THE MIDLAND COMPANY
FORM 10-Q
FIRST QUARTER REPORT 1995
<PAGE>
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, 1995
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 LLP, the Company's independent accountants, dated
April 20, 1995, 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, 1995 was
3,041,231.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(Unaudited)
Mar. 31, Dec. 31,
ASSETS 1995 1994
------------- -------------
CASH $ 4,498,000 $ 4,036,000
------------- -------------
MARKETABLE SECURITIES 274,494,000 278,088,000
------------- -------------
RECEIVABLES:
Accounts receivable 78,290,000 82,293,000
Finance receivables (including amounts
maturing after one year) 4,543,000 4,120,000
------------- -------------
Sub-Total 82,833,000 86,413,000
Less allowance for losses 1,392,000 1,535,000
------------- -------------
Net 81,441,000 84,878,000
------------- -------------
INVENTORY - SPORTSWEAR DIVISION 13,415,000 11,116,000
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST 117,396,000 109,729,000
Less accumulated depreciation and amortization 45,126,000 43,687,000
------------- -------------
Property, Plant and Equipment - Net 72,270,000 66,042,000
------------- -------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 39,661,000 37,653,000
------------- -------------
OTHER ASSETS 685,000 733,000
------------- -------------
TOTAL $486,464,000 $482,546,000
============= =============
Note: The December 31, 1994 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
MARCH 31, 1995 AND DECEMBER 31, 1994
(Unaudited)
Mar. 31, Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY 1995 1994
------------- -------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 14,000,000 $ 22,000,000
Commercial paper 5,312,000 5,546,000
------------- -------------
Total 19,312,000 27,546,000
------------- -------------
ACCOUNTS PAYABLE - TRADE 4,345,000 6,232,000
------------- -------------
OTHER PAYABLES AND ACCRUALS 45,059,000 46,455,000
------------- -------------
CURRENT PORTION OF LONG-TERM DEBT 2,454,000 2,451,000
------------- -------------
UNEARNED INSURANCE PREMIUMS 162,176,000 158,316,000
------------- -------------
INSURANCE LOSS RESERVES 56,486,000 57,715,000
------------- -------------
DEFERRED FEDERAL INCOME TAX 10,174,000 6,754,000
------------- -------------
LONG-TERM DEBT 44,038,000 44,640,000
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding:
3,041,000 shares at March 31, 1995 and
2,997,000 shares at December 31, 1994 after
deducting treasury stock of 602,000 shares and
646,000 shares, respectively) 911,000 911,000
Additional paid-in capital 15,388,000 14,607,000
Retained earnings 135,014,000 131,675,000
Net unrealized gain on marketable securities 9,427,000 2,754,000
Treasury stock - at cost (15,600,000) (16,648,000)
Unvested restricted stock awards (2,720,000) (862,000)
------------- -------------
Total 142,420,000 132,437,000
------------- -------------
TOTAL $486,464,000 $482,546,000
============= =============
Note: The December 31, 1994 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 THREE-MONTHS ENDED MARCH 31, 1995 AND 1994
1995 1994
REVENUES: ------------- -------------
Insurance $ 63,461,000 $ 51,364,000
Transportation 6,871,000 11,716,000
Sportswear 5,453,000 6,065,000
Finance 154,000 171,000
------------- -------------
Total 75,939,000 69,316,000
------------- -------------
COSTS AND EXPENSES:
Insurance claims and policy acquisition costs 47,452,000 42,624,000
Insurance operating and administrative expenses 7,980,000 5,768,000
Transportation operating expenses 5,811,000 11,524,000
Sportswear operating expenses 7,233,000 7,082,000
Interest expense 976,000 1,171,000
Other operating and administrative expenses 1,198,000 433,000
------------- -------------
Total 70,650,000 68,602,000
------------- -------------
INCOME BEFORE FEDERAL INCOME TAX 5,289,000 714,000
PROVISION (CREDIT) FOR FEDERAL INCOME TAX 1,478,000 (96,000)
------------- -------------
NET INCOME $ 3,811,000 $ 810,000
============= =============
EARNINGS PER SHARE OF COMMON STOCK (A): $ 1.24 $ 0.26
============= =============
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.155 $ 0.145
============= =============
(A) Earnings per share of common stock have been computed by dividing net income
by 3,083,000 shares in 1995 and 3,059,000 shares in 1994. The calculations
assume the exercise of outstanding stock options and include the amortized
portion of restricted stock awards.
