-----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, RI91Sy/AzsOiz4sG/HOZmK401HcCn8Mmy13HJYq6Ec1S3WWItisCKSADPgbRe1tB qML66uUL6dxPzhuREHgI4g== 0000066025-98-000008.txt : 19980806 0000066025-98-000008.hdr.sgml : 19980806 ACCESSION NUMBER: 0000066025-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980805 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [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: 98677625 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 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_________________June 30, 1998____________________ 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, 1998 was 9,314,631. PART 1. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 (Unaudited) June 30, Dec. 31, ASSETS 1998 1997 -------------- -------------- CASH $ 5,357,000 $ 5,277,000 -------------- -------------- MARKETABLE SECURITIES: Fixed income (cost, $400,403,000 at June 30, 1998 and $397,033,000 at December 31, 1997) 407,474,000 404,038,000 Equity (cost, $36,771,000 at June 30, 1998 and $33,928,000 at December 31, 1997) 108,138,000 94,791,000 -------------- -------------- Total 515,612,000 498,829,000 -------------- -------------- RECEIVABLES: Accounts receivable 65,269,000 59,492,000 Less allowance for losses 753,000 753,000 -------------- -------------- Net 64,516,000 58,739,000 -------------- -------------- REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS 40,489,000 49,016,000 -------------- -------------- PROPERTY, PLANT AND EQUIPMENT - AT COST 114,048,000 111,418,000 Less accumulated depreciation and amortization 43,334,000 39,806,000 -------------- -------------- Property, Plant and Equipment - Net 70,714,000 71,612,000 -------------- -------------- OTHER INVESTMENTS IN REAL ESTATE 14,779,000 14,779,000 -------------- -------------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 60,786,000 55,590,000 -------------- -------------- OTHER ASSETS 6,964,000 6,621,000 -------------- -------------- TOTAL $ 779,217,000 $ 760,463,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 (Unaudited) June 30, Dec. 31, LIABILITIES & SHAREHOLDERS' EQUITY 1998 1997 -------------- -------------- NOTES PAYABLE WITHIN ONE YEAR: Banks $ 9,000,000 $ 24,000,000 Commercial paper 6,232,000 5,791,000 -------------- -------------- Total 15,232,000 29,791,000 -------------- -------------- INSURANCE COMMISSIONS PAYABLE 17,641,000 19,033,000 -------------- -------------- OTHER PAYABLES AND ACCRUALS 46,449,000 49,998,000 -------------- -------------- FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES 13,618,000 15,443,000 -------------- -------------- UNEARNED INSURANCE PREMIUMS 249,900,000 240,340,000 -------------- -------------- INSURANCE LOSS RESERVES 133,949,000 120,134,000 -------------- -------------- DEFERRED FEDERAL INCOME TAX 29,787,000 26,180,000 -------------- -------------- LONG-TERM DEBT 60,571,000 62,518,000 -------------- -------------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 9,315,000 shares at June 30, 1998 and 9,334,000 shares at December 31, 1997 after deducting treasury stock of 1,613,000 shares and 1,594,000 shares, respectively - The December 31, 1997 amounts have been adjusted for the three-for-one stock split - Note 2) 911,000 911,000 Additional paid-in capital 15,530,000 15,359,000 Retained earnings 162,311,000 153,797,000 Accumulated other comprehensive income (net unrealized gain on marketable securities) 50,980,000 44,123,000 Treasury stock - at cost (15,627,000) (14,704,000) Unvested restricted stock awards (2,035,000) (2,460,000) -------------- -------------- Total 212,070,000 197,026,000 -------------- -------------- TOTAL $ 779,217,000 $ 760,463,000 ============== ============== See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Six-Mos. Ended June 30, Three-Mos. Ended June 30, --------------------------- --------------------------- 1998 1997 1998 1997 REVENUES: ------------- ------------- ------------- ------------- Insurance: Premiums earned $184,533,000 $153,682,000 $ 94,054,000 $ 78,412,000 Net investment income 11,784,000 10,199,000 5,942,000 5,166,000 Net realized investment gains 3,268,000 1,409,000 2,229,000 31,000 Other insurance income 1,063,000 1,515,000 578,000 794,000 Transportation 16,525,000 15,888,000 7,288,000 8,319,000 Other 495,000 117,000 340,000 61,000 ------------- ------------- ------------- ------------- Total 217,668,000 182,810,000 110,431,000 92,783,000 ------------- ------------- ------------- ------------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 107,796,000 83,337,000 59,675,000 41,738,000 Commissions and other policy acquisition costs 51,061,000 43,660,000 25,548,000 21,777,000 Operating and administrative expenses 27,658,000 23,596,000 12,803,000 11,962,000 Transportation operating expenses 13,873,000 14,211,000 5,960,000 7,166,000 Interest expense 2,521,000 2,410,000 1,264,000 1,255,000 Other operating and administrative expenses 1,697,000 2,568,000 703,000 1,782,000 ------------- ------------- ------------- ------------- Total 204,606,000 169,782,000 105,953,000 85,680,000 ------------- ------------- ------------- ------------- INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL INCOME TAX 13,062,000 13,028,000 4,478,000 7,103,000 PROVISION FOR FEDERAL INCOME TAX 3,384,000 3,716,000 840,000 2,056,000 ------------- ------------- ------------- ------------- INCOME FROM CONTINUING OPERATIONS 9,678,000 9,312,000 3,638,000 5,047,000 ------------- ------------- ------------- ------------- LOSS FROM DISCONTINUED OPERATIONS LESS RELATED INCOME TAX CREDITS OF $1,196,000 AND $571,000, RESPECTIVELY - (2,242,000) - (1,067,000) ------------- ------------- ------------- ------------- NET INCOME $ 9,678,000 $ 7,070,000 $ 3,638,000 $ 3,980,000 ============= ============= ============= ============= BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Continuing operations $ 1.07 $ 1.04 $ .40 $ .56 Discontinued operations - (.25) - (.12) ------------- ------------- ------------- ------------- Total $ 1.07 $ .79 $ .40 $ .44 ============= ============= ============= ============= DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Continuing operations $ 1.03 $ 1.01 $ .39 $ .55 Discontinued operations - (.24) - (.12) ------------- ------------- ------------- ------------- Total $ 1.03 $ .77 $ .39 $ .43 ============= ============= ============= ============= CASH DIVIDENDS PER SHARE OF COMMON STOCK $ .125 $ .1167 $ .0625 $ .0583 ============= ============= ============= ============= See notes to the consolidated financial statements. All prior period per share amounts have been adjusted for the three-for-one stock split (Note 2). THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (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, 1996 $ 911 $ 14,846 $138,423 $ 23,587 $(16,621) $ (1,458) $159,688 Comprehensive income: Net income 7,070 7,070 $ 7,070 Changes in unrealized gain on marketable securities, net of tax 8,022 8,022 8,022 --------- Total comprehensive income $ 15,092 Issuance of treasury stock, ========= net 35 71 106 Cash dividends declared (1,088) (1,088) Exercise of stock options (20) 67 47 Restricted stock awards 626 1,808 (2,434) - Amortization and cancellation of unvested restricted stock awards (15) (21) 582 546 ------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 1997 $ 911 $ 15,472 $144,405 $ 31,609 $(14,696) $ (3,310) $174,391 ========================================================================================== BALANCE, DECEMBER 31, 1997 $ 911 $ 15,359 $153,797 $ 44,123 $(14,704) $ (2,460) $197,026 Comprehensive income: Net income 9,678 9,678 $ 9,678 Changes in unrealized gain on marketable securities, net of tax 6,857 6,857 6,857 --------- Total comprehensive income $ 16,535 Purchase of treasury stock, ========= net 142 (1,151) (1,009) Cash dividends declared (1,164) (1,164) Exercise of stock options 59 279 338 Amortization and cancellation of unvested restricted stock awards (30) (51) 425 344 ------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 1998 $ 911 $ 15,530 $162,311 $ 50,980 $(15,627) $ (2,035) $212,070 ========================================================================================== See notes to the consolidated financial statements.
