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, 1996______________________
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)
______7000 Midland Boulevard, Amelia, Ohio 45102-2607_____
(Address of principal executive offices)
(Zip Code)
___________________(513) 943-7100___________________
(Registrant's telephone number, including area code)
____________________________________N/A____________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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, 1996 was 3,017,804.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
June 30, Dec. 31
ASSETS 1996 1995
--------------- ---------------
CASH $ 6,041,000 $ 6,385,000
--------------- ---------------
MARKETABLE SECURITIES 354,944,000 367,054,000
--------------- ---------------
RECEIVABLES:
Accounts receivable 108,873,000 94,677,000
Less allowance for losses 1,345,000 1,362,000
--------------- ---------------
Net 107,528,000 93,315,000
--------------- ---------------
INVENTORY - SPORTSWEAR DIVISION 15,176,000 6,954,000
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT - AT COST 128,549,000 131,616,000
Less accumulated depreciation and amortization 43,806,000 45,767,000
--------------- ---------------
Property, Plant and Equipment - Net 84,743,000 85,849,000
--------------- ---------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 43,188,000 43,146,000
--------------- ---------------
OTHER ASSETS 2,398,000 2,000,000
--------------- ---------------
TOTAL $ 614,018,000 $ 604,703,000
=============== ===============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
June 30, Dec. 31
LIABILITIES & SHAREHOLDERS' EQUITY 1996 1995
--------------- ---------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 30,000,000 $ 31,000,000
Commercial paper 6,594,000 4,620,000
--------------- ---------------
Total 36,594,000 35,620,000
--------------- ---------------
ACCOUNTS PAYABLE - TRADE 5,156,000 5,449,000
--------------- ---------------
OTHER PAYABLES AND ACCRUALS 66,573,000 68,045,000
--------------- ---------------
CURRENT PORTION OF LONG-TERM DEBT 3,034,000 2,986,000
--------------- ---------------
UNEARNED INSURANCE PREMIUMS 199,322,000 190,948,000
--------------- ---------------
INSURANCE LOSS RESERVES 85,028,000 68,347,000
--------------- ---------------
DEFERRED FEDERAL INCOME TAX 11,357,000 14,243,000
--------------- ---------------
LONG-TERM DEBT 60,938,000 62,470,000
--------------- ---------------
SHAREHOLDERS' EQUITY
Common stock (issued and outstanding:
3,018,000 shares at June 30, 1996 and
3,020,000 shares at December 31, 1995
after deducting treasury stock of 625,000
shares and 623,000 shares, respectively) 911,000 911,000
Additional paid-in capital 15,393,000 15,362,000
Retained earnings 133,764,000 139,350,000
Net unrealized gain on marketable securities 14,496,000 19,716,000
Treasury stock - at cost (16,713,000) (16,575,000)
Unvested restricted stock awards (1,835,000) (2,169,000)
--------------- ---------------
Total 146,016,000 156,595,000
--------------- ---------------
TOTAL $ 614,018,000 $ 604,703,000
=============== ===============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
FOR THE SIX AND THREE-MONTHS ENDED JUNE 30, 1996 AND 1995
Six-Mos. Ended June 30, Three-Mos. Ended June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
REVENUES: ------------- ------------- ------------- -------------
Insurance $148,812,000 $137,836,000 $ 75,968,000 $ 74,375,000
Transportation 16,221,000 14,049,000 8,891,000 7,178,000
Sportswear 7,595,000 11,590,000 1,851,000 6,137,000
Other 304,000 311,000 160,000 157,000
------------- ------------- ------------- -------------
Total 172,932,000 163,786,000 86,870,000 87,847,000
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Insurance:
Losses and loss
adjustment expenses 87,751,000 68,022,000 41,600,000 39,572,000
Commissions and
other policy
acquisition costs 40,873,000 41,059,000 19,414,000 22,057,000
Operating and
administrative
expenses 19,339,000 16,606,000 10,989,000 8,626,000
Transportation
operating expenses 17,430,000 12,235,000 8,619,000 6,424,000
Sportswear operating
expenses 10,911,000 15,185,000 3,565,000 7,952,000
Interest expense 2,918,000 2,225,000 1,492,000 1,249,000
Other operating
and administrative
expenses 1,979,000 2,095,000 792,000 897,000
------------- ------------- ------------- -------------
Total 181,201,000 157,427,000 86,471,000 86,777,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAX (8,269,000) 6,359,000 399,000 1,070,000
PROVISION(CREDIT) FOR
FEDERAL INCOME TAX (3,679,000) 1,581,000 (255,000) 103,000
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (4,590,000) $ 4,778,000 $ 654,000 $ 967,000
============= ============= ============= =============
EARNINGS (LOSS)
PER SHARE OF
COMMON STOCK $ (1.49) $ 1.55 $ 0.21 $ 0.31
============= ============= ============= =============
CASH DIVIDENDS
PER SHARE OF
COMMON STOCK $ 0.33 $ 0.31 $ 0.165 $ 0.155
============= ============= ============= =============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX-MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss) $ (4,590,000) $ 4,778,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,383,000 4,325,000
Increase in insurance loss reserves 16,681,000 6,864,000
Increase in net accounts receivable (14,213,000) (12,464,000)
Increase in unearned insurance premiums 8,374,000 10,113,000
Increase in inventory-sportswear division (8,222,000) (10,441,000)
Increase (decrease) in other accounts
