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, 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 Identification
or organization) 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 of a normal and recurring nature and, in the opinion of management,
necessary to a fair statement of the results for the periods covered. Letters
from Deloitte & Touche, the Company's independent accountants, dated
July 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 June 30, 1994
was 2,997,681.
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(Unaudited)
June 30, Dec. 31
ASSETS 1994 1993
------------ ------------
CASH $ 3,071,000 $ 3,935,000
------------ ------------
MARKETABLE SECURITIES 205,457,000 224,614,000
------------ ------------
RECEIVABLES:
Accounts receivable 82,586,000 62,907,000
Finance receivables (including amounts
maturing after one year) 5,312,000 5,512,000
------------ ------------
Sub-Total 87,898,000 68,419,000
Less allowance for losses 1,251,000 1,117,000
------------ ------------
Total 86,647,000 67,302,000
------------ ------------
INVENTORY - SPORTSWEAR DIVISION 16,330,000 15,968,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - AT COST 186,957,000 185,164,000
Less accumulated depreciation 77,820,000 77,272,000
------------ ------------
Net 109,137,000 107,892,000
------------ ------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 32,714,000 28,825,000
------------ ------------
OTHER ASSETS 1,499,000 1,686,000
------------ ------------
TOTAL $454,855,000 $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
JUNE 30, 1994 AND DECEMBER 31, 1993
(Unaudited)
June 30, Dec. 31
LIABILITIES & SHAREHOLDERS' EQUITY 1994 1993
------------ ------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 16,000,000 $ 22,000,000
Commercial paper 6,363,000 14,302,000
------------ ------------
Total 22,363,000 36,302,000
------------ ------------
ACCOUNTS PAYABLE - TRADE 5,102,000 5,142,000
------------ ------------
OTHER PAYABLES AND ACCRUALS 36,432,000 37,513,000
------------ ------------
CURRENT PORTION OF LONG-TERM DEBT 8,882,000 9,412,000
------------ ------------
UNEARNED INSURANCE PREMIUMS 139,439,000 118,802,000
------------ ------------
INSURANCE LOSS RESERVES 54,739,000 42,607,000
------------ ------------
DEFERRED FEDERAL INCOME TAX 17,164,000 20,224,000
------------ ------------
LONG-TERM DEBT 44,124,000 47,110,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock (issued and outstanding:
2,998,000 shares at June 30, 1994 and
2,999,000 shares at December 31, 1993
after deducting treasury stock of
645,000 shares and 644,000 shares,
respectively) 911,000 911,000
Additional paid-in capital 14,607,000 14,620,000
Retained earnings 123,387,000 123,995,000
Net unrealized gain on marketable securities 5,340,000 11,308,000
Treasury stock - at cost (16,630,000) (16,564,000)
Unvested restricted stock awards (1,005,000) (1,160,000)
------------ ------------
Total 126,610,000 133,110,000
------------ ------------
TOTAL $454,855,000 $450,222,000
============ ============
Note: The December 31, 1993 balance sheet amounts are derived from the audited
financial statementsbut do not include all disclosures required by generally
accepted accounting principles.