THE MIDLAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 1998 1997 Cash Flows from Operating Activities: -------------- -------------- Net income $ 9,678,000 $ 7,070,000 Loss from discontinued operations - 2,242,000 -------------------------------- Income from continuing operations 9,678,000 9,312,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,312,000 5,405,000 Increase in insurance loss reserves 13,815,000 8,236,000 Increase in unearned insurance premiums 9,560,000 7,172,000 Decrease (increase) in reinsurance recoverables and prepaid reinsurance premiums 8,527,000 (1,006,000) Increase in net accounts receivable (5,777,000) (9,080,000) Decrease (increase) in deferred insurance policy acquisition costs (5,196,000) 2,685,000 Increase (decrease) in other accounts payable and accruals (4,131,000) 1,139,000 Increase (decrease) in funds held under reinsurance agreements and reinsurance payables (1,825,000) 2,891,000 Increase (decrease) in insurance commissions payable (1,392,000) 1,310,000 Decrease (increase) in other assets (343,000) 61,000 Decrease in deferred federal income tax (85,000) (173,000) Other-net 26,000 (109,000) -------------------------------- Net cash provided by continuing operations 27,169,000 27,843,000 Net cash used in discontinued operations - (3,500,000) -------------------------------- Net cash provided by operating activities 27,169,000 24,343,000 -------------------------------- Cash Flows from Investing Activities: Purchase of marketable securities (106,332,000) (101,943,000) Sale of marketable securities 61,268,000 54,174,000 Maturity of marketable securities 19,779,000 13,861,000 Decrease in cash equivalent marketable securities 18,796,000 35,854,000 Acquisition of property, plant and equipment (3,183,000) (16,213,000) Sale of property, plant and equipment 400,000 873,000 -------------------------------- Net cash used in investing activities (9,272,000) (13,394,000) -------------------------------- Cash Flows from Financing Activities: Decrease in net short-term borrowings (14,559,000) (8,794,000) Repayment of long-term debt (1,746,000) (1,493,000) Net issuance (purchase) of treasury stock (730,000) 173,000 Dividends paid (581,000) (1,045,000) Payment of capitalized lease obligations (201,000) (183,000) Issuance of long-term debt - 2,300,000 -------------------------------- Net cash used in financing activities (17,817,000) (9,042,000) -------------------------------- Net Increase in Cash 80,000 1,907,000 Cash at Beginning of Period 5,277,000 3,342,000 -------------------------------- Cash at End of Period $ 5,357,000 $ 5,249,000 ================================ See notes to the consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 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, 1997 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, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 1997 included in the Company's Annual Report on Form 10-K. Reclassifications have been made to the 1997 amounts related to the previously reported sale in 1997 by the Company's sportswear subsidiary of substantially all of its assets. Amounts related to this business are reported in the financial statements as discontinued operations. Certain other reclassifications (minor in nature) have been made to the 1997 amounts to conform to 1998 classifications. 2. THREE-FOR-ONE STOCK SPLIT On April 9, 1998, the Company approved a three-for-one stock split effective May 21, 1998 for holders of record on April 30, 1998. Accordingly, data related to the Company's common stock (number of shares, average shares outstanding, earnings per share and dividends per share) have been adjusted for the prior periods to reflect the impact of this stock split. 3. 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: For Basic EPS For Diluted EPS ------------- --------------- Six months ended June 30: 1998 9,004,000 9,403,000 ========= ========= 1997 8,916,000 9,217,000 ========= ========= 4. INCOME TAXES The federal income tax provisions for the three and six-month periods ended June 30, 1998 and 1997 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, ----------------------- ----------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Federal income tax at statutory rate $4,572,000 $3,357,000 $1,567,000 $1,913,000 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (1,013,000) (765,000) (562,000) (387,000) Investment tax credits (84,000) (182,000) (42,000) (91,000) Other - net (91,000) 110,000 (123,000) 50,000 ----------- ----------- ----------- ----------- Provision for federal income tax $3,384,000 $2,520,000 $ 840,000 $1,485,000 =========== =========== =========== =========== THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. SUPPLEMENTAL CASH FLOW DISCLOSURES The Company paid interest of $2,421,000 and $3,296,000 in the first six months of 1998 and 1997, respectively. The Company paid income taxes of $3,223,000 and $955,000 during the first six months of 1998 and 1997, respectively. In January, 1997, the Company issued 196,050 shares (on a post-split basis) of treasury stock under a restricted stock award program that decreased treasury stock by approximately $1,808,000 and also increased paid-in capital by approximately $626,000. 6. COMPREHENSIVE INCOME Statement of Financial Accounting Standards ("SFAS") No. 130 requires the reporting of comprehensive income, and the Company adopted SFAS No. 130 beginning in 1998. Comprehensive income for the Company consists of net income and the after-tax effect of changes in the market values of the Company's marketable securities. Comprehensive income is disclosed in the "Consolidated Statements of Changes in Shareholders' Equity". 7. SEGMENT DISCLOSURES SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", will be adopted by the Company for its annual financial statements for 1998. Adoption will not impact the reported results of operations of the Company but will require additional disclosures. INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying consolidated balance sheet of The Midland Company and subsidiaries as of June 30, 1998, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 1998 and 1997 and of cash flows and changes in shareholders' equity for the six-month periods ended June 30, 1998 and 1997. 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, 1997, and the related consolidated statements of income and of cash flows for the year then ended (not presented herein); and in our report dated February 12, 1998, 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, 1997 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 July 16, 1998 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 1997 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 Property and Casualty Premiums Direct and assumed written premiums generated from American Modern Insurance Group, Inc.'s ("AMIG") property and casualty insurance subsidiaries increased 8.6% for the second quarter of 1998 to $122.1 million from $112.4 million for the comparable quarter of 1997. On a year-to-date basis, direct and assumed written premiums increased 8.1% to $222.9 million from $206.1 million for the same period in 1997. Net earned premiums for the second quarter increased 19.8% to $92.4 million from $77.1 million for the comparable quarter in 1997. Year-to-date net earned premiums increased 20.1% to $181.3 million from $151.0 million for the same period in 1997. The disparity in growth rates between the direct and assumed written premiums and net earned premiums for the periods presented is due primarily to changes in a quota-share reinsurance agreement in 1998 compared to 1997. The growth in direct and assumed written premiums is primarily the result of volume increases in manufactured home and related coverages insurance premium. On a year-to-date basis, manufactured home and related coverages direct and assumed written premium increased 17.6% to $147.9 million from $125.8 million for the same six-month period of 1997. Direct and