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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended March 31, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 2-39895
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 _____
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
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(000 OMITTED)
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FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
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<S> <C> <C>
REVENUES $ 71,270 $ 61,326
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OPERATING COSTS AND EXPENSES:
Operating expenses $ 53,920 $ 44,424
Depreciation and amortization 6,132 6,100
Selling, general & administrative expenses 3,324 3,074
Overhead allocation from Parent 700 775
Taxes, other than income 4,119 3,812
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$ 68,195 $ 58,185
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OPERATING EARNINGS $ 3,075 $ 3,141
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OTHER INCOME (EXPENSE):
Interest income from Parent $ 925 $ 671
Interest income other 9 12
Other, net (52) (10)
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$ 882 $ 673
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INTEREST EXPENSE:
Long-term debt $ 3,110 $ 3,250
Other, including amortization of
debt expense 65 58
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$ 3,175 $ 3,308
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Earnings before income taxes $ 782 $ 506
Provision for Income taxes 392 228
-------- --------
Earnings before extraordinary item $ 390 $ 278
Extraordinary item, net of tax -- --
-------- --------
NET EARNINGS $ 390 $ 278
======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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2
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 OMITTED)
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MARCH 31, DEC. 31, MARCH 31,
2000 1999 1999
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<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 86 $ 86 $ 86
Receivables -
Trade, net 19,537 18,532 16,786
Parent 72,373 66,158 65,055
Other 1,581 1,990 2,743
Materials, supplies & fuel 9,224 9,925 7,298
Prepaid expenses 1,914 2,205 1,332
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TOTAL CURRENT ASSETS $104,715 $ 98,896 $ 93,300
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST $679,807 $688,415 $679,238
Less-accumulated depreciation 363,121 364,976 355,751
-------- -------- --------
NET PROPERTY AND EQUIPMENT $316,686 $323,439 $323,487
-------- -------- --------
OTHER ASSETS:
Deferred pension charges $ 16,698 $ 16,699 $ 15,372
Other 5,534 5,042 6,558
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TOTAL OTHER ASSETS $ 22,232 $ 21,741 $ 21,930
-------- -------- --------
TOTAL ASSETS $443,633 $444,076 $438,717
======== ======== ========
</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)
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MARCH 31, DEC. 31, MARCH 31,
2000 1999 1999
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<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,974 $ 5,167 $ 4,841
Accounts payable trade 12,390 14,595 10,515
Reserve for insurance claims 10,371 10,326 10,855
Interest payable 5,795 3,120 6,475
Taxes payable 3,899 4,306 3,503
Accrued expenses 3,732 3,911 4,341
Other current liabilities 7,464 7,422 6,819
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TOTAL CURRENT LIABILITIES $ 48,625 $ 48,847 $ 47,349
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LONG-TERM DEBT $141,447 $142,500 $146,253
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes $ 71,303 $ 70,627 $ 65,601
Unamortized investment tax credits 1,690 1,767 2,024
Post-retirement health care 9,370 9,296 9,387
Other reserves 3,042 2,981 2,032
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TOTAL RESERVES AND DEFERRED CREDITS $ 85,405 $ 84,671 $ 79,044
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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 115,636 115,538 113,551
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TOTAL STOCKHOLDER'S EQUITY $168,156 $168,058 $166,071
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $443,633 $444,076 $438,717
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000 OMITTED)
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FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 390 $ 278
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,132 6,100
Deferred and current income taxes 360 1,469
Net gain on sale of assets (123) --
Other changes in assets and liabilities:
Trade receivables (1,015) 980
Materials, supplies & fuel 701 (358)
Accounts payable (2,201) (689)
Accrued expenses and other current liabilities 2,489 2,428
Other 355 261
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,088 $ 10,469
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (502) $ (719)
Increase in Parent receivable (6,215) (8,483)
Proceeds from asset dispositions 1,167 37
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NET CASH USED BY INVESTING ACTIVITIES $(5,550) $ (9,165)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $(1,246) $ (1,096)
Cash dividends paid to Parent (292) (208)
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NET CASH USED BY FINANCING ACTIVITIES $(1,538) $ (1,304)
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Net increase (decrease) in cash and cash equivalents $ -- $ --
Cash and cash equivalents at beginning of period 86 86
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Cash and cash equivalents at end of period $ 86 $ 86
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 308 $ 417
Income taxes $ 42 $ (1,239)
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.
