Back to GetFilings.com
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, 1998
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. - American Stock Exchange
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 5, 1999 was $237,966,000.
Number of shares of common stock outstanding as of March 5, 1999 -
9,518,639.
Documents Incorporated by Reference
Annual Report to Shareholders for the year ended December 31, 1998 is
incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 11, 1999 is incorporated by
reference into Parts III and IV.
1
THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1998
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) changes in the laws or
regulations affecting the operations of the Company or any of its subsidiaries;
2) changes in the business tactics or strategies of the Company or any of its
subsidiaries; 3)acquisition(s) of assets or of new or complementary operations,
or divestiture of any segment of the existing operations of the Company or any
of its subsidiaries; 4) changing market forces or litigation which necessitate,
in Management's judgment, changes in plans, strategy or tactics of the Company
or its subsidiaries and 5) adverse weather conditions, fluctuations in the
investment markets, changes in the retail marketplace, Year 2000 related issues
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 13
and 33 and 34 (Note 18) of the Registrant's 1998 Annual Report to
Shareholders. The number of persons employed by the Registrant was
approximately 890 at December 31, 1998.
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.
There are no material 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").
The following table provides an analysis of changes in loss and LAE
reserves for 1998, 1997 and 1996 (net of reinsurance amounts) for the
Company. Based on the information available during and at the end of
1998, operations were credited $2,120,000 in 1998 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 and 1996,
operations were charged $5,230,000 in 1997 and $3,771,000 in 1996 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.
3
Changes in Loss and LAE Reserves:
(amounts in 000's)
1998 1997 1996
--------------------------------------
Balance at January 1 $108,334 $ 88,992 $ 61,497
Less reinsurance recoverables 26,433 24,208 13,785
--------------------------------------
Net balance at January 1 81,901 64,784 47,712
--------------------------------------
Incurred related to:
Current year 208,811 163,035 166,554
Prior years (2,120) 5,230 3,771
--------------------------------------
Total incurred 206,691 168,265 170,325
--------------------------------------
Paid related to:
Current year 157,530 113,841 121,782
Prior years 42,795 37,307 31,471
--------------------------------------
Total paid 200,325 151,148 153,253
--------------------------------------
Net balance at
December 31 88,267 81,901 64,784
Plus reinsurance recoverables 20,430 26,433 24,208
--------------------------------------
Balance at December 31 $108,697 $108,334 $ 88,992
======================================
Analysis of Loss and LAE Reserve Development
The next table presents the development of the estimated liability for
the ten years prior to 1998. 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 at the end of 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 1998. For example, the Company's 1990 reserve of $16,570,000 has
been re-estimated as of year-end 1998 to be $13,579,000, indicating a
redundancy of $2,991,000.
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, 1998, the Company had
paid $13,574,000 of the currently estimated $13,579,000 of losses and
LAE that have been incurred as of the end of 1990; thus an estimated
$5,000 of losses incurred as of the end of 1990 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 due to a
reduction in the aforementioned commercial lines business combined with
a strengthening of the commercial lines reserves in 1997.
