<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, 2000
                                   ---------------------

/ /      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
                                -----------------

                            Midland Enterprises Inc.
               ---------------------------------------------------
             (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
                     --------------------------------------
                                (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
                         ------------------------------

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 30, 2001 - 15 1/2 Shares
                     -------------------------------------

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


ITEM 1.  BUSINESS

(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 8, 2000, KeySpan Corporation
("KeySpan") of Brooklyn, New York, acquired all of the common stock of Eastern
at $64.56 per share in cash. Of the purchase price, $225 million was allocated
to the Registrant.

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, and the Gulf Intracoastal
Waterway. 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, a
phosphate rock and phosphate chemical fertilizer terminal, and other cargo
transfer facilities, and provides towboat fueling and barge fleeting services.

Most 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 was engaged primarily in the offshore transportation of phosphate
rock in the Gulf of Mexico and grain from Louisiana to Puerto Rico. The Red
Circle operating units were sold in June and October 2000, with operations
ceasing at that time. EATCO operates a terminal on leased land at Tampa,
Florida. Hartley operates shipyard facilities at Paducah, Kentucky, sells fuel
at Point Pleasant, West Virginia, operates a terminal at Silver Grove, Kentucky,
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, 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.



                                       1
<PAGE>   3

Tonnage transported by the Registrant's subsidiaries was 59.2 million in 2000,
60.0 million in 1999 and 59.9 million in 1998. Tonnage in 2000 was 1.3% below
1999, reflecting a 15.0% decrease in non-coal shipments partly offset by a 7.5%
increase in coal shipments. Tonnage in 1999 was .3% above 1998, reflecting an 8%
increase in non-coal shipments partly offset by a 4% decline in coal tonnage.

The following table summarizes the ton miles of cargo transported by the
Registrant's subsidiaries for the period 1998 - 2000:

                                         TON MILES TRANSPORTED (IN BILLIONS)
                                         -----------------------------------
                                          2000          1999          1998
                                          ----          ----          ----

         Coal ....................        12.9          12.6          13.2
         Iron, steel and scrap....         4.9           5.2           4.5
         Grain ...................         4.4           5.0           3.7
         Other* ..................         8.3          10.2          10.7
                                          ----          ----          ----

         Total Ton Miles .........        30.5          33.0          32.1
                                          ====          ====          ====

* Other includes sand, stone, gravel, coke, phosphate, other dry cargo, and
towing for others.

Ton miles are the product of tons and distance transported. In 2000, ton miles
declined 7.8% due to a combination of increased coal tonnage and lower non-coal
tonnage, which resulted in a 6% reduction in average length of haul. 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 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 2000 and 1999,
operations experienced seasonal weather patterns; however, during the latter
part of each year drought conditions negatively 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 2000, 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. No other customer, or group of customers under common
control, accounted for more than 10% of revenues in 2000, 1999 or 1998. 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 February 2001 through June 2010. During 2000, approximately 55% 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,                                                  2000        1999
                                                              ----        ----

Tons (in millions)                                            218.7       155.6
Revenues (in millions)                                       $652.1      $537.9
Portions of revenue backlog not expected to be filled
  within the current fiscal year                                 77%         80%


The 2000 revenue backlog (which is based on contracts that extend beyond
December 31, 2001) is shown at prices current as of December 31, 2000, 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 41% increase in tonnage backlog from 1999 mainly
reflects recently negotiated extended terms on current multi-year contracts, in
addition to new multi-year agreements entered into by the Registrant's
subsidiaries. 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 21%, reflecting the increase in backlog tonnage,
partly offset by a lower average rate per ton due primarily to the mix of
contract business. 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.




                                       3
<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 have 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, 2000, the Registrant and its subsidiaries employed
approximately 1,300 persons, of whom approximately 19% are represented by labor
unions.



(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, 2000, the Registrant's floating equipment consisted
         of 2,334 barges and 83 boats. See "Principal Services and Markets" for
         other owned or leased properties.

         Capital expenditures for the Registrant in 2000 totaled approximately
         $5 million. These expenditures were made principally for improvements
         on boats, terminal facilities, and information systems.

(b)      Not applicable.



ITEM 3.  LEGAL PROCEEDINGS

None.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not required.



                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
             MATTERS

The Registrant's common stock is held solely by Eastern, a wholly owned
subsidiary of KeySpan, and is not traded in any market. Dividends were declared
in the amount of $3,579,616 in 2000 and $6,169,571 in 1999.

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

2000 COMPARED TO 1999

Twelve month revenues in 2000 increased 3%, or $9.0 million, over 1999, despite
the negative impact on revenues from the sale of the ocean tug/barge assets of
the Registrant's Red Circle subsidiary during the year and slightly lower
overall tonnage transported. The increased revenues resulted primarily from fuel
adjustment mechanisms contained in multi-year and annual barge transportation
contracts that ratably escalated freight rates throughout the year, as fuel
prices rose 66% as compared to 1999. Also contributing, were higher terminalling
revenues. Regarding the Red Circle subsidiary, one ocean tug remains idled while
its ocean barge was sold in June 2000. The two other integrated ocean tug/barge
units were idled in July and subsequently sold in October 2000 along with the
rights under their multi-year freight contract. In regards to the inland river
barge transportation market, export coal remained weak, as prices for U. S. coal
continued to be non-competitive in world markets. In addition, many of the
registrant's utility customers experienced a shortage of mined coal in the
fourth quarter due to supplier problems, which resulted in reduced demand for
barges. Rates for export grain also proved disappointing as demand was soft and
much of the fall crop went to storage. In the latter half of the year, the
market for steel products weakened as the economy slowed and inventory grew,
thereby reducing demand for barging of steel related raw materials.