assumed written premiums of all other specialty insurance products collectively decreased, on a year-to-date basis, by 6.6% to $75.0 million from $80.3 million for the first six months of 1997. Investment Income and Realized Capital Gains AMIG's net investment income (before taxes and excluding capital gains) increased by approximately 15.0% to $5.9 million in the second quarter of 1998 from $5.2 million for the second quarter of 1997. On a year-to-date basis, AMIG's net investment income (before taxes and excluding capital gains) increased 15.5% to $11.8 million in 1998 from $10.2 million for the same period in 1997. The increases in investment income were primarily the result of the positive cash flow generated by underwriting activities coupled with the continued growth of AMIG's investment portfolio. AMIG's net realized capital gains (after-tax) increased to $1.4 million, $0.16 per share (diluted), for the second quarter of 1998 from $20,000, less than $0.01 per share (diluted), for the second quarter of 1997. On a year-to-date basis, after-tax realized capital gains increased to $2.1 million, $0.23 per share (diluted), from $0.9 million, $0.10 per share (diluted), for the same period in 1997. The increase in the realized capital gains is a result of the active management of the investment portfolio by the various portfolio managers. Losses and Loss Adjustment Expenses (LAE) Losses and LAE in the second quarter of 1998 increased 43.0% to $59.7 million from $41.7 million for the second quarter of 1997. This increase is primarily the result of weather-related catastrophe losses for the quarter. Weather-related catastrophe losses amounted to $10.7 million on a pre-tax basis, representing approximately 11.6 percentage points of the 103.8% quarterly combined ratio for the property and casualty operations during the second quarter. This compares to weather-related catastrophe losses in the second quarter of 1997 that totaled $2.7 million (pre-tax), representing approximately 3.5 percentage points of the 94.7% quarterly combined ratio for the property and casualty operations. Such losses had an after-tax impact of approximately $0.74 per share (diluted) and $0.19 per share (diluted) on the second quarter results of 1998 and 1997, respectively. The current year's quarterly weather- related losses are primarily the result of a series of storm systems that caused an unusually large amount of wind, hail and water damage throughout the United States during the second quarter. On a year-to-date basis, losses and LAE increased 29.3% to $107.8 million from $83.3 million in the first six months of 1997. This increase is due primarily to an increase in the level of weather-related catastrophe losses that occurred during the first six months of 1998 compared to the prior year. Weather-related catastrophe losses amounted to $18.2 million on a pre-tax basis representing approximately 10.1 percentage points of the 99.6% year-to-date combined ratio for the property and casualty operations in the first six months of 1998. This compares to weather-related catastrophe losses in the first six months of 1997 which totaled $10.5 million (pre-tax) representing approximately 7.0 percentage points of the 96.4% combined ratio for the property and casualty operations. Such losses had an after-tax impact of approximately $1.26 per share (diluted) and $0.74 per share (diluted) for the first six months of 1998 and 1997, respectively. Commissions, Other Policy Acquisition Costs and Other Operating and Administration Expenses Commissions, other policy acquisitions costs and other operating and administrative expenses for the second quarter increased 13.7% to $38.4 million from $33.7 million for the second quarter of 1997. On a year-to-date basis, commissions, other policy acquisition costs and other operating and administrative expenses increased 17.0% to $78.7 million from $67.3 million for the same period in 1997. These increases are due primarily to the continued growth in net earned premiums. Despite the dollar increases in expenses, the year-to-date underwriting expense ratio (ratio of underwriting expenses to net earned premium) decreased to 41% in 1998 from 42.1% in 1997. This decrease is due primarily to expenses increasing at a slower pace than net earned premiums. Overall Underwriting Results AMIG's property and casualty operations generated a pre-tax underwriting loss of $(3.5) million for the second quarter of 1998 compared to a pre-tax underwriting income of $4.1 million for the second quarter of 1997. For the quarter, the property and casualty companies' ratio of losses and expenses to net earned premiums (combined ratio) was 103.8% in 1998 compared to 94.7% in the prior year. As discussed in "Losses and LAE" above, this change in underwriting results was the direct result of the unfavorable weather patterns during the second quarter. On a year-to-date basis, AMIG's property and casualty operations generated a pre-tax underwriting income of $0.7 million in 1998 compared to $5.3 million in the first six months of the prior year. This equates to a year-to- date combined ratio of 99.6% in 1998 compared to 96.4% in 1997. Transportation Transportation revenues for the second quarter decreased 12.4% to $7.3 million from $8.3 million for the second quarter of 1997. On a year-to-date basis, transportation revenues increased 4.0% to $16.5 million from $15.9 million for the same period in 1997. These fluctuations were due primarily to fluctuations in total ton-miles (a ratio that reflects both significant revenue factors: tonnage and mileage) for the periods presented. Transportation's pre-tax profits for the quarter improved 25.5% to $1.2 million from $0.9 million for the second quarter of 1997. On a year-to-date basis, transportation's pre- tax profits increased 72.3% to $2.4 million from $1.4 million for the same period in 1997. This year-to-date growth on profits is due primarily to an overall increase in the amount of tonnage hauled for the first six months of 1998 compared to the prior year. Discontinued Operations As previously reported, on September 29, 1997, the Company's sportswear subsidiary sold the majority of its assets to Brazos, Inc., a subsidiary of Brazos Sportswear, Inc. After-tax operating losses from the discontinued operations for the second quarter and first six months of 1997 amounted to $(1,067,000), $(0.12) per share (diluted), and $(2,242,000), $(0.24) per share (diluted), respectively. There have been no material financial results reported from this subsidiary since the date of sale. FINANCIAL CONDITION Cash flows from operations, coupled with sales and maturities of marketable securities, were used to reduce the Company's short-term borrowings from the year-end 1997 balances. Shareholders' Equity increased 7.6% to $212.0 million at June 30, 1998 from $197.0 million at year-end 1997. This increase is due to the net income generated in 1998 coupled with the increase in the net unrealized gain on marketable securities resulting from an increase in the market value of the Company's investment portfolio. The decreases in reinsurance recoverables, prepaid reinsurance premiums and funds held under reinsurance agreements and reinsurance payables are due primarily to a change in the amount of insurance premium ceded to reinsurers under certain reinsurance treaties. The increase in deferred acquisition costs, unearned premiums and loss reserves are due primarily to the continued growth in direct and assumed written premium. Capital expenditures for the first six months of 1998 and 1997 amounted to $3.2 million and $16.2 million, respectively. The majority of the capital expedition in 1997 related to the acquisition of 41 barges by M/G Transport. Management expects that the cash and other liquid investments coupled with the future collection of receivables will be readily available to match the Company's operating cash requirements for the next twelve months. The Company declared $1.2 million in dividends to its shareholders during the first six months of 1998. OTHER MATTERS Comprehensive Income For the