-----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, IkIc6SHF29F+aCxyyBZyx7czJ1+3IVRA1psxV4BFLer/bcnDP2GHD106H6hK2S7g C+2tTol+PjxGT5ie/dGkzg== 0000066025-97-000003.txt : 19970514 0000066025-97-000003.hdr.sgml : 19970514 ACCESSION NUMBER: 0000066025-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97602910 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 ___________March 31, 1997______________ 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 or organization) Identification No.) 7000 Midland Boulevard, Amelia, Ohio 45102-2607 (Address of principal executive offices) (Zip Code) (513) 943-7100 (Registrant's telephone number, including area code) N/A (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 March 31, 1997 was 3,110,104. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (Unaudited) Mar. 31, Dec. 31, ASSETS 1997 1996 --------------- --------------- CASH $ 4,644,000 $ 3,617,000 MARKETABLE SECURITIES: Fixed income (cost, $324,102,000 at March 31, 1997 and $333,259,000 at December 31, 1996) 322,308,000 335,675,000 Equity (cost, $32,048,000 at March 31, 1997 and $30,931,000 at December 31, 1996) 72,059,000 64,787,000 --------------- --------------- Total 394,367,000 400,462,000 --------------- --------------- RECEIVABLES: Accounts receivable 59,644,000 59,250,000 Less allowance for losses 1,301,000 1,301,000 --------------- --------------- Net 58,343,000 57,949,000 --------------- --------------- REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS 47,469,000 52,805,000 --------------- --------------- INVENTORY - SPORTSWEAR DIVISION 13,898,000 13,329,000 --------------- --------------- PROPERTY, PLANT AND EQUIPMENT - AT COST 137,593,000 124,672,000 Less accumulated depreciation and amortization 43,183,000 42,997,000 --------------- --------------- Property, Plant and Equipment - Net 94,410,000 81,675,000 --------------- --------------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 45,165,000 45,342,000 --------------- --------------- OTHER ASSETS 4,581,000 4,360,000 --------------- --------------- TOTAL $ 662,877,000 $ 659,539,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (Unaudited) Mar. 31, Dec. 31, LIABILITIES & SHAREHOLDERS' EQUITY 1997 1996 --------------- --------------- NOTES PAYABLE WITHIN ONE YEAR: Banks $ 30,000,000 $ 28,000,000 Commercial paper 4,805,000 4,700,000 --------------- --------------- Total 34,805,000 32,700,000 --------------- --------------- INSURANCE COMMISSIONS PAYABLE 12,200,000 13,821,000 --------------- --------------- OTHER PAYABLES AND ACCRUALS 41,166,000 42,819,000 --------------- --------------- FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES 25,418,000 26,949,000 --------------- --------------- UNEARNED INSURANCE PREMIUMS 203,418,000 208,417,000 --------------- --------------- INSURANCE LOSS RESERVES 100,712,000 95,830,000 --------------- --------------- DEFERRED FEDERAL INCOME TAX 17,440,000 16,845,000 --------------- --------------- LONG-TERM DEBT 63,859,000 62,470,000 --------------- --------------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 3,110,000 shares at March 31, 1997 and 3,042,000 shares at December 31, 1996 after deducting treasury stock of 533,000 shares and 601,000 shares, respectively) 911,000 911,000 Additional paid-in capital 15,456,000 14,846,000 Retained earnings 140,970,000 138,423,000 Net unrealized gain on marketable securities 24,850,000 23,587,000 Treasury stock - at cost (14,736,000) (16,621,000) Unvested restricted stock awards (3,592,000) (1,458,000) --------------- --------------- Total 163,859,000 159,688,000 --------------- --------------- TOTAL $ 662,877,000 $ 659,539,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) FOR THE THREE-MONTHS ENDED MARCH 31, 1997 AND 1996 1997 1996 --------------- --------------- REVENUES: Insurance $ 82,402,000 $ 72,844,000 Transportation 7,569,000 7,330,000 Sportswear 5,060,000 5,744,000 Other 56,000 144,000 --------------- --------------- Total 95,087,000 86,062,000 --------------- --------------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 41,599,000 46,151,000 Commissions and other policy acquisition costs 21,883,000 21,459,000 Operating and administrative expenses 11,634,000 8,350,000 Transportation operating expenses 7,045,000 8,811,000 Sportswear operating expenses 6,624,000 7,346,000 Interest expense 1,391,000 1,426,000 Other operating and administrative expenses 785,000 1,187,000 --------------- --------------- Total 90,961,000 94,730,000 --------------- --------------- INCOME (LOSS) BEFORE FEDERAL INCOME TAX 4,126,000 (8,668,000) PROVISION (CREDIT) FOR FEDERAL