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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 June 30, 2000
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 2-39895
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MIDLAND ENTERPRISES INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2284434
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 PIKE STREET, CINCINNATI, OHIO 45202
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(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code 513-721-4000
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares of common stock of Midland Enterprises Inc. outstanding as
of the date of this report was 15 1/2, all held by Eastern Enterprises.
Registrant meets the conditions set forth in general instructions H(1) (a) and
(b) of Form 10-Q and is therefore filing this form with the reduced disclosure
format.
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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(000 OMITTED)
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FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
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JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 70,406 $ 65,783 $141,676 $127,109
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Operating expenses $ 52,261 $ 46,286 $106,181 $ 90,710
Depreciation and amortization 6,081 6,065 12,213 12,165
Selling, general & administrative 3,341 3,055 6,665 6,129
Overhead allocation from Parent 700 775 1,400 1,550
Taxes, other than income 3,833 3,866 7,952 7,678
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$ 66,216 $ 60,047 $134,411 $118,232
-------- -------- -------- --------
OPERATING EARNINGS $ 4,190 $ 5,736 $ 7,265 $ 8,877
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income from Parent $ 1,102 $ 725 $ 2,027 $ 1,396
Interest income other 10 6 19 18
Gain on sale of assets
and other, net 2,020 91 1,968 81
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$ 3,132 $ 822 $ 4,014 $ 1,495
-------- -------- -------- --------
INTEREST EXPENSE:
Long-term debt $ 3,103 $ 3,217 $ 6,213 $ 6,467
Other, including amortization
of debt expense 68 61 133 119
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$ 3,171 $ 3,278 $ 6,346 $ 6,586
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EARNINGS BEFORE INCOME TAXES $ 4,151 $ 3,280 $ 4,933 $ 3,786
PROVISION FOR INCOME TAXES 1,585 1,231 1,977 1,459
-------- -------- -------- --------
NET EARNINGS $ 2,566 $ 2,049 $ 2,956 $ 2,327
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 OMITTED)
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JUNE 30, DEC. 31, JUNE 30,
2000 1999 1999
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<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 86 $ 86 $ 86
Receivables --
Trade, net 18,033 18,532 17,185
Parent 72,340 66,158 59,745
Other 1,565 1,990 2,813
Materials, supplies & fuel 8,885 9,925 7,438
Prepaid expenses 3,683 2,205 3,571
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TOTAL CURRENT ASSETS $104,592 $ 98,896 $ 90,838
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PROPERTY AND EQUIPMENT, AT COST $672,891 $688,415 $686,528
Less-accumulated depreciation 359,747 364,976 361,710
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NET PROPERTY AND EQUIPMENT $313,144 $323,439 $324,818
-------- -------- --------
OTHER ASSETS:
Deferred pension charges $ 16,699 $ 16,699 $ 15,372
Other 5,121 5,042 6,019
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TOTAL OTHER ASSETS $ 21,820 $ 21,741 $ 21,391
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TOTAL ASSETS $439,556 $444,076 $437,047
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</TABLE>
The accompanying notes are an integral
part of these financial statements.
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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 OMITTED)
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JUNE 30, DEC. 31, JUNE 30,
2000 1999 1999
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<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long - term debt $ 5,101 $ 5,167 $ 4,969
Accounts payable trade 9,893 14,595 11,114
Reserve for insurance claims 9,340 10,326 9,647
Interest payable 3,046 3,120 3,691
Taxes payable 3,767 4,306 4,603
Accrued expenses 3,827 3,911 4,032
Other current liabilities 8,074 7,422 7,063
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TOTAL CURRENT LIABILITIES $ 43,048 $ 48,847 $ 45,119
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LONG-TERM DEBT $140,195 $142,500 $145,134
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RESERVES AND DEFERRED CREDITS:
Deferred income taxes $ 72,911 $ 70,627 $ 66,917
Unamortized investment tax credits 1,615 1,767 1,934
Post-retirement health care 9,818 9,296 9,307
Other reserves 3,172 2,981 2,052
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TOTAL RESERVES AND DEFERRED CREDITS $ 87,516 $ 84,671 $ 80,210
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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 116,277 115,538 114,064
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TOTAL STOCKHOLDER'S EQUITY $168,797 $168,058 $166,584
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $439,556 $444,076 $437,047
======== ======== ========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,956 $ 2,327
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,213 12,165
Deferred and current income taxes 1,671 3,398
Net gain on sale of assets (1,829) (91)
Other changes in assets and liabilities:
Trade receivables 498 581
Materials, supplies & fuel 1,040 (498)
Accounts payable (4,702) (90)
Accrued expenses and other current liabilities (419) (1,142)
Other (580) (1,547)
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,848 $ 15,103
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (1,820) $ (8,260)
Increase in Parent receivable (6,182) (3,173)
Proceeds from asset dispositions 1,742 162
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NET CASH USED BY INVESTING ACTIVITIES $ (6,260) $(11,271)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (2,371) $ (2,087)
Cash dividends paid to Parent (2,217) (1,745)
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NET CASH USED BY FINANCING ACTIVITIES $ (4,588) $ (3,832)
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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
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 6,034 $ 6,301
Income taxes $ 295 $ (1,970)
</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
JUNE 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.
