-----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, FKCeCjH4L4BQM8IpqPVqNdwc17qECfWiOuHHD3WOCPPkq/vvXO03PIfDksUBvQzy NZ3OOVOUGZBDNq/cVjZuhw== 0000066025-94-000007.txt : 19940517 0000066025-94-000007.hdr.sgml : 19940517 ACCESSION NUMBER: 0000066025-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 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: 94528616 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 CO MARCH 31, 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 March 31, 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 or organization) Identification 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, in the opinion of management, necessary to a fair statement of the results for the periods covered. In addition, all adjustments and disclosures proposed by the company's independent accountants have been reflected in this Form 10-Q. Letters from Deloitte & Touche dated April 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 March 31, 1994 was 2,999,081. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1994 AND DECEMBER 31, 1993 (Unaudited) Mar. 31, Dec. 31, ASSETS 1994 1993 ------------ ------------ CASH $ 2,652,000 $ 3,935,000 MARKETABLE SECURITIES 207,560,000 224,614,000 RECEIVABLES: Accounts receivable 69,256,000 62,907,000 Finance receivables (including amounts maturing after one year) 5,397,000 5,512,000 Sub-Total 74,653,000 68,419,000 Less allowance for losses 1,160,000 1,117,000 Total 73,493,000 67,302,000 INVENTORY - SPORTSWEAR DIVISION 17,586,000 15,968,000 PROPERTY, PLANT AND EQUIPMENT - AT COST 184,141,000 185,164,000 Less accumulated depreciation 76,317,000 77,272,000 Property, Plant and Equipment - net 107,824,000 107,892,000 DEFERRED INSURANCE POLICY ACQUISITION COSTS 28,600,000 28,825,000 OTHER ASSETS 1,788,000 1,686,000 ------------ ------------ TOTAL $439,503,000 $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 MARCH 31, 1994 AND DECEMBER 31, 1993 (Unaudited) Mar. 31, Dec. 31, LIABILITIES & SHAREHOLDERS' EQUITY 1994 1993 ------------ ------------ NOTES PAYABLE WITHIN ONE YEAR: Banks $ 15,000,000 $ 22,000,000 Commercial paper 9,101,000 14,302,000 ------------ ------------ Total 24,101,000 36,302,000 ACCOUNTS PAYABLE - TRADE 5,194,000 5,142,000 OTHER PAYABLES AND ACCRUALS 34,757,000 37,513,000 CURRENT PORTION OF LONG-TERM DEBT 9,141,000 9,412,000 UNEARNED INSURANCE PREMIUMS 123,979,000 118,802,000 INSURANCE LOSS RESERVES 49,459,000 42,607,000 DEFERRED FEDERAL INCOME TAX 17,988,000 20,224,000 LONG-TERM DEBT 45,618,000 47,110,000 SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 2,999,000 shares at March 31, 1994 and December 31, 1993 after deducting treasury stock of 644,000 shares at each respective date) 911,000 911,000 Additional paid-in capital 14,606,000 14,620,000 Retained earnings 124,370,000 123,995,000 Net unrealized gain on marketable equity securities 7,033,000 11,308,000 Treasury stock - at cost (16,577,000) (16,564,000) Unvested restricted stock awards (1,077,000) (1,160,000) ------------ ------------ Total 129,266,000 133,110,000 ------------ ------------ TOTAL $439,503,000 $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 STATEMENTS OF CONSOLIDATED INCOME (Unaudited) FOR THE THREE-MONTHS ENDED MARCH 31, 1994 AND 1993 1994 1993 ------------ ------------ REVENUES: Insurance $ 51,435,000 $ 39,504,000 River transportation 11,716,000 12,976,000 Sportswear 6,065,000 5,578,000 Finance and other 226,000 239,000 ------------ ------------ Total 69,442,000 58,297,000 ------------ ------------ COSTS AND EXPENSES: Insurance claims and policy acquisition costs 42,183,000 31,499,000 Insurance operating and administrative expenses 5,783,000 4,918,000 River transportation operating expenses 11,413,000 11,963,000 Sportswear operating expenses 7,024,000 6,353,000 Interest expense 1,171,000 916,000 Other operating and administrative expenses 1,154,000 1,181,000 ------------ ------------ Total 68,728,000 56,830,000 ------------ ------------ INCOME BEFORE FEDERAL INCOME TAX AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 714,000 1,467,000 PROVISION (CREDIT) FOR FEDERAL INCOME TAX (96,000) 159,000 ------------ ------------ INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 810,000 1,308,000 CUMULATIVE EFFECT OF ACCOUNTING CHANGE (A) -- 4,867,000 ------------ ------------ NET INCOME $ 810,000 $ 6,175,000 ============ ============ PRIMARY EARNINGS PER COMMON SHARE (B): Income before cumulative effect of accounting change $ .26 $ .42 Cumulative effect of accounting change -- 1.58 ------------ ------------ Net Income $ .26 $ 2.00 ============ ============ FULLY DILUTED EARNINGS PER COMMON SHARE (B): Income before cumulative effect of accounting change $ .26 $ .42 Cumulative effect of accounting change -- 1.58 ------------ ------------ Net Income $ .26 $ 2.00 ============ ============ DIVIDENDS PER SHARE $ .145 $ .135 ============ ============ (A) Cumulative Effect of Accounting Change represents the adoption ofStatement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. (B) Primary earnings per common share has been computed by dividing net income by 3,059,000 shares in 1994 and 3,087,000 shares in 1993. Fully diluted earnings per common share has been computed by dividing net income by 3,061,000 shares in 1994 and 3,087,000 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 THREE-MONTHS ENDED MARCH 31, 1994 AND 1993 1994 1993 