-----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, M251sRxJNZ7X6/b6eL1S+1Zoy/78O9OKBCud/MPRlntUtjQkaABMWhS7VX00kDPf RCgJA9bms9zg6VK9pjCJbw== 0000950152-01-505537.txt : 20020410 0000950152-01-505537.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950152-01-505537 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011108 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: 1934 Act SEC FILE NUMBER: 001-06026 FILM NUMBER: 1778386 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 1: 537 E PETE ROSE WAY STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 10-Q 1 l91244ae10-q.txt THE MIDLAND COMPANY 10-Q 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, 2001 -------------------------------------------------- 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 September 30, 2001 was 8,879,893. PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 Amounts in 000's
(UNAUDITED) SEPT. 30, DEC. 31, ASSETS 2001 2000 ------------ ------------ MARKETABLE SECURITIES AVAILABLE FOR SALE: Fixed income (cost, $513,043 at September 30, 2001 and $534,038 at December 31, 2000) $ 531,446 $ 540,337 Equity (cost, $78,457 at September 30, 2001 and $74,983 at December 31, 2000) 133,598 152,320 ------------ ------------ Total 665,044 692,657 ------------ ------------ CASH 9,636 8,391 ------------ ------------ ACCOUNTS RECEIVABLE - NET 103,002 70,396 ------------ ------------ REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS 59,527 46,030 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT - NET 56,977 56,976 ------------ ------------ DEFERRED INSURANCE POLICY ACQUISITION COSTS 104,534 91,574 ------------ ------------ OTHER ASSETS 21,760 27,826 ------------ ------------ TOTAL ASSETS $ 1,020,480 $ 993,850 ============ ============
See notes to condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 Amounts in 000's
(UNAUDITED) SEPT. 30, DEC. 31, LIABILITIES & SHAREHOLDERS' EQUITY 2001 2000 ------------ ------------ UNEARNED INSURANCE PREMIUMS $ 412,604 $ 357,185 ------------ ------------ INSURANCE LOSS RESERVES 146,898 135,887 ------------ ------------ INSURANCE COMMISSIONS PAYABLE 20,951 22,181 ------------ ------------ FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES 3,437 2,803 ------------ ------------ LONG-TERM DEBT 38,976 40,025 ------------ ------------ OTHER NOTES PAYABLE: Banks 15,000 39,000 Commercial paper 10,187 6,020 ------------ ------------ Total 25,187 45,020 ------------ ------------ DEFERRED FEDERAL INCOME TAX 29,428 32,938 ------------ ------------ OTHER PAYABLES AND ACCRUALS 56,319 74,634 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- ------------ ------------ SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 8,880 shares at September 30, 2001 and 9,000 shares at December 31, 2000 after deducting treasury stock of 2,048 shares and 1,928 shares, respectively) 911 911 Additional paid-in capital 20,176 19,838 Retained earnings 255,109 239,679 Accumulated other comprehensive income 47,814 54,396 Treasury stock - at cost (36,525) (30,404) Unvested restricted stock awards (805) (1,243) ------------ ------------ Total 286,680 283,177 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,020,480 $ 993,850 ============ ============
See notes to condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Amounts in 000's (except per share information)
NINE-MOS. ENDED SEPT. 30, THREE-MOS. ENDED SEPT. 30, --------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ REVENUES: Insurance: Premiums earned $ 372,756 $ 339,564 $ 130,459 $ 116,800 Net investment income 25,538 22,378 8,328 7,926 Net realized investment gains (losses) 1,406 3,826 (2,115) 625 Other insurance income 5,099 6,560 2,090 2,386 Transportation 25,792 23,848 8,238 7,814 Other 351 801 97 242 ------------ ------------ ------------ ------------ Total 430,942 396,977 147,097 135,793 ------------ ------------ ------------ ------------ COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 218,296 179,396 80,615 62,457 Commissions and other policy acquisition costs 106,571 103,767 37,857 35,728 Operating and administrative expenses 54,597 53,622 18,266 18,278 Transportation operating expenses 24,150 20,530 7,836 7,034 Interest expense 3,502 3,036 912 980 Other operating and administrative expenses 625 1,647 133 367 ------------ ------------ ------------ ------------ Total 407,741 361,998 145,619 124,844 ------------ ------------ ------------ ------------ INCOME BEFORE FEDERAL INCOME TAX 23,201 34,979 1,478 10,949 PROVISION (CREDIT) FOR FEDERAL INCOME TAX 5,634 10,541 (330) 3,024 ------------ ------------ ------------ ------------ NET INCOME $ 17,567 $ 24,438 $ 1,808 $ 7,925 ============ ============ ============ ============ BASIC EARNINGS PER SHARE OF COMMON STOCK $ 2.03 $ 2.68 $ 0.21 $ 0.88 ============ ============ ============ ============ DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.95 $ 2.58 $ 0.20 $ 0.83 ============ ============ ============ ============ CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.240 $ 0.225 $ 0.080 $ 0.075 ============ ============ ============ ============