4
Analysis of Loss and Loss Adjustment Expense Development
(Amounts in 000s)
Year Ended
December 31 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
-------------------------------------------------------------------------------------------------
Reserve for Unpaid
Losses, Net of
Reinsurance $12,464 $15,732 $16,570 $19,089 $20,405 $27,744 $37,481 $47,712 $64,784 $81,901 $88,267
Net Reserve Re-estimated
as of:
One Year Later 11,609 15,167 15,492 17,160 18,425 25,668 30,134 51,483 70,014 79,781
Two Years Later 11,534 15,043 14,859 15,699 18,451 22,686 32,074 53,467 67,310
Three Years Later 11,292 14,397 13,841 15,202 16,871 21,154 31,880 52,418
Four Years Later 11,024 13,773 13,929 14,497 16,616 20,966 31,734
Five Years Later 10,886 13,758 13,663 14,393 16,505 20,688
Six Years Later 10,926 13,754 13,598 14,373 16,445
Seven Years Later 10,962 13,722 13,589 14,361
Eight Years Later 10,948 13,741 13,579
Nine Years Later 10,967 13,732
Ten Years Later 10,929
Net Cumulative
Redundancy
(Deficiency) $ 1,535 $ 2,000 $ 2,991 $ 4,728 $ 3,960 $ 7,056 $ 5,747 $(4,706) $(2,526) $ 2,120
=========================================================================================
Net Cumulative
Amount of
Reserve Paid
Through:
One Year Later $ 8,659 $11,210 $11,117 $10,937 $11,730 $ 9,684 $19,040 $31,471 $37,307 $42,795
Two Years Later 9,644 12,902 12,488 12,685 14,397 18,445 26,471 41,785 51,461
Three Years Later 10,461 13,355 12,965 13,588 15,923 19,930 29,237 47,434
Four Years Later 10,668 13,465 13,208 14,171 16,312 20,427 30,425
Five Years Later 10,739 13,595 13,471 14,307 16,381 20,558
Six Years Later 10,825 13,689 13,530 14,331 16,420
Seven Years Later 10,915 13,704 13,550 14,356
Eight Years Later 10,930 13,703 13,574
Nine Years Later 10,929 13,727
Ten Years Later 10,929
Net Reserve - December 31 $20,405 $27,744 $37,481 $47,712 $64,784 $ 81,901 $ 88,267
Reinsurance Recoverables 2,780 6,220 14,597 13,785 24,208 26,433 20,430
-------------------------------------------------------------
Gross Reserve-December 31 $23,185 $33,964 $52,078 $61,497 $88,992 $108,334 $108,697
=============================================================
Net Re-estimated Reserve $16,445 $20,688 $31,734 $52,418 $67,310 $ 79,781
Re-estimated Reinsurance 2,240 4,638 12,359 15,145 25,152 25,742
-----------------------------------------------------
Gross Re-estimated Reserve $18,685 $25,326 $44,093 $67,563 $92,462 $105,523
=====================================================
Gross Cumulative Redundancy (Deficiency) $ 4,500 $ 8,638 $ 7,985 $(6,066) $(3,470)$ 2,811
=====================================================
5
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. As
indicated in Management's Discussion and Analysis of Financial
Condition and Results of Operations, for 1998, 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 1998, from 25% of written
premium with a maximum of $50 million to 12.5% with a maximum of
$25 million.
Significant Customer
As indicated in Note 18 to the Company's 1998 consolidated financial
statements, in 1998 and 1997, respectively, revenues (including amounts
that are ultimately ceded to reinsurers) from one customer amounted to
$61,865,000 and $41,011,000. That customer is Greentree Financial
Corporation.
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 and Clearwater, Florida and
the Company's transportation subsidiaries lease offices in Metairie,
Louisiana. The Company owns a 292,000 square foot manufacturing,
warehouse and office facility which it leases to a non-affiliated third
party.
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., a subsidiary of the Registrant. Upon Motion, the Court dismissed
six of the remaining eight counts against M/G, four of the six
remaining counts against one former employee and all of the remaining
counts against two former employees. The United States has appealed.
The Sixth Circuit Court of Appeals heard oral agreements on the appeal
by the United States in January, 1999 and has not yet rendered an
opinion. On October 31, 1997, M/G was fined $250,000 and placed on
two years' probation on the two remaining counts. The Company does not
expect any additional fines unless the United States is successful in
its appeal.
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 33 (Note 17) and 36 of the
Registrant's 1998 Annual Report to Shareholders. The number of holders
of the Company's common stock at December 31, 1998 was approximately
1,350. The Company's common stock is registered on the American Stock
Exchange (MLA).
ITEM 6. Selected Financial Data.
Incorporated by reference to pages 14 and 15 of the Registrant's 1998
Annual Report to Shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations. Incorporated by reference to pages 16 through 21 of the
Registrant's 1998 Annual Report to Shareholders.
6
PART II (Continued)
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 22 through 36 of the Registrant's
1998 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 11, 1999.
