-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YWTyF+IOMkAumuws3n7DmmZFF1yDhCyp3fTYJ/JJqRhpdgfGVxMEdL+cA7/nRe3E 2Gh5st/J6WqgbbVW2llKxA== 0000066025-94-000009.txt : 19940816 0000066025-94-000009.hdr.sgml : 19940816 ACCESSION NUMBER: 0000066025-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: 6199 IRS NUMBER: 310742526 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06026 FILM NUMBER: 94544247 BUSINESS ADDRESS: STREET 1: 537 E PETE ROSE WAY CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137213777 MAIL ADDRESS: STREET 1: 537 E PETE ROSE WAY CITY: CINCINNATI STATE: OH ZIP: 45202 10-Q 1 THE MIDLAND COMPANY JUNE 30, 1994 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________to_______________________________ Commission file number 1-6026 The Midland Company (Exact name of registrant as specified in its charter) Incorporated in Ohio 31-0742526 (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) No.) 537 E. Pete Rose Way, Cincinnati, Ohio 45202 (Address of principal executive offices) (Zip Code) (513) 721-3777 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) The financial information furnished herein reflects all adjustments which are of a normal and recurring nature and, in the opinion of management, necessary to a fair statement of the results for the periods covered. Letters from Deloitte & Touche, the Company's independent accountants, dated July 21, 1994, are attached hereto as Exhibits I and II. 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, and (2) has been subject to such filing requirements for the past 90 days. Yes__X__. No_____. The number of common shares outstanding as of June 30, 1994 was 2,997,681. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1994 AND DECEMBER 31, 1993 (Unaudited) June 30, Dec. 31 ASSETS 1994 1993 ------------ ------------ CASH $ 3,071,000 $ 3,935,000 ------------ ------------ MARKETABLE SECURITIES 205,457,000 224,614,000 ------------ ------------ RECEIVABLES: Accounts receivable 82,586,000 62,907,000 Finance receivables (including amounts maturing after one year) 5,312,000 5,512,000 ------------ ------------ Sub-Total 87,898,000 68,419,000 Less allowance for losses 1,251,000 1,117,000 ------------ ------------ Total 86,647,000 67,302,000 ------------ ------------ INVENTORY - SPORTSWEAR DIVISION 16,330,000 15,968,000 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT - AT COST 186,957,000 185,164,000 Less accumulated depreciation 77,820,000 77,272,000 ------------ ------------ Net 109,137,000 107,892,000 ------------ ------------ DEFERRED INSURANCE POLICY ACQUISITION COSTS 32,714,000 28,825,000 ------------ ------------ OTHER ASSETS 1,499,000 1,686,000 ------------ ------------ TOTAL $454,855,000 $450,222,000 ============ ============ Note: The December 31, 1993 balance sheet amounts are derived from the audited financial statements but do not include all disclosures required by generally accepted accounting principles. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1994 AND DECEMBER 31, 1993 (Unaudited) June 30, Dec. 31 LIABILITIES & SHAREHOLDERS' EQUITY 1994 1993 ------------ ------------ NOTES PAYABLE WITHIN ONE YEAR: Banks $ 16,000,000 $ 22,000,000 Commercial paper 6,363,000 14,302,000 ------------ ------------ Total 22,363,000 36,302,000 ------------ ------------ ACCOUNTS PAYABLE - TRADE 5,102,000 5,142,000 ------------ ------------ OTHER PAYABLES AND ACCRUALS 36,432,000 37,513,000 ------------ ------------ CURRENT PORTION OF LONG-TERM DEBT 8,882,000 9,412,000 ------------ ------------ UNEARNED INSURANCE PREMIUMS 139,439,000 118,802,000 ------------ ------------ INSURANCE LOSS RESERVES 54,739,000 42,607,000 ------------ ------------ DEFERRED FEDERAL INCOME TAX 17,164,000 20,224,000 ------------ ------------ LONG-TERM DEBT 44,124,000 47,110,000 ------------ ------------ SHAREHOLDERS' EQUITY Common stock (issued and outstanding: 2,998,000 shares at June 30, 1994 and 2,999,000 shares at December 31, 1993 after deducting treasury stock of 645,000 shares and 644,000 shares, respectively) 911,000 911,000 Additional paid-in capital 14,607,000 14,620,000 Retained earnings 123,387,000 123,995,000 Net unrealized gain on marketable securities 5,340,000 11,308,000 Treasury stock - at cost (16,630,000) (16,564,000) Unvested restricted stock awards (1,005,000) (1,160,000) ------------ ------------ Total 126,610,000 133,110,000 ------------ ------------ TOTAL $454,855,000 $450,222,000 ============ ============ Note: The December 31, 1993 balance sheet amounts are derived from the audited financial statementsbut do not include all disclosures required by generally accepted accounting principles. