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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number - 1-6026
THE MIDLAND COMPANY
Incorporated in Ohio
I.R.S. Employer Identification No. 31-0742526
7000 Midland Boulevard
Amelia, Ohio 45102-2607
Tel. (513) 943-7100
Securities registered pursuant to Section 12(b) of the Act:
Common stock - no par value. - NASDAQ
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all other
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_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by
nonaffiliates, which includes shares held by executive officers and directors,
of the registrant as of March 20, 2000 was $203,208,000.
Number of shares of common stock outstanding as of March 20, 2000 -
9,451,517.
Documents Incorporated by Reference
Annual Report to Shareholders for the year ended December 31, 1999 is
incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 17, 2000 is incorporated by
reference into Parts III and IV.
THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1999
Certain statements contained in this report that are not historical facts
constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbors created by that Act. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to differ materially from those expressed or implied. Any
forward-looking statement speaks only as of the date made. The Midland Company
undertakes no obligation to update any forward-looking statements to reflect
events or circumstances arising after the date on which they are made.
Statements concerning expected financial performance, on-going business
strategies and possible future action which The Midland Company intends to
pursue to achieve strategic objectives constitute forward-looking information.
Implementation of these strategies and the achievement of such financial
performance are each subject to numerous conditions, uncertainties and risk
factors.
Factors which might cause deviations from the forward looking statements
include, without limitations, the following: 1) adverse weather conditions,
fluctuations in the investment markets, changes in the retail marketplace, or
fluctuations in interest rates; 2) changes in the laws or regulations affecting
the operations of the Company or any of its subsidiaries; 3) changes in the
business tactics or strategies of the Company or any of its subsidiaries;
4) 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 and 5) changing market forces or litigation which necessitate,
in management's judgment, changes in plans, strategy or tactics of the Company
or its subsidiaries or fluctuations in interest rates, any one of which might
materially affect the operations of the Company and/or its subsidiaries.
PART I
ITEM 1. Business.
Incorporated by reference from the inside cover and pages 2 through 17
and 37 and 38 (Note 17) of the Registrant's 1999 Annual Report to
Shareholders. The number of persons employed by the Registrant was
approximately 980 at December 31, 1999.
Property and Casualty Loss Reserves
The Company's consolidated financial statements include the estimated
liability (reserves) for unpaid losses and loss adjustment expenses
(LAE) of its property and casualty insurance subsidiaries. The
liability is presented net of amounts recoverable from salvage and
subrogation and includes amounts recoverable from reinsurance for which
receivables are recognized.
The Company establishes reserves for losses that have been reported to
the Company and certain legal expenses on the "case basis" method. The
Company estimates claims incurred but not reported ("IBNR") and other
adjustment expenses using statistical procedures. The Company accrues
salvage and subrogation recoveries using the "case basis" method for
large claims and statistical procedures for smaller claims.
The Company's objective is to set reserves that are adequate; that is,
the amounts originally recorded as reserves should at least equal the
amounts ultimately expected to be required to settle losses. The
Company's reserves aggregate its best estimates of the total ultimate
cost of claims that have been incurred but have not yet been paid. The
estimates are based on past claims experience and reflect current claims
trends as well as social, legal and economic conditions, including
inflation. The reserves are not discounted.
The Company reviews its loss and loss adjustment expense reserve
development on a regular basis to determine whether the reserving
assumptions and methods are appropriate. Reserves initially determined
are compared to the amounts ultimately paid. The Company regularly
makes statistical estimates of the projected amounts necessary to settle
outstanding claims, compares these estimates to the recorded reserves
and adjusts the reserves as necessary. The adjustments are reflected in
current operations.
The principle reason for differences between the loss and LAE liability
reported in the accompanying consolidated financial statements in
accordance with generally accepted accounting principles ("GAAP") and
that reported in the annual statements filed with state insurance
departments in accordance with statutory accounting practices ("SAP")
relates to the reporting of reinsurance recoverables as receivables for
GAAP purposes and as a reduction in reserves for SAP purposes.
The following table provides an analysis of changes in loss and LAE
reserves for 1999, 1998 and 1997 (net of reinsurance amounts) for the
Company. Based on the information available during and at the end of
1999 and 1998, operations were credited $10,178,000 in 1999 and
$2,120,000 in 1998, respectively, as a result of a decrease in the
estimated amounts needed to settle prior years' claims. Based on
information available during and at the end of 1997, operations were
charged $5,230,000 in 1997 as a result of increases in such estimates.
Such reserve adjustments, which affected reported results of current
operations during each of the years, resulted from developed losses from
prior years being different than were anticipated when the liability for
losses and loss adjustment expense were originally estimated. These
development trends have been considered in establishing the current year
liabilities.
