Exhibit 99.1
THE MIDLAND COMPANY
7000 MIDLAND BOULEVARD
AMELIA, OHIO 45102-2607
(513) 943-7100
MAILING ADDRESS
P.O. BOX 1256
CINCINNATI, OHIO 45201
FOR IMMEDIATE RELEASE JULY 18, 2002
CONTACT: John I. Von Lehman
Executive Vice President and CFO
(513) 943-7100
THE MIDLAND COMPANY REPORTS RECORD SECOND QUARTER 2002 OPERATING EARNINGS
- 48% GAIN IN OPERATING EPS TO RECORD 37 CENTS (POST-SPLIT)
- COMMENTS ON STOCK SPLIT AND STOCK OFFERING
- REITERATES OUTLOOK
CINCINNATI, JULY 18, 2002 -- THE MIDLAND COMPANY (NASDAQ: MLAN), a highly
focused provider of specialty insurance products and services, today reported
that net operating income (net income excluding capital gains/losses) for the
second quarter ended June 30, 2002, increased 48 percent on a per-share basis.
Net operating income reached a record $6.6 million, or 37 cents per share
(diluted, post-split), compared with $4.5 million, or 25 cents per share
(diluted, post-split), in 2001. Net income (including capital gains/losses) for
the second quarter was $5.9 million, or 33 cents per share (diluted,
post-split), compared with $6.1 million, or 34 cents per share (diluted,
post-split), last year. Revenue was $155.8 million compared with $143.9 million
in last year's second quarter.
"Midland continues to produce record operating results," said John W. Hayden,
president and chief executive officer. "Our record second quarter and first-half
results demonstrate the immediate benefit of actions taken in 2001 and 2002 to
improve underwriting results and profitability. We clearly are very pleased with
our direction."
American Modern Insurance Group, Midland's wholly owned insurance subsidiary, is
a leader in specialty insurance products and services such as manufactured
housing, site-built homes, motorcycles, watercraft, snowmobiles, recreational
vehicles and credit life and related products. American Modern's products and
services are offered through diverse distribution channels.
PREMIUM EXPANSION CONTINUES AT ANTICIPATED PACE
American Modern's total property and casualty gross written premiums grew 3.2
percent for the quarter to $160.4 million, even though manufactured housing
gross written premium declined 15.7 percent to $78.2 million. The decrease in
manufactured housing premium is primarily the result of corrective underwriting
actions taken in the past 12 months. Gross written premium in all other
specialty lines -- such as motorcycle, site-built dwelling, mortgage fire,
recreational vehicle and collector automobile products -- collectively grew 31.3
percent to $82.2 million.
Hayden said, "This quarter and the several preceding periods have demonstrated
the benefits of our strategies to diversify our business base, and we plan to
continue to seek opportunities that allow us to become an indispensable partner
in a broader, although still specialty focused, arena."
Page 1 of 7
THE MIDLAND COMPANY REPORTS SECOND QUARTER 2002 RESULTS
JULY 18, 2002
Hayden reiterated that the company remains well positioned in the manufactured
housing market. "While we anticipate new manufactured housing sales to continue
to be slower than average during the remainder of 2002, these homes have
traditionally represented approximately one out of every five new housing starts
in the United States. We believe we are well positioned in this market to
leverage our strong relationships with manufacturers, dealers and other business
partners."
QUARTERLY UNDERWRITING PROFIT REFLECTS EMPHASIS ON PROFITABILITY
For the second quarter, American Modern's property and casualty combined ratio
(losses and expenses as a percent of earned premium) was 99.6 percent, compared
with 101.9 percent a year ago. Catastrophe losses accounted for 5.9 percentage
points of this year's second quarter combined ratio compared with 9.0 percentage
points in the same period in 2001.
"While events identified as catastrophes had less of an impact on our results
this year, the second quarter generally reflects a higher level of losses due to
typical spring weather patterns. This year was no different," Hayden said.
