AMERICAN STOCK EXCHANGE
NEW YORK, N.Y. 10006
FORM 10-Q
FIRST QUARTER REPORT 1996
<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, 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 March 31, 1996 was
3,020,577.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
Mar. 31, Dec. 31,
ASSETS 1996 1995
--------------- ---------------
CASH $ 4,301,000 $ 6,385,000
--------------- ---------------
MARKETABLE SECURITIES 352,390,000 367,054,000
--------------- ---------------
RECEIVABLES:
Accounts receivable 99,635,000 94,677,000
Less allowance for losses 1,364,000 1,362,000
--------------- ---------------
Net 98,271,000 93,315,000
--------------- ---------------
INVENTORY - SPORTSWEAR DIVISION 5,196,000 6,954,000
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT - AT COST 128,219,000 131,616,000
Less accumulated depreciation and amortization 42,282,000 45,767,000
--------------- ---------------
Property, Plant and Equipment - Net 85,937,000 85,849,000
--------------- ---------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 41,487,000 43,146,000
--------------- ---------------
OTHER ASSETS 2,520,000 2,000,000
--------------- ---------------
TOTAL $ 590,102,000 $ 604,703,000
=============== ===============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
Mar. 31, Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY 1996 1995
--------------- ---------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 18,000,000 $ 31,000,000
Commercial paper 5,341,000 4,620,000
--------------- ---------------
Total 23,341,000 35,620,000
--------------- ---------------
ACCOUNTS PAYABLE - TRADE 7,455,000 5,449,000
--------------- ---------------
OTHER PAYABLES AND ACCRUALS 62,349,000 68,045,000
--------------- ---------------
CURRENT PORTION OF LONG-TERM DEBT 3,013,000 2,986,000
--------------- ---------------
UNEARNED INSURANCE PREMIUMS 187,156,000 190,948,000
--------------- ---------------
INSURANCE LOSS RESERVES 84,500,000 68,347,000
--------------- ---------------
DEFERRED FEDERAL INCOME TAX 12,572,000 14,243,000
--------------- ---------------
LONG-TERM DEBT 61,702,000 62,470,000
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding:
3,021,000 shares at March 31, 1996 and
3,020,000 shares at December 31, 1995
after deducting treasury stock of 622,000
shares and 623,000 shares, respectively) 911,000 911,000
Additional paid-in capital 15,375,000 15,362,000
Retained earnings 133,608,000 139,350,000
Net unrealized gain on marketable securities 16,680,000 19,716,000
Treasury stock - at cost (16,558,000) (16,575,000)
Unvested restricted stock awards (2,002,000) (2,169,000)
--------------- ---------------
Total 148,014,000 156,595,000
--------------- ---------------
TOTAL $ 590,102,000 $ 604,703,000
=============== ===============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
FOR THE THREE-MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
--------------- ---------------
REVENUES:
Insurance $ 72,844,000 $ 63,461,000
Transportation 7,330,000 6,871,000
Sportswear 5,744,000 5,453,000
Other 144,000 154,000
--------------- ---------------
Total 86,062,000 75,939,000
--------------- ---------------
COSTS AND EXPENSES:
Insurance:
Losses and loss adjustment expenses 46,151,000 28,450,000
Commissions and other policy acquisition costs 21,459,000 19,002,000
Operating and administrative expenses 8,350,000 7,980,000
Transportation operating expenses 8,811,000 5,811,000
Sportswear operating expenses 7,346,000 7,233,000
Interest expense 1,426,000 976,000
Other operating and administrative expenses 1,187,000 1,198,000
--------------- ---------------
Total 94,730,000 70,650,000
--------------- ---------------
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (8,668,000) 5,289,000
PROVISION (CREDIT) FOR FEDERAL INCOME TAX (3,424,000) 1,478,000
--------------- ---------------
NET INCOME (LOSS) $ (5,244,000) $ 3,811,000
=============== ===============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ (1.70) $ 1.24
=============== ===============
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 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 THREE-MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,244,000) $ 3,811,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,162,000 2,124,000
Increase (decrease) in insurance loss reserves 16,153,000 (1,229,000)
Decrease (increase) in net accounts receivable (4,956,000) 3,437,000
Increase (decrease) in unearned insurance
premiums (3,792,000) 3,860,000
