<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended September 30, 2000
----------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ -----------------------
Commission File Number 2-39895
-------
MIDLAND ENTERPRISES INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2284434
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 PIKE STREET, CINCINNATI, OHIO 45202
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 513-721-4000
------------------------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
--------------------------------------------------------------------------------
The number of shares of common stock of Midland Enterprises Inc. outstanding as
of the date of this report was 15 1/2, all held by Eastern Enterprises.
Registrant meets the conditions set forth in general instructions H(1) (a) and
(b) of Form 10-Q and is therefore filing this form with the reduced disclosure
format.
<PAGE> 2
1
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(000 OMITTED)
---------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- --------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $70,075 $69,690 $211,751 $196,799
------- ------- -------- --------
OPERATING COSTS AND EXPENSES:
Operating expenses $51,779 $49,213 $157,960 $139,923
Depreciation and amortization 6,035 6,063 18,248 18,228
Selling, general & administrative 3,386 3,059 10,051 9,188
Overhead allocation from Parent 700 775 2,100 2,325
Taxes, other than income 3,667 3,851 11,619 11,529
------- ------- -------- --------
$65,567 $62,961 $199,978 $181,193
------- ------- -------- --------
OPERATING EARNINGS $ 4,508 $ 6,729 $ 11,773 $ 15,606
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest income from Parent $ 1,260 $ 763 $ 3,287 $ 2,159
Interest income other 498 6 517 24
Gain on sale of assets
and other, net (Note 2) 54 1,886 2,022 1,967
------- ------- -------- --------
$ 1,812 $ 2,655 $ 5,826 $ 4,150
------- ------- -------- --------
INTEREST EXPENSE:
Long-term debt $ 3,049 $ 3,168 $ 9,262 $ 9,635
Other, including amortization
of debt expense 72 (442) 205 (323)
------- ------- -------- --------
$ 3,121 $ 2,726 $ 9,467 $ 9,312
------- ------- -------- --------
EARNINGS BEFORE INCOME TAXES $ 3,199 $ 6,658 $ 8,132 $ 10,444
PROVISION FOR INCOME TAXES 1,382 2,436 3,359 3,895
------- ------- -------- --------
NET EARNINGS $ 1,817 $ 4,222 $ 4,773 $ 6,549
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
2
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 OMITTED)
---------------------------------------------
SEPT. 30, DEC. 31, SEPT. 30,
2000 1999 1999
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 86 $ 86 $ 60
Receivables --
Trade, net 18,488 18,532 22,199
Parent 84,599 66,158 64,587
Other 403 1,990 1,580
Materials, supplies & fuel 9,085 9,925 8,256
Prepaid expenses 3,433 2,205 3,539
-------- -------- --------
TOTAL CURRENT ASSETS $116,094 $ 98,896 $100,221
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST $666,016 $688,415 $684,560
Less-accumulated depreciation 357,421 364,976 363,558
-------- -------- --------
NET PROPERTY AND EQUIPMENT $308,595 $323,439 $321,002
-------- -------- --------
OTHER ASSETS:
Deferred pension charges $ 16,699 $ 16,699 $ 15,372
Other 5,165 5,042 5,678
-------- -------- --------
TOTAL OTHER ASSETS $ 21,864 $ 21,741 $ 21,050
-------- -------- --------
TOTAL ASSETS $446,553 $444,076 $442,273
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
3
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 OMITTED)
---------------------------------------------
SEPT. 30, DEC. 31, SEPT. 30,
2000 1999 1999
-------- -------- --------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long - term debt $ 4,500 $ 5,167 $ 5,069
Accounts payable trade 11,538 14,595 11,201
Reserve for insurance claims 10,082 10,326 9,908
Interest payable 5,719 3,120 5,873
Taxes payable 5,160 4,306 5,675
Accrued expenses 4,196 3,911 4,276
Other current liabilities 7,691 7,422 6,537
-------- -------- --------
TOTAL CURRENT LIABILITIES $ 48,886 $ 48,847 $ 48,539
-------- -------- --------
LONG-TERM DEBT $139,546 $142,500 $143,699
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes $ 74,785 $ 70,627 $ 68,954
Unamortized investment tax credits 1,540 1,767 1,845
Post-retirement health care 9,311 9,296 9,500
Other reserves 3,233 2,981 2,097
-------- -------- --------
TOTAL RESERVES AND DEFERRED CREDITS $ 88,869 $ 84,671 $ 82,396
-------- -------- --------
STOCKHOLDER'S EQUITY:
Common stock, $100 par value -
Authorized shares - 1,000
Issued shares - 15 1/2 $ 1 $ 1 $ 1
Capital in excess of par value 52,519 52,519 52,519
Retained earnings 116,732 115,538 115,119
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY $169,252 $168,058 $167,639