Company, the only difference between net income and comprehensive income is the next change in unrealized gain on marketable securities. For the three-month and six-month periods ended June 30, 1998 and 1997, such net unrealized gains increased (net of income tax effects) by the following amounts (in thousands): 1998 1997 ------ ------ Three months ended June 30 $2,820 $6,750 Six months ended June 30 $6,857 $8,022 Changes in net unrealized gains result from both market conditions and realized gains recognized in a reporting period. The Company recognized more realized gains, as discussed above, and less of an increase in unrealized gains in the second quarter of 1998 than in the second quarter of 1997. For the six months ended June 30, 1998, the combined total of realized and unrealized gains (net of income taxes) approximated the same amount as for the same period in 1997. Private Securities Reform Act of 1995 - Forward Looking Statements Disclosure This Report may contain forward-looking statements. For purposes of this Report, a "Forward Looking Statement", within the meaning of the Securities Reform Act of 1995, is any statement concerning the remainder of the year 1998 and beyond. The actions and performance of the Company and its subsidiaries could deviate materially from what is contemplated by the forward-looking statements contained in this Report. Factors which might cause deviations from the forward looking statements include, without limitations, the following: 1) changes in the laws or regulations affecting the operations of the Company or any of its subsidiaries; 2) changes in the business tactics or strategies of the Company or any of its subsidiaries; 3) acquisition(s) of assets or of new or complementary operations, or divestiture of any segment of the existing operations of the Company or any of its subsidiaries; 4) changing market forces or litigation which necessitate, in Management's judgment, changes in plans, strategy or tactics of the Company or its subsidiaries and 5) adverse weather conditions, fluctuations in the investment markets, changes in the retail marketplace or fluctuations in interest rates, any one of which might materially affect the operations of the Company and/or its subsidiaries. PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES JUNE 30, 1998 Item 1. Legal Proceedings None Item 2. Changes in Securities On April 9, 1998, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 5,000,000 to 20,000,000. Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders Results of the Company's 1998 annual meeting of shareholders held on April 9, 1998, were reported in the Form 10-Q Quarterly Report dated April 9, 1998. Among the actions taken at that meeting, the shareholders approved amendments to the Company's Articles of Incorporation and Code of Regulations, which amendments are attached hereto as Exhibit 3(i) and 3(ii). Item 5. Other Information The form of proxy for the annual meeting of shareholders grants discretionary authority to the designated proxies to vote on: (i) any matters that come before the meeting, other than those set forth in the Company's proxy statement; or (ii) matters as to which adequate notice has not been received by the Company. In order for a notice to be deemed adequate for the Company's 1999 annual shareholder's meeting, it must be received at the Company's executive offices on or before January 20, 1999. Item 6. Exhibits and Reports on Form 8-K a.) Exhibit 3(i) - Articles of Incorporation (Consolidated to include all amendments through June 30, 1998) b.) Exhibit 3(ii) - Code of Regulations (Consolidated to include all amendments through June 30, 1998) c.) Exhibit 15 - Letter re: Unaudited Interim Financial Information d.) Exhibit 27 - Financial Data Schedule e.) 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 dully authorized. THE MIDLAND COMPANY Date ___July 16, 1998__________ s/John I. Von Lehman_________________ John I. Von Lehman, Executive Vice President and Chief Financial Officer EX-3 2 EXHIBIT 3(i) ARTICLES OF INCORPORATION OF THE MIDLAND COMPANY FIRST: The name of said corporation shall be THE MIDLAND COMPANY. SECOND: The place in Ohio where its principal office is to be located is 7000 Midland Boulevard, Amelia, Ohio 45102. THIRD: The purpose for which said corporation is formed are: (A) To acquire by purchase, subscription, contract or otherwise, and to hold, sell, exchange, mortgage, pledge or otherwise dispose of, or turn to account or realize upon, and generally to deal in and with, all forms of securities, including, but not by way of limitation, shares, stocks, bonds, debentures, coupons, notes, scrip, mortgages, evidences of indebtedness, commercial paper, certificates of indebtedness and certificates of interest issued or created by corporations, associations, partnerships, firms, trustees, syndicates, individuals, governments, states, municipalities and other political and governmental divisions and subdivisions, or by any combinations, organizations, or entities whatsoever, or issued or created by others, irrespective of their form or the name by which they may be described, and all trust participation and other certificates of, and receipts evidencing interest in, any such securities. (B) To acquire, by purchase, exchange or otherwise, all or any part of, or any interest in, the properties, assets, business and good will of any one or more persons, firms, associations or corporations; to pay for the same in cash, property or its own or other securities; to hold, operate, reorganize, liquidate, sell or in any manner dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee performance of any liabilities, obligations or contracts of such persons, firms, associations or corporations, and to conduct the whole or any part of any business thus acquired. (C) To do all things necessary or incident to any or all the foregoing purposes, and to purchase, acquire, hold, sell, convey, exchange, lease, mortgage or dispose of property, real or personal, tangible or intangible; to borrow money and to issue notes, bonds, or debentures or other evidences of indebtedness, and to make loans to any firm, association, corporation and/or individual. (D) To carry on any other lawful business whatever which may seem to the Board of Directors capable of being carried on in connection with the above, or calculated, directly or indirectly, to promote the interests of the Corporation or to enhance the values of its properties; and to have, enjoy and exercise the rights, powers and privileges which are now or which may hereafter be conferred upon corporations organized under the same statutes as this Corporation. (E) To conduct its business, and to have and maintain one or more offices, within and without the State of Ohio and in all other states and territories, the District of Columbia and foreign countries; and to purchase, or otherwise acquire, hold, own, equip, improve, manage, operate, finance, promote, sell, convey, mortgage or otherwise dispose of the real and personal property in all such states and places, to the extent that the same may be permissible under the laws thereof. (F) The foregoing clauses shall be construed as objects, purposes and powers and it is hereby expressly provided that the foregoing enumerated specific objects, purposes and powers shall not be held to limit or restrict in any manner the powers of this Corporation, and are in furtherance of, and in addition to, and not in limitation of the general powers conferred by the laws of the State of Ohio. FOURTH: Section 1. The maximum number of shares which the Corporation is authorized to have outstanding is twenty million five hundred thousand (20,500,000) shares, which shall be classified and bear designations as follows: Five hundred thousand (500,000) shares, without par value, shall be designated as Preferred Stock, and twenty million (20,000,000) shares, without par value, shall be designated as Common Stock. Section 2. The express terms and provisions of the shares of Preferred Stock are as follows: Subdivision A: Issuance in Series and Limitations as to