ 144,903 $ 148,808
========= =========
</TABLE>
The First Preferred Ship Mortgage Bonds, Ship Financing Bond, and obligations
under capital leases are secured by a substantial portion of the Company's
towboats and barges and by assignment of rentals for that equipment payable to
the Company by its subsidiaries.
Under the most restrictive of the mortgage indentures, the Company, (a) may not
pay dividends, reacquire its common stock or make any advances or loans to its
stockholder or subsidiaries of its stockholder except to the extent of the sum
of (i) Consolidated Net Earnings after December 31, 1988, (ii) the net proceeds
of the sale of stock of the Company after December 31, 1988, and (iii) the
amount of $50,000,000 with respect to any advances or loans to its stockholder
or to subsidiaries of its stockholder, (b) is required to maintain Consolidated
Net Current Assets at least equal to $1,250,000, and (c) may not incur or permit
any of its subsidiaries to incur additional Senior Unsecured Funded Debt except
for refunding unless immediately thereafter Consolidated Net Tangible Assets
will aggregate at least 150% of (i) Consolidated Senior Unsecured Funded Debt
(excluding therefrom unsecured loans or advances to the Company from its
stockholder) plus (ii) Consolidated Senior Secured Funded Debt (all terms as
defined in the applicable indenture). Under these agreements, $17,215,000 of
retained earnings at December 31, 1995 are available for additional dividends to
Eastern.
Included in obligations under capital leases is $28,939,000 of barge lease
obligations having a weighted average interest rate of 10%. Minimum lease
payments under these agreements are due in installments through 2003; principal
payments due for the next five years amount to $3,684,000 in 1996, $4,345,000 in
1997, $4,388,000 in 1998, $4,834,000 in 1999,and $5,327,000 in 2000.
F-12
<PAGE> 25
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS (CONTINUED)
(b) Credit Agreements
Eastern maintains a credit agreement with a group of banks which provides for
the borrowing by Eastern and certain subsidiaries of up to $100,000,000 at any
time through December 31, 1999. The Company's maximum available borrowings under
the credit agreement are $50,000,000. The agreement requires a facility fee,
which averages 1/7 of 1% of the unused portion. During 1995 and at December 31,
1995, the Company had no borrowings outstanding under this agreement. The
interest rate for borrowings is the agent bank's prime rate or, at Eastern's
option, various alternatives.
(c) Consolidated Five Year Sinking Funds and Maturities
The aggregate annual sinking fund requirements and current maturities of
long-term debt, including capital leases, for the next five years amount to
$3,684,000 in 1996, $4,345,000 in 1997, and $4,388,000 in 1998, $9,834,000 in
1999, and $10,327,000 in 2000.
(d) Deposited Monies
Monies on deposit with trustee are netted against long-term debt. In accordance
with the provision of certain bond indentures, these amounts represent deposits
with the bond trustee for the equipment mortgaged under the bond indenture and
subsequently sold. It is the Company's intention to repurchase its own bonds
with these funds to be used for sinking fund requirements.
(5) INCOME TAXES
The Company and its subsidiaries are members of an affiliated group of Companies
which files a consolidated Federal Income Tax return with Eastern. The Companies
follow the policy, established for the group, of providing for Federal Income
Taxes which would be payable on a separate company basis. For financial
reporting purposes, investment tax credits were deferred and are being amortized
to income over the book life of the related property and equipment.