Changes in Loss and LAE Reserves:
(amounts in 000's)
1999 1998 1997
-----------------------------------
Balance at January 1 $108,697 $108,334 $ 88,992
Less reinsurance recoverables 20,430 26,433 24,208
-----------------------------------
Net balance at January 1 88,267 81,901 64,784
-----------------------------------
Incurred related to:
Current year 211,066 208,811 163,035
Prior years (10,178) (2,120) 5,230
-----------------------------------
Total incurred 200,888 206,691 168,265
-----------------------------------
Paid related to:
Current year 159,045 157,530 113,841
Prior years 40,785 42,795 37,307
-----------------------------------
Total paid 199,830 200,325 151,148
-----------------------------------
Net balance at
December 31 89,325 88,267 81,901
Plus reinsurance recoverables 24,114 20,430 26,433
-----------------------------------
Balance at December 31 $113,439 $108,697 $108,334
===================================
Analysis of Loss and LAE Reserve Development
The next table presents the development of the estimated liability for
the ten years prior to 1999. The top line of the table illustrates the
estimated liability for unpaid losses and LAE recorded at the balance
sheet date at the end of each of the indicated years. This liability
represents the estimated amount of losses and LAE for claims arising in
all prior years that were unpaid at the balance sheet date, including
losses that had been incurred but not yet reported to the Company.
The upper portion of the table shows the re-estimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate was increased or decreased as more
information became known about the frequency and severity of claims for
individual years. Conditions and trends that have affected development
of the liability in the past may not necessarily occur in the future.
Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.
The table shows the cumulative redundancy (deficiency) developed with
respect to the previously recorded liability for all years as of the
end of 1999. For example, the Company's 1992 reserve of $20,405,000 has
been re-estimated as of year-end 1999 to be $16,441,000, indicating a
redundancy of $3,964,000.
The lower section of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each
succeeding year. For example, as of December 31, 1999, the Company had
paid $16,435,000 of the currently estimated $16,441,000 of losses and
LAE that had been incurred as of the end of 1992; thus an estimated
$6,000 of losses incurred as of the end of 1992 remain unpaid as of the
current financial statement date.
In using this information, it should be noted that this table does not
present accident or policy year development data which readers may be
more accustomed to analyzing. Each amount in each column includes
amounts applicable to the year over the column and all prior years. For
example, the amounts included in the 1993 column include amounts related
to 1993 and all prior years.
The Company's reserve development is unfavorable for 1995 and 1996 due
to the Company's expansion into certain areas of commercial lines
insurance. However, reserve development is favorable for 1997 and 1998
due to a reduction in the aforementioned commercial lines business
combined with an overall strengthening of reserves.
Analysis of Loss and Loss Adjustment Expense Development
(Amounts in 000's)
Year Ended
December 31 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------------------------
Reserve for Unpaid
Losses, Net of
Reinsurance $15,732 $16,570 $19,089 $20,405 $27,744 $37,481 $47,712 $64,784 $81,901 $88,267 $89,325
Net Reserve Re-estimated
as of:
One Year Later 15,167 15,492 17,160 18,425 25,668 30,134 51,483 70,014 79,781 78,089
Two Years Later 15,043 14,859 15,699 18,451 22,686 32,074 53,467 67,310 77,148
Three Years Later 14,397 13,841 15,202 16,871 21,154 31,880 52,418 66,442
Four Years Later 13,773 13,929 14,497 16,616 20,966 31,734 51,688
Five Years Later 13,758 13,663 14,393 16,505 20,688 31,155
Six Years Later 13,754 13,598 14,373 16,445 20,629
Seven Years Later 13,722 13,589 14,361 16,441
Eight Years Later 13,741 13,579 14,354
Nine Years Later 13,732 13,576
Ten Years Later 13,727
Net Cumulative
Redundancy
(Deficiency) $ 2,005 $ 2,994 $ 4,735 $ 3,964 $ 7,115 $ 6,326 $(3,976) $(1,658) $ 4,753 $10,178
=========================================================================================
Net Cumulative
Amount of
Reserve Paid
Through:
One Year Later $11,210 $11,117 $10,937 $11,730 $ 9,684 $19,040 $31,471 $37,307 $42,795 $40,785
Two Years Later 12,902 12,488 12,685 14,397 18,445 26,471 41,785 51,461 57,677
Three Years Later 13,355 12,965 13,588 15,923 19,930 29,237 47,434 58,716
Four Years Later 13,465 13,208 14,171 16,312 20,427 30,425 49,596
Five Years Later 13,595 13,471 14,307 16,381 20,558 30,770
Six Years Later 13,689 13,530 14,331 16,420 20,598
Seven Years Later 13,704 13,550 14,356 16,435
Eight Years Later 13,703 13,574 14,354
Nine Years Later 13,727 13,576
