10-Q 1 e10-q.txt MIDLAND ENTERPRISES, INC. FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2000 ------------- or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- -------------------------- Commission File Number 2-39895 ------- MIDLAND ENTERPRISES INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 04-2284434 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 PIKE STREET, CINCINNATI, OHIO 45202 -------------------------------------------------------------------------------- (Address of principal executive (Zip code) offices) Registrant's telephone number, including area code 513-721-4000 ----------------------------- -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- -------------------------------------------------------------------------------- The number of shares of common stock of Midland Enterprises Inc. outstanding as of the date of this report was 15 1/2, all held by Eastern Enterprises. Registrant meets the conditions set forth in general instructions H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. 2 1 MIDLAND ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS

The accompanying notes are an integral part of these financial statements. 3 2 MIDLAND ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements. 4 3 MIDLAND ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements. 5 4 MIDLAND ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements. 6 5 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. 7 6 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On November 4, 1999 Eastern Enterprises ("Eastern") of Weston, Massachusetts, the Registrant's parent company, signed a definitive agreement that provides for the merger of Eastern with a wholly owned subsidiary of KeySpan Corporation ("KeySpan") of Brooklyn, New York, with Eastern surviving the merger and becoming a wholly-owned subsidiary of KeySpan. The transaction, which is subject to receipt of regulatory approvals, is expected to close in the 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. 8 7 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. 9 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed in the second quarter of 2000. 10 9 SIGNATURE It is Midland's opinion that the financial information contained in this report reflects all normal, recurring adjustments necessary to present a fair statement of results for the periods reported; but such results are not necessarily indicative of results to be expected for the year, due to the seasonal nature of Midland's operations. All accounting policies have been applied in a manner consistent with prior periods. Such financial information is subject to year end adjustments and annual audit by independent public accountants. Pursuant to the requirements of the Securities Exchange Act of 1934, Midland has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDLAND ENTERPRISES INC. BY: /S/ R. FAILLO -------------------------------- R. FAILLO SENIOR VICE PRESIDENT FINANCE PRINCIPAL FINANCIAL OFFICER DATE: JULY 24, 2000

MIDLAND ENTERPRISES INC /DE/ 10-Q