<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended September 30, 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 2-39895
MIDLAND ENTERPRISES INC.
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2284434
- ----------------------------------------------------------------------------
(State or 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
----------------------------------------------------------------------------
(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 of Midland Enterprises Inc. outstanding as
of the date of this report was 15 1/2, all held by Eastern Enterprises.
Registrant meets the conditions set forth in general instructions H(1) (a) and
(b) of Form 10-Q and is therefore filing this form with the reduced disclosure
format.
<PAGE> 2
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) ACCOUNTING POLICIES
It is Midland's opinion that the financial information contained in this report
reflects all adjustments necessary to present a fair statement of the results
for the periods reported, but such results are not necessarily indicative of
results to be expected for the year, due to the somewhat seasonal nature of
Midland's operations. All such adjustments were of a normal, recurring nature.
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 pursuant to the rules and
regulations of the Securities and Exchange Commission. However, the disclosures
herein when read with the annual report for 1995 filed on Form 10-K are adequate
to make the information presented not misleading.
(2) CONTINGENCIES
In September 1996 Midland's Parent, Eastern Enterprises, received notice from
the Social Security Administration claiming that the Parent is responsible for
health benefit premiums for an additional group of retired coal miners and their
beneficiaries under the federal Coal Industry Retiree Health Benefit Act of 1992
("Coal Act"). In 1993 and 1995 the Parent recorded extraordinary charges to
provide for its estimated undiscounted obligations under the Coal Act with
respect to retired coal miners and their beneficiaries assigned to the Parent.
A portion of the recent assignment to the Parent is assertedly due to the
Parent's relationship to a predecessor of Midland that is no longer in business.
In 1995, Midland recorded a reserve of $4,600,000 ($2,990,000 after-tax) to
provide for its estimated undiscounted obligations under the Coal Act with the
after-tax amount properly reflected as an extraordinary item. As more fully
discussed in Note 11 of Notes to Financial Statements in Midland's 1995 Annual
Report, its obligation could range from zero to more than $8 million. Due to a
lack of information about the recent assignment of the additional group of
retired miners and their beneficiaries and their relationship to Midland, it is
not known what the ultimate cost of such assignment, if any, will be to Midland
and no additional reserve has been made at this time.
<PAGE> 3
ITEM 1.
FINANCIAL STATEMENTS
Company or group of companies for which report is filed:
Midland Enterprises Inc. and Subsidiaries ("Midland")
Consolidated Statements of Income
<TABLE>
<CAPTION>
(000 Omitted)
-------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
-------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Revenues $ 74,497 $76,486 $227,376 $218,474
-------- ------- -------- --------
Operating Costs and Expenses:
Operating Expenses 46,128 47,632 142,299 134,901
Depreciation and amortization 5,739 5,506 16,786 17,012
Selling, general & administrative expenses 3,286 2,662 9,080 7,957
Overhead allocation from Parent 750 675 2,250 2,025
Taxes, other than income 3,931 4,286 12,675 13,010
-------- ------- -------- --------
59,834 60,761 183,090 174,905
-------- ------- -------- --------
Operating Earnings 14,663 15,725 44,286 43,569
-------- ------- -------- --------
Other Income:
Interest income from Parent 832 1,150 2,497 3,452
Interest income other 275 194 936 436
Premium paid on debt
retirement and other, net (19) 373 (472) 359
-------- ------- -------- --------
1,088 1,717 2,961 4,247
-------- ------- -------- --------
Interest Expense:
Long-term debt 3,460 3,631 10,590 11,000
Other, including amortization of
debt expense 39 32 213 89
-------- ------- -------- --------
3,499 3,663 10,803 11,089
-------- ------- -------- --------
Earnings before income taxes 12,252 13,779 36,444 36,727
Provision for Income taxes 4,461 5,020 13,190 13,263
-------- ------- -------- --------
Net Earnings $7,791 $ 8,759 $ 23,254 $23,464