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, 2001 AND 2000 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, 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 ========================================================================= BALANCE, DECEMBER 31, 2000 $911 $19,838 $239,679 $54,396 $(30,404) $(1,243) $283,177 Comprehensive income: Net income 17,567 17,567 $17,567 Decrease in unrealized gain on marketable securities, net of related income tax effect of $3,511 (6,582) (6,582) (6,582) ------- Total comprehensive income $10,985 ======= Purchase of treasury stock (8,539) (8,539) Issuance of treasury stock for options exercised and employee savings plan (504) 2,429 1,925 Cash dividends declared (2,137) (2,137) Federal income tax benefit related to the exercise or granting of stock awards 854 854 Amortization and cancellation of unvested restricted stock awards (12) (11) 438 415 ------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2001 $911 $20,176 $255,109 $47,814 $(36,525) $ (805) $286,680 =========================================================================
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, 2001 AND 2000 AMOUNT IN 000'S
2001 2000 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,567 $ 24,438 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,216 6,853 Net realized investment gains (1,406) (3,826) Increase in unearned insurance premiums 55,419 44,383 Increase in net accounts receivable (32,606) (10,397) Decrease in other accounts payable and accruals (17,488) (166) Increase in reinsurance recoverables and prepaid reinsurance premiums (13,497) (11,332) Increase in deferred insurance policy acquisition costs (12,960) (8,609) Increase in insurance loss reserves 11,011 1,266 Decrease (increase) in other assets 5,624 (2,377) Increase (decrease) in insurance commissions payable (1,230) 1,872 Increase in funds held under reinsurance agreements and reinsurance payables 634 525 Increase in deferred federal income tax - 369 Other-net 487 (476) ------------------ ------------------ Net cash provided by operating activities 17,771 42,523 ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (164,805) (173,181) Sale of marketable securities 131,198 141,709 Decrease (increase) in cash equivalent marketable securities 29,029 (6,377) Maturity of marketable securities 23,051 24,793 Acquisition of property, plant and equipment (5,613) (1,955) Sale of property, plant and equipment 220 2,239 Net cash used in business acquisitions - (2,471) ------------------ ------------------ Net cash provided by (used in) investing activities 13,080 (15,243) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in net short-term borrowings (19,833) (17,929) Purchase of treasury stock (8,539) (4,645) Dividends paid (2,110) (2,053) Issuance of treasury stock 1,925 513 Repayment of long-term debt (1,049) (3,744) ------------------ ------------------ Net cash used in financing activities (29,606) (27,858) ------------------ ------------------ NET INCREASE (DECREASE) IN CASH 1,245 (578) CASH AT BEGINNING OF PERIOD 8,391 10,098 ------------------ ------------------ CASH AT END OF PERIOD $ 9,636 $ 9,520 ================== ================== INTEREST PAID $ 3,384 $ 3,155 INCOME TAXES PAID $ 2,900 $ 8,957
See notes to the condensed consolidated financial statements. THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2001 1. BASIS OF PRESENTATION The accompanying unaudited condensed 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, 2000 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, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K. Certain reclassifications (minor in nature) have been made to the 2000 amounts to conform to 2001 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: 2001 8,657 9,005 ===== ===== 2000 9,133 9,454 ===== =====
3. INCOME TAXES The federal income tax provisions for the three and nine-month periods ended September 30, 2001 and 2000 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (000's):
NINE-MOS. ENDED SEPT. 30, THREE-MOS. ENDED SEPT. 30, ------------------------- -------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Federal income tax at statutory rate $ 8,120 $ 12,243 $ 517 $ 3,833 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (2,721) (2,514) (923) (854) Federal excise tax -- 529 -- (41) Other - net 235 283 76 86 -------- -------- -------- -------- Provision (credit) for federal income tax $ 5,634 $ 10,541 $ (330) $ 3,024 ======== ======== ======== ========
THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 4. SEGMENT DISCLOSURES Since the Company's annual report for 2000, 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 2001 and 2000 is as follows (000's):
Nine Months Ended Sept. 30, 2001 Three Months Ended Sept. 30, 2001 -------------------------------- --------------------------------- Revenues- Revenues- Total External Pre-Tax External Pre-Tax Assets Customers Income Customers Income ------ --------- ------ --------- ------ Reportable Segments: Insurance: Manufactured housing n/a $238,195 $19,693 $79,987 $7,408 Other n/a 139,660 5,380 52,562 (5,502) Unallocated $970,241 - (756) - (73) Transportation 26,296 25,792 1,424 8,238 344 Corporate and all other n/a - (2,540) - (699) -------- -------- $23,201 $1,478 ======== ======== Nine Months Ended Sept. 30, 2000 Three Months 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 n/a - (2,406) - (934) -------- --------- $34,979 $10,949 ======== =========
