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________September 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 LLP, the Company's independent accountants, dated
October 20, 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 September 30, 1994 was
2,997,181.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(Unaudited)
Sept. 30, Dec. 31,
ASSETS 1994 1993
------------- -------------
CASH $ 2,727,000 $ 3,935,000
------------- -------------
MARKETABLE SECURITIES 226,207,000 224,614,000
------------- -------------
RECEIVABLES:
Accounts receivable 87,852,000 62,907,000
Finance receivables (including
amounts maturing after one year) 4,177,000 5,512,000
------------- -------------
Sub-Total 92,029,000 68,419,000
Less allowance for losses 1,372,000 1,117,000
------------- -------------
Total 90,657,000 67,302,000
------------- -------------
INVENTORY - SPORTSWEAR DIVISION 12,631,000 15,968,000
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST 183,511,000 185,164,000
Less accumulated depreciation 74,750,000 77,272,000
------------- -------------
Net 108,761,000 107,892,000
------------- -------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 36,249,000 28,825,000
------------- -------------
OTHER ASSETS 1,062,000 1,686,000
------------- -------------
TOTAL $ 478,294,000 $ 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.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(Unaudited)
Sept. 30, Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY 1994 1993
-------------- --------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 21,000,000 $ 22,000,000
Commercial paper 5,859,000 14,302,000
-------------- --------------
Total 26,859,000 36,302,000
-------------- --------------
ACCOUNTS PAYABLE - TRADE 4,636,000 5,142,000
-------------- --------------
OTHER PAYABLES AND ACCRUALS 41,585,000 37,513,000
-------------- --------------
CURRENT PORTION OF LONG-TERM DEBT 6,970,000 9,412,000
-------------- --------------
UNEARNED INSURANCE PREMIUMS 152,776,000 118,802,000
-------------- --------------
INSURANCE LOSS RESERVES 55,436,000 42,607,000
-------------- --------------
DEFERRED FEDERAL INCOME TAX 17,563,000 20,224,000
-------------- --------------
LONG-TERM DEBT 41,628,000 47,110,000
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding:
2,997,000 shares at September 30,
1994 and 2,999,000 shares at December 31,
1993 after deducting treasury stock of
646,000 shares and 644,000 shares,
respectively) 911,000 911,000
Additional paid-in capital 14,607,000 14,620,000
Retained earnings 126,866,000 123,995,000
Net unrealized gain on marketable securities 6,039,000 11,308,000
Treasury stock - at cost (16,648,000) (16,564,000)
Unvested restricted stock awards (934,000) (1,160,000)
-------------- --------------
Total 130,841,000 133,110,000
-------------- --------------
TOTAL $ 478,294,000 $ 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.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
FOR THE NINE AND THREE-MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Nine-Mos. Ended Sept. 30, Three-Mos. Ended Sept. 30,
1994 1993 1994 1993
REVENUES: ------------- ------------- ------------ ------------
Insurance $ 160,214,000 $ 132,018,000 $ 56,636,000 $ 49,570,000
River transportation 38,606,000 39,808,000 13,266,000 13,451,000
Sportswear 29,796,000 24,152,000 14,923,000 12,380,000
Finance and other 827,000 841,000 293,000 315,000
------------- ------------- ------------ ------------
Total 229,443,000 196,819,000 85,118,000 75,716,000
------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Insurance claims and
policy acquisition costs 132,781,000 97,953,000 44,601,000 35,938,000
Insurance operating and
administrative expenses 19,129,000 15,299,000 6,780,000 4,847,000
River transportation
operating expenses 34,219,000 36,720,000 10,831,000 12,527,000
Sportswear operating
expenses 31,490,000 25,484,000 15,023,000 12,119,000
Interest expense 3,638,000 2,952,000 1,227,000 1,087,000
Other operating and
administrative expenses 3,443,000 3,516,000 1,211,000 1,280,000
------------- ------------- ------------ ------------
Total 224,700,000 181,924,000 79,673,000 67,798,000
------------- ------------- ------------ ------------
INCOME BEFORE FEDERAL INCOME
TAX AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 4,743,000 14,895,000 5,445,000 7,918,000
PROVISION FOR FEDERAL
INCOME TAX 568,000 4,435,000 1,531,000 2,771,000
------------- ------------- ------------ ------------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 4,175,000 10,460,000 3,914,000 5,147,000
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (A) - 4,867,000 - -
------------- ------------- ------------ ------------
NET INCOME $ 4,175,000 $ 15,327,000 $ 3,914,000 $ 5,147,000
============= ============= ============ ============
EARNINGS PER COMMON SHARE (B):
Income before cumulative
effect of accounting $ 1.37 $ 3.40 $ 1.28 $ 1.67
Cumulative effect of
accounting change - 1.58 - -
------------- ------------- ------------ ------------
Net Income $ 1.37 $ 4.98 $ 1.28 $ 1.67
============= ============= ============ ============
DIVIDENDS PER
COMMON SHARE $ .435 $ .405 $ .145 $ .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 have been computed by dividing net income by