Ten Years Later 13,727
Net Reserve - December 31 $20,405 $27,744 $37,481 $47,712 $64,784 $ 81,901 $ 88,267 $ 89,325
Reinsurance Recoverables 2,780 6,220 14,597 13,785 24,208 26,433 20,430 24,114
----------------------------------------------------------------------
Gross Reserve-December 31 $23,185 $33,964 $52,078 $61,497 $88,992 $108,334 $108,697 $113,439
======================================================================
Net Re-estimated Reserve $16,441 $20,629 $31,155 $51,668 $66,442 $ 77,148 $ 78,089
Re-estimated Reinsurance 2,240 4,625 12,133 14,928 24,828 24,899 18,074
-------------------------------------------------------------
Gross Re-estimated Reserve $18,681 $25,254 $43,288 $66,596 $91,270 $102,047 $ 96,163
=============================================================
Gross Cumulative Redundancy (Deficiency) $ 4,504 $ 8,710 $ 8,790 $(5,099) $(2,278) $ 6,287 $ 12,534
=============================================================
Reinsurance
The Company reinsures certain levels of risk with other insurance
companies and cedes varying portions of its written premiums to such
reinsurers. In addition, the Company pays a percentage of earned
premiums to reinsurers in return for coverage against catastrophic
losses. To the Company's knowledge, none of its reinsurers are
experiencing financial difficulties. Furthermore, the Company monitors
concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of the reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies. The
composition of its reinsurers has not changed significantly in recent
years. The Company has not experienced any uncollectible reinsurance
amounts or coverage disputes with its reinsurers in over ten years. For
1999, the Company decided to cede less business to it reinsurers than in
prior years. This was significantly accomplished by a change in a quota
share reinsurance contract for manufacturing housing insurance. The
related terms were changed, applicable with business written in 1999,
from 12.5% of written premium with a maximum of $25 million to 8.0% with
the same maximum. At year end, the Company terminated the quota share
reinsurance agreement.
Significant Customer
As indicated in Note 17 to the Company's 1999 consolidated financial
statements, in 1999 and 1998, respectively, revenues (including amounts
that are ultimately ceded to reinsurers) from one customer amounted to
$64,621,000 and $61,865,000. That customer is Conseco Inc. which merged
with Greentree Financial Corporation during 1999.
ITEM 2. Properties.
The Company owns its 275,000 square foot principal offices located in
Amelia, Ohio. The Company's insurance subsidiaries lease office space
in Montgomery, Alabama, St. Louis, Missouri, Auburn Hills, Michigan and
Grand Rapids, Michigan. The Company's transportation subsidiaries lease
offices in Metairie, Louisiana.
ITEM 3. Legal Proceedings.
Reference is made to Item 3 of the December 31, 1995 Registrant's Form
10-K concerning criminal litigation against M/G Transport Services, Inc.
(M/G), a subsidiary of Registrant. On April 22, 1999, a three judge
panel of the Sixth Circuit Court of Appeals issued an opinion reversing
the earlier ruling of the trial court that dismissed six of the eight
counts against M/G and several counts against individual defendants
formerly employed by M/G. All of the verdicts against M/G on the six
counts that had been dismissed by the trial court were reinstated by
the Court of Appeals. On January 20, 2000, M/G was sentenced to a fine
of $150,000 and two years probation concerning the 6 reinstated counts.
The January 20, 2000 sentencing concluded the case against M/G.
Registrant had established and maintained adequate accruals relating to
the fines connected with the M/G litigation and such fines did not have
a material adverse effect on the financial condition or the results of
Registrant's operations.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None during the fourth quarter.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Security Holder
Matters. Incorporated by reference to pages 37 (Note 16) and 40 of the
Registrant's 1999 Annual Report to Shareholders. The number of holders
of the Company's common stock at December 31, 1999 was approximately
1,530. The Company's common stock is registered on the NASDAQ (MLAN).
ITEM 6. Selected Financial Data.
Incorporated by reference to pages 18 and 19 of the Registrant's 1999
Annual Report to Shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference to pages 20 through 25 of the Registrant's
1999 Annual Report to Shareholders.
PART II (Continued)
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Incorporated by reference to page 24 of the Registrant's 1999 Annual
Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 26 through 40 of the Registrant's
1999 Annual Report to Shareholders.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Incorporated by reference to the Registrant's Proxy Statement dated
March 17, 2000.
