-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BALtWOiXWwB6Wxf41Yu78xIB7x9lNR3wadZL7Ep+BRzB1jw0YY4gJw9lUCVtZaHb vZ8bZ9c3PdT/TuJAZsfQTw== /in/edgar/work/0000066025-00-000008/0000066025-00-000008.txt : 20001114 0000066025-00-000008.hdr.sgml : 20001114 ACCESSION NUMBER: 0000066025-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 310742526 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06026 FILM NUMBER: 759070 BUSINESS ADDRESS: STREET 1: 7000 MIDLAND BLVD STREET 2: P O BOX 125 CITY: AMELIA STATE: OH ZIP: 45102-2607 BUSINESS PHONE: 5139437100 MAIL ADDRESS: STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 10-Q 1 0001.txt 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_________________September 30, 2000_______________ 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 incorporation (I.R.S. Employer Identification or organization) No.) 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 September 30, 2000 was 9,334,875. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 Amounts in 000's (Unaudited) Sept. 30, Dec. 31, ASSETS 2000 1999 ---------- ---------- MARKETABLE SECURITIES AVAILABLE FOR SALE: Fixed income (cost, $479,003 at September 30, 2000 and $488,492 at December 31, 1999) $ 478,144 $ 479,772 Equity (cost, $72,168 at September 30, 2000 and $46,400 at December 31, 1999) 156,141 131,087 ---------- ---------- Total 634,285 610,859 ---------- ---------- CASH 9,520 10,098 ---------- ---------- ACCOUNTS RECEIVABLE - NET 70,932 60,426 ---------- ---------- REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS 54,483 43,151 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - NET 57,435 62,585 ---------- ---------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 93,777 85,168 ---------- ---------- OTHER ASSETS 20,432 15,770 ---------- ---------- TOTAL ASSETS $ 940,864 $ 888,057 ========== ========== See notes to condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 Amounts in 000's (Unaudited) Sept. 30, Dec. 31, LIABILITIES & SHAREHOLDERS' EQUITY 2000 1999 ---------- ---------- UNEARNED INSURANCE PREMIUMS $ 357,221 $ 312,838 ---------- ---------- INSURANCE LOSS RESERVES 134,979 133,713 ---------- ---------- INSURANCE COMMISSIONS PAYABLE 22,163 20,291 ---------- ---------- FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES 3,622 3,097 ---------- ---------- LONG-TERM DEBT 40,544 44,288 ---------- ---------- OTHER NOTES PAYABLE: Banks 2,000 20,000 Commercial paper 5,621 5,550 Total 7,621 25,550 ---------- ---------- DEFERRED FEDERAL INCOME TAX 31,040 28,171 ---------- ---------- OTHER PAYABLES AND ACCRUALS 61,328 62,107 ---------- ---------- COMMITMENTS AND CONTINGENCIES - - ---------- ---------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 9,335 shares at September 30, 2000 and 9,515 shares at December 31, 1999 after deducting treasury stock of 1,593 shares and 1,413 shares, respectively) 911 911 Additional paid-in capital 19,728 18,583 Retained earnings 229,329 207,005 Accumulated other comprehensive income 54,034 49,388 Treasury stock - at cost (20,229) (15,786) Unvested restricted stock awards (1,427) (2,099) ---------- ---------- Total 282,346 258,002 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 940,864 $ 888,057 ========== ========== See notes to condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Amounts in 000's (except per share information) Nine-Mos. Three-Mos. Ended Sept. 30, Ended Sept. 30, --------------------- --------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- REVENUES: Insurance: Premiums earned $ 339,564 $ 298,152 $ 116,800 $ 100,178 Net investment income 22,378 18,619 7,926 6,347 Net realized investment gains 3,826 2,564 625 825 Other insurance income 6,560 5,136 2,386 3,036 Transportation 23,848 22,728 7,814 7,170 Other 801 1,077 242 289 ---------- ---------- ---------- ---------- Total 396,977 348,276 135,793 117,845 ---------- ---------- ---------- ---------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 179,396 158,316 62,457 54,423 Commissions and other policy acquisition costs 103,767 85,627 35,728 26,934 Operating and administrative expenses 53,622 47,207 18,278 17,275 Transportation operating expenses 20,530 21,649 7,034 6,719 Interest expense 3,036 3,087 980 948 Other operating and administrative expenses 1,647 4,277 367 1,462 ---------- ---------- ---------- ---------- Total 361,998 320,163 