Executive Officers of the Company -
J. P. Hayden, Jr. - Age 69 - Chairman of the Executive Committee of
the Board
Michael J. Conaton - Age 65 - Vice Chairman
J. P. Hayden, III - Age 46 - Chairman and Chief Operating Officer
John W. Hayden - Age 41 - President and Chief Executive Officer
John I. Von Lehman - Age 46 - Executive Vice President, Chief
Financial Officer and Secretary
Kurt R. Schwamberger - Age 52 - Senior Vice President
Paul T. Brizzolara - Age 41 - Senior Vice President and Chief
Legal Officer
W. Todd Gray - Age 31 - 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, Kurt R. Schwamberger was elected Senior Vice President of
The Midland Company. Mr. Schwamberger joined the Company in 1996 as
President and Chief Operating Officer of American Modern Insurance
Group, Inc. (AMIG) and will continue in that position with AMIG.
Before joining AMIG in 1996, Mr. Schwamberger held executive management
positions in the insurance industry. Also in 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.
The Board of Directors of The Midland Company voted at their regular
meeting on March 5, 1998 to elect the following new executive officers
effective with the Company's Annual Shareholders' Meeting on April 9,
1998. Mr. J. P. Hayden, III was elected Chairman and Chief Operating
Officer of The Midland Company. Mr. John W. Hayden was elected
President and Chief Executive Officer of The Midland Company.
Mr. J. P. Hayden, Jr. was elected Chairman of the Executive Committee
of the Board. Mr. Michael J. Conaton was elected Vice Chairman of the
Board and Vice Chairman of the Company.
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.
7
PART III (Continued)
ITEM 11. Executive Compensation.
Incorporated by reference to the Registrant's Proxy Statement dated
March 11, 1999.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 11, 1999.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 11, 1999.
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, 1998 and 1997.
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.
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, 1998 13
Schedule II - Condensed Financial Information of
Registrant 14-18
Schedule III - Supplementary Insurance Information
for the Years Ended December 31, 1998, 1997 and 1996 19
Schedule IV - Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996 20
Schedule V - Valuation and Qualifying Accounts for the
Years Ended December 31, 1998, 1997 and 1996 21
Schedule VI - Supplemental Information Concerning
Property-Casualty Insurance Operations for the
Years Ended December 31, 1998, 1997 and 1996 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.
8
PART IV (Continued)
(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.
10.1 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.
10.2 A description of the Company's Profit Sharing Plan,
Salaried Employees' Non-Qualified Savings Plan and
the Supplemental Retirement Plan - Incorporated by
reference to the Registrant's Proxy Statement dated
March 11, 1999.
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1998 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 11, 1999.
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 1998.
9
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 5, 1999
(J. P. Hayden, III) Chief Operating Officer
S/ John W. Hayden President and March 5, 1999
(John W. Hayden) Chief Executive Officer
S/ John I. Von Lehman Executive Vice President, March 5, 1999
(John I. Von Lehman) Chief Financial and
Accounting Officer
and Secretary
10
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 5, 1999
(George R. Baker)
S/ James E. Bushman Director and Member March 5, 1999
(James E. Bushman) of Audit Committee
S/ James H. Carey Director and Member March 5, 1999
(James H. Carey) of Audit Committee
S/ Michael J. Conaton Vice Chairman March 5, 1999
(Michael J. Conaton)
S/ Jerry A. Grundhofer Director March 5, 1999
(Jerry A. Grundhofer)
S/ J. P. Hayden, Jr. Chairman of the Executive March 5, 1999
(J. P. Hayden, Jr.) Committee of the Board
S/ J. P. Hayden, III Chairman and March 5, 1999
(J. P. Hayden, III) Chief Operating Officer
S/ John W. Hayden President and March 5, 1999
(John W. Hayden) Chief Executive Officer
S/ Robert W. Hayden Director March 5, 1999
(Robert W. Hayden)
S/ William T. Hayden Director March 5, 1999
(William T. Hayden)
S/ William J. Keating Director March 5, 1999
(William J. Keating)
S/ John R. LaBar Director March 5, 1999
(John R. LaBar)
S/ David B. O'Maley Director March 5, 1999
(David B. O'Maley)
S/ John M. O'Mara Director and Member March 5, 1999
(John M. O'Mara) of Audit Committee
S/ Glenn E. Schembechler Director and Member March 5, 1999
(Glenn E. Schembechler) of Audit Committee
S/ John I. Von Lehman Executive Vice President, March 5, 1999
(John I. Von Lehman) Chief Financial and Accounting
Officer, Secretary and Director
11
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 11, 1999, 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,
1998.