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) FOR THE SIX AND THREE-MONTHS ENDED JUNE 30, 1994 AND 1993 Six-Mos. Ended June 30, Three-Mos. Ended June 30, 1994 1993 1994 1993 ------------ ------------ ------------ ----------- REVENUES: Insurance $103,578,000 $ 82,448,000 $52,143,000 $42,944,000 River transportation 25,340,000 26,357,000 13,624,000 13,381,000 Sportswear 14,873,000 11,772,000 8,808,000 6,194,000 Finance and other 534,000 526,000 308,000 287,000 ------------ ------------ ------------ ----------- Total 144,325,000 121,103,000 74,883,000 62,806,000 ------------ ------------ ------------ ----------- COSTS AND EXPENSES: Insurance claims and policy acquisition costs 88,180,000 62,015,000 45,997,000 30,516,000 Insurance operating and administrative expenses 12,349,000 10,452,000 6,566,000 5,534,000 River transportation operating expenses 23,388,000 24,193,000 11,975,000 12,230,000 Sportswear operating expenses 16,467,000 13,365,000 9,443,000 7,012,000 Interest expense 2,411,000 1,865,000 1,240,000 949,000 Other operating and administrative expenses 2,232,000 2,236,000 1,078,000 1,055,000 ------------ ------------ ------------ ----------- Total 145,027,000 114,126,000 76,299,000 57,296,000 ------------ ------------ ------------ ----------- INCOME (LOSS) BEFORE FEDERAL INCOME TAX AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (702,000) 6,977,000 (1,416,000) 5,510,000 PROVISION (CREDIT) FOR FEDERAL INCOME TAX (963,000) 1,664,000 (867,000) 1,505,000 ------------ ------------ ------------ ----------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 261,000 5,313,000 (549,000) 4,005,000 CUMULATIVE EFFECT OF ACCOUNTING CHANGE (A) - 4,867,000 - - ------------ ------------ ------------ ----------- NET INCOME (LOSS) $ 261,000 $ 10,180,000 $ (549,000) $ 4,005,000 ============ ============ ============ =========== EARNINGS PER COMMON SHARE (B): Income before cumulative effect of accounting change $ 0.09 $ 1.73 $ (0.17) $ 1.31 Cumulative effect of accounting change - 1.58 - - ------------ ------------ ------------ ----------- Net Income $ 0.09 $ 3.31 $ (0.17) $ 1.31 ============ ============ ============ =========== DIVIDENDS PER SHARE $ 0.29 $ 0.27 $ 0.145 $ 0.135 ============ ============ ============ =========== (A) Cumulative Effect of Accounting Change represents the adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. (B) Earnings per common share has been computed by dividing net income by 3,051,000 shares in 1994 and 3,079,000 shares in 1993. The calculations assume the exercise of outstanding stock options and include the amortized portion of restricted stock awards. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE SIX-MONTHS ENDED JUNE 30, 1994 AND 1993 1994 1993 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 261,000 $ 10,180,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,325,000 4,710,000 Increase in unearned insurance premiums 20,637,000 8,123,000 Increase in net accounts receivable (19,545,000) (6,513,000) Increase in insurance loss reserves 12,132,000 4,049,000 Increase in deferred insurance policy acquisition costs (3,889,000) (3,090,000) Increase (decrease) in other accounts payable and accruals (1,111,000) 3,571,000 Increase in inventory-sportswear div (362,000) (4,871,000) Decrease (increase) in other assets 187,000 (108,000) Increase (decrease) in accounts payable - trade (40,000) 1,198,000 Decrease in deferred federal income tax - (4,866,000) Other-net (317,000) 92,000 ------------ ------------ Net cash provided by operating activities 13,278,000 12,475,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (55,069,000) (26,846,000) Sale of marketable securities 31,046,000 18,680,000 Decrease in cash equivalent marketable securities 29,787,000 18,585,000 Acquisition of property, plant and equipment (7,663,000) (14,917,000) Maturity of marketable securities 4,071,000 1,010,000 