-----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, CcllI9FOh6nkfIrcddQkBrJkZC4fnNq2fbCCsxf+3noOdiHMIFCiODs9KMOHZ7tV JccSdh0eX0eiUzcYY5bKwg== 0000066025-96-000004.txt : 19960816 0000066025-96-000004.hdr.sgml : 19960816 ACCESSION NUMBER: 0000066025-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960815 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: 96615736 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, 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 June 30, 1996 was 3,017,804. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (Unaudited) June 30, Dec. 31 ASSETS 1996 1995 --------------- --------------- CASH $ 6,041,000 $ 6,385,000 --------------- --------------- MARKETABLE SECURITIES 354,944,000 367,054,000 --------------- --------------- RECEIVABLES: Accounts receivable 108,873,000 94,677,000 Less allowance for losses 1,345,000 1,362,000 --------------- --------------- Net 107,528,000 93,315,000 --------------- --------------- INVENTORY - SPORTSWEAR DIVISION 15,176,000 6,954,000 --------------- --------------- PROPERTY, PLANT AND EQUIPMENT - AT COST 128,549,000 131,616,000 Less accumulated depreciation and amortization 43,806,000 45,767,000 --------------- --------------- Property, Plant and Equipment - Net 84,743,000 85,849,000 --------------- --------------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 43,188,000 43,146,000 --------------- --------------- OTHER ASSETS 2,398,000 2,000,000 --------------- --------------- TOTAL $ 614,018,000 $ 604,703,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (Unaudited) June 30, Dec. 31 LIABILITIES & SHAREHOLDERS' EQUITY 1996 1995 --------------- --------------- NOTES PAYABLE WITHIN ONE YEAR: Banks $ 30,000,000 $ 31,000,000 Commercial paper 6,594,000 4,620,000 --------------- --------------- Total 36,594,000 35,620,000 --------------- --------------- ACCOUNTS PAYABLE - TRADE 5,156,000 5,449,000 --------------- --------------- OTHER PAYABLES AND ACCRUALS 66,573,000 68,045,000 --------------- --------------- CURRENT PORTION OF LONG-TERM DEBT 3,034,000 2,986,000 --------------- --------------- UNEARNED INSURANCE PREMIUMS 199,322,000 190,948,000 --------------- --------------- INSURANCE LOSS RESERVES 85,028,000 68,347,000 --------------- --------------- DEFERRED FEDERAL INCOME TAX 11,357,000 14,243,000 --------------- --------------- LONG-TERM DEBT 60,938,000 62,470,000 --------------- --------------- SHAREHOLDERS' EQUITY Common stock (issued and outstanding: 3,018,000 shares at June 30, 1996 and 3,020,000 shares at December 31, 1995 after deducting treasury stock of 625,000 shares and 623,000 shares, respectively) 911,000 911,000 Additional paid-in capital 15,393,000 15,362,000 Retained earnings 133,764,000 139,350,000 Net unrealized gain on marketable securities 14,496,000 19,716,000 Treasury stock - at cost (16,713,000) (16,575,000) Unvested restricted stock awards (1,835,000) (2,169,000) --------------- --------------- Total 146,016,000 156,595,000 --------------- --------------- TOTAL $ 614,018,000 $ 604,703,000 =============== =============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) FOR THE SIX AND THREE-MONTHS ENDED JUNE 30, 1996 AND 1995 Six-Mos. Ended June 30, Three-Mos. Ended June 30, ---------------------------- ---------------------------- 1996 1995 1996 1995 REVENUES: ------------- ------------- ------------- ------------- Insurance $148,812,000 $137,836,000 $ 75,968,000 $ 74,375,000 Transportation 16,221,000 14,049,000 8,891,000 7,178,000 Sportswear 7,595,000 11,590,000 1,851,000 6,137,000 Other 304,000 311,000 160,000 157,000 ------------- ------------- ------------- ------------- Total 172,932,000 163,786,000 86,870,000 87,847,000 ------------- ------------- ------------- ------------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 87,751,000 68,022,000 41,600,000 39,572,000 Commissions and other policy acquisition costs 40,873,000 41,059,000 19,414,000 22,057,000 Operating and administrative expenses 19,339,000 16,606,000 10,989,000 8,626,000 Transportation operating expenses 17,430,000 12,235,000 8,619,000 6,424,000 Sportswear operating expenses 10,911,000 15,185,000 3,565,000 7,952,000 Interest expense 2,918,000 2,225,000 1,492,000 1,249,000 Other operating and administrative expenses 1,979,000 2,095,000 792,000 897,000 ------------- ------------- ------------- ------------- Total 