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(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 hoped to close in the early fall of 2000.
The merger was approved by Eastern shareholders on April 26, 2000.
RESULTS OF OPERATIONS:
First quarter revenues improved 16% over last year on higher coal shipments by
electric utility customers and increased demand for industrial raw materials.
Market rates for spot business improved as a result of stronger demand for
transportation services and a slightly reduced supply of barges in the industry.
In addition, fuel adjustment mechanisms contained in multi-year and annual
contracts, further increased revenues due to an 80% increase in fuel prices as
compared to a year ago. As a result of these factors, rates per ton mile rose 6%
over the same period in 1999.
First quarter tonnage transported by the Registrant increased 14% from 1999,
while related ton-miles increased 10% due to a shorter average length of haul.
Coal tonnage increased 14%, reflecting new contracts with utility and industrial
customers, as well as expanded requirements under other contracts. Coal
ton-miles however, increased only 7% as the aforementioned shipments represent a
shorter length of haul. Non-coal tonnage increased 14% as well, with increased
industrial raw materials and steel products.
Operating conditions in the quarter were generally improved as compared to last
year, with reduced winter icing and flooding. However, early in the quarter,
segments of the river system continued to experience low water restrictions from
the drought conditions which occurred in late 1999. Although fleet productivity
improved over 1999, operating costs increased 21% mainly as a result of the
aforementioned 80% increase in fuel prices, along with servicing the higher
tonnage levels. The Registrant estimates that the net impact of the higher fuel
costs on 2000 first quarter operating earnings to be approximately $2.0 million.
Terminal operating results were also lower than 1999 due in part to higher
costs, including fuel, and lower throughput. As a result of these offsetting
factors, operating earnings were 2% below the same period in 1999.
First quarter earnings before income taxes increased $.3 million over the same
period last year, as a result of higher interest income on the receivable from
parent. Net earnings for the quarter improved $.1 million as compared to the
first quarter of 1999.
YEAR 2000 ISSUES
The Registrant continued to monitor its systems through the end of the
first quarter of 2000, including the quarter closing activity. No significant
year 2000 errors or discrepancies were detected and no costs were incurred. The
registrant will no longer report on year 2000 issues.
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LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures and dividends paid to Parent in the first quarter of 2000
were funded from cash provided by operating activities. Capital expenditures for
2000 are estimated at $9 million, the majority of which pertains to the renewal
of various operating assets. These purchases will be funded with cash provided
from operating activities. In addition, the Registrant plans to lease up to 80
new hopper barges for delivery during 2000 under long term lease commitments.
Through April 1, 2000, 20 new barges have been contractually chartered to the
Registrant under this arrangement.
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.
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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 first quarter of 2000.
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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
Vice President Finance
Principal Financial Officer
Date: April 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 21,588
<ALLOWANCES> 470
<INVENTORY> 9,224
<CURRENT-ASSETS> 104,715
<PP&E> 679,807
<DEPRECIATION> 363,121
<TOTAL-ASSETS> 443,633
<CURRENT-LIABILITIES> 48,625
<BONDS> 141,447
0
0
<COMMON> 1
<OTHER-SE> 168,155
<TOTAL-LIABILITY-AND-EQUITY> 443,633
<SALES> 0
<TOTAL-REVENUES> 71,270
<CGS> 0
<TOTAL-COSTS> 64,171
<OTHER-EXPENSES> 3,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,175
<INCOME-PRETAX> 782
<INCOME-TAX> 392
<INCOME-CONTINUING> 390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
