<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, 1999
---------------------------------------------
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
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MIDLAND ENTERPRISES INC.
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(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
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(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
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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 13, 2000 - 15 1/2 SHARES
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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 I
(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
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ITEM 1. BUSINESS
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(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. On November 4, 1999, Eastern and KeySpan
Corporation ("KeySpan") of Brooklyn, New York announced that the companies had
signed a definitive merger agreement under which KeySpan will acquire all of the
common stock of Eastern. The transaction is conditioned, among other things,
upon the approval of Eastern's shareholders, the Securities and Exchange
Commission and the New Hampshire Public Utility Commission.
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, performs repair work on marine equipment, operates a coal dumping
terminal and a phosphate rock and phosphate chemical fertilizer terminal, cargo
transfer facilities, and provides refueling and barge fleeting services.
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 barges are mortgaged or
leased and the payments under related charter agreements with its subsidiaries
are pledged to secure associated long-term debt.
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"), Capital Marine Supply,
Inc. ("Capital Marine") and River Fleets, Inc. ("River Fleets").
(b) INDUSTRY SEGMENTS
The Registrant's only reportable industry segment is barge transportation.
(c) (1) (i) PRINCIPAL SERVICES AND MARKETS
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 that 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. Capital
Marine operates several barge fleeting facilities and two ship anchorages near
Reserve and New Orleans,
1
<PAGE> 3
Louisiana, and provides various port services on the Mississippi River. River
Fleets operates a barge fleeting facility in Wyatt, Missouri, and a cargo
transfer facility in Decatur, Alabama.
Tonnage transported by the Registrant's subsidiaries was 60.0 million in 1999,
59.9 million in 1998 and 57.0 million in 1997. Tonnage in 1999 was .3% above
1998 reflecting an 8% increase in non-coal shipments partly offset by a 4%
decline in coal tonnage. Tonnage in 1998 was 5% over 1997 as a result of
increased shipments by contract coal customers and new aggregate business
acquired in 1998, partly offset by lower grain and export coal demand.
The following table summarizes the ton miles of cargo transported by the
Registrant's subsidiaries for the period 1997 - 1999:
TON MILES TRANSPORTED (IN BILLIONS)
-----------------------------------
1999 1998 1997
------ ------ ------
Coal .......... 12.6 13.2 13.6
Grain ......... 5.0 3.7 4.5
Other* ........ 15.4 15.2 15.0
------ ------ ------
Total Ton Miles 33.0 32.1 33.1
====== ====== ======
* Other includes sand, stone, gravel, iron, scrap, steel, coke, phosphate, other
dry cargo, and towing for others.
Ton miles are the product of tons and distance transported. In 1999, ton miles
increased 3% on higher shipments of grain exports and imported steel related
products, which resulted in a 3% increase in the average length of haul. In
1998, ton miles declined 3% primarily due to an 8% decline in the average length
of haul, resulting from lower demand for coal and grain exports. In addition to
changes in ton miles transported, Registrant's revenues and net earnings are
affected by other factors such as competitive conditions, weather and the
segment of the river system traveled. For most of 1999, operations experienced
seasonal weather patterns; however, during the latter part of the year drought
conditions negatively affected operations. In 1998, multiple tropical storms,
flooding, and lock delays affected operations. 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 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
In 1999 and 1998, the Cincinnati Gas and Electric Company, a subsidiary of
Cinergy Corp., and the combined revenues from Gulf Power Company and Mississippi
Power Company, subsidiaries of The Southern Company, each accounted for more
than 10% of the Registrant's consolidated revenues under multi-year coal
transportation agreements. In 1997, only one customer, The Cincinnati Gas and
Electric Company, accounted for approximately 10% of the Registrant's
consolidated revenues. No other customer, or group of customers under common
control, accounted for more than 10% of revenues in 1999, 1998 or 1997. 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 that expire at various
dates from March 2001 through June 2010. During 1999, approximately 52% 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, but the effect of these adjustments
is not immediate and the Registrant remains at risk for fuel price volatility on
other contracts and spot business. In addition, contracts contain "force
majeure" clauses which excuse performance by the parties to the contracts when
performance is prevented by circumstances beyond their reasonable control. Some
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:
December 31, 1999 1998
------ ------
Tons (in millions) 155.6 128.4
Revenues (in millions) $537.9 $496.6
Portions of revenue backlog not expected to be filled
within the current fiscal year 80% 74%
The 1999 revenue backlog (which is based on contracts that extend beyond
December 31, 2000) is shown at prices current as of December 31, 1999, 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 21% increase in tonnage backlog from 1998 mainly
reflects new multi-year agreements entered into by the Registrant's
subsidiaries, in addition to extended terms on current multi-year contracts.
Partially offsetting these increases are declines reflecting the elapsing terms
of other current contracts as they draw closer to maturity, including those
excluded from the calculation as they enter their final year. The revenue
backlog increased 8%, as the increase in backlog tonnage was partly offset by a
shift in the forecast tonnage to shorter-haul shipments which are priced lower
on a per ton basis. Electric utilities, which traditionally have entered into
multi-year transportation and coal supply agreements, have shortened 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.
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<PAGE> 5
(c) (1) (x) COMPETITION
The Registrant's inland marine transportation business competes on the basis of
price, service and equipment availability. The Registrant's primary competitors
include other barge lines and railroads. There are a number of companies
offering barge transportation services on the waterways served by the
Registrant. Competition between barge lines intensifies as barge supply exceeds
demand. During the past few years, barge supply has increased as the barge
industry has built more barges than it has retired. Year to year changes in
operating conditions, due to the impact of weather and lock delays, can also
significantly affect barge availability effectively increasing or decreasing
capacity. The level of long haul export tonnage delivered to the Gulf of Mexico
from upper rivers is also a key driver of barge demand. The exports of grain and
coal are affected by the strength of the U.S. dollar, volatility of foreign
economies, and changes in the level of foreign competition. In recent years,
export coal shipments have declined significantly due to these factors. Grain
exports, although stronger in 1999, have also been somewhat below market
expectations. Increased imports of ores, cement and other raw materials through
the Gulf have helped offset some of the export market weakness. However, these
issues have continued to create strong competition for domestic business.
