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 June 30, 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
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 of a normal and recurring nature and, in the opinion of management,
necessary for a fair statement of the results for the periods covered. Letters
from Deloitte & Touche, LLP, the Company's independent accountants, dated
July 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 June 30, 1995 was
3,021,231.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(Unaudited)
June 30, Dec. 31
ASSETS 1995 1994
------------- -------------
CASH $ 5,223,000 $ 4,036,000
------------- -------------
MARKETABLE SECURITIES 292,653,000 278,088,000
------------- -------------
RECEIVABLES:
Accounts receivable 94,298,000 82,293,000
Finance receivables (including amounts
maturing after one 4,436,000 4,120,000
------------- -------------
Sub-Total 98,734,000 86,413,000
Less allowance for losses 1,392,000 1,535,000
------------- -------------
Net 97,342,000 84,878,000
------------- -------------
INVENTORY - SPORTSWEAR DIVISION 21,557,000 11,116,000
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - AT COST 123,680,000 109,729,000
Less accumulated depreciation 46,657,000 43,687,000
------------- -------------
Net 77,023,000 66,042,000
------------- -------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 39,577,000 37,653,000
------------- -------------
OTHER ASSETS 843,000 733,000
------------- -------------
TOTAL $ 534,218,000 $ 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
JUNE 30, 1995 AND DECEMBER 31, 1994
(Unaudited)
June 30, Dec. 31
LIABILITIES & SHAREHOLDERS' EQUITY 1995 1994
------------- -------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 30,000,000 $ 22,000,000
Commercial paper 5,521,000 5,546,000
------------- -------------
Total 35,521,000 27,546,000
------------- -------------
ACCOUNTS PAYABLE - TRADE 3,863,000 6,232,000
------------- -------------
OTHER PAYABLES AND ACCRUALS 59,391,000 46,455,000
------------- -------------
CURRENT PORTION OF LONG-TERM DEBT 2,466,000 2,451,000
------------- -------------
UNEARNED INSURANCE PREMIUMS 168,429,000 158,316,000
------------- -------------
INSURANCE LOSS RESERVES 64,579,000 57,715,000
------------- -------------
DEFERRED FEDERAL INCOME TAX 11,618,000 6,754,000
------------- -------------
LONG-TERM DEBT 43,416,000 44,640,000
------------- -------------
SHAREHOLDERS' EQUITY
Common stock (issued and outstanding:
3,021,000 shares at June 30, 1995 and 2,997,000
shares at December 31, 1994 after deducting
treasury stock of 622,000 shares and 646,000
shares, respectively) 911,000 911,000
Additional paid-in capital 15,388,000 14,607,000
Retained earnings 135,513,000 131,675,000
Net unrealized gain on marketable securities 12,213,000 2,754,000
Treasury stock - at cost (16,540,000) (16,648,000)
Unvested restricted stock awards (2,550,000) (862,000)
------------- -------------
Total 144,935,000 132,437,000
------------- -------------
TOTAL $ 534,218,000 $ 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 SIX AND THREE-MONTHS ENDED JUNE 30, 1995 AND 1994
Six-Mos. Ended June 30, Three-Mos. Ended June 30,
------------------------- ------------------------
1995 1994 1995 1994
REVENUES: ------------ ------------ ----------- -----------
Insurance $137,836,000 $103,454,000 $74,375,000 $52,090,000
Transportation 14,049,000 25,340,000 7,178,000 13,624,000
Sportswear 11,590,000 14,873,000 6,137,000 8,808,000
Finance 311,000 404,000 157,000 233,000
------------ ------------ ----------- -----------
Total 163,786,000 144,071,000 87,847,000 74,755,000
------------ ------------ ----------- -----------
COSTS AND EXPENSES:
Insurance claims and
policy acquisition costs 109,081,000 89,047,000 61,629,000 46,423,000
Insurance operating and
administrative expenses 16,606,000 12,093,000 8,626,000 6,325,000
Transportation operating
expenses 12,235,000 23,635,000 6,424,000 12,111,000
Sportswear operating
expenses 15,185,000 16,592,000 7,952,000 9,510,000
Interest expense 2,225,000 2,411,000 1,249,000 1,240,000
Other operating and
administrative expenses 2,095,000 995,000 897,000 562,000
------------ ------------ ----------- -----------
Total 157,427,000 144,773,000 86,777,000 76,171,000
------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAX 6,359,000 (702,000) 1,070,000 (1,416,000)
PROVISION (CREDIT) FOR
FEDERAL INCOME TAX 1,581,000 (963,000) 103,000 (867,000)