Tonnage transported declined about 1% compared to 1999: however, related
ton-miles generated fell 8%. Coal shipments increased 8%, reflecting tonnage for
a new utility account, as well as increased demand from existing customers.
Non-coal tonnage declined 15% with lower aggregate shipments, the aforementioned
soft demand for grain exports, and reduced steel and related raw material
imports. The decrease in ton miles resulted from the average length of haul
declining due to the increased coal tonnage, which had a shorter average length
of haul, combined with lower non-coal tonnage, which represented longer hauls to
and from the Gulf of Mexico.

Operating expenses in 2000 increased nearly 13% from last year with two thirds
of that amount due to higher fuel prices. Costs of purchased river related
services also increased as vendors passed through higher fuel costs. Higher
barge charter expense related to fleet replacement, increased barge maintenance
expense and higher wage rates also contributed to the increase in operating
cost.

On November 8, 2000, KeySpan Corporation acquired the Registrant's parent
company, Eastern Enterprises. In this regard, the Registrant recorded
acquisition related costs of $9.7 million (pretax) in October. These costs
reflect separation payments to employees, payment of vested stock options and
other compensation related matters. Earnings before income taxes for the period
ended November 7, 2000 were positively affected by pretax gains of $7.4 million,
recognized on the sale of the ocean barges, tugs and related assets of Red
Circle, discussed above, as well as lower net debt expense.

Net earnings for the period ending November 7, 2000 were impacted $2.2 million,
net of tax, for the cumulative effect of an accounting change recognizing engine
overhaul costs previously deferred.

As a result of the operating issues and acquisition adjustments discussed above,
the registrant reported a net loss of $4.8 million for the period ended November
7, 2000, and a net loss of $1.9 million for the period ended December 31, 2000.

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.


                                       6
<PAGE>   8

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.

LIQUIDITY AND CAPITAL RESOURCES

Capital expenditures of $5.1 million, debt payments of $4.9 million and
dividends paid to Parent of $3.6 million were funded from cash provided from
operating activities. Also, a portion of the excess cash from operations was
advanced to the Parent. Capital expenditures included improvements for towboats,
terminal facilities and information systems.

Cash flow from operating activities was negatively affected by the lower net
earnings as well as lower accounts payable as a result of reduced liability for
capital projects at year end. More than offsetting were increases in deferred
taxes and accrued liabilities, as well as decreases in trade receivables and
other deferred assets. The increase in deferred taxes, current liabilities and
postretirement health care at December 31, 2000, primarily reflects adjustments
and reserves established as a result of the acquisition by KeySpan.

Capital expenditures for 2001 are projected at $9.0 million, which primarily
includes major improvements to towboats and shore side facilities as well as the
purchase of new equipment. In addition, 27 barges will be received in the first
quarter of 2001 from a like-kind exchange agreement on the Red Circle ocean
units that were sold in October 2000.

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.



                                       7
<PAGE>   9

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2000, the Registrant had financial instruments which were
sensitive to changes in interest rates. These financial instruments consist of
First Preferred Ship Mortgage Bonds and obligations under capital leases.

All of the bonds payable consist of fixed rate debt and range from 6.25% to
9.85%. Principal and interest are payable semiannually over terms which
generally range from one to eleven years. Obligations under capital leases have
a weighted average interest rate of 10% and are due within one year. The
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.

The fair value for the Registrant's long term debt at December 31, 2000 and 1999
was approximately $144 million and $151 million, respectively. The fair value of
long term debt is estimated using discounted cash flow analysis based on
incremental borrowing rates for similar types of borrowing arrangements.

The aggregate annual sinking fund requirement and current maturities of long
term debt, including capital leases for the next five years amount to $4.0
million in 2001, $4.7 million in 2002, $.4 million in 2003, $0 in 2004 and $13.0
million in 2005.


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.





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<PAGE>   10


                                     PART IV


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)


                  (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 2000.





                                       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/ C. LUDWIG
                                   -----------------
                                    C. LUDWIG
                                   CONTROLLER
                         (PRINCIPAL ACCOUNTING OFFICER)


                             DATE  MARCH 30, 2001
                                  ----------------

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 30th day of March, 2001.



      BY:    /s/ R. FAILLO                                BY:   /s/ S. Z. MIRZA
         ----------------------------------                  ------------------
                R. FAILLO                                        S. Z. MIRZA
           PRESIDENT; DIRECTOR                                     DIRECTOR
(PRINCIPAL EXECUTIVE & FINANCIAL OFFICER)







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)



<TABLE>
<CAPTION>
                                                                                                 PAGE
                                                                                                NUMBER
                                                                                                ------

<S>                                                                                             <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                          F-2


FINANCIAL STATEMENTS:

Consolidated Statements of Operations for the period
        ended December 31, 2000; period ended November 7, 2000;
        and the years ended December 31, 1999 and 1998                                            F-3

Consolidated Balance Sheets - December 31, 2000 and 1999                                          F-4

Consolidated Statements of Stockholder's Equity for the period
        ended December 31, 2000; period ended November 7, 2000;
        and the years ended December 31, 1999 and 1998                                            F-6

Consolidated Statements of Cash Flows for the period ended
        December 31, 2000; period ended November 7, 2000; and the
        Years ended December 31, 1999 and 1998                                                    F-7

Notes to Consolidated Financial Statements                                                        F-8


SCHEDULE:

        II     Valuation and Qualifying Accounts and Reserves                                    F-21
</TABLE>




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, 2000 and 1999, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the period ended December 31, 2000, the period ended November 7, 2000
and the years ended December 31, 1999 and 1998. 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.