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
-------- -------- --------
(000 OMITTED)
<S> <C> <C> <C>
Current:
Federal $ 15,569 $ 12,446 $ 7,835
State 1,027 222 415
-------- -------- --------
Total Current Provision $ 16,596 $ 12,668 $ 8,250
Deferred:
Federal 765 (3,863) 2,169
State 230 -- --
-------- -------- --------
Total Deferred Provision $ 995 $ (3,863) $ 2,169
-------- -------- --------
Total Provision $ 17,592 $ 8,805 $ 10,419
======== ======== ========
</TABLE>
F-13
<PAGE> 26
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES (CONTINUED)
The table below reconciles the statutory U.S. Federal Income Tax provision to
the recorded income tax provision:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-------- -------- --------
(000 OMITTED)
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Computed provision for income taxes
at statutory Federal rate $ 16,850 $ 8,705 $ 8,539
Increase (decrease) from statutory
rate resulting principally from:
State taxes, net of Federal benefit 817 144 270
Effect of increase in Federal income
tax rate -- -- 1,572
Nondeductible expenses 53 53 28
Non Taxable Interest (128) -- --
Other, net -- (97) 10
-------- -------- --------
Provision for Income Taxes $ 17,592 $ 8,805 $ 10,419
======== ======== ========
</TABLE>
Significant items making up deferred tax liabilities and deferred tax assets, as
of December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(000 OMITTED)
<S> <C> <C>
Assets:
Post-retirement benefits $ 3,027 $ 3,550
Other 7,324 4,961
-------- --------
Total Deferred Tax Assets $ 10,351 $ 8,511
Liabilities:
Accelerated depreciation (57,744) (57,510)
Other (7,235) (5,373)
-------- --------
Total Deferred Tax Liabilities $(64,979) $(62,883)
-------- --------
Total Deferred Taxes $(54,628) $(54,372)
======== ========
</TABLE>
F-14
<PAGE> 27
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) PROPERTY AND EQUIPMENT
(a) Depreciation and Amortization - Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of
property and equipment which range from 2 to 40 years. Depreciation and
amortization as a percentage of average depreciable assets was 3.9% in 1994 and
4.0% in 1995, respectively.
(b) Maintenance & Repairs - The costs of routine maintenance and repairs
are charged to expense as incurred. Major renovations and renewals, which
benefit future periods or extend the life of the asset, are capitalized and
amortized over their estimated useful lives.
(c) Interest During Construction - The Company reflects as an element of
cost in all major construction projects the estimated cost of borrowed funds
employed during the period of construction. Capitalized interest is amortized
over the estimated useful life of the property or equipment.
(7) COMMITMENTS
The Company and its subsidiaries lease certain facilities, vessels and equipment
under long-term leases which expire on various dates through 2010.
The minimum rental commitment for noncancelable operating leases at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
MINIMUM
YEARS ENDING ANNUAL RENTAL
------------ -------------
(000 OMITTED)
<S> <C>
1996 $ 4,559
1997 3,008
1998 1,769
1999 1,320
2000 - 2010 6,773
-------
$17,429
=======
</TABLE>
(8) SIGNIFICANT CUSTOMERS
None of the subsidiaries' customers accounted for more than 10% of the Company's
total consolidated operating revenues in 1995, 1994 and 1993.
F-15
<PAGE> 28
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
Cash, trade receivables and accounts payable: The carrying amounts approximates
fair value because of the short maturity of these instruments.
Long-term debt: The fair value of long-term debt is estimated using discounted
cash flow analyses based on the current incremental borrowing rates for similar
types of borrowing arrangements.
The carrying amounts and estimated fair values of Midland's financial
instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------ -----
(000 OMITTED)
<S> <C> <C>
DECEMBER 31, 1995
Long-term debt $119,649 $141,365
DECEMBER 31, 1994
Long-term debt $119,758 $126,906
</TABLE>
(10) UNAUDITED INTERIM FINANCIAL INFORMATION
The following table summarizes the Company's reported unaudited consolidated
quarterly results of operations for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
(000 OMITTED)
<S> <C> <C> <C> <C>
1995
----
Revenues $72,732 $69,261 $76,486 $77,865
======= ======= ======= =======
Operating Earnings $15,300 $12,544 $15,724 $14,260
======= ======= ======= =======
Net Earnings $ 8,133 $ 6,572 $ 8,758 $ 4,096
======= ======= ======= =======
1994
----
Revenues $58,166 $68,986 $67,108 $70,432
======= ======= ======= =======
Operating Earnings $ 5,025 $ 9,871 $ 9,257 $11,652
======= ======= ======= =======
Net Earnings $ 1,146 $ 5,719 $ 3,753 $ 5,449
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 29
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EXTRAORDINARY ITEM - COAL MINERS RETIREE HEALTH CARE
In 1993, Midland's Parent, Eastern Enterprises ("Parent"), recorded an
extraordinary charge for its estimated obligation under the federal Coal
Industry Retiree Health Benefit Act of 1992 ("Coal Act") relative to a group of
retired coal miners and their beneficiaries assigned to the Parent at that time
as discussed in the Parent's 1993 Annual Report. In late 1995, the Parent
received notice from the Social Security Administration claiming that the Parent
is responsible for healthcare and death benefit premiums for an additional group
of retired coal miners and their beneficiaries. A portion of the 1995 assignment
to the Parent is allegedly due to the Parent's relationship to a predecessor
entity to Midland which is no longer in business. As of January 23, 1996,
Midland has not received assignments or invoices for healthcare premiums for
this group of coal miners and their beneficiaries.