Executive Officers of the Company -
J. P. Hayden, Jr. - Age 70 - Chairman of the Executive Committee of
the Board
Michael J. Conaton - Age 66 - Vice Chairman of the Company and Vice
Chairman of the Board
J. P. Hayden III - Age 47 - Chairman of the Board and Chief Operating
Officer
John W. Hayden - Age 42 - President, Chief Executive Officer and a
Director
John I. Von Lehman - Age 47 - Executive Vice President, Chief Financial
Officer, Secretary and a Director
Paul T. Brizzolara - Age 42 - Senior Vice President and Chief Legal
Officer
W. Todd Gray - Age 32 - Treasurer
The officers listed above have served in the positions indicated for
the past five years (except as noted below or in the Company's proxy
statement).
During 1998, Paul T. Brizzolara was elected Senior Vice President and
Chief Legal Officer of The Midland Company. Mr. Brizzolara was
previously the Company's Assistant Vice President, Assistant Chief
Counsel and Assistant Secretary of The Midland Company and will
continue as Assistant Secretary in his new position.
Also in 1998, (i) J.P. Hayden III was elected Chairman and Chief
Operating Officer of the Company, (ii) John W. Hayden was elected
President and Chief Executive Officer, (iii) J.P. Hayden, Jr. was
elected Chairman of the Executive Committee of the Board and (iv)
Michael J. Conaton was elected Vice Chairman of the Company and Vice
Chairman of the Board.
During 1997, W. Todd Gray was elected Treasurer. Mr. Gray joined
Midland in 1994 and served as Internal Audit Manager and, more
recently, Assistant Treasurer. Prior to that he was employed by a
national accounting firm.
During 1996, J. P. Hayden III and John W. Hayden (formerly Vice
Presidents) were elected Senior Executive Vice Presidents. Also in
1996, John I. Von Lehman (formerly Vice President, Treasurer and Chief
Financial Officer) was elected Executive Vice President and Chief
Financial Officer.
J. P. Hayden III and John W. Hayden are brothers and are sons of
J.P. Hayden, Jr.
PART III (Continued)
ITEM 11. Executive Compensation.
Incorporated by reference to the Registrant's Proxy Statement dated
March 17, 2000.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 17, 2000.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 17, 2000.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
Incorporated by reference in Part II of this report:
Independent Auditors' Report.
Consolidated Balance Sheets, December 31, 1999 and 1998.
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1999, 1998
and 1997.
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules.
Included in Part IV of this report:
Page
----
Independent Auditors' Consent and Report on Schedules. 12
Schedule I - Summary of Investments - Other Than
Investments in Related Parties - December 31, 1999 13
Schedule II - Condensed Financial Information of
Registrant 14-18
Schedule III - Supplementary Insurance Information
for the Years Ended December 31, 1999, 1998 and
1997 19
Schedule IV - Reinsurance for the Years Ended
December 31, 1999, 1998 and 1997 20
Schedule V - Valuation and Qualifying Accounts for the
Years Ended December 31, 1999, 1998 and 1997 21
Schedule VI - Supplemental Information Concerning
Property-Casualty Insurance Operations for the
Years Ended December 31, 1999, 1998 and 1997 22
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted because such schedules
are not required under the related instructions, are
inapplicable or the information is included in the financial
statements or notes thereto.
PART IV (Continued)
Page
----
(a) 3. Exhibits.
3. Articles of Incorporation and Code of Regulations -
Filed as Exhibits 3(i) and 3(ii) to the Registrant's
Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference.
10. The Midland Company 1992 Employee Incentive Stock Plan
and The Midland Company Stock Option Plan for
Non-Employee Directors and The Midland Company 1972
Stock Options Plan-Incorporated by reference to
Registrant's Statement 33-48511 on Form S-8.
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1999 Annual Report to
Shareholders.
21. Subsidiaries of the Registrant. 23
22. Published Report Regarding Matters Submitted to Vote
of Security Holders - Incorporated by Reference to
the Registrant's Proxy Statement dated March 17,
2000.
23. Independent Auditors' Consent - Included in Consent
and Report on Schedules referred to under Item
14(a)2 above.
