<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, 1996
-------------------------------
[ ] 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).
March 17, 1997 - 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 10-K
WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE> 2
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 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. Approximately half of the Registrant's 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 1996 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 on 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> 3
The following table indicates the tonnages transported by the Registrant's
subsidiaries for the period 1994 - 1996:
<TABLE>
<CAPTION>
TONNAGE TRANSPORTED (IN MILLIONS)
----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Total Tonnage 65.5 66.2 66.9
========= ========= =========
</TABLE>
Tonnage in 1996 declined 1% from 1995 as a result of reduced non-coal tonnage
due in part to the late grain harvest and weak demand for barge towing on the
lower Mississippi River. Tonnage in 1995 declined slightly from 1994 due in part
to a softening of the domestic coal market in the second half of 1995 and
reduced shipments of aggregates.
The next table summarizes the ton miles of cargo transported by the Registrant's
subsidiaries for the period 1994 - 1996:
<TABLE>
<CAPTION>
TON MILES TRANSPORTED (IN BILLIONS)
-----------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Coal....................... 15.7 15.2 15.2
Grain...................... 4.8 5.2 4.4
Other*..................... 15.6 16.4 15.7
----------- ------------ ------------
Total Ton miles............ 36.1 36.8 35.3
=========== ============ ============
</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. In 1996, ton miles
declined 2% from the record level set in 1995 due to lower tonnage as discussed
above, and slightly shorter average trip lengths due to reduced shipments of
long haul export coal and grain tonnage. Ton mile production in 1995 increased
4% over 1994, although 1995 tonnage declined slightly, due to longer trip
lengths associated with increased movements of non-coal tonnage, predominantly
on the Mississippi River. 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> 4
(C) (1) (VII) CUSTOMERS
---------
No customer, or group of customers under common control, accounted for 10% or
more of the total revenues in 1996. 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 multi-year transportation and
terminalling contracts which expire at various dates from April 1998 through
December 2007. During 1996, approximately 38% 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.
(C) (1) (VIII) BACKLOG
-------
The backlog of transportation and terminalling business under multi-year
contracts is summarized in the next table:
<TABLE>
<CAPTION>
December 31, 1996 1995
------------ ------------
<S> <C> <C>
Tons (in millions) 140.0 156.2
Revenues (in millions) $465.1 $485.3
Portions of revenue backlog not expected to be filled
within the current fiscal year 73% 72%
</TABLE>
The 1996 revenue backlog (which is based on contracts that extend beyond
December 31, 1997) is shown at prices current as of December 31, 1996 which are
subject to escalation/de-escalation provisions. Since services under many of the
multi-year contracts are based on customer requirements, Registrant has
estimated its backlog based on its forecast of the requirements of these
contract customers. The 10% decline in tonnage backlog from 1995 partially
reflects the expiration of two utility coal contracts and the elapsing terms of
current multi-year contracts as they draw closer to maturity, including those
excluded from the calculation as they enter their final year. Partially
offsetting these reductions are new multi-year agreements entered into by the
Registrant's subsidiaries. The 1996 backlog calculation includes 22.9 million
tons and $94.9 million in revenue pertaining to multi-year contracts awarded but
not yet signed as of year end. The 1995 backlog calculation included 14.2
million tons and $67.2 million in revenue pertaining to contracts awarded but
not signed. The decrease in the revenue backlog is consistent with the reduction
in backlog tonnage. Electric utilities, which traditionally have entered into
multi-year transportation and coal supply agreements, have begun to shorten the
term of some agreements for a variety of reasons including the Clean Air Act
requirements and the trend towards deregulation of the electric power industry.
These factors have also led to changes in the sourcing of coal by utilities,
leading to changes in traffic patterns.
(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 alternative methods
of transportation for bulk commodities when the origin and destination of such
movements are contiguous to navigable waterways.
3
<PAGE> 5
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 the early 1990's, competition among major barge
line companies was intense due to an imbalance between barge supply and customer
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 and the first half of 1996. However,
a late grain harvest and sharply higher prices in 1996 slowed demand and created
uncertainty over near-term 1997 shipment levels. Coupled with an increased
availability of new equipment, a temporary imbalance of supply and demand has
again been created which has led to more intense competition and lower margins.