As discussed in Note 1, effective November 8, 2000, Eastern and therefore the
Company was acquired by KeySpan Corporation ("KeySpan"). KeySpan utilized the
purchase method of accounting to record the acquisition and adopted a new basis
of accounting whereby all assets and liabilities were recorded at their fair
values. Accordingly, consolidated financial statements for periods subsequent
to the acquisition are not comparable to the consolidated financial statements
presented for prior periods.

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, 2000 and 1999, and the results of their
operations and their cash flows for the period ended December 31, 2000, the
period ended November 7, 2000 and the years ended December 31, 1999 and 1998 in
conformity with accounting principles generally accepted in the United States.

As explained in Note 1 to the financial statements, effective as of January 1,
2000, Midland Enterprises Inc. changed its method of accounting for deferred
maintenance.

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 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, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.




                                             ARTHUR ANDERSEN LLP



Cincinnati, Ohio,
January 24, 2001






                                      F-2
<PAGE>   14


                   MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                     (000 OMITTED)
                                                        NOVEMBER 8          JANUARY 1
                                                         THROUGH             THROUGH             YEARS ENDED DECEMBER 31,
                                                       DECEMBER 31,        NOVEMBER 7,        -------------------------------
                                                           2000                2000               1999               1998
                                                           ----                ----               ----               ----
                                                                          (Predecessor)       (Predecessor)      (Predecessor)

<S>                                                    <C>                <C>                 <C>                <C>
REVENUES (NOTE 1)                                       $  40,788           $ 235,449           $ 267,269          $ 261,061
                                                        ---------           ---------           ---------          ---------

OPERATING COSTS AND EXPENSES:
     Operating expenses                                 $  32,647           $ 183,456           $ 191,004          $ 180,851
     Depreciation and amortization (Note 5)                 3,850              20,278              24,345             23,838
     Goodwill amortization (Note 1)                           333                  --                  --                 --
     Selling, general and administrative
          expenses                                          2,569              10,210              12,513             12,311
     Overhead allocation from Parent (Note 1)                 467               2,333               3,100              3,000
     Taxes, other than income                               2,471              12,834              15,193             14,427
     Acquisition related expenses (Note 1)                     --               9,727                  --                 --
                                                        ---------           ---------           ---------          ---------
                                                        $  42,337           $ 238,838           $ 246,155          $ 234,427
                                                        ---------           ---------           ---------          ---------

OPERATING (LOSS) EARNINGS                               $  (1,549)          $  (3,389)          $  21,114          $  26,634
                                                        ---------           ---------           ---------          ---------

OTHER INCOME (EXPENSE):
     Interest income from Parent, net (Note 1)          $     779           $   3,706           $   3,062          $   1,688
     Interest income other                                     83                 522                 537                 63
     Gain (loss) on sale of assets and
          other, net                                         (207)              7,515               1,472                271
                                                        ---------           ---------           ---------          ---------
                                                        $     655           $  11,743           $   5,071          $   2,022
                                                        ---------           ---------           ---------          ---------

INTEREST EXPENSE:
     Long-term debt (Note 3)                            $   2,027           $  10,276           $  12,796          $  10,612
     Other, including amortization of
          debt expense                                         50                 229                 246                189
                                                        ---------           ---------           ---------          ---------
                                                        $   2,077           $  10,505           $  13,042          $  10,801
                                                        ---------           ---------           ---------          ---------

(LOSS) EARNINGS BEFORE INCOME TAXES                     $  (2,971)          $  (2,151)          $  13,143          $  17,855
(Benefit) Provision for income taxes (Note 4)              (1,027)                426               4,917              6,534
                                                        ---------           ---------           ---------          ---------
(LOSS) EARNINGS BEFORE EXTRAORDINARY ITEMS AND
   CUMULATIVE EFFECT OF ACCOUNTING CHANGE               $  (1,944)          $  (2,577)          $   8,226          $  11,321

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)
                                                        ---------           ---------           ---------          ---------
                                                               --                  --                  --              1,362

CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
    NET OF TAX (NOTE 1):                                $      --           $  (2,209)          $      --          $      --
                                                        ---------           ---------           ---------          ---------

NET (LOSS) EARNINGS                                     $  (1,944)          $  (4,786)          $   8,226          $  12,683
                                                        =========           =========           =========          =========
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-3
<PAGE>   15

                   MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


                                     ASSETS
                                     ------

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                          -----------------------------
                                                                (000 OMITTED)
                                                            2000              1999
                                                            ----              ----
CURRENT ASSETS:                                                           (Predecessor)

<S>                                                       <C>             <C>
     Cash and cash equivalents (Note 1)                   $ 11,178          $     86

     Receivables:
          Trade, less allowance of $1,164,000
          in 2000 and $469,000 in 1999                      13,445            18,532
          Parent (Note 1)                                   73,016            66,158
          Other                                              1,446             1,990
     Materials, supplies and fuel (Note 1)                   8,945             9,925
     Prepaid expenses                                        1,824             2,205
                                                          --------          --------

          TOTAL CURRENT ASSETS                            $109,854          $ 98,896
                                                          --------          --------

PROPERTY AND EQUIPMENT, AT COST (NOTES 3 AND 5):

     Towboats and barges                                  $296,559          $628,099
     Terminals and other facilities                         30,938            55,606
     Land                                                    4,705             4,710
                                                          --------          --------
          Total property and equipment, at cost           $332,202          $688,415

     Less - accumulated depreciation                         3,880           364,976
                                                          --------          --------

          NET PROPERTY AND EQUIPMENT                      $328,322          $323,439
                                                          --------          --------

OTHER ASSETS:

