-----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, CQx8L8tIvZxy7YyTFqnq8WTDV85rK+sP74jlHl/07VxaWeWyhg9X8kWIkUN/ZLlq wo3qWdaoeuA7jbp44Kzrig== 0000066025-97-000004.txt : 19970818 0000066025-97-000004.hdr.sgml : 19970818 ACCESSION NUMBER: 0000066025-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970815 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: 97664536 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____________June 30, 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 (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) _____________________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 June 30, 1997 was 3,111,862. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (Unaudited) June 30, Dec. 31, ASSETS 1997 1996 -------------- -------------- CASH $ 5,249,000 $ 3,617,000 -------------- -------------- MARKETABLE SECURITIES: Fixed income (cost, $329,953,000 at June 30, 1997 and $333,259,000 at December 31, 1996) 331,131,000 335,675,000 Equity (cost, $32,305,000 at June 30, 1997 and $30,931,000 at December 31, 1996) 79,742,000 64,787,000 -------------- -------------- Total 410,873,000 400,462,000 -------------- -------------- RECEIVABLES: Accounts receivable 66,704,000 59,250,000 Less allowance for losses 1,301,000 1,301,000 -------------- -------------- Net 65,403,000 57,949,000 -------------- -------------- REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS 53,811,000 52,805,000 -------------- -------------- INVENTORY - SPORTSWEAR DIVISION 15,101,000 13,329,000 PROPERTY, PLANT AND EQUIPMENT - AT COST 137,446,000 124,672,000 Less accumulated depreciation and amortization 45,559,000 42,997,000 -------------- -------------- Property, Plant and Equipment - Net 91,887,000 81,675,000 -------------- -------------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 42,657,000 45,342,000 -------------- -------------- OTHER ASSETS 4,491,000 4,360,000 -------------- -------------- TOTAL ASSETS $ 689,472,000 $ 659,539,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (Unaudited) June 30, Dec. 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 -------------- -------------- NOTES PAYABLE WITHIN ONE YEAR: Banks $ 20,000,000 $ 28,000,000 Commercial paper 3,906,000 4,700,000 -------------- -------------- Total 23,906,000 32,700,000 -------------- -------------- INSURANCE COMMISSIONS PAYABLE 15,131,000 13,821,000 -------------- -------------- OTHER PAYABLES AND ACCRUALS 42,460,000 42,819,000 -------------- -------------- FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES 29,840,000 26,949,000 -------------- -------------- UNEARNED INSURANCE PREMIUMS 215,589,000 208,417,000 -------------- -------------- INSURANCE LOSS RESERVES 104,066,000 95,830,000 -------------- -------------- DEFERRED FEDERAL INCOME TAX 20,995,000 16,845,000 -------------- -------------- LONG-TERM DEBT 63,094,000 62,470,000 -------------- -------------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 3,112,000 shares at June 30, 1997 and 3,042,000 shares at December 31, 1996 after deducting treasury stock of 531,000 shares and 601,000 shares, respectively) 911,000 911,000 Additional paid-in capital 15,472,000 14,846,000 Retained earnings 144,405,000 138,423,000 Net unrealized gain on marketable securities 31,609,000 23,587,000 Treasury stock - at cost (14,696,000) (16,621,000) Unvested restricted stock awards (3,310,000) (1,458,000) -------------- -------------- Total 174,391,000 159,688,000 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 689,472,000 $ 659,539,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) FOR THE SIX AND THREE-MONTHS ENDED JUNE 30, 1997 AND 1996 Six-Mos. Ended June 30, Three-Mos. Ended June 30, ----------------------------- ----------------------------- 1997 1996 1997 1996 -------------- -------------- -------------- -------------- REVENUES: Insurance $ 166,805,000 $ 148,812,000 $ 84,403,000 $ 75,968,000 Transportation 15,888,000 16,221,000 8,319,000 8,891,000 Sportswear 10,225,000 7,595,000 5,165,000 1,851,000 Other 117,000 304,000 61,000 160,000 -------------- -------------- -------------- -------------- Total 193,035,000 172,932,000 97,948,000 86,870,000 -------------- -------------- -------------- -------------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 83,337,000 87,751,000 41,738,000 41,600,000 Commissions and other policy acquisition costs 43,660,000 40,873,000 21,777,000 19,414,000 Operating and administrative expenses 23,596,000 19,339,000 11,962,000 10,989,000 Transportation operating expenses 14,211,000 17,430,000 7,166,000 8,619,000 Sportswear operating expenses 13,147,000 10,911,000 6,523,000 3,565,000 Interest expense 2,925,000 2,918,000 1,534,000 1,492,000 Other operating and administrative expenses 2,567,000 