Decrease in accounts payable and accruals (3,720,000) (3,320,000)
Decrease (increase) in inventory-sportswear
division 1,758,000 (2,299,000)
Decrease (increase) in deferred insurance
policy acquisition costs 1,659,000 (2,008,000)
Decrease (increase) in other assets (520,000) 48,000
Decrease in deferred federal income tax (38,000) (39,000)
Other-net 629,000 301,000
--------------- ---------------
Net cash provided by operating activities 4,091,000 4,686,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (29,004,000) (19,341,000)
Decrease in cash equivalent marketable securities 16,491,000 26,113,000
Sale of marketable securities 14,927,000 3,284,000
Maturity of marketable securities 6,911,000 3,383,000
Acquisition of property, plant and equipment (2,275,000) (8,626,000)
Sale of property, plant and equipment 233,000 382,000
--------------- ---------------
Net cash provided by investing activities 7,283,000 5,195,000
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in net short-term borrowings (12,279,000) (8,234,000)
Repayment of long-term debt (659,000) (526,000)
Dividends paid (468,000) (435,000)
Payment of capitalized lease obligations (82,000) (73,000)
Issuance of treasury stock 30,000 52,000
Purchase of treasury stock - (203,000)
--------------- ---------------
Net cash used in financing activities (13,458,000) (9,419,000)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (2,084,000) 462,000
CASH AT BEGINNING OF PERIOD 6,385,000 4,036,000
--------------- ---------------
CASH AT END OF PERIOD $ 4,301,000 $ 4,498,000
=============== ===============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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, they 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-month period ended March 31, 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
--------------- ---------------------
Three months ended march 31:
1996 3,079,000 3,081,000
=========== ===========
1995 3,083,000 3,084,000
=========== ===========
3. INCOME TAXES
The federal income tax provisions for the three-month periods ended March 31,
1996 and 1995 are different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows:
1996 1995
------------ ------------
Federal income tax (credit) at statutory rate $(3,034,000) $ 1,851,000
Tax effect of:
Tax exempt interest and excludable
dividend income (442,000) (371,000)
Investment tax credits (43,000) (44,000)
Other - net 95,000 42,000
------------ -----------
Provision (credit) for federal income tax $(3,424,000) $1,478,000
============ ===========
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 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 $1,405,000 and $978,000 in the first three months
of 1996 and 1995, respectively. No income taxes were paid in the first three
months of 1996 and $2,000,000 in income taxes were paid during the first three
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 March 31, 1996, and the related consolidated
statements of income and of cash flows for the three-month periods ended
March 31, 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.
Deloitte & Touche LLP
Cincinnati, Ohio
April 19, 1996
<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.
Gross premiums written and net premiums earned by the Company's property
and casualty insurance subsidiaries increased 16.3% and 12.5%, respectively, in
the first quarter of 1996 as compared to the first quarter of 1995, however, due
to the increased reinsuring activities of these companies, net premiums written
decreased 3% causing slight decreases in deferred insurance policy acquisition
costs and unearned insurance premiums. Insurance revenues and related insurance
expenses continued to increase in the first quarter of 1996 as compared to the
first quarter of 1995 due to the growth in net premiums written which occurred
during the entire year of 1995. Contributing significantly to the increase in
losses and loss adjustment expenses during the first quarter of 1996 were the
unusually high losses incurred as a result of the severe winter weather patterns
and related flooding which occurred throughout most of the United States in
1996. The loss ratio (ratio of losses to net premiums earned) of the property
and casualty insurance companies was an unusually high 68.3% in the first
quarter of 1996 as compared to a better than normal 47.8% in the first quarter
of 1995. These high losses in 1996 caused the significant increase in our
insurance loss reserves.
