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, 2000_______________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________to____________________________
Commission file number_________________1-6026___________________________________
_____________________________The Midland Company________________________________
(Exact name of registrant as specified in its charter)
_________Incorporated in Ohio_________________ _______________31-0742526______
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
7000 Midland Boulevard, Amelia, Ohio 45102-2607
(Address of principal executive offices)
(Zip Code)
(513) 943-7100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes___X___. No______.
The number of common shares outstanding as of June 30, 2000 was
9,400,809.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
Amounts in 000's
(Unaudited)
June 30, Dec. 31,
ASSETS 2000 1999
---------- ----------
MARKETABLE SECURITIES AVAILABLE FOR SALE:
Fixed income (cost, $472,995 at June 30, 2000 and
$488,492 at December 31, 1999) $ 467,044 $ 479,772
Equity (cost, $71,244 at June 30, 2000 and $46,400
at December 31, 1999) 152,119 131,087
---------- ----------
Total 619,163 610,859
---------- ----------
CASH 8,214 10,098
---------- ----------
ACCOUNTS RECEIVABLE - NET 74,490 60,426
---------- ----------
REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS 48,140 43,151
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - NET 58,316 62,585
---------- ----------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 91,701 85,168
---------- ----------
OTHER ASSETS 18,494 15,770
---------- ----------
TOTAL ASSETS $ 918,518 $ 888,057
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
Amounts in 000's
(Unaudited)
June 30, Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY 2000 1999
---------- ----------
UNEARNED INSURANCE PREMIUMS $ 342,062 $ 312,838
---------- ----------
INSURANCE LOSS RESERVES 129,680 133,713
---------- ----------
INSURANCE COMMISSIONS PAYABLE 20,099 20,291
---------- ----------
FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES 3,252 3,097
---------- ----------
LONG-TERM DEBT 42,181 44,288
---------- ----------
OTHER NOTES PAYABLE:
Banks 13,000 20,000
Commercial paper 6,011 5,550
---------- ----------
Total 19,011 25,550
---------- ----------
DEFERRED FEDERAL INCOME TAX 28,174 28,171
---------- ----------
OTHER PAYABLES AND ACCRUALS 62,685 62,107
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding: 9,401 shares
at June 30, 2000 and 9,515 shares at December 31,
1999 after deducting treasury stock of 1,527 shares
and 1,413 shares, respectively) 911 911
Additional paid-in capital 19,664 18,583
Retained earnings 222,103 207,005
Accumulated other comprehensive income 48,711 49,388
Treasury stock - at cost (18,448) (15,786)
Unvested restricted stock awards (1,567) (2,099)
---------- ----------
Total 271,374 258,002
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 918,518 $ 888,057
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited)
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Amounts in 000's (except per share information)
Six-Mos. Three-Mos.
Ended June 30, Ended June 30,
--------------------- ---------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
REVENUES:
Insurance:
Premiums earned $ 222,764 $ 197,974 $ 112,266 $ 99,837
Net investment income 14,452 12,272 7,391 6,201
Net realized investment gains 3,201 1,739 1,319 669
Other insurance income 4,174 2,100 2,215 1,354
Transportation 16,034 15,558 9,034 7,631
Other 559 788 218 655
---------- ---------- ---------- ----------
Total 261,184 230,431 132,443 116,347
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Insurance:
Losses and loss adjustment
expenses 116,939 103,893 61,963 55,511
Commissions and other policy
acquisition costs 68,039 58,693 33,177 28,244
Operating and administrative
expenses 35,344 29,932 17,511 15,509
Transportation operating expenses 13,496 14,930 7,186 7,242
Interest expense 2,056 2,139 1,168 1,077
Other operating and administrative
expenses 1,280 2,815 429 1,820
---------- ---------- ---------- ----------
Total 237,154 212,402 121,434 109,403
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAX 24,030 18,029 11,009 6,944
PROVISION FOR FEDERAL INCOME TAX 7,517 4,958 3,679 1,733
---------- ---------- ---------- ----------
NET INCOME $ 16,513 $ 13,071 $ 7,330 $ 5,211
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
OF COMMON STOCK $ 1.80 $ 1.43 $ 0.80 $ 0.57
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
OF COMMON STOCK $ 1.75 $ 1.38 $ 0.78 $ 0.55
========== ========== ========== ==========
CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK $ 0.150 $ 0.135 $ 0.0750 $ 0.0675
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
Amounts in 000's
Accumulated Unvested
Additional Other Compre- Restricted Compre-
Common Paid-In Retained hensive Treasury Stock hensive
Stock Capital Earnings Income Stock Awards Total Income
--------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $911 $15,947 $178,398 $ 70,507 $(15,293) $(1,638) $248,832
Comprehensive income:
Net income 13,071 13,071 $ 13,071
Decrease in unrealized gain
on marketable securities,
net of related income tax
effect of $(6,319) (11,733) (11,733) (11,733)
----------
Total comprehensive income $ 1,338
==========
Purchase of treasury stock (2,688) (2,688)
Issuance of treasury stock
for options exercised and
employee savings plan 31 1,671 1,702
Cash dividends declared (1,285) (1,285)
Restricted stock awards 1,411 1,267 (2,678) -
Amortization and cancellation
of unvested restricted
stock awards (17) (15) 654 622
---------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 $911 $17,372 $190,184 $ 58,774 $(15,058) $(3,662) $248,521
=================================================================================
BALANCE, DECEMBER 31, 1999 $911 $18,583 $207,005 $ 49,388 $(15,786) $(2,099) $258,002
Comprehensive income:
Net income 16,513 16,513 $ 16,513
Decrease in unrealized gain
on marketable securities,
net of related income tax
effect of $(367) (677) (677) (677)
----------
Total comprehensive income $ 15,836
==========
Purchase of treasury stock (2,799) (2,799)
Issuance of treasury stock
for options exercised and
employee savings plan 125 259 384
Cash dividends declared (1,415) (1,415)
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) 532 327
---------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 $911 $19,664 $222,103 $ 48,711 $(18,448) $(1,567) $271,374
=================================================================================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX-MONTHS ENDED JUNE 30, 2000 AND 1999
Amounts in 000's
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES: --------- ----------
Net income $ 16,513 $ 13,071
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,630 4,542
Net realized investment gains (3,201) (1,739)
Increase in unearned insurance premiums 29,224 17,995
Increase in net accounts receivable (13,955) (6,348)
Increase in deferred insurance policy acquisition costs (6,533) (9,605)
Increase in reinsurance recoverables and prepaid
reinsurance premiums (4,989) (1,158)
Increase (decrease) in insurance loss reserves (4,033) 4,835
Increase (decrease) in other accounts payable
and accruals 1,189 (4,198)
Increase in deferred federal income tax 368 -
Decrease (increase) in other assets (292) 182
Increase (decrease) in insurance commissions payable (192) 1,001
Increase (decrease) in funds held under reinsurance
agreements and reinsurance payables 155 (5,307)
Other-net (988) 995
--------- ----------
Net cash provided by operating activities 17,896 14,266
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (122,228) (76,326)
Sale of marketable securities 89,881 46,724
Maturity of marketable securities 16,254 18,465
Decrease in cash equivalent marketable securities 9,877 15,578
Net cash used in business acquisition (2,471) (2,636)
Proceeds from sale of property, plant and equipment 2,161 181
Acquisition of property, plant and equipment (841) (1,414)
--------- ----------
Net cash provided by (used in) investing activities (7,367) 572
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in net short-term borrowings (6,539) (8,343)
Purchase of treasury stock (2,799) (2,688)
Repayment of long-term debt (2,107) (1,673)
Dividends paid (1,352) (1,226)
Issuance of treasury stock 384 1,702
--------- ----------
Net cash used in financing activities (12,413) (12,228)
--------- ----------
NET INCREASE (DECREASE) IN CASH (1,884) 2,610
CASH AT BEGINNING OF PERIOD 10,098 3,687
--------- ----------
CASH AT END OF PERIOD $ 8,214 $ 6,297
========= ==========
INTEREST PAID $ 2,074 $ 2,139
INCOME TAXES PAID $ 5,330 $ 4,500
See notes to the condensed consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Midland
Company and subsidiaries (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete annual financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Financial
information as of December 31, 1999 has been derived from the audited
consolidated financial statements of the Company. Revenue and operating results
for the six and three-month periods ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 1999 included
in the Company's Annual Report on Form 10-K.