Improvements in operating efficiencies have permitted barge operators to
maintain comparatively low rate structures. Consequently, the barge industry has
generally been able to retain its competitive position with alternative methods,
primarily railroads, for the transportation of bulk commodities when the origin
and destination of such movements are contiguous to navigable waterways.
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. Barge costs per ton mile 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. The Registrant is further subject to
comparable state environmental statutes in the states where it operates. 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.
4
<PAGE> 6
(c) (1) (xiii) EMPLOYEES
As of December 31, 1999, the Registrant and its subsidiaries employed
approximately 1,400 persons, of whom approximately 31% are represented by labor
unions. The Registrant's subsidiaries have four collective bargaining agreements
expiring in 2000.
(d) FOREIGN OPERATIONS
The 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.
ITEM 2. PROPERTIES
----------
(a) As of December 31, 1999, the Registrant's floating equipment consisted
of 2,436 barges and 86 boats. See "Principal Services and Markets" for
other owned or leased properties.
Capital expenditures for the Registrant in 1999 totaled approximately
$18 million. These expenditures were made principally for the purchase
of new barges, terminal facilities, and information system
improvements.
(b) Not applicable.
ITEM 3. LEGAL PROCEEDINGS
-----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not required.
PART II
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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 $6,169,571 in 1999 and
$7,391,409 in 1998.
The payment of dividends is subject to the restrictions described in Note 3 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 I (1) (a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
5
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
1999 COMPARED TO 1998
- ---------------------
Revenues in 1999 increased 2%, or $6.2 million, over 1998, primarily as a result
of higher ton mile production reflecting increased demand for shipments of
long-haul grain to the Gulf of Mexico for export, and backhaul imports of steel
related products to the Ohio River Valley. Partially offsetting was a continued
decline in export coal shipments from levels that were already depressed in
1998, due to the non-competitiveness of U.S. coal prices in world markets.
Domestic spot coal shipments also trended lower, as mild weather and high
stockpiles reduced utility demand. Overall, barge supply remained tight
throughout most of 1999 due to the strong grain market, lock delays and weather
issues as discussed below. However, rates per ton mile were nearly unchanged
from last year despite rising fuel and operating costs, resulting in declining
margins.
Total tonnage transported was unchanged from 1998, while ton miles increased 3%,
as a result of an increase in the average length of haul due to the additional
grain and import tonnage as discussed above. Total coal tonnage and ton miles
declined 4%, reflecting the weaker export and spot shipments. Non-coal tonnage
and ton miles increased 8%, on the aforementioned improved demand for grain and
steel related products.
Although operating conditions throughout much of the year were improved as
compared to 1998, drought conditions significantly hampered operations during
the third and fourth quarters. River gauges on the lower Mississippi River and
near the mouth of the Ohio River, reached the lowest levels since the drought of
1988, leading to mandated traffic restrictions, reduced barge drafts and vessel
tow sizes, which negatively affected productivity and increased costs. Operating
expenses increased 6% over the prior year, reflecting rising costs associated
with crew labor, port expenses, vessel maintenance, insurance as well as the
adverse conditions discussed above. The purchase of new barges and other capital
improvements increased depreciation and property taxes. Reflecting these
factors, operating earnings declined $5.5 million, or 21%, from 1998. Earnings
before extraordinary items declined $3.1 million from 1998, reflecting the lower
operating earnings discussed above and higher net interest expense from new
long-term debt issued late in 1998, partly offset by a $1.8 million gain on the
sale of an excess towboat.
In March 1998, the Registrant recognized an extraordinary loss of $2.3 million
or $1.5 million net of tax, on the early extinguishment of $50 million of First
Preferred Ship Mortgage bonds due 2008. In June of 1998, the U. S. Supreme Court
upheld Eastern Enterprises' challenge to the constitutionality of the Coal
Industry Retiree Health Benefit Act of 1992 ("Coal Act") as applied to Eastern.
Consequently, the Registrant reversed its Coal Act reserve resulting in an
extraordinary gain of $4.3 million pre-tax or $2.8 million net in the second
quarter of 1998.
As a result of these extraordinary items in 1998 and the operating results
discussed above, net earnings declined a total of $4.5 million as compared to
last year.
1998 COMPARED TO 1997
- ---------------------
As a result of slightly lower ton mile production and a weaker rate environment,
revenues in 1998 declined $8.1 million or 3%. A strong U.S. dollar and economic
problems in Asia combined to significantly reduce export grain and coal demand
while a slowing steel sector in the U.S. placed additional downward pressure on
spot and renewing contract rates. Declining fuel prices decreased rates on
multi-year contracts containing fuel price adjustment clauses, although
partially compensating was the favorable impact on operating costs. Despite the
warm winter in 1998, significantly higher shipments of coal under multi-year
contracts for utility and industrial accounts offset much of these revenue
reductions.
Tonnage transported in 1998 increased 5% over 1997, while ton miles declined 3%,
reflecting the reduced long haul import/export tonnage. Consequently, the
average length of haul declined 8% in 1998. Total coal tonnage increased 8%,
with coal tonnage shipped under multi-year contracts to utility customers
increasing 12%. Coal ton miles declined 3%, however, due to the decline in long
haul export and spot coal shipments. Non-coal tonnage increased 1%, while
related ton miles were off 4% from 1997, as reduced export grain, scrap and
steel shipments were offset with more local movements of aggregates and coke.