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 The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (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 January 1, 2001. The Company's investment portfolio includes approximately $34 million of convertible securities, some of which contain embedded derivatives. The embedded conversion options are valued separately, and the change in market value of the embedded options is reported in net realized investment gains (losses). For the three and nine-month periods ended September 30, 2001, the Company recorded pre-tax losses on these securities of ($1,100,000) and ($256,000), respectively. The Company did not hold any other derivative instruments at September 30, 2001. On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the FASB. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets will remain on the balance sheet and will not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company was required to implement SFAS No. 141 on July 1, 2001 and this statement had no impact on its consolidated financial position, results of operations or cash flows. On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company is required to implement SFAS No. 142 on January 1, 2002. After-tax income from SFAS No. 142 reflects a charge of approximately $0.04 per share (diluted) for the year ended December 31, 2000 and $0.03 per share (diluted) in the nine months ended September 30, 2001. In June and August 2001, respectively, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment on Disposal of Long-Lived Assets." The Company does not expect these standards to have a material effect on its consolidated financial position, results of operations or cash flows. ITEM 2. 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 2000 Annual Report on Form 10-K. Except as discussed below, no material changes have taken place in 2001 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 14.3% in the third quarter to $160.9 million from $140.8 million for the same quarter of 2000. Net earned premiums for the third quarter of 2001 increased 11.7% to $130.5 million from $116.8 million for the comparable quarter in 2000. On a year-to-date basis, direct and assumed written premiums generated by AMIG's insurance operations increased 12.1% to $461.6 million from $411.9 million for the same nine-month period in 2000. Year-to-date net earned premiums increased 9.8% to $372.8 million from $339.6 million in 2000. The growth in direct and assumed written premiums for the periods presented is primarily due to the growth in the motorcycle insurance product. In the third quarter 2000, American Modern announced its intention to enter into a reinsurance agreement with GuideOne Specialty Mutual Insurance Company, for its motorsports business, until the business can be moved to its own paper. The motorcycle insurance product direct and assumed written premium increased $9.7 million in the third quarter of 2001 from $0 in the third quarter of 2000. On a year-to-date basis, motorcycle insurance product direct and assumed written premium increased to $33.3 million from $0 in the comparable prior year period. On a quarterly basis, mobile home and related direct and assumed written premiums increased 5.7% to $92.0 million in the current quarter compared to $87.1 million in the prior period. This increase is primarily due to agency conversions and multi-year policies. On a year-to-date basis, mobile home and related direct and assumed written premiums decreased 0.4% from $262.4 million in 2000 to $261.3 in 2001. The decrease is due to unfavorable market conditions. All remaining specialty property and casualty insurance products direct and assumed written premiums increased 10.3% in the third quarter of 2001 to $47.4 million from $42.9 million in the same quarter in 2000. On a year-to-date basis, all other specialty property and casualty direct and assumed written premiums increased 12.1% to $135.4 million in the current period from $120.8 million in the prior year period. Credit life direct and assumed written premiums increased 10.0% during the third quarter of 2001 to $11.8 million from $10.8 million in the third quarter of 2000. On a year-to-date basis, credit life direct and assumed written premiums increased 9.5% in the current period to $31.5 million from $28.8 million in the comparable period in 2000. On September 18, 2001, the Company announced that American Modern would cease offering commercial liability programs, which amounted to approximately 3.6 percent of American Modern's total gross premiums in the nine months of 2001. After careful evaluation of the importance of this business area to American Modern's overall strategy, management decided to