------------ ------------ ----------- -----------
NET INCOME (LOSS) $ 4,778,000 $ 261,000 $ 967,000 $ (549,000)
============ ============ =========== ===========
EARNINGS PER SHARE OF
COMMON STOCK (A) $ 1.55 $ 0.09 $ 0.31 $ 0.17
CASH DIVIDENDS PER SHARE ============ ============ ============ ===========
OF COMMON STOCK $ 0.31 $ 0.29 $ 0.155 $ 0.145
============ ============ ============ ===========
(A) Earnings per share of common stock have been computed by dividing net income
by 3,075,000 shares in 1995 and 3,051,000 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 classifications.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX-MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ------------- --------------
Net income $ 4,778,000 $ 261,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,325,000 5,325,000
Increase in net accounts receivable (12,148,000) (19,545,000)
Increase in unearned insurance premiums 10,113,000 20,637,000
Increase (decrease) in other accounts payable
and accruals 10,534,000 (1,151,000)
Increase in inventory-sportswear division (10,441,000) (362,000)
Increase in insurance loss reserves 6,864,000 12,132,000
Increase in deferred insurance policy
acquisition costs (1,924,000) (3,889,000)
Decrease (increase) in other assets (110,000) 187,000
Decrease in deferred federal income tax (79,000) -
Other-net (98,000) (317,000)
------------- -------------
Net cash provided by operating activities 11,814,000 13,278,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (68,831,000) (55,069,000)
Sale of marketable securities 27,926,000 31,046,000
Decrease in cash equivalent marketable securities 34,383,000 29,787,000
Acquisition of property, plant and equipment (15,587,000) (7,663,000)
Maturity of marketable securities 6,377,000 4,071,000
Sale of property, plant and equipment 653,000 1,860,000
Net decrease (increase) in finance receivables (316,000) 200,000
------------- -------------
Net cash provided by (used in) investing
activities (15,395,000) 4,232,000
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in net short-term borrowings 7,975,000 (13,939,000)
Purchase of treasury stock (1,143,000) (107,000)
Repayment of long-term debt (1,060,000) (3,078,000)
Dividends paid (907,000) (840,000)
Payment of capitalized lease obligations (149,000) (438,000)
Issuance of treasury stock 52,000 28,000
------------- -------------
Net cash provided by (used in) financing
activities 4,768,000 (18,374,000)
------------- -------------
NET INCREASE (DECREASE) IN CASH 1,187,000 (864,000)
CASH AT BEGINNING OF PERIOD 4,036,000 3,935,000
------------- -------------
CASH AT END OF PERIOD $ 5,223,000 $ 3,071,000
============= =============
Supplemental Disclosures:
The Company paid interest of $1,483,000 and $1,850,000 and income taxes of
$5,000,000 and $25,000 in the first six 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 increased additional 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.
Both written premiums and earned premiums have increased during the first half
and second quarter of 1995 as compared to the same periods in 1994. The
increases in accounts receivable, deferred insurance policy acquisition costs,
other payables and accruals, unearned premiums, loss reserves, revenues,
claims and policy acquisition costs and operating and administrative expenses
are all due to this growth. The operating performance of this division
improved during the first six months of 1995 as compared to the first six
months of 1994 due to fewer weather-related losses in 1995 than 1994. The
Company's combined ratio, the ratio of losses and expenses to premiums earned,
improved favorably from 104% for the first six months of 1994 to 98% for the
same period in 1995. The operating results for the second quarter of 1995
were adversely impacted by the storms which plagued Texas and the southeastern
United States in May, 1995, however, weather-related losses were more severe
during the second quarter of 1994 than the current quarter. The impact of
these weather-related losses in both years was reduced by capital gains
realized in both years. Pre-tax realized capital gains were $1,941,000 in the
first six months of 1995 of which $2,028,000 were realized during the second
quarter of 1995. Pre-tax realized capital gains amounted to $2,077,000 during
the first six months of 1994 of which $2,136,000 were realized during the
first quarter of 1994.