3,047,000 shares in 1994 and 3,076,000 shares in 1993. The calculations
assume the exercise of outstanding dilutive stock options and include the
amortized portion of restricted stock awards.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
1994 1993
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,175,000 $ 15,327,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,008,000 7,412,000
Increase in unearned insurance premiums 33,974,000 17,214,000
Increase in net accounts receivable (24,690,000) (12,276,000)
Increase in insurance loss reserves 12,829,000 5,351,000
Increase in deferred insurance policy
acquisition costs (7,424,000) (6,058,000)
Increase in other accounts payable
and accruals 3,961,000 3,937,000
Decrease (increase) in inventory
- sportswear division 3,337,000 (7,910,000)
Decrease (increase) in other assets 624,000 (55,000)
Increase (decrease) in accounts payable - trade (506,000) 1,978,000
Decrease in deferred federal income tax - (4,510,000)
Other-net (134,000) 604,000
-------------- --------------
Net cash provided by operating activities 34,154,000 21,014,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (74,171,000) (55,490,000)
Sale of marketable securities 37,698,000 44,457,000
Decrease in cash equivalent marketable
securities 19,368,000 12,253,000
Acquisition of property, plant and equipment (10,167,000) (25,217,000)
Maturity of marketable securities 6,875,000 3,135,000
Sale of property, plant and equipment 2,357,000 2,426,000
Net change in finance receivables 1,335,000 (6,331,000)
-------------- --------------
Net cash used in investing activities (16,705,000) (24,767,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in net short-term
borrowings (9,443,000) 4,546,000
Repayment of long-term debt (7,119,000) (5,290,000)
Dividends paid (1,193,000) (1,136,000)
Payment of capitalized lease obligations (805,000) (606,000)
Purchase of treasury stock (125,000) (250,000)
Issuance of treasury stock 28,000 145,000
Issuance of long-term debt - 7,600,000
-------------- --------------
Net cash provided by (used in)
financing activities (18,657,000) 5,009,000
-------------- --------------
NET INCREASE (DECREASE) IN CASH (1,208,000) 1,256,000
CASH AT BEGINNING OF PERIOD 3,935,000 2,238,000
-------------- --------------
CASH AT END OF PERIOD $ 2,727,000 $ 3,494,000
============== ==============
Supplemental Disclosures:
The Company paid interest of $3,603,000 and $2,818,000 and income taxes of $0
and $1,115,000 in the first nine 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 stock outstanding under this program at September 30, 1994.
<PAGE>
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 third quarter of 1994 was the second best third quarter in The
Midland Company's history primarily as a result of the property and casualty
division's performance. The Company's insurance division continues its rapid
growth due primarily to increased penetration in each of its marketing channels.
Both written and earned premiums have increased substantially during the first
nine months and third 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 nine months of 1994 has been
adversely affected by catastrophes and other weather-related losses. These
catastrophes and other weather-related losses are a primary reason for the
increase of approximately $6,500,000 in net losses, $2.13 per common share, on
an after tax basis and an increase in the division's loss ratio of approximately
seven percentage points as compared to the same period in 1993. The operating
performance of this division improved significantly in the third quarter of 1994
and actually exceeded the 1993 third quarter operating results when the impact
($2,800,000 after-tax income) from the settlement of California Proposition 103
is eliminated from that quarter's results.
The Company's river transportation division reported comparable revenues
and improved operating results during the first nine months and third quarter of
1994 as compared to the same periods in 1993. The earnings from this division
for the first nine months of 1994 have been hindered by flooding conditions on
the inland waterway system during the first quarter of 1994. 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.
CS Crable Sportswear, Inc., the Company's sportswear division continues
to report higher revenues with comparable operating results during the first
nine months and third quarter of 1994 as compared to the same periods in 1993.
It is the Company's investment policy to invest in high quality
marketable securities. The Company does not own any bonds below investment
grade and there are no investments in real estate, other than real estate used
by the Company. During 1994, the Company used a portion of the proceeds from
the sale and maturity of marketable securities to reduce its short-term
borrowings. In connection with these transactions, the Company realized
$2,314,000 (pre-tax) in net capital gains in the first nine months of 1994
compared to $3,107,000 (pre-tax) in net capital gains for the same period in
1993. The decrease in long-term debt was due to scheduled repayments during
the period.