     Deferred pension charges (Note 7)                    $ 13,871          $ 16,699
     Unamortized debt expense, deferred
       maintenance and other (Notes 1 and 5)                 1,566             5,042
     Goodwill, less amortization of $333,000                59,651                --
     Other assets                                            6,771                --
                                                          --------          --------

          TOTAL OTHER ASSETS                              $ 81,859          $ 21,741
                                                          --------          --------

          TOTAL ASSETS                                    $520,035          $444,076
                                                          ========          ========
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-4
<PAGE>   16


                   MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDER'S EQUITY
                      ------------------------------------


<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                        -------------------------------
                                                                (000 OMITTED)
                                                           2000                1999
                                                           ----                ----
CURRENT LIABILITIES:                                                      (Predecessor)

<S>                                                     <C>                 <C>
   Current portion of long-term debt (Note 3)           $   3,980           $   5,167
   Accounts payable                                        11,161              14,595
   Reserve for insurance claims (Note 1)                    9,367              10,326
   Accrued expenses                                         4,280               3,911
   Interest payable                                         2,974               3,120
   Other taxes payable                                      2,623               3,587
   Income taxes payable (Note 4)                            1,415                 719
   Reserve for separation payments                          3,654                  --
   Other current liabilities                               14,624               7,422
                                                        ---------           ---------
      TOTAL CURRENT LIABILITIES                         $  54,078           $  48,847

LONG-TERM DEBT (NOTE 3)                                 $ 138,819           $ 142,500
                                                        ---------           ---------

RESERVES AND DEFERRED CREDITS:
   Deferred income taxes (Note 4)                       $  77,141           $  70,627
   Unamortized investment tax credits (Note 4)              1,486               1,767
   Postretirement health care (Note 7)                     19,092               9,296
   Other reserves                                           5,378               2,981
                                                        ---------           ---------
      TOTAL RESERVES AND DEFERRED CREDITS               $ 103,097           $  84,671
                                                        ---------           ---------

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                         225,984              52,519
   Retained (deficit) earnings                             (1,944)            115,538
                                                        ---------           ---------
      TOTAL STOCKHOLDER'S EQUITY                        $ 224,041           $ 168,058
                                                        ---------           ---------

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY              $ 520,035           $ 444,076
                                                        =========           =========
</TABLE>


   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


                    (000 OMITTED EXCEPT SHARES OUTSTANDING)


<TABLE>
<CAPTION>
                                                                  CAPITAL IN      RETAINED    ACCUMULATED OTHER          TOTAL
                                             COMMON STOCK         EXCESS OF       (DEFICIT)     COMPREHENSIVE        STOCKHOLDER'S
                                              OUTSTANDING         PAR VALUE       EARNINGS         INCOME               EQUITY
                                           -----------------      ---------       --------         ------               ------
                                           SHARES     AMOUNT
                                           ------     ------

<S>                                        <C>        <C>         <C>             <C>         <C>                    <C>
BALANCE DECEMBER 31, 1997:                  15.5        $1        $  52,519       $ 108,191        $ (203)            $ 160,508
(Predecessor)

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
(Predecessor)

Net earnings                                                                          8,226                               8,226
Dividends to Parent                                                                  (6,170)                             (6,170)
                                            ----        --        ---------       ---------        ------             ---------

BALANCE DECEMBER 31, 1999:                  15.5        $1        $  52,519       $ 115,538        $   --             $ 168,058
(Predecessor)

Net loss                                                                             (4,786)                             (4,786)
Dividends to Parent                                                                  (3,580)                             (3,580)
                                            ----        --        ---------       ---------        ------             ---------

BALANCE NOVEMBER 7, 2000:                   15.5        $1        $  52,519       $ 107,172        $   --             $ 159,692
(Predecessor)
Retained earnings adjustment
   from acquisition                                                 107,172        (107,172)                                 --
Goodwill assigned from acquisition                                   59,984                                              59,984
Property, pension and post retirement
   adjustment, net from acquisition                                   6,309                                               6,309
Net loss                                                                            (1,944)                              (1,944)
                                            ----        --        ---------       ---------        ------             ---------

BALANCE DECEMBER 31, 2000:                  15.5        $1        $ 225,984       $  (1,944)       $   --             $ 224,041
                                            ====        ==        =========       =========        ======             =========
</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


<TABLE>
<CAPTION>
                                                                                           (000 OMITTED)
                                                               NOVEMBER 8       JANUARY 1
                                                                THROUGH          THROUGH            YEARS ENDED DECEMBER 31,
                                                              DECEMBER 31,      NOVEMBER 7,      ------------------------------
                                                                  2000             2000              1999              1998
                                                                  ----             ----              ----              ----
                                                                               (Predecessor)     (Predecessor)    (Predecessor)
<S>                                                           <C>              <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)                                            $ (1,944)         $ (4,786)         $  8,226          $ 12,683
Adjustments to reconcile net earnings to net
cash provided by operating activities:
    Extraordinary items, net                                         --                --                --            (1,362)
    Cumulative effect of accounting change, net                      --             2,209                --                --
    Amortization of goodwill                                        333                --                --                --
    Depreciation and amortization                                 3,850            20,278            24,345            23,838
    Deferred and current income taxes                             3,047               835             7,102             4,615
    Net (gain) loss on sale of assets                                --            (7,388)           (1,919)                2
    Other changes in assets and liabilities:
        Trade and other receivables                               4,307               773              (766)              (30)
        Materials, supplies and fuel                                480               500            (2,985)            1,798
        Accounts payable                                          1,110            (4,544)            3,391            (6,995)
        Accrued expenses and other current liabilities           (4,433)           13,589            (1,086)           (2,206)
        Other                                                        79             1,432             1,097            (3,742)
                                                               --------          --------          --------          --------
NET CASH PROVIDED BY OPERATING ACTIVITIES                      $  6,829          $ 22,898          $ 37,405          $ 28,601

