-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WM+keQ8r/HZ6lOq+V8yieqTgfa698YkUk/e3Pb92CLet3WNQoGJiyTn+zMmRMfp6 nsGOZfnDoPvX6JLKVHO04Q== 0000066025-96-000005.txt : 19961118 0000066025-96-000005.hdr.sgml : 19961118 ACCESSION NUMBER: 0000066025-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] 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: 96663557 BUSINESS ADDRESS: STREET 1: 7000 MIDLAND BLVD STREET 2: P O BOX 125 CITY: AMELIA STATE: OH ZIP: 45102-2607 BUSINESS PHONE: 5139437100 MAIL ADDRESS: STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 10-Q 1 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________September 30, 1996_______________ 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 (I.R.S. Employer Identification No.) incorporation or organization) 7000 Midland Boulevard, Amelia, Ohio 45102-2607 (Address of principal executive offices) (Zip Code) (513) 943-7100 (Registrant's telephone number, including area code) NA (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, 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 September 30, 1996 was 3,017,131. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Unaudited) Sept. 30, Dec. 31, ASSETS 1996 1995 -------------- -------------- CASH $ 3,674,000 $ 6,385,000 -------------- -------------- MARKETABLE SECURITIES 362,336,000 367,054,000 -------------- -------------- RECEIVABLES: Accounts receivable 128,787,000 94,677,000 Less allowance for losses 1,332,000 1,362,000 -------------- -------------- Net 127,455,000 93,315,000 -------------- -------------- INVENTORY - SPORTSWEAR DIVISION 16,575,000 6,954,000 -------------- -------------- PROPERTY, PLANT AND EQUIPMENT - AT COST 127,000,000 131,616,000 Less accumulated depreciation 43,918,000 45,767,000 -------------- -------------- Property, Plant and Equipment - Net 83,082,000 85,849,000 -------------- -------------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 46,030,000 43,146,000 -------------- -------------- OTHER ASSETS 2,526,000 2,000,000 -------------- -------------- TOTAL $ 641,678,000 $ 604,703,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Unaudited) Sept. 30, Dec. 31, LIABILITIES & SHAREHOLDERS' EQUITY 1996 1995 -------------- -------------- NOTES PAYABLE WITHIN ONE YEAR: Banks $ 20,000,000 $ 31,000,000 Commercial paper 6,261,000 4,620,000 -------------- -------------- Total 26,261,000 35,620,000 -------------- -------------- ACCOUNTS PAYABLE - TRADE 4,893,000 5,449,000 -------------- -------------- OTHER PAYABLES AND ACCRUALS 72,519,000 68,045,000 -------------- -------------- CURRENT PORTION OF LONG-TERM DEBT 3,057,000 2,986,000 -------------- -------------- UNEARNED INSURANCE PREMIUMS 211,800,000 190,948,000 -------------- -------------- INSURANCE LOSS RESERVES 98,428,000 68,347,000 -------------- -------------- DEFERRED FEDERAL INCOME TAX 14,134,000 14,243,000 -------------- -------------- LONG-TERM DEBT 60,169,000 62,470,000 -------------- -------------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 3,017,000 shares at September 30, 1996 and 3,020,000 shares at December 31, 1995 after deducting treasury stock of 626,000 shares and 623,000 shares, respectively) 911,000 911,000 Additional paid-in capital 15,429,000 15,362,000 Retained earnings 132,872,000 139,350,000 Net unrealized gain on marketable securities 19,725,000 19,716,000 Treasury stock - at cost (16,853,000) (16,575,000) Unvested restricted stock awards (1,667,000) (2,169,000 -------------- -------------- Total 150,417,000 156,595,000 -------------- -------------- TOTAL $ 641,678,000 $ 604,703,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) FOR THE NINE AND THREE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Nine-Mos. Ended Sept. 30, Three-Mos. Ended Sept. 30, ----------------------------------------------------- 1996 1995 1996 1995 REVENUES: ------------- ------------- ------------ ------------ Insurance $224,543,000 $208,958,000 $75,731,000 $71,122,000 Transportation 25,706,000 22,207,000 9,485,000 8,158,000 Sportswear 19,670,000 25,971,000 12,075,000 14,381,000 Other 413,000 676,000 109,000 365,000 ------------- ------------- ------------ ------------ Total 270,332,000 257,812,000 97,400,000 94,026,000 ------------- ------------- ------------ ------------ COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 133,735,000 101,426,000 45,984,000 33,405,000 Commissions and other policy acquisition costs 61,771,000 61,036,000 20,898,000 