Variations Between Series. The Preferred Stock may be issued from time to time in series. Except as hereinafter provided, Preferred Stock of all series shall rank equally and be identical in all respects. All shares of any one series shall be alike in every particular. Subject to the limitations and restrictions set forth in this Article Fourth, the Board of Directors is authorized and empowered at one time or from time to time: 1. To create one or more series of Preferred Stock and to authorize the issuance of Preferred Stock in such series, and to fix or alter, in respect of any particular series, the following express terms and provisions of any authorized and unissued shares of Preferred Stock (whether or not such shares shall have been previously designated as shares of a particular series): (a) The designation of the series; (b) The number of shares of the series, which number may at any time or from time to time be increased or decreased by the Board of Directors, notwithstanding that shares of the series may be outstanding at the time of such increase or decrease, unless the Board of Directors shall have otherwise provided in creating such series; (c) The dividend rate; (d) The dates at which dividends, if declared, shall be payable, and the dates, if any, from which they shall be cumulative; (e) The liquidation price; (f) The redemption rights and price; (g) The sinking fund requirements, if any; (h) The conversion rights, if any, and (i) The restrictions, if any, on the issuance of shares of any class or series; 2. To adopt such amendment or amendments to the Articles of Incorporation as may be required or permitted by law to accomplish the foregoing purposes. Subdivision B. General Provisions Applicable to All Series The following general provisions shall apply to all Preferred Stock of the Corporation, irrespective of series: 1. The holders of Preferred Stock of each series shall be entitled to receive, when and as declared by the Board of Directors, dividends, in cash at the annual rate fixed with respect to such series in accordance with Subdivision A(1) of this Section 2. In case Preferred Stock of more than one series is outstanding, the Corporation is making any dividend payment upon the Preferred Stock, shall (except in redeeming shares of Preferred Stock through the operation of any sinking fund that may be established for the benefit of any series of Preferred Stock) make dividend payments ratably upon all outstanding shares of Preferred Stock of all series in proportion to the amount of dividends accrued thereon and unpaid to the date of such dividend accrued thereon and unpaid to the date of such dividend payment. Dividends in respect of the shares of any series shall commence to accrue from the date on which they shall have been declared to be payable and, in the case of cumulative dividends, from the date as of which they accumulate pursuant to the terms and provisions pertaining to the particular series. Accumulations of dividends shall not bear interest. 2. Restrictions on Payment of Dividends upon Stock Junior to the Preferred Stock. So long as any Preferred Stock shall be outstanding, the Corporation shall not declare or pay any dividend or make any distribution on, or purchase, or cause to be purchased, or redeem, any stock ranking junior to the Preferred Stock, nor shall any money be paid or set aside or made available for a purchase fund or sinking fund for the purchase or redemption of any shares of such junior stock unless: (i) accrued dividends for all past dividend periods on all outstanding shares of Preferred Stock of all series having cumulative dividends shall have been paid and the dividend on all outstanding shares of Preferred Stock of all such series for the then current quarterly dividend period shall have been paid or declared and provided for; (ii) the Corporation shall have made all payments then due under the requirements of all purchase funds and sinking funds (if any) for the Preferred Stock of all series for the then current fiscal year and shall have set up suitable reserves for all payments not then due but then determined and to become due during the fiscal year, under the requirements of all such purchase funds and sinking funds, and all defaults, if any, in complying with any such purchase fund and sinking fund requirements in respect of previous fiscal years shall have been made good; and (iii) The net assets of the Corporation shall not thereby be reduced below the aggregate preferential amounts to which the then outstanding shares of Preferred Stock would be entitled upon the involuntary liquidation, dissolution or winding up of the Corporation. 3. Dissolution, Liquidation and Winding Up. Upon any dissolution, liquidation or winding up of the Corporation, before any distribution or payment is made to the holders of any class of stock ranking junior to the Preferred Stock, the holders of Preferred Stock of each series shall be entitled to be paid in cash the amount fixed in accordance with the provisions of Subdivision A (1) of this Section 2 with respect to such series. If the net assets of the Corporation shall be insufficient to permit the payment to holders of all outstanding shares of Preferred Stock of all series of the full amounts to which they are respectively entitled, the entire net assets of the Corporation shall be distributed ratably to the holders of all outstanding shares of Preferred Stock of all series in proportion to the amounts to which they are respectively entitled. After payment to holders of Preferred Stock of the full preferential amounts aforesaid, the holders of Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation, which remaining assets shall be distributed among the holders of shares ranking junior to the Preferred Stock in accordance with their respective rights thereto. The sale, lease or conveyance of all the property and assets of the Corporation to, or the merger or consolidation of the Corporation into or with, any other corporation shall not be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this paragraph. 4. Redemption. At the option of, and to the extent fixed by, the Board of Directors with respect to any series, the Corporation may redeem at any time, or from time to time, any series of Preferred Stock, or any part of any series, at the redemption price fixed with respect to such series in accordance with Subdivision A (1) of this Section 2; provided, that not less than thirty days previous to the date fixed for any such redemption, a notice of the time and place thereof shall be given to the holders of record of the shares of Preferred Stock so to be redeemed by mailing a copy of such notice to such holders at their respective addresses as the same appear on the books of the Corporation and, if the Board of Directors shall so determine, by publication of notice in such manner as may be prescribed by resolution of the Board of Directors. In case of redemption of less than all of the outstanding Preferred Stock of any one series, the redemption shall be made pro rata or the shares to be redeemed shall be chosen by lot in such manner as may be prescribed by resolution of the Board of Directors. At any time after notice of redemption has been given in the manner herein prescribed, the Corporation may deposit the amount of the aggregate redemption price with any bank or trust company having capital and surplus of at least $5,000,000, named in such notice, in trust for the holders of the shares so to be redeemed, payable on the date fixed for redemption to the respective orders of such holders upon endorsement to the Corporation or otherwise as may be required and surrender of the certificates for such shares. Upon deposit of the aggregate redemption price, as aforesaid, or, if no such deposit is made, upon said redemption date (unless the Corporation shall default in making payment of the redemption price as set forth in said notice) such holders shall cease to be stockholders with respect to said shares and shall be entitled only to receive the redemption price on or after the date fixed for