Transportation revenues in the first quarter of 1996 were comparable to
first quarter 1995 revenues. Transportation expenses increased in the first
quarter of 1996 as compared to the first quarter of 1995 due to unusually high
litigation costs incurred during the first quarter of 1996. Excluding
litigation costs, this division's operating performance was favorable during the
first quarter of 1996 and was very comparable to its operating performance in
the first quarter of 1995.
Sportswear revenues and related expenses of the Company's sportswear
subsidiary during the first quarter of 1996 are comparable to the 1995 first
quarter levels. The operating performance of this division improved slightly in
the first quarter of 1996 as compared to the first quarter of 1995. Sportswear
inventories have decreased 25% from year-end 1995 levels. These positive
results are the result of the initiatives taken by management in 1995. The
performance of this division in 1996 is in line with management's expectations
and it is expected that the performance of this division will improve
significantly in the second half of 1996 relative to 1995 results.
Marketable securities decreased as a result of sales and maturities of
securities as well as a decrease in the unrealized gains contained within these
investments. The proceeds derived from the disposal of marketable securities
were used to reduce short-term borrowings.
The decrease in other payables and accruals was primarily due to the
payment of contingent commissions during the first quarter of 1996 by our
insurance companies to their independent insurance agents.
M/G Transport Services, Inc. has committed to the acquisition of 20
barges in 1996 for a total cost of $5.7 million. The primary consideration for
this purchase will be the exchange of two of M/G Transport's towboats valued at
$5 million. The balance of this transaction will be financed with internally
generated funds. 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
MARCH 31, 1996
Item 1. Legal Proceedings
A Grand Jury returned a nine count indictment against M/G
Transport Services, Inc., a subsidiary of the Registrant, in
February, 1995, alleging violations of certain environmental laws.
Seven former M/G employees were also indicted. The indictments
alleged that M/G employees had, over a period of years, discharged
or permitted the discharge of bilge water, ash and other refuse
into the inland waterways. M/G faced fines of up to $4.2 million.
The case, styled: United States of America vs. M/G Transport
Services, et al., went to trial in the United States District
Court for the District of Ohio beginning November 4, 1995. On
December 22, 1995, the jury returned guilty verdicts against M/G
on eight of the nine counts. Three of M/G's former employees were
also found guilty on various counts.
M/G has challenged the verdicts and has preserved its rights of
appeal. If the verdicts are affirmed by the court, M/G could be
fined up to $3.7 million. Sentencing is expected to occur prior
to June 30, 1996.
Related civil litigation is still pending, the outcome of which
cannot be reasonably estimated at this time.
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 ___April 19, 1996__________ s/Michael J. Conaton__________________
Michael J. Conaton, President
and Chief Operating Officer
Date ___April 19, 1996__________ s/John I. Von Lehman__________________
John I. Von Lehman, 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 March 31, 1996 and 1995, as indicated in our
report dated April 19, 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 March 31, 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.
Deloitte & Touche LLP
Cincinnati, Ohio
April 19, 1996
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,301,000
<SECURITIES> 352,390,000
<RECEIVABLES> 99,635,000
<ALLOWANCES> 1,364,000
<INVENTORY> 5,196,000
<CURRENT-ASSETS> 0
<PP&E> 128,219,000
<DEPRECIATION> 42,282,000
<TOTAL-ASSETS> 590,102,000
<CURRENT-LIABILITIES> 0
<BONDS> 61,702,000
<COMMON> 911,000
0
0
<OTHER-SE> 147,103,000
<TOTAL-LIABILITY-AND-EQUITY> 590,102,000
<SALES> 5,732,000
<TOTAL-REVENUES> 86,062,000
<CGS> 5,761,000
<TOTAL-COSTS> 92,127,000
<OTHER-EXPENSES> 1,187,000
<LOSS-PROVISION> (10,000)
<INTEREST-EXPENSE> 1,426,000
<INCOME-PRETAX> (8,668,000)
<INCOME-TAX> (3,424,000)
<INCOME-CONTINUING> (5,244,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,244,000)
<EPS-PRIMARY> (1.70)
<EPS-DILUTED> (1.70)
</TABLE>