6
<PAGE> 8
For the second straight year, extreme weather conditions significantly increased
operating costs and negatively impacted productivity. While 1997 experienced
record spring flooding on the Ohio River, multiple tropical storms and
hurricanes in the southeastern U.S. continually disrupted nearby inland and Gulf
of Mexico operations in 1998. In addition, the Ohio Valley experienced extended
periods of low water conditions, resulting in prolonged lock delays and mandated
traffic restrictions. These operating difficulties, in addition to changes in
traffic patterns from the reduced export demand, lowered fleet productivity and
materially increased operating expenses. Lower fuel prices, which dropped 23% in
1998, were partially offset by rising labor costs and higher vessel maintenance
expense. Increased depreciation and taxes mainly reflect new barge purchases,
while increased compensation and technology costs resulted in higher
administrative expenses. Reflecting the above operating and market issues,
operating earnings declined $8.0 million as compared to 1997. Earnings before
extraordinary items declined $5.3 million from 1997 reflecting the lower
operating earnings discussed above, partly offset by lower net interest expense.
In March 1998, the Registrant recognized an extraordinary loss of $2.3 million
pretax or $1.5 million net of tax, on the early retirement of $50 million of
First Preferred Ship Mortgage Bonds due 2008. In June of 1998, the U. S. Supreme
Court upheld Eastern Enterprises' challenge to the constitutionality of the Coal
Industry Retiree Benefit Act of 1992 ("Coal Act") as applied to Eastern.
Consequently, as discussed in Note 10 to Financial Statements, the Registrant
reversed its Coal Act reserve resulting in an extraordinary gain of $4.3 million
pre-tax or $2.8 million net of tax, in the second quarter of 1998.
Net earnings as a result of the extraordinary items and the operating and market
issues as discussed above, declined $3.9 million as compared to 1997.
YEAR 2000 ISSUES
- ----------------
The Registrant experienced no significant year 2000 related problems or
operational disruptions. A few minor program errors were identified and
corrected to non-critical systems. In addition to in-house systems, the
Registrant was not affected by, nor was it aware of, any failures of its major
customers or third party vendors. As a precaution, inventories of fuel and
operating supplies were increased at year-end, which will now be returned to
normal levels. The majority of the Registrant's customers normally maintain
adequate inventories; therefore, no changes in business levels were detected at
year-end as a result of anticipated year 2000 risks. The Registrant will
continue to monitor in-house information systems through the end of the first
quarter of 2000, or until all month-end and quarterly processes have been fully
exercised, but does not expect to incur any significant year 2000 related costs
beyond January 2000.
The Registrant's cost for year 2000 compliance as expected totaled nearly $2.4
million, with $1.4 million in capitalized cost and $1.0 million expensed. This
included the cost of purchased software and hardware, consulting, as well as the
value of internal staff time charged to the project. A significant amount of
these costs resulted in system upgrades and enhancements that will have future
benefits to the Registrant.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Capital expenditures of $18 million, debt payments and dividends paid to Parent
were funded from cash provided from operating activities, while excess cash was
advanced to Parent. Capital expenditures included the purchase of new dry cargo
barges, terminal facilities and information system improvements. The Registrant
also signed a series of long-term operating leases for 97 new hopper barges
delivered during the second half of the year.
Cash flow from operating activities was negatively affected by lower net
earnings and higher fuel inventories, resulting from a 63% increase in
comparative year-end prices, and additional inventories associated with year
2000 preparedness. However, year-end increases in accounts payable and deferred
taxes were more than offsetting. The increase in accounts payable at December
31, 1999, mainly reflects amounts owed for the construction of capital assets in
process at year-end.
Capital expenditures for 2000 are projected at $9 million. In addition, the
Registrant has contracted to charter an additional 80 new hopper barges to be
delivered throughout the year.
7
<PAGE> 9
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.
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.
8
<PAGE> 10
PART IV
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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 State Street
Bank and Trust Company dated as of April 2, 1990 (filed as
Exhibit 4.2 to Registration Statement No. 33-32120).(1)
4.2 Indenture between Midland Enterprises Inc. and The Chase
Manhattan Bank dated as of September 29, 1998 (filed as
Exhibit 4.2 to Registration Statement No. 333-61137).(1)
10.1 Change of Control Agreement, dated as of September 22, 1999 by
and between Eastern Enterprises, Midland Enterprises Inc. and
J. Mark Cook (incorporated by reference to Exhibit 10.11.6 to
quarterly report of Eastern on form 10-Q for the quarter ended
September 30, 1999 (File No.1-2297)).
(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.)
- ------------------------
(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 1999.
9
<PAGE> 11
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. FAILLO
----------------
R. FAILLO
VICE PRESIDENT, FINANCE
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
DATE MARCH 13, 2000
----------------
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 13TH day of MARCH, 2000.
<TABLE>
<CAPTION>
<S> <C>
BY: /s/ J. M. COOK BY: /s/ R. L. DOETTLING
--------------------------- -----------------------------
J. M. COOK R. L. DOETTLING
PRESIDENT; DIRECTOR SENIOR VICE PRESIDENT, TRANSPORTATION SERVICES;
(PRINCIPAL EXECUTIVE OFFICER) DIRECTOR
BY: /s/ P. E. HUBBARD BY: /s/ W. J. FLAHERTY
----------------------------- ----------------------
P. E. HUBBARD W. J. FLAHERTY
SENIOR VICE PRESIDENT, SALES DIRECTOR
AND MARKETING; DIRECTOR
</TABLE>
Supplemental information to be furnished with reports filed pursuant to Section
15 (d) of the Act by Registrants Which Have Not Registered Securities Pursuant
to Section 12 of the Act
Neither 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.