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $446,553 $444,076 $442,273
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
4
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000 OMITTED)
----------------------------
FOR THE NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
2000 1999
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,773 $ 6,549
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 18,248 18,228
Deferred and current income taxes 4,786 5,927
Net gain on sale of assets (1,748) (1,919)
Other changes in assets and liabilities:
Trade receivables 515 (4,433)
Materials, supplies & fuel 840 (1,316)
Accounts payable (3,057) (3)
Accrued expenses and other current liabilities 3,133 1,598
Other (282) 235
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 27,208 $ 24,866
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (3,403) $ (9,284)
Increase in Parent receivable (18,441) (8,015)
Proceeds from asset dispositions 1,837 740
-------- --------
NET CASH USED BY INVESTING ACTIVITIES $(20,007) $(16,559)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (3,621) $ (3,422)
Cash dividends paid to Parent (3,580) (4,911)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES $ (7,201) $ (8,333)
-------- --------
Net increase (decrease) in cash and cash equivalents $ -- $ (26)
Cash and cash equivalents at beginning of period 86 86
-------- --------
Cash and cash equivalents at end of period $ 86 $ 60
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 6,285 $ 6,664
Income taxes $ 777 $ (2,062)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
5
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(1) ACCOUNTING POLICIES
It is Midland Enterprises Inc.'s (the Registrant'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 the Registrant's operations. All such
adjustments are of a normal, recurring nature.
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, the 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.
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 1999 filed on Form 10-K are adequate
to make the information presented not misleading.
(2) SALE OF ASSETS
During the second quarter, the Registrant recorded a pretax gain of $1.8 million
on the sale of an ocean barge. The sale of the barge closed in June with the
Registrant receiving several new inland river hopper barges and a small amount
of cash in exchange for the barge.
The Registrant subsequently completed the sale of its two remaining ocean tug
and barge units in the month of October 2000, at which time it will record a
pretax gain of $5.6 million. Under the terms of the sale the Registrant will
receive new inland river hopper barges and cash in exchange for the tug/barge
units and the termination of their associated transportation agreement.
<PAGE> 7
6
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On November 4, 1999 Eastern Enterprises ("Eastern") of Weston, Massachusetts,
the Registrant's parent company, signed a definitive agreement that provides for
the merger of Eastern with a wholly owned subsidiary of KeySpan Corporation
("KeySpan") of Brooklyn, New York, with Eastern surviving the merger and
becoming a wholly-owned subsidiary of KeySpan. The transaction, which is subject
to receipt of regulatory approvals, is expected to close in the fourth quarter
of 2000. Eastern shareholders approved the merger on April 26, 2000. In
connection with the consummation of the merger the Company anticipates that
separation payments to officers, payment of vested stock options and other
compensation related matters will result in a pretax charge of approximately
$9.0 million in the fourth quarter of 2000.
RESULTS OF OPERATIONS:
Third quarter revenues increased slightly over the comparable period last year,
as higher rates associated with rising fuel costs were mostly offset by declines
in tonnage transported, and the absence of revenues from the Registrant's ocean
tug and barge units. One of the ocean barges was sold in June 2000 and its tug
was laid up; the two remaining units were idled since July and subsequently sold
in October 2000. Year-to-date revenues increased 8%, due to the rise in fuel
costs, in addition to higher tonnage transported earlier in the year. Fuel
adjustment mechanisms contained in multi-year and annual contracts continued to
escalate transportation rates as fuel prices rose 68% for the third quarter, and
73% for the first nine months, as compared to 1999. Rates per ton-mile for the
quarter and year-to-date periods increased 14% and 12%, respectively, due to the
fuel related rate increases, a higher mix of shorter haul coal tonnage and
modestly improved market rates for spot commodities.