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, 1996, Registrant and its subsidiaries employed approximately
1,400 persons, of whom approximately 36% 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> 6
ITEM 2. PROPERTIES
----------
(A) As of December 31, 1996, the Registrant's floating equipment
consisted of 2,430 barges and 87 boats. See "Principal Services and Markets" for
other owned or leased properties.
Capital expenditures for the Registrant in 1996 totaled approximately $48
million. These expenditures were made principally for the purchase of new barges
and for renewal of equipment.
(B) Not applicable.
---------------
ITEM 3. LEGAL PROCEEDINGS
-----------------
Information with respect to certain legal proceedings may be found in Note 11 of
Notes to Consolidated Financial Statements. Such information is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not required.
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 $22,947,993 in 1996 and
$27,559,453 in 1995.
The payment of dividends is subject to the restrictions described in Note 4 of
Notes to 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
-------------
1996 COMPARED TO 1995
- ---------------------
Revenues and operating earnings increased $5.6 million and $0.6 million,
respectively, in 1996 over 1995, primarily reflecting continued strong demand
for coal and a favorable rate structure carried over from 1995, particularly on
non-coal commodities.
Tonnage transported in 1996 declined 1%, with related ton miles down nearly 2%,
reflecting shorter average hauls due to weak foreign demand for coal and a late
grain harvest. Record coal tonnage and ton miles, increased 1% and 3 %,
respectively, over 1995, reflecting significantly increased shipments of
domestic spot coal, while coal under multi-year contracts for utilities declined
due to the non-renewal of several contracts. Non-
5
<PAGE> 7
coal tonnage and ton miles declined 6% from 1995 mainly as a result of weaker
barge demand on the Mississippi River. Reductions in grain, ores and aggregate
tonnage, as well as towing services, were only partially offset by increased
shipments of intermediate steel products and scrap. Operating results from the
Registrant's terminal and support facilities were slightly improved over 1995.
Ongoing programs to increase fleet productivity and control costs were offset by
traffic pattern inefficiencies resulting from the reduced export tonnage. Fuel
costs increased in 1996 due to rising fuel prices that averaged 20% above 1995
levels. A substantial portion of the Registrant's multi-year contracts contain
fuel adjustment clauses to compensate for the higher costs. In addition, severe
winter icing and flooding during the first quarter, and numerous tropical storms
in the Gulf of Mexico, resulted in higher operating costs and lower fleet
productivity than in 1995.
Other income declined from 1995 due to lower average interest rates in 1996 and
higher capital expenditures which decreased cash and interest bearing advances
with Parent. Interest expense included costs associated with the early
retirement of long-term debt in 1996 of $.4 million.
Including the pretax items and operating results discussed above, Earnings
before extraordinary item for 1996 were nearly unchanged from 1995.
In 1995, the Registrant 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 Act of 1992 ("Coal Act"). As
described in Note 11 of Notes to Consolidated Financial Statements, this charge
was reported as an extraordinary item of approximately $3.0 million net of tax.
No payments have been made from this reserve.
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 Mississippi 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 new record levels, 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. Registrant'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, Registrant 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, Registrant 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 Consolidated Financial
Statements, this charge has been reported as an extraordinary item of
approximately $3.0 million net of tax.
6
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Debt payments, dividends to Parent, and capital expenditures of $48 million were
funded from cash provided from operating activities, and from cash and cash
equivalent balances in 1996. The reduction in accounts payable and other accrued
liability balances at December 31, 1996, reflects the payment of amounts
established in late 1995 for the purchase of capital assets in process and
settlement of various marine accident claims. The decrease in trade and other
receivables is due to a tightening of certain trade account credit terms and the
receipt of amounts from insurance companies recorded in 1995.
Planned capital expenditures for 1997 are estimated at approximately $46
million, the majority of which pertains to the purchase of new hopper barges for
delivery during 1997 and the first quarter of 1998.
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.
7
<PAGE> 9
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
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.)
23.1 Consent of Independent Public Accountants.
- ----------
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.
(B) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed in the fourth quarter of 1996.
8
<PAGE> 10
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;
DIRECTOR; (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
DATE MARCH 17, 1997
--------------
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 17TH day of MARCH, 1997.
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.