Certain reclassifications (minor in nature) have been made to the 1999 amounts
to conform to 2000 classifications.
2. EARNINGS PER SHARE
Earnings per share (EPS) of common stock amounts are computed by dividing net
income by the weighted average number of shares outstanding during the period
for basic EPS, plus the dilutive share equivalents for stock options and
restricted stock awards for diluted EPS. Shares used for EPS calculations were
as follows (000's):
For Basic EPS For Diluted EPS
------------- ---------------
Six months ended June 30:
2000 9,156 9,461
===== =====
1999 9,106 9,437
===== =====
3. INCOME TAXES
The federal income tax provisions for the three and six-month periods ended
June 30, 2000 and 1999 are different from amounts derived by applying the
statutory tax rates to income before federal income tax as follows (000's):
Six-Mos. Three-Mos.
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Federal income tax at statutory rate $ 8,410 $ 6,310 $ 3,853 $ 2,430
Add (deduct) the tax effect of:
Tax exempt interest and
excludable dividend income (1,660) (1,523) (842) (786)
Federal excise tax 570 -- 570 --
Other - net 197 171 98 89
-------- -------- -------- --------
Provision for federal income tax $ 7,517 $ 4,958 $ 3,679 $ 1,733
======== ======== ======== ========
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
4. SEGMENT DISCLOSURES
Since the Company's annual report for 1999, there have been no changes in
reportable segments or the manner in which the Company determines reportable
segments or measures segment profit or loss. Summarized segment information for
the interim periods for 2000 and 1999 is as follows (000's):
Six Months Three Months
Ended June 30, 2000 Ended June 30, 2000
------------------------------- ---------------------
Revenues- Revenues-
Total External Pre-Tax External Pre-Tax
Assets Customers Income Customers Income
-------- ---------- ---------- ---------- ---------
Reportable Segments:
Insurance:
Manufactured housing n/a $152,960 $ 18,795 $76,957 $ 7,679
Other n/a 73,978 5,644 37,524 2,428
Unallocated $855,186 - (976) - (316)
Transportation 31,089 16,034 2,039 9,034 1,479
Corporate and all other - - (1,472) - (261)
--------- --------
$ 24,030 $11,009
========= ========
Six Months Three Months
Ended June 30, 1999 Ended June 30, 1999
------------------------------- ---------------------
Revenues- Revenues-
Total External Pre-Tax External Pre-Tax
Assets Customers Income Customers Income
-------- ---------- ---------- ---------- ---------
Reportable Segments:
Insurance:
Manufactured housing n/a $139,346 $ 20,165 $70,578 $ 9,730
Other n/a 60,728 1,775 30,613 (806)
Unallocated $767,140 - (645) - (325)
Transportation 35,173 15,558 510 7,631 339
Corporate and all other - - (3,776) - (1,994)
--------- --------
$ 18,029 $ 6,944
========= ========
Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. Certain amounts are
not allocated to segments ("n/a" above) by the Company.
5. NEW ACCOUNTING STANDARDS
Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" during 1998. SFAS No. 133, as amended by
SFAS Nos. 137 and 138, is effective for fiscal years beginning after June 15,
2000. Adoption of SFAS 133 is not expected to have a material impact on the
reported results of operations or financial position of the Company.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Midland Company:
We have reviewed the accompanying condensed balance sheet of The Midland Company
and subsidiaries as of June 30, 2000, and the related condensed consolidated
statements of income for the three-month and six-month periods ended June 30,
2000 and 1999 and of changes in shareholders' equity and cash flows for the
six-month periods ended June 30, 2000 and 1999. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of The
Midland Company and subsidiaries as of December 31, 1999, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 10, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated
financial statements from which it has been derived.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Cincinnati, Ohio
July 20, 2000
<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 1999 Annual Report on Form 10-K. Except as discussed below,
no material changes have taken place since that date and, accordingly, the
discussion is not repeated herein.