1,979,000 1,782,000 792,000 -------------- -------------- -------------- -------------- Total 183,443,000 181,201,000 92,482,000 86,471,000 -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE FEDERAL INCOME TAX 9,592,000 (8,269,000) 5,466,000 399,000 PROVISION (CREDIT) FOR FEDERAL INCOME TAX 2,521,000 (3,679,000) 1,486,000 (255,000) -------------- -------------- -------------- -------------- NET INCOME (LOSS) $ 7,071,000 $ (4,590,000) $ 3,980,000 $ 654,000 ============== ============== ============== ============== EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ 2.30 $ (1.49) $ 1.29 $ .21 ============== ============== ============== ============== CASH DIVIDENDS PER SHARE OF COMMON STOCK $ .35 $ .33 $ .175 $ .165 ============== ============== ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE SIX-MONTHS ENDED JUNE 30, 1997 AND 1996 1997 1996 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (Loss) $ 7,071,000 $ (4,590,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,819,000 4,383,000 Increase in insurance loss reserves 8,236,000 16,681,000 Increase in net accounts receivable (7,454,000) (4,324,000) Increase in unearned insurance premiums 7,172,000 8,374,000 Increase in funds held under reinsurance agreements and reinsurance payables 2,891,000 554,000 Decrease (increase) in deferred insurance policy acquisition costs 2,685,000 (42,000) Increase in inventory-sportswear division (1,772,000) (8,222,000) Increase (decrease) in insurance commissions payable 1,310,000 (2,812,000) Increase in reinsurance recoverables and prepaid reinsurance premiums (1,006,000) (9,889,000) Increase (decrease) in other accounts payable and accruals (403,000) 463,000 Decrease in deferred federal income tax (173,000) (76,000) Increase in other assets (131,000) (398,000) Other-net (73,000) 636,000 --------------- --------------- Net cash provided by operating activities 24,172,000 738,000 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (101,943,000) (65,038,000) Sale of marketable securities 54,174,000 37,453,000 Decrease in cash equivalent marketable securities 35,854,000 9,115,000 Acquisition of property, plant and equipment (16,309,000) (3,209,000) Maturity of marketable securities 13,861,000 21,743,000 Sale of property, plant and equipment 900,000 437,000 --------------- --------------- Net cash provided by (used in) investing activities (13,463,000) 501,000 --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in net short-term borrowings (8,794,000) 974,000 Issuance of long-term debt 2,300,000 - Repayment of long-term debt (1,493,000) (1,319,000) Dividends paid (1,045,000) (966,000) Payment of capitalized lease obligations (183,000) (165,000) Net issuance (purchase) of treasury stock 138,000 (107,000) --------------- --------------- Net cash used in financing activities (9,077,000) (1,583,000) --------------- --------------- NET INCREASE (DECREASE) IN CASH 1,632,000 (344,000) CASH AT BEGINNING OF PERIOD 3,617,000 6,385,000 --------------- --------------- CASH AT END OF PERIOD $ 5,249,000 $ 6,041,000 =============== =============== See Notes to the Consolidated Financial Statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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 and six-month periods ended June 30, 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: Six-months ended June 30: For Primary EPS For Fully Diluted EPS --------------- --------------------- 1997 3,072,000 3,099,000 1996 3,079,000 3,080,000 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 be: Six-Mos. Three-Mos. Ended June 30, Ended June 30, -------------------- -------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Basic earnings (loss) per share $ 2.38 $ (1.56) $ 1.34 $ .22 Diluted earnings (loss) per share $ 2.30 $ (1.56) $ 1.29 $ .21 3. INCOME TAXES The federal income tax provisions (credits) for the three and six-month periods ended June 30, 1997 and 1996 are 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, ------------------------- ------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Federal income tax (credit) at statutory rate $ 3,357,000 $(2,894,000) $ 1,913,000 $ 140,000 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (765,000) (885,000) (387,000) (443,000) Investment tax credits (182,000) (85,000) (91,000) (42,000) Other - net 111,000 185,000 51,000 90,000 ------------ ------------ ------------ ------------ Provision (credit) for federal income tax $ 2,521,000 $(3,679,000) $ 1,486,000 $ (255,000) ============ ============ ============ ============ 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 outcome of which are not expected to have a material effect upon the company's consolidated financial position or results of operations. 