181,201,000 157,427,000 86,471,000 86,777,000 ------------- ------------- ------------- ------------- INCOME (LOSS) BEFORE FEDERAL INCOME TAX (8,269,000) 6,359,000 399,000 1,070,000 PROVISION(CREDIT) FOR FEDERAL INCOME TAX (3,679,000) 1,581,000 (255,000) 103,000 ------------- ------------- ------------- ------------- NET INCOME (LOSS) $ (4,590,000) $ 4,778,000 $ 654,000 $ 967,000 ============= ============= ============= ============= EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ (1.49) $ 1.55 $ 0.21 $ 0.31 ============= ============= ============= ============= CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.33 $ 0.31 $ 0.165 $ 0.155 ============= ============= ============= ============= 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, 1996 AND 1995 1996 1995 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (Loss) $ (4,590,000) $ 4,778,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,383,000 4,325,000 Increase in insurance loss reserves 16,681,000 6,864,000 Increase in net accounts receivable (14,213,000) (12,464,000) Increase in unearned insurance premiums 8,374,000 10,113,000 Increase in inventory-sportswear division (8,222,000) (10,441,000) Increase (decrease) in other accounts payable and accruals (1,795,000) 10,534,000 Increase in other assets (398,000) (110,000) Decrease in deferred federal income tax (76,000) (79,000) Increase in deferred insurance policy acquisition costs (42,000) (1,924,000) Other-net 636,000 (98,000) --------------- --------------- Net cash provided by operating activities 738,000 11,498,000 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (65,038,000) (68,831,000) Sale of marketable securities 37,453,000 27,926,000 Maturity of marketable securities 21,743,000 6,377,000 Decrease in cash equivalent marketable securities 9,115,000 34,383,000 Acquisition of property, plant and equipment (3,209,000) (15,587,000) Sale of property, plant and equipment 437,000 653,000 --------------- --------------- Net cash provided by (used in) investing activities 501,000 (15,079,000) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (1,319,000) (1,060,000) Increase in net short-term borrowings 974,000 7,975,000 Dividends paid (966,000) (907,000) Purchase of treasury stock (188,000) (1,143,000) Payment of capitalized lease obligations (165,000) (149,000) Issuance of treasury stock 81,000 52,000 --------------- --------------- Net cash provided by (used in) financing activities (1,583,000) 4,768,000 --------------- --------------- NET INCREASE (DECREASE) IN CASH (344,000) 1,187,000 CASH AT BEGINNING OF PERIOD 6,385,000 4,036,000 --------------- --------------- CASH AT END OF PERIOD $ 6,041,000 $ 5,223,000 =============== =============== See Notes to the Consolidated Financial Statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 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 six-month periods ended June 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 ----------------- ----------------------- Six months ended June 30: 1996 3,079,000 3,080,000 =========== =========== 1995 3,075,000 3,078,000 =========== =========== 3. INCOME TAXES The federal income tax provisions (credits) for the three and six-month periods ended June 30, 1996 and 1995 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, 1996 1995 1996 1995 Federal income tax ------------- ------------- ------------- ------------- (credit) at statutory rate $ (2,894,000) $ 2,226,000 $ 140,000 $ 375,000 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (885,000) (756,000) (443,000) (385,000) Investment tax credits (85,000) (88,000) (42,000) (44,000) Other - net 185,000 199,000 90,000 157,000 ------------- ------------- ------------- ------------- Provision (credit) for federal income tax $ (3,679,000) $ 1,581,000 $ (255,000) $ 103,000 ============= ============= ============= ============= 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 $2,874,000 and $1,483,000 in the first six months of 1996 and 1995, respectively. No income taxes were paid in the first six months of 1996 and $5,000,000 in income taxes were paid during the first six 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 June 30, 1996, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 1996 and 1995 and of cash flows for the six-month periods ended June 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. July 