The federal income tax provision for the three and nine-month periods
ended September 30, 1994 and 1993 is different from amounts derived by applying
the statutory tax rates to income before federal income tax as follows:
Nine-Mos. Ended Sept. 30, Three-Mos. Ended Sept. 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
Federal income tax at
statutory rate $ 1,660,000 $ 5,213,000 $ 1,906,000 $ 2,841,000
Add (deduct) the tax
effect of:
Tax exempt interest
and excludable dividend
income (1,114,000) (972,000) (370,000) (344,000)
Increase in statutory
rate on deferred taxes - 357,000 - 357,000
Investment tax credits (216,000) (216,000) (72,000) (72,000)
Net life insurance tax
deductions (68,000) (84,000) (33.000) (37,000)
Other items - net 306,000 137,000 100.000 26,000
------------ ------------ ------------ ------------
Provision for federal
income tax $ 568,000 $ 4,435,000 $ 1,531,000 $ 2,771,000
============ ============ ============ ============
During the third quarter of 1994, the Company began construction of its
new corporate headquarters building. It is currently estimated that this
facility will cost approximately $26 million. This facility will be financed
through conventional long-term debt financing upon anticipated completion in
the fourth quarter of 1995.
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 nine months ended September 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 September 30, 1994 classifications.
<PAGE>
EXHIBIT I
INDEPENDENT ACCOUNTANTS' REPORT
The Midland Company:
We have reviewed the accompanying consolidated balance sheet of The Midland
Company and subsidiaries as of September 30, 1994, and the related consolidated
statements of income for the three-month and nine-month periods ended September
30, 1994 and 1993 and of cash flows for the nine-month periods ended September
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.
Deloitte & Touche LLP
Cincinnati, Ohio
October 20, 1994
<PAGE>
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
September 30, 1994 and 1993, as indicated in our report dated October 20, 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 September 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.
Deloitte & Touche LLP
Cincinnati, Ohio
October 20, 1994
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
SEPTEMBER 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.) Exhibits
27. Financial Data Schedule
b.) 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 ___October 20, 1994__________ s/Michael J.Conaton_________________
Michael J. Conaton, President
and Chief Operating Officer
Date ___October 20, 1994__________ s/John I. Von_Lehman_________________
John I. Von Lehman, Vice President and
Treasurer and Chief Financial Officer
<PAGE>
THE MIDLAND COMPANY
FINANCIAL DATA SCHEDULE (EXHIBIT 27)
SEPTEMBER 30, 1994
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
ITEM NO. ITEM DESCRIPTION AMOUNT
- ------------- ------------------------------------------------- --------------
5-02(1) Cash and Cash Items 2,727,000
5-02(2) Marketable Securities 226,207,000
5-02(3)(a)(1) Notes and Accounts Receivable-Trade 90,069,000
5-02(4) Allowances for Doubtful Accounts 1,372,000
5-02(6) Inventory 12,631,000
5-02(9) Total Current Assets 367,573,000
5-02(13) Property, Plant and Equipment 183,511,000
5-02(14) Accumulated Depreciation 74,750,000
5-02(18) Total Assets 478,294,000
5-02(21) Total Current Liabilities 291,486,000
5-02(22) Bonds, Mortgages and Similar Debt 41,628,000
5-02(28) Preferred Stock-Mandatory Redemption 0
5-02(29) Preferred Stock-No Mandatory Redemption 0
5-02(30) Common Stock 911,000
5-02(31) Other Stockholders' Equity 129,930,000
5-02(32) Total Liabilities and Stockholders' Equity 478,294,000
5-03(b)1(a) Net Sales of Tangible Products 29,796,000
5-03(b)1 Total Revenues 229,443,000
5-03(b)2(a) Cost of Tangible Goods Sold 22,580,000
5-03(b)2 Total Costs and Expenses Applicable
to Sales and Revenues 217,321,000
5-03(b)3 Other Costs and Expenses 3,443,000
5-03(b)5 Provision for Doubtful Accounts and Notes 298,000
5-03(b)(8) Interest and Amortization of Debt Discount 3,638,000
5-03(b)(10) Income Before Taxes and Other Items 4,743,000
5-03(b)(11) Income Tax Expense 568,000
5-03(b)(14) Income/Loss Continuing Operations 4,175,000
5-03(b)(15) Discontinued Operations 0
5-03(b)(17) Extraordinary Items 0
5-03(b)(18) Cumulative Effect-Changes in Accounting Principles 0
5-03(b)(19) Net Income or Loss 4,175,000
5-03(b)(20) Earnings Per Share - Primary 1.37
5-03(b)(20) Earnings Per Share - Fully Diluted 1.37