Hayden also commented, "The fire loss ratio in our core manufactured housing
business continues to improve as a result of price increases and careful
attention to underwriting. Fire losses above our normal level contributed 1.4
percentage points to American Modern's total combined ratio in this year's
second quarter compared with 2.3 percentage points in last year's second
quarter.
"Further, the majority of the rate increases for our manufactured housing
products that we have sought over the past 12 months now have been approved.
These increases, which have averaged approximately 10 percent, will be reflected
in higher earned premiums over the next 12-24 months," Hayden added.
SIX-MONTH RESULTS
For the six months ended June 30, 2002, net operating income (net income
excluding capital gains/losses and the effects of any changes in accounting
principles) was a record $16.1 million, or 90 cents per share (diluted,
post-split), compared with $13.5 million, or 75 cents per share (diluted,
post-split), in the comparable period in 2001. Net income (including capital
gains/losses and the effects of any changes in accounting principles) was $13.8
million, or 77 cents per share (diluted, post-split), compared with $15.7
million, or 88 cents per share (diluted, post-split), last year. Revenue for the
first six months was $308.3 million compared with $283.8 million last year.
In the first quarter of 2002, Midland adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." This resulted
in after-tax charges of $1.5 million, or 8 cents per share (diluted, post-split)
related to the impairment of goodwill. This charge is reported separately in the
company's income statement as a "Change in an Accounting Principle." After the
charge, the company's goodwill balance as of June 30, 2002, totaled $2.1
million.
American Modern's total property and casualty gross written premiums grew 3.5
percent to $290.8 million through the first six months of 2002, even though
manufactured housing gross written premium declined 12.2 percent to $148.6
million. The decrease in manufactured housing premium is primarily the result of
corrective underwriting actions taken in the past 12 months. Gross written
premium in all other specialty lines -- such as motorcycle, site-built dwelling,
mortgage fire, recreational vehicle and collector automobile products --
collectively grew 27.3 percent to $142.2 million.
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THE MIDLAND COMPANY REPORTS SECOND QUARTER 2002 RESULTS
JULY 18, 2002
INVESTMENT PORTFOLIO AND BOOK VALUE GROWTH
The market value of Midland's investment portfolio rose to $715.3 million at
June 30, 2002, compared with $658.5 million a year earlier. Net pre-tax
investment income (excluding capital gains) rose 3.9 percent for the second
quarter compared with last year's second quarter, primarily because of continued
growth in the investment portfolio due to cash flow from operations. For the six
months, net pre-tax investment income rose 1.1 percent over the year ago period.
The annualized pre-tax equivalent yield on American Modern's fixed income
portfolio was 6.1 percent in the first six months of 2002 compared with 7.0
percent in the first six months of 2001.
Pre-tax net unrealized gains on Midland's fixed income securities were $15.4
million at June 30, 2002, up from $5.9 million at March 31, 2002. Partially
offsetting this increase was an $8.0 million decrease in the pre-tax net
unrealized gains on Midland's equity securities in the second quarter.
Midland's shareholders' equity rose to a record $304.1 million, or $17.34 per
share (post-split), at June 30, 2002, from $288.6 million, or $16.20 per share
(post-split), at June 30, 2001.
JULY 2002 TEXAS FLOODS
Hayden noted that during the first half of July, American Modern experienced
losses from flooding in Texas. Preliminary loss data suggests that third quarter
results could be impacted approximately $2.0 million (pre-tax), or 7 cents per
share (diluted, post-split), by this flooding. In last year's third quarter, the
company incurred third quarter catastrophe losses of $1.1 million (pre-tax), or
4 cents per share (diluted, post-split).
OUTLOOK DRIVEN BY IMPROVED UNDERWRITING RESULTS
"Midland's strong track record and positive outlook reflects our commitment to
key operating principles and the implementation of a well-defined series of
growth strategies," noted Hayden.