5. COMPREHENSIVE INCOME AND SEGMENT DISCLOSURES In June of 1997, The Accounting Standards Board issued SFAS No. 130, "Reporting on Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Midland Company will be required to adopt these standards during 1998. Adoption of these standards will not impact the reported results of operations or financial position of The Midland Company but will require additional disclosure. 6. SUPPLEMENTAL CASH FLOW DISCLOSURES The Company paid interest of $3,296,000 and $2,874,000 in the first six months of 1997 and 1996, respectively. The Company paid income taxes of $955,000 during the first six months of 1997 and no income taxes were paid during the first six 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 June 30, 1997, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 1997 and 1996 and of cash flows for the six-month periods ended June 30, 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. July 17, 1997 Deloitte & Touche LLP Cincinnati, Ohio 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 six months and second quarter of 1997 as compared to the comparable periods in 1996 due primarily to the continued growth in the Company's property and casualty core products. Insurance losses and loss adjustment expenses decreased in the first six months of 1997 as compared to the first six months of 1996 due to a significant decrease in weather related catastrophe losses. The decrease in catastrophic losses was primarily responsible for the significant improvement in operating results of the insurance operations in 1997 compared to 1996. The loss ratio (ratio of losses to net premiums earned) of the property and casualty insurance companies was 54.4% and 53.3% during the first half and second quarter, respectively, of 1997 compared to 64.2% and 60.2% in the first half and second quarter, respectively, of 1996. Pre-tax profits of the transportation subsidiary improved significantly in the first six months and second quarter of 1997 compared to the related 1996 periods due to reductions in litigation costs. On a pre-tax basis, litigation costs decreased $3.6 million and $1.3 million in the first six months and second quarter of 1997, respectively, as compared to the prior year's periods. Transportation revenues decreased slightly in the first half and second quarter of 1997 as compared to the prior year's periods due to flooding conditions along the lower Mississippi River in March and April of this year. Sportswear revenues and related expenses increased during the first six months and second quarter of 1997 as compared to the comparable periods in 1996 due primarily to an increase in orders for the spring apparel line. This increase in sales during the second quarter of 1997 produced a favorable improvement in this subsidiary's operating performance in the second quarter of 1997 as compared to the second quarter of 1996 and also positively impacted the current six month performance as compared to the prior year's six month performance. The increase in fixed assets was due primarily to the transportation subsidiary's acquisition of 41 barges for a total cost of $11.9 million. Increases in receivables, unearned premiums and insurance loss reserves are primarily related to increased insurance business and seasonal trends. The increases in reinsurance recoverables and prepaid reinsurance premiums, funds held under reinsurance agreements and reinsurance payables, together with the decrease in deferred insurance policy acquisition costs, are related to increased reinsurance activities. The Company was able to reduce its short-term bank borrowings in 1997 as a result of the Company's profits and positive cash flows. The increases in investments, deferred federal income tax and net unrealized gain on marketable securities were due to the increase in market value of the Company's investment portfolio. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES JUNE 30, 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_______July 17, 1997_______ s/Michael J. Conaton_________________________ Michael J. Conaton, President and Chief Operating Officer Date_______July 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 June 30, 1997 and 1996, as indicated in our report dated July 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 June 30, 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. July 17, 1997 Deloitte & Touche LLP Cincinnati, Ohio EX-27 3
5 6-MOS DEC-31-1997 JUN-30-1997 5,249,000 410,873,000 120,515,000 1,301,000 15,101,000 0 137,446,000 45,559,000 689,472,000 0 63,094,000 911,000 0 0 173,480,000 689,472,000 10,221,000 193,035,000 9,663,000 168,316,000 2,567,000 (28,000) 2,925,000 9,592,000 2,521,000 7,071,000 0 0 0 7,071,000 2.30 2.28
-----END PRIVACY-ENHANCED MESSAGE-----