27. Financial Data Schedule
(b) Reports on Form 8-K - None during 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Signature Title Date
S/ J. P. Hayden, III Chairman of the Board and March 20, 2000
- -------------------------- Chief Operating Officer
(J. P. Hayden, III)
S/ John W. Hayden President and March 20, 2000
- -------------------------- Chief Executive Officer
(John W. Hayden)
S/ John I. Von Lehman Executive Vice President, March 20, 2000
- -------------------------- Chief Financial and
(John I. Von Lehman) Accounting Officer
and Secretary
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
THE MIDLAND COMPANY
Signature Title Date
S/ George R. Baker Director March 20, 2000
- --------------------------
(George R. Baker)
S/ James E. Bushman Director and Member March 20, 2000
- -------------------------- of Audit Committee
(James E. Bushman)
S/ James H. Carey Director and Member March 20, 2000
- -------------------------- of Audit Committee
(James H. Carey)
S/ Michael J. Conaton Vice Chairman March 20, 2000
- --------------------------
(Michael J. Conaton)
S/ Jerry A. Grundhofer Director March 20, 2000
- --------------------------
(Jerry A. Grundhofer)
S/ J. P. Hayden, Jr. Chairman of the Executive March 20, 2000
- -------------------------- Committee of the Board
(J. P. Hayden, Jr.)
S/ J. P. Hayden, III Chairman and March 20, 2000
- -------------------------- Chief Operating Officer
(J. P. Hayden, III)
S/ John W. Hayden President and March 20, 2000
- -------------------------- Chief Executive Officer
(John W. Hayden)
S/ Robert W. Hayden Director March 20, 2000
- --------------------------
(Robert W. Hayden)
S/ William T. Hayden Director March 20, 2000
- --------------------------
(William T. Hayden)
S/ William J. Keating Director March 20, 2000
- --------------------------
(William J. Keating)
S/ John R. LaBar Director March 20, 2000
- --------------------------
(John R. LaBar)
S/ David B. O'Maley Director March 20, 2000
- --------------------------
(David B. O'Maley)
S/ John M. O'Mara Director and Member March 20, 2000
- -------------------------- of Audit Committee
(John M. O'Mara)
S/ Glenn E. Schembechler Director and Member March 20, 2000
- -------------------------- and Member Committee
(Glenn E. Schembechler)
S/ John I. Von Lehman Executive Vice President, March 20, 2000
- -------------------------- Chief Financial and
(John I. Von Lehman) Accounting Officer,
Secretary and Director
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
- -----------------------------------------------------
To the Shareholders of The Midland Company:
We consent to the incorporation by reference in Registration Statements
No. 33-64821 on Form S-3 and No. 33-48511 on Form S-8 of The Midland Company
of our report dated February 10, 2000, incorporated by reference in this Annual
Report on Form 10-K, and our report (appearing below) on the financial statement
schedules of The Midland Company for the year ended December 31, 1999.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedules of The
Midland Company and its subsidiaries, listed in Item 14(a)2. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/S/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Cincinnati, Ohio
March 20, 2000
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule I - Summary of Investments
Other than Investments in Related Parties
December 31, 1999
Column A Column B Column C Column D
- -----------------------------------------------------------------------------------------------------------
Amount at
Which Shown
in the Balance
Type of Investment Cost Value Sheet
- -----------------------------------------------------------------------------------------------------------
Fixed maturity securities, available-for-sale:
Bonds:
United States Government and government
agencies and authorities $ 91,020,000 $ 90,006,000 $ 90,006,000
States, municipalities and political subdivisions 171,926,000 168,415,000 168,415,000
Mortgage-backed securities 55,269,000 54,092,000 54,092,000
Foreign governments 3,633,000 3,526,000 3,526,000
Public utilities 8,832,000 8,373,000 8,373,000
All other corporate bonds 104,173,000 101,721,000 101,721,000
---------------------------------------------------
Total 434,853,000 426,133,000 426,133,000
---------------------------------------------------
Equity securities, available-for-sale:
Common stocks:
Public utilities 732,000 818,000 818,000
Banks, trusts and insurance companies 8,629,000 60,682,000 60,682,000
Industrial, miscellaneous and all other 34,126,000 66,795,000 66,795,000
Nonredeemable preferred stocks 2,483,000 2,362,000 2,362,000
---------------------------------------------------
Total 45,970,000 130,657,000 130,657,000
---------------------------------------------------
Accrued interest and dividends 6,740,000 XXXXXXX 6,740,000
---------------------------------------------------
Mortgage loans on real estate 8,655,000 XXXXXXX 8,655,000
---------------------------------------------------
Short-term investments 38,674,000 XXXXXXX 38,674,000
---------------------------------------------------
Total Investments $534,892,000 XXXXXXX $610,859,000
===================================================
13
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1999 and 1998
ASSETS 1999 1998
------------- -------------
Cash $ 148,000 $ 96,000
------------- -------------
Marketable Securities Available
for Sale (at market value):
Debt Securities (cost, $122,000 in 1999
and $497,000 in 1998) 122,000 497,000
Equity (cost, $342,000 in 1999 and
$341,000 in 1998) 2,696,000 3,937,000
------------- -------------
Total 2,818,000 4,434,000
------------- -------------
Receivables - Net 11,042,000 8,932,000