(B) Certain reclassifications (minor in nature) have been made to 1994 amounts
to conform to 1995 classification.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE-MONTHS ENDED MARCH 31, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ------------- -------------
Net income $ 3,811,000 $ 810,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,124,000 2,601,000
Decrease (increase) in net accounts receivable 3,860,000 (6,306,000)
Increase in unearned insurance premiums 3,860,000 5,177,000
Decrease in accounts payable and accruals (3,320,000) (2,734,000)
Increase in inventory-sportswear division (2,299,000) (1,618,000)
Decrease (increase) in deferred insurance
policy acquisition costs (2,008,000) 225,000
Increase (decrease) in insurance loss reserves (1,229,000) 6,852,000
Decrease (increase) in other assets 48,000 (102,000)
Decrease in deferred federal income tax (39,000) -
Other-net 301,000 205,000
------------- -------------
Net cash provided by operating activities 5,109,000 5,110,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in cash equivalent marketable securities 26,113,000 26,179,000
Purchase of marketable securities (19,341,000) (48,469,000)
Acquisition of property, plant and equipment (8,626,000) (3,503,000)
Maturity of marketable securities 3,383,000 2,537,000
Sale of marketable securities 3,284,000 29,857,000
Net decrease (increase) in finance receivables (423,000) 115,000
Sale of property, plant and equipment 382,000 1,287,000
------------- -------------
Net cash provided by investing activities 4,772,000 8,003,000
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in net short-term borrowings (8,234,000) (12,201,000)
Repayment of long-term debt (526,000) (1,539,000)
Dividends paid (435,000) (405,000)
Purchase of treasury stock (203,000) (52,000)
Payment of capitalized lease obligations (73,000) (224,000)
Issuance of treasury stock 52,000 25,000
------------- -------------
Net cash used in financing activities (9,419,000) (14,396,000)
------------- -------------
NET INCREASE (DECREASE) IN CASH 462,000 (1,283,000)
CASH AT BEGINNING OF PERIOD 4,036,000 3,935,000
------------- -------------
CASH AT END OF PERIOD $ 4,498,000 $ 2,652,000
============= =============
Supplemental Disclosures:
The Company paid interest of $609,000 and $1,135,000 and income taxes of
$2,000,000 and $0 in the first three months of 1995 and 1994, respectively. In
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 increasedadditional paid-in capital by approximately $855,000.
<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 1994 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. Net
premiums written in the first quarter of 1995 increased 27% over the first
quarter of 1994. The increases in deferred insurance policy acquisition
costs, unearned insurance premiums, insurance revenues, insurance claims and
policy acquisition costs and insurance operating and administrative expenses
are the result of this growth. The operating performance of this division in
the first quarter of 1995 was excellent due primarily to mild weather
conditions throughout the United States during 1995. This division's
operating performance in the first quarter of 1994 was negatively impacted by
the heavy losses from the California earthquake as well as unusually severe
weather related losses during the period. Due primarily to the strong
performance of the insurance division during the first quarter of 1995, the
Company's overall operating performance during the first quarter was the
second best first quarter in the Company's history.
Transportation revenues and related expenses of the Company's
transportation division decreased in the first quarter of 1995 due to this
division's sale in December, 1994 of approximately 67% of its river
transportation equipment as well as its affreightment contracts. The
operating performance of this division improved significantly in the first
quarter of 1995 due primarily to the strong performance of this division's
brokerage operation which increased revenues and improved profitability in the
first quarter of 1995 as compared to the first quarter of 1994. The
transportation division's operating performance in the first quarter of 1994
was hindered by severe winter weather and unusual flooding conditions. M/G
Transport Services, Inc. is the subject of a criminal prosecution and related
civil litigation concerning the alleged disposal of bilge water and other
refuse from vessels on the inland waterways. M/G disputes the allegations
which give rise to the indictments, and intends to vigorously defend itself;
the outcome cannot be reasonably estimated at this time.
