UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended_________________September 30, 2000_______________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________to_____________________________
Commission file number__________________________1-6026__________________________
_____________________________The Midland Company________________________________
(Exact name of registrant as specified in its charter)
________Incorporated in Ohio_________________ _____________31-0742526_________
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
7000 Midland Boulevard, Amelia, Ohio 45102-2607
(Address of principal executive offices)
(Zip Code)
(513) 943-7100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___. No _______.
The number of common shares outstanding as of September 30, 2000 was
9,334,875.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
Amounts in 000's
(Unaudited)
Sept. 30, Dec. 31,
ASSETS 2000 1999
---------- ----------
MARKETABLE SECURITIES AVAILABLE FOR SALE:
Fixed income (cost, $479,003 at September 30, 2000 and
$488,492 at December 31, 1999) $ 478,144 $ 479,772
Equity (cost, $72,168 at September 30, 2000 and $46,400
at December 31, 1999) 156,141 131,087
---------- ----------
Total 634,285 610,859
---------- ----------
CASH 9,520 10,098
---------- ----------
ACCOUNTS RECEIVABLE - NET 70,932 60,426
---------- ----------
REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS 54,483 43,151
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - NET 57,435 62,585
---------- ----------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 93,777 85,168
---------- ----------
OTHER ASSETS 20,432 15,770
---------- ----------
TOTAL ASSETS $ 940,864 $ 888,057
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
Amounts in 000's
(Unaudited)
Sept. 30, Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY 2000 1999
---------- ----------
UNEARNED INSURANCE PREMIUMS $ 357,221 $ 312,838
---------- ----------
INSURANCE LOSS RESERVES 134,979 133,713
---------- ----------
INSURANCE COMMISSIONS PAYABLE 22,163 20,291
---------- ----------
FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES 3,622 3,097
---------- ----------
LONG-TERM DEBT 40,544 44,288
---------- ----------
OTHER NOTES PAYABLE:
Banks 2,000 20,000
Commercial paper 5,621 5,550
Total 7,621 25,550
---------- ----------
DEFERRED FEDERAL INCOME TAX 31,040 28,171
---------- ----------
OTHER PAYABLES AND ACCRUALS 61,328 62,107
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding: 9,335 shares at
September 30, 2000 and 9,515 shares at December 31,
1999 after deducting treasury stock of 1,593 shares and
1,413 shares, respectively) 911 911
Additional paid-in capital 19,728 18,583
Retained earnings 229,329 207,005
Accumulated other comprehensive income 54,034 49,388
Treasury stock - at cost (20,229) (15,786)
Unvested restricted stock awards (1,427) (2,099)
---------- ----------
Total 282,346 258,002
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 940,864 $ 888,057
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Amounts in 000's (except per share information)
Nine-Mos. Three-Mos.
Ended Sept. 30, Ended Sept. 30,
--------------------- ---------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
REVENUES:
Insurance:
Premiums earned $ 339,564 $ 298,152 $ 116,800 $ 100,178
Net investment income 22,378 18,619 7,926 6,347
Net realized investment gains 3,826 2,564 625 825
Other insurance income 6,560 5,136 2,386 3,036
Transportation 23,848 22,728 7,814 7,170
Other 801 1,077 242 289
---------- ---------- ---------- ----------
Total 396,977 348,276 135,793 117,845
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Insurance:
Losses and loss adjustment
expenses 179,396 158,316 62,457 54,423
Commissions and other policy
acquisition costs 103,767 85,627 35,728 26,934
Operating and administrative
expenses 53,622 47,207 18,278 17,275
Transportation operating expenses 20,530 21,649 7,034 6,719
Interest expense 3,036 3,087 980 948
Other operating and administrative
expenses 1,647 4,277 367 1,462
---------- ---------- ---------- ----------
Total 361,998 320,163 124,844 107,761
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAX 34,979 28,113 10,949 10,084
PROVISION FOR FEDERAL INCOME TAX 10,541 7,792 3,024 2,834
---------- ---------- ---------- ----------
NET INCOME $ 24,438 $ 20,321 $ 7,925 $ 7,250
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
OF COMMON STOCK: $ 2.68 $ 2.23 $ 0.88 $ 0.80
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
OF COMMON STOCK: $ 2.58 $ 2.15 $ 0.83 $ 0.77
========== ========== ========== ==========
CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK $ 0.2250 $ 0.2025 $ 0.0750 $ 0.0675