9
<PAGE> 11
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)
PAGE
NUMBER
------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets -- December 31, 1996 and 1995 F-4
Consolidated Statements of Stockholder's Investment for
the years ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
SCHEDULE:
II - Valuation and Qualifying Accounts and Reserves F-18
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> 12
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, 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 21, 1997
F-2
<PAGE> 13
MIDLAND ENTERPRISED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(000 OMITTED)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES (NOTE 1) ........................ $ 301,880 $ 296,339 $ 264,692
--------- --------- ---------
OPERATING COSTS AND EXPENSES:
Operating expenses ..................... $ 189,357 $ 183,462 $ 177,478
Depreciation and amortization (Note 6) . 22,554 22,897 22,659
Selling, general and administrative
expenses ............................. 12,329 11,983 10,855
Overhead allocation from parent (Note 1) 2,549 2,830 2,551
Taxes, other than income ............... 16,676 17,339 15,344
--------- --------- ---------
$ 243,465 $ 238,511 $ 228,887
--------- --------- ---------
OPERATING EARNINGS ....................... $ 58,415 $ 57,828 $ 35,805
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income from Parent (Note 1) ... $ 3,483 $ 4,404 $ 2,888
Interest income other .................. 978 752 120
Gain on sale of barge construction
facility including $851,000 of
curtailment gains .................... -- -- 2,300
Gain (Loss) on sale of assets and
other, net ........................... 2 332 (298)
--------- --------- ---------
$ 4,463 $ 5,488 $ 5,010
--------- --------- ---------
INTEREST EXPENSE:
Long-term debt ......................... $ 14,043 $ 14,624 $ 15,406
Other, including amortization of
debt expense ........................... 672 551 576
Interest capitalized during construction
(Note 6) ............................... -- -- (39)
--------- --------- ---------
$ 14,715 $ 15,175 $ 15,943
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES ............. $ 48,163 $ 48,141 $ 24,872
Provision for income taxes (Note 5) ...... 17,566 17,592 8,805
--------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEM ....... $ 30,597 $ 30,549 $ 16,067
Extraordinary item Net of Tax (Note 11) .. -- (2,990) --
NET EARNINGS ............................. $ 30,597 $ 27,559 $ 16,067
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 14
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
------
<TABLE>
<CAPTION>
(000 OMITTED)
1996 1995
-------- --------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 1) .............. $ 91 $ 25,728
Receivables -
Trade, less allowance of $685,000
in 1996 and 1995 ........................... 18,226 25,030
Parent (Note 1 and 4) ...................... 63,863 60,358
Other ...................................... 1,263 5,044
Materials, supplies and fuel (Note 1) ........... 8,176 7,977
Prepaid expenses ................................ 2,028 1,637
-------- --------
Total current assets ....................... $ 93,647 $125,774
-------- --------
PROPERTY AND EQUIPMENT, AT COST (NOTES 4 AND 6):
Towboats and barges ............................. $580,546 $536,605
Terminals and other facilities .................. 44,402 47,652
Land ............................................ 4,612 4,600
-------- --------
Total property and equipment, at cost ...... $629,560 $588,857
Less - Accumulated depreciation ................. 323,120 306,415
-------- --------
Net property and equipment ................. $306,440 $282,442
-------- --------
OTHER ASSETS:
Deferred pension charges (Note 2) ............... $ 13,587 $ 12,794
Unamortized debt expense, deferred
maintenance and other (Notes 1 and 6) ......... 4,117 5,002
-------- --------
Total other assets ......................... $ 17,704 $ 17,796
-------- --------
TOTAL ASSETS ............................... $417,791 $426,012
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 15
MIDLAND ENTERPRISES INC. AND SUBIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<TABLE>
<CAPTION>
(000 OMITTED)
1996 1995
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) ........ $ 3,986 $ 3,684
Accounts payable -
Trade .......................................... 11,224 17,516
Reserve for insurance claims (Note 1) ............. 11,881 13,037
Accrued expenses .................................. 5,616 5,469
Interest payable .................................. 4,063 4,147
Other taxes payable ............................... 4,119 4,367
Income taxes payable (Note 5) ..................... 1,123 1,451
Other current liabilities ......................... 9,851 10,983
-------- --------
Total current liabilities ...................... $ 51,863 $ 60,654
-------- --------
LONG-TERM DEBT (NOTE 4) .............................. $137,313 $144,903
-------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes (Note 5) .................... $ 54,594 $ 54,268
Unamortized investment tax credits (Note 5) ....... 2,999 3,524
Post-retirement health care (Note 3) .............. 8,798 8,726
Coal miners retiree health care (Note 11) ......... 3,500 3,700
Other reserves .................................... 2,437 1,331
-------- --------
Total reserves and deferred credits ............ $ 72,328 $ 71,549
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 7 AND 11)
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 ................................. 103,767 96,386
-------- --------
Total stockholder's equity ..................... $156,287 $148,906
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ........... $417,791 $426,012
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 16
