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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, 2000
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: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value.
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 and non-voting common stock
held by nonaffiliates, which includes shares held by executive officers and
directors, of the registrant as of March 13, 2001 was $283,896,000 based on a
closing price of $31.875 per share. As of March 13, 2001, 8,906,549 shares of
no par value common stock were issued and outstanding.
Documents Incorporated by Reference
Portions of the Annual Report to Shareholders for the year ended
December 31, 2000 are incorporated by reference into Parts I, II and IV.
Portions of the Registrant's Proxy Statement dated March 13, 2001 to be
delivered to shareholders in connection with the Annual Meeting of Shareholders
to be held April 12, 2001 are incorporated by reference into Part III.
1
THE MIDLAND COMPANY
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2000
Certain statements contained in this report that are not historical facts may
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 limitation the following: 1) changes in the laws or
regulations affecting the operations of the Company or any of its
subsidiaries; 2) changes in the business tactics or strategies of the Company or
any of its subsidiaries; 3) acquisition(s) of assets or of new or complementary
operations, or divestiture of any segment of the existing operations of the
Company or any of its subsidiaries; 4) changing market forces or litigation
which necessitate, in management's judgment, changes in plans, strategy or
tactics of the Company or its subsidiaries and 5) adverse weather conditions,
fluctuations in the investment markets, changes in retail marketplace or
fluctuations in interest rates, any one of which might materially affect the
operations of the Company and/or its subsidiaries.
2
PART I
ITEM 1. Business.
Incorporated by reference from the inside cover and pages 2 through 5,
7 through 17, 20 through 25 and pages 37 and 38 (Note 16) of the
Registrant's 2000 Annual Report to Shareholders. The number of persons
employed by the Registrant was approximately 1,000 at December 31,
2000.
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 accounting principles generally accepted in the United
States of America ("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 2000, 1999 and 1998 (net of reinsurance amounts) for the
Company. Based on the information available during and at the end of
2000, 1999 and 1998, operations were credited $6,952,000, $10,178,000
and $2,120,000 in 2000, 1999 and 1998, respectively, as a result of a
decrease in the estimated amounts needed to settle prior years' claims.
Such reserve adjustments, which effected 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.
3
Changes in Loss and LAE Reserves:
(amounts in 000's)
2000 1999 1998
-----------------------------------
Balance at January 1 $113,439 $108,697 $108,334
Less reinsurance recoverables 24,114 20,430 26,433
-----------------------------------
Net balance at January 1 89,325 88,267 81,901
-----------------------------------
Incurred related to:
Current year 242,689 211,066 208,811
Prior years (6,952) (10,178) (2,120)
-----------------------------------
Total incurred 235,737 200,888 206,691
-----------------------------------
Paid related to:
Current year 186,498 159,045 157,530
Prior years 43,542 40,785 42,795
-----------------------------------
Total paid 230,040 199,830 200,325
-----------------------------------
Net balance at
December 31 95,022 89,325 88,267
Plus reinsurance recoverables 16,720 24,114 20,430
-----------------------------------
Balance at December 31 $111,742 $113,439 $108,697
===================================
Analysis of Loss and LAE Reserve Development
The next table presents the development of the estimated liability for the ten
years prior to 2000. 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 2000. For
example, the Company's 1994 reserve of $37,481,000 has been re-estimated as of
year-end 2000 to be $31,130,000, indicating a redundancy of $6,351,000.
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, 2000, the Company had paid $30,846,000 of the
currently estimated $31,130,000 of losses and LAE that had been incurred as of
the end of 1994; thus an estimated $284,000 of losses incurred as of the end of
1994 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 through 1999 due to a reduction in the
aforementioned commercial lines business combined with an overall strengthening
of reserves.
