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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, 1997
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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 2-39895
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MIDLAND ENTERPRISES INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2284434
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 PIKE STREET, CINCINNATI, OHIO 45202
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 513-721-4000
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares of common stock 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.
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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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 1996 filed on Form 10-K are adequate
to make the information presented not misleading.
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<TABLE>
<CAPTION>
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(000 OMITTED)
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FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 67,650 $ 74,496 $ 200,145 $ 227,376
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OPERATING COSTS AND EXPENSES:
Operating Expenses $ 45,027 $ 46,127 $ 137,876 $ 142,299
Depreciation and amortization 5,656 5,739 16,979 16,786
Selling, general & administrative 2,787 3,286 8,173 9,080
Overhead allocation from Parent 725 750 2,175 2,250
Taxes, other than income 3,395 3,931 10,351 12,675
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$ 57,590 $ 59,833 $ 175,554 $ 183,090
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OPERATING EARNINGS $ 10,060 $ 14,663 $ 24,591 $ 44,286
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OTHER INCOME (EXPENSE):
Interest income from Parent $ 1,168 $ 832 $ 3,219 $ 2,497
Interest income other 28 275 42 936
Loss on sale of assets
and other, net (7) (19) (104) (472)
---------- ---------- ----------- -----------
$ 1,189 $ 1,088 $ 3,157 $ 2,961
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INTEREST EXPENSE:
Long-term debt $ 3,361 $ 3,460 $ 10,180 $ 10,590
Other, including amortization
of debt expense 48 39 143 213
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$ 3,409 $ 3,499 $ 10,323 $ 10,803
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Earnings before income taxes $ 7,840 $ 12,252 $ 17,425 $ 36,444
Provision for Income taxes 2,716 4,461 5,900 13,190
---------- ---------- ----------- -----------
NET EARNINGS $ 5,124 $ 7,791 $ 11,525 $ 23,254
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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<TABLE>
<CAPTION>
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
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(000 OMITTED)
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SEPTEMBER 30, DEC. 31, SEPTEMBER 30,
1997 1996 1996
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<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,418 $ 91 $ 20,845
Receivables -
Trade, net 13,774 16,728 19,764
Parent 75,146 63,863 51,344
Other 2,770 2,761 3,612
Materials, supplies & fuel 7,817 8,176 8,098
Prepaid expenses 3,038 2,028 2,923
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TOTAL CURRENT ASSETS $ 104,963 $ 93,647 $ 106,586
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PROPERTY AND EQUIPMENT, AT COST $ 626,798 $ 629,560 $ 621,785
Less-Accumulated depreciation 329,337 323,120 317,796
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NET PROPERTY AND EQUIPMENT $ 297,461 $ 306,440 $ 303,989
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OTHER ASSETS:
Deferred pension charges $ 13,845 $ 13,587 $ 12,801
Other 3,691 4,117 4,261
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TOTAL OTHER ASSETS $ 17,536 $ 17,704 $ 17,062
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TOTAL ASSETS $ 419,960 $ 417,791 $ 427,637
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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<TABLE>
<CAPTION>
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(000 OMITTED)
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SEPTEMBER 30, DEC. 31, SEPTEMBER 30,
1997 1996 1996
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<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long - term debt $ 4,261 $ 3,986 $ 3,886
Accounts payable trade 10,670 11,224 15,837
Reserve for insurance claims 12,522 11,881 13,429
Interest payable 6,779 4,062 6,894
Taxes payable 3,820 5,242 5,812
Accrued expenses 4,796 5,617 5,432
Other current liabilities 9,490 9,851 10,840
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TOTAL CURRENT LIABILITIES $ 52,338 $ 51,863 $ 62,130
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LONG-TERM DEBT $ 133,469 $ 137,313 $ 138,257
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RESERVES AND DEFERRED CREDITS:
Deferred income taxes $ 58,040 $ 54,594 $ 55,261
Unamortized investment tax credits 2,627 2,999 3,125
Post-retirement health care 8,809 8,798 8,787
Coal miners retiree health care 3,350 3,500 3,600
Other reserves 2,158 2,437 1,758
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TOTAL RESERVES AND DEFERRED CREDITS $ 74,984 $ 72,328 $ 72,531
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STOCKHOLDER'S EQUITY:
Common stock, $100 par value -
Authorized - 1,000 shares
Shares issued - 15 1/2 shares $ 1 $ 1 $ 1
Capital in excess of par value 52,519 52,519 52,519
Retained earnings 106,649 103,767 102,199
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TOTAL STOCKHOLDER'S EQUITY $ 159,169 $ 156,287 $ 154,719
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 419,960 $ 417,791 $ 427,637
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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<TABLE>
<CAPTION>
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(000 OMITTED)
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FOR THE NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 11,525 $ 23,254
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 16,979 16,786
Deferred and current income taxes 2,144 636
Net (gain) loss on sale of assets 40 4
Other changes in assets and liabilities:
Trade receivables 2,954 3,358
Materials, supplies & fuel 359 (121)
Accounts payable (554) (1,679)
Accrued expenses and other current liabilities 2,056 3,309
Other (1,696) 2,682
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 33,807 $ 48,229
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (9,683) $ (39,542)
Decrease (Increase) in Parent receivable (11,283) 9,014
Proceeds from asset dispositions 1,698 1,503
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NET CASH USED IN INVESTING ACTIVITIES $ (19,268) $ (29,025)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (3,569) $ (6,646)
Cash dividends paid to Parent (8,643) (17,441)
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NET CASH USED IN FINANCING ACTIVITIES $ (12,212) $ (24,087)
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Net Increase (Decrease) in Cash and Cash Equivalents $ 2,327 $ (4,883)
Cash and Cash Equivalents at Beginning of Period 91 25,728
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Cash and Cash Equivalents at End of Period $ 2,418 $ 20,845
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 7,414 $ 7,899
Income taxes $ 3,377 $ 12,545
</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:
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Continued weak demand for transportation services resulted in revenue decreases
of 9% and 12%, respectively, for the third quarter and first nine months of
1997. A moderately cool summer, which tempered domestic utility demand, coupled
with a weak export coal market and reduced shipments of grain to the Gulf,
combined to depress affreightment rates as well as disrupt traffic patterns.