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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, 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
Net Earnings ........................... 0.0 0 0 30,597 30,597
Dividends to Parent .................... 0.0 0 0 (22,948) (22,948)
Adjustment for Unfounded
Accumulated Pension Benefits (Note 2) . 0.0 0 0 (268) (268)
---- --------- --------- --------- ---------
BALANCE DECEMBER 31, 1996: 15.5 $ 1 $ 52,519 $ 103,767 $ 156,287
==== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 17
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(000 OMITTED)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ..................................... $ 30,597 $ 27,559 $ 16,067
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Extraordinary provision for coal miners
retiree health care, net of tax ............... -- 2,990 --
Depreciation and amortization .................... 22,554 22,897 22,269
Deferred and current income taxes ................ (2) 157 (5,661)
Net gain on sale of assets ....................... (35) (475) (2,522)
Other changes in assets and liabilities:
Trade and other receivables .................. 6,804 (389) 409
Materials, supplies and fuel ................. (199) 322 4,666
Accounts payable ............................. (6,292) 5,811 (1,266)
Accrued expenses and other current liabilities (2,473) 9,879 (1,412)
Post-retirement health care .................. 72 14 593
Other ........................................ 3,649 (160) (3,988)
-------- -------- --------
Net cash provided by operating activities ............ $ 54,675 $ 68,605 $ 29,155
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................. ($47,851) ($20,900) ($ 4,337)
(Increase) decrease in Parent receivable ......... (3,505) 1,508 (4,914)
Proceeds from sale of barge building facility .... -- -- 11,155
Proceeds from other asset dispositions ........... 1,548 3,561 1,293
-------- -------- --------
Net cash provided by (used in) investing activities .. ($49,808) ($15,831) $ 3,197
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ...................... ($ 7,288) ($ 3,575) ($11,302)
Cash dividends paid to Parent .................... (22,948) (27,559) (17,050)
Other ............................................ (268) -- --
-------- -------- --------
Net cash used in financing activities ................ ($30,504) ($31,134) ($28,352)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . ($25,637) $ 21,640 $ 4,000
-------- -------- --------
Cash and cash equivalents at beginning of period ..... 25,728 4,088 88
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 91 $ 25,728 $ 4,088
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized ............ $ 14,167 $ 14,629 $ 15,617
Income taxes .................................... $ 17,450 $ 17,087 $ 13,882
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 18
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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 approximately 10% of its consolidated
revenues. A substantial amount of the Company's revenues relate to spot or
annual contracts for transportation and terminalling. Approximately one third of
the Company's revenues are derived from multi-year transportation and
terminalling contracts. No customer, or group of customers under common control,
accounted for 10% or more of the total revenues in 1996, 1995 or 1994.
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:
(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 applicable
Federal rate as defined in the Internal Revenue Code: 5.75%
at December 31, 1996, 6.4% at December 31, 1995, and 5.75% at
December 31, 1994. 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) 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.
F-8
<PAGE> 19
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(i) Impairment of Long-lived Assets - The recoverability of
long-lived assets is evaluated by the Company on a continuing
basis. In the event that facts and circumstances indicate
that the cost of an asset may be impaired, an evaluation of
recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's
carrying amount to determine if a write-down to market value
or discounted cash flow value is required. Based on such
evaluations, there were no impairment charges in 1996.
(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>
1996 1995 1994
------- ------- -------
(000 OMITTED)
----------------------------------
<S> <C> <C> <C>
Company-administered plans $ 4 $ 86 $ 374
Multi-employer union retirement and welfare plans 293 294 309
------- ------- -------
TOTAL NET PENSION COST $ 297 $ 380 $ 683
======= ======= =======
The net pension cost for Company-administered plans consisted of:
<CAPTION>
1996 1995 1994
------- ------- -------
(000 OMITTED)
---------------------------------
<S> <C> <C> <C>
Service cost $ 1,318 $ 1,280 $ 1,518
Interest cost on projected benefit obligation 2,021 1,821 1,661
Actual return on plan assets (4,543) (7,094) (1,551)
Net amortization and deferral 1,208 4,079 (1,254)
------- ------- -------
TOTAL NET PENSION COST $ 4 $ 86 $ 374
======= ======= =======
</TABLE>
F-9
<PAGE> 20
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RETIREMENT AND EMPLOYEE BENEFIT PLANS (CONTINUED)
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>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Assumed discount rate 7.5% 7.5% 7.5%
Assumed rate of compensation increase 4.8% 4.8% 5.0%
Expected rate of return on plan assets 8.5% 8.5% 8.5%
</TABLE>
In 1996, the Company, in compliance with the provisions of Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions,"
recorded an unfunded accumulated benefit obligation of $412,597, net of a tax
benefit of $144,409, against retained earnings.