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                       $ (1,150)         $ (3,926)         $(18,446)         $(46,622)
    (Increase) decrease in Parent receivable                      3,419           (10,277)           (9,586)           10,373
    Proceeds from other asset dispositions                           --             1,747             1,320             1,004
                                                               --------          --------          --------          --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES               $  2,269          $(12,456)         $(26,712)         $(35,245)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayment of long-term debt                                $   (876)         $ (3,992)         $ (4,523)         $(54,688)
    Issuance of long-term debt                                       --                --                --            68,519
    Cash dividends paid to Parent                                    --            (3,580)           (6,170)           (7,392)
    Other                                                            --                --                --               203
                                                               --------          --------          --------          --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES               $   (876)         $ (7,572)         $(10,693)         $  6,642
                                                               --------          --------          --------          --------

Net increase (decrease) in cash and cash equivalents           $  8,222          $  2,870          $     --          $     (2)
Cash and cash equivalents at beginning of period                  2,956                86                86                88
                                                               --------          --------          --------          --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $ 11,178          $  2,956          $     86          $     86
                                                               ========          ========          ========          ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
     Interest, net of amounts capitalized                      $    118          $ 11,822          $ 12,457          $ 10,677
     Income taxes                                              $ (4,073)         $    141          $ (2,474)         $  2,582
</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, 2000, 1999 AND 1998


(1)      SIGNIFICANT ACCOUNTING POLICIES

Midland Enterprises Inc. (the "Registrant") is a wholly-owned subsidiary of
Eastern Enterprises ("Eastern") of Weston, Massachusetts. On November 8, 2000,
KeySpan Corporation ("KeySpan") of Brooklyn, New York, acquired all of the
common stock of Eastern. The acquisition was accounted for using the purchase
method of accounting for business combinations. Approximately $225,000,000 of
the total purchase price was allocated to the net assets of the Registrant based
on their fair value. The excess of consideration received over the fair value of
the assets acquired, approximately $60 million, was recorded as goodwill and is
being amortized over 30 years on a straight-line basis. The historical cost
basis of the Registrant's assets and liabilities were adjusted to fair value as
of the acquisition. Accordingly, the Registrant recorded an additional $25
million to property and equipment and an additional liability of $15 million for
pension and other post retirement obligations in excess of the market value of
plan assets as well as $3 million of deferred taxes on these items. The
Registrant also recorded acquisition-related costs of approximately $10 million
consisting of conversion of stock options, and change in control costs.

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 55% 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: 6.1% in
                  2000, 4.90% in 1999, and 5.60% in 1998. 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)      Goodwill amortization - Goodwill resulting from the
                  acquisition of the Registrant's Parent by KeySpan represents
                  the excess of purchase price over fair value of net assets
                  acquired and is being amortized over 30 years using the
                  straight-line method. Accumulated amortization amounted to $.3
                  million as of December 31, 2000.


                                       F-8


<PAGE>   20



                    MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(1)      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


         (g)      Reserve for insurance claims - The Registrant is self-insured
                  for personal injury and property claims, which are insured
                  above a deductible amount of $500,000 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.

         (h)      Reclassifications - Certain reclassifications of previously
                  reported amounts have been made to conform with current
                  classifications.

         (i)      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.

         (j)      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, the Registrant established reserves of $3.3
                  million, included in operating expenses, in October 2000 for
                  impairment of assets and facilities.

         (k)      Deferred maintenance - The Registrant adopted the expense as
                  incurred method for costs related to engine overhauls. Prior
                  to this change, the Registrant had deferred the cost of engine
                  overhauls on certain towboats and amortized these costs over
                  the estimated life of the repair, which generally ranged from
                  2 to 4 years. The cumulative effect of adopting this change as
                  of January 1, 2000, net of a tax benefit of $1.2 million, is
                  $2.2 million, which is reflected in the Statement of
                  Operations included herein. Prior year financial statements
                  have not been restated to reflect the new accounting method.

         (l)      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.

         (m)      Derivatives and hedging activities - In June 1998, the FASB
                  issued Statement No. 133, "Accounting for Derivative
                  Instruments and Hedging Activities", as amended by Statement
                  No. 138, 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 adoption of SFAS No. 133 did
                  not 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 2000 and 1999, 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, but less than 10% as of December 31, 2000. No other customer,
or group of customers under common control, accounted for more than 10% of
revenues in 2000, 1999 or 1998.


(3)      LONG-TERM OBLIGATIONS AND CREDIT AGREEMENTS

         (a)      LONG-TERM DEBT CONSISTS OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31
                                                                                      -------------------------------
                                                                                        2000                  1999
                                                                                      ---------             ---------
                                                                                               (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 Equipment Leasing Inc.)             $   1,989             $   3,264
       CitiCorp Leasing, Inc. (Successor to Security Pacific Equipment
              Leasing Inc.)                                                                 514                 1,461
       Kislak National Bank (Successor to Security Pacific Equipment
              Leasing Inc.)                                                               1,916                 2,739
       Mellon Leasing Corporation (Successor to Westinghouse Credit
              Corporation)                                                                1,584                 3,266
       BA Leasing and Capital Group (Successor to Wells Fargo Leasing
                 Corporation)                                                                --                   586
       Other (including unamortized debt discount and interest rate hedge)               (5,408)               (5,912)
                                                                                      ---------             ---------

                                                                                      $     595             $   5,404
                                                                                      ---------             ---------
Less:
           Current portion of long-term debt included above                           $   3,980             $   5,167
           Monies on deposit (c)                                                            796                   737
                                                                                      ---------             ---------
                                                                                      $   4,776             $   5,904
                                                                                      ---------             ---------

              TOTAL LONG-TERM DEBT                                                    $ 138,819             $ 142,500
                                                                                      =========             =========
</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.

