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, 1997_________________________
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, 1997 was
3,111,862.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
June 30, Dec. 31,
ASSETS 1997 1996
-------------- --------------
CASH $ 5,249,000 $ 3,617,000
-------------- --------------
MARKETABLE SECURITIES:
Fixed income (cost, $329,953,000 at June 30,
1997 and $333,259,000 at December 31, 1996) 331,131,000 335,675,000
Equity (cost, $32,305,000 at June 30, 1997 and
$30,931,000 at December 31, 1996) 79,742,000 64,787,000
-------------- --------------
Total 410,873,000 400,462,000
-------------- --------------
RECEIVABLES:
Accounts receivable 66,704,000 59,250,000
Less allowance for losses 1,301,000 1,301,000
-------------- --------------
Net 65,403,000 57,949,000
-------------- --------------
REINSURANCE RECOVERABLES AND PREPAID
REINSURANCE PREMIUMS 53,811,000 52,805,000
-------------- --------------
INVENTORY - SPORTSWEAR DIVISION 15,101,000 13,329,000
PROPERTY, PLANT AND EQUIPMENT - AT COST 137,446,000 124,672,000
Less accumulated depreciation and amortization 45,559,000 42,997,000
-------------- --------------
Property, Plant and Equipment - Net 91,887,000 81,675,000
-------------- --------------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 42,657,000 45,342,000
-------------- --------------
OTHER ASSETS 4,491,000 4,360,000
-------------- --------------
TOTAL ASSETS $ 689,472,000 $ 659,539,000
============== ==============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
June 30, Dec. 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
-------------- --------------
NOTES PAYABLE WITHIN ONE YEAR:
Banks $ 20,000,000 $ 28,000,000
Commercial paper 3,906,000 4,700,000
-------------- --------------
Total 23,906,000 32,700,000
-------------- --------------
INSURANCE COMMISSIONS PAYABLE 15,131,000 13,821,000
-------------- --------------
OTHER PAYABLES AND ACCRUALS 42,460,000 42,819,000
-------------- --------------
FUNDS HELD UNDER REINSURANCE AGREEMENTS AND
REINSURANCE PAYABLES 29,840,000 26,949,000
-------------- --------------
UNEARNED INSURANCE PREMIUMS 215,589,000 208,417,000
-------------- --------------
INSURANCE LOSS RESERVES 104,066,000 95,830,000
-------------- --------------
DEFERRED FEDERAL INCOME TAX 20,995,000 16,845,000
-------------- --------------
LONG-TERM DEBT 63,094,000 62,470,000
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding:
3,112,000 shares at June 30, 1997 and
3,042,000 shares at December 31, 1996
after deducting treasury stock of
531,000 shares and 601,000 shares,
respectively) 911,000 911,000
Additional paid-in capital 15,472,000 14,846,000
Retained earnings 144,405,000 138,423,000
Net unrealized gain on marketable securities 31,609,000 23,587,000
Treasury stock - at cost (14,696,000) (16,621,000)
Unvested restricted stock awards (3,310,000) (1,458,000)
-------------- --------------
Total 174,391,000 159,688,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 689,472,000 $ 659,539,000
============== ==============
See notes to the consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
FOR THE SIX AND THREE-MONTHS ENDED JUNE 30, 1997 AND 1996
Six-Mos. Ended June 30, Three-Mos. Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
REVENUES:
Insurance $ 166,805,000 $ 148,812,000 $ 84,403,000 $ 75,968,000
Transportation 15,888,000 16,221,000 8,319,000 8,891,000
Sportswear 10,225,000 7,595,000 5,165,000 1,851,000
Other 117,000 304,000 61,000 160,000
-------------- -------------- -------------- --------------
Total 193,035,000 172,932,000 97,948,000 86,870,000
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Insurance:
Losses and loss
adjustment
expenses 83,337,000 87,751,000 41,738,000 41,600,000
Commissions and
other policy
acquisition costs 43,660,000 40,873,000 21,777,000 19,414,000
Operating and
administrative
expenses 23,596,000 19,339,000 11,962,000 10,989,000
Transportation
operating expenses 14,211,000 17,430,000 7,166,000 8,619,000
Sportswear operating
expenses 13,147,000 10,911,000 6,523,000 3,565,000
Interest expense 2,925,000 2,918,000 1,534,000 1,492,000
Other operating and
administrative
expenses 2,567,000 1,979,000 1,782,000 792,000
-------------- -------------- -------------- --------------
Total 183,443,000 181,201,000 92,482,000 86,471,000
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAX 9,592,000 (8,269,000) 5,466,000 399,000
PROVISION (CREDIT)
FOR FEDERAL INCOME
TAX 2,521,000 (3,679,000) 1,486,000 (255,000)
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 7,071,000 $ (4,590,000) $ 3,980,000 $ 654,000
============== ============== ============== ==============
EARNINGS (LOSS) PER
SHARE OF COMMON
STOCK $ 2.30 $ (1.49) $ 1.29 $ .21
============== ============== ============== ==============
CASH DIVIDENDS PER
SHARE OF COMMON
