UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| For the quarterly period ended | September 30, 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 November 1, 2003 was 17,641,529.
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
Amounts in 000’s
| (Unaudited) | |||||||||||
| Sept. 30, | Dec. 31, | ||||||||||
| ASSETS | 2003 | 2002 | |||||||||
MARKETABLE SECURITIES AVAILABLE FOR SALE: |
|||||||||||
Fixed income (cost, $608,998 at September 30, 2003 and
$572,768 at December 31, 2002) |
$ | 639,034 | $ | 600,920 | |||||||
Equity (cost, $87,740 at September 30, 2003 and $91,239
at December 31, 2002) |
153,633 | 138,838 | |||||||||
Total |
792,667 | 739,758 | |||||||||
CASH |
6,308 | 5,975 | |||||||||
ACCOUNTS RECEIVABLE — NET |
94,372 | 91,633 | |||||||||
REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS |
74,258 | 76,626 | |||||||||
PROPERTY, PLANT AND EQUIPMENT — NET |
69,410 | 61,510 | |||||||||
DEFERRED INSURANCE POLICY ACQUISITION COSTS |
93,936 | 96,396 | |||||||||
OTHER ASSETS |
18,445 | 18,776 | |||||||||
TOTAL ASSETS |
$ | 1,149,396 | $ | 1,090,674 | |||||||
See notes to condensed consolidated financial statements.
2
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
Amounts in 000’s
| (Unaudited) | ||||||||||
| Sept. 30, | Dec. 31, | |||||||||
| LIABILITIES & SHAREHOLDERS' EQUITY | 2003 | 2002 | ||||||||
UNEARNED INSURANCE PREMIUMS |
$ | 405,838 | $ | 406,311 | ||||||
INSURANCE LOSS RESERVES |
198,159 | 164,717 | ||||||||
INSURANCE COMMISSIONS PAYABLE |
31,598 | 30,654 | ||||||||
FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES |
6,095 | 2,977 | ||||||||
LONG-TERM DEBT |
55,447 | 47,163 | ||||||||
OTHER NOTES PAYABLE: |
||||||||||
Banks |
19,000 | 39,000 | ||||||||
Commercial paper |
3,267 | 4,238 | ||||||||
Total |
22,267 | 43,238 | ||||||||
DEFERRED FEDERAL INCOME TAX |
42,775 | 35,642 | ||||||||
OTHER PAYABLES AND ACCRUALS |
53,280 | 51,064 | ||||||||
COMMITMENTS AND CONTINGENCIES |
— | — | ||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||
Common stock (issued and outstanding: 17,626 shares at
September 30, 2003 and 17,566 shares at December 31,
2002 after deducting treasury stock of 4,230 shares and
4,290 shares, respectively) |
911 | 911 | ||||||||
Additional paid-in capital |
23,200 | 22,516 | ||||||||
Retained earnings |
290,636 | 279,826 | ||||||||
Accumulated other comprehensive income |
60,798 | 47,573 | ||||||||
Treasury stock — at cost |
(41,512 | ) | (41,605 | ) | ||||||
Unvested restricted stock awards |
(96 | ) | (313 | ) | ||||||
Total |
333,937 | 308,908 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 1,149,396 | $ | 1,090,674 | ||||||
See notes to condensed consolidated financial statements.
3
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Amounts in 000’s (except per share information)
| Nine-Mos. Ended Sept. 30, | Three-Mos. Ended Sept. 30, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
REVENUES: |
||||||||||||||||||||
Insurance: |
||||||||||||||||||||
Premiums earned |
$ | 474,770 | $ | 425,794 | $ | 164,290 | $ | 148,417 | ||||||||||||
Net investment income |
24,634 | 26,114 | 8,195 | 8,706 | ||||||||||||||||
Net realized investment gains (losses) |
2,240 | (6,968 | ) | 1,190 | (5,607 | ) | ||||||||||||||
Other insurance income |
10,565 | 9,799 | 3,568 | 3,460 | ||||||||||||||||
Transportation |
19,736 | 16,815 | 6,915 | 5,404 | ||||||||||||||||
Other |
207 | 437 | 64 | 96 | ||||||||||||||||
Total |
532,152 | 471,991 | 184,222 | 160,476 | ||||||||||||||||
COSTS AND EXPENSES: |
||||||||||||||||||||
Insurance: |
||||||||||||||||||||
Losses and loss adjustment expenses |
297,222 | 250,686 | 105,139 | 98,473 | ||||||||||||||||
Commissions and other policy acquisition costs |
133,676 | 124,049 | 44,953 | 41,704 | ||||||||||||||||
Operating and administrative expenses |
63,335 | 62,655 | 21,612 | 19,685 | ||||||||||||||||