------------- -------------
Intercompany Receivables 9,637,000 --
------------- -------------
Property, Plant and Equipment (at cost): 37,315,000 37,314,000
Less Accumulated Depreciation 7,289,000 5,439,000
------------- -------------
Net 30,026,000 31,875,000
------------- -------------
Other Assets 5,558,000 13,562,000
------------- -------------
Investments in Subsidiaries (at equity) 250,179,000 247,569,000
------------- -------------
Total Assets $309,408,000 $306,468,000
============= =============
14
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1999 and 1998
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------- -------------
Notes Payable Within One Year:
Banks (including current portion of
long-term debt) $ 21,297,000 $ 16,710,000
Commercial Paper 5,550,000 6,522,000
------------- -------------
Total 26,847,000 23,232,000
------------- -------------
Other Payables and Accruals 6,634,000 4,664,000
------------- -------------
Intercompany Payables -- 3,469,000
------------- -------------
Long - Term Debt 17,925,000 26,271,000
------------- -------------
Shareholders' Equity:
Common Stock - No Par (issued and
outstanding: 9,516,000 shares at
December 31, 1999 and 9,352,000 shares
at December 31, 1998 after deducting
treasury stock of 1,412,000 shares
and 1,576,000 shares, respectively) 911,000 911,000
Additional Paid - in Capital 18,583,000 15,947,000
Retained Earnings 207,005,000 178,398,000
Accumulated Other Comprehensive Income 49,388,000 70,507,000
Treasury Stock (at cost) (15,786,000) (15,293,000)
Unvested Restricted Stock Awards (2,099,000) (1,638,000)
------------- -------------
Total 258,002,000 248,832,000
------------- -------------
Total Liabilities and
Shareholders' Equity $309,408,000 $306,468,000
============= =============
15
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Income Information
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- ------------- -------------
Revenues:
Dividends from Subsidiaries $ 9,000,000 $ 3,000,000 $ 8,900,000
All Other Income, Primarily Charges
to Subsidiaries 6,359,000 6,934,000 7,746,000
------------- ------------- -------------
Total Revenues 15,359,000 9,934,000 16,646,000
------------- ------------- -------------
Expenses:
Interest Expense 3,391,000 3,971,000 4,775,000
Depreciation and Amortization 3,973,000 2,701,000 6,195,000
All Other Expenses 1,786,000 2,303,000 833,000
------------- ------------- -------------
Total Expenses 9,150,000 8,975,000 11,803,000
------------- ------------- -------------
Income Before Federal Income Tax 6,209,000 959,000 4,843,000
Provision (Credit) for Federal
Income Tax (1,023,000) (1,023,000) (1,599,000)
------------- ------------- -------------
Income Before Change in Undistributed
Income of Subsidiaries 7,232,000 1,982,000 6,442,000
Change in Undistributed Income
of Subsidiaries:
From Continuing Operations 23,947,000 24,950,000 17,925,000
From Discontinued Operations - - (6,817,000)
------------- ------------- -------------
Net Income $ 31,179,000 $ 26,932,000 $ 17,550,000
============= ============= =============
16
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows Information
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- ------------- -------------
Cash Flows from Operating Activities:
Net income $ 31,179,000 $ 26,932,000 $ 17,550,000
Loss from discontinued operations - - 6,817,000
------------- ------------- -------------
Income from continuing operations 31,179,000 26,932,000 24,367,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in undistributed income
of subsidiaries (23,947,000) (24,950,000) (17,925,000)
Decrease (increase) in other
assets 8,004,000 (1,142,000) (1,286,000)
Depreciation and amortization 3,973,000 2,701,000 6,195,000
Increase in other payables and
accruals 2,422,000 153,000 1,575,000
Decrease (increase) in receivables (1,170,000) (1,922,000) 134,000
Other - net 19,000 251,000 36,000
------------- ------------- -------------
Net Cash Provided by
Operating Activities 20,480,000 2,023,000 13,096,000
------------- ------------- -------------
Cash Flows from Investing Activities:
Change in investments (excluding
unrealized appreciation/
depreciation) 373,000 1,943,000 (1,991,000)
Capital contributions to
subsidiaries - - (12,326,000)
Acquisition of property, plant and
equipment (279,000) (1,657,000) (2,617,000)
Sale of property, plant and
equipment and other real
estate - net 214,000 5,969,000 535,000
------------- ------------- -------------
Net Cash Provided by (Used in)
Investing Activities 308,000 6,255,000 (16,399,000)
------------- ------------- -------------
Cash Flows from Financing Activities:
Net change in intercompany accounts (12,080,000) 2,968,000 7,323,000
Increase (decrease) in long - term
debt (8,760,000) (1,458,000) 948,000
Increase (decrease) in short - term
borrowings 4,028,000 (8,269,000) (2,909,000)
Purchase of treasury stock (3,709,000) (1,271,000) (17,000)
Dividends paid (2,515,000) (1,746,000) (2,677,000)
Issuance of treasury stock 2,300,000 1,358,000 604,000
------------- ------------- -------------
Net Cash Provided by (Used in)
Financing Activities (20,736,000) (8,418,000) 3,272,000
------------- ------------- -------------
Net Increase (Decrease) in Cash 52,000 (140,000) (31,000)
Cash at Beginning of Year 96,000 236,000 267,000
------------- ------------- -------------
Cash at End of Year $ 148,000 $ 96,000 $ 236,000
============= ============= =============
17
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Notes to Condensed Financial Information
For the Years Ended December 31, 1999 and 1998
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes included in the
Registrant's 1999 Annual Report to Shareholders.