19,977,000 Operating and administrative expenses 30,108,000 27,533,000 10,769,000 10,927,000 Transportation operating expenses 24,587,000 19,570,000 7,157,000 7,335,000 Sportswear operating expenses 22,607,000 33,243,000 11,696,000 18,058,000 Interest expense 4,480,000 3,025,000 1,562,000 800,000 Other operating and administrative expenses 2,503,000 2,852,000 524,000 756,000 ------------- ------------- ------------ ------------ Total 279,791,000 248,685,000 98,590,000 91,258,000 ------------- ------------- ------------ ------------ INCOME (LOSS) BEFORE FEDERAL INCOME TAX (9,459,000) 9,127,000 (1,190,000) 2,768,000 ------------- ------------- ------------ ------------ PROVISION (CREDIT) FOR FEDERAL INCOME TAX (4,475,000) 2,197,000 (796,000) 616,000 ------------- ------------- ------------ ------------ NET INCOME (LOSS) $ (4,984,000) $ 6,930,000 $ (394,000) $ 2,152,000 ============= ============= ============ ============ EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ (1.62) $ 2.26 $ (.13) $ .71 ============= ============= ============ ============ CASH DIVIDENDS PER SHARE OF COMMON STOCK $ .495 $ .465 $ .165 $ .155 ============= ============= ============ ============ See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 1996 1995 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,984,000) $ 6,930,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,471,000 6,535,000 Increase in net accounts receivable (34,140,000) (18,323,000) Increase in insurance loss reserves 30,081,000 5,961,000 Increase in unearned insurance premiums 20,852,000 30,897,000 Increase in inventory-sportswear division (9,621,000) (3,148,000) Increase in other accounts payable and accruals 3,888,000 20,197,000 Increase in deferred insurance policy acquisition costs (2,884,000) (6,079,000) Decrease (increase) in other assets (526,000) 257,000 Decrease in deferred federal income tax (114,000) (118,000) Other-net 1,198,000 103,000 -------------- -------------- Net cash provided by operating activities 10,221,000 43,212,000 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (104,882,000) (115,782,000) Sale of marketable securities 68,060,000 42,197,000 Maturity of marketable securities 32,081,000 20,805,000 Decrease in cash equivalent marketable securities 7,750,000 22,613,000 Acquisition of property, plant and equipment (3,986,000) (24,882,000) Sale of property, plant and equipment 1,309,000 853,000 -------------- -------------- Net cash provided by (used in) investing activities 332,000 (54,196,000) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in net short-term borrowings (9,359,000) 15,697,000 Repayment of long-term debt (1,979,000) (1,593,000) Dividends paid (1,464,000) (1,376,000) Purchase of treasury stock (491,000) (1,143,000) Issuance of treasury stock 280,000 52,000 Payment of capitalized lease obligations (251,000) (227,000) -------------- -------------- Net cash provided by (used in) financing activities (13,264,000) 11,410,000 -------------- -------------- NET INCREASE (DECREASE) IN CASH (2,711,000) 426,000 CASH AT BEGINNING OF PERIOD 6,385,000 4,036,000 -------------- -------------- CASH AT END OF PERIOD $ 3,674,000 $ 4,462,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of The Midland Company and subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Financial information as of December 31, 1995 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the three and nine-month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 1995 included in the Company's Annual Report on Form 10-K. Certain reclassifications (minor in nature) have been made to the 1995 amounts to conform to 1996 classifications. 2. EARNINGS PER SHARE Earnings per share (EPS) of common stock are computed by dividing net income by the weighted average number of shares and share equivalents (which considers stock options and restricted stock awards) outstanding during the period. Such weighted average numbers outstanding used for EPS calculations were as follows: For Primary EPS For Fully Diluted EPS ----------------- ----------------------- Nine months ended September 30: 1996 3,072,000 3,075,000 =========== =========== 1995 3,071,000 3,078,000 =========== =========== 3. INCOME TAXES The federal income tax provisions (credits) for the three and nine-month periods ended September 30, 1996 and 1995 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows: Nine-Mos. Ended September 30, Three-Mos. Ended September 