10
<PAGE> 12
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 Earnings for the years
ended December 31, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets -- December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholder's Equity for
the years ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
SCHEDULE:
II Valuation and Qualifying Accounts and Reserves F-19
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> 13
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, 1999 and 1998, and the
related consolidated statements of earnings, stockholder's equity and cash flows
for each of the three years in the period ended December 31, 1999. These
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 financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
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, is fairly stated in all material respects the financial data required
to be set forth therein in relation to the financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
January 20, 2000
F-2
<PAGE> 14
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(000 OMITTED)
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES (NOTE 1) $ 267,269 $ 261,061 $ 269,259
--------- --------- ---------
OPERATING COSTS AND EXPENSES:
Operating expenses $ 191,004 $ 180,851 $ 183,929
Depreciation and amortization (Note 5) 24,345 23,838 22,675
Selling, general and administrative
expenses 12,513 12,311 11,337
Overhead allocation from Parent (Note 1) 3,100 3,000 2,900
Taxes, other than income 15,193 14,427 13,805
--------- --------- ---------
$ 246,155 $ 234,427 $ 234,646
--------- --------- ---------
OPERATING EARNINGS $ 21,114 $ 26,634 $ 34,613
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income from Parent, net (Note 1) $ 3,062 $ 1,688 $ 4,242
Interest income other 537 63 73
Gain (loss) on sale of assets and
other, net 1,472 271 (84)
--------- --------- ---------
$ 5,071 $ 2,022 $ 4,231
--------- --------- ---------
INTEREST EXPENSE:
Long-term debt (Note 3) $ 12,796 $ 10,612 $ 13,530
Other, including amortization of
debt expense 246 189 227
--------- --------- ---------
$ 13,042 $ 10,801 $ 13,757
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES $ 13,143 $ 17,855 $ 25,087
Provision for income taxes (Note 4) 4,917 6,534 8,464
--------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEMS $ 8,226 $ 11,321 $ 16,623
EXTRAORDINARY ITEMS, NET OF TAX:
Credit for coal miners retiree
health care (Note 10) $ - $ 2,827 $ -
Loss on early retirement of debt (Note 3) - (1,465) -
--------- --------- ---------
NET EARNINGS $ 8,226 $ 12,683 $ 16,623
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE> 15
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
------
<TABLE>
<CAPTION>
(000 OMITTED)
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 86 $ 86
Receivables:
Trade, less allowance of $469,000
in 1999 and $669,000 in 1998 18,532 17,765
Parent (Notes 1 and 3) 66,158 56,572
Other 1,990 2,965
Materials, supplies and fuel (Note 1) 9,925 6,940
Prepaid expenses 2,205 1,866
-------- --------
TOTAL CURRENT ASSETS $ 98,896 $ 86,194
-------- --------
PROPERTY AND EQUIPMENT, AT COST (NOTES 3 AND 5):
Towboats and barges $628,099 $628,939
Terminals and other facilities 55,606 45,344
Land 4,710 4,731
-------- --------
Total property and equipment, at cost $688,415 $679,014
Less - accumulated depreciation 364,976 350,015
-------- --------
NET PROPERTY AND EQUIPMENT $323,439 $328,999
-------- --------
OTHER ASSETS:
Deferred pension charges (Note 7) $ 16,699 $ 15,198
Unamortized debt expense, deferred
maintenance and other (Notes 1 and 5) 5,042 5,857
-------- --------
TOTAL OTHER ASSETS $ 21,741 $ 21,055
-------- --------
TOTAL ASSETS $444,076 $436,248
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 16
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
(000 OMITTED)
1999 1998
-------- --------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3) $ 5,167 $ 4,742
Accounts payable 14,595 11,204
Reserve for insurance claims (Note 1) 10,326 10,739
Accrued expenses 3,911 4,080
Interest payable 3,120 3,755
Other taxes payable 3,587 3,431
Income taxes payable (Note 4) 719 232
Other current liabilities 7,422 7,448
-------- --------
TOTAL CURRENT LIABILITIES $ 48,847 $ 45,631
LONG-TERM DEBT (NOTE 3) $142,500 $147,448
-------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes (Note 4) $ 70,627 $ 64,012
Unamortized investment tax credits (Note 4) 1,767 2,116
Postretirement health care (Note 7) 9,296 9,058
Other reserves 2,981 1,981
-------- --------
TOTAL RESERVES AND DEFERRED CREDITS $ 84,671 $ 77,167
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 10)
STOCKHOLDER'S EQUITY (NOTE 3):
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 115,538 113,482
-------- --------
TOTAL STOCKHOLDER'S EQUITY $168,058 $166,002
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $444,076 $436,248
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 17
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(000 OMITTED EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
CAPITAL IN ACCUMULATED OTHER TOTAL
COMMON STOCK EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDER'S
OUTSTANDING PAR VALUE EARNINGS INCOME EQUITY
----------------------- ---------- --------- ---------- --------------
SHARES AMOUNT
---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996: 15.5 $ 1 $ 52,519 $ 104,035 $ (268) $ 156,287
Net earnings 16,623
Pension liability adjustment, net 65
Total comprehensive income 16,688
Dividends to Parent (12,467) (12,467)
---------- ----------- ------------- ------------- -------- ------------
BALANCE DECEMBER 31, 1997: 15.5 $ 1 $ 52,519 $ 108,191 $ (203) $ 160,508
Net earnings 12,683
Pension liability adjustment, net 203
Total comprehensive income 12,886
Dividends to Parent (7,392) (7,392)
---------- ----------- ------------- ------------- -------- ------------
BALANCE DECEMBER 31, 1998: 15.5 $ 1 $ 52,519 $ 113,482 $ - $ 166,002
Net earnings 8,226
Total comprehensive income 8,226
Dividends to Parent (6,170) (6,170)
---------- ----------- ------------- ------------- -------- ------------
BALANCE DECEMBER 31, 1999: 15.5 $ 1 $ 52,519 $ 115,538 $ - $ 168,058
========== =========== ============= ============= ======== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 18
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(000 OMITTED)
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,226 $ 12,683 $ 16,623
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Extraordinary items, net - (1,362) -
Depreciation and amortization 24,345 23,838 22,675
Deferred and current income taxes 7,102 4,615 3,178
Net (gain) loss on sale of assets (1,919) 2 42
Other changes in assets and liabilities:
Trade and other receivables (766) (30) 19
Materials, supplies and fuel (2,985) 1,798 (562)
Accounts payable 3,391 (6,995) 6,975
Accrued expenses and other current liabilities (1,086) (2,206) (2,771)
Other 1,097 (3,742) (2,330)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 37,405 $ 28,601 $ 43,849
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $(18,446) $(46,622) $(25,700)
(Increase) decrease in Parent receivable (9,586) 10,373 (3,082)
Proceeds from other asset dispositions 1,320 1,004 2,138