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 5, 1999
12
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule I - Summary of Investments
Other than Investments in Related Parties
December 31, 1998
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 $170,035,000 $174,031,000 $174,031,000
States, municipalities and political subdivisions 161,699,000 165,966,000 165,966,000
Mortgage-backed securities 15,422,000 15,570,000 15,570,000
Foreign governments 504,000 508,000 508,000
Public utilities 8,289,000 8,353,000 8,353,000
All other corporate bonds 53,289,000 54,258,000 54,258,000
------------------------------------------------
Total 409,238,000 418,686,000 418,686,000
------------------------------------------------
Equity securities, available-for-sale:
Common stocks:
Public utilities 1,044,000 1,498,000 1,498,000
Banks, trusts and insurance companies 5,817,000 82,243,000 82,243,000
Industrial, miscellaneous and all other 26,584,000 48,801,000 48,801,000
Nonredeemable preferred stocks 4,000,000 3,914,000 3,914,000
------------------------------------------------
Total 37,445,000 136,456,000 136,456,000
------------------------------------------------
Accrued interest and dividends 6,434,000 6,434,000 6,434,000
------------------------------------------------
Short-term investments 28,594,000 28,594,000 28,594,000
------------------------------------------------
Total Investments $481,711,000 $590,170,000 $590,170,000
================================================
13
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1998 and 1997
ASSETS 1998 1997
------------- -------------
Cash $ 96,000 $ 236,000
------------- -------------
Marketable Securities Available
for Sale (at market value):
Fixed Income (cost, $497,000 in 1998
and $2,427,000 in 1997) 497,000 2,427,000
Equity (cost, $341,000 in 1998 and
$354,000 in 1997) 3,937,000 2,456,000
------------- -------------
Total 4,434,000 4,883,000
------------- -------------
Receivables - Net 8,932,000 7,010,000
------------- -------------
Property, Plant and Equipment (at cost): 37,314,000 35,878,000
Less Accumulated Depreciation 5,439,000 3,552,000
------------- -------------
Net 31,875,000 32,326,000
------------- -------------
Other Real Estate - Net 8,700,000 14,779,000
------------- -------------
Other Assets 4,862,000 3,720,000
------------- -------------
Investments in Subsidiaries ( at equity) 247,569,000 197,206,000
------------- -------------
Total Assets $306,468,000 $260,160,000
============= =============
14
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1998 and 1997
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------- -------------
Notes Payable Within One year:
Banks (including current portion of
long-term debt) $ 16,710,000 $ 25,425,000
Commercial Paper 6,522,000 5,791,000
------------- -------------
Total 23,232,000 31,216,000
------------- -------------
Other payables and Accruals 4,664,000 3,403,000
------------- -------------
Intercompany Payables 3,469,000 501,000
------------- -------------
Long - Term Debt 26,271,000 28,014,000
------------- -------------
Shareholders' Equity:
Common Stock - No Par (issued and
outstanding: 9,352,000 shares at
December 31, 1998 and 9,334,000 shares
at December 31, 1997 after deducting
treasury stock of 1,576,000 shares
and 1,594,000 shares, respectively) 911,000 911,000
Additional Paid - in Capital 15,947,000 15,359,000
Retained Earnings 178,398,000 153,797,000
Accumulated Other Comprehensive Income 70,507,000 44,123,000
Treasury Stock (at cost) (15,293,000) (14,704,000)
Unvested Restricted Stock Awards (1,638,000) (2,460,000)
------------- -------------
Total 248,832,000 197,026,000
------------- -------------
Total Liabilities and
Shareholders' Equity $306,468,000 $260,160,000
============= =============
15
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Income Information
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Revenues:
Dividends from Subsidiaries $ 3,000,000 $ 8,900,000 $ 20,500,000
All Other Income, Primarily Charges
to Subsidiaries 6,934,000 7,746,000 7,876,000