30, ----------------------------- ------------------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Federal income tax (credit) at statutory rate $(3,311,000) $ 3,194,000 $(417,000) $ 968,000 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (1,301,000) (1,162,000) (416,000) (406,000) Investment tax credits (127,000) (131,000) (42,000) (43,000) Other - net 264,000 296,000 79,000 97,000 ------------ ------------ ---------- ---------- Provision (credit) for federal income tax $(4,475,000) $ 2,197,000 $(796,000) $ 616,000 ============ ============ ========== ========== 4. CONTINGENCIES As discussed in Note 11 of the Company's financial statements for the year ended December 31, 1995, there are certain potential or actual legal claims pending against the Company; the most recent related significant activities are described in Part I, Management's Discussion and Analysis and Part II, Item 1 of this Form 10-Q. 5. ACCOUNTING FOR STOCK BASED COMPENSATION The Company has not adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" and continues to account for stock based compensation under APB Opinion No. 25. 6. SUPPLEMENTAL CASH FLOW DISCLOSURES The Company paid interest of $4,438,000 and $3,866,000 in the first nine months of 1996 and 1995, respectively. No income taxes were paid in the first nine months of 1996 and $4,971,000 in income taxes were paid during the first nine months of 1995. In January, 1995, the Company issued 48,950 shares of treasury stock under a restricted stock award program that relieved treasury stock by approximately $1,262,000 and also increased additional paid-in capital by approximately $855,000. INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying consolidated balance sheet of The Midland Company and subsidiaries as of September 30, 1996, and the related consolidated statements of income for the three and nine-month periods ended September 30, 1996 and 1995 and of cash flows for the nine-month periods ended September 30, 1996 and 1995. 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, 1995, 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 15, 1996, 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, 1995 is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Deloitte & Touche LLP Cincinnati, Ohio October 17, 1996 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 1995 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 herein. Due primarily to heavier than normal weather related losses during the first half of 1996 and heavy losses from Hurricanes Fran and Bertha in the third quarter of 1996, the property and casualty unit of American Modern Insurance Group, the Company's insurance subsidiary, reported a pre-tax underwriting loss of $16.5 million during the first nine months of 1996 as compared to an underwriting profit of $4.9 million during the first nine months of 1995. These severe catastrophic losses adversely impacted the year-to-date and third quarter operating results in 1996 relative to the comparable 1995 periods. Both written premiums and earned premiums increased slightly during the first nine months and third quarter of 1996 as compared to the comparable periods in 1995. Insurance losses and loss adjustment expenses increased during the first nine months and third quarter of 1996 relative to the comparable 1995 periods due to the previously mentioned heavy weather related catastrophic losses. Insurance operating and administrative expenses increased during the first nine months of 1996 as compared to the nine month 1995 period due to unusually high litigation costs incurred during the first half of 1996. Transportation revenues increased during the first nine months and third quarter of 1996 as compared to the comparable periods in 1995 due to an increase in loadings as well as improved affreightment rates. Transportation expenses increased during the first nine months of 1996 as compared to the first nine months of 1995 due to the increase in revenues and unusually high litigation costs incurred during the first half of 1996. Transportation expenses decreased slightly during the third quarter of 1996 as compared to the third quarter of 1995 due to higher litigation costs in the third quarter of 1995. Excluding litigation costs, the operating performance of this division during the first nine months of 1996 improved as compared to the performance achieved during the related 1995 nine month period. During the second quarter