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES $(26,712) $(35,245) $(26,644)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (4,523) $(54,688) $ (4,806)
Issuance of long-term debt - 68,519 -
Cash dividends paid to Parent (6,170) (7,392) (12,467)
Other - 203 65
-------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $(10,693) $ 6,642 $(17,208)
-------- -------- --------
Net decrease in cash and cash equivalents $ - $ (2) $ (3)
Cash and cash equivalents at beginning of year 86 88 91
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 86 $ 86 $ 88
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest, net of amounts capitalized $ 12,457 $ 10,677 $ 13,582
Income taxes $ (2,474) $ 2,582 $ 5,293
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE> 19
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) SIGNIFICANT ACCOUNTING POLICIES
Midland Enterprises Inc. (the "Registrant") is a wholly-owned subsidiary of
Eastern Enterprises ("Eastern") of Weston, Massachusetts. On November 4, 1999,
Eastern and KeySpan Corporation ("KeySpan") of Brooklyn, New York announced that
the companies had signed a definitive merger agreement under which KeySpan will
acquire all of the common stock of Eastern. The transaction is conditioned,
among other things, upon the approval of Eastern's shareholders, the Securities
and Exchange Commission and the New Hampshire Public Utility Commission.
The Registrant'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 Registrant's
tonnage, the majority of which is transported to various electric utilities in
the eastern half of the United States. The Registrant also provides bulk
terminalling, shipyard repair and barge fleeting services, none of which account
for more than 10% of consolidated revenues. A substantial amount of the
Registrant's revenues relate to spot or annual contracts for transportation and
terminalling. Approximately 52% of the Registrant's revenues are derived from
multi-year transportation and terminalling contracts.
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 Registrant and
its subsidiaries. All material intercompany balances and transactions have been
eliminated. The significant accounting policies followed by the Registrant 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: 4.90%
in 1999, 5.60% in 1998 and 5.90% in 1997. The Registrant 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 Registrant
generally 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-8
<PAGE> 20
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Reserve for insurance claims - The Registrant is self-insured
for personal injury and property claims, which are insured
above a deductible amount of $600,000 per occurrence. The
Registrant'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.
(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 other income and expense 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 Registrant 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 were 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 1999.
(j) Deferred maintenance - The Registrant defers the cost of
engine overhauls on certain towboats and amortizes these costs
over the estimated life of the repair, which generally ranges
from 2 to 4 years.
(k) Comprehensive income - In 1998, the Registrant adopted
Financial Accounting Standards Board (FASB) Statement No. 130,
"Reporting Comprehensive Income," which requires companies to
report all changes in equity during a period, in a financial
statement for the period in which they are recognized. The
Registrant has chosen to disclose Comprehensive Income, which
encompasses net income and pension liability adjustments, in
the consolidated statements of stockholder's equity.
(l) Segment reporting - In 1997, the FASB issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement, which is based on the management
approach to segment reporting, requires that public business
enterprises disclose information about their products and
services, operating segments, the geographic area in which
they operate, and their major customers. The Registrant
adopted the provisions of this Statement in 1998. The
Registrant operates in one business segment. Substantially all
revenues are derived from the barge transportation of bulk
commodities. Additionally, the Registrant does not engage in
material operations in foreign countries and no material
portion of its revenues is derived from customers in foreign
countries.
(m) Derivatives and hedging activities - In June 1998, the FASB
issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires companies
to recognize all derivative contracts at their fair values, as
either assets or liabilities on the balance sheet. Changes in
the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. The
Registrant does not expect the adoption of SFAS No. 133 will
have a material impact on the consolidated financial
statements because the Registrant does not currently hold any
derivative instruments.
F-9
<PAGE> 21
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SIGNIFICANT CUSTOMERS
In 1999 and 1998, the Cincinnati Gas and Electric Company, a subsidiary of
Cinergy Corp, and the combined revenues from Gulf Power Company and Mississippi
Power Company, subsidiaries of The Southern Company, each accounted for more
than 10% of the Registrant's consolidated revenues under multi-year coal
transportation agreements. In addition, amounts due from these customers
comprised approximately 10% of the Registrant's trade receivables as of December
31, 1999 and 1998. In 1997, only one customer, The Cincinnati Gas and Electric
Company, accounted for approximately 10% of the consolidated revenues and 11% of
trade receivables as of December 31, 1997. No other customer, or group of
customers under common control, accounted for more than 10% of revenues in 1999,
1998 or 1997.
(3) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS
(a) LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
--------- ---------
(000 OMITTED)
<S> <C> <C>
First Preferred Ship Mortgage Bonds -
8.1% - 9.85% Medium Term Notes, Series A,
Due 2002-2012 $ 68,000 $ 68,000
6.25% Series, due 2008 75,000 75,000
--------- ---------
Total Mortgage Bonds $ 143,000 $ 143,000
--------- ---------
Obligations under Capital Leases and Other -
Atel Leasing Corporation (Successor to Wells Fargo Leasing
Corporation and Security Pacific Leasing Inc.) $ 2,753 $ 3,794
CitiCorp Leasing, Inc. (Successor to BA Leasing & Capital
Corporation and Wells Fargo Leasing Corporation) 1,097 1,774
Security Pacific Equipment Leasing, Inc. 4,200 5,853
Westinghouse Credit Corporation 3,266 4,727
Other (including unamortized debt discount and interest rate hedge) (5,912) (6,381)
--------- ---------
$ 5,404 $ 9,767
--------- ---------
Less:
Current portion of long-term debt included above $ 5,167 $ 4,742
Monies on deposit (d) 737 577
--------- ---------
$ 5,904 $ 5,319
--------- ---------
TOTAL LONG-TERM DEBT $ 142,500 $ 147,448
========= =========
</TABLE>
In March 1998, the Registrant utilized the receivable from Parent to redeem the
$50 million of 9.9% First Preferred Ship Mortgage Bonds, due 2008. In
extinguishing this debt, the Registrant recognized an extraordinary charge of
$2.3 million pretax or $1.5 million net of tax.