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 4
Midland Enterprises Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(000 Omitted)
------------------------------------------------
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 20,845 $ 25,728 $ 16,250
Receivables -
Trade, net 21,672 25,030 26,892
Parent 51,344 60,358 66,974
Other 1,703 5,044 5,222
Materials, supplies & fuel 8,098 7,977 7,597
Prepaid expenses 2,923 1,637 2,923
-------- -------- --------
Total current assets 106,585 125,774 125,858
-------- -------- --------
Property and Equipment, at cost 621,785 588,857 579,727
Less-Accumulated depreciation 317,796 306,415 302,253
-------- -------- --------
Net property and equipment 303,989 282,442 277,474
-------- -------- --------
Other Assets:
Deferred pension charges 12,801 12,794 12,054
Other 4,261 5,002 4,973
-------- -------- --------
Total other assets 17,062 17,796 17,027
-------- -------- --------
Total assets $427,636 $426,012 $420,359
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 5
Midland Enterprises Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(000 Omitted)
----------------------------------------------------
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Liabilities and Stockholder's Equity
Current Liabilities:
Current portion of long - term debt $ 3,886 $ 3,684 $ 3,594
Accounts payable trade 15,837 17,516 9,715
Reserve for insurance claims 13,429 13,037 12,132
Income taxes payable 1,094 1,451 1,028
Accrued expenses 17,042 13,983 15,709
Other current liabilities 10,841 10,983 8,010
-------- -------- --------
Total current liabilities 62,129 60,654 50,188
-------- -------- --------
Long-Term Debt 138,257 144,903 145,995
-------- -------- --------
Other Liabilities:
Deferred income taxes 55,261 54,268 55,514
Unamortized investment
tax credits 3,125 3,524 3,667
Post-retirement health care 8,787 8,726 8,662
Coal miners retiree health care 3,600 3,700 0
Other reserves 1,758 1,331 1,561
-------- -------- --------
Total other liabilities 72,531 71,549 69,404
-------- -------- --------
Stockholder's Equity:
Common stock, $100 par value -
Authorized - 1,000 shares
Shares issued & outstanding -
15 1/2 shares 1 1 1
Capital in excess of par value 52,519 52,519 52,519
Retained earnings 102,199 96,386 102,252
-------- -------- --------
Total stockholder's equity 154,719 148,906 154,772
-------- -------- --------
Total liabilities and
stockholder's equity $427,636 $426,012 $420,359
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 6
Midland Enterprises Inc. and Subsidiaries ("Midland")
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(000 Omitted)
-------------------------------
For the Nine Months Ended
-------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 23,254 $ 23,464
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 16,387 17,012
Deferred and current income taxes 636 980
Net (gain) loss on sale of assets 4 (492)
Other changes in assets and liabilities:
Trade and other receivables 3,358 (2,251)
Materials, supplies & fuel (121) 702
Accounts payable (1,679) (1,990)
Accrued expenses and other current liabilities 3,309 10,717
Other 3,081 (4,141)
-------- --------
Net Cash Provided by
Operating Activities 48,229 44,001
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (39,542) (9,576)
Decrease (Increase) in Parent receivable 9,014 (5,108)
Proceeds from asset dispositions 1,503 3,256
-------- --------
Net Cash Used by
Investing Activities (29,025) (11,428)
-------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt (6,646) (2,813)
Cash dividends paid to Parent (17,441) (17,598)
-------- --------
Net Cash Used in
Financing Activities (24,087) (20,411)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (4,883) 12,162
Cash and Cash Equivalents at Beginning of Period 25,728 4,088
-------- --------
Cash and Cash Equivalents at End of Period $ 20,845 $ 16,250
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $7,899 $8,124
Income taxes $12,545 $12,313
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Revenues for the third quarter of 1996 were 3% below 1995 reflecting an 8%
decline in ton miles, while nine month revenues, a new record, increased 4%
over last year on 1% fewer ton miles. Weak foreign demand for coal and the lack
of stored grain coupled with a late harvest, lowered demand for the
transportation of export coal and grain in the third quarter. The improved
market rate structure in 1996, particularly on non-coal commodities, partially
offset the negative impact on revenue from the lower volume.