INCOME TAX 1,035,000 (3,424,000) --------------- --------------- NET INCOME (LOSS) $ 3,091,000 $ (5,244,000) =============== =============== EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ 1.01 $ (1.70) =============== =============== CASH DIVIDENDS PER SHARE OF COMMON STOCK $ .175 $ .165 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE THREE-MONTHS ENDED MARCH 31, 1997 AND 1996 1997 1996 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,091,000 $ (5,244,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,345,000 2,162,000 Decrease (increase) in reinsurance recoverables and prepaid reinsurance premiums 5,336,000 (4,842,000) Decrease in unearned insurance premiums (4,999,000) (3,792,000) Increase in insurance loss reserves 4,882,000 16,153,000 Increase (decrease) in other payables and accruals (1,696,000) 160,000 Decrease in insurance commissions payable (1,621,000) (4,137,000) Increase (decrease) in funds held under reinsurance agreements and reinsurance payables (1,531,000) 257,000 Decrease (increase) in inventory-sportswear division (569,000) 1,758,000 Increase in net accounts receivable (394,000) (114,000) Increase in other assets (221,000) (520,000) Decrease in deferred insurance policy acquisition costs 177,000 1,659,000 Decrease in deferred federal income tax (87,000) (38,000) Other-net 170,000 629,000 --------------- --------------- Net cash provided by operating activities 4,883,000 4,091,000 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (61,798,000) (29,004,000) Decrease in cash equivalent marketable securities 34,536,000 16,491,000 Sale of marketable securities 26,752,000 14,927,000 Acquisition of property, plant and equipment (15,523,000) (2,275,000) Maturity of marketable securities 8,326,000 6,911,000 Sale of property, plant and equipment 762,000 233,000 --------------- --------------- Net cash provided by (used in) investing activities (6,945,000) 7,283,000 --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 2,300,000 - Increase (decrease) in net short-term borrowings 2,105,000 (12,279,000) Repayment of long-term debt (821,000) (659,000) Dividends paid (501,000) (468,000) Issuance of treasury stock 96,000 30,000 Payment of capitalized lease obligations (90,000) (82,000) --------------- --------------- Net cash used in financing activities 3,089,000 (13,458,000) --------------- --------------- NET INCREASE (DECREASE) IN CASH 1,027,000 (2,084,000) CASH AT BEGINNING OF PERIOD 3,617,000 6,385,000 --------------- --------------- CASH AT END OF PERIOD $ 4,644,000 $ 4,301,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 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, they 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, 1996 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the three-month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K. Certain reclassifications (minor in nature) have been made to the 1996 amounts to conform to 1997 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 ----------------- ----------------------- Three months ended March 31: 1997 3,061,000 3,065,000 1996 3,079,000 3,081,000 Statement of Financial Accounting Standards No. 128 has been issued and will require companies to change the method of calculating earnings per share. This statement is effective for financial statements for both interim and annual periods ending after December 15, 1997 and early application is not permitted. On a proforma basis, the Company's basic and diluted earnings per share calculated in accordance with the Statement would respectively be: first quarter, 1997 - $1.04 and $1.01; first quarter, 1996 - ($1.78) and ($1.78). 3. INCOME TAXES The federal income tax provisions for the three-month periods ended March 31, 1997 and 1996 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows: 1997 1996 ----------- ------------ Federal income tax (credit) at statutory rate $1,444,000 $(3,034,000) Tax effect of: Tax exempt interest and excludable dividend income (378,000) (442,000) Investment tax credits (91,000) (43,000) Other - net 60,000 95,000 ----------- ------------ Provision (credit) for federal income tax $1,035,000 $(3,424,000) =========== ============ 4. CONTINGENCIES As discussed in Note 12 of the Company's financial statements for the year ended December 31, 1996, there are certain potential or actual legal claims pending against the Company; the most recent related significant activities are described in Part II, Item 1 of this Form 10-Q. 5. SUPPLEMENTAL CASH FLOW DISCLOSURES The Company paid interest of $1,752,000 and $1,405,000 in the first three months of 1997 and 1996, respectively. The Company received a tax refund of $555,000 during the first three months of 1997 and no income taxes were paid in the first three months of 1996. In January, 1997, the Company issued 65,350 shares of treasury stock under a restricted stock award program that relieved treasury stock by approximately $1,808,000 and also increased additional paid-in capital by approximately $626,000. INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying consolidated balance sheet of The Midland Company and subsidiaries as of March 31, 1997, and the related consolidated statements of income and of cash flows for the three-month periods ended March 31, 1997 and 1996. 