Transportation revenues and related expenses of the Company's
transportation division decreased during the first six months and second
quarter of 1995 as compared to the comparable periods in 1994 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 during the first six months of
1995 as compared to the prior year six month period due primarily to the
severe winter weather and flooding conditions which adversely impacted the
division's performance during the first quarter of 1994. This division's
operating results in the second quarter of 1995 were comparable to the same
period in 1994. 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 as well as the overall
operating performance of the Company's sportswear division decreased in the
first six months and second quarter of 1995 relative to the comparable periods
in 1994. These declines were reflective of a general downturn within the
entire sportswear apparel industry which is affecting numerous companies
within the industry. In light of this overall situation, Management does not
expect CS Crable's operating margins to improve at least through the remainder
of this year.
The increases in deferred federal income tax and net unrealized gain on
marketable securities are primarily attributable to the increases in the market
values of the Company's investments. The increase in marketable securities is
a result of the increase in the market value of the Company's investments
previously held as well as additional investments purchased with funds generated
from operation.
The increases in fixed assets and short-term bank borrowings are 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 $28,000,000 and will eventually be financed through
conventional long-term debt or sale and leaseback financing.
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 and six-month periods
ended June 30, 1995 and 1994 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,
1995 1994 1995 1994
------------- ------------- ------------- -------------
Federal income tax at
statutory rate $ 2,226,000 $ (246,000) $ 375,000 $ (496,000)
Add (deduct) the tax
effect of: Tax
exempt interest and
excludable dividend
income (756,000) (744,000) (385,000) (378,000)
Investment tax credits (88,000) (144,000) (44,000) (72,000)
Net life insurance tax
deductions - (35,000) 60,000 (25,000)
Other items-net 199,000 206,000 97,000 104,000
------------- ------------- ------------- -------------
Provision (credit)
for federal income
tax $ 1,581,000 $ (963,000) $ 103,000 $ (867,000)
============= ============= ============= =============
<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 June 30, 1995, and the related
consolidated statements of income for the three month and six month
periods ended June 30, 1995 and 1994 and of cash flows for the six month
periods ended June 30, 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
July 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 June 30, 1995 and 1994, as indicated in our report
dated July 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 June 30, 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
July 20, 1995
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
JUNE 30, 1995
Item 1. Legal Proceedings
Reference is made to the March 31, 1995 Registrant's Form 10Q.
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 20, 1995_____________ s/Michael J. Conaton_________________
Michael J. Conaton, President
and Chief Operating Officer
Date ___July 20, 1995_____________ s/John I. Von Lehman_________________
John I. Von Lehman, Vice President and
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 5,223,000
<SECURITIES> 292,653,000
<RECEIVABLES> 98,734,000
<ALLOWANCES> 1,392,000
<INVENTORY> 21,557,000
<CURRENT-ASSETS> 0
<PP&E> 123,680,000
<DEPRECIATION> 46,657,000
<TOTAL-ASSETS> 534,218,000
<CURRENT-LIABILITIES> 0
<BONDS> 43,416,000
<COMMON> 911,000
0
0
<OTHER-SE> 144,024,000
<TOTAL-LIABILITY-AND-EQUITY> 534,218,000
<SALES> 11,494,000
<TOTAL-REVENUES> 163,786,000
<CGS> 10,451,000
<TOTAL-COSTS> 153,257,000
<OTHER-EXPENSES> 2,095,000
<LOSS-PROVISION> (150,000)
<INTEREST-EXPENSE> 2,225,000
<INCOME-PRETAX> 6,359,000
<INCOME-TAX> 1,581,000
<INCOME-CONTINUING> 4,778,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,778,000
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