18, 1996 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 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. Due primarily to heavier than normal weather related losses, American Modern Insurance Group, the Company's insurance subsidiary, reported a pre-tax underwriting loss of $9.9 million in the first half of 1996 as compared to a pre-tax underwriting profit of $2.4 million during the first six months of 1995. Weather related losses were also higher than normal during the second quarter of 1996 and 1995 with comparable underwriting results being achieved during those respective quarters. Both written premium and earned premium increased slightly during the first six months and second quarter of 1996 as compared to the comparable periods in 1995. Insurance losses and loss adjustment expenses increased during the first six months of 1996 as compared to the prior 1995 six month period due primarily to the previously mentioned unusually heavy weather related losses incurred during 1996. Insurance commissions and other policy acquisition costs decreased during the first half and second quarter of 1996 due to a decrease in contingent commission expenses as a result of the underwriting losses sustained during the period. Insurance operating and administrative expenses increased during the first half and second quarter of 1996 as compared to the comparable 1995 periods due to the unusually high litigation costs which were incurred in 1996. Transportation revenues increased during the first six months and second 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 six months and second quarter of 1996 as compared to the comparable 1995 periods due to the increase in revenues and unusually high litigation costs incurred during the first six months and second quarter of 1996 relative to the comparable periods in 1995. Excluding litigation costs, the operating performance of this division during the first six months and second quarter of 1996 improved as compared to the performance achieved during the related 1995 periods. 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) and AMIG expensed approximately $2,400,000 (pre-tax) related to litigation. Sportswear revenues and related expenses decreased during the first six months and second quarter of 1996 as compared to the comparable periods in 1995 due to a decrease in orders related to the spring and summer apparel line. However, the operating performance of this subsidiary improved during the first six months and second 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 and it is expected that this subsidiary will contribute positively to The Midland Company's overall profitability in the second half of 1996. 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. Sportswear inventories increased primarily due to the need to build up inventory levels for the fall and winter production orders, however, net inventory levels at June 30, 1996 are approximately $6,000,000 lower than at June 30, 1995. Insurance loss reserves increased due primarily to the high losses sustained by the Company's property and casualty subsidiaries in 1996. M/G Transport Services, Inc. has committed to the acquisition of 16 barges in 1996 for a total cost of $4.6 million. These acquisitions will be 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 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 JUNE 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 dully authorized. THE MIDLAND COMPANY Date _______July 18, 1996_______ s/Michael J. Conaton________________________ Michael J. Conaton, President and Chief Operating Officer Date _______July 18, 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 June 30, 1996 and 1995, as indicated in our report dated July 18, 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 June 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. July 18, 1996 Deloitte & Touche, LLP Cincinnati, Ohio 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. 6-MOS DEC-31-1996 JUN-30-1996 6,041,000 354,944,000 108,873,000 1,345,000 15,176,000 0 128,549,000 43,806,000 614,018,000 0 60,938,000 911,000 0 0 145,105,000 614,018,000 7,577,000 172,932,000 7,708,000 168,606,000 1,979,000 (10,000) 2,918,000 (8,269,000) (3,679,000) (4,590,000) 0 0 0 (4,590,000) (1.49) (1.49)
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