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