------------- ------------- -------------
Total Revenues 9,934,000 16,646,000 28,376,000
------------- ------------- -------------
Expenses:
Interest Expense 3,971,000 4,775,000 5,101,000
Depreciation and Amortization 2,701,000 6,195,000 2,548,000
All Other Expenses 2,303,000 833,000 2,033,000
------------- ------------- -------------
Total Expenses 8,975,000 11,803,000 9,682,000
------------- ------------- -------------
Income Before Federal Income Tax 959,000 4,843,000 18,694,000
Provision (Credit) for Federal
Income Tax (1,023,000) (1,599,000) (654,000)
------------- ------------- -------------
Income Before Change in Undistributed
Income of Subsidiaries 1,982,000 6,442,000 19,348,000
Change in Undistributed Income
of Subsidiaries:
From Continuing operations 24,950,000 17,925,000 (15,605,000)
From Discontinued operations - (6,817,000) (2,675,000)
------------- ------------- -------------
Net Income $ 26,932,000 $ 17,550,000 $ 1,068,000
============= ============= =============
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, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Cash Flows from Operating Activities:
Net income $ 26,932,000 $ 17,550,000 $ 1,068,000
Loss from discontinued operations - 6,817,000 2,675,000
------------- ------------- -------------
Income from continuing operations 26,932,000 24,367,000 3,743,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Decrease (increase) in undistributed
income of subsidiaries (24,950,000) (17,925,000) 15,605,000
Depreciation and amortization 2,701,000 6,195,000 2,548,000
Increase in other assets (1,142,000) (1,286,000) (1,359,000)
Decrease (increase) in receivables (1,922,000) 134,000 689,000
Increase in other payables and
accruals 153,000 1,575,000 90,000
Other - net 301,000 4,000 (592,000)
------------- ------------- -------------
Net Cash Provided by
Operating Activities 2,073,000 13,064,000 20,724,000
------------- ------------- -------------
Cash Flows from Investing Activities:
Acquisition of property, plant and
equipment (1,657,000) (2,617,000) (1,516,000)
Capital contributions to
subsidiaries - (12,326,000) -
Sale of property, plant and
equipment and other real
estate - net 5,969,000 535,000 66,000
Change in investments (excluding
unrealized appreciation/depreciation) 1,943,000 (1,991,000) 7,690,000
------------- ------------- -------------
Net Cash Provided by (Used in)
Investing Activities 6,255,000 (16,399,000) 6,240,000
------------- ------------- -------------
Cash Flows from Financing Activities:
Net change in intercompany accounts 2,968,000 7,323,000 (21,363,000)
Increase (decrease) in long - term
debt (1,458,000) 948,000 (767,000)
Decrease in short - term borrowings (8,269,000) (2,909,000) (2,920,000)
Dividends paid (1,746,000) (2,677,000) (1,962,000)
Net issuance (purchase) of treasury
stock 37,000 619,000 75,000
------------- ------------- -------------
Net Cash Provided by (Used in)
Financing Activities (8,468,000) 3,304,000 (26,937,000)
------------- ------------- -------------
Net Increase (Decrease) in cash (140,000) (31,000) 27,000
Cash at Beginning of Year 236,000 267,000 240,000
------------- ------------- -------------
Cash at End of Year $ 96,000 $ 236,000 $ 267,000
============= ============= =============
17
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Notes to Condensed Financial Information
For the Years Ended December 31, 1998 and 1997
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes included in the
Registrant's 1998 Annual Report to Shareholders.
Total debt of the Registrant (parent only) consists of the following:
DECEMBER 31,
1998 1997
------------- -------------
Short - Term Bank Borrowings $ 15,000,000 $ 24,000,000
Commercial Paper 6,522,000 5,791,000
Mortgage Notes:
7.10% - Due January 1, 2001 1,227,000 1,773,000
6.83% - Due December 20, 2005 19,195,000 19,768,000
5.40% - Due December 1, 2003 7,559,000 7,898,000
Total Debt $ 49,503,000 $ 59,230,000
See Notes 8 and 9 to the consolidated financial statements included in the 1998
Annual Report to Shareholders for further information on the Company's
outstanding debt at December 31, 1998.