Sale of property, plant and equipment 1,860,000 427,000 Net change in finance receivables 200,000 (5,805,000) ------------ ------------ Net cash provided by (used in) investing activities 4,232,000 (8,866,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in net short-term borrowings (13,939,000) (5,884,000) Repayment of long-term debt (3,078,000) (4,100,000) Dividends paid (840,000) (730,000) Payment of capitalized lease obligations (438,000) (400,000) Purchase of treasury stock (107,000) (250,000) Issuance of treasury stock 28,000 111,000 Issuance of long-term debt - 7,600,000 ------------ ------------ Net cash used in financing activities (18,374,000) (3,653,000) ------------ ------------ NET DECREASE IN CASH (864,000) (44,000) CASH AT BEGINNING OF PERIOD 3,935,000 2,238,000 ------------ ------------ CASH AT END OF PERIOD $ 3,071,000 $ 2,194,000 ============ ============= Supplemental Disclosures: The Company paid interest of $2,371,000 and $1,850,000 and income taxes of $25,000 and $25,000 in the first six months of 1994 and 1993,respectively. The Company issued 31,800 shares of Treasury Stock under a Restricted Stock Award program that relieved Treasury Stock by approximately $799,000 and also increased additional paid-in capital by $660,000 in 1993. There are 31,300 shares of Treasury Stock outstanding under this program at June 30, 1994. THE MIDLAND COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A detailed discussion of the Company's liquidity and capital resources is included in the 1993 Annual Report on Form 10-K. Except as discussed below, no significant changes have taken place since that date and, accordingly, the discussion is not repeated here. The Company's property and casualty insurance division continues to grow due primarily to increased penetration in each of its marketing channels. Both written premiums and earned premiums have increased during the first half and second quarter of 1994 as compared to the same periods in 1993. The increases in accounts receivable, unearned insurance premiums, insurance revenues, claims, and policy acquisition costs are the result of this growth. The performance of this division during the first six months of 1994 as well as the second quarter of 1994 has been adversely affected by severe and unusual catastrophes which have struck throughout the United States in 1994. Primarily as a result of these catastrophes, this division's loss ratio through the first six months of 1994 is a full 10 percentage points greater than the same period in 1993 which represents $6,200,000 in net losses, $2.07 per common share, on an after-tax basis. The revenues and expenses of the Company's river transportation division during the first six months and second quarter of 1994 were comparable to the same periods in 1993. The earnings from this division for the first half of 1994 were hindered by flooding conditions on the inland waterway system during the first quarter of 1994, however, earnings in the second quarter of 1994 have increased slightly over the comparable period in 1993. Additionally, this division's operating performance continues to be negatively impacted by the depressed affreightment rates and excess capacity that exists in the market place. As previously reported in 1993, M/G Transport Services, Inc. became aware of an investigation by federal authorities. The Company believes that this investigation concerns the possible disposal of bilge water and other refuse from various vessels on the Ohio River. M/G Transport is cooperating fully with the investigation, the outcome of which cannot presently be determined. Revenues and expenses of CS Crable Sportswear, Inc., the Company's sportswear division, during the first half and second quarter of 1994 have increased relative to the comparable periods in 1993. The operating performance of this division during the six and three month periods of 1994 are comparable to the 1993 periods. It is the Company's investment policy to invest in high quality marketable securities. The Company does not own any below investment grade bonds. The decrease in marketable securities and short-term borrowings was partially the result of reducing the Company's short-term borrowings with the proceeds from the sale of