"We remain focused on our longer-term financial goals, which include 12 percent
annual growth in revenue and earnings per share. As we have stated, however, we
anticipate 2002 top-line will be only slightly ahead of 2001 as property and
casualty premium and investment income both are expected to grow at a low
single-digit pace. Based on our combined ratio of 98.0 percent for the first
half of 2002, and assuming normal weather patterns, we believe our full-year
combined ratio should come in between 97 and 99 percent, as rate increases begin
to take affect in various states."
Hayden added, "The strength of our partnerships, the value of our products and
the results of our strategies work together to build value for our company, our
customers and our shareholders."
STOCK SPLIT AND OFFERING
Joseph P. Hayden III, chairman and chief operating officer, commented,
"Following on the heels of the two-for-one stock split effective July 17, 2002,
we filed a registration statement for a proposed secondary stock offering. The
proceeds from the offering will be used to increase capital and surplus to fund
future growth for our insurance subsidiaries and to repay debt." Assuming
completion of the offering, Midland would have approximately 20 million shares
outstanding, up from just 8.8 million before the stock split and offering.
Page 3 of 7
THE MIDLAND COMPANY REPORTS SECOND QUARTER 2002 RESULTS
JULY 18, 2002
A registration statement has been filed with the Securities and Exchange
Commission, but is not yet effective, relating to the proposed offering of
2,450,000 shares (post-split) of common stock. Of these shares, 2,000,000 are
being offered by the company and 450,000 are being offered by selling
shareholders, none of whom are executive officers of the company. These
securities may not be sold nor may offers to buy be accepted prior to the time
that the registration statement becomes effective. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy. There shall
not be any sale of these securities in any state in which such offer,
solicitation, or sale would be unlawful prior to registration or qualification
under the securities law of any such state. A copy of the preliminary prospectus
relating to the offering, when available, may be obtained from McDonald
Investments, Inc., 800 Superior Avenue, Cleveland, Ohio 44114.
ABOUT THE COMPANY
Midland, which is headquartered in Cincinnati, Ohio, is a provider of specialty
insurance products and services through its wholly owned subsidiary, American
Modern Insurance Group, which accounts for approximately 95 percent of Midland's
consolidated revenue. American Modern specializes in writing physical damage
insurance and related coverages on manufactured housing and has expanded to
other specialty insurance products including coverage for site-built homes,
motorcycles, watercraft, snowmobiles, recreational vehicles, physical damage on
long-haul trucks, extended service contracts, credit life and related products
as well as collateral protection and mortgage fire products sold to financial
institutions and their customers. Midland also owns a niche transportation
business, M/G Transport Group, which charters barges and brokers freight for the
movement of commodities on the inland waterways. Midland's common stock is
traded on the Nasdaq National Market under the symbol MLAN. Additional
information on the company can be found on the Internet at
www.midlandcompany.com.
FORWARD LOOKING STATEMENTS DISCLOSURE
Certain statements made in this press release are forward-looking and are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These statements include certain discussions relating to underwriting,
premium and investment income volume, business strategies, profitability and
business relationships, as well as any other statements concerning the year 2002
and beyond. The forward-looking statements involve risks and uncertainties that
may cause results to differ materially from those anticipated in those
statements. Factors that might cause results to differ from those anticipated
include, without limitation, adverse weather conditions, changes in underwriting
results affected by adverse economic conditions, fluctuations in the investment
markets, changes in the retail marketplace, changes in the laws or regulations
affecting the operations of the company or its subsidiaries, changes in the
business tactics or strategies of the company, its subsidiaries or its current
or anticipated business partners, the financial condition of the company's
business partners, acquisitions or divestitures, changes in market forces,
litigation and the other risk factors that have been identified in the company's
filings with the SEC, any one of which might materially affect the operations of
the company or its subsidiaries. Any forward-looking statements speak only as of
the date made. We undertake no obligation to update any forward-looking
statements to reflect events or circumstances arising after the date on which
they are made.