Sportswear revenues and related expenses of the Company's sportswear
division in the first quarter of 1995 are comparable to the first quarter of
1994. The operating performance of this division declined in the first
quarter of 1995 as compared to the first quarter of 1994, however, this
division's operating performance is in line with management's expectations.
Cash flows from operations and sales and maturities of marketable
securities were used to reduce the Company's short-term bank borrowings and
finance the increase in fixed assets. The increases in deferred federal income
tax and net unrealized gain on marketable securities are the result of this
increase in the market value of the Company's investments.
The increase in fixed assets is due to the costs associated with the
construction of the Company's new corporate headquarters facility which is
currently under construction and scheduled for completion in the fall of 1995.
The total cost of this facility is currently estimated at approximately
$26,000,000 and will eventually be financed through conventional long-term
debt financing.
<PAGE>
The increase in unvested restricted stock awards was due to an
additional stock award in the first quarter of 1995 awarded under the
Company's restricted stock award program.
The federal income tax provision for the three-month periods ended March
31, 1995 and 1994 is different from amounts derived by applying the statutory
tax rates to income before federal income tax as follows:
1995 1994
------------- -------------
Federal income tax at statutory rate $ 1,851,000 $ 250,000
Tax effect of:
Tax exempt interest and excludable
dividend income (371,000) (366,000)
Net life insurance tax deductions (60,000) (10,000)
Investment tax credits (44,000) (72,000)
Other - net 102,000 102,000
------------- -------------
Provision (credit) for federal income tax $ 1,478,000 $ (96,000)
============= =============
<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 March 31, 1995, and the related
consolidated statements of income and of cash flows for the three-month
periods ended March 31, 1995 and 1994. 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, 1994, 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 16, 1995, 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,
1994 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 20, 1995
<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 March 31, 1995 and 1994, as indicated in our
report dated April 20, 1995; 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, 1995,
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
April 20, 1995
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
MARCH 31, 1995
Item 1. Legal Proceedings
M/G Transport Services, Inc., a subsidiary of the
Registrant, is a named defendant in a criminal case that
commenced on February 16, 1995, in the United States
District Court for the Southern District of Ohio. The case
is styled: United States of America vs. M/G Transport
Services, et al. The case arises out of allegations that
M/G's employees discharged or permitted the discharge of
bilge water, ash and other refuse into the inland waterways
over a period of years. Seven former employees have also
been indicted. The Government may seek fines against the
Company which could total $4.2 million if M/G Transport
Services, Inc. is convicted on all nine counts. M/G
disputes the allegations which give rise to the indictments,
and intends to vigorously defend itself.
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.) A Form 8-K dated January 5, 1995 was filed with the
Commission regarding the sale in December, 1994 of
certain river transportation assets.
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 20, 1995__________ s/Michael J. Conaton_________________
Michael J. Conaton, President
and Chief Operating Officer
Date ___April 20, 1995__________ s/John I. Von Lehman_________________
John I. Von Lehman, Vice President and
Treasurer and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,498,000
<SECURITIES> 274,494,000
<RECEIVABLES> 82,833,000
<ALLOWANCES> 1,392,000
<INVENTORY> 13,415,000
<CURRENT-ASSETS> 0
<PP&E> 117,396,000
<DEPRECIATION> 45,126,000
<TOTAL-ASSETS> 486,464,000
<CURRENT-LIABILITIES> 0
<BONDS> 44,038,000
<COMMON> 911,000
0
0
<OTHER-SE> 141,509,000
<TOTAL-LIABILITY-AND-EQUITY> 486,464,000
<SALES> 5,391,000
<TOTAL-REVENUES> 75,939,000
<CGS> 4,957,000
<TOTAL-COSTS> 68,626,000
<OTHER-EXPENSES> 1,198,000
<LOSS-PROVISION> (150,000)
<INTEREST-EXPENSE> 976,000
<INCOME-PRETAX> 5,289,000
<INCOME-TAX> 1,478,000
<INCOME-CONTINUING> 3,811,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,811,000
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