4
Analysis of Loss and Loss Adjustment Expense Development
(Amounts in 000's)
Year Ended
December 31 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------
Reserve for Unpaid
Losses, Net of
Reinsurance $16,570 $19,089 $20,405 $27,744 $37,481 $47,712 $64,784 $81,901 $88,267 $89,325 $95,022
Net Reserve Re-estimated
as of:
One Year Later 15,492 17,160 18,425 25,668 30,134 51,483 70,014 79,781 78,089 82,373
Two Years Later 14,859 15,699 18,451 22,686 32,074 53,467 67,310 77,148 77,774
Three Years Later 13,841 15,202 16,871 21,154 31,880 52,418 66,442 76,110
Four Years Later 13,929 14,497 16,616 20,966 31,734 51,688 66,060
Five Years Later 13,663 14,393 16,505 20,688 31,155 51,087
Six Years Later 13,598 14,373 16,445 20,629 31,130
Seven Years Later 13,589 14,361 16,441 20,962
Eight Years Later 13,579 14,354 16,542
Nine Years Later 13,576 14,414
Ten Years Later 13,576
Net Cumulative
Redundancy
(Deficiency) $ 2,994 $ 4,675 $ 3,863 $ 6,782 $ 6,351 $(3,375) $(1,276) $ 5,791 $10,493 $ 6,952
==========================================================================================
Net Cumulative
Amount of
Reserve Paid
Through:
One Year Later $11,117 $10,937 $11,730 $ 9,684 $19,040 $31,471 $37,307 $42,795 $40,785 $43,532
Two Years Later 12,488 12,685 14,397 18,445 26,471 41,785 51,461 57,677 55,959
Three Years Later 12,965 13,588 15,923 19,930 29,237 47,434 58,716 65,610
Four Years Later 13,208 14,171 16,312 20,427 30,425 49,596 61,913
Five Years Later 13,471 14,307 16,381 20,558 30,770 50,051
Six Years Later 13,530 14,331 16,420 20,598 30,846
Seven Years Later 13,550 14,356 16,435 20,953
Eight Years Later 13,574 14,354 16,542
Nine Years Later 13,576 14,414
Ten Years Later 13,576
Net Reserve - December 31 $20,405 $27,744 $37,481 $47,712 $64,784 $81,901 $88,267 $89,325 $95,022
Reinsurance Recoverables 2,780 6,220 14,597 13,785 24,208 26,433 20,430 24,114 16,720
----------------------------------------------------------------------------------
Gross Reserve-December 31 $23,185 $33,964 $52,078 $61,497 $88,992 $108,334 $108,697 $113,439 $111,742
==================================================================================
Net Re-estimated Reserve $16,542 $20,962 $31,130 $51,087 $66,060 $ 76,110 $ 77,774 $ 82,373
Re-estimated Reinsurance $ 2,254 $ 4,700 $12,124 $14,760 $24,685 $ 24,564 $ 18,001 $ 22,237
------------------------------------------------------------------------
Gross Re-estimated Reserve $18,796 $25,662 $43,254 $65,847 $90,745 $100,674 $ 95,775 $104,610
========================================================================
Gross Cumulative Redundancy
(Deficiency) $ 4,389 $ 8,302 $ 8,824 $(4,350) $(1,753)$ 7,660 $ 12,922 $ 8,829
========================================================================
5
Seasonality and Reinsurance
Incurred losses, and thus the results of operations, for the Company
are dependent in some respect on seasonal weather patterns.
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.
Significant Customer
As indicated in Note 16 to the Company's 2000 consolidated financial
statements, in 2000 and 1999, revenues (including amounts that are
ultimately ceded to reinsurers) from one customer amounted to
$77,395,000 and $64,621,000, respectively. 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, Atlanta, Georgia, St. Louis, Missouri, Auburn
Hills, Michigan and Grand Rapids, Michigan. The Company's
transportation subsidiaries lease offices in Metairie, Louisiana.
ITEM 3. Legal Proceedings.
None.
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 15) and 40 of the
Registrant's 2000 Annual Report to Shareholders. The number of holders
of the Company's common stock at December 31, 2000 was approximately
2,109. The Company's common stock is registered on the National Market
(MLAN).
ITEM 6. Selected Financial Data.
Incorporated by reference to "Six Year Financial Summary Data" on pages
18 and 19 of the Registrant's 2000 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 2000 Annual Report to Shareholders.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Incorporated
by reference to "Market Risk" section of Management's Discussion and
Analysis of Financial Conditions and Results from Operations on pages
24 and 25 of the Registrant's 2000 Annual Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 26 through 40 of the Registrant's
2000 Annual Report to Shareholders.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
6
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Incorporated by reference to the Registrant's Proxy Statement dated
March 13, 2001.
ITEM 11. Executive Compensation.
Incorporated by reference to the Registrant's Proxy Statement dated
March 13, 2001.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 13, 2001.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 13, 2001.
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, 2000 and
1999.
Consolidated Statements of Income for the Years
Ended December 31, 2000, 1999 and 1998.
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 2000, 1999
and 1998.