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 or make a distribution, 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, $3,072,000 is available for additional distributions to
Parent.

Included in obligations under capital leases is $6,004,000 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 $3,980,000 in 2001, $1,668,000 in
2002 and $356,000 in 2003.

         (b)      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
$3,980,000 in 2001, $4,668,000 in 2002, $356,000 in 2003, $0 in 2004 and
$13,000,000 in 2005.

         (c)      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.





                                      F-11
<PAGE>   23

                    MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(4)      INCOME TAXES

The Registrant and its subsidiaries were members of an affiliated group of
companies, which will file a consolidated Federal Income Tax return with Eastern
for the period ended November 7, 2000 and have filed for the years ended
December 31, 1999 and 1998. For the period ended December 31, 2000 the
Registrant is a member of the KeySpan Consolidated Federal Income Tax Group. 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 (benefit) provision for income taxes:

<TABLE>
<CAPTION>
                                                   NOVEMBER 8          JANUARY 1
                                                    THROUGH             THROUGH
                                                  DECEMBER 31,         NOVEMBER 7,           YEARS ENDED DECEMBER 31,
                                                                                             ------------------------
                                                      2000                2000                1999               1998
                                                      ----                ----                ----               ----
                                                                               (000 OMITTED)
<S>                                                 <C>                 <C>                 <C>                 <C>
Current:
    Federal                                         $(1,283)            $(4,754)            $(1,521)            $ 1,098
    State                                               108                 596                 411                 270
                                                    -------             -------             -------             -------
      Total Current (Benefit) Provision             $(1,175)            $(4,158)            $(1,110)            $ 1,368

Deferred:
    Federal                                         $   217             $ 4,584             $ 6,055             $ 5,150
    State                                               (69)                 --                 (28)                 16
                                                    -------             -------             -------             -------
      Total Deferred (Benefit) Provision            $   148             $ 4,584             $ 6,027             $ 5,166
                                                    -------             -------             -------             -------

          Total (Benefit) Provision                 $(1,027)            $   426             $ 4,917             $ 6,534
                                                    =======             =======             =======             =======
</TABLE>


The following reconciles the statutory U.S. Federal Income Tax (benefit)
provision to the recorded income tax (benefit) provision:

<TABLE>
<CAPTION>
                                                  NOVEMBER 8             JANUARY 1
                                                    THROUGH               THROUGH
                                                  DECEMBER 31,          NOVEMBER 7,            YEARS ENDED DECEMBER 31,
                                                                                               ------------------------
                                                     2000                  2000                1999                1998
                                                     ----                  ----                ----                ----
                                                                                 (000 OMITTED)

<S>                                               <C>                   <C>                   <C>                 <C>
Statutory rate                                           35%                  35%                  35%                 35%
Computed (benefit) provision for income taxes
        at statutory Federal rate                   $(1,040)             $  (753)             $ 4,600             $ 6,249
Increase (decrease) from statutory
        rate resulting principally from:
    State taxes, net of Federal benefit                  25                  387                  249                 186
    Nondeductible expenses                               11                  753                   67                  53
    Other, net                                          (23)                  39                    1                  46
                                                    -------              -------              -------             -------
(Benefit) provision for income taxes                $(1,027)             $   426              $ 4,917             $ 6,534
                                                    =======              =======              =======             =======
</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, 2000 and 1999, are
as follows:

                                                    2000                 1999
                                                    ----                 ----
                                                          (000 OMITTED)
Assets:
    Post-retirement benefits                      $  3,028             $  2,988
    Other                                            8,188                5,874
                                                  --------             --------
        Total Deferred Tax Assets                 $ 11,216             $  8,862

Liabilities:
    Accelerated depreciation                      $(86,283)            $(70,978)
    Other                                           (1,870)              (7,951)
                                                  --------             --------
        Total Deferred Tax Liabilities            $(88,153)            $(78,929)
                                                  --------             --------

             TOTAL DEFERRED TAXES                 $(76,937)            $(70,067)
                                                  ========             ========


(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 4.8% in 2000, 3.6% in 1999 and
                  1998. The higher percentage in 2000 resulted from the netting
                  of accumulated depreciation against gross property and
                  equipment in conjunction with the acquisition.

         (b)      Like-Kind Exchange - The $6.7 million of Other Assets
                  represents funds on deposit with a trust received from a
                  like-kind exchange agreement on the Red Circle ocean units
                  that were sold in October 2000. The Registrant will receive 27
                  barges from these funds in the first quarter of 2001.

         (c)      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, were capitalized and amortized over their
                  estimated useful lives. The Registrant adopted the expense as
                  incurred method for costs related to engine overhauls. In
                  conjunction with this change, $3.4 million of previously
                  deferred costs, net of a tax benefit of $1.2 million, were
                  charged to expense.

         (d)      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.

         (e)      The following is the property value of leased barges under
                  capitalized leases. The decrease in leased barges and
                  accumulated depreciation resulted from the netting of
                  accumulated depreciation against gross property and equipment
                  in conjunction with the acquisition.