During 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 $215,968.
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, 1996 and 1995 respectively, utilizing actuarial measurement dates as of
October 1, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(000 OMITTED)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including:
Vested benefits $ 19,120 $ 17,107
Non-vested benefits 2,502 2,532
-------- --------
$ 21,622 $ 19,639
Effect of future salary increases 4,961 4,368
-------- --------
Projected benefit obligations for services
rendered to date $ 26,583 $ 24,007
======== ========
Plan assets at fair value, primarily listed
stocks and bonds $ 45,929 $ 42,215
Less - Projected benefit obligations 26,583 24,007
-------- --------
Excess of plan assets over projected benefit
obligations $ 19,346 $ 18,208
Unrecognized net obligation at December 31, 1985
amortized over 13 - 15 years (228) (299)
Unrecognized net actuarial gain (7,272) (6,013)
Unrecognized prior service cost 1,491 829
Amounts contributed to plans during fourth quarter 26 26
Unfunded accumulated benefits (730) (78)
-------- --------
NET PENSION ASSETS $ 12,633 $ 12,673
======== ========
</TABLE>
F-10
<PAGE> 21
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RETIREMENT AND EMPLOYEE BENEFIT PLANS (CONTINUED)
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.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123 (SFAS No. 123), "Accounting for Stock-Based Compensation", which indicates
companies may recognize expense for stock-based awards based on their fair value
on the date of grant or, at a minimum, requires pro forma earnings disclosures.
Certain of the Company's executives participate in an Eastern stock option plan.
The SFAS No. 123 pro forma effect for 1996 and 1995 is immaterial to the
Company's consolidated financial statements.
(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
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
(000 OMITTED)
<S> <C> <C> <C>
Service cost $ 113 $ 126 $ 160
Interest cost on accumulated benefit obligation 852 733 591
Net amortization and deferral 71 51 (126)
=========== =========== ===========
Net periodic post-retirement benefit costs $ 1,036 $ 910 $ 625
=========== =========== ===========
</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, 1996
and 1995 (using a measurement date of October 1, 1996 and 1995):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1996 1995
(000 OMITTED)
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 9,134 $ 8,233
Fully eligible plan participants 2,008 1,411
Other active plan participants 1,649 2,250
------------ ------------
$ 12,791 $ 11,894
Plan assets at fair value - -
------------ ------------
Accumulated benefit obligation in excess of
plan assets $ 12,791 $ 11,894
Unrecognized net (loss)/gain (5,531) (4,869)
Unrecognized prior service cost 1,538 1,701
============ ============
Post-retirement health care reserve $ 8,798 $ 8,726
============ ============
</TABLE>
F-11
<PAGE> 22
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The weighted average discount rate used in determining the accumulated benefit
obligation was 7.5%. A 9% and 10% increase in cost of covered health care
benefits has been assumed for 1996 and 1995, respectively. This rate of increase
is assumed to drop gradually to 5% after 4 years. A one percentage point
increase in the assumed health care cost trend would have increased the net
periodic post-retirement benefit cost by $61,000 in 1996 and $60,000 in 1995 and
the accumulated post-retirement benefit obligation by $792,000 and $772,000 in
1996 and 1995, respectively.