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998.
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. 11
Schedule I - Summary of Investments -
Other Than Investments in Related
Parties - December 31, 2000 12
Schedule II - Condensed Financial
Information of Registrant 13-17
Schedule III - Supplementary Insurance
Information for the Years Ended December
31, 2000, 1999 and 1998 18
Schedule IV - Reinsurance for the Years
Ended December 31, 2000, 1999 and 1998 19
Schedule V - Valuation and Qualifying
Accounts for the Years Ended December 31,
2000, 1999 and 1998 20
Schedule VI - Supplemental Information
Concerning Property-Casualty Insurance
Operations for the Years Ended December
31, 2000, 1999 and 1998 21
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.
7
PART IV (Continued)
Page
----
(a) 3. Exhibits.
3.1 Articles of Incorporation - Filed as Exhibit
3(i) to the Registrant's Form 10-Q for the
quarter ended June 30, 1998 and incorporated
herein by reference.
3.2 Code of Regulations (Amended and Restated) -
Filed as Exhibit 3(ii) to the Registrant's
Form 10-Q for the quarter ended June 30,
2000 and incorporated herein by reference.
10.1 The Midland Company 1992 Employee Incentive
Stock Plan (Amended and Restated)* - Filed
herewith as Exhibit 10.1.
10.2 The Midland Company 1972 Stock Option Plan* -
Incorporated by Reference to Registrant's
Registration Statement No. 33-48511 on Form
S-8.
10.3 Annual Incentive Plan* - Filed herewith as
Exhibit 10.3.
10.4 Consulting Agreements with J. P. Hayden, Jr.,
Michael J. Conaton, John R. LaBar and
Robert W. Hayden - Filed herewith as
Exhibits 10.4(a)*, 10.4(b)*, 10.4(c)* and
10.4(d)*.
10.5 Employee Retention Agreements with Joseph P.
Hayden III, John W. Hayden, John I. Von Lehman
and Paul T. Brizzolara - Filed herewith as
Exhibits 10.5(a)*, 10.5(b)*, 10.5(c)* and
10.5(d)*.
10.6 The Midland Guardian Co. Salaried Employees
401(k) Savings Plan, The Midland Company
2000 Associate Discount Stock Purchase Plan
and The Midland Company Stock Option Plan
for Non-Employee Directors - Incorporated by
Reference to Registrant's Registration
Statement No. 333-40560 on Form S-8.
13. 2000 Annual Report to Shareholders filed
herewith.
21. Subsidiaries of the Registrant. 22
22. Published Report Regarding Matters Submitted
to Vote of Security Holders - Incorporated
by Reference to the Registrant's Proxy
Statement dated March 13, 2001.
23. Independent Auditors' Consent - Included in
Consent and Report on Schedules referred to
under Item 14(a)2 above.
* Management Compensatory Plan or Arrangement
(b) Reports on Form 8-K - None during 2000.
8
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 28, 2001
(J. P. Hayden, III) Chief Operating Officer
/S/John W. Hayden President and March 28, 2001
(John W. Hayden) Chief Executive Officer
/S/John I. Von Lehman Executive Vice President, March 28, 2001
(John I. Von Lehman) Chief Financial and
Accounting Officer
and Secretary
9
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/James E. Bushman Director and Member March 28, 2001
(James E. Bushman) of Audit Committee
/S/James H. Carey Director and Member March 28, 2001
(James H. Carey) of Audit Committee
/S/Michael J. Conaton Director March 28, 2001
(Michael J. Conaton)
/S/Jerry A. Grundhofer Director March 28, 2001
(Jerry A. Grundhofer)
/S/J. P. Hayden, Jr. Chairman of the Executive March 28, 2001
(J. P. Hayden, Jr.) Committee of the Board
and Director
/S/J. P. Hayden, III Chairman of the Board, March 28, 2001
(J. P. Hayden, III) Chief Operating Officer
and Director
/S/John W. Hayden President, Chief Executive March 28, 2001
(John W. Hayden) Officer and Director
/S/Robert W. Hayden Director March 28, 2001
(Robert W. Hayden)
/S/William T. Hayden Director March 28, 2001
(William T. Hayden)
/S/William J. Keating Director March 28, 2001
(William J. Keating)
/S/John R. LaBar Director March 28, 2001
(John R. LaBar)
/S/David B. O'Maley Director March 28, 2001
(David B. O'Maley)
/S/John M. O'Mara Director and Member March 28, 2001
(John M. O'Mara) of Audit Committee
/S/Glenn E. Schembechler Director and Member March 28, 2001
(Glenn E. Schembechler) of Audit Committee
/S/Marie Francis Thrailkill, Director March 28, 2001
OSU Ed.D.