redemption, without interest thereon, upon endorsement, if required, and surrender of the certificates for such shares; provided, however, that no such deposit in trust shall be deemed to terminate, prior to the expiration of the redemption date, any conversion or exchange rights to which any such holder may be entitled. Any funds so deposited by the Corporation and unclaimed at the end of six years from the date fixed for such redemption shall be repaid by such bank or trust company to the Corporation upon its request, after which repayment the holders of such shares so called for redemption shall look only to the Corporation for payment of the redemption price thereof. Any funds so deposited which shall not be required for such redemption because of the exercise subsequent to the date of such deposit of any right of conversion or exchange, shall be returned to the Corporation forthwith. Any interest accrued on any funds so deposited shall belong to the Corporation and shall be paid to it from time to time. If at any time the Corporation shall have failed to pay accrued dividends in full on Preferred Stock of any one or more series, thereafter and until such dividends in full on Preferred Stock of every series shall have been paid or declared and set apart for payment, the Corporation shall not redeem Preferred Stock except as a whole or, directly or indirectly, purchase any Preferred Stock. Subject to the foregoing, any Preferred Stock may be purchased by the Corporation. 5. Action Requiring Approval of Preferred Stock. The Corporation shall not, without the affirmative vote of the holders of a majority of the outstanding Preferred Stock as a class, increase the authorized number of shares of Preferred Stock or create any class of shares which rank equally with or prior to the Preferred Stock. 6. Voting Rights. The holders of Preferred Stock shall be entitled at all times to one vote for each share of Preferred Stock held by them respectively. 7. Preemptive Rights. No holder of Preferred Stock of any series shall, as such holder, have any preemptive right in, or preemptive right to subscribe to, any additional Preferred Stock of any series or any shares of any other class of stock, or any bonds, debentures or other securities convertible into or exchangeable for shares of stock of any class or series. 8. Prohibitions Against Reissue or Resale. Preferred Stock which shall have been purchased or redeemed through the operation of any purchase or sinking fund or applied to any purchase or sinking fund installment shall not be applied to any subsequent purchase or sinking fund installment. Preferred stock which shall have been purchased, redeemed or otherwise acquired by the Corporation shall be deemed retired and shall not be reissued or resold. In case Preferred Stock of any series shall be convertible into or exchangeable for stock of any other series or class or other securities, shares of Preferred Stock of such series which shall have been so converted or exchanged shall be deemed retired and shall not be reissued or resold. Section 3. The express terms and provisions of the shares of Common Stock are as follows: (1) Dividends. Out of the assets of the Corporation available for dividends remaining after full dividends on all shares ranking prior to the Common Stock shall have been paid or declared and set apart for payment, then, and not otherwise, and subject to any restrictions or limitations contained in the express terms and provisions of any shares ranking prior to the Common Stock dividends may be declared and paid upon the Common Stock, but only when and as determined by the Board of Directors. (2) Dissolution, Liquidation and Winding Up. Upon any dissolution, liquidation or winding up of the Corporation, or any proceedings resulting in any distribution of all of its assets to its stockholders, after there shall have been paid to or set apart for holders of all shares ranking prior to the Common Stock the full preferential amounts to which they are respectively entitled, the holders of Common Stock shall be entitled to receive pro rata all of the remaining assets of the Corporation available for distribution to its stockholders. The sale, lease or conveyance of all the property and assets of the Corporation to, or the merger or consolidation of the Corporation into or with, any other corporation shall not be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this paragraph. (3) Voting Rights. The holders of Common Stock shall be entitled at all times to one vote for each share of Common Stock held by them respectively. (4) Preemptive Rights. No holder of Common Stock shall, as such holder, have any preemptive right in, or preemptive right to subscribe to, any additional Common Stock or any shares of any other class, or any bonds, debentures or other securities convertible into or exchangeable for shares of Common Stock or any other class of stock, or any Preferred Stock authorized by, and which may be made convertible into or exchangeable for Common Stock pursuant to, the provisions of this Article Fourth, as herein in these Articles of Incorporation set forth or any Common Stock required to satisfy any such conversion or exchange right. Section 4. For the purpose of this Article Fourth, whenever reference is made herein to stock or shares "ranking junior to the Preferred Stock," such reference shall mean and include the Common Stock and any other authorized class of stock in respect of which the rights of the holders as to the payment of dividends and as to distributions in the event of dissolution, liquidation or winding up of the Corporation are subordinate to the rights of the holders of the Preferred Stock; and whenever reference is made to stock or shares "ranking prior to the Common Stock" such reference shall mean and include the Preferred Stock and any other authorized class of stock in respect of which the above mentioned rights of the holders will give preference over the Common Stock. FIFTH: Notwithstanding any provisions of the General Corporation Act of Ohio now or hereafter in force requiring, for any purpose, the affirmative vote or consent of the holders of shares entitling them to exercise two-thirds, or any other proportion, of the voting power of the Corporation, or the affirmative vote or consent of the holders of two- thirds, or any other proportion, of the shares of any class or classes, such action may, to the extent permitted by law, be authorized and taken by the affirmative vote or written consent of the holders of shares entitling them to exercise a majority of the voting power of the Corporation, or by the affirmative vote or consent of the holders of a majority of the shares of such class or classes. SIXTH: Any and all unissued shares of this corporation may, at any time and from time to time, be issued and sold for such prices and on such terms as to payment as the then Board of Directors of this corporation may determine, and no director of this corporation shall be disqualified from voting thereupon by reason of any ownership by him or any member of his family of stock in this corporation and/or by reason of the amount of ownership (even though that amount represents control). To the extent not prohibited by law, the Board of Directors may authorize the purchase by the Corporation of shares of any class issued by it. The action of such Board of Directors in such instances shall be final except for actual fraud. SEVENTH: The amount of stated capital with which the Corporation will begin business is Five Hundred ($500.00) Dollars. EX-3 3 EXHIBIT 3(ii) CODE OF REGULATIONS OF THE MIDLAND COMPANY ARTICLE I Section 1 - Principal Office: The principal office of the corporation shall be at 7000 Midland Blvd., Amelia, Ohio, until such time as otherwise designated by the Board of Directors. Section 2 - Other Offices: The corporation shall also have offices at such other places without, as well as within the State of Ohio, as the Board of Directors may from time to time determine. ARTICLE II Section 1 - Annual Meeting: The Annual Meeting of the shareholders of the