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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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).
<PAGE>
<TABLE>
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
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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
=========== =========== =========== ===========
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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,
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
SEVENTH: The amount of stated capital with which the Corporation
will begin business is Five Hundred ($500.00) Dollars.
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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
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.
<PAGE>
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.
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
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