Tonnage transported declined 3% in the third quarter, but rose 4% year to date
compared to the same periods last year. Third quarter and year-to-date coal
tonnage increased 10% and 12%, respectively, mainly reflecting tonnage for a new
utility customer, as well as increased demand for existing accounts. Non-coal
tonnage declined 21% in the third quarter and 9% year to date compared to last
year, reflecting reduced shipments of grain, stone, fertilizer and steel related
raw materials. A portion of the tonnage decline was attributable to the absence
of the Registrant's ocean tug and barge operations. Ton-miles generated in the
quarter and nine-month periods compared to last year declined 14% and 4%,
respectively. The steeper decline in ton-miles resulted from increased coal
tonnage, which has a shorter average length of haul, combined with decreased
non-coal tonnage, which represents longer hauls to and from the Gulf of Mexico.
Operating conditions throughout the first nine months were moderately better
than in 1999; however, seasonal low water and lock delays did negatively affect
operations from time to time this year. As compared to 1999, operating expenses
increased 5% for the third quarter and 13% for the first nine months, due to
several factors. In the third quarter, the aforementioned significant increase
in fuel prices, which impacted the Registrant's direct cost of fuel, as well as
the cost of purchased river related services, accounted for nearly the entire
increase in operating costs compared to last year. Partly offsetting was lower
maintenance and repair expense. For the nine-month period, higher fuel cost
accounted for more than two thirds of the increase in operating expenses. The
Registrant estimates the net impact of the higher fuel costs on 2000
year-to-date operating earnings to be approximately $3.5 million, over half of
<PAGE> 8
7
which occurred in the first quarter. Higher labor and administrative expenses
were mostly offset by lower accident and claims cost. As a result of these
factors, operating earnings declined $2.2 million for the third quarter, and
$3.8 million for the first nine months, as compared to last year.
Earnings before income taxes decreased $3.5 million and $2.3 million for the
third quarter and year to date, respectively, as compared to last year.
Positively impacting the third quarter of 1999 was a $1.8 million gain on the
sale of a surplus towboat. Partially offsetting was lower net interest expense
in 2000 of $.6 million. For the year-to-date period, a gain of $1.8 million on
the sale of an ocean barge was recorded in the second quarter of 2000. As a
result, net earnings decreased $2.4 million for the third quarter, and $1.8
million year to date, as compared to last year.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures and dividends paid to Parent in the first nine months of
2000 were funded from cash provided by operating activities. Capital
expenditures for 2000 are estimated at $7 million, the majority of which
pertains to the purchase of various machinery and equipment. These purchases
will continue to be funded with cash provided from operating activities. In
addition, the Registrant plans to lease up to 140 new hopper barges for delivery
during 2000 under long-term operating leases. Through October 1, 2000, 85 new
barges have been chartered to the Registrant under this arrangement.
The reduction in trade receivables of $3.7 million as compared to the third
quarter 1999 reflects improved collection of certain accounts, as well as
shortened overall collection periods due to the market shift in commodity mix in
the third quarter of 2000 toward short haul coal movements versus longer haul
non-coal movements to and from the Gulf of Mexico.
FORWARD-LOOKING INFORMATION
This report and other Registrant 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
Registrant 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
economic conditions including interest rates and the value of the dollar versus
other currencies, changes in fuel prices, and regulatory and court decisions.
All of these factors are difficult to predict and are generally beyond the
control of the Registrant.
<PAGE> 9
8
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
2000.
<PAGE> 10
9
SIGNATURE
It is Midland's opinion that the financial information contained in this report
reflects all normal, recurring adjustments necessary to present a fair statement
of results for the periods 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: /S/ R. FAILLO
-----------------------------
R. FAILLO
SENIOR VICE PRESIDENT FINANCE
PRINCIPAL FINANCIAL OFFICER
DATE: OCTOBER 27, 2000