F-10
<PAGE> 22
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS (Continued)
On September 29, 1998, the Registrant issued $75 million of 6.25% First
Preferred Ship Mortgage Bonds at a discount of .69%, maturing October 1, 2008.
The Registrant entered into Forward Treasury Lock Agreements in order to hedge
the interest rate of the new debt issue during the second and third quarters of
1998. These agreements resulted in hedging costs of approximately $6.0 million,
which will be amortized over the life of the debt, along with the bond discount,
as interest expense and resulted in an effective annual interest rate on the
debt of approximately 7.50%. After payment of the hedge cost, the net proceeds
of the debt were approximately $68.5 million. Debt proceeds were advanced to
Parent and will be used to fund current and future capital expenditures for
barges and other water transportation equipment.
The First Preferred Ship Mortgage Bonds and obligations under capital leases are
secured by approximately half of the Registrant's barge fleet and by assignment
of rentals for that equipment payable to the Registrant by its subsidiaries.
Under the most restrictive of the mortgage indentures, the Registrant, (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 Registrant 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, and (b) 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 Registrant from its
stockholder) plus (ii) Consolidated Senior Secured Funded Debt (all terms as
defined in the applicable indenture). Under these agreements, $36,398,000 of
retained earnings at December 31, 1999 are available for additional dividends to
Eastern.
Included in obligations under capital leases is $11,317,000 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 $5,167,000 in 2000, $4,126,000 in
2001, $1,668,000 in 2002, $356,000 in 2003 and $0 in 2004.
(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, 2001. The Registrant's maximum available borrowings
under the credit agreement are $50,000,000. The agreement requires a facility
fee of 9.5 basis points of the commitment. The Registrant had no borrowings
outstanding under this agreement in 1999 or 1998. 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
$5,167,000 in 2000, and $4,126,000 in 2001, $4,668,000 in 2002, $356,000 in 2003
and $0 in 2004.
F-11
<PAGE> 23
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS (Continued)
(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 Registrant's intention to
repurchase its own bonds with these funds to be used for sinking fund
requirements.
(4) INCOME TAXES
The Registrant and its subsidiaries are members of an affiliated group of
companies, which files a consolidated Federal Income Tax return with Eastern.
The Registrant follows 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.
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
------- ------- -------
(000 OMITTED)
<S> <C> <C> <C>
Current:
Federal $(1,521) $ 1,098 $ 5,564
State 411 270 (227)
------- ------- -------
Total Current Provision $(1,110) $ 1,368 $ 5,337
Deferred:
Federal $ 6,055 $ 5,150 $ 3,301
State (28) 16 (174)
------- ------- -------
Total Deferred Provision $ 6,027 $ 5,166 $ 3,127
------- ------- -------
Total Provision $ 4,917 $ 6,534 $ 8,464
======= ======= =======
</TABLE>
The following reconciles the statutory U.S. Federal Income Tax provision to the
recorded income tax provision:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(000 OMITTED)
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Computed provision for income taxes
at statutory Federal rate $ 4,600 $ 6,249 $ 8,781
Increase (decrease) from statutory
rate resulting principally from:
State taxes, net of Federal benefit 249 186 (261)
Nondeductible expenses 67 53 47
Other, net 1 46 (103)
------- ------- -------
Provision for income taxes $ 4,917 $ 6,534 $ 8,464
======= ======= =======
</TABLE>
F-12
<PAGE> 24
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) INCOME TAXES (Continued)
Significant items making up deferred tax liabilities and deferred tax assets
including amounts classified as current, as of December 31, 1999 and 1998, are
as follows:
1999 1998
-------- --------
(000 OMITTED)
Assets:
Post-retirement benefits $ 2,988 $ 3,149
Other 5,874 5,703
-------- --------
Total Deferred Tax Assets $ 8,862 $ 8,852
Liabilities:
Accelerated depreciation $(70,978) $(65,770)
Other (7,951) (7,122)
-------- --------
Total Deferred Tax Liabilities $(78,929) $(72,892)
-------- --------
TOTAL DEFERRED TAXES $(70,067) $(64,040)
======== ========
(5) 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 3.6% in 1999 and 1998.
(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 Registrant 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.
(d) The following is the property value of leased barges under
capitalized leases:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
(000 OMITTED)
<S> <C> <C>
Assets:
Leased barges $ 55,203 $ 55,512
Less: Accumulated depreciation (50,465) (47,946)
------------- ------------
TOTAL LEASED BARGES UNDER CAPITALIZED LEASES $ 4,738 $ 7,566
============= ============
</TABLE>
F-13
<PAGE> 25
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) COMMITMENTS & CONTINGENCIES
The Registrant has contracted to charter an additional 80 new hopper barges
under a long term operating lease in 2000. Delivery of these barges is scheduled
over several months beginning in February 2000.