(4) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS
(a) Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995
----------- ----------
(000 OMITTED)
First Preferred Ship Mortgage Bonds -
<S> <C> <C>
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 68,000 71,000
--------- ---------
Total Mortgage Bonds $ 118,000 $ 121,000
--------- ---------
Obligations under Capital Leases and Other -
BA Leasing & Capital Corporation (Successor
to Wells Fargo Leasing Corporation) $ 5,146 $ 6,230
Security Pacific Equipment Leasing, Inc. 12,397 14,299
Westinghouse Credit Corporation 7,358 8,410
Other (including unamortized debt discount) (746) (812)
--------- ---------
$ 24,155 $ 28,127
--------- ---------
Less:
Current portion of long-term debt included above $ 3,986 $ 3,684
Monies on deposit (d) 856 540
--------- ---------
$ 4,842 $ 4,224
--------- ---------
TOTAL LONG-TERM DEBT $ 137,313 $ 144,903
========= =========
</TABLE>
The First Preferred Ship Mortgage Bonds and obligations under capital leases are
secured by approximately half 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
F-12
<PAGE> 23
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS (CONTINUED)
Secured Funded Debt (all terms as defined in the applicable indenture). Under
these agreements, $24,864,000 of retained earnings at December 31, 1996 are
available for additional dividends to Eastern.
Included in obligations under capital leases is $24,901,000 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 $3,986,000 in 1997, $4,390,000 in
1998, $4,836,000 in 1999, $5,328,000 in 2000, and $4,281,000 in 2001.
(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 of
1/8 of 1% of the commitment. During 1996 and at December 31, 1996, the Company
had no borrowings outstanding under this agreement. The interest rate for
borrowings is the agent bank's prime rate or, at borrower'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
$3,986,000 in 1997, $4,390,000 in 1998, and $9,836,000 in 1999, $10,328,000 in
2000, and $9,281,000 in 2001.
(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 retired from service. 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.
F-13
<PAGE> 24
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES (CONTINUED)
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------- ------- --------
(000 OMITTED)
<S> <C> <C> <C>
Current:
Federal $16,071 $15,569 $12,446
State 1,035 1,027 222
------- ------- --------
Total Current Provision $17,106 $16,596 $12,668
Deferred:
Federal 460 765 (3,863)
State -- 230 --
------- ------- --------
Total Deferred Provision 460 995 (3,863)
------- ------- --------
Total Provision $17,566 $17,592 $8,805
======= ======= ========
</TABLE>
The following reconciles the statutory U.S. Federal Income Tax provision to the
recorded income tax provision:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- -------
(000 OMITTED)
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Computed provision for income taxes
at statutory Federal rate $16,857 $16,850 $8,705
Increase (decrease) from statutory
rate resulting principally from:
State Taxes, net of Federal benefit 673 817 144
Nondeductible expenses 40 53 53
Non Taxable Interest (126) (128) --
Other, net 122 -- (97)
-------- -------- -------
Provision for Income Taxes $17,566 $17,592 $8,805
======== ======== =======
</TABLE>
Significant items making up deferred tax liabilities and deferred tax assets
including amounts classified as current, as of December 31, 1996 and 1995, are
as follows:
1996 1995
-------- --------
(000 OMITTED)
Assets:
Post-retirement benefits $ 2,989 $ 3,027
Other 7,859 7,324
-------- --------
Total Deferred Tax Assets $ 10,848 $ 10,351
Liabilities:
Accelerated depreciation (58,836) (57,744)
Other (6,092) (7,235)
-------- --------
Total Deferred Tax Liabilities $(64,928) $(64,979)
-------- --------
TOTAL DEFERRED TAXES $(54,080) $(54,628)
======== ========
F-14
<PAGE> 25
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 3.7% in 1996 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 has entered into a purchase commitment for new hopper barges to be
delivered during 1997 and into the first quarter of 1998 totaling approximately
$40 million.
The Company and its subsidiaries lease certain facilities, vessels and equipment
under long-term operating leases which expire on various dates through 2010. The
minimum rental commitment for noncancelable operating leases at December 31,
1996 is as follows:
MINIMUM
YEARS ENDING ANNUAL RENTAL
(000 OMITTED)
1997 $ 3,224
1998 1,896
1999 1,521
2000 1,332
2001 - 2010 6,724
---------
Total $ 14,697
========
(8) SIGNIFICANT CUSTOMERS
None of the subsidiaries' customers accounted for more than 10% of the Company's
total consolidated operating revenues in 1996, 1995 or 1994.
F-15
<PAGE> 26
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 the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------------- ---------------
DECEMBER 31, 1996
<S> <C> <C>
Long-term debt $116,398 $137,940
DECEMBER 31, 1995
Long-term debt $119,649 $141,365
</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, 1996 and 1995.