Total debt of the Registrant (parent only) consists of the following:
DECEMBER 31,
1999 1998
------------ ------------
Short - Term Bank Borrowings $20,000,000 $15,000,000
Commercial Paper 5,550,000 6,522,000
Mortgage Notes:
7.10% - Due January 1, 2001 642,000 1,227,000
6.83% - Due December 20, 2005 18,580,000 19,195,000
5.40% - Due December 1, 2003 - 7,559,000
------------ ------------
Total Debt $44,772,000 $49,503,000
============ ============
See Notes 7 and 8 to the consolidated financial statements included in the 1999
Annual Report to Shareholders for further information on the Company's
outstanding debt at December 31, 1999.
The amount of debt that becomes due during each of the next five years is as
follows: 2000 - $1,297,000; 2001 - $706,000; 2002 - $756,000; 2003 - $810,000;
2004 - $865,000.
18
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule III - Supplementary Insurance Information
For the Years Ended December 31, 1999, 1998 and 1997
(Amounts in 000's)
Column A Column B Column C Column D Column E Column F Column G
Future
Policy
Deferred Benefits, Other Policy
Policy Losses, Claims and Net
Acquisition Claims and Unearned Benefits Premium Investment
Cost Loss Expenses Premiums Payable Revenue Income (1)
----------------------------------------------------------------------------------------
1999
Manufactured Housing $ 67,336 $ 8,170 $ 241,407 $283,332 $ 15,526
Other Insurance 17,832 125,543 71,431 117,659 10,631
Unallocated Amounts 19
Inter-segment Elimination (884)
----------------------------------------------------------------------------------------
Total $ 85,168 $ 133,713 $ 312,838 $ - $400,991 $ 25,292
========================================================================================
1998
Manufactured Housing $ 48,260 $ 48,939 $ 209,171 $258,638 $ 14,875
Other Insurance 15,702 76,557 45,944 116,840 9,923
Unallocated Amounts 34
Inter-segment Elimination (924)
----------------------------------------------------------------------------------------
Total $ 63,962 $ 125,496 $ 255,115 $ - $375,478 $ 23,908
========================================================================================
1997
Manufactured Housing $ 43,366 $ 42,430 $ 195,793 $219,394 $ 13,935
Other Insurance 12,224 77,704 44,547 91,765 8,359
Unallocated Amounts 24
Inter-segment Elimination (986)
----------------------------------------------------------------------------------------
Total $ 55,590 $ 120,134 $ 240,340 $ - $311,159 $ 21,332
========================================================================================
Column H Column I Column J Column K
Benefits, Amortization of
Claims, Losses Deferred Policy Other
and Settlement Acquisition Operating Premiums
Expenses Costs Expenses (1) Written
------------------------------------------------ ---------
1999
Manufactured Housing $ 133,436 $ 82,302 $ 40,610 $306,446
Other Insurance 70,929 31,910 25,931 137,049 (2)
Unallocated Amounts
Inter-segment Elimination
------------------------------------------------ ---------
Total $ 204,365 $ 114,212 $ 66,541 $443,495
================================================ =========
1998
Manufactured Housing $ 137,483 $ 71,288 $ 31,005 $283,020
Other Insurance 72,532 31,881 23,304 110,987 (2)
Unallocated Amounts
Inter-segment Elimination
------------------------------------------------ ---------
Total $ 210,015 $ 103,169 $ 54,309 $394,007
================================================ =========
1997
Manufactured Housing $ 100,919 $ 64,265 $ 27,763 $247,704
Other Insurance 70,244 15,253 21,355 97,745 (2)
Unallocated Amounts
Inter-segment Elimination
------------------------------------------------ ---------
Total $ 171,163 $ 79,518 $ 49,118 $345,449
================================================ =========
Notes to Schedule III:
- ----------------------
(1) Net investment income is allocated to insurance segments based upon a combination of
premium cash flow and equity data. Other operating expenses include expenses
directly related to the segments and expenses allocated to the segments based on
historical usage factors.