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 810,000 $ 6,175,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,601,000 2,298,000 Increase in insurance loss reserves 6,852,000 3,595,000 Decrease (increase) in net accounts receivable (6,306,000) 47,000 Increase in unearned insurance premiums 5,177,000 1,922,000 Decrease in other payables and accruals (2,786,000) (1,041,000) Decrease (increase) in inventory- sportswear division (1,618,000) 104,000 Decrease (increase) in deferred insurance policy acquisition costs 225,000 (1,095,000) Increase in other assets (102,000) (164,000) Increase (decrease) in accounts payable - trade 52,000 (483,000) Decrease in deferred federal income tax -- (4,867,000) Other-net 205,000 67,000 ----------- ----------- Net cash provided by operating activities 5,110,000 6,558,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (48,469,000) (13,593,000) Sale of marketable securities 29,857,000 9,642,000 Decrease in cash equivalent marketable securities 26,179,000 24,357,000 Acquisition of property, plant and equipment (3,503,000) (4,086,000) Maturity of marketable securities 2,537,000 700,000 Sale of property, plant and equipment 1,287,000 265,000 Net decrease in finance receivables 115,000 148,000 ----------- ----------- Net cash provided by investing activities 8,003,000 17,433,000 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in net short-term borrowings (12,201,000) (20,811,000) Repayment of long-term debt (1,539,000) (3,100,000) Dividends paid (405,000) (372,000) Payments of capitalized lease obligations (224,000) (199,000) Purchase of treasury stock (52,000) -- Issuance of treasury stock 25,000 111,000 ----------- ----------- Net cash used in financing activities (14,396,000) (24,371,000) ----------- ----------- NET DECREASE IN CASH (1,283,000) (380,000) CASH AT BEGINNING OF PERIOD 3,935,000 2,238,000 ------------ ------------ CASH AT END OF PERIOD $ 2,652,000 $ 1,858,000 ============ ============ Supplemental Disclosures: The Company paid interest of $1,135,000 and $961,000 and no income taxes in the first three months of 1994 and 1993, respectively. In 1993, the Company issued 31,300 shares of Treasury Stock under a Restricted Stock Award program that relieved Treasury Stock by approximately $787,000 and also increased additional paid-in capital by approximately $649,000. 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. 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 in 1994 was comparable to 1993, however, this division's margins were affected by catastrophic losses which occurred in both years. After-tax losses from these catastrophes amounted to $4,278,000 ($1.40 per share) and $3,800,000 ($1.23 per share) in the first quarter of 1994 and 1993, respectively. These losses were the result of severe and unusual weather conditions in both years coupled with heavy losses from the earthquake which struck California in 1994. Revenues and expenses of the Company's river transportation division declined slightly in 1994 as compared to the prior year. The harsh winter and flooding conditions which occurred in the first quarter of 1994 adversely affected this division's operating margins. 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. The 1994 revenues, expenses and operating performance of CS Crable Sportswear, Inc., the Company's sportswear division, were comparable to the first quarter of 1993. 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 $2,035,000 (pre-tax) capital gains in the first quarter of 1994 and $680,000 (pre-tax) capital gains in the first quarter of 1993. The federal income tax provision for the three-month periods ended March 31, 1994 and 1993 is different from amounts derived by applying the statutory tax rates to income before federal income tax as follows: 1994 1993 ---------- ---------- Federal income tax at statutory rate $ 250,000 $ 499,000 Tax effect of: Tax exempt interest and excludable dividend income (366,000) (303,000) Investment tax credits (72,000) (72,000) Net life insurance tax deductions (10,000) (24,000) Other-net 102,000 59,000 ----------- ---------- Provision (credit) for federal income tax $ ( 96,000) $ 159,000 =========== ========== 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 three-months ended March 31, 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 March 31, 1994 classifications. EXHIBIT I INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying consolidated balance sheet of The Midland Company and subsidiaries as of March 31, 1994, and the related consolidated statements of income and of cash flows for the three-month periods ended March 31, 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. Deloitte & Touche Cincinnati, Ohio April 21, 1994 EXHIBIT II 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, 1994 and 1993, as indicated in our report dated April 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 March 31, 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. Deloitte & Touche Cincinnati, Ohio April 21, 1994. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES MARCH 31, 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 duly authorized. THE MIDLAND COMPANY Date April 21, 1994 s/Michael J. Conaton Michael J. Conaton, President and Chief Operating Officer Date April 21, 1994 s/John I. Von Lehman John I. Von Lehman, Vice President and Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----