<TABLE>
<CAPTION>
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
1996
<S> <C> <C> <C> <C>
Revenues $75,879 $77,000 $74,497 $74,504
Operating Earnings $14,011 $15,612 $14,663 $14,129
Net Earnings $ 7,377 $ 8,086 $ 7,791 $ 7,343
======= ======= ======= =======
1995
Revenues $72,727 $69,261 $76,486 $77,865
Operating Earnings $15,300 $12,543 $15,725 $14,259
Net Earnings $ 8,133 $ 6,572 $ 8,759 $ 4,095
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 27
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"), received notice from
the Social Security Administration claiming that the Parent is responsible for
health care and death benefit premiums for a certain group of retired coal
miners and their beneficiaries under the federal Coal Industry Retiree Health
Benefit Act of 1992 ("Coal Act"). In 1995 and 1996, the Parent received further
notices from the Social Security Administration for an additional group of
retired coal miners and their beneficiaries. In 1993 and 1995, the Parent
recorded extraordinary charges to provide for its estimated undiscounted
obligations under the Coal Act with respect to the retired coal miners and their
beneficiaries assigned to the Parent as discussed in the Parent's 1996 Annual
Report. A portion of the assignments to the Parent is allegedly due to the
Parent's relationship to a predecessor entity of Midland which is no longer in
business.
Currently, the Parent's constitutional challenge to the Coal Act is pending in
the First Circuit Court of Appeals, the constitutionality of the Coal Act having
been upheld at the federal district court level. The Parent has asserted a claim
against Peabody Holding Company, Inc. ("Peabody"), to which the Parent sold its
coal subsidiaries in 1987, that any liabilities under the Coal Act should be
borne by Peabody and such subsidiaries. The Parent has posted security to delay
payment of premiums pending the final outcome of its constitutional challenge.
The Parent is also aware of several other lawsuits challenging the
constitutionality of the Coal Act.
In 1995, 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 was properly reflected
as an extraordinary item. No additional reserve was recorded for 1996, as the
impact of the additional notices received in 1996 was offset by a decrease in
the estimated rate of medical inflation. As of December 31, 1996 and 1995, $1.1
million and $.9 million, respectively, of this reserve is included in Other
current liabilities. Midland's obligation could range from a nominal amount 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 health care premiums of unassigned miners
and their beneficiaries, the setting of premiums, medical inflation rates,
Medicare reimbursements, other changes in government health care programs, and
possible changes in the terms of, or repeal of, the Coal Act.
F-17
<PAGE> 28
SCHEDULE II
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
VALUATION AND QUALFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(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
------- ------- ------- -------- -------
1996
- ----
<S> <C> <C> <C> <C> <C>
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $685 -- -- -- $685
======= ======= ======= ======== =======
Reserves included in liabilities -
Reserve for environmental expenses 1,051 -- (17) (119) 915
Reserve for insurance claims 13,037 6,596 1,972 (9,724) 11,881
Reserve for post-retirement
health care 8,727 1,036 -- (965) 8,798
Reserve for employee benefits 3,339 6,570 -- (5,069) 4,840
Reserve for coal miners retiree
health care 4,600 -- -- -- 4,600
------- ------- ------- -------- -------
TOTAL OTHER RESERVES $30,754 $14,202 $1,955 ($15,877) $31,034
======= ======= ======= ======== =======
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 6,177 240 (5,370) 3,339
Reserve for coal miners retiree
health care -- 4,600 -- -- 4,600
------- ------- ------- -------- -------
TOTAL OTHER RESERVES $20,568 $19,750 $6,413 ($15,977) $30,754
======= ======= ======= ======== =======
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
======= ======= ======= ======== =======
</TABLE>
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 83,352
<ALLOWANCES> 685
<INVENTORY> 8,176
<CURRENT-ASSETS> 93,647
<PP&E> 629,560
<DEPRECIATION> 323,120
<TOTAL-ASSETS> 417,791
<CURRENT-LIABILITIES> 51,863
<BONDS> 137,313
<COMMON> 1
0
0
<OTHER-SE> 156,287
<TOTAL-LIABILITY-AND-EQUITY> 417,791
<SALES> 0
<TOTAL-REVENUES> 301,880
<CGS> 0
<TOTAL-COSTS> 228,098
<OTHER-EXPENSES> 10,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,715
<INCOME-PRETAX> 48,163
<INCOME-TAX> 17,566
<INCOME-CONTINUING> 30,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,597
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
