<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 March 31, 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_______________________
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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1
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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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2
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
(000 Omitted)
------------------------------------------
For the Three Months Ended
------------------------------------------
March 31, March 31,
1997 1996
----------------- ---------------
<S> <C> <C>
OPERATING REVENUES $ 64,382 $ 75,879
-------- --------
OPERATING COSTS AND EXPENSES:
Operating Expenses $ 46,526 $ 48,297
Depreciation and amortization 5,656 5,562
Selling, general & administrative expenses 2,506 2,814
Overhead allocation from Parent 725 750
Taxes, other than income 3,541 4,445
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$ 58,954 $ 61,868
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OPERATING EARNINGS $ 5,428 $ 14,011
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OTHER INCOME (EXPENSE):
Interest income from Parent $ 1,017 $ 870
Interest income other 10 343
Gain (Loss) on sale of assets
and other, net (53) (12)
-------- --------
$ 974 $ 1,201
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INTEREST EXPENSE:
Long-term debt $ 3,413 $ 3,575
Other, including amortization of
debt expense 44 99
-------- --------
$ 3,457 $ 3,674
-------- --------
Earnings before income taxes $ 2,945 $ 11,538
Provision for Income taxes 819 4,161
-------- --------
NET EARNINGS $ 2,126 $ 7,377
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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3
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
(000 Omitted)
-------------------------------------------------------
March 31, Dec. 31, March 31,
1997 1996 1996
------------ -------------- --------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 960 $ 91 $ 26,553
Receivables -
Trade, net 14,563 16,728 22,710
Parent 73,663 63,863 64,192
Other 1,564 2,761 6,063
Materials, supplies & fuel 8,328 8,176 8,059
Prepaid expenses 1,086 2,028 1,232
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TOTAL CURRENT ASSETS $100,164 $ 93,647 $128,809
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST $625,132 $629,560 $595,839
Less-Accumulated depreciation 324,101 323,120 309,715
-------- -------- --------
NET PROPERTY AND EQUIPMENT $301,031 $306,440 $286,124
-------- -------- --------
OTHER ASSETS:
Deferred pension charges $ 13,845 $ 13,587 $ 12,801
Other 4,069 4,117 4,650
-------- -------- --------
TOTAL OTHER ASSETS $ 17,914 $ 17,704 $ 17,451
-------- -------- --------
TOTAL ASSETS $419,109 $417,791 $432,384
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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4
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
(000 OMITTED)
----------------------------------------------
MARCH 31, DEC. 31, MARCH 31,
1997 1996 1996
------------ ---------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long - term debt $ 4,079 $ 3,986 $ 3,703
Accounts payable trade 9,626 11,224 13,203
Reserve for insurance claims 13,289 11,881 16,292
Interest payable 6,839 4,062 7,045
Taxes payable 4,404 5,242 10,009
Accrued expenses 5,048 5,617 5,288
Other current liabilities 9,419 9,851 11,400
-------- -------- --------
TOTAL CURRENT LIABILITIES $ 52,704 $ 51,863 $ 66,940
-------- -------- --------
LONG-TERM DEBT $136,081 $137,313 $143,421
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes $ 56,099 $ 54,594 $ 53,882
Unamortized investment tax credits 2,870 2,999 3,382
Post-retirement health care 8,789 8,798 8,790
Coal miners retiree health care 3,450 3,500 3,650
Other reserves 2,298 2,437 1,569
-------- -------- --------
TOTAL RESERVES AND DEFERRED CREDITS $ 73,506 $ 72,328 $ 71,273
-------- -------- --------
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 104,298 103,767 98,230
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY $156,818 $156,287 $150,750
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $419,109 $417,791 $432,384
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE> 6
5
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
(000 Omitted)
------------------------------------------
For the Three Months Ended
March 31 March 31
1997 1996
------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,126 $ 7,377
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,656 5,562
Deferred and current income taxes 738 3,920
Net (gain) loss on sale of assets 4 1
Other changes in assets and liabilities:
Trade and other receivables 2,165 2,320
Materials, supplies & fuel (152) (82)
Accounts payable (1,598) (4,313)
Accrued expenses and other current liabilities 3,063 6,224
Other 1,585 (461)
-------- --------
Net Cash Provided by Operating Activities $ 13,587 $ 20,548
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (907) $ (9,756)
Increase in Parent receivable (9,800) (3,834)
Proceeds from asset dispositions 722 882
-------- --------
Net Cash Used in Investing Activities $ (9,985) $(12,708)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (1,139) $ (1,482)
Cash dividends paid to Parent (1,594) (5,533)
-------- --------
Net Cash Used in Financing Activities $ (2,733) $ (7,015)
-------- --------
Net Increase in Cash and Cash Equivalents $ 869 $ 825
Cash and Cash Equivalents at Beginning of Period 91 25,728
-------- --------
Cash and Cash Equivalents at End of Period $ 960 $ 26,553
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 620 $ 724
Income taxes $ 80 $ 371
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Extremely poor operating conditions, the expiration of coal transportation
contracts and weaker demand for transportation services decreased revenues and
operating earnings by $11.5 million and $8.6 million, respectively, in the first
quarter of 1997, as compared to the record levels of 1996.