While Midland's ultimate obligation, if any, is subject to a number of factors
discussed below, Midland recorded a reserve of $4,600,000 ($2,990,000 after-tax)
in the fourth quarter of 1995 to provide for its estimated undiscounted
obligations under the Coal Act. This after-tax amount of $2,990,000 has been
reflected as an extraordinary item, in accordance with the conclusions of the
Financial Accounting Standard Board's Emerging Issues Task Force, which has
determined that any entity such as Midland which no longer has operations in the
coal industry should account for its entire obligation under the Coal Act as an
extraordinary item. Midland's obligation could range from zero to more than $8
million depending on the outcome of challenges to the constitutionality of the
Coal Act or other factors including administrative review of assigned
individuals, the availability of transfers from the Abandoned Mine Reclamation
Fund to pay for the healthcare premiums of unassigned miners and their
beneficiaries, the setting of premiums, medical inflation rates, Medicare
reimbursements, other changes in government healthcare programs, and possible
changes in the terms of, or repeal of, the Coal Act.
F-17
<PAGE> 30
SCHEDULE II
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000 OMITTED)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
------------------------ ----------
Charges
for which
Balance Charged Charged Reserves Balance
Beginning Costs & to Other Were End of
Of Year Expenses Accounts Created Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1995
- ----
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $ 469 $ 268 -- $ (52) $ 685
======== ======== ======== ======== ========
Reserves included in liabilities -
Reserve for environmental expenses 754 -- 297 -- 1,051
Reserve for insurance claims 8,809 8,063 5,876 (9,711) 13,037
Reserve for post-retirement
health care 8,713 910 -- (896) 8,727
Reserve for employee benefits 2,292 6,177 3,940 (5,370) 7,039
Reserve for coal miners retiree
health care -- 4,600 -- -- 4,600
-------- -------- -------- -------- --------
TOTAL OTHER RESERVES $ 20,568 $ 19,750 $ 10,113 $(15,977) $ 34,454
======== ======== ======== ======== ========
1994
- ----
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $ 428 $ 32 $ -- $ 9 $ 469
======== ======== ======== ======== ========
Reserves included in liabilities -
Reserve for environmental expenses 841 175 -- (262) 754
Reserve for insurance claims 8,285 5,904 2,127 (7,507) 8,809
Reserve for post-retirement
health care 9,306 625 -- (1,218) 8,713
Reserve for employee benefits 2,563 6,129 148 (6,548) 2,292
-------- -------- -------- -------- --------
TOTAL OTHER RESERVES $ 20,995 $ 12,833 $ 2,275 $(15,535) $ 20,568
======== ======== ======== ======== ========
1993
- ----
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $ 428 $ -- $ -- $ -- $ 428
======== ======== ======== ======== ========
Reserves included in liabilities -
Reserve for environmental expenses 884 (76) -- 33 841
Reserve for insurance claims 8,480 5,587 1,098 (6,880) 8,285
Reserve for post-retirement
health care 9,288 1,056 -- (1,038) 9,306
Reserve for employee benefits 2,670 6,904 65 (7,076) 2,563
-------- -------- -------- -------- --------
TOTAL OTHER RESERVES $ 21,322 $ 13,471 $ 1,163 $(14,961) $ 20,995
======== ======== ======== ======== ========
</TABLE>
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 25,728
<SECURITIES> 0
<RECEIVABLES> 91,117
<ALLOWANCES> 685
<INVENTORY> 7,977
<CURRENT-ASSETS> 125,774
<PP&E> 588,857
<DEPRECIATION> 306,415
<TOTAL-ASSETS> 426,012
<CURRENT-LIABILITIES> 60,654
<BONDS> 144,903
0
0
<COMMON> 1
<OTHER-SE> 148,906
<TOTAL-LIABILITY-AND-EQUITY> 426,012
<SALES> 0
<TOTAL-REVENUES> 296,339
<CGS> 0
<TOTAL-COSTS> 222,932
<OTHER-EXPENSES> 9,822
<LOSS-PROVISION> 268
<INTEREST-EXPENSE> 15,175
<INCOME-PRETAX> 48,141
<INCOME-TAX> 17,592
<INCOME-CONTINUING> 30,549
<DISCONTINUED> 0
<EXTRAORDINARY> (2,990)
<CHANGES> 0
<NET-INCOME> 27,559
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
