UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2003 |
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)
| Ohio | 31-0742526 | |
|
|
||
| (State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) | |
| 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 ü . No .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ü . No .
The number of common shares outstanding as of April 17, 2003 was 17,623,592.
PART I. FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
Amounts in 000’s
| (Unaudited) | |||||||||||
| March 31, | Dec. 31, | ||||||||||
| ASSETS | 2003 | 2002 | |||||||||
MARKETABLE SECURITIES AVAILABLE FOR SALE: |
|||||||||||
Fixed income (cost, $563,309 at March 31, 2003 and
$572,768 at December 31, 2002) |
$ | 591,952 | $ | 600,920 | |||||||
Equity (cost, $87,547 at March 31, 2003 and
$91,239 at December 31, 2002) |
131,061 | 138,838 | |||||||||
Total |
723,013 | 739,758 | |||||||||
CASH |
7,579 | 5,975 | |||||||||
ACCOUNTS RECEIVABLE — NET |
87,361 | 91,633 | |||||||||
REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS |
72,258 | 76,626 | |||||||||
PROPERTY, PLANT AND EQUIPMENT — NET |
60,468 | 61,510 | |||||||||
DEFERRED INSURANCE POLICY ACQUISITION COSTS |
90,942 | 96,396 | |||||||||
OTHER ASSETS |
18,234 | 18,776 | |||||||||
TOTAL ASSETS |
$ | 1,059,855 | $ | 1,090,674 | |||||||
See notes to condensed consolidated financial statements.
2
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
Amounts in 000’s
| (Unaudited) | ||||||||||
| March 31, | Dec. 31, | |||||||||
| LIABILITIES & SHAREHOLDERS' EQUITY | 2003 | 2002 | ||||||||
UNEARNED INSURANCE PREMIUMS |
$ | 386,690 | $ | 406,311 | ||||||
INSURANCE LOSS RESERVES |
161,405 | 164,717 | ||||||||
INSURANCE COMMISSIONS PAYABLE |
30,247 | 30,654 | ||||||||
FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES |
4,103 | 2,977 | ||||||||
LONG-TERM DEBT |
46,787 | 47,163 | ||||||||
OTHER NOTES PAYABLE: |
||||||||||
Banks |
25,000 | 39,000 | ||||||||
Commercial paper |
4,240 | 4,238 | ||||||||
Total |
29,240 | 43,238 | ||||||||
DEFERRED FEDERAL INCOME TAX |
34,381 | 35,642 | ||||||||
OTHER PAYABLES AND ACCRUALS |
50,598 | 51,064 | ||||||||
COMMITMENTS AND CONTINGENCIES |
— | — | ||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||
Common stock (issued and outstanding: 17,609 shares
at March 31, 2003 and 17,566 shares at December 31,
2002 after deducting treasury stock of 4,247
shares and 4,290 shares, respectively) |
911 | 911 | ||||||||
Additional paid-in capital |
22,838 | 22,516 | ||||||||
Retained earnings |
289,039 | 279,826 | ||||||||
Accumulated other comprehensive income |
45,211 | 47,573 | ||||||||
Treasury stock — at cost |
(41,353 | ) | (41,605 | ) | ||||||
Unvested restricted stock awards |
(242 | ) | (313 | ) | ||||||
Total |
316,404 | 308,908 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 1,059,855 | $ | 1,090,674 | ||||||
See notes to condensed consolidated financial statements.
3
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Amounts in 000’s except per share data
| 2003 | 2002 | |||||||||||
REVENUES: |
||||||||||||
Insurance: |
||||||||||||
Premiums earned |
$ | 153,278 | $ | 136,470 | ||||||||
Net investment income |
8,395 | 8,706 | ||||||||||
Net realized investment gains (losses) |
(1,763 | ) | (301 | ) | ||||||||
Other insurance income |
1,578 | 1,624 | ||||||||||
Transportation |
5,845 | 5,881 | ||||||||||
Other |
62 | 152 | ||||||||||
Total |
167,395 | 152,532 | ||||||||||
COSTS AND EXPENSES: |
||||||||||||
Insurance: |
||||||||||||
Losses and loss adjustment expenses |
78,647 | 69,623 | ||||||||||
Commissions and other policy acquisition costs |
47,805 | 41,922 | ||||||||||
Operating and administrative expenses |
19,770 | 20,819 | ||||||||||
Transportation operating expenses |
5,805 | 6,231 | ||||||||||
Interest expense |
939 | 784 | ||||||||||
Other operating and administrative expenses |
325 | 236 | ||||||||||
Total |
153,291 | 139,615 | ||||||||||
INCOME BEFORE FEDERAL INCOME TAX AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
14,104 | 12,917 | ||||||||||
PROVISION FOR FEDERAL INCOME TAX |
4,055 | 3,597 | ||||||||||
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE |
10,049 | 9,320 | ||||||||||
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
— | (1,463 | ) | |||||||||
NET INCOME |
$ | 10,049 | $ | 7,857 | ||||||||
BASIC EARNINGS PER SHARE OF COMMON STOCK: |
||||||||||||
Income before cumulative effect of change in accounting principle |
$ | 0.58 | $ | 0.54 | ||||||||
Cumulative effect of change in accounting principle |
— | (0.08 | ) | |||||||||
Total |
$ | 0.58 | $ | 0.46 | ||||||||
DILUTED EARNINGS PER SHARE OF COMMON STOCK: |
||||||||||||
Income before cumulative effect of change in accounting principle |
$ | 0.56 | $ | 0.52 | ||||||||
Cumulative effect of change in accounting principle |
— | (0.08 | ) | |||||||||
Total |
$ | 0.56 | $ | 0.44 | ||||||||
CASH DIVIDENDS PER SHARE OF COMMON STOCK — DECLARED |
$ | .04750 | $ | .04375 | ||||||||
See notes to condensed consolidated financial statements.