<TABLE>
<CAPTION>
                                                                                2000                 1999
                                                                                ----                 ----
                                                                                      (000 OMITTED)
<S>                                                                           <C>                  <C>
                  Assets:
                      Leased barges                                           $  2,518             $ 55,203
                      Less:  Accumulated depreciation                             (310)             (50,465)
                                                                              --------             --------

                      TOTAL LEASED BARGES UNDER CAPITALIZED LEASES            $  2,208             $  4,738
                                                                              ========             ========
</TABLE>




                                      F-13
<PAGE>   25


                    MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6)      COMMITMENTS & CONTINGENCIES

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 $1,246,000 for the period ended December 31, 2000, $6,110,000 for
the period ended November 7, 2000, $3,504,000 in 1999 and $2,305,000 in 1998.
The minimum rental commitment for non-cancelable operating leases at December
31, 2000 is as follows:

                                                 MINIMUM
                      YEARS ENDING            ANNUAL RENTAL
                      ------------            -------------
                                              (000 OMITTED)
                         2001                    $ 8,212
                         2002                      7,970
                         2003                      6,747
                         2004                      6,435
                         2005                      6,272
                         2006 - 2017              56,028
                                                 -------
                         TOTAL                   $91,664
                                                 =======


The Registrant maintains employment agreements with ten employees. The 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 $3.2 million.

The Registrant is a defendant in certain legal actions. Although the ultimate
outcome of these matters cannot be predicted with certainty, the Registrant
believes that the resolution of these actions is not likely to have a material
adverse effect on its consolidated financial statements.

(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").

The net cost for these plans and agreements charged to expense was as follows:

PENSIONS

<TABLE>
<CAPTION>
                                                             NOVEMBER 8         JANUARY 1                   YEARS ENDED
                                                              THROUGH            THROUGH                    DECEMBER 31,
                                                            DECEMBER 31,        NOVEMBER 7,          ---------------------------
                                                               2000                2000               1999                1998
                                                               ----                ----               ----                ----
                                                                                        (000 OMITTED)
<S>                                                         <C>                 <C>                  <C>                 <C>
Service cost                                                  $ 270             $ 1,516             $ 1,802             $ 1,619
Interest cost on projected benefit obligation                   644               2,739               2,968               2,702
Expected return on plan assets                                 (835)             (4,096)             (4,495)             (4,095)
Amortization of prior service cost                               16                 192                 254                 105
Amortization of transitional asset                               --                 (52)                (73)                (71)
Recognized actuarial (gain) loss                                (80)               (222)               (382)                 13
                                                              -----             -------             -------             -------
     Total net pension cost of company
     administrated plans                                      $  15             $    77             $    74             $   273
Multi-employer union retirement and welfare plans                15                 292                 445                 475
                                                              -----             -------             -------             -------
       TOTAL NET PENSION COST                                 $  30             $   369             $   519             $   748
                                                              =====             =======             =======             =======
</TABLE>



                                      F-14
<PAGE>   26

                    MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7)      RETIREE BENEFITS (CONTINUED)

HEALTH CARE

<TABLE>
<CAPTION>
                                                           NOVEMBER 8        JANUARY 1                   YEARS ENDED
                                                            THROUGH           THROUGH                    DECEMBER 31,
                                                          DECEMBER 31,       NOVEMBER 7,          ---------------------------
                                                             2000               2000               1999                1998
                                                             ----               ----               ----                ----
                                                                                     (000 OMITTED)
<S>                                                        <C>                <C>                 <C>                 <C>
Service cost                                               $ 21               $    93             $   116             $   118
Interest cost on accumulated benefit obligation             269                 1,075               1,293               1,104
Amortization of prior service costs                          --                  (136)               (163)               (163)
Recognized actuarial loss                                     1                   423                 612                 358
                                                           ----               -------             -------             -------
     NET PERIODIC POSTRETIREMENT BENEFIT COSTS             $291               $ 1,455             $ 1,858             $ 1,417
                                                           ====               =======             =======             =======
</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, 2000 and 1999, respectively,
utilizing actuarial measurement dates as of October 1, 2000 and 1999:


<TABLE>
<CAPTION>
                                                                   PENSIONS                               HEALTH CARE
                                                            2000              1999                  2000              1999
                                                            ----              ----                  ----              ----
                                                                 (000 OMITTED)                           (000 OMITTED)
<S>                                                       <C>               <C>                   <C>               <C>
Change in benefit obligation:
       Benefit obligation at beginning of year            $ 39,442          $ 36,659              $ 17,849          $ 18,466
              Service cost                                   1,571             1,550                   466               116
              Acquisition adjustment                         1,760                --                   113                --
              Interest cost                                  3,017             2,629                 1,344             1,293
              Plan amendments                                   --                68                    --                --
              Settlement loss                                   --                23                    --                --
              Benefits paid                                   (802)             (790)               (1,850)           (1,268)
              Settlement payments                               --              (303)                   --                --
              Actuarial (gain) loss                          6,800              (394)                3,169              (758)
                                                          --------          --------              --------          --------
       Benefit obligation at end of year                  $ 51,788          $ 39,442              $ 21,091          $ 17,849
                                                          ========          ========              ========          ========
</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
                                                                2000              1999                 2000              1999
                                                                ----              ----                 ----              ----
                                                                    (000 OMITTED)                           (000 OMITTED)
<S>                                                           <C>               <C>                  <C>               <C>
Change in plan assets:
       Fair value of plan assets at beginning of year         $ 58,734          $ 55,581             $     --          $     --
                   Actual return on plan assets                   (538)            4,243                   --                --
                   Employer contributions                           --                 3                1,850             1,268
                   Benefits paid                                  (802)             (790)              (1,850)           (1,268)
                   Settlement payments                              --              (303)                  --                --
                                                              --------          --------             --------          --------
       Fair value of plan assets at end of year               $ 57,394          $ 58,734             $     --          $     --
                                                              ========          ========             ========          ========
Reconciliation of funded status:
         Funded status                                        $  5,606          $ 19,292             $(21,091)         $(17,849)
         Employer contributions                                     --                --                   --               672
         Unrecognized actuarial (gain) loss                      4,967            (5,414)               1,999             8,926
         Unrecognized transition (asset)                            --               (11)                  --                --
         Unrecognized prior service cost                            --             1,599                   --            (1,045)
                                                              --------          --------             --------          --------
Net amount recognized at year-end                             $ 10,573          $ 15,466             $(19,092)         $ (9,296)
                                                              ========          ========             ========          ========