124,844 107,761 ---------- ---------- ---------- ---------- INCOME BEFORE FEDERAL INCOME TAX 34,979 28,113 10,949 10,084 PROVISION FOR FEDERAL INCOME TAX 10,541 7,792 3,024 2,834 ---------- ---------- ---------- ---------- NET INCOME $ 24,438 $ 20,321 $ 7,925 $ 7,250 ========== ========== ========== ========== BASIC EARNINGS PER SHARE OF COMMON STOCK: $ 2.68 $ 2.23 $ 0.88 $ 0.80 ========== ========== ========== ========== DILUTED EARNINGS PER SHARE OF COMMON STOCK: $ 2.58 $ 2.15 $ 0.83 $ 0.77 ========== ========== ========== ========== CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.2250 $ 0.2025 $ 0.0750 $ 0.0675 ========== ========== ========== ========== See notes to condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 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, 1998 $ 911 $ 15,947 $ 178,398 $ 70,507 $(15,293) $(1,638) $ 248,832 Comprehensive income: Net income 20,321 20,321 $ 20,321 Decrease in unrealized gain on marketable securities, net of related income tax effect of $10,309 (19,141) (19,141) (19,141) --------- Total comprehensive income $ 1,180 ========= Purchase of treasury stock (2,914) (2,914) Issuance of treasury stock for options exercised and employee savings plan 106 1,734 1,840 Cash dividends declared (1,929) (1,929) Restricted stock awards 1,411 1,267 (2,678) - Amortization and cancellation of unvested restricted stock awards (23) (19) 998 956 --------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 1999 $ 911 $ 17,441 $ 196,790 $ 51,366 $(15,225) $(3,318) $ 247,965 ================================================================================= BALANCE, DECEMBER 31, 1999 $ 911 $ 18,583 $ 207,005 $ 49,388 $(15,786) $(2,099) $ 258,002 Comprehensive income: Net income 24,438 24,438 $ 24,438 Increase in unrealized gain on marketable securities, net of related income tax effect of $2,500 4,646 4,646 4,646 --------- Total comprehensive income $ 29,084 ========= Purchase of treasury stock (4,645) (4,645) Issuance of treasury stock for options exercised and employee savings plan 189 324 513 Cash dividends declared (2,114) (2,114) Federal income tax benefit related to the exercise or granting of stock awards 263 263 Revaluation of stock options relating to a plan amendment 776 776 Amortization and cancellation of unvested restricted stock awards (83) (122) 672 467 --------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2000 $ 911 $ 19,728 $ 229,329 $ 54,034 $(20,229) $(1,427) $ 282,346 ================================================================================= See notes to condensed consolidated financial statements.
THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Amount in 000's 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 24,438 $ 20,321 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,853 6,848 Net realized investment gains (3,826) (2,564) Increase in unearned insurance premiums 44,383 35,837 Increase in reinsurance recoverables and prepaid reinsurance premiums (11,332) (31,186) Increase in net accounts receivable (10,397) (9,408) Increase in deferred insurance policy acquisition costs (8,609) (15,415) Decrease (increase) in other assets (2,377) 129 Increase in insurance commissions payable 1,872 1,376 Increase in insurance loss reserves 1,266 33,283 Increase (decrease) in funds held under reinsurance agreements and reinsurance payables 525 (276) Increase in deferred federal income tax 369 - Decrease in other accounts payable and accruals (166) (2,080) Other-net (476) 2,035 ---------- ---------- Net cash provided by operating activities 42,523 38,900 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (173,181) (113,943) Sale of marketable securities 141,709 60,000 Maturity of marketable securities 24,793 25,203 Decrease (increase) in cash equivalent marketable securities (6,377) 14,713 Net cash used in business acquisitions (2,471) (2,636) Sale of property, plant and equipment 2,239 8,747 Acquisition of property, plant and equipment (1,955) (2,521) ---------- ---------- Net cash used in investing activities (15,243) (10,437) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in net short-term borrowings (17,929) (14,116) Purchase of treasury stock (4,645) (2,914) Repayment of long-term debt (3,744) (9,642) Dividends paid (2,053) (1,871) Issuance of treasury stock 513 1,840 ---------- ---------- Net cash used in financing