RESULTS OF OPERATIONS
Insurance
---------
Insurance Premiums
Direct and assumed written premiums generated from American Modern
Insurance Group's (AMIG) property and casualty and life insurance operations
increased 10.4% in the second quarter to $142.7 million from $129.2 million for
the same quarter of 1999. Net earned premiums for the second quarter of 2000
increased 12.4% to $112.3 million from $99.8 million for the comparable quarter
in 1999. On a year-to-date basis, direct and assumed written premiums generated
by AMIG's insurance operations increased 15% to $271.1 million from $235.8
million for the same six-month period in 1999. Year-to-date net earned premiums
increased 12.5% to $222.8 million from $198.0 million in 1999.
The growth in direct and assumed written premiums for the periods
presented is primarily the result of continued volume increases in manufactured
home and related coverages insurance premium. Manufactured home and related
coverages direct and assumed written premium generated in the second quarter
increased 7.5% to $91.3 million from $84.9 million for the same quarter of 1999.
On a year-to-date basis, manufactured home and related coverages direct and
assumed written premium increased 12.9% to $175.3 million from $155.3 million.
AMIG also had volume increases in its other specialty insurance products for the
three and six-month periods ended June 30, 2000. Direct and assumed written
premiums of all other property and casualty insurance products collectively
increased 1.7% to $41.2 million for the second quarter of 2000 from $40.5
million for the same quarter in 1999. On a year-to-date basis, direct and
assumed written premiums of all other specialty insurance products collectively
increased 5.2% to $77.8 million from $74.0 million for the same period in 1999.
Investment Income and Realized Capital Gains
AMIG's net investment income (before taxes and excluding capital gains)
increased 19.4% to $7.4 million in the second quarter of 2000 from $6.2 million
for the second quarter of 1999. On a year-to-date basis, AMIG's net investment
income increased 17.9% to $14.5 million from $12.3 million for the same
six-month period in 1999. Investment income increased due to the continued
growth in AMIG's investment portfolio coupled with higher yields from AMIG's
fixed income investment portfolio.
AMIG's net realized capital gains (after-tax) increased to $0.9 million,
$0.09 per share (diluted), for the second quarter of 2000, from $0.4 million,
$0.05 per share (diluted), for the same quarter in 1999. On a year-to-date
basis, AMIG's net realized capital gains (after-tax) increased to $2.1 million,
$0.22 per share (diluted), from $1.1 million, $0.12 per share (diluted), for the
same six-month period in 1999.
Losses and Loss Adjustment Expenses
AMIG's losses and loss adjustment expenses in the second quarter
increased 11.7% to $62.0 million from $55.5 million for the second quarter of
1999. AMIG's weather-related catastrophe losses for the second quarter of 2000
amounted to $5.2 million on a pre-tax basis compared with $11.3 million for the
same quarter of 1999. These losses had an after-tax impact of approximately
$0.36 per share (diluted) in the second quarter of 2000 compared to $0.78 per
share (diluted) in the second quarter of 1999. Excluding catastrophe losses,
the property and casualty combined ratio for the second quarter was 94.3%
compared to 86.7% for the same quarter in 1999.
On a year-to-date basis, AMIG's losses and loss adjustment expenses
increased 12.5% to $116.9 million from $103.9 million for the same six-month
period in 1999. AMIG's weather-related catastrophe losses for the first six
months of 2000 amounted to $7.7 million on a pre-tax basis compared with $15.5
million for the same period in 1999. These losses had an after-tax impact of
approximately $0.53 per share (diluted) in the first six months of 2000 compared
to $1.07 per share (diluted) in the same period of
<PAGE>
1999. Excluding catastrophe losses, the property and casualty combined ratio
for the first six months of 2000 was 93.5% compared to 88.4% for the same period
in 1999.