payable and accruals (1,795,000) 10,534,000
Increase in other assets (398,000) (110,000)
Decrease in deferred federal income tax (76,000) (79,000)
Increase in deferred insurance policy
acquisition costs (42,000) (1,924,000)
Other-net 636,000 (98,000)
--------------- ---------------
Net cash provided by operating activities 738,000 11,498,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (65,038,000) (68,831,000)
Sale of marketable securities 37,453,000 27,926,000
Maturity of marketable securities 21,743,000 6,377,000
Decrease in cash equivalent marketable
securities 9,115,000 34,383,000
Acquisition of property, plant and equipment (3,209,000) (15,587,000)
Sale of property, plant and equipment 437,000 653,000
--------------- ---------------
Net cash provided by (used in) investing
activities 501,000 (15,079,000)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (1,319,000) (1,060,000)
Increase in net short-term borrowings 974,000 7,975,000
Dividends paid (966,000) (907,000)
Purchase of treasury stock (188,000) (1,143,000)
Payment of capitalized lease obligations (165,000) (149,000)
Issuance of treasury stock 81,000 52,000
--------------- ---------------
Net cash provided by (used in)
financing activities (1,583,000) 4,768,000
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (344,000) 1,187,000
CASH AT BEGINNING OF PERIOD 6,385,000 4,036,000
--------------- ---------------
CASH AT END OF PERIOD $ 6,041,000 $ 5,223,000
=============== ===============
See Notes to the Consolidated Financial Statements.
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Midland
Company and subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Financial information as of December 31, 1995
has been derived from the audited consolidated financial statements of the
Company. Revenue and operating results for the three and six-month periods
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the audited consolidated financial statements and footnotes thereto for the
year ended December 31, 1995 included in the Company's Annual Report on Form
10-K.
Certain reclassifications (minor in nature) have been made to the 1995 amounts
to conform to 1996 classifications.
2. EARNINGS PER SHARE
Earnings per share (EPS) of common stock are computed by dividing net income by
the weighted average number of shares and share equivalents (which considers
stock options and restricted stock awards) outstanding during the period. Such
weighted average numbers outstanding used for EPS calculations were as follows:
For Primary EPS For Fully Diluted EPS
----------------- -----------------------
Six months ended June 30:
1996 3,079,000 3,080,000
=========== ===========
1995 3,075,000 3,078,000
=========== ===========
3. INCOME TAXES
The federal income tax provisions (credits) for the three and six-month periods
ended June 30, 1996 and 1995 are 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,
1996 1995 1996 1995
Federal income tax ------------- ------------- ------------- -------------
(credit) at
statutory rate $ (2,894,000) $ 2,226,000 $ 140,000 $ 375,000
Add (deduct) the tax
effect of:
Tax exempt interest
and excludable
dividend income (885,000) (756,000) (443,000) (385,000)
Investment tax
credits (85,000) (88,000) (42,000) (44,000)
Other - net 185,000 199,000 90,000 157,000
------------- ------------- ------------- -------------
Provision (credit)
for federal
income tax $ (3,679,000) $ 1,581,000 $ (255,000) $ 103,000
============= ============= ============= =============
4. CONTINGENCIES
As discussed in Note 11 of the Company's financial statements for the year ended
December 31, 1995, there are certain potential or actual legal claims pending
against the Company; the most recent related significant activities are
described in Part I Management's Discussion and Analysis and Part II, Item 1 of
this Form 10-Q.
5. ACCOUNTING FOR STOCK BASED COMPENSATION
The Company has not adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" and continues to account for stock
based compensation under APB Opinion No. 25.
6. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid interest of $2,874,000 and $1,483,000 in the first six months
of 1996 and 1995, respectively. No income taxes were paid in the first six
months of 1996 and $5,000,000 in income taxes were paid during the first six
months of 1995. In January, 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>
INDEPENDENT ACCOUNTANTS' REPORT
The Midland Company:
We have reviewed the accompanying consolidated balance sheet of The Midland
Company and subsidiaries as of June 30, 1996, and the related consolidated
statements of income for the three-month and six-month periods ended June 30,
1996 and 1995 and of cash flows for the six-month periods ended June 30, 1996
and 1995. 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, 1995, 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 15, 1996, 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, 1995 is fairly stated, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
July 18, 1996
Deloitte & Touche, LLP
Cincinnati, Ohio
<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 1995 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.
Due primarily to heavier than normal weather related losses, American
Modern Insurance Group, the Company's insurance subsidiary, reported a pre-tax
underwriting loss of $9.9 million in the first half of 1996 as compared to a
pre-tax underwriting profit of $2.4 million during the first six months of 1995.