corporation for the purpose of electing directors and transacting such other business as may come before the meeting shall be held at 10 a.m. on the second Thursday in April of each year, if not a legal holiday, but if a legal holiday, then on the next business day following. Section 2 - Special Meetings: Special Meetings of the shareholders may be called at any time by the President or Vice President, or by a majority of the Board of Directors acting with or without a meeting, or by the holder or holders of one-fourth of all shares outstanding and entitled to vote thereat. Section 3 - Place of Meetings: Meetings of shareholders shall be held at the office of the corporation in Cincinnati, Ohio, or at such other place within or without the State of Ohio as shall be determined by the Board of Directors and set forth in the notice thereof. Section 4 - Notice of Meetings: Unless waived, written, printed or typewritten notice of each annual or special meeting stating the time, place and purpose thereof shall be served upon or mailed to each shareholder of record entitled to vote or entitled to notice, not more than 30 days nor less than ten days before any such meeting. If mailed, it shall be directed to shareholders at their address as the same appears upon records of the corporation. Section 5 - Waiver of Notice: Any shareholder either before or after any meeting may waive any notice required to be given by law or these regulations, and whenever all of the shareholders entitled to vote shall consent to holding a meeting, it shall be valid for all purposes without call or notice, and at such meeting any action may be taken as though notice of such proposed action had been given. Section 6 - Quorum: At any meeting of the Shareholders, the holders of shares entitling them to exercise a majority of the voting power of the corporation, present in person or by proxy, shall constitute a quorum of the shareholders, for all purposes, unless the presence of a larger number shall be required by law. Section 7 - Action without Meeting: Any action which may be taken at any meeting of shareholders may be taken without a meeting if authorized by a writing signed by all of the holders of shares who would be entitled to notice of a meeting for such purpose. ARTICLE III DIRECTORS Section 1 - Number of Directors: The business of the corporation shall be managed and conducted by a Board of Directors consisting of not less than nine (9) or more than eighteen (18) members, one of whom shall be designated Chairman and none of whom need be shareholders of the corporation. Without amendment of this Code of Regulations, the number of Directors may be fixed or changed by resolution at any annual meeting or at any special meeting of shareholders called for that purpose or the purpose of electing Directors, adopted by the vote of the holders of shares, present in person or by proxy, entitling them, to exercise a majority of the voting power represented at such meeting or by a resolution of the Directors adopted at any meeting of the Board of Directors by a majority vote. Where action is taken by the Board of Directors the Directors in office may fill any Directors' office that is created by an increase in the number of Directors. No reduction of the number of Directors shall have the effect of removing any Director prior to the expiration of his term of office. Section 2 - Tenure and Election of Directors: Directors shall be divided into three classes each of which shall consist of not less than three (3) Directors. Such three classes shall be known initially as three-year, two-year, and one-year classes. The term of office of the one-year Directors shall expire at the first annual meeting of the corporation; the term of office of the two-year Directors shall expire at the second annual meeting and the term of office of the three-year Directors shall expire at the third annual meeting. Upon expiration of the terms of office of the Directors as set forth above, their successors shall be elected for a term of three years or until their successors are elected and qualified. Election of Directors shall be at the annual meeting of shareholders and may be conducted in such manner as may be approved at such meeting. Section 3 - Meeting of the Board: An organization meeting of the Board of Directors shall be held immediately following the adjournment of each shareholders' annual meeting and notice of such annual meeting of Directors need not be given. At such annual organizational meeting of the Board, the Directors may choose one of their number as Chairman of the Board. The Chairman of the Board shall preside at all meetings, regular or special, of the Board. In the event that no Chairman of the Board shall have been elected or, if a Chairman of the Board shall have been elected, in his absence from any meeting of the Board or from the affairs of the corporation as such Chairman of the Board, the President of the corporation, if the person then holding such office be a member of the Board, shall act as Chairman of the Board and (whether or not said President be a Director) as Chief Executive Officer of the corporation. The Board of Directors may, by by-laws or resolutions, provide for other regular meetings of the Board in addition to the annual organizational meeting. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board or the President of the corporation, or any two members of the Board. Notice of any special meeting of the Board shall be given either personally or by telephone to each Director or mailed to each Director at least two days before the day on which the meeting is to be held, but this notice may be waived by any Director present in person at such special meeting. Every notice must state the time and place of the meeting, but need not state the purpose thereof. Any meeting of the Board (whether organization, regular or special) shall be a legal meeting, even though no prior notice of any kind has been given, if a majority of the Directors (but not less than five) then qualified and acting shall actually be present thereat. Any and all meetings of the Board, except the annual organizational meeting may be held at any place in the United States as may be specified in the notice thereof. Section 4 - Quorum: A majority of the Board of Directors (then qualified and acting) shall constitute a quorum for the transaction of business provided that "majority" (for this purpose) be not less than five. Section 5 - Vacancies: Vacancies in the Board of Directors may be filled by a majority vote of the remaining Directors until the next annual meeting. Shareholders entitled to elect Directors shall have the right to fill any vacancy in the Board (whether the same has been temporarily filled by the remaining Directors or not) at any meeting of the shareholders and attended by a quorum thereof, held for any purpose during the interim, and any Directors elected at such meeting of the shareholders shall serve until the next annual election of Directors, and until their successors are elected and qualified. Section 6 - Committees: The Board of Directors may create an Executive Committee to consist of not less than three, and may delegate to such executive committee all of the authority of the Board of Directors, however conferred, other than that of filling vacancies among the Board of Directors or in any committee of the Board of Directors. The Board of Directors may create any other committee of the Directors, to consist of not less than three (3) Directors, and may delegate to such committee any of the authority of the Directors, however conferred, other than that of filling vacancies among the Board of Directors or in any committee of the Board of Directors. ARTICLE IV OFFICERS Section 1 - General Provisions: The Board of Directors may elect a Chairman of the Board as set forth in Article III of this Code of Regulations and shall elect a President, an Executive Vice President, a Treasurer and Secretary. The Board of Directors may from time to time create and fill such other and additional offices, including additional Vice Presidencies