cease offering these unprofitable coverages to help enhance the Company's long-term profitability. Investment Income and Realized Capital Gains AMIG's net investment income (before taxes and excluding capital gains) increased 5.1% to $8.3 million in the third quarter of 2001 from $7.9 million for the third quarter of 2000. On a year-to-date basis, AMIG's net investment income (exclusive of the items mentioned above) increased 14.1% to $25.5 million from $22.4 million for the same nine-month period in 2000. Investment income increased due to the continued growth in AMIG's investment portfolio. Excluding the impact of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", AMIG's net realized capital gains (after-tax) decreased to a loss of $(0.7) million, $(0.07) per share (diluted), for the third quarter of 2001, from a gain of $0.4 million, $0.03 per share (diluted), for the same quarter in 2000. On a year-to-date basis, AMIG's net realized capital gains (after-tax), exclusive of the items mentioned above, decreased to $1.1 million, $0.12 per share (diluted), from $2.5 million, $0.26 per share (diluted), for the same nine-month period in 2000. SFAS No. 133 negatively impacted the aforementioned net realized after-tax capital gains by $(0.7) million, $(0.08) per share (diluted), in the third quarter of 2001 and also decreased the nine-month of 2001 after-tax capital gains by $(0.2) million, $(0.02) per share (diluted). Losses and Loss Adjustment Expenses AMIG's losses and loss adjustment expenses in the third quarter of 2001 increased 29.1% to $80.6 million from $62.5 million for the third quarter of 2000. AMIG's weather-related catastrophe losses for the third quarter of 2001 amounted to $1.2 million on a pre-tax basis compared with $0.7 million for the same quarter of 2000. These losses had an after-tax impact of approximately $0.08 per share (diluted) in the third quarter of 2001 compared to $0.05 per share (diluted) in the third quarter of 2000. Excluding catastrophe losses, the property and casualty combined ratio for the third quarter was 103.2% compared to 96.8% for the same quarter in 2000. An increase in commercial liability losses and higher than normal fire losses also contributed to the increase in loss and loss adjustment expense in the third quarter. Commercial losses had an after-tax impact of $0.53 per share (diluted) in the third quarter 2001, compared to $0.13 per share (diluted) in the third quarter 2000. Personal lines higher than normal fire losses accounted for an after-tax loss per share (diluted) of $0.24 in the third quarter 2001 compared to $0.08 per share (diluted) a year ago. On a year-to-date basis, AMIG's losses and loss adjustment expenses increased 21.7% to $218.3 million from $179.4 million for the same nine-month period in 2000 due to the aforementioned increases in commercial liability losses and fire losses coupled with catastrophe losses from Tropical Storm Allison and other severe storms earlier in 2001. AMIG's weather-related catastrophe losses for the first nine months of 2001 amounted to $17.6 million on a pre-tax basis compared with $8.4 million for the same period in 2000. These losses had an after-tax impact of approximately $1.27 per share (diluted) in the first nine months of 2001 compared to $0.58 per share (diluted) in the same period of 2000. Excluding catastrophe losses, the property and casualty combined ratio for the first nine months of 2001 was 96.3% compared to 94.6% for the same period in 2000. American Modern's commercial liability programs produced after-tax losses for the first nine months of 2001 of $0.63 per share (diluted). For the first nine months of 2000, commercial liability losses were $0.31 per share (diluted). Higher than normal fire losses produced after-tax losses of $0.85 per share (diluted) and $0.15 per share (diluted) for the nine-month periods in 2001 and 2000, respectively. Commissions and Other Policy Acquisition Costs and Operating and Administration Expenses AMIG's commissions and other policy acquisition costs and operating and administrative expenses for the third quarter of 2001 increased 3.9% to $56.1 million from $54.0 million in the third quarter of 2000. On a year-to-date basis, AMIG's commissions and other policy acquisition costs and operating and administrative expenses for the first nine months of 2001 increased 2.4% to $161.2 million from $157.4 million for the same nine-month period in 2000. These increases are due to continued growth in net earned premiums offset by a decrease in contingent commission expense due to the previously discussed losses incurred in the third quarter and first nine months of 2001. Property and Casualty Underwriting Results AMIG's property and casualty operations generated a pre-tax underwriting loss of ($5.2) million for the third quarter of 2001 compared to a pre-tax underwriting profit of $3.0 million for the same quarter in 2000. 