The primary reasons for the increases in AMIG's losses and loss
adjustment expenses for the second quarter and first half of 2000 compared to
the same periods in 1999 were significant increases in non-catastrophe
weather-related losses and fire losses.
Commissions, Other Policy Acquisition Costs and Other Operating and
Administration Expenses
AMIG's commissions and other policy acquisition costs and other
operating and administrative expenses for the second quarter of 2000 increased
15.8% to $50.7 million from $43.8 million in the second quarter of 1999. On a
year-to-date basis, AMIG's commissions and other policy acquisition costs and
other operating and administrative expenses for the first six months of 2000
increased 16.7% to $103.4 million from $88.6 million for the same six-month
period in 1999. These increases are due primarily to continued growth in net
earned premiums plus an increase in our commission ratio due to a change in a
quota share reinsurance arrangement with one of our major national accounts.
Property and Casualty Underwriting Results
AMIG's property and casualty operations generated a pre-tax underwriting
income of $1.1 million for the second quarter of 2000 compared to a pre-tax
underwriting profit of $1.7 million for the same quarter in 1999. For the
current quarter, AMIG's combined ratio (ratio of losses and expenses as a
percent of earned premium) for its property and casualty business was 99.0%
compared to 98.3% in the second quarter of 1999. On a year-to-date basis,
AMIG's property and casualty pre-tax underwriting income decreased from $6.9
million in the first half of 1999 to $6.4 million during the first six months
of 2000. AMIG's combined ratio for its property and casualty business was 97.1%
for the first six months of 2000 compared to 96.4% for the same period in 1999.
Transportation
--------------
M/G Transport, the Company's transportation subsidiary, reported
revenues for the second quarter of $9.0 million compared with $7.6 million in
the second quarter of 1999. Included in revenues for the second quarter of 2000
is a one-time gain of $1.0 million from the sale of transportation equipment.
This gain has been treated as a capital gain and has been excluded from reported
operating earnings. Excluding this one-time gain, revenues for the second
quarter increased 4.5% over the comparable period in 1999. Pre-tax operating
profit increased from $0.3 million in 1999 to $0.4 million in 2000. The
improved operating performance in the second quarter of 2000 was due primarily
to increased demand for barite plus a reduction in operating expenses. On a
year-to-date basis, revenues (excluding $1.0 million in capital gains) decreased
$0.6 from $15.6 million in 1999 to $15.0 million in 2000 due to a reduced demand
for petroleum coke. Operating pre-tax income increased $0.5 million in the
first six-months of 2000 from $0.5 million in 1999 to $1.0 million in 2000 due
to a reduction of $1.4 million in operating costs.
Corporate
---------
During the second quarter of 2000, Midland recorded a gain of $7.0
million from the curtailment of a portion of its pension plan. This gain was
offset by excise taxes on the withdrawal of a portion of overfunded pension
assets and by one-time expenses related to consulting agreements with retired
executives. These transactions -exclusive of the excise tax-were included in
the income statement as a credit to other operating and administrative expenses.
The excise tax component was included in the Provision for Federal Income Tax.
The net impact of these transactions was a net after-tax charge to earnings of
one cent per share.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
Cash flows from operating and investing activities were used to purchase
marketable securities and to decrease the Company's short-term borrowings (Other
Notes Payable).
Management expects that cash and other liquid investments, coupled with
future operating cash flows, will be readily available to meet the Company's
operating cash requirements for the next twelve months. The Company declared
$1.4 million in dividends to its shareholders during the first six months of
2000.
<PAGE>
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 six-month periods ended June 30, 2000 and 1999, such net unrealized
gains decreased, net of related income tax effects, by the following amounts
(in thousands):
2000 1999
-------- --------
Three months ended June 30 $ 5,560 $ 7,443
Six months ended June 30 $ 677 $11,733
Changes in net unrealized gains on marketable securities result from
both market conditions and realized gains recognized in a reporting period.