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Amounts in 000's
Accumulated Unvested
Additional Other Com- Restricted Compre-
Common Paid-In Retained prehensive Treasury Stock hensive
Stock Capital Earnings Income Stock Awards Total Income
---------------------------------------------------------------------------------------------
<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 20,321 20,321 $ 20,321
Decrease in unrealized gain
on marketable securities,
net of related income tax
effect of $10,309 (19,141) (19,141) (19,141)
---------
Total comprehensive income $ 1,180
=========
Purchase of treasury stock (2,914) (2,914)
Issuance of treasury stock
for options exercised and
employee savings plan 106 1,734 1,840
Cash dividends declared (1,929) (1,929)
Restricted stock awards 1,411 1,267 (2,678) -
Amortization and cancellation
of unvested restricted stock
awards (23) (19) 998 956
---------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 $ 911 $ 17,441 $ 196,790 $ 51,366 $(15,225) $(3,318) $ 247,965
=================================================================================
BALANCE, DECEMBER 31, 1999 $ 911 $ 18,583 $ 207,005 $ 49,388 $(15,786) $(2,099) $ 258,002
Comprehensive income:
Net income 24,438 24,438 $ 24,438
Increase in unrealized gain
on marketable securities,
net of related income tax
effect of $2,500 4,646 4,646 4,646
---------
Total comprehensive income $ 29,084
=========
Purchase of treasury stock (4,645) (4,645)
Issuance of treasury stock
for options exercised and
employee savings plan 189 324 513
Cash dividends declared (2,114) (2,114)
Federal income tax benefit
related to the exercise or
granting of stock awards 263 263
Revaluation of stock options
relating to a plan amendment 776 776
Amortization and cancellation
of unvested restricted stock
awards (83) (122) 672 467
---------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 $ 911 $ 19,728 $ 229,329 $ 54,034 $(20,229) $(1,427) $ 282,346
=================================================================================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Amount in 000's
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,438 $ 20,321
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,853 6,848
Net realized investment gains (3,826) (2,564)
Increase in unearned insurance premiums 44,383 35,837
Increase in reinsurance recoverables and
prepaid reinsurance premiums (11,332) (31,186)
Increase in net accounts receivable (10,397) (9,408)
Increase in deferred insurance policy acquisition costs (8,609) (15,415)
Decrease (increase) in other assets (2,377) 129
Increase in insurance commissions payable 1,872 1,376
Increase in insurance loss reserves 1,266 33,283
Increase (decrease) in funds held under reinsurance
agreements and reinsurance payables 525 (276)
Increase in deferred federal income tax 369 -
Decrease in other accounts payable and accruals (166) (2,080)
Other-net (476) 2,035
---------- ----------
Net cash provided by operating activities 42,523 38,900
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (173,181) (113,943)
Sale of marketable securities 141,709 60,000
Maturity of marketable securities 24,793 25,203
Decrease (increase) in cash equivalent
marketable securities (6,377) 14,713
Net cash used in business acquisitions (2,471) (2,636)
Sale of property, plant and equipment 2,239 8,747
Acquisition of property, plant and equipment (1,955) (2,521)
---------- ----------
Net cash used in investing activities (15,243) (10,437)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in net short-term borrowings (17,929) (14,116)
Purchase of treasury stock (4,645) (2,914)
Repayment of long-term debt (3,744) (9,642)
Dividends paid (2,053) (1,871)
Issuance of treasury stock 513 1,840
---------- ----------
Net cash used in financing activities (27,858) (26,703)
---------- ----------
NET INCREASE (DECREASE) IN CASH (578) 1,760
CASH AT BEGINNING OF PERIOD 10,098 3,687
---------- ----------
CASH AT END OF PERIOD $ 9,520 $ 5,447
========== ==========
INTEREST PAID $ 3,155 $ 3,085
INCOME TAXES PAID $ 8,957 $ 8,500
See notes to the condensed consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Midland
Company and subsidiaries (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Financial information as
of December 31, 1999 has been derived from the audited consolidated financial
statements of the Company. Revenue and operating results for the nine and
three-month periods ended September 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000. For
further information, refer to the audited consolidated financial statements and
footnotes thereto for the year ended December 31, 1999 included in the Company's
Annual Report on Form 10-K.