activities (27,858) (26,703) ---------- ---------- NET INCREASE (DECREASE) IN CASH (578) 1,760 CASH AT BEGINNING OF PERIOD 10,098 3,687 ---------- ---------- CASH AT END OF PERIOD $ 9,520 $ 5,447 ========== ========== INTEREST PAID $ 3,155 $ 3,085 INCOME TAXES PAID $ 8,957 $ 8,500 See notes to the condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 2000 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of The Midland Company and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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, 1999 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the nine and three-month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 1999 included in the Company's Annual Report on Form 10-K. Certain reclassifications (minor in nature) have been made to the 1999 amounts to conform to 2000 classifications. 2. EARNINGS PER SHARE Earnings per share (EPS) of common stock amounts are computed by dividing net income by the weighted average number of shares outstanding during the period for basic EPS, plus the dilutive share equivalents for stock options and restricted stock awards for diluted EPS. Shares used for EPS calculations were as follows (000's): For Basic EPS For Diluted EPS ------------- --------------- Nine months ended September 30: 2000 9,133 9,454 ===== ===== 1999 9,110 9,444 ===== ===== 3. INCOME TAXES The federal income tax provisions for the three and nine-month periods ended September 30, 2000 and 1999 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (000's): Nine-Mos. Three-Mos. Ended Sept. 30, Ended Sept. 30, 2000 1999 2000 1999 -------- -------- -------- -------- Federal income tax at statutory rate $12,243 $ 9,840 $ 3,833 $ 3,530 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (2,514) (2,310) (854) (787) Federal excise tax 529 -- (41) -- Other - net 283 262 86 91 -------- -------- -------- -------- Provision for federal income tax $10,541 $ 7,792 $ 3,024 $ 2,834 ======== ======== ======== ======== THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) 4. SEGMENT DISCLOSURES Since the Company's annual report for 1999, there have been no changes in reportable segments or the manner in which the Company determines reportable segments or measures segment profit or loss. Summarized segment information for the interim periods for 2000 and 1999 is as follows (000's): Nine Months Three Months Ended Sept. 30, 2000 Ended Sept. 30, 2000 ------------------------------- ---------------------- Revenues- Revenues- Total External Pre-Tax External Pre-Tax Assets Customers Income Customers Income -------- ---------- ---------- ----------- --------- Reportable Segments: Insurance: Manufactured housing n/a $231,104 $ 28,401 $78,144 $ 9,606 Other n/a 115,020 7,814 41,042 2,170 Unallocated $898,530 - (1,550) - (574) Transportation 28,527 23,848 2,720 7,814 681 Corporate and all other - - (2,406) - (934) ---------- --------- $ 34,979 $10,949 ========== ========= Nine Months Three Months Ended Sept. 30, 1999 Ended Sept. 30, 1999 ------------------------------- ---------------------- Revenues- Revenues- Total External Pre-Tax External Pre-Tax Assets Customers Income Customers Income -------- ---------- ---------- ----------- --------- Reportable Segments: Insurance: Manufactured housing n/a $209,203 $ 31,046 $69,857 $10,881 Other n/a 94,089 2,745 33,361 970 Unallocated $818,590 - (895) - (250) Transportation 36,347 22,728 925 7,170 415 Corporate and all other - - (5,708) - (1,932) ---------- --------- $ 28,113 $10,084 ========== ========= Intersegment revenues are insignificant. Revenues reported above, by definition, exclude investment income and realized gains. Certain amounts are not allocated to segments ("n/a" above) by the Company. 5. NEW ACCOUNTING STANDARDS Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" during 1998. SFAS No. 133, as amended by SFAS Nos. 137 and 138, is effective for fiscal years beginning after June 15, 2000. Adoption of SFAS 133 is not expected to have a material impact on the reported results of operations or financial position of the Company. INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying condensed balance sheet of the Midland Company and subsidiaries as of September 30, 2000, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2000 and 1999 and of changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 2000 and 1999. 