Weather related losses were also higher than normal during the second quarter of
1996 and 1995 with comparable underwriting results being achieved during those
respective quarters. Both written premium and earned premium increased slightly
during the first six months and second quarter of 1996 as compared to the
comparable periods in 1995. Insurance losses and loss adjustment expenses
increased during the first six months of 1996 as compared to the prior 1995 six
month period due primarily to the previously mentioned unusually heavy weather
related losses incurred during 1996. Insurance commissions and other policy
acquisition costs decreased during the first half and second quarter of 1996
due to a decrease in contingent commission expenses as a result of the
underwriting losses sustained during the period. Insurance operating and
administrative expenses increased during the first half and second quarter of
1996 as compared to the comparable 1995 periods due to the unusually high
litigation costs which were incurred in 1996.
Transportation revenues increased during the first six months and
second quarter of 1996 as compared to the comparable periods in 1995 due to an
increase in loadings as well as improved affreightment rates. Transportation
expenses increased during the first six months and second quarter of 1996 as
compared to the comparable 1995 periods due to the increase in revenues and
unusually high litigation costs incurred during the first six months and second
quarter of 1996 relative to the comparable periods in 1995. Excluding
litigation costs, the operating performance of this division during the first
six months and second quarter of 1996 improved as compared to the performance
achieved during the related 1995 periods.
During the second quarter of 1996, AMIG reached a settlement agreement
on a class-action lawsuit involving insurance written in Alabama and Mississippi
and M/G Transport settled a civil lawsuit that was related to alleged discharge
of bilge water, ash and other refuse into the inland waterways. M/G Transport
is still awaiting sentencing in the related criminal case. In the first six
months of this year, M/G Transport expensed approximately $3,600,000 (pre-tax)
and AMIG expensed approximately $2,400,000 (pre-tax) related to litigation.
Sportswear revenues and related expenses decreased during the first six
months and second quarter of 1996 as compared to the comparable periods in 1995
due to a decrease in orders related to the spring and summer apparel line.
However, the operating performance of this subsidiary improved during the first
six months and second quarter of 1996 as compared to the prior 1995 periods due
to a reduction in operating expenses. The performance of this subsidiary in
1996 is in line with Management's expectations and it is expected that this
subsidiary will contribute positively to The Midland Company's overall
profitability in the second half of 1996.
Accounts receivable increased due to the growth of the Company's
insurance subsidiaries. The growth in net written premiums caused an increase
in premium receivables and the Company's increased reinsurance activities caused
an increase in reinsurance receivables.
Sportswear inventories increased primarily due to the need to build up
inventory levels for the fall and winter production orders, however, net
inventory levels at June 30, 1996 are approximately $6,000,000 lower than at
June 30, 1995.
Insurance loss reserves increased due primarily to the high losses
sustained by the Company's property and casualty subsidiaries in 1996.
M/G Transport Services, Inc. has committed to the acquisition of 16
barges in 1996 for a total cost of $4.6 million. These acquisitions will be
financed by the disposal of two of M/G Transport's towboats valued at $5
million. M/G Transport has also committed to the purchase of 50 barges in 1997
for a total cost of $14 million. It is currently anticipated that these barges
will be financed with conventional long-term debt.
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
JUNE 30, 1996
Item 1. Legal Proceedings
Reference is made to Item 1 of the March 31, 1996 Registrant's Form
10-Q concerning criminal and related civil litigation against M/G
Transport Services, Inc., a subsidiary of the Registrant.
Sentencing in the criminal litigation has not yet occurred. The civil
litigation was settled in an out of court agreement during the second
quarter of 1996.
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.) Exhibit 15 - Letter re: Unaudited Interim Financial
Information
b.) Exhibit 27 - Financial Data Schedule
c.) 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 _______July 18, 1996_______ s/Michael J. Conaton________________________
Michael J. Conaton, President
and Chief Operating Officer
Date _______July 18, 1996_______ s/John I. Von Lehman________________________
John I. Von Lehman, Executive Vice President
and Treasurer and Chief Financial Officer
EXHIBIT 15
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, 1996 and 1995, as indicated in our report dated July 18, 1996; 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, 1996, is
incorporated by reference in Registration Statements No. 33-64821 on Form S-3
and 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.
July 18, 1996
Deloitte & Touche, LLP
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,041,000
<SECURITIES> 354,944,000
<RECEIVABLES> 108,873,000
<ALLOWANCES> 1,345,000
<INVENTORY> 15,176,000
<CURRENT-ASSETS> 0
<PP&E> 128,549,000
<DEPRECIATION> 43,806,000
<TOTAL-ASSETS> 614,018,000
<CURRENT-LIABILITIES> 0
<BONDS> 60,938,000
<COMMON> 911,000
0
0
<OTHER-SE> 145,105,000
<TOTAL-LIABILITY-AND-EQUITY> 614,018,000
<SALES> 7,577,000
<TOTAL-REVENUES> 172,932,000
<CGS> 7,708,000
<TOTAL-COSTS> 168,606,000
<OTHER-EXPENSES> 1,979,000
<LOSS-PROVISION> (10,000)
<INTEREST-EXPENSE> 2,918,000
<INCOME-PRETAX> (8,269,000)
<INCOME-TAX> (3,679,000)
<INCOME-CONTINUING> (4,590,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,590,000)
<EPS-PRIMARY> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