marketable securities. In connection with sales of marketable securities, the Company realized $2,077,000 (pre-tax) of net capital gains in the first half of 1994 and $1,612,000 (pre-tax) of net capital gains in the first half of 1993. The federal income tax provision for the three and six-month periods ended June 30, 1994 and 1993 is different from amounts derived by applying the statutory tax rates to income before federal income tax as follows: Six-Mos. Ended June 30, Three-Mos. Ended June 30, 1994 1993 1994 1993 ------------ ------------ ------------ ----------- Federal income tax at statutory rates $ (246,000) $2,372,000 $(496,000) $1,873,000 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (744,000) (628,000) (378,000) (325,000) Investment tax credits (144,000) (144,000) (72,000) (72,000) Net life insurance tax deductions (35,000) (47,000) (25,000) (23,000) Other items-net 206,000 111,000 104,000 52,000 ----------- ----------- ---------- ----------- Provision (credit) for federa income tax $ (963,000) $1,664,000 $(867,000) $1,505,000 =========== =========== ========== =========== During the third quarter of 1994, the Company will begin construction of its new corporate headquarters building. It is currently estimated that this facility will cost approximately $20 million dollars and is scheduled for completion in the fourth quarter of 1995. Upon completion, this facility will be financed through conventional long-term debt financing. The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109), effective January 1, 1993. The cumulative effect of adopting SFAS No. 109 on the Company's financial statements was to increase income by $4,867,000 ($1.58 per common share), which was recorded in income for the six months ended June 30, 1993 and to decrease the deferred federal income tax liability. In connection with accounting for reinsurance contracts, reclassifications have been made in the accompanying December 31, 1993 Balance Sheet (total assets and total liabilities have each been increased by $14,624,000) to conform with June 30, 1994 classifications. EXHIBIT I Deloitte & Touche 250 East Fifth Street PO Box 5340 Cincinnati, Ohio 45201-5340 Telephone: (513) 784-7100 INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying consolidated balance sheet of The Midland Company and subsidiaries as of June 30, 1994, and the related consolidated statements of income for the three month and six month periods ended June 30, 1994 and 1993 and of cash flows for the six month periods ended June 30, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Midland Company and subsidiaries as of December 31, 1993, and the related consolidated statements of income and retained earnings and of cash flows for the year then ended (not presented herein); and in our report dated February 10, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1993 is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Signed by Deloitte & Touche July 21, 1994 EXHIBIT II Deloitte & Touche 250 East Fifth Street PO Box 5340 Cincinnati, Ohio 45201-5340 Telephone: (513) 784-7100 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION The Midland Company: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of The Midland Company and subsidiaries for the periods ended June 30, 1994 and 1993, as indicated in our report dated July 21, 1994; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, is incorporated by reference in Registration Statement No. 33-48511 on Form S-8. We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. Signed by Deloitte & Touche July 21, 1994 PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES JUNE 30, 1994 Item 1. Legal Proceedings None other than ordinary routine litigation incidental to the business of the Company and its subsidiaries. Item 2. Change in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a.) None b.) None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto dully authorized. THE MIDLAND COMPANY Date ___July 21, 1994_____________ s/Michael J. Conaton_________________ Michael J. Conaton, President and Chief Operating Officer Date ___July 21, 1994_____________ s/John I. Von Lehman_________________ John I. Von Lehman, Vice President and Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----