(Marie Francis Thrailkill,
OSU Ed.D.)
/S/John I. Von Lehman Executive Vice President, March 28, 2001
(John I. Von Lehman) Chief Financial and
Accounting Officer,
Secretary and Director
10
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 Nos. 33-48511 and 333-40560 on Form S-8 of The Midland
Company of our report dated February 8, 2001, 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, 2000.
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
Cincinnat, Ohio 45201-5340
March 23, 2001
11
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule I - Summary of Investments
Other than Investments in Related Parties
December 31, 2000
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 $ 79,535,000 $82,044,000 $ 82,044,000
States, municipalities and political subdivisions 172,824,000 176,121,000 176,121,000
Mortgage-backed securities 74,122,000 75,234,000 75,234,000
Foreign governments 4,589,000 4,406,000 4,406,000
Public utilities 6,785,000 6,702,000 6,702,000
All other corporate bonds 118,125,000 117,772,000 117,772,000
---------------------------------------------
Total 455,980,000 462,279,000 462,279,000
---------------------------------------------
Equity securities, available-for-sale:
Common stocks:
Public utilities 1,823,000 2,266,000 2,266,000
Banks, trusts and insurance companies 8,502,000 66,163,000 66,163,000
Industrial, miscellaneous and all other 42,543,000 60,105,000 60,105,000
Nonredeemable preferred stocks 21,597,000 23,268,000 23,268,000
---------------------------------------------
Total 74,465,000 151,802,000 151,802,000
---------------------------------------------
Accrued interest and dividends 7,823,000 XXXXXXX 7,823,000
---------------------------------------------
Mortgage loans on real estate 8,016,000 XXXXXXX 8,016,000
---------------------------------------------
Short-term investments 62,737,000 XXXXXXX 62,737,000
---------------------------------------------
Total Investments $609,021,000 XXXXXXX $692,657,000
=============================================
12
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 2000 and 1999
ASSETS 2000 1999
------------- -------------
Cash $ 68,000 $ 148,000
------------- -------------
Marketable Securities Available
for Sale (at market value):
Debt Securities (cost, $353,000 in 2000
and $122,000 in 1999) 353,000 122,000
Equity (cost, $342,000 in 2000 and
also in 1999) 2,964,000 2,696,000
------------- -------------
Total 3,317,000 2,818,000
------------- -------------
Receivables - Net 16,152,000 11,042,000
------------- -------------
Intercompany Receivables 16,902,000 9,637,000
------------- -------------
Property, Plant and Equipment (at cost): 37,480,000 37,315,000
Less Accumulated Depreciation 9,114,000 7,289,000
------------- -------------
Net 28,366,000 30,026,000
------------- -------------
Other Assets 6,571,000 5,558,000
------------- -------------
Investments in Subsidiaries (at equity) 278,755,000 250,179,000
------------- -------------
Total Assets $350,131,000 $309,408,000
============= =============
13
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 2000 and 1999
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------- -------------
Notes Payable Within One Year:
Banks (including current portion of
long-term debt) $ 39,706,000 $ 21,297,000
Commercial Paper 6,020,000 5,550,000
------------- -------------
Total 45,726,000 26,847,000
------------- -------------
Other Payables and Accruals 4,009,000 6,634,000
------------- -------------
Long - Term Debt 17,219,000 17,925,000
------------- -------------
Shareholders' Equity:
Common Stock - No Par (issued and
outstanding: 9,000,000 shares at
December 31, 2000 and 9,516,000 shares
at December 31, 1999 after deducting
treasury stock of 1,928,000 shares
and 1,412,000 shares, respectively) 911,000 911,000
Additional Paid - in Capital 19,838,000 18,583,000
Retained Earnings 239,679,000 207,005,000
Accumulated Other Comprehensive Income 54,396,000 49,388,000
Treasury Stock (at cost) (30,404,000) (15,786,000)
Unvested Restricted Stock Awards (1,243,000) (2,099,000)
------------- -------------
Total 283,177,000 258,002,000
------------- -------------
Total Liabilities and
Shareholders' Equity $350,131,000 $309,408,000
============= =============
14
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Income Information