In contrast to moderate flooding in 1996, the Ohio River, a key operating area
of the Company, sustained thirty-year record flood levels in March of 1997.
Segments of the river were closed at various times which significantly affected
production and operating costs. Similar conditions affected operations on the
Mississippi River and its other tributaries. Continued flooding on the
Mississippi River is expected during the second quarter. In addition, operating
costs were impacted by fuel prices which averaged 19% higher than in 1996.
Industry demand for transportation services remained soft, continuing the
weakness experienced in the second half of 1996. Additionally, Midland did not
renew several expiring multi-year utility coal contracts in 1996. Available
replacement tonnage was not fully offsetting, both in terms of volume and
pricing.
As a result of the operating and market issues discussed above, tonnage and ton
miles declined 18.1% and 13.8%, respectively, from 1996 levels. Total coal
tonnage declined 23.2%, with multi-year contract coal tonnage down 29.0%.
Non-coal tonnage and ton miles declined 8.6% and 7.1%, respectively, as compared
with 1996, primarily reflecting decreases in coke, ores and towing for others.
Reflecting the lower operating earnings discussed above, offset slightly by a
favorable adjustment made to the Company's state tax reserves, net earnings for
the first quarter of 1997 declined $5.3 million as compared to last year.
OTHER
In April, 1997, the First Circuit Court of Appeals affirmed the District Court's
decision upholding the constitutionality of the Coal Industry Retiree Health
Benefit Act of 1992 as it applies to Midland's Parent, Eastern Enterprises
("Parent"). The Parent is considering filing an appeal of this decision to the
U.S. Supreme Court.
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7
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures, debt repayments, and dividends and advances to parent were
funded from cash provided by operating activities in the first quarter of 1997.
For 1997, planned capital expenditures are estimated at $31 million, the
majority of which pertains to purchase commitments for new dry cargo barges.
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 first quarter
of 1997.
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8
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
---------------------------------
R. L. DOETTLING
SENIOR VICE PRESIDENT
FINANCE AND ADMINISTRATION;
PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED OFFICER
DATE: APRIL 28, 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 SUCH REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 960
<SECURITIES> 0
<RECEIVABLES> 90,454
<ALLOWANCES> 665
<INVENTORY> 8,328
<CURRENT-ASSETS> 100,164
<PP&E> 625,132
<DEPRECIATION> 324,101
<TOTAL-ASSETS> 419,109
<CURRENT-LIABILITIES> 52,704
<BONDS> 136,081
<COMMON> 1
0
0
<OTHER-SE> 156,818
<TOTAL-LIABILITY-AND-EQUITY> 419,109
<SALES> 0
<TOTAL-REVENUES> 64,382
<CGS> 0
<TOTAL-COSTS> 55,546
<OTHER-EXPENSES> 2,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,457
<INCOME-PRETAX> 2,945
<INCOME-TAX> 819
<INCOME-CONTINUING> 2,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,126
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