Acquisitions
------------
AMIG acquired the operating assets of a relatively small business during
the first half of 2000 and also acquired the operating assets of several
businesses during the second quarter of 1999. These acquisitions were for
amounts not material to the capital and liquidity of the Company. Management
pursued these acquisitions to afford AMIG the opportunity to expand its service
contract, loan facilitation, financial and insurance capabilities.
Private Securities Reform Act of 1995 - Forward Looking Statements Disclosure
-----------------------------------------------------------------------------
This report contains 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 2000 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risks associated with the Company's investment portfolios
have not changed materially from those disclosed at year-end 1999.
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
JUNE 30, 2000
Item 1. Legal Proceedings
Reference is made to Item 3 of Registrant's December 31, 1999 Form 10-K
concerning the conclusion of criminal litigation against M/G Transport
Services, Inc., a subsidiary of Registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 2000 annual meeting of Shareholders held on April 13,
2000, the following actions were taken:
a) The following persons were elected as members of the Board of Directors
to serve until the annual meeting of 2003 and until their successors are
chosen and qualified:
Votes Broker
Name Votes For Withheld Abstentions Non-Votes
---- --------- -------- ----------- ---------
Michael J. Conaton 8,902,042 45,741 0 0
Jerry A. Grundhofer 8,902,772 45,011 0 0
Joseph P. Hayden III 8,900,636 47,147 0 0
William J. Keating 8,902,223 45,560 0 0
John R. LaBar 8,901,036 46,747 0 0
b) A proposal by the Board of Directors to adopt the Associate Discount
Stock Purchase Plan was approved by the Shareholders. The Shareholders
cast 6,807,557 votes in favor of this proposal and 1,105,991 votes
against it. There were 5,371 abstentions.
c) A proposal by the Board of Directors to adopt the Amended and Restated
1992 Associate Incentive Stock Plan was approved by the Shareholders.
The Shareholders cast 6,402,711 votes in favor of this proposal and
1,509,734 votes against it. There were 6,474 abstentions.
d) A proposal by the Board of Directors to adopt the Stock Option Plan for
Non-Employee Directors was approved by the Shareholders. The
Shareholders cast 7,239,384 votes in favor of this proposal and 671,967
votes against it. There were 7,568 abstentions.
e) A proposal by the Board of Directors to amend the Company's Amended and
Restated Code of Regulations was approved by the Shareholders. The
Shareholders cast 8,671,705 votes in favor of this proposal and 265,409
votes against it. There were 10,669 abstentions.
<PAGE>
f) A proposal by the Board of Directors to ratify the appointment of the
firm of Deloitte & Touche LLP, as the Company's independent auditors to
conduct the annual audit of the financial statements of the Company for
the year ending December 31, 2000, was approved by the Shareholders.
The Shareholders cast 8,938,285 votes in favor of this proposal and
6,727 votes against it. There were 2,771 abstentions.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibit 3(ii) - Code of Regulations (Amended and Restated)
Exhibit 10.1 - Annual Incentive Plan (incorporated by reference to 2000
Proxy Statement)
Exhibit 10.2 - Consulting Agreements with J.P. Hayden, Jr., Michael J.
Conaton, John R. LaBar and Robert W. Hayden (incorporated by
reference to 2000 Proxy Statement)
Exhibit 10.3 - Employee Retention Agreements with Joseph P. Hayden III,
John W. Hayden, John I. Von Lehman and Paul T. Brizzolara
(incorporated by reference to 2000 Proxy Statement)
Exhibit 15 - Letter re: Unaudited Interim Financial Information
Exhibit 27 - Financial Data Schedule
b.) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MIDLAND COMPANY
Date______July 20, 2000________ /s/John I. Von Lehman_________________
John I. Von Lehman, Executive Vice
President, Chief Financial Officer and
Secretary
<PAGE>