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 104.1% compared to 97.4% in the third quarter of 2000. Losses from the commercial liability lines contributed 6.2 percentage points to the combined ratio in the third quarter compared with 2.1 points a year ago. The fire loss ratio was approximately 4.0 percentage points higher than normal in this year's third quarter, while only 1.3 points higher than normal in last year's quarter. On a year-to-date basis, AMIG's property and casualty pre-tax underwriting income decreased from a profit of $9.4 million in the nine months of 2000 to an underwriting loss of ($4.0) during the first nine months of 2001. AMIG's combined ratio for its property and casualty business was 101.1% for the first nine months of 2001 compared to 97.2% for the same period in 2000. TRANSPORTATION M/G Transport, the Company's transportation subsidiary, reported a $0.4 million increase in revenue in the third quarter of 2001 to $8.2 million as compared to $7.8 million in the comparable quarter in 2000. On a year-to-date basis, revenues (excluding $1.0 million in capital gains in 2000) increased $3.0 million to $25.8 million in 2001 compared to $22.8 million in 2000. Pre-tax operating profit decreased in the current quarter to $0.3 million from $0.7 million in the third quarter of 2000. On a year-to-date basis, pre-tax operating profit (excluding capital gains) decreased to $1.4 million from $1.7 million in 2000. Revenues increased due to an increase in longer duration affreightment movements. Profits declined due to lower profit margins on these longer haul movements. 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 decrease the Company's short-term borrowings (Other Notes Payable) from year-end 2000. Accounts Receivable increased from year-end 2000 due to the writing of multi-year insurance policies which are being financed over the term of the policy. On January 25, 2001, the Company's Board of Directors approved an increase in the number of shares authorized under the Company's Common Stock Repurchase Program from 500,000 shares to 1,000,000 shares. In the third quarter of 2001, the Company repurchased 28,700 shares at a cost of $1.1 million bringing the year-to-date total to 156,846 shares and a total cost of $5.3 million. 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 2001. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risks associated with the Company's investment portfolios have not changed materially from those disclosed in the 2000 Annual Report on Form 10-K. 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, 2001 and 2000, such net unrealized gains increased (decreased), net of related income tax effects, by the following amounts (in thousands): 2001 2000 ---- ---- Three months ended September 30 $(2,085) $5,323 ======== ====== Nine months ended September 30 $(6,582) $4,646 ======== ====== Changes in net unrealized gains on marketable securities result from both market conditions and realized gains recognized in a reporting period. PRIVATE SECURITIES REFORM ACT OF 1995 - FORWARD LOOKING STATEMENTS DISCLOSURE This report contains forward looking statements. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results or operations or of financial condition or state other "forward-looking" information. Although management believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, there are certain facts that could cause a difference between actual results and those 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 year 2001 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 judgement, 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. Any forward-looking statement speaks 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. When considering forward-looking statements contained herein, you should keep in mind the other cautionary statements herein. INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying condensed consolidated balance sheet of The Midland Company and subsidiaries as of September 30, 2001, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2001 and 2000 and of changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 2001 and 2000. 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, 2000, 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 8, 2001, 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, 2000 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 18, 2001 PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES SEPTEMBER 30, 2001 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. 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 18, 2001 /s/John I. Von Lehman ------------------ ------------------------------------------------ John I. Von Lehman, Executive Vice President, Chief Financial Officer and Secretary EX-15 3 l91244aex15.txt EXHIBIT 15 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 three and nine month periods ended September 30, 2001 and 2000, as indicated in our report dated October 18, 2001; 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, 2001, is incorporated by reference in Registration Statements No. 33-64821 on Form S-3 and Nos. 33-48511 and 333-40560 on Forms 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 18, 2001 -----END PRIVACY-ENHANCED MESSAGE-----