Certain reclassifications (minor in nature) have been made to the 1999 amounts
to conform to 2000 classifications.
2. EARNINGS PER SHARE
Earnings per share (EPS) of common stock amounts are computed by dividing net
income by the weighted average number of shares outstanding during the period
for basic EPS, plus the dilutive share equivalents for stock options and
restricted stock awards for diluted EPS. Shares used for EPS calculations were
as follows (000's):
For Basic EPS For Diluted EPS
------------- ---------------
Nine months ended September 30:
2000 9,133 9,454
===== =====
1999 9,110 9,444
===== =====
3. INCOME TAXES
The federal income tax provisions for the three and nine-month periods ended
September 30, 2000 and 1999 are different from amounts derived by applying the
statutory tax rates to income before federal income tax as follows (000's):
Nine-Mos. Three-Mos.
Ended Sept. 30, Ended Sept. 30,
2000 1999 2000 1999
-------- -------- -------- --------
Federal income tax at statutory rate $12,243 $ 9,840 $ 3,833 $ 3,530
Add (deduct) the tax effect of:
Tax exempt interest and
excludable dividend income (2,514) (2,310) (854) (787)
Federal excise tax 529 -- (41) --
Other - net 283 262 86 91
-------- -------- -------- --------
Provision for federal income tax $10,541 $ 7,792 $ 3,024 $ 2,834
======== ======== ======== ========
<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):
Nine Months Three Months
Ended Sept. 30, 2000 Ended Sept. 30, 2000
------------------------------- ----------------------
Revenues- Revenues-
Total External Pre-Tax External Pre-Tax
Assets Customers Income Customers Income
-------- ---------- ---------- ----------- ---------
Reportable Segments:
Insurance:
Manufactured housing n/a $231,104 $ 28,401 $78,144 $ 9,606
Other n/a 115,020 7,814 41,042 2,170
Unallocated $898,530 - (1,550) - (574)
Transportation 28,527 23,848 2,720 7,814 681
Corporate and all other - - (2,406) - (934)
---------- ---------
$ 34,979 $10,949
========== =========
Nine Months Three Months
Ended Sept. 30, 1999 Ended Sept. 30, 1999
------------------------------- ----------------------
Revenues- Revenues-
Total External Pre-Tax External Pre-Tax
Assets Customers Income Customers Income
-------- ---------- ---------- ----------- ---------
Reportable Segments:
Insurance:
Manufactured housing n/a $209,203 $ 31,046 $69,857 $10,881
Other n/a 94,089 2,745 33,361 970
Unallocated $818,590 - (895) - (250)
Transportation 36,347 22,728 925 7,170 415
Corporate and all other - - (5,708) - (1,932)
---------- ---------
$ 28,113 $10,084
========== =========
Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. Certain amounts are
not allocated to segments ("n/a" above) by the Company.
5. NEW ACCOUNTING STANDARDS
Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" during 1998. SFAS No. 133, as amended by
SFAS Nos. 137 and 138, is effective for fiscal years beginning after June 15,
2000. Adoption of SFAS 133 is not expected to have a material impact on the
reported results of operations or financial position of the Company.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Midland Company:
We have reviewed the accompanying condensed balance sheet of the Midland Company
and subsidiaries as of September 30, 2000, and the related condensed
consolidated statements of income for the three-month and nine-month periods
ended September 30, 2000 and 1999 and of changes in shareholders' equity and
cash flows for the nine-month periods ended September 30, 2000 and 1999. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Midland Company and subsidiaries as of December 31, 1999, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 10, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated
financial statements from which it has been derived.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Cincinnati, Ohio
October 19, 2000
<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 4.0% in the third quarter to $140.8 million from $135.4 million for
the same quarter of 1999. Net earned premiums for the third quarter of 2000
increased 16.6% to $116.8 million from $100.2 million for the comparable
quarter in 1999. On a year-to-date basis, direct and assumed written premiums
generated by AMIG's insurance operations increased 11% to $411.9 million from
$371.2 million for the same nine-month period in 1999. Year-to-date net earned
premiums increased 13.9% to $339.6 million from $298.2 million in 1999. The
disparity in growth rates between direct and assumed written premiums and net
earned premiums is primarily due to the impact of multi-year policies generated
in prior periods coupled with changes in the levels of premiums ceded under a
quota share reinsurance treaty.