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
Revenues:
Dividends from Subsidiaries $ 13,529,000 $ 9,000,000 $ 3,000,000
All Other Income, Primarily Charges
to Subsidiaries 6,317,000 6,359,000 6,934,000
------------- ------------- -------------
Total Revenues 19,846,000 15,359,000 9,934,000
------------- ------------- -------------
Expenses:
Interest Expense 3,745,000 3,391,000 3,971,000
Depreciation and Amortization 2,458,000 3,973,000 2,701,000
All Other Expenses 2,975,000 1,786,000 2,303,000
------------- ------------- -------------
Total Expenses 9,178,000 9,150,000 8,975,000
------------- ------------- -------------
Income Before Federal Income Tax 10,668,000 6,209,000 959,000
Provision (Credit) for Federal
Income Tax (1,053,000) (1,023,000) (1,023,000)
------------- ------------- -------------
Income Before Change in Undistributed
Income of Subsidiaries 11,721,000 7,232,000 1,982,000
Change in Undistributed Income
of Subsidiaries 23,742,000 23,947,000 24,950,000
------------- ------------- -------------
Net Income $ 35,463,000 $ 31,179,000 $ 26,932,000
============= ============= =============
15
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows Information
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
Cash Flows from Operating Activities:
Net income $ 35,463,000 $ 31,179,000 $ 26,932,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in undistributed income
of subsidiaries (23,742,000) (23,947,000) (24,950,000)
Increase in receivables (4,631,000) (1,170,000) (1,922,000)
Increase (decrease) in other
payables and accruals (2,723,000) 2,422,000 153,000
Depreciation and amortization 2,458,000 3,973,000 2,701,000
Decrease (increase) in other assets (1,013,000) 8,004,000 (1,142,000)
Other - net 2,000 19,000 251,000
------------- ------------- -------------
Net Cash Provided by
Operating Activities 5,814,000 20,480,000 2,023,000
------------- ------------- -------------
Cash Flows from Investing Activities:
Acquisition of property, plant and
equipment (259,000) (279,000) (1,657,000)
Change in investments (excluding
unrealized appreciation/
depreciation) (232,000) 373,000 1,943,000
Sale of property, plant and
equipment and other real
estate - net 24,000 214,000 5,969,000
------------- ------------- -------------
Net Cash Provided by (Used in)
Investing Activities (467,000) 308,000 6,255,000
------------- ------------- -------------
Cash Flows from Financing Activities:
Increase (decrease) in short - term
borrowings 19,470,000 4,028,000 (8,269,000)
Purchase of treasury stock (15,432,000) (3,709,000) (1,271,000)
Net change in intercompany accounts (6,489,000) (12,080,000) 2,968,000
Dividends paid (2,747,000) (2,515,000) (1,746,000)
Decrease in long - term debt (1,297,000) (8,760,000) (1,458,000)
Issuance of treasury stock 1,068,000 2,300,000 1,358,000
------------- ------------- -------------
Net Cash Used in
Financing Activities (5,427,000) (20,736,000) (8,418,000)
------------- ------------- -------------
Net Increase (Decrease) in Cash (80,000) 52,000 (140,000)
Cash at Beginning of Year 148,000 96,000 236,000
------------- ------------- -------------
Cash at End of Year $ 68,000 $ 148,000 $ 96,000
============= ============= =============
16
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Notes to Condensed Financial Information
For the Years Ended December 31, 2000 and 1999
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes included in the
Registrant's 2000 Annual Report to Shareholders.
Total debt of the Registrant (parent only) consists of the following:
DECEMBER 31,
2000 1999
------------ ------------
Short - Term Bank Borrowings $39,000,000 $20,000,000
Commercial Paper 6,020,000 5,550,000
Mortgage Notes:
7.10% - Due January 1, 2001 - 642,000
6.83% - Due December 20, 2005 17,925,000 18,580,000
------------ ------------
Total Debt $62,945,000 $44,772,000
============ ============
See Notes 6 and 7 to the consolidated financial statements included in the 2000
Annual Report to Shareholders for further information on the Company's
outstanding debt at December 31, 2000.
The amount of debt that becomes due during each of the next five years is as
follows: 2001 - $706,000; 2002 - $756,000; 2003 - $810,000; 2004 - $865,000;
2005 - $930,000; 2006 and thereafter - $13,858,000.
