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Form 10-Q





SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





xQUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For Quarter Ended March 31, 2002





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 incorporation or
organization)

( I.R.S. Employer 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





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(Former name, former address and former fiscal year, if changed since last report.)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ̈





The number of shares of common stock of Midland Enterprises Inc. outstanding as of the date of this report was 15 1/2, all held by Eastern Enterprises.





Registrant meets the conditions set forth in general instructions H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.





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Midland Enterprises Inc. and Subsidiaries





Consolidated Statements of Earnings


(Unaudited)





(000 Omitted)For the Three Months EndedMarch 31, 2002


March 31, 2001Revenues

$
55,888


$
67,586Operating costs and expenses:Operating expenses

$
41,919


$
51,179Depreciation and amortization


5,266



5,828Goodwill amortization






525Selling, general & administrative expenses


3,266



3,254Overhead allocation from Parent


487



795Taxes, other than income


3,637



3,802$
54,575


$
65,383Operating earnings

$
1,313


$
2,203Other income (expense):Interest income from Parent

$
497


$
1,202Interest income other


167



212Other, net


(7
)


(88
)$
657


$
1,326Interest expense:Long-term debt

$
2,901


$
2,990Other, including amortization of debt expense


78



74$
2,979


$
3,064Earnings before income taxes

$
(1,009
)

$
465(Benefit) Provision for Income taxes


(1,033
)


416Net earnings

$
24


$
49





The accompanying notes are an integral


part of these financial statements.




1




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Midland Enterprises Inc. and Subsidiaries





Consolidated Balance Sheets


(Unaudited)





(000 Omitted)March 31, 2002


Dec. 31, 2001

March 31, 2001AssetsCurrent assets:Cash and cash equivalents

$
40,016


$
33,415

$
20,039ReceivablesTrade, net


13,788



15,902


15,871Parent


78,294



78,856


73,007Other


(132
)


868


999Materials, supplies & fuel


7,415



7,950


8,524Prepaid expenses


1,391



2,046


1,021Total current assets

$
140,772


$
139,037

$
119,461Property and equipment, at cost

$
342,796


$
342,261

$
337,882Less-accumulated depreciation


30,880



25,635


9,721Net property and equipment

$
311,916


$
316,626

$
328,161Other assets:Deferred pension charges

$
12,078


$
12,095

$
13,871Goodwill, net (2)


20,608



20,608


60,956Other


1,347



1,402


1,406Total other assets

$
34,033


$
34,105

$
76,233Total assets

$
486,721


$
489,768

$
523,855





The accompanying notes are an integral


part of these financial statements.




2




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Midland Enterprises Inc. and Subsidiaries





Consolidated Balance Sheets


(Unaudited)





(000 Omitted)March 31, 2002


Dec. 31, 2001


March 31, 2001Liabilities and Stockholders EquityCurrent liabilities:Current portion of longterm debt

$
4,210


$
4,668


$
3,687Accounts payable trade


10,195



10,801



12,999Reserve for insurance claims


7,765



8,738



9,756Parent payable


6,169



8,193



Accrued expenses


4,017



5,294



4,325Interest payable


5,514



2,855



5,643Other taxes payable


3,766



3,399



3,268Income taxes payable


1,933



1,508



1,414Reserve for separation payments (3)


845



848



548Other current liabilities


13,563



13,650



16,744Total current liabilities

$
57,977


$
59,954


$
58,384Long-term debt

$
134,477


$
134,692


$
138,136Reserves and deferred credits:Deferred income taxes

$
75,230


$
76,632


$
77,176Unamortized investment tax credits


1,306



1,334



1,441Post-retirement health care


19,023



19,032



19,105Other reserves


8,355



7,795



5,523Total reserves and deferred credits

$
103,914


$
104,793


$
103,245Stockholders equity:Common stock, $100 par valueAuthorized shares1,000Issued shares15 1/2

$
1


$
1


$
1Capital in excess of par value


185,984



185,984



225,984Retained (deficit) earnings


6,305



6,281



(1,895
)Accumulated other comprehensive income


(1,937
)


(1,937
)


Total stockholders equity

$
190,353


$
190,329


$
224,090Total liabilities and stockholders equity

$
486,721


$
489,768


$
523,855





The accompanying notes are an integral


part of these financial statements.




3




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Midland Enterprises Inc. and Subsidiaries





Consolidated Statements of Cash Flows


(Unaudited)


(000 Omitted)For the Three Months EndedMarch 31, 2002


March 31, 2001Cash flows from operating activities:Net earnings

$
24


$
49Adjustments to reconcile net earnings to net cash provided by operating activities:Amortization of goodwill






525Depreciation and amortization


5,266



5,828Deferred and current income taxes


(977
)


3Net loss on sale of assets






7Other changes in assets and liabilities:Trade receivables


2,113



(2,715
)Materials, supplies & fuel


535



421Accounts payable


(606
)


1,838Accrued expenses and other current liabilities


(1,336
)


2,763Other


2,264



790Net cash provided by operating activities

$
7,283


$
9,509Cash flows from investing activities:Capital expenditures

$
(614
)

$
(399
)Decrease in Parent receivable


562



9Proceeds from asset dispositions


43



717Net cash (used) provided by investing activities

$
(9
)

$
327Cash flows from financing activities:Repayment of long-term debt

$
(673
)

$
(976
)Net cash used by financing activities

$
(673
)

$
(976
)Net increase in cash and cash equivalents

$
6,601


$
8,860Cash and cash equivalents at beginning of period


33,415



11,179Cash and cash equivalents at end of period

$
40,016


$
20,039Supplemental disclosures of cash flow information:Cash paid during the period for:Interest

$
101


$
191Income taxes

$
298


$
413





The accompanying notes are an integral


part of these financial statements




4




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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES


Notes to Financial
Statements


March 31, 2002





(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 2001 filed on Form 10-K are adequate to make the information presented not misleading. The December 31, 2001 financial statement information has been derived from the
2001 audited financial statements.