The Registrant and its subsidiaries currently lease certain facilities, vessels
and equipment under long-term operating leases that expire on various dates
through 2017. Rent expense under these operating leases amounted to
approximately $3,504,000 in 1999, $2,305,000 in 1998 and $2,382,000 in 1997. The
minimum rental commitment for non-cancelable operating leases at December 31,
1999 is as follows:
MINIMUM
YEARS ENDING ANNUAL RENTAL
------------ -------------
(000 OMITTED)
2000 $ 5,213
2001 5,158
2002 4,905
2003 3,579
2004 3,262
2005 - 2017 24,787
---------
TOTAL $ 46,904
==========
The Registrant maintains employment agreements with eleven employees. The
pending merger between Eastern and KeySpan may trigger the change of control
provisions under these agreements which, in the event of a termination, provide
for one to three times salary and bonus as severance and, in certain
circumstances, a tax gross-up and enhanced retirement benefits. The maximum
contingent liability under these agreements is $5.9 million.
(7) RETIREE BENEFITS
The Registrant and its subsidiaries, through various Registrant-administered
plans and union retirement and welfare plans, provide retirement benefits for
the majority of their employees, including pension and certain health care and
life insurance benefits. Normal retirement age ranges from 60 to 65, but
provision is made for earlier retirement. Pension benefits for non-union plans
are based on salary and years of service, while union retirement and welfare
plans are based on negotiated benefits and years of service. The funding of
retirement and employee benefit plans is in accordance with the requirements of
the plans and, where applicable, is in sufficient amounts to satisfy the
"Minimum Funding Standards" of the Employee Retirement Income Security Act
("ERISA").
F-14
<PAGE> 26
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) RETIREE BENEFITS (Continued)
The net cost for these plans and agreements charged to expense was as follows:
PENSIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(000 OMITTED)
<S> <C> <C> <C>
Service cost $ 1,802 $ 1,619 $ 1,451
Interest cost on projected benefit obligation 2,968 2,702 2,230
Expected return on plan assets (4,495) (4,095) (3,631)
Amortization of prior service cost 254 105 97
Amortization of transitional asset (73) (71) (71)
Recognized actuarial (gain) loss (382) 13 (41)
------- ------- -------
Total net pension cost of company administrated plans $ 74 $ 273 $ 35
Multi-employer union retirement and welfare plans 445 475 270
------- ------- -------
TOTAL NET PENSION COST $ 519 $ 748 $ 305
======= ======= =======
</TABLE>
HEALTH CARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(000 OMITTED)
<S> <C> <C> <C>
Service cost $ 116 $ 118 $ 106
Interest cost on accumulated benefit obligation 1,293 1,104 876
Amortization of prior service costs (163) (163) (163)
Recognized actuarial loss 612 358 255
------- ------- -------
NET PERIODIC POSTRETIREMENT BENEFIT COSTS $ 1,858 $ 1,417 $ 1,074
======= ======= =======
</TABLE>
The following table sets forth the change in benefit obligation and plan assets,
reconciliation of funded status and amounts recognized in other comprehensive
income of Registrant-administered plans and amounts recorded in the Registrant's
consolidated balance sheet as of December 31, 1999 and 1998, respectively,
utilizing actuarial measurement dates as of October 1, 1999 and 1998:
<TABLE>
<CAPTION>
PENSIONS HEALTH CARE
1999 1998 1999 1998
-------- -------- -------- --------
(000 OMITTED) (000 OMITTED)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 36,659 $ 32,665 $ 18,466 $ 15,268
Service cost 1,550 1,412 116 118
Interest cost 2,629 2,423 1,293 1,104
Plan amendments 68 248 - -
Settlement (gain) loss 23 - - -
Special termination benefits - 20 - -
Benefits paid (790) (898) (1,268) (928)
Settlement payments (303) - - -
Actuarial (gain) loss (394) 789 (758) 2,904
-------- -------- -------- --------
Benefit obligation at end of year $ 39,442 $ 36,659 $ 17,849 $ 18,466
======== ======== ======== ========
</TABLE>
F-15
<PAGE> 27
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) RETIREE BENEFITS (Continued)
<TABLE>
<CAPTION>
PENSIONS HEALTH CARE
1999 1998 1999 1998
-------- -------- -------- --------
(000 OMITTED) (000 OMITTED)
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year $ 55,581 $ 57,123 $ - $ -
Actual return on plan assets 4,243 (875) - -
Employer contributions 3 242 1,268 928
Benefits paid (790) (898) (1,268) (928)
Settlement payments (303) - - -
Administrative expenses - (11) - -
-------- -------- -------- --------
Fair value of plan assets at end of year $ 58,734 $ 55,581 $ - $ -
======== ======== ======== ========
Reconciliation of funded status:
Funded status $ 19,292 $ 18,922 $(17,849) $(18,467)
Contributions for 4th quarter - 3 672 155
Unrecognized actuarial (gain) loss (5,414) (5,656) 8,926 10,463
Unrecognized transition (asset) (11) (83) - -
Unrecognized prior service cost 1,599 1,661 (1,045) (1,209)
-------- -------- -------- --------
Net amount recognized at year-end $ 15,466 $ 14,847 $ (9,296) $ (9,058)
======== ======== ======== ========
Amounts recognized in balance sheet:
Prepaid benefit cost $ 16,783 $ 15,277 $ - $ -
Accrued benefit liability (1,317) (430) (9,296) (9,058)
Intangible asset - - - -
Accumulated other comprehensive income - - - -
-------- -------- -------- --------
Net amount $ 15,466 $ 14,847 $ (9,296) $ (9,058)
-------- -------- -------- --------
Other comprehensive income $ - $ (312) $ - $ -
======== ======== ======== ========
</TABLE>
Certain of the Registrant'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.