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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 expected to close in the fall of 2000,
although it is possible the merger will not close until 2001. Eastern
shareholders approved the merger on April 26, 2000.
RESULTS OF OPERATIONS:
Second quarter and year to date revenues increased 7% and 11%, respectively, as
compared to last year, mainly as a result of higher rates associated with fuel
adjustment mechanisms contained in multi-year and annual contracts, and from
higher coal tonnage delivered to electric utilities. As a result of higher
prices for diesel fuel, the registrant's fuel cost rose 73% for the second
quarter, and 78% year to date, as compared to 1999. Tonnage transported for the
second quarter and first six months improved 2% and 8%, respectively. Due to the
fuel related rate increases, some market improvement in spot rates, and a higher
mix of coal tonnage, rates per ton mile rose 17% and 12%, in the second quarter,
and year to date, respectively, over last year.
Coal tonnage increased 12% for the quarter and 13% year to date, reflecting
tonnage for a new utility customer, as well as increased demand for existing
accounts. Partially offsetting was a reduction in non-coal tonnage, which
declined 13% and 1% for the second quarter, and first six months, respectively,
from reduced movements of grain, ores and stone. While tonnage for the quarter
increased, ton-miles declined 7% due to the increase in coal tonnage, which had
shorter average hauls, combined with a reduction of non-coal tonnage which
typically provides longer hauls to and from the Gulf of Mexico. For the first
six months, ton miles increased 1% over last year from increased movements of
coal and steel related raw materials in the first quarter.
Second quarter operating conditions improved over the first quarter of 2000, as
increased rainfall returned rivers to near normal levels. However, extended lock
outages delayed traffic during the second quarter. In comparison, the first
quarter of 1999 experienced winter icing and flooding in some areas, which did
not occur in 2000. As a result, boat and barge productivity was lower in the
second quarter but improved slightly year to date. As compared to 1999,
operating expenses increased 13% for the second quarter and 17% for the first
six months, due to several issues. The primary factor was 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. In fact,
higher fuel cost accounted for two thirds of the increase in second quarter
operating expenses and over half the increase for the first six months. The
registrant estimates that the net impact of the higher fuel costs on 2000 year
to date operating earnings to be approximately $2.5 million, most of which
occurred in the first quarter. Higher labor, vessel charter and maintenance also
contributed to the higher costs. In addition, operating results from cargo
handling and support operations were also lower than in 1999. As a result of
these factors, operating earnings declined $1.5 million for the second quarter,
and $1.6 million for the first six months as compared to last year.
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Earnings before income taxes increased $.9 million and $1.1 million for the
second quarter and year to date, respectively as compared to last year. This was
a result of a $1.8 million gain on the sale of an ocean barge, and higher
interest income on the receivable from parent in addition to the change in
operating earnings. Net earnings improved $.5 million for the second quarter,
and $.6 million year to date as compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures and dividends paid to Parent in the first six months 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 purchase of various machinery and equipment. These purchases
will 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 July 1, 2000, 65 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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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 second 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
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R. FAILLO
SENIOR VICE PRESIDENT FINANCE
PRINCIPAL FINANCIAL OFFICER
DATE: JULY 24, 2000