(2) Includes other property and casualty insurance and accident and health insurance
($3,632, $2,237 and $2,738 for 1999, 1998 and 1997, respectively).
19
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
For the Years Ended December 31, 1999, 1998 and 1997
Column A Column B Column C Column D Column E Column F
Ceded to Assumed Percentage of
Gross Other from Other Net Amount Assumed
Amount Companies Companies Amount to Net
-----------------------------------------------------------------------------------
1999
- ----
Life Insurance in Force $507,134,000 $233,506,000 $23,359,000 $296,987,000 7.9%
===================================================================================
Insurance Premiums and
Other Considerations:
Life and Health Insurance $ 14,315,000 $ 6,346,000 $ 333,000 $ 8,302,000 4.0%
Property & Liability Insurance 409,506,000 55,620,000 38,803,000 392,689,000 9.9%
-----------------------------------------------------------------------------------
Total Premiums $423,821,000 $ 61,966,000 $39,136,000 $400,991,000 9.8%
===================================================================================
1998
- ----
Life Insurance in Force $416,892,000 $167,412,000 $ 1,895,000 $251,375,000 0.8%
===================================================================================
Insurance Premiums and
Other Considerations:
Life and Health Insurance $ 10,374,000 $ 4,058,000 $ 111,000 $ 6,427,000 1.7%
Property & Liability Insurance 394,166,000 60,573,000 35,458,000 369,051,000 9.6%
-----------------------------------------------------------------------------------
Total Premiums $404,540,000 $ 64,631,000 $35,569,000 $375,478,000 9.5%
===================================================================================
1997
- ----
Life Insurance in Force $371,298,000 $170,668,000 $200,630,000 0.0%
===================================================================================
Insurance Premiums and
Other Considerations:
Life and Health Insurance $ 9,761,000 $ 4,371,000 $ 214,000 $ 5,604,000 3.8%
Property & Liability Insurance 375,967,000 98,406,000 27,994,000 305,555,000 9.2%
-----------------------------------------------------------------------------------
Total Premiums $385,728,000 $102,777,000 $28,208,000 $311,159,000 9.1%
===================================================================================
20
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule V - Valuation and Qualifying Accounts
For the Years Ended December 31, 1999, 1998 and 1997
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999:
Allowance For Losses $753,000 $192,000 $138,000 (1) $807,000
YEAR ENDED DECEMBER 31, 1998:
Allowance For Losses $753,000 $176,000 $176,000 (1) $753,000
YEAR ENDED DECEMBER 31, 1997:
Allowance For Losses $799,000 $184,000 $230,000 (1) $753,000
NOTES:
(1) Accounts written off are net of recoveries.
21
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule VI - Supplemental Information Concerning Property-Casualty Insurance Operations
For the Years Ended December 31, 1999, 1998 and 1997
(Amounts in 000's)
Column A Column B Column C Column D Column E Column F Column G
Reserves for
Deferred Unpaid Claims Discount,
Affiliation Policy and Claim if any, Net
with Acquisition Adjustment Deducted in Unearned Earned Investment
Registrant Costs Expenses Column C Premiums Premiums Income
- ------------------------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Subsidiaries
1999 $ 76,031 $ 128,467 $ - $ 281,442 $ 392,689 $ 23,746
=========== =========== ========== =========== ========== ============
1998 $ 59,736 $ 121,154 $ - $ 236,171 $ 369,051 $ 22,468
=========== =========== ========== =========== ========== ============
1997 $ 52,198 $ 116,898 $ - $ 222,530 $ 305,555 $ 20,018
=========== =========== ========== =========== ========== ============
Column H Column I Column J Column K
Claims and
Claim
Adjustment
Expenses Amortization
Incurred of Deferred Paid Claims
Related to Policy and Claim
Current Prior Acquisition Adjustment Premiums
Year Years Costs Expenses Written
- ---------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Subsidiaries
1999 $ 211,066 $ (10,178) $ 108,689 $ 199,830 $ 439,863
=========== ========== =========== =========== ===========
1998 $ 208,811 $ (2,120) $ 100,190 $ 200,325 $ 391,770
=========== ========== =========== =========== ===========
1997 $ 163,035 $ 5,230 $ 77,100 $ 151,148 $ 342,711
=========== ========== =========== =========== ===========
Note: Certain amounts above will not agree with Schedule III because other insurance amounts in
Schedule III include life and accident and health insurance.
22