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, 1996, 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 13, 1997, 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, 1996 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 April 17, 1997 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 1996 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. Insurance revenues increased in the first quarter of 1997 as compared to the first quarter of 1996 primarily due to the continued growth in the Company's property and casualty core products. Insurance losses and loss adjustment expenses decreased in the first quarter of 1997 compared to the first quarter of 1996 due to a significant decrease in weather related catastrophe losses. This significant decrease in catastrophe losses was primarily responsible for the improved operating results of the insurance operations during the first quarter of 1997 as compared to the comparable quarter in 1996. The loss ratio (ratio of losses to net premiums earned) of the property and casualty insurance companies was only 55.4% during the first quarter of 1997 as compared to 68.3% during the first quarter of 1996. The severe flooding that affected the midwestern United States during March of 1997 negatively impacted the earnings of the Company's insurance operations. These catastrophe losses reduced the Company's net earnings by approximately $4,150,000, $1.35 per common share, on an after-tax basis. Transportation revenues increased slightly in the first quarter of 1997 as compared to the first quarter of 1996, and the operating performance of the transportation subsidiary improved significantly in the first quarter of 1997 as compared to the comparable quarter in 1996 due to a reduction in transportation expenses. Transportation expenses decreased during the first quarter of 1997 as compared to the first quarter of 1996 due primarily to a $2.3 million pre-tax reduction in litigation costs. Sportswear revenues decreased in the first quarter of 1997 as compared to the first quarter of 1996 due to a decrease in closeout sales, however, first quality sales actually increased during the first quarter of 1997 as compared to the comparable 1996 quarter. Gross margins improved in 1997 somewhat as compared to 1996. As a result, the operating performance of the sportswear subsidiary in the first quarter of 1997 was comparable to the 1996 first quarter. The increase in fixed assets was due primarily to the transportation subsidiary's acquisition of 41 barges for $11.9 million. The decreases in reinsurance recoverables and prepaid reinsurance premiums as well as unearned insurance premiums are primarily related to the Company's decision to curtail writing certain lines of business. Insurance loss reserves increased due to the losses incurred by the severe flooding in March, 1997. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES MARCH 31, 1997 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. 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 dully authorized. THE MIDLAND COMPANY Date ___April 17, 1997__________ s/Michael J. Conaton_________________ Michael J. Conaton, President and Chief Operating Officer Date ___April 17, 1997__________ s/John I. Von Lehman_________________ John I. Von Lehman, Executive Vice President, 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 March 31, 1997 and 1996, as indicated in our report dated April 17, 1997; 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 March 31, 1997, 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 April 17, 1997 EX-27 3
5 3-MOS DEC-31-1997 MAR-31-1997 4,644,000 394,367,000 107,113,000 1,301,000 13,898,000 0 137,593,000 43,183,000 662,877,000 0 63,859,000 911,000 0 0 162,948,000 662,877,000 5,058,000 95,087,000 4,993,000 83,792,000 785,000 0 1,391,000 4,126,000 1,035,000 3,091,000 0 0 0 3,091,000 1.01 1.01
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