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 auditing standards generally accepted in the United States of America, 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 condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Midland Company and subsidiaries as of December 31, 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 10, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Cincinnati, Ohio October 19, 2000 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 1999 Annual Report on Form 10-K. Except as discussed below, no material changes have taken place since that date and, accordingly, the discussion is not repeated herein. RESULTS OF OPERATIONS Insurance - --------- Insurance Premiums Direct and assumed written premiums generated from American Modern Insurance Group's (AMIG) property and casualty and life insurance operations increased 4.0% in the third quarter to $140.8 million from $135.4 million for the same quarter of 1999. Net earned premiums for the third quarter of 2000 increased 16.6% to $116.8 million from $100.2 million for the comparable quarter in 1999. On a year-to-date basis, direct and assumed written premiums generated by AMIG's insurance operations increased 11% to $411.9 million from $371.2 million for the same nine-month period in 1999. Year-to-date net earned premiums increased 13.9% to $339.6 million from $298.2 million in 1999. The disparity in growth rates between direct and assumed written premiums and net earned premiums is primarily due to the impact of multi-year policies generated in prior periods coupled with changes in the levels of premiums ceded under a quota share reinsurance treaty. Direct and assumed written premiums increased in the third quarter of 2000 due primarily to increased volume in non-manufacturing and housing related property and casualty insurance products which increased 5.8% from $40.6 million in the third quarter of 1999 to $42.9 million in the third quarter of 2000. Manufactured home and related coverages decreased 1.2% from $88.2 million in the third quarter of 1999 to $87.1 million in the third quarter of 2000. The decrease in manufactured home and related direct and assumed written premium is due to the general downturn in the manufactured housing industry which has experienced a 33% reduction in shipments over the last twelve months. On a year-to-date basis, manufactured home and related coverages direct and assumed written premiums increased 7.8% from $243.5 million in 1999 to $262.4 million in 2000. Also on a year-to-date basis, direct and assumed written premiums of all other specialty insurance products collectively increased 5.4% from $114.6 million in 1999 to $120.8 million in 2000. Investment Income and Realized Capital Gains AMIG's net investment income (before taxes and excluding capital gains) increased 24.9% to $7.9 million in the third quarter of 2000 from $6.3 million for the third quarter of 1999. On a year-to-date basis, AMIG's net investment income increased 20.2% to $22.4 million from $18.6 million for the same nine- month period in 1999. Investment income increased due to the continued growth in AMIG's investment portfolio (resulting from the investment of insurance operating cash flow) coupled with higher yields from AMIG's fixed income investment portfolio. AMIG's net realized capital gains (after-tax) decreased to $0.4 million, $0.03 per share (diluted), for the third quarter of 2000, from $0.5 million, $0.06 per share (diluted), for the same quarter in 1999. On a year-to-date basis, AMIG's net realized capital gains (after-tax) increased to $2.5 million, $0.26 per share (diluted), from $1.7 million, $0.18 per share (diluted), for the same nine-month period in 1999. Losses and Loss Adjustment Expenses AMIG's losses and loss adjustment expenses in the third quarter increased 14.8% to $62.5 million from $54.4 million for the third quarter of 1999. Excluding catastrophe losses, the property and casualty combined ratio for the third quarter was 96.8% compared to 89.0% for the same quarter in 1999. This increase is due principally to higher levels of non-catastrophe weather related losses in the third quarter of 2000 compared to 1999. AMIG's weather- related catastrophe losses for the third quarter of 2000 amounted to $0.7 million on a pre-tax basis compared with $7.1 million for the same quarter of 