Third quarter river navigation was negatively impacted by repairs to various key
locks that caused long traffic delays and loss of productivity. While less
significant than the extreme operating conditions experienced in the first half
of 1997 from record spring flooding on the Ohio River and severe winter icing on
northern rivers, these delays continued to significantly raise operating costs
and lower productivity as compared to 1996. Benefits from ongoing cost
containment and productivity programs have been partially offsetting.
As a result of the market issues discussed above, tonnage declined 11% and 15%
for the third quarter and first nine months as compared to 1996. Related ton
miles declined only 4% for the quarter and 9% year to date, due to longer
average trip lengths. Coal ton miles declined 11% for the quarter and 15% year
to date as compared to last year, due in part to reduced contractual
requirements for utility and industrial accounts, as well as reduced export
demand. Non-coal ton miles increased 3% in the quarter, while declining 5% year
to date as compared to 1996, due to reduced transportation of grain, ores and
towing for others.
As a result of the weak market demand and adverse operational issues discussed
above, operating earnings for the third quarter declined by $4.6 million from
the comparable period last year. For the first nine months, operating earnings
decreased $19.7 million from the nine month record earnings recorded a year ago.
Consequently, net earnings for the third quarter and first nine months declined
$2.7 million and $11.7 million, respectively, as compared to 1996.
OTHER
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On October 20, 1997, the United States Supreme Court granted the petition for a
WRIT OF CERTIORARI filed by Midland's parent, Eastern Enterprises ("Parent") and
will hear the Parent's challenge to the constitutionality of the Coal Industry
Retiree Health Benefit Act of 1992 (the "Coal Act"). In April 1997, the First
Circuit Court of Appeals upheld the constitutionality of the Coal Act as applied
to the Parent, and it is that decision that will now be reviewed by the Supreme
Court. The Supreme Court's ruling is not expected before mid-1998.
<PAGE> 8
FORWARD-LOOKING INFORMATION
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This report and other company reports and statements issued or made from time to
time contain certain "forward-looking statements" concerning projected future
financial performance or concerning expected plans or future operations. The
Company cautions that actual results and developments may differ materially from
such projections or expectations.
Investors should be aware of important factors that could cause actual results
to differ materially from the forward-looking projections or expectations. These
factors include, but are not limited to: the effects of strategic initiatives on
earnings and cash flow, changes in market conditions for barge transportation,
adverse weather and operating conditions on the inland waterways, changes in
interest rates, regulatory and court decisions, and developments with respect to
the Company's previously-disclosed Coal Act liabilities. All of these factors
are difficult to predict and are generally beyond the control of the Company.
LIQUIDITY AND CAPITAL RESOURCES
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For the first nine months of 1997, capital expenditures, debt repayments, and
dividends and advances to parent were primarily funded from cash provided by
operating activities. For 1997, planned capital expenditures are estimated at
$24 million, the majority of which pertains to purchase commitments for new dry
cargo barges to be delivered in the fourth quarter. These purchases will be
funded with cash provided from operations and from the receivable with parent.
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 1997.
<PAGE> 9
SIGNATURE
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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
---------------
R. L. DOETTLING
SENIOR VICE PRESIDENT
FINANCE AND ADMINISTRATION;
PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED OFFICER
DATE: OCTOBER 27, 1997
<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>
<CIK> 0000066029
<NAME> MIDLAND ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,418
<SECURITIES> 0
<RECEIVABLES> 92,355
<ALLOWANCES> 665
<INVENTORY> 7,817
<CURRENT-ASSETS> 104,963
<PP&E> 626,798
<DEPRECIATION> 329,337
<TOTAL-ASSETS> 419,960
<CURRENT-LIABILITIES> 52,338
<BONDS> 133,469
0
0
<COMMON> 1
<OTHER-SE> 159,169
<TOTAL-LIABILITY-AND-EQUITY> 419,960
<SALES> 0
<TOTAL-REVENUES> 200,145
<CGS> 0
<TOTAL-COSTS> 164,793
<OTHER-EXPENSES> 7,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,323
<INCOME-PRETAX> 17,425
<INCOME-TAX> 5,900
<INCOME-CONTINUING> 11,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,525
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