Following are the weighted-average assumptions used in developing the projected
benefit obligation for 1999, 1998 and 1997:
1999 1998 1997
---------- -------- --------
Discount rate 7.50% 7.25% 7.50%
Return on plan assets 8.50% 8.50% 8.50%
Increase in future compensation 4.50% 4.50% 4.75%
Health care inflation trend 8.00%-10.00% 8.00% 7.00%
F-16
<PAGE> 28
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) RETIREE BENEFITS (Continued)
The health care inflation trend for individuals not yet 65 years of age is
assumed to be 8% in 2000 and decrease gradually to 5% for 2006. The health care
inflation rate for individuals 65 years of age or older is 10% in 2000 and
decreasing gradually to 5% in 2008. A one-percentage-point increase (decrease)
in the assumed health care cost trend rate for 1999 would have the following
effects:
ONE- ONE-
PERCENTAGE- PERCENTAGE-
POINT POINT
INCREASE DECREASE
----------- -----------
(000 OMITTED)
Total of service and interest cost components $ 101 $ (88)
Postretirement benefit obligation $ 1,355 $(1,172)
(8) 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 approximate
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 Registrant's financial
instruments at December 31, 1999 and 1998 are as follows:
1999 1998
-------- --------
Long-term debt: (000 OMITTED)
Carrying Amount $136,351 $136,042
Fair Value $151,021 $146,678
F-17
<PAGE> 29
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) UNAUDITED INTERIM FINANCIAL INFORMATION
The following table summarizes the Registrant's reported unaudited consolidated
quarterly results of operations for the years ended December 31, 1999 and 1998.
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
(000 OMITTED)
1999
- ----
Revenues $61,326 $65,783 $69,690 $70,470
Operating earnings $ 3,141 $ 5,736 $ 6,729 $ 5,508
Net earnings $ 278 $ 2,049 $ 4,222 $ 1,677
1998
- ----
Revenues $62,658 $65,163 $66,850 $66,390
Operating earnings $ 6,087 $ 7,720 $ 8,420 $ 4,407
Net earnings $ 923 $ 6,571 $ 4,124 $ 1,065
(10) EXTRAORDINARY ITEM - COAL MINERS RETIREE HEALTH CARE
In 1993, Registrant'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, 1996, and 1997 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 was allegedly due to the
Parent's relationship to a predecessor entity of Registrant which is no longer
in business.
In 1995, Registrant recorded a reserve of $4,600,000 ($2,990,000 after-tax) 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 or 1997, 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, 1997 and 1996, $1.3 million and
$1.1 million, respectively, of this reserve was included in Other Current
Liabilities.
The Parent's constitutional challenge to the Coal Act failed in the First
Circuit Court of Appeals, which affirmed the federal district court's finding of
constitutionality. However, the Parent's petition for a writ of certiorari in
the Supreme Court was granted and on June 25, 1998 the U.S. Supreme Court ruled
that the Coal Act is unconstitutional as applied to the Parent. As a result of
the Supreme Court's decision, the Registrant reversed the reserve discussed
above, less associated expenses, resulting in an extraordinary gain of $4.3
million pretax or $2.8 million net of tax, in the second quarter of 1998.
F-18
<PAGE> 30
SCHEDULE II
MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(000 OMITTED)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------------------- ----------
Balance Charged Charged Payments/ Balance
Beginning Costs & to Other Reclass/ End of
of Year Expenses Accounts Other Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1999
- ----
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $ 669 $ (200) $ - $ - $ 469
======== ======== ======== ======== ========
Reserves included in liabilities -
Reserve for environmental expenses 442 (80) - (7) 355
Reserve for insurance claims 10,739 4,571 3,168 (8,152) 10,326
Reserve for post-retirement
health care 9,058 1,858 - (1,620) 9,296
Reserve for employee benefits 3,915 5,497 1,577 (6,252) 4,737
-------- -------- -------- -------- --------
TOTAL OTHER RESERVES $ 24,154 $ 11,846 $ 4,745 $(16,031) $ 24,714
======== ======== ======== ======== ========
1998
- ----
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $ 665 $ - $ - $ 4 $ 669
======== ======== ======== ======== ========
Reserves included in liabilities -
Reserve for environmental expenses 757 (306) - (9) 442
Reserve for insurance claims 11,980 3,869 1,968 (7,078) 10,739
Reserve for post-retirement
health care 8,569 1,416 - (927) 9,058
Reserve for employee benefits 4,483 4,715 1,546 (6,829) 3,915
Reserve for coal miners retiree
health care 4,600 (4,350) - (250) 0
-------- -------- -------- -------- --------
TOTAL OTHER RESERVES $ 30,389 $ 5,344 $ 3,514 $(15,093) $ 24,154
======== ======== ======== ======== ========
1997
- ----
Allowances and reserves deducted
from assets-
Allowance for doubtful accounts $ 685 $ - $ - $ (20) $ 665
======== ======== ======== ======== ========
Reserves included in liabilities -
Reserve for environmental expenses 915 - - (158) 757
Reserve for insurance claims 11,881 6,248 (530) (5,619) 11,980
Reserve for post-retirement
health care 8,798 1,073 - (1,302) 8,569
Reserve for employee benefits 4,840 6,083 - (6,440) 4,483
Reserve for coal miners retiree
health care 4,600 - - - 4,600
-------- -------- -------- -------- --------
TOTAL OTHER RESERVES $ 31,034 $ 13,404 $ (530) $(13,519) $ 30,389
======== ======== ======== ======== ========
</TABLE>
F-19
<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.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 18,532
<ALLOWANCES> 469
<INVENTORY> 9,925
<CURRENT-ASSETS> 98,896
<PP&E> 688,415
<DEPRECIATION> 364,976
<TOTAL-ASSETS> 444,076
<CURRENT-LIABILITIES> 48,847
<BONDS> 142,500
0
0
<COMMON> 1
<OTHER-SE> 168,057
<TOTAL-LIABILITY-AND-EQUITY> 444,076
<SALES> 0
<TOTAL-REVENUES> 267,269
<CGS> 0
<TOTAL-COSTS> 215,349
<OTHER-EXPENSES> 25,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,042
<INCOME-PRETAX> 13,143
<INCOME-TAX> 4,917
<INCOME-CONTINUING> 8,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,226
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