Direct and assumed written premiums increased in the third quarter of
2000 due primarily to increased volume in non-manufacturing and housing related
property and casualty insurance products which increased 5.8% from $40.6 million
in the third quarter of 1999 to $42.9 million in the third quarter of 2000.
Manufactured home and related coverages decreased 1.2% from $88.2 million in the
third quarter of 1999 to $87.1 million in the third quarter of 2000. The
decrease in manufactured home and related direct and assumed written premium is
due to the general downturn in the manufactured housing industry which has
experienced a 33% reduction in shipments over the last twelve months. On a
year-to-date basis, manufactured home and related coverages direct and assumed
written premiums increased 7.8% from $243.5 million in 1999 to $262.4 million in
2000. Also on a year-to-date basis, direct and assumed written premiums of all
other specialty insurance products collectively increased 5.4% from $114.6
million in 1999 to $120.8 million in 2000.
Investment Income and Realized Capital Gains
AMIG's net investment income (before taxes and excluding capital gains)
increased 24.9% to $7.9 million in the third quarter of 2000 from $6.3 million
for the third quarter of 1999. On a year-to-date basis, AMIG's net investment
income increased 20.2% to $22.4 million from $18.6 million for the same nine-
month period in 1999. Investment income increased due to the continued growth
in AMIG's investment portfolio (resulting from the investment of insurance
operating cash flow) coupled with higher yields from AMIG's fixed income
investment portfolio.
AMIG's net realized capital gains (after-tax) decreased to $0.4 million,
$0.03 per share (diluted), for the third quarter of 2000, from $0.5 million,
$0.06 per share (diluted), for the same quarter in 1999. On a year-to-date
basis, AMIG's net realized capital gains (after-tax) increased to $2.5 million,
$0.26 per share (diluted), from $1.7 million, $0.18 per share (diluted), for the
same nine-month period in 1999.
Losses and Loss Adjustment Expenses
AMIG's losses and loss adjustment expenses in the third quarter
increased 14.8% to $62.5 million from $54.4 million for the third quarter of
1999. Excluding catastrophe losses, the property and casualty combined ratio
for the third quarter was 96.8% compared to 89.0% for the same quarter in 1999.
This increase is due principally to higher levels of non-catastrophe weather
related losses in the third quarter of 2000 compared to 1999. AMIG's weather-
related catastrophe losses for the third quarter of 2000 amounted to $0.7
million on a pre-tax basis compared with $7.1 million for the same quarter of
1999. These losses had an after-tax impact of approximately $0.05 per share
(diluted) in the third quarter of 2000 compared to $0.49 per share (diluted) in
the third quarter of 1999.
<PAGE>
On a year-to-date basis, AMIG's losses and loss adjustment expenses
increased 13.3% to $179.4 million from $158.3 million for the same nine-month
period in 1999. Excluding catastrophe losses, the property and casualty
combined ratio for the first nine months of 2000 was 94.6% compared to 89.2%
for the same period in 1999. Again, this increase is due primarily to an
overall increase in non-catastrophe weather related losses in 2000 compared to
1999. AMIG's weather-related catastrophe losses for the first nine months of
2000 amounted to $8.4 million on a pre-tax basis compared with $22.1 million
for the same period in 1999. These losses had an after-tax impact of
approximately $0.58 per share (diluted) in the first nine months of 2000
compared to $1.52 per share (diluted) in the same period of 1999.
Commissions, Other Policy Acquisition Costs and Other Operating and
Administration Expenses
AMIG's commissions and other policy acquisition costs and other
operating and administrative expenses for the third quarter of 2000 increased
22.2% to $54.0 million from $44.2 million in the third quarter of 1999. On a
year-to-date basis, AMIG's commissions and other policy acquisition costs and
other operating and administrative expenses for the first nine months of 2000
increased 18.5% to $157.4 million from $132.8 million for the same nine-month
period in 1999. These increases are due primarily to continued growth in net
earned premiums plus an increase in the commission ratio due to a change in a
quota share reinsurance arrangement with one of the major national accounts.