Transportation operating expenses |
18,756 | 16,666 | 6,339 | 5,118 | ||||||||||||||||
Interest expense |
2,782 | 2,703 | 961 | 850 | ||||||||||||||||
Total |
515,771 | 456,759 | 179,004 | 165,830 | ||||||||||||||||
INCOME (LOSS) BEFORE FEDERAL INCOME TAX
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE |
16,381 | 15,232 | 5,218 | (5,354 | ) | |||||||||||||||
PROVISION (CREDIT) FOR FEDERAL INCOME TAX |
3,060 | 2,625 | 929 | (2,739 | ) | |||||||||||||||
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE |
13,321 | 12,607 | 4,289 | (2,615 | ) | |||||||||||||||
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE — NET |
— | (1,463 | ) | — | — | |||||||||||||||
NET INCOME (LOSS) |
$ | 13,321 | $ | 11,144 | $ | 4,289 | $ | (2,615 | ) | |||||||||||
BASIC EARNINGS (LOSSES) PER SHARE
OF COMMON STOCK: |
||||||||||||||||||||
Income before change in accounting principle |
$ | 0.77 | $ | 0.72 | $ | 0.25 | $ | (0.15 | ) | |||||||||||
Cumulative effect of change in accounting principle |
— | (0.08 | ) | — | — | |||||||||||||||
Total |
$ | 0.77 | $ | 0.64 | $ | 0.25 | $ | (0.15 | ) | |||||||||||
DILUTED EARNINGS (LOSSES) PER SHARE
OF COMMON STOCK: |
||||||||||||||||||||
Income before change in accounting principle |
$ | 0.74 | $ | 0.70 | $ | 0.23 | $ | (0.15 | ) | |||||||||||
Cumulative effect of change in accounting principle |
— | (0.08 | ) | — | — | |||||||||||||||
Total |
$ | 0.74 | $ | 0.62 | $ | 0.23 | $ | (0.15 | ) | |||||||||||
CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK |
$ | .14250 | $ | .13125 | $ | 0.04750 | $ | 0.04375 | ||||||||||||
See notes to condensed consolidated financial statements.
4
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
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 | ||||||||||||||||||||||||||||||
|
|
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BALANCE,
DECEMBER 31, 2001 |
$ | 911 | $ | 20,386 | $ | 264,057 | $ | 45,875 | $ | (38,698 | ) | $ | (655 | ) | $ | 291,876 | |||||||||||||||||||||
Comprehensive
income: |
|||||||||||||||||||||||||||||||||||||
Net
income |
11,144 | 11,144 | $ | 11,144 | |||||||||||||||||||||||||||||||||
Decrease
in unrealized gain on marketable securities, net of related income tax
effect of $2,253 |
(4,366 | ) | (4,366 | ) | (4,366 | ) | |||||||||||||||||||||||||||||||
Other,
net of federal income tax of $654 |
(1,215 | ) | (1,215 | ) | (1,215 | ) | |||||||||||||||||||||||||||||||
Total
comprehensive income |
$ | 5,563 | |||||||||||||||||||||||||||||||||||
Purchase
of treasury stock |
(3,593 | ) | (3,593 | ) | |||||||||||||||||||||||||||||||||
Issuance
of treasury stock for options exercised and employee savings plan |
484 | 853 | 1,337 | ||||||||||||||||||||||||||||||||||
Cash
dividends declared |
(2,304 | ) | (2,304 | ) | |||||||||||||||||||||||||||||||||
Federal
income tax benefit related to the exercise or granting of stock awards |
1,561 | 1,561 | |||||||||||||||||||||||||||||||||||
Amortization
and cancellation of unvested restricted stock awards |
(26 | ) | (27 | ) | 249 | 196 | |||||||||||||||||||||||||||||||
BALANCE,
SEPTEMBER 30, 2002 |
$ | 911 | $ | 22,405 | $ | 272,897 | $ | 40,294 | $ | (41,465 | ) | $ | (406 | ) | $ | 294,636 | |||||||||||||||||||||
BALANCE,
DECEMBER 31, 2002 |
$ | 911 | $ | 22,516 | $ | 279,826 | $ | 47,573 | $ | (41,605 | ) | $ | (313 | ) | $ | 308,908 | |||||||||||||||||||||
Comprehensive
income: |
|||||||||||||||||||||||||||||||||||||
Net
income |
13,321 | 13,321 | $ | 13,321 | |||||||||||||||||||||||||||||||||
Increase
in unrealized gain on marketable securities, net of related income tax
effect of $7,070 |
13,108 | 13,108 | 13,108 | ||||||||||||||||||||||||||||||||||
Other,
net of federal income tax of $63 |
117 | 117 | 117 | ||||||||||||||||||||||||||||||||||
Total
comprehensive income |
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