Lower export coal shipments resulted in coal ton miles declining 2% in the
third quarter, although tonnage for the period increased 7%, as long haul
export movements were replaced with shorter haul spot shipments. Nine month
coal ton miles and tonnage were 4% and 2% higher, respectively, than 1995
reflecting slightly longer average hauls while setting a new Midland record for
tons of coal transported. Non-coal tonnage declined 9% and 5%, respectively,
in the third quarter and first nine months compared to 1995, mainly as a result
of the reduced export activity on the Lower Mississippi River coupled with
Midland's reduction in towing services for others. Reductions in grain and
aggregate tonnage were largely offset by increased shipments of coke, scrap and
steel products.
Operating earnings for the quarter, despite being Midland's second highest
third quarter, declined 7% from the comparable record period in 1995.
Contributing factors were the aforementioned lower ton miles, higher operating
costs from traffic pattern inefficiencies created from the reduced export
tonnage and rising diesel fuel prices. Diesel prices have averaged 16% above
last year's levels during much of 1996, including the third quarter. Midland's
long-term contracts contain fuel adjustment clauses to compensate for the
higher cost. For the first nine months, operating earnings increased by 2%
over 1995, setting a new earnings record. Strong second quarter coal demand
contributed to the improved year to date results.
Other income declined in the third quarter and first nine months of 1996 due to
lower earnings on advances with parent as a result of the impact on cash
balances from the increased level of capital spending and expenses incurred
related to the early retirement of long-term debt. Also, 1995 third quarter
results included net pre-tax gains of $.5 million on the sale and disposal of
assets.
As a result of the pre-tax items and operating results discussed above, net
earnings for the third quarter and first nine months of 1996 declined 11% and
1%, respectively, as compared to the prior year.
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1996, capital expenditures, debt repayments and
dividends to Parent were funded from cash provided from operating activities,
the receivable with Parent, or cash and equivalents. For 1996, planned capital
expenditures are estimated at $50 million, the majority of which pertains to
the purchase of new dry cargo barges. It is anticipated that the total funding
of these purchases will continue to be from the above mentioned sources.
In June 1996, Midland retired $3 million of medium-term notes and incurred a
related premium charge of $420,000.
In September 1996, Midland's Parent received notices from the Social Security
Administration claiming that the Parent is responsible for health benefit
premiums for an additional group of retired coal miners and their beneficiaries
under the federal Coal Industry Retiree Health Benefit Act of 1992, assertedly
due to the Parent's relationship to a predecessor of Midland that is no longer
in business. As described in Note 2 of Notes to Financial Statements, the
liability for these additional premiums could result in an addition to the
reseve and would be treated as an extraordinary item. No additional provision
has been made at this time because the amount of the reserve, if any, cannot be
reasonably estimated.
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed in the third quarter
of 1996.
<PAGE> 10
SIGNATURE
It is Midland's opinion that the financial information contained in this report
reflects all normal, recurring adjustments necessary for a fair statement of
results for the period reported, but such results are not necessarily indicative
of results to be expected for the year, due to the seasonal nature of Midland'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, Midland has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
MIDLAND ENTERPRISES INC.
BY: ____________________________
R. L. DOETTLING
SENIOR VICE PRESIDENT
FINANCE AND ADMINISTRATION
PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED OFFICER
DATE: OCTOBER 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,845
<SECURITIES> 0
<RECEIVABLES> 75,405
<ALLOWANCES> 685
<INVENTORY> 8,098
<CURRENT-ASSETS> 106,585
<PP&E> 621,785
<DEPRECIATION> 317,796
<TOTAL-ASSETS> 427,636
<CURRENT-LIABILITIES> 62,129
<BONDS> 138,257
0
0
<COMMON> 1
<OTHER-SE> 154,719
<TOTAL-LIABILITY-AND-EQUITY> 427,636
<SALES> 0
<TOTAL-REVENUES> 227,376
<CGS> 0
<TOTAL-COSTS> 171,364
<OTHER-EXPENSES> 8,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,803
<INCOME-PRETAX> 36,444
<INCOME-TAX> 13,190
<INCOME-CONTINUING> 23,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,254
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