of 1996, AMIG reached a settlement agreement on a class-action lawsuit involving insurance written in Alabama and Mississippi and M/G Transport settled a civil lawsuit that was related to alleged discharge of bilge water, ash and other refuse into the inland waterways. M/G Transport is still awaiting sentencing in the related criminal case. In the first six months of this year, M/G Transport expensed approximately $3,600,000 (pre-tax) as compared to $258,000 (pre-tax) during the comparable 1995 period and AMIG expensed approximately $2,400,000 (pre-tax) as compared to only $100,000 (pre-tax) during the comparable 1995 six month period related to litigation. Sportswear revenues and related expenses decreased during the first nine months and third quarter of 1996 as compared to the comparable periods in 1995 due to a decrease in orders related to the spring, summer and fall apparel lines. However, the operating performance of this subsidiary improved during the first nine months and third quarter of 1996 as compared to the prior 1995 periods due to a reduction in operating expenses. The performance of this subsidiary in 1996 is in line with Management's expectations. Part of the proceeds from sale and maturity of marketable securities were used to reduce short-term bank borrowings and, after additional unrealized appreciation, marketable securities decreased slightly. Accounts receivable increased due to the growth of the Company's insurance subsidiaries. The growth in net written premiums caused an increase in premium receivables and the Company's increased reinsurance activities caused an increase in reinsurance receivables. Accounts receivable were also unusually high at September 30, 1996 due to approximately $10 million in losses from Hurricane Fran which are recoverable under the Company's reinsurance agreements. Sportswear inventories are subject to seasonal variation and increased primarily due to the need to build inventory levels for the winter and spring production orders. Unearned insurance premiums increased due to the increase in the Company's insurance writings. The increase in insurance loss reserves is due to the increase in insurance revenues and the high losses from Hurricane Fran in September, 1996. M/G Transport Services, Inc. acquired 16 barges in 1996 for a total cost of $4.6 million. These acquisitions were financed by the disposal of two of M/G Transport's towboats valued at $5 million. M/G Transport has also committed to the purchase of 50 barges in 1997 for a total cost of $14.5 million. It is currently anticipated that these barges will be financed with internally generated capital. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES SEPTEMBER 30, 1996 Item 1. Legal Proceedings Reference is made to Item 1 of the March 31, 1996 Registrant's Form 10-Q concerning criminal and related civil litigation against M/G Transport Services, Inc., a subsidiary of the Registrant. Sentencing in the criminal litigation has not yet occurred. The civil litigation was settled in an out of court agreement during the second quarter of 1996. 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.) Exhibit 15 - Letter Re: Unaudited Interim Financial Information b.) Exhibit 27 - Financial Data Schedule c.) Reports on Form 8-K - 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 duly authorized. THE MIDLAND COMPANY Date ___October 17, 1996_____ s/Michael J. Conaton________________________ Michael J. Conaton, President and Chief Operating Officer Date ___October 17, 1996_____ s/John I. Von Lehman________________________ John I. Von Lehman, Executive Vice President and Treasurer and Chief Financial Officer EX-15 2 EXHIBIT 15 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 September 30, 1996 and 1995, as indicated in our report dated October 17, 1996; 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 September 30, 1996, is incorporated by reference in Registration Statements No. 33-64821 on Form S-3 and 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. Deloitte & Touche LLP Cincinnati, Ohio October 17, 1996 EX-27 3
5 9-MOS DEC-31-1996 SEP-30-1996 3,674,000 362,336,000 128,787,000 1,332,000 16,575,000 0 127,000,000 43,918,000 641,678,000 0 60,169,000 911,000 0 0 149,506,000 641,678,000 19,631,000 270,332,000 16,685,000 256,133,000 2,503,000 (10,000) 4,480,000 (9,459,000) (4,475,000) (4,984,000) 0 0 0 (4,984,000) (1.62) (1.62)
-----END PRIVACY-ENHANCED MESSAGE-----