(2)    RECENT ACCOUNTING PRONOUNCEMENTS





On January 1, 2002, the Registrant adopted Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142
Goodwill and Other Intangible Assets. The key concepts from the two interrelated Statements include mandatory use of the purchase method when accounting for business combinations, discontinuance of goodwill amortization, a revised
framework for testing goodwill impairment at a reporting unit level, and new criteria for the identification and potential amortization of other intangible assets. Other changes to existing accounting standards involve the amount of
goodwill to be used in determining the gain or loss on the disposal of assets, and a requirement to test goodwill for impairment at least annually. The annual impairment test is to be performed within six months of adopting SFAS No. 142 with any
resulting impairment reflected as either a change in accounting principle, or a charge to operations in the financial statements. The Registrant has completed an analysis and determined that no impairment exists.





For the three months ended March 31, 2001, $.5 million goodwill amortization was recorded. As required by SFAS No. 142, below is a reconciliation of reported net income for the
three months March 31, 2001 and pro-forma net income, for the same period, adjusted for the discontinuance of goodwill amortization.




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MIDLAND ENTERPRISES INC. AND SUBSIDIARIES





NOTES TO FINANCIAL STATEMENTS(Continued)





March 31, 2002







Three Months Ended March 31, 2002

Three Months Ended March 31, 2001(000s)Net income as reported

$
24

$
49Add back: goodwill amortization





525Adjusted net income

$
24

$
574





In July of 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset
Retirement Obligations. The Standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity will capitalize a
cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its then present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The Registrant is
currently evaluating the impact, if any, that this Statement may have on its results of operations and financial condition.





SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, was effective January 1, 2002, and addresses accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and Accounting Principles Board Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 and expands the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and
that will be eliminated from the ongoing operations of the entity in a disposal transaction. As of March 31, 2002, implementation of this Statement did not have a significant effect on the Registrants results of operations and financial
condition.





(3)    RESERVE FOR SEPARATION PAYMENTS





The Registrant recorded a $4.7 million liability for separation payments in the fourth quarter of 2000 in conjunction with the acquisition by KeySpan. As of March 31, 2002, $4.7 million had been paid while an
additional $.8 million liability was recorded. The remaining liability at March 31, 2002 is $.8 million.




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2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





On January 24, 2002, KeySpan Corporation, the Registrants parent, announced that it had signed a definitive agreement to sell the Registrant
to Landgrove Corp., a wholly owned subsidiary of Ingram Industries Inc. On April 15, 2002, the Federal Trade Commission granted early termination of the premerger waiting period with respect to the acquisition. The transaction, which is subject to
additional regulatory approvals, is expected to close approximately mid-year 2002.





Results of Operations:





First quarter revenues declined 17% from the same period in 2001 reflecting a decline in tonnage transported resulting from weak market demand for most commodities. In addition,
freight rates averaged below prior year, primarily reflecting fuel adjustment mechanisms contained in multi-year and annual contracts, as fuel prices declined 29% compared to prior year.





First quarter tonnage transported decreased 13% from 2001, while related ton-miles declined only 8% reflecting a longer average length of haul. Coal tonnage, which accounted for 68% of total tonnage
shipped, decreased 17% on lower demand from electric utilities and industrial customers. Mild winter weather experienced across the Midwest and Southern regions resulted in reduced demand for coal from utility customers. Demand for metallurgical
coal by steel producers declined as markets for steel products were negatively affected by the weak economy. The weak economy also had a negative impact on raw material imports through Gulf Coast ports. As a result, non-coal tonnages declined 4%
compared to last year. These significant declines in steel and related products were partially offset by stronger demand for grain exports, alumina and coke.





While operating conditions in the quarter were generally good, there were periods of seasonal high water that resulted in draft restrictions and reduced tow sizes on various rivers. Operating expenses decreased 18% primarily due to the
reduced production levels discussed above as well as lower fuel prices. While fuel prices declined 29% from the first quarter of 2001, much of the benefit was passed on to customers through the contractual adjustment mechanisms discussed above.
Operating earnings of $1.3 million were down $.9 million reflecting the above factors offset somewhat by the discontinuance of goodwill amortization in compliance with new accounting standards.





Earnings before income taxes declined $1.5 million on the lower operating earnings discussed above and reduced interest income from Parent as a result of lower interest rates. The (benefit) provision for
income taxes reflects the lower pre-tax earnings as well as a favorable tax adjustment from the prior year. Net earnings of $24 thousand were slightly below the first quarter of 2001.




7




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Liquidity and Capital Resources





Capital expenditures of $.6 million and debt payments of $.7 million were funded from cash provided by operating activities. Capital expenditures for 2002 are estimated at $7.5 million, the majority of which includes
major improvements to towboats and shore side facilities as well as the purchase of new equipment. These purchases will continue to be funded with cash provided from operating activities.





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.




8




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PART II.    OTHER INFORMATION





ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K





| | (a) |  | Reports on Form 8-K
| | --- |  | -------------------




The
registrant filed a report on Form 8-K dated April 10, 2002 providing disclosure of the change in certifying accountants.




9




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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.





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/  C. LUDWIGC. Ludwig Controller Principal Accounting Officer





Date:    May 15, 2002




10