-----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, D3pc6fufhu2rdsnpsQYyeLLMU/Zy35o0g2xoan2rpQUa9LFBdrf7NijjlAeBM7TA j1NCsJ0VLWMDLXueboEtmg== 0000066025-96-000003.txt : 19960517 0000066025-96-000003.hdr.sgml : 19960517 ACCESSION NUMBER: 0000066025-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 96565464 BUSINESS ADDRESS: STREET 1: 537 E PETE ROSE WAY STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 BUSINESS PHONE: 5139437100 MAIL ADDRESS: STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 10-Q 1 AMERICAN STOCK EXCHANGE NEW YORK, N.Y. 10006 FORM 10-Q FIRST QUARTER REPORT 1996 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, 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) 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, 1996 was 3,020,577. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 (Unaudited) Mar. 31, Dec. 31, ASSETS 1996 1995 --------------- --------------- CASH $ 4,301,000 $ 6,385,000 --------------- --------------- MARKETABLE SECURITIES 352,390,000 367,054,000 --------------- --------------- RECEIVABLES: Accounts receivable 99,635,000 94,677,000 Less allowance for losses 1,364,000 1,362,000 --------------- --------------- Net 98,271,000 93,315,000 --------------- --------------- INVENTORY - SPORTSWEAR DIVISION 5,196,000 6,954,000 --------------- --------------- PROPERTY, PLANT AND EQUIPMENT - AT COST 128,219,000 131,616,000 Less accumulated depreciation and amortization 42,282,000 45,767,000 --------------- --------------- Property, Plant and Equipment - Net 85,937,000 85,849,000 --------------- --------------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 41,487,000 43,146,000 --------------- --------------- OTHER ASSETS 2,520,000 2,000,000 --------------- --------------- TOTAL $ 590,102,000 $ 604,703,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 (Unaudited) Mar. 31, Dec. 31, LIABILITIES & SHAREHOLDERS' EQUITY 1996 1995 --------------- --------------- NOTES PAYABLE WITHIN ONE YEAR: Banks $ 18,000,000 $ 31,000,000 Commercial paper 5,341,000 4,620,000 --------------- --------------- Total 23,341,000 35,620,000 --------------- --------------- ACCOUNTS PAYABLE - TRADE 7,455,000 5,449,000 --------------- --------------- OTHER PAYABLES AND ACCRUALS 62,349,000 68,045,000 --------------- --------------- CURRENT PORTION OF LONG-TERM DEBT 3,013,000 2,986,000 --------------- --------------- UNEARNED INSURANCE PREMIUMS 187,156,000 190,948,000 --------------- --------------- INSURANCE LOSS RESERVES 84,500,000 68,347,000 --------------- --------------- DEFERRED FEDERAL INCOME TAX 12,572,000 14,243,000 --------------- --------------- LONG-TERM DEBT 61,702,000 62,470,000 --------------- --------------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 3,021,000 shares at March 31, 1996 and 3,020,000 shares at December 31, 1995 after deducting treasury stock of 622,000 shares and 623,000 shares, respectively) 911,000 911,000 Additional paid-in capital 15,375,000 15,362,000 Retained earnings 133,608,000 139,350,000 Net unrealized gain on marketable securities 16,680,000 19,716,000 Treasury stock - at cost (16,558,000) (16,575,000) Unvested restricted stock awards (2,002,000) (2,169,000) --------------- --------------- Total 148,014,000 156,595,000 --------------- --------------- TOTAL $ 590,102,000 $ 604,703,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) FOR THE THREE-MONTHS ENDED MARCH 31, 1996 AND 1995 1996 1995 --------------- --------------- REVENUES: Insurance $ 72,844,000 $ 63,461,000 Transportation 7,330,000 6,871,000 Sportswear 5,744,000 5,453,000 Other 144,000 154,000 --------------- --------------- Total 86,062,000 75,939,000 --------------- --------------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 46,151,000 28,450,000 Commissions and other policy acquisition costs 21,459,000 19,002,000 Operating and administrative expenses 8,350,000 7,980,000 Transportation operating expenses 8,811,000 5,811,000 Sportswear operating expenses 7,346,000 7,233,000 Interest expense 1,426,000 976,000 Other operating and administrative expenses 1,187,000 1,198,000 --------------- --------------- Total 94,730,000 70,650,000 --------------- --------------- INCOME (LOSS) BEFORE FEDERAL INCOME TAX (8,668,000) 5,289,000 PROVISION (CREDIT) FOR FEDERAL INCOME TAX (3,424,000) 1,478,000 --------------- --------------- NET INCOME (LOSS) $ (5,244,000) $ 3,811,000 =============== =============== EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ (1.70) $ 1.24 =============== =============== CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.165 $ 0.155 =============== =============== 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, 1996 AND 1995 1996 1995 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (5,244,000) $ 3,811,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,162,000 2,124,000 Increase (decrease) in insurance loss reserves 16,153,000 (1,229,000) Decrease (increase) in net accounts receivable (4,956,000) 3,437,000 Increase (decrease) in unearned insurance premiums (3,792,000) 3,860,000 Decrease in accounts payable and accruals (3,720,000) (3,320,000) Decrease (increase) in inventory-sportswear division 1,758,000 (2,299,000) Decrease (increase) in deferred insurance policy acquisition costs 1,659,000 (2,008,000) Decrease (increase) in other assets (520,000) 48,000 Decrease in deferred federal income tax (38,000) (39,000) Other-net 629,000 301,000 --------------- --------------- Net cash provided by operating activities 4,091,000 4,686,000 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (29,004,000) (19,341,000) Decrease in cash equivalent marketable securities 16,491,000 26,113,000 Sale of marketable securities 14,927,000 3,284,000 Maturity of marketable securities 6,911,000 3,383,000 Acquisition of property, plant and equipment (2,275,000) (8,626,000) Sale of property, plant and equipment 233,000 382,000 --------------- --------------- Net cash provided by investing activities 7,283,000 5,195,000 --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in net short-term borrowings (12,279,000) (8,234,000) Repayment of long-term debt (659,000) (526,000) Dividends paid (468,000) (435,000) Payment of capitalized lease obligations (82,000) (73,000) Issuance of treasury stock 30,000 52,000 Purchase of treasury stock - (203,000) --------------- --------------- Net cash used in financing activities (13,458,000) (9,419,000) --------------- --------------- NET INCREASE (DECREASE) IN CASH (2,084,000) 462,000 CASH AT BEGINNING OF PERIOD 6,385,000 4,036,000 --------------- --------------- CASH AT END OF PERIOD $ 4,301,000 $ 4,498,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 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, 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, 1995 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the three-month period ended March 31, 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 --------------- --------------------- Three months ended march 31: 1996 3,079,000 3,081,000 =========== =========== 1995 3,083,000 3,084,000 =========== =========== 3. INCOME TAXES The federal income tax provisions for the three-month periods ended March 31, 1996 and 1995 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows: 1996 1995 ------------ ------------ Federal income tax (credit) at statutory rate $(3,034,000) $ 1,851,000 Tax effect of: Tax exempt interest and excludable dividend income (442,000) (371,000) Investment tax credits (43,000) (44,000) Other - net 95,000 42,000 ------------ ----------- Provision (credit) for federal income tax $(3,424,000) $1,478,000 ============ =========== 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 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 $1,405,000 and $978,000 in the first three months of 1996 and 1995, respectively. No income taxes were paid in the first three months of 1996 and $2,000,000 in income taxes were paid during the first three 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 March 31, 1996, and the related consolidated statements of income and of cash flows for the three-month periods ended March 31, 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 April 19, 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 here. Gross premiums written and net premiums earned by the Company's property and casualty insurance subsidiaries increased 16.3% and 12.5%, respectively, in the first quarter of 1996 as compared to the first quarter of 1995, however, due to the increased reinsuring activities of these companies, net premiums written decreased 3% causing slight decreases in deferred insurance policy acquisition costs and unearned insurance premiums. Insurance revenues and related insurance expenses continued to increase in the first quarter of 1996 as compared to the first quarter of 1995 due to the growth in net premiums written which occurred during the entire year of 1995. Contributing significantly to the increase in losses and loss adjustment expenses during the first quarter of 1996 were the unusually high losses incurred as a result of the severe winter weather patterns and related flooding which occurred throughout most of the United