Amounts recognized in balance sheet:
       Prepaid benefit cost                                   $ 13,953          $ 16,783             $     --          $     --
       Accrued benefit liability                                (3,380)           (1,317)             (19,092)           (9,296)
                                                              --------          --------             --------          --------
       Net amount                                             $ 10,573          $ 15,466             $(19,092)         $ (9,296)
                                                              ========          ========             ========          ========
</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 2000, 1999 and 1998:

                                       2000              1999             1998
                                       ----              ----             ----

Discount rate                          7.00%             7.50%            7.25%
Return on plan assets                  8.50%             8.50%            8.50%
Increase in future compensation        5.00%             4.50%            4.50%
Health care inflation trend            8.00%         8.00%-10.00%         8.00%






                                      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 is assumed to be 8% in 2001 and
decrease gradually to 6% over 4 years, then 6% thereafter. A
one-percentage-point increase (decrease) in the assumed health care cost trend
rate for 2000 would have the following effects:

                                                      ONE-          ONE-
                                                   PERCENTAGE-   PERCENTAGE-
                                                      POINT         POINT
                                                    INCREASE      DECREASE
                                                    --------      --------
                                                        (000 OMITTED)

Total of service and interest cost components       $    13       $   (13)

Postretirement benefit obligation                   $ 1,060       $(1,010)



(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, 2000 and 1999 are as follows:

                                               2000                   1999
                                               ----                   ----
         Long-term debt:                              (000 OMITTED)
                     Carrying Amount         $142,799               $147,667

                     Fair Value              $143,819               $151,021







                                      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, 2000 and 1999.


<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED                OCTOBER 1      NOVEMBER 8
                             -------------------------------------        THROUGH         THROUGH
                             MAR. 31        JUNE 30       SEPT. 30       NOVEMBER 7     DECEMBER 31
                             -------        -------       --------       ----------     -----------

<S>                         <C>            <C>            <C>            <C>             <C>
2000
----
Revenues                    $ 71,270       $ 70,406       $ 70,075       $ 23,698        $ 40,788

Operating earnings (loss)   $  3,075       $  4,190       $  4,508       $(15,162)       $ (1,549)

Net earnings (loss)         $ (1,819)      $  2,566       $  1,817       $ (7,350)       $ (1,944)
</TABLE>




                                         THREE MONTHS ENDED
                         -------------------------------------------------
                         MAR. 31       JUNE 30       SEPT. 30      DEC. 31
                         -------       -------       --------      -------
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



(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.




                                      F-18
<PAGE>   30



                    MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(10)     EXTRAORDINARY ITEM - COAL MINERS RETIREE HEALTH CARE (CONTINUED)

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-19
<PAGE>   31

                                                                     SCHEDULE II


                   MIDLAND ENTERPRISES INC. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (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>
November 8, 2000 through December 31, 2000
------------------------------------------
Allowances and reserves deducted
  from assets-
    Allowance for doubtful accounts            $  1,469         $     --          $     --         $   (305)         $  1,164
                                               ========         ========          ========         ========          ========

Reserves included in liabilities -
    Reserve for environmental expenses              405               --                --               (3)              402
    Reserve for insurance claims                  9,720              210               125             (688)            9,367
    Reserve for post-retirement
        health care                              19,273              291                --             (472)           19,092
    Reserve for employee benefits                 4,946            3,237               463           (1,201)            7,445
    Reserve for separation payments*              4,700               --                --           (1,046)            3,654
                                               --------         --------          --------         --------          --------
        TOTAL OTHER RESERVES                   $ 39,044         $  3,738          $    588         $ (3,410)         $ 39,960
                                               ========         ========          ========         ========          ========


January 1, 2000 through November 7, 2000
----------------------------------------
Allowances and reserves deducted
  from assets-
    Allowance for doubtful accounts            $    469         $  1,000          $     --         $     --         $   1,469
                                               ========         ========          ========         ========          ========

Reserves included in liabilities -
    Reserve for environmental expenses              355               50                --               --               405
    Reserve for insurance claims                 10,326            3,535             1,920           (6,061)            9,720
    Reserve for postretirement
        health care                               9,296            1,455                --            8,522            19,273
    Reserve for employee benefits                 4,737            5,934             1,360           (7,085)            4,946
    Reserve for separation payments                  --            4,700                --               --             4,700
                                               --------         --------          --------         --------          --------
        TOTAL OTHER RESERVES                   $ 24,714         $ 15,674          $  3,280         $ (4,624)         $ 39,044
                                               ========         ========          ========         ========          ========

Year Ended December 31, 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 postretirement
        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
                                               ========         ========          ========         ========          ========

Year Ended December 31, 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 postretirement
        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)               --
                                               --------         --------          --------         --------          --------
        TOTAL OTHER RESERVES                   $ 30,389         $  5,344          $  3,514         $(15,093)         $ 24,154
                                               ========         ========          ========         ========          ========
</TABLE>

* Recorded in conjunction with acquisition accounting. (See Note 1)

                                      F-20