4
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (Unaudited)
Amounts in 000’s
| Accumulated | Unvested | ||||||||||||||||||||||||||||||||||
| Additional | Other Com- | Restricted | Compre- | ||||||||||||||||||||||||||||||||
| Common | Paid-In | Retained | prehensive | Treasury | Stock | hensive | |||||||||||||||||||||||||||||
| Stock | Capital | Earnings | Income | Stock | Awards | Total | Income | ||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2001 |
$ | 911 | $ | 20,386 | $ | 264,057 | $ | 45,875 | $ | (38,698 | ) | $ | (655 | ) | $ | 291,876 | |||||||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||||||
Net income |
7,857 | 7,857 | $ | 7,857 | |||||||||||||||||||||||||||||||
Increase in unrealized gain on
marketable securities, net of related
income tax effect of $238 |
390 | 390 | 390 | ||||||||||||||||||||||||||||||||
Other, net of federal income tax of $86 |
160 | 160 | 160 | ||||||||||||||||||||||||||||||||
Total comprehensive income |
$ | 8,407 | |||||||||||||||||||||||||||||||||
Purchase of treasury stock |
(3,290 | ) | (3,290 | ) | |||||||||||||||||||||||||||||||
Issuance of treasury stock for options
exercised and employee savings plan |
63 | 290 | 353 | ||||||||||||||||||||||||||||||||
Cash dividends declared |
(767 | ) | (767 | ) | |||||||||||||||||||||||||||||||
Federal income tax benefit related to the
exercise or granting of stock awards |
1,473 | 1,473 | |||||||||||||||||||||||||||||||||
Amortization and cancellation of
unvested restricted stock awards |
(2 | ) | (5 | ) | 78 | 71 | |||||||||||||||||||||||||||||
BALANCE, MARCH 31, 2002 |
$ | 911 | $ | 21,920 | $ | 271,147 | $ | 46,425 | $ | (41,703 | ) | $ | (577 | ) | $ | 298,123 | |||||||||||||||||||
BALANCE, DECEMBER 31, 2002 |
$ | 911 | $ | 22,516 | $ | 279,826 | $ | 47,573 | $ | (41,605 | ) | $ | (313 | ) | $ | 308,908 | |||||||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||||||
Net income |
10,049 | 10,049 | $ | 10,049 | |||||||||||||||||||||||||||||||
Decrease in unrealized gain on
marketable securities, net of related
income tax effect of $1,251 |
(2,343 | ) | (2,343 | ) | (2,343 | ) | |||||||||||||||||||||||||||||
Other, net of federal income tax of $10 |
(19 | ) | (19 | ) | (19 | ) | |||||||||||||||||||||||||||||
Total comprehensive income |
$ | 7,687 | |||||||||||||||||||||||||||||||||
Purchase of treasury stock |
(380 | ) | (380 | ) | |||||||||||||||||||||||||||||||
Issuance of treasury stock for options
exercised and employee savings plan |
322 | 632 | 954 | ||||||||||||||||||||||||||||||||
Cash dividends declared |
(836 | ) | (836 | ) | |||||||||||||||||||||||||||||||
Amortization and cancellation of
unvested restricted stock awards |
71 | 71 | |||||||||||||||||||||||||||||||||
BALANCE, MARCH 31, 2003 |
$ | 911 | $ | 22,838 | $ | 289,039 | $ | 45,211 | $ | (41,353 | ) | $ | (242 | ) | $ | 316,404 | |||||||||||||||||||
See notes to condensed consolidated financial statements.
5
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE-MONTHS ENDED MARCH 31, 2003 AND 2002
Amount in 000’s
| 2003 | 2002 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|||||||||||
Net income |
$ | 10,049 | $ | 7,857 | |||||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
|||||||||||
Depreciation and amortization |
2,144 | 2,087 | |||||||||
Cumulative effect of change in accounting for goodwill |
— | 2,251 | |||||||||
Net realized investment losses (gains) |
862 | (145 | ) | ||||||||
Decrease in unearned insurance premiums |
(19,621 | ) | (5,064 | ) | |||||||
Decrease in deferred insurance policy acquisition costs |
5,454 | 3,292 | |||||||||
Decrease (increase) in reinsurance recoverables and prepaid
reinsurance premiums |
4,368 | (6 | ) | ||||||||
Decrease in net accounts receivable |
4,272 | 1,699 | |||||||||
Decrease in insurance loss reserves |
(3,312 | ) | (1,809 | ) | |||||||
Increase (decrease) in funds held under reinsurance
agreements and reinsurance payables |
1,126 | (4,065 | ) | ||||||||