STOCK $ .35 $ .33 $ .175 $ .165
============== ============== ============== ==============
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, 1997 AND 1996
1997 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss) $ 7,071,000 $ (4,590,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,819,000 4,383,000
Increase in insurance loss reserves 8,236,000 16,681,000
Increase in net accounts receivable (7,454,000) (4,324,000)
Increase in unearned insurance premiums 7,172,000 8,374,000
Increase in funds held under reinsurance
agreements and reinsurance payables 2,891,000 554,000
Decrease (increase) in deferred insurance
policy acquisition costs 2,685,000 (42,000)
Increase in inventory-sportswear division (1,772,000) (8,222,000)
Increase (decrease) in insurance commissions
payable 1,310,000 (2,812,000)
Increase in reinsurance recoverables and
prepaid reinsurance premiums (1,006,000) (9,889,000)
Increase (decrease) in other accounts
payable and accruals (403,000) 463,000
Decrease in deferred federal income tax (173,000) (76,000)
Increase in other assets (131,000) (398,000)
Other-net (73,000) 636,000
--------------- ---------------
Net cash provided by operating
activities 24,172,000 738,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (101,943,000) (65,038,000)
Sale of marketable securities 54,174,000 37,453,000
Decrease in cash equivalent marketable
securities 35,854,000 9,115,000
Acquisition of property, plant and equipment (16,309,000) (3,209,000)
Maturity of marketable securities 13,861,000 21,743,000
Sale of property, plant and equipment 900,000 437,000
--------------- ---------------
Net cash provided by (used in)
investing activities (13,463,000) 501,000
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in net short-term
borrowings (8,794,000) 974,000
Issuance of long-term debt 2,300,000 -
Repayment of long-term debt (1,493,000) (1,319,000)
Dividends paid (1,045,000) (966,000)
Payment of capitalized lease obligations (183,000) (165,000)
Net issuance (purchase) of treasury stock 138,000 (107,000)
--------------- ---------------
Net cash used in financing activities (9,077,000) (1,583,000)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 1,632,000 (344,000)
CASH AT BEGINNING OF PERIOD 3,617,000 6,385,000
--------------- ---------------
CASH AT END OF PERIOD $ 5,249,000 $ 6,041,000
=============== ===============
See Notes to the Consolidated Financial Statements.
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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, 1996 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, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the audited
consolidated financial statements and footnotes thereto for the year ended
December 31, 1996 included in the Company's Annual Report on Form 10-K.
Certain reclassifications (minor in nature) have been made to the 1996 amounts
to conform to 1997 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:
Six-months ended June 30: For Primary EPS For Fully Diluted EPS
--------------- ---------------------
1997 3,072,000 3,099,000
1996 3,079,000 3,080,000
Statement of Financial Accounting Standards No. 128 has been issued and will
require companies to change the method of calculating earnings per share. This
statement is effective for financial statements for both interim and annual
periods ending after December 15, 1997 and early application is not permitted.
On a proforma basis, the Company's basic and diluted earnings per share
calculated in accordance with the Statement would be:
Six-Mos. Three-Mos.
Ended June 30, Ended June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
Basic earnings (loss) per share $ 2.38 $ (1.56) $ 1.34 $ .22
Diluted earnings (loss) per share $ 2.30 $ (1.56) $ 1.29 $ .21
3. INCOME TAXES
The federal income tax provisions (credits) for the three and six-month periods
ended June 30, 1997 and 1996 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,
------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Federal income tax
(credit) at statutory
rate $ 3,357,000 $(2,894,000) $ 1,913,000 $ 140,000
Add (deduct) the tax
effect of:
Tax exempt interest and
excludable dividend
income (765,000) (885,000) (387,000) (443,000)
Investment tax credits (182,000) (85,000) (91,000) (42,000)
Other - net 111,000 185,000 51,000 90,000
------------ ------------ ------------ ------------
Provision (credit) for
federal income tax $ 2,521,000 $(3,679,000) $ 1,486,000 $ (255,000)
============ ============ ============ ============
4. CONTINGENCIES
As discussed in Note 12 of the Company's financial statements for the year ended
December 31, 1996, there are certain potential or actual legal claims pending
against the Company, the outcome of which are not expected to have a material
effect upon the company's consolidated financial position or results of
operations.