as it may determine. The same person may hold more than one office, but he shall not execute, acknowledge or verify any instrument in more than one capacity. Section 2 - Term of Office: The officers of the corporation shall be elected in December for the next ensuing calendar year and shall hold office during the pleasure of the Board of Directors and unless sooner removed by the Board of Directors, until the end of such calendar year and until their successors are chosen and qualified. A vacancy in any office, however created may be filled by the Board of Directors. Section 3 - Chairman of the Board: If one shall have been elected, the Chairman of the Board shall be the active and Chief Executive Officer of the corporation and may exercise either directly or through the officers, supervision over the business of the corporation, and, subject to the overall control of the Board of Directors, he may exercise control and supervision over all of the other officers of the corporation. He shall preside at all meetings of the shareholders and shall also preside at meetings of the Board of Directors. He shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, notes, contracts and other instruments, and unless specifically prohibited by statutory law, his signature alone shall be binding upon the corporation. Section 4 - President: The President, if a Chairman of the Board shall not have been elected or, if such shall have been elected, in the absence of the Chairman of the Board, or at the request of the Chairman of the Board, shall be authorized to exercise all of the powers and assume all of the responsibilities herein devolved upon the Chairman of the Board (excepting only that he shall not preside at Board meetings unless he be also a member of the Board). No person, firm or corporation dealing with the holder of such office, whether such person, firm or corporation be unrelated to this corporation as a shareholder, or officer, or otherwise, need inquire into the authority of the president to act for this corporation and any action taken by him shall be as binding upon this corporation as though it were in fact and at the time taken by the Chairman of the Board. Section 5 - Executive Vice President: The Executive Vice President shall perform such duties as may from time to time be assigned to him by the Board of Directors, or the Chairman of the Board, or the President. At the request of the President, or in his absence or disability, the Executive Vice President shall perform all of the duties of the President and when so acting shall have all of the powers of the President. The authority of the Executive Vice President to sign in the name of the corporation, certificates of shares and authorize instruments of any and all character shall be, upon the attestation of the Secretary, coordinate with like authority of the Chairman of the Board and/or the President. Section 6 - Secretary: The Secretary shall keep minutes of all the proceedings of the shareholders and Board of Directors, and shall make proper record of the same, which shall be attested by him; sign all certificates for shares, and all deeds, mortgages, bonds, contracts, notes and other instruments executed by the corporation requiring his signature; give notice of meetings of shareholders and Directors; produce on request at each meeting of shareholders for the election of Directors, a certified list of shareholders arranged in alphabetical order; keep such books as may be required by the Board of Directors, and file all reports to states, to the federal government, and to foreign countries; and perform such other and further duties as may from time to time be assigned to him by the Board of Directors or by the President. Section 7 - Treasurer: The Treasurer shall have general supervision of all finances; he shall receive and have in charge all money, bills, notes, deeds, leases, mortgages and similar property belonging to the corporation and shall do with the same as may from time to time be required by the Board of Directors. He shall cause to be kept adequate and correct accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital, and shares, together with such other accounts as may be required, and, upon the expiration of his term of office shall turn over to his successor or to the Board of Directors all property, books, papers and money of the corporation in his hands; and he shall perform such other duties as from time to time may be assigned to him by the Board of Directors. Section 8 - Assistant and Subordinate Officers: The Board of Directors may appoint such assistant and subordinate officers as it may deem desirable. Each such officer shall hold office during the pleasure of the Board of Directors, and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers, to prescribe their authority and duties, and to fix their compensation. Section 9 - Delegation: In the absence of any officer of the corporation for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any Director. ARTICLE V SEAL The Board of Directors shall provide a suitable seal containing the name of the corporation. If deemed advisable by the Board of Directors, duplicate seals may be provided and kept for the purposes of the corporation. ARTICLE VI AMENDMENTS This Code of Regulations may be amended or repealed at any meeting of shareholders called for that purpose by the affirmative votes of the holders of record of shares entitling them to then exercise a majority of the voting power on such proposal. ARTICLE VII INDEMNIFICATION The Company shall indemnify each Director and officer of the Company and of any of its subsidiaries, and each person who serves at the request of the company as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, non-profit or for profit, partnership, joint venture, trust or other enterprise, to the full extent permitted by Ohio law. Service as a director, trustee, officer, employee, or agent by any person with or for any subsidiary of the Company shall be deemed to be at the request of the company. The term "officer" as used in this Article shall include the Chairman of the Board, the President, each Vice President, the Treasurer, each Assistant Treasurer, the Secretary, each Assistant Secretary, and any other person who is specifically designated as an "officer" within the operation of this Article by action of the Board of Directors of the Company or of the Board of Directors of any of its subsidiaries. The Company may indemnify assistant officers, employees, and others by action of the Board of Directors to the extent permitted by Ohio law. ARTICLE VIII STOCK CERTIFICATE The certificates in and for the shares of the corporation of any class may be executed by any two of the following officers (either by actual or facsimile signing) - - Chairman of the Board, President, Executive Vice President, Vice President, Secretary, Treasurer. The stock certificates of the corporation, within the limitations of the Articles of Incorporation of this corporation as amended, may be such as the Board of this corporation shall from time to time determine. The Board of this Company is authorized to enter into arrangements with one or more transfer agents for the stock of the corporation and/or a registrar either in the City of Cincinnati, or City of New York, or elsewhere. EX-15 4 EXHIBIT 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, 1998 and 1997, as indicated in our report dated July 16, 1998; 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, 1998, 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. s/Deloitte & Touche LLP - ----------------------- Deloitte & Touche LLP Cincinnati, Ohio July 16, 1998 EX-27 5
7 6-MOS DEC-31-1998 MAR-31-1998 390,739,000 0 0 108,138,000 0 0 515,612,000 22,092,000 21,552,000 60,786,000 779,217,000 133,949,000 249,900,000 0 31,259,000 75,803,000 0 0 911,000 211,159,000 799,217,000 184,533,000 11,784,000 3,268,000 18,083,000 107,796,000 51,061,000 27,658,000 13,062,000 3,384,000 9,678,000 0 0 0 9,678,000 1.07 1.03 108,334,000 0 0 0 0 115,107,000 0
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