17
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule III - Supplementary Insurance Information
For the Years Ended December 31, 2000, 1999 and 1998
(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)
---------------------------------------------------------------------------
2000
Manufactured Housing $ 67,026 $228,665 $309,943 $20,787
Other Insurance 24,548 128,520 146,177 11,272
Unallocated Amounts 135,887 25
Inter-segment Elimination (1,310)
---------------------------------------------------------------------------
Total $ 91,574 $135,887 $357,185 $ - $456,120 $30,774
===========================================================================
1999
Manufactured Housing $ 60,112 $215,437 $283,332 $15,526
Other Insurance 25,056 97,401 117,659 10,631
Unallocated Amounts 133,713 19
Inter-segment Elimination (884)
---------------------------------------------------------------------------
Total $ 85,168 $133,713 $312,838 $ - $400,991 $25,292
===========================================================================
1998
Manufactured Housing $ 44,317 $192,323 $258,638 $14,875
Other Insurance 19,645 62,792 116,840 9,923
Unallocated Amounts 125,496 34
Inter-segment Elimination (924)
---------------------------------------------------------------------------
Total $ 63,962 $125,496 $255,115 $ - $375,478 $23,908
===========================================================================
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
--------------------------------------------------------
2000
Manufactured Housing $156,517 $ 94,940 $ 41,684 $323,165
Other Insurance 84,163 42,113 29,071 153,682 (2)
Unallocated Amounts
Inter-segment Elimination
------------------------------------------- ----------
Total $240,680 $137,053 $ 70,755 $476,847
=========================================== ==========
1999
Manufactured Housing $133,436 $ 82,302 $ 40,079 $306,446
Other Insurance 70,929 31,910 26,462 137,049 (2)
Unallocated Amounts
Inter-segment Elimination
-------------------------------------------- ----------
Total $204,365 $114,212 $ 66,541 $443,495
============================================ ==========
1998
Manufactured Housing $137,483 $ 71,288 $ 33,133 $283,020
Other Insurance 72,532 31,881 21,176 110,987 (2)
Unallocated Amounts
Inter-segment Elimination
-------------------------------------------- ----------
Total $210,015 $103,169 $ 54,309 $394,007
============================================ ==========
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
($7,632, $3,632 and $2,237 for 2000, 1999 and 1998, respectively).
18
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
For the Years Ended December 31, 2000, 1999 and 1998
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
-----------------------------------------------------------------------------------
2000
- ----
Life Insurance in Force $731,201,000 $415,567,000 $55,023,000 $370,657,000 14.8%
===================================================================================
Insurance Premiums and
Other Considerations:
Life and Health Insurance $ 20,693,000 $ 11,403,000 $ 1,331,000 $ 10,621,000 12.5%
Property & Liability Insurance 434,565,000 30,766,000 41,700,000 445,499,000 9.4%
-----------------------------------------------------------------------------------
Total Premiums $455,258,000 $ 42,169,000 $43,031,000 $456,120,000 9.4%
===================================================================================
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%
===================================================================================
19
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule V - Valuation and Qualifying Accounts
For the Years Ended December 31, 2000, 1999 and 1998
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
Allowance For Losses $807,000 $ 84,000 $ 65,000 (1) $826,000
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
NOTES:
(1) Accounts written off are net of recoveries.
20
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule VI - Supplemental Information Concerning Property-Casualty Insurance Operations
For the Years Ended December 31, 2000, 1999 and 1998
(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
2000 $ 82,575 $ 129,596 $ - $ 308,282 $ 445,499 $ 28,589
=========== =========== ========== =========== =========== ===========
1999 $ 76,031 $ 128,467 $ - $ 281,442 $ 392,689 $ 23,746
=========== =========== ========== =========== =========== ===========
1998 $ 59,736 $ 121,154 $ - $ 236,171 $ 369,051 $ 22,468
=========== =========== ========== =========== =========== ===========
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
2000 $ 242,689 $ (6,952) $ 130,275 $ 230,040 $469,215
=========== ========== =========== =========== =========
1999 $ 211,066 $ (10,178) $ 108,689 $ 199,830 $439,863
=========== ========== =========== =========== =========
1998 $ 208,811 $ (2,120) $ 100,190 $ 200,325 $391,770
=========== ========== =========== =========== =========
Note: Certain amounts above will not agree with Schedule III because other insurance
amounts in Schedule III include life and accident and health insurance.
21