5. COMPREHENSIVE INCOME AND SEGMENT DISCLOSURES
In June of 1997, The Accounting Standards Board issued SFAS No. 130, "Reporting
on Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Midland Company will be required to
adopt these standards during 1998. Adoption of these standards will not impact
the reported results of operations or financial position of The Midland Company
but will require additional disclosure.
6. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid interest of $3,296,000 and $2,874,000 in the first six months
of 1997 and 1996, respectively. The Company paid income taxes of $955,000
during the first six months of 1997 and no income taxes were paid during the
first six months of 1996. In January, 1997, the Company issued 65,350 shares
of treasury stock under a restricted stock award program that relieved treasury
stock by approximately $1,808,000 and also increased additional paid-in capital
by approximately $626,000.
<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, 1997, and the related consolidated
statements of income for the three-month and six-month periods ended June 30,
1997 and 1996 and of cash flows for the six-month periods ended June 30, 1997
and 1996. 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, 1996, 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 13, 1997, 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, 1996 is fairly stated, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
July 17, 1997
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 1996 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.
Insurance revenues increased in the first six months and second quarter
of 1997 as compared to the comparable periods in 1996 due primarily to the
continued growth in the Company's property and casualty core products.
Insurance losses and loss adjustment expenses decreased in the first six months
of 1997 as compared to the first six months of 1996 due to a significant
decrease in weather related catastrophe losses. The decrease in catastrophic
losses was primarily responsible for the significant improvement in operating
results of the insurance operations in 1997 compared to 1996. The loss ratio
(ratio of losses to net premiums earned) of the property and casualty insurance
companies was 54.4% and 53.3% during the first half and second quarter,
respectively, of 1997 compared to 64.2% and 60.2% in the first half and second
quarter, respectively, of 1996.
Pre-tax profits of the transportation subsidiary improved significantly
in the first six months and second quarter of 1997 compared to the related 1996
periods due to reductions in litigation costs. On a pre-tax basis, litigation
costs decreased $3.6 million and $1.3 million in the first six months and second
quarter of 1997, respectively, as compared to the prior year's periods.
Transportation revenues decreased slightly in the first half and second quarter
of 1997 as compared to the prior year's periods due to flooding conditions along
the lower Mississippi River in March and April of this year.
Sportswear revenues and related expenses increased during the first six
months and second quarter of 1997 as compared to the comparable periods in 1996
due primarily to an increase in orders for the spring apparel line. This
increase in sales during the second quarter of 1997 produced a favorable
improvement in this subsidiary's operating performance in the second quarter of
1997 as compared to the second quarter of 1996 and also positively impacted the
current six month performance as compared to the prior year's six month
performance.
The increase in fixed assets was due primarily to the transportation
subsidiary's acquisition of 41 barges for a total cost of $11.9 million.
Increases in receivables, unearned premiums and insurance loss reserves
are primarily related to increased insurance business and seasonal trends.
The increases in reinsurance recoverables and prepaid reinsurance
premiums, funds held under reinsurance agreements and reinsurance payables,
together with the decrease in deferred insurance policy acquisition costs, are
related to increased reinsurance activities.
The Company was able to reduce its short-term bank borrowings in 1997
as a result of the Company's profits and positive cash flows.
The increases in investments, deferred federal income tax and net
unrealized gain on marketable securities were due to the increase in market
value of the Company's investment portfolio.
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
JUNE 30, 1997
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.
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 17, 1997_______ s/Michael J. Conaton_________________________
Michael J. Conaton, President
and Chief Operating Officer
Date_______July 17, 1997_______ s/John I. Von Lehman_________________________
John I. Von Lehman, Executive Vice President,
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, 1997 and 1996, as indicated in our report dated July 17, 1997; 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, 1997, 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 17, 1997
Deloitte & Touche LLP
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,249,000
<SECURITIES> 410,873,000
<RECEIVABLES> 120,515,000
<ALLOWANCES> 1,301,000
<INVENTORY> 15,101,000
<CURRENT-ASSETS> 0
<PP&E> 137,446,000
<DEPRECIATION> 45,559,000
<TOTAL-ASSETS> 689,472,000
<CURRENT-LIABILITIES> 0
<BONDS> 63,094,000
<COMMON> 911,000
0
0
<OTHER-SE> 173,480,000
<TOTAL-LIABILITY-AND-EQUITY> 689,472,000
<SALES> 10,221,000
<TOTAL-REVENUES> 193,035,000
<CGS> 9,663,000
<TOTAL-COSTS> 168,316,000
<OTHER-EXPENSES> 2,567,000
<LOSS-PROVISION> (28,000)
<INTEREST-EXPENSE> 2,925,000
<INCOME-PRETAX> 9,592,000
<INCOME-TAX> 2,521,000
<INCOME-CONTINUING> 7,071,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,071,000
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.28
</TABLE>