The Amount of debt that becomes due during each of the next five years is as
follows: 1999 - $1,710,000; 2000 - $1,806,000; 2001 - $1,215,000;
2002 - $1,266,000; 2003 - $6,331,000.
18
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule III - Supplementary Insurance Information
For the Years Ended December 31, 1998, 1997 and 1996
(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)
-----------------------------------------------------------------------------------------
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
=========================================================================================
1996
Manufactured Housing $ 34,492 $ 42,547 $ 183,792 $ 182,581 $ 12,303
Other Insurance 10,850 53,283 24,625 98,033 6,756
Unallocated Amounts 14
Inter-segment Elimination (804)
-----------------------------------------------------------------------------------------
Total $ 45,342 $ 95,830 $ 208,417 $ - $ 280,614 $ 18,269
=========================================================================================
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
-------------------------------------------------------------------------
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
================================================ ==========
1996
Manufactured Housing $ 101,223 $ 54,761 $ 20,477 $ 205,933
Other Insurance 71,203 26,772 20,878 86,600 (2)
Unallocated Amounts
Inter-segment Elimination
------------------------------------------------ ----------
Total $ 172,426 $ 81,533 $ 41,355 $ 292,533
================================================ ==========
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 ($2,237, $2,738 and $2,178 for 1998, 1997
and 1996, respectively) insurance.
19
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
For the Years Ended December 31, 1998, 1997 and 1996
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
-----------------------------------------------------------------------------------
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 $ 9,712,000 $ 3,520,000 $ 235,000 $ 6,427,000 3.7%
Property & Liability Insurance 394,166,000 60,573,000 35,458,000 369,051,000 9.6%
-----------------------------------------------------------------------------------
Total Premiums $403,878,000 $ 64,093,000 $35,693,000 $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%
===================================================================================
1996
- ----
Life Insurance in Force $327,473,000 $163,604,000 $ 5,730,000 $169,599,000 3.4%
===================================================================================
Insurance Premiums and
Other Considerations:
Life and Health Insurance $ 7,813,000 $ 4,072,000 $ 1,004,000 $ 4,745,000 21.2%
Property & Liability Insurance 347,259,000 92,674,000 21,284,000 275,869,000 7.7%
-----------------------------------------------------------------------------------
Total Premiums $355,072,000 $ 96,746,000 $22,288,000 $280,614,000 7.9%
===================================================================================
20
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule V - Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997 and 1996
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
- --------------------------------------------------------------------------------
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
YEAR ENDED DECEMBER 31, 1996:
Allowance For Losses $ 863,000 $ (50,000) $ 14,000 (1) $ 799,000
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, 1998, 1997 and 1996
(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
1998 $ 59,736 $ 121,154 $ - $ 236,171 $ 369,051 $ 22,468
=========== =========== ========== =========== =========== ===========
1997 $ 52,198 $ 116,898 $ - $ 222,530 $ 305,555 $ 20,018
=========== =========== ========== =========== =========== ===========
1996 $ 42,308 $ 92,940 $ - $ 190,071 $ 275,869 $ 17,161
=========== =========== ========== =========== =========== ===========
Column H Column I Column J Column K
Claims and
Claim
Adjustment
Expenses Amortization
Incurred of Deferred Paid Claims
Affiliation Related to Policy and Claim
with Current Prior Acquisition Adjustment Premiums
Registrant Year Years Costs Expenses Written
- -------------------------------------------------------------------------------------------
Consolidated
Property-Casualty
Subsidiaries
1998 $ 208,811 $ (2,120) $ 100,190 $ 200,325 $ 391,770
=========== ========== =========== =========== ===========
1997 $ 163,035 $ 5,230 $ 77,100 $ 151,148 $ 342,711
=========== ========== =========== =========== ===========
1996 $ 166,554 $ 3,771 $ 79,100 $ 153,253 $ 290,355
=========== ========== =========== =========== ===========
22