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
FOR THE SIX AND THREE-MONTHS ENDED JUNE 30, 1994 AND 1993
Six-Mos. Ended June 30, Three-Mos. Ended June 30,
1994 1993 1994 1993
------------ ------------ ------------ -----------
REVENUES:
Insurance $103,578,000 $ 82,448,000 $52,143,000 $42,944,000
River transportation 25,340,000 26,357,000 13,624,000 13,381,000
Sportswear 14,873,000 11,772,000 8,808,000 6,194,000
Finance and other 534,000 526,000 308,000 287,000
------------ ------------ ------------ -----------
Total 144,325,000 121,103,000 74,883,000 62,806,000
------------ ------------ ------------ -----------
COSTS AND EXPENSES:
Insurance claims and
policy acquisition costs 88,180,000 62,015,000 45,997,000 30,516,000
Insurance operating and
administrative expenses 12,349,000 10,452,000 6,566,000 5,534,000
River transportation
operating expenses 23,388,000 24,193,000 11,975,000 12,230,000
Sportswear operating
expenses 16,467,000 13,365,000 9,443,000 7,012,000
Interest expense 2,411,000 1,865,000 1,240,000 949,000
Other operating and
administrative expenses 2,232,000 2,236,000 1,078,000 1,055,000
------------ ------------ ------------ -----------
Total 145,027,000 114,126,000 76,299,000 57,296,000
------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAX AND CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE (702,000) 6,977,000 (1,416,000) 5,510,000
PROVISION (CREDIT) FOR
FEDERAL INCOME TAX (963,000) 1,664,000 (867,000) 1,505,000
------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 261,000 5,313,000 (549,000) 4,005,000
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (A) - 4,867,000 - -
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ 261,000 $ 10,180,000 $ (549,000) $ 4,005,000
============ ============ ============ ===========
EARNINGS PER COMMON SHARE (B):
Income before cumulative
effect of accounting
change $ 0.09 $ 1.73 $ (0.17) $ 1.31
Cumulative effect of
accounting change - 1.58 - -
------------ ------------ ------------ -----------
Net Income $ 0.09 $ 3.31 $ (0.17) $ 1.31
============ ============ ============ ===========
DIVIDENDS PER SHARE $ 0.29 $ 0.27 $ 0.145 $ 0.135
============ ============ ============ ===========
(A) Cumulative Effect of Accounting Change represents the adoption of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
effective January 1, 1993.
(B) Earnings per common share has been computed by dividing net income by
3,051,000 shares in 1994 and 3,079,000 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 SIX-MONTHS ENDED JUNE 30, 1994 AND 1993
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 261,000 $ 10,180,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,325,000 4,710,000
Increase in unearned insurance premiums 20,637,000 8,123,000
Increase in net accounts receivable (19,545,000) (6,513,000)
Increase in insurance loss reserves 12,132,000 4,049,000
Increase in deferred insurance policy
acquisition costs (3,889,000) (3,090,000)
Increase (decrease) in other accounts
payable and accruals (1,111,000) 3,571,000
Increase in inventory-sportswear div (362,000) (4,871,000)
Decrease (increase) in other assets 187,000 (108,000)
Increase (decrease) in accounts
payable - trade (40,000) 1,198,000
Decrease in deferred federal income tax - (4,866,000)
Other-net (317,000) 92,000
------------ ------------
Net cash provided by operating activities 13,278,000 12,475,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (55,069,000) (26,846,000)
Sale of marketable securities 31,046,000 18,680,000
Decrease in cash equivalent marketable
securities 29,787,000 18,585,000
Acquisition of property, plant and equipment (7,663,000) (14,917,000)
Maturity of marketable securities 4,071,000 1,010,000
Sale of property, plant and equipment 1,860,000 427,000
Net change in finance receivables 200,000 (5,805,000)
------------ ------------
Net cash provided by (used in)
investing activities 4,232,000 (8,866,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in net short-term borrowings (13,939,000) (5,884,000)
Repayment of long-term debt (3,078,000) (4,100,000)
Dividends paid (840,000) (730,000)
Payment of capitalized lease obligations (438,000) (400,000)
Purchase of treasury stock (107,000) (250,000)
Issuance of treasury stock 28,000 111,000
Issuance of long-term debt - 7,600,000
------------ ------------
Net cash used in financing activities (18,374,000) (3,653,000)
------------ ------------
NET DECREASE IN CASH (864,000) (44,000)
CASH AT BEGINNING OF PERIOD 3,935,000 2,238,000
------------ ------------
CASH AT END OF PERIOD $ 3,071,000 $ 2,194,000
============ =============
Supplemental Disclosures:
The Company paid interest of $2,371,000 and $1,850,000 and income taxes of
$25,000 and $25,000 in the first six months of 1994 and 1993,respectively. The
Company issued 31,800 shares of Treasury Stock under a Restricted Stock Award
program that relieved Treasury Stock by approximately $799,000 and also
increased additional paid-in capital by $660,000 in 1993. There are 31,300
shares of Treasury Stock outstanding under this program at June 30, 1994.