Property and Casualty Underwriting Results
AMIG's property and casualty operations generated a pre-tax underwriting
income of $3.0 million for the third quarter of 2000 compared to a pre-tax
underwriting profit of $4.1 million for the same quarter in 1999. For the
current quarter, AMIG's combined ratio (ratio of losses and expenses as a
percent of earned premium) for its property and casualty business was 97.4%
compared to 95.8% in the third quarter of 1999. On a year-to-date basis, AMIG's
property and casualty pre-tax underwriting income decreased from $11.1 million
in 1999 to $9.4 million during the first nine months of 2000. AMIG's combined
ratio for its property and casualty business was 97.2% for the first nine months
of 2000 compared to 96.2% for the same period in 1999.
Transportation
--------------
M/G Transport, the Company's transportation subsidiary, reported
revenues for the third quarter of $7.8 million compared with $7.2 million in
the third quarter of 1999. Pre-tax operating profit increased from $0.4
million in 1999 to $0.7 million in 2000. The improved operating performance
in the third quarter of 2000 was due primarily to increased demand for barite.
On a year-to-date basis, revenues (excluding $1.0 million in capital gains)
increased $0.1 from $22.7 million in 1999 to $22.8 million in 2000. Included
in revenues for the first nine months of 2000 is a one-time gain of $1.0
million from the sale of transportation equipment. This gain has been treated
as a capital gain and has been excluded from reported operating earnings.
Operating pre-tax income increased $0.8 million in the first nine-months of
2000 from $0.9 million in 1999 to $1.7 million in 2000 due to a reduction of
$1.1 million in operating costs.
Corporate
---------
During the first nine months of 2000, Midland recorded a gain of $7.0
million from the curtailment of a portion of its pension plan. This gain was
offset by excise taxes on the withdrawal of a portion of overfunded pension
assets and by one-time expenses related to consulting agreements with retired
executives. These transactions-exclusive of the excise tax-were included in
the income statement as a credit to other operating and administrative
expenses. The excise tax component was included in the Provision for Federal
Income Tax. The net impact of these transactions was a net after-tax charge
to earnings of one cent per share.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
Cash flows from operating and investing activities were used to purchase
marketable securities and to decrease the Company's short-term borrowings
(Other Notes Payable).
Management expects that cash and other liquid investments, coupled with
future operating cash flows, will be readily available to meet the Company's
operating cash requirements for the next twelve months. The Company declared
$2.1 million in dividends to its shareholders during the first nine months of
2000.
<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 nine-month periods ended September 30, 2000 and 1999, such net
unrealized gains increased (decreased), net of related income tax effects, by
the following amounts (in thousands):
2000 1999
-------- ---------
Three months ended September 30 $ 5,323 $( 7,408)
Nine months ended September 30 $ 4,646 $(19,141)
Changes in net unrealized gains on marketable securities result from
both market conditions and realized gains recognized in a reporting period.
Acquisitions
------------
AMIG acquired the operating assets of a relatively small business during
the first nine months of 2000 and also acquired the operating assets of several
businesses during the comparable period in 1999. These acquisitions were not
material to the capital and liquidity of the Company. Management pursued these
acquisitions to afford AMIG the opportunity to expand its service contract,
loan facilitation, financial and insurance capabilities.
Private Securities Reform Act of 1995 - Forward Looking Statements Disclosure
-----------------------------------------------------------------------------
Certain statements made in this report are forward-looking and are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These statements include certain discussions concerning the year
2000 and beyond. The forward-looking statements involve risk and uncertainties
that may cause results to differ materially from those anticipated in those
statements. Factors that might cause results to differ from those anticipated
include, without limitation, adverse weather conditions; fluctuations in the
investment markets; changes in the retail marketplace; changes in the laws or
regulations affecting the operations of the Company or its subsidiaries; changes
in the business tactics or strategies of the Company, its subsidiaries or its
current or anticipated business partners; acquisitions or divestitures; changes
in market forces; litigation; and the other risk factors that have been
identified in the Company's filings with the SEC, any one of which might
materially affect the operations of the Company or its subsidiaries. Any
forward-looking statements speak only as of the date made. We undertake no
obligation to update any forward-looking statements to reflect events or
circumstances arising after the date on which they are made.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risks associated with the Company's investment portfolios
have not changed materially from those disclosed at year-end 1999.
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
September 30, 2000
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 15 - Letter re: Unaudited Interim Financial Information.
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K - None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MIDLAND COMPANY
Date_________October 19, 2000_________ /s/John I. Von Lehman___________
John I. Von Lehman, Executive Vice
President, Chief Financial Officer
and Secretary