States in 1996. The loss ratio (ratio of losses to net premiums earned) of the property and casualty insurance companies was an unusually high 68.3% in the first quarter of 1996 as compared to a better than normal 47.8% in the first quarter of 1995. These high losses in 1996 caused the significant increase in our insurance loss reserves. Transportation revenues in the first quarter of 1996 were comparable to first quarter 1995 revenues. Transportation expenses increased in the first quarter of 1996 as compared to the first quarter of 1995 due to unusually high litigation costs incurred during the first quarter of 1996. Excluding litigation costs, this division's operating performance was favorable during the first quarter of 1996 and was very comparable to its operating performance in the first quarter of 1995. Sportswear revenues and related expenses of the Company's sportswear subsidiary during the first quarter of 1996 are comparable to the 1995 first quarter levels. The operating performance of this division improved slightly in the first quarter of 1996 as compared to the first quarter of 1995. Sportswear inventories have decreased 25% from year-end 1995 levels. These positive results are the result of the initiatives taken by management in 1995. The performance of this division in 1996 is in line with management's expectations and it is expected that the performance of this division will improve significantly in the second half of 1996 relative to 1995 results. Marketable securities decreased as a result of sales and maturities of securities as well as a decrease in the unrealized gains contained within these investments. The proceeds derived from the disposal of marketable securities were used to reduce short-term borrowings. The decrease in other payables and accruals was primarily due to the payment of contingent commissions during the first quarter of 1996 by our insurance companies to their independent insurance agents. M/G Transport Services, Inc. has committed to the acquisition of 20 barges in 1996 for a total cost of $5.7 million. The primary consideration for this purchase will be the exchange of two of M/G Transport's towboats valued at $5 million. The balance of this transaction will be financed with internally generated funds. M/G Transport has also committed to the purchase of 50 barges in 1997 for a total cost of $14 million. It is currently anticipated that these barges will be financed with conventional long-term debt. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES MARCH 31, 1996 Item 1. Legal Proceedings A Grand Jury returned a nine count indictment against M/G Transport Services, Inc., a subsidiary of the Registrant, in February, 1995, alleging violations of certain environmental laws. Seven former M/G employees were also indicted. The indictments alleged that M/G employees had, over a period of years, discharged or permitted the discharge of bilge water, ash and other refuse into the inland waterways. M/G faced fines of up to $4.2 million. The case, styled: United States of America vs. M/G Transport Services, et al., went to trial in the United States District Court for the District of Ohio beginning November 4, 1995. On December 22, 1995, the jury returned guilty verdicts against M/G on eight of the nine counts. Three of M/G's former employees were also found guilty on various counts. M/G has challenged the verdicts and has preserved its rights of appeal. If the verdicts are affirmed by the court, M/G could be fined up to $3.7 million. Sentencing is expected to occur prior to June 30, 1996. Related civil litigation is still pending, the outcome of which cannot be reasonably estimated at this time. 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 19, 1996__________ s/Michael J. Conaton__________________ Michael J. Conaton, President and Chief Operating Officer Date ___April 19, 1996__________ s/John I. Von Lehman__________________ John I. Von Lehman, 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 March 31, 1996 and 1995, as indicated in our report dated April 19, 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 March 31, 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 April 19, 1996 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1996 4,301,000 352,390,000 99,635,000 1,364,000 5,196,000 0 128,219,000 42,282,000 590,102,000 0 61,702,000 911,000 0 0 147,103,000 590,102,000 5,732,000 86,062,000 5,761,000 92,127,000 1,187,000 (10,000) 1,426,000 (8,668,000) (3,424,000) (5,244,000) 0 0 0 (5,244,000) (1.70) (1.70)
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