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.
Both written premiums and earned premiums have increased during the first
half and second quarter of 1994 as compared to the same periods in 1993.
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 during the first six months of 1994 as well
as the second quarter of 1994 has been adversely affected by severe and
unusual catastrophes which have struck throughout the United States in 1994.
Primarily as a result of these catastrophes, this division's loss ratio
through the first six months of 1994 is a full 10 percentage points greater
than the same period in 1993 which represents $6,200,000 in net losses, $2.07
per common share, on an after-tax basis.
The revenues and expenses of the Company's river transportation division
during the first six months and second quarter of 1994 were comparable to the
same periods in 1993. The earnings from this division for the first half of
1994 were hindered by flooding conditions on the inland waterway system during
the first quarter of 1994, however, earnings in the second quarter of 1994
have increased slightly over the comparable period in 1993. 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.
Revenues and expenses of CS Crable Sportswear, Inc., the Company's
sportswear division, during the first half and second quarter of 1994 have
increased relative to the comparable periods in 1993. The operating
performance of this division during the six and three month periods of 1994
are comparable to the 1993 periods.
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 $2,077,000 (pre-tax) of net
capital gains in the first half of 1994 and $1,612,000 (pre-tax) of net
capital gains in the first half of 1993.
The federal income tax provision for the three and six-month periods
ended June 30, 1994 and 1993 is 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,
1994 1993 1994 1993
------------ ------------ ------------ -----------
Federal income tax at
statutory rates $ (246,000) $2,372,000 $(496,000) $1,873,000
Add (deduct) the tax
effect of:
Tax exempt interest and
excludable dividend
income (744,000) (628,000) (378,000) (325,000)
Investment tax credits (144,000) (144,000) (72,000) (72,000)
Net life insurance tax
deductions (35,000) (47,000) (25,000) (23,000)
Other items-net 206,000 111,000 104,000 52,000
----------- ----------- ---------- -----------
Provision (credit) for
federa income tax $ (963,000) $1,664,000 $(867,000) $1,505,000
=========== =========== ========== ===========
During the third quarter of 1994, the Company will begin construction of
its new corporate headquarters building. It is currently estimated that this
facility will cost approximately $20 million dollars and is scheduled for
completion in the fourth quarter of 1995. Upon completion, this facility will
be financed through conventional long-term debt financing.
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 six months ended June 30, 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 June 30, 1994 classifications.
EXHIBIT I
Deloitte & Touche
250 East Fifth Street
PO Box 5340
Cincinnati, Ohio 45201-5340
Telephone: (513) 784-7100
INDEPENDENT ACCOUNTANTS' REPORT
The Midland Company:
We have reviewed the accompanying consolidated balance sheet of The
Midland Company and subsidiaries as of June 30, 1994, and the related
consolidated statements of income for the three month and six month
periods ended June 30, 1994 and 1993 and of cash flows for the six month
periods ended June 30, 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.
Signed by Deloitte & Touche
July 21, 1994
EXHIBIT II
Deloitte & Touche
250 East Fifth Street
PO Box 5340
Cincinnati, Ohio 45201-5340
Telephone: (513) 784-7100
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, 1994 and 1993, as indicated in our report
dated July 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 June 30, 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.
Signed by Deloitte & Touche
July 21, 1994
PART II. OTHER INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
JUNE 30, 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 dully authorized.
THE MIDLAND COMPANY
Date ___July 21, 1994_____________ s/Michael J. Conaton_________________
Michael J. Conaton, President
and Chief Operating Officer
Date ___July 21, 1994_____________ s/John I. Von Lehman_________________
John I. Von Lehman, Vice President
and Treasurer and Chief Financial
Officer