1999. These losses had an after-tax impact of approximately $0.05 per share (diluted) in the third quarter of 2000 compared to $0.49 per share (diluted) in the third quarter of 1999. On a year-to-date basis, AMIG's losses and loss adjustment expenses increased 13.3% to $179.4 million from $158.3 million for the same nine-month period in 1999. Excluding catastrophe losses, the property and casualty combined ratio for the first nine months of 2000 was 94.6% compared to 89.2% for the same period in 1999. Again, this increase is due primarily to an overall increase in non-catastrophe weather related losses in 2000 compared to 1999. AMIG's weather-related catastrophe losses for the first nine months of 2000 amounted to $8.4 million on a pre-tax basis compared with $22.1 million for the same period in 1999. These losses had an after-tax impact of approximately $0.58 per share (diluted) in the first nine months of 2000 compared to $1.52 per share (diluted) in the same period of 1999. Commissions, Other Policy Acquisition Costs and Other Operating and Administration Expenses AMIG's commissions and other policy acquisition costs and other operating and administrative expenses for the third quarter of 2000 increased 22.2% to $54.0 million from $44.2 million in the third quarter of 1999. On a year-to-date basis, AMIG's commissions and other policy acquisition costs and other operating and administrative expenses for the first nine months of 2000 increased 18.5% to $157.4 million from $132.8 million for the same nine-month period in 1999. These increases are due primarily to continued growth in net earned premiums plus an increase in the commission ratio due to a change in a quota share reinsurance arrangement with one of the major national accounts. Property and Casualty Underwriting Results AMIG's property and casualty operations generated a pre-tax underwriting income of $3.0 million for the third quarter of 2000 compared to a pre-tax underwriting profit of $4.1 million for the same quarter in 1999. For the current quarter, AMIG's combined ratio (ratio of losses and expenses as a percent of earned premium) for its property and casualty business was 97.4% compared to 95.8% in the third quarter of 1999. On a year-to-date basis, AMIG's property and casualty pre-tax underwriting income decreased from $11.1 million in 1999 to $9.4 million during the first nine months of 2000. AMIG's combined ratio for its property and casualty business was 97.2% for the first nine months of 2000 compared to 96.2% for the same period in 1999. Transportation - -------------- M/G Transport, the Company's transportation subsidiary, reported revenues for the third quarter of $7.8 million compared with $7.2 million in the third quarter of 1999. Pre-tax operating profit increased from $0.4 million in 1999 to $0.7 million in 2000. The improved operating performance in the third quarter of 2000 was due primarily to increased demand for barite. On a year-to-date basis, revenues (excluding $1.0 million in capital gains) increased $0.1 from $22.7 million in 1999 to $22.8 million in 2000. Included in revenues for the first nine months of 2000 is a one-time gain of $1.0 million from the sale of transportation equipment. This gain has been treated as a capital gain and has been excluded from reported operating earnings. Operating pre-tax income increased $0.8 million in the first nine-months of 2000 from $0.9 million in 1999 to $1.7 million in 2000 due to a reduction of $1.1 million in operating costs. Corporate - --------- During the first nine months of 2000, Midland recorded a gain of $7.0 million from the curtailment of a portion of its pension plan. This gain was offset by excise taxes on the withdrawal of a portion of overfunded pension assets and by one-time expenses related to consulting agreements with retired executives. These transactions-exclusive of the excise tax-were included in the income statement as a credit to other operating and administrative expenses. The excise tax component was included in the Provision for Federal Income Tax. The net impact of these transactions was a net after-tax charge to earnings of one cent per share. LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION Cash flows from operating and investing activities were used to purchase marketable securities and to decrease the Company's short-term borrowings (Other Notes Payable). Management expects that cash and other liquid investments, coupled with future operating cash flows, will be readily available to meet the Company's operating cash requirements for the next twelve months. The Company declared $2.1 million in dividends to its shareholders during the first nine months of 2000. OTHER MATTERS Comprehensive Income - -------------------- The only difference between net income and comprehensive income is the net after-tax change in unrealized gains on marketable securities. For the three and nine-month periods ended September 30, 2000 and 1999, such net unrealized gains increased (decreased), net of related income tax effects, by the following amounts (in thousands): 2000 1999 -------- --------- Three months ended September 30 $ 5,323 $( 7,408) Nine months ended September 30 $ 4,646 $(19,141) Changes in net unrealized gains on marketable securities result from both market conditions and realized gains recognized in a reporting period. Acquisitions - ------------ AMIG acquired the operating assets of a relatively small business during the first nine months of 2000 and also acquired the operating assets of several businesses during the comparable period in 1999. These acquisitions were not material to the capital and liquidity of the Company. Management pursued these acquisitions to afford AMIG the opportunity to expand its service contract, loan facilitation, financial and insurance capabilities. Private Securities Reform Act of 1995 - Forward Looking Statements Disclosure - ----------------------------------------------------------------------------- Certain statements made in this report are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include certain discussions concerning the year 2000 and beyond. The forward-looking statements involve risk and uncertainties that may cause results to differ materially from those anticipated in those statements. Factors that might cause results to differ from those anticipated include, without limitation, adverse weather conditions; fluctuations in the investment markets; changes in the retail marketplace; changes in the laws or regulations affecting the operations of the Company or its subsidiaries; changes in the business tactics or strategies of the Company, its subsidiaries or its current or anticipated business partners; acquisitions or divestitures; changes in market forces; litigation; and the other risk factors that have been identified in the Company's filings with the SEC, any one of which might materially affect the operations of the Company or its subsidiaries. Any forward-looking statements speak only as of the date made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risks associated with the Company's investment portfolios have not changed materially from those disclosed at year-end 1999. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES September 30, 2000 Item 1. Legal Proceedings None. Item 2. Changes 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. Exhibit 27 - Financial Data Schedule b) Reports on Form 8-K - None. SIGNATURE 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 duly authorized. THE MIDLAND COMPANY Date_________October 19, 2000_________ /s/John I. Von Lehman___________ John I. Von Lehman, Executive Vice President, Chief Financial Officer and Secretary EX-15 2 0002.txt 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 condensed interim financial information of the Midland Company and subsidiaries for the periods ended September 30, 2000 and 1999, as indicated in our report dated October 19, 2000; 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 September 30, 2000, is incorporated by reference in Registration Statements No. 33-64821 on Form S-3 and Nos. 33-48511 and 333-40560 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. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Cincinnati, Ohio October 19, 2000 EX-27 3 0003.txt
7 9-MOS DEC-31-2000 SEP-30-2000 478,144,000 0 0 156,141,000 0 0 634,285,000 9,520,000 20,330,000 93,777,000 940,864,000 134,979,000 357,221,000 0 25,785,000 48,165,000 0 0 911,000 281,435,000 940,864,000 339,564,000 22,378,000 3,826,000 31,209,000 179,396,000 103,767,000 53,622,000 34,979,000 10,541,000 24,438,000 0 0 0 24,438,000 2.68 2.58 89,325,000 0 0 0 0 89,325,000 0
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