Page 4 of 7
THE MIDLAND COMPANY REPORTS SECOND QUARTER 2002 RESULTS
JULY 18, 2002
THE MIDLAND COMPANY
FINANCIAL HIGHLIGHTS
(UNAUDITED)
THREE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ -----------------------------------------
2002 2001 % CHANGE 2002 2001 % CHANGE
---------- ------------ ------------ ------------- ------------- -------------
Revenues $155,761 $143,863 8.3% $ 308,293 $ 283,845 8.6%
========== ============ ============ ============= ============= =============
Net Operating Income $ 6,591 $ 4,474 47.3% $ 16,107 $ 13,470 19.6%
============ =============
Net Cumulative Effect of Change
in Accounting Principle - - (1,463) -
Net Capital Gains (Losses) (689) 1,593 (885) 2,289
---------- ------------ ------------- -------------
Net Income $ 5,902 $ 6,067 -2.7% $ 13,759 $ 15,759 -12.7%
========== ============ ============ ============= ============= =============
Net Operating Income per Share (Diluted) $ 0.37 $ 0.25 48.0% $ 0.90 $ 0.75 20.0%
============ =============
Net Cumulative Effect of Change in
Accounting Principle (Diluted) $ - - (0.08) $ -
Net Capital Gains (Losses) per Share (Diluted) (0.04) 0.09 (0.05) 0.13
---------- ------------ ------------- -------------
Net Income per Share (Diluted) $ 0.33 $ 0.34 -2.9% $ 0.77 $ 0.88 -12.5%
========== ============ ============ ============= ============= =============
Dividends Declared per Share $0.04375 $ 0.0400 9.4% $ 0.0875 $ 0.0800 9.4%
========== ============ ============ ============= ============= =============
Market Value per Share $ 25.24 $ 22.25 13.4% $ 25.24 $ 22.25 13.4%
========== ============ ============ ============= ============= =============
Book Value per Share $ 17.34 $ 16.20 7.0% $ 17.34 $ 16.20 7.0%
========== ============ ============ ============= ============= =============
Shares Outstanding 17,540 17,816 17,540 17,816
========== ============ ============= =============
AMIG's Property and Casualty Operations:
Direct and Assumed Written Premium $160,446 $155,427 3.2% $ 290,776 $ 281,007 3.5%
========== ============ ============ ============= ============= =============
Net Written Premium $153,969 $148,990 3.3% $ 277,531 $ 266,820 4.0%
========== ============ ============ ============= ============= =============
Combined Ratio (GAAP) 99.6% 101.9% 98.0% 99.5%
========== ============ ============= =============
Combined Ratio (GAAP) -
Excluding Catastrophe Losses 93.7% 92.9% 93.8% 92.6%
========== ============ ============= =============
Dollar amounts in thousands except per share data.
All outstanding share and per share data are adjusted for the 2 for 1 stock
split effective July 17, 2002.
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THE MIDLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three-Months Ended Six-Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues:
Insurance:
Premiums earned $ 140,907 $ 123,726 $ 277,377 $ 242,297
Net investment income 8,702 8,376 17,408 17,210
Net realized investment gains (losses) (1,060) 2,450 (1,361) 3,521
Other insurance income 1,493 1,238 3,117 3,009
Transportation 5,530 7,948 11,411 17,554
Other 189 125 341 254
--------- --------- --------- ---------
Total $ 155,761 $ 143,863 $ 308,293 $ 283,845
--------- --------- --------- ---------
Costs and Expenses:
Insurance:
Losses and loss adjustment expenses 82,590 75,415 152,213 137,681
Commissions and other policy acquisition costs 40,423 33,955 82,345 68,714
Operating and administrative expenses 18,331 17,266 39,150 36,331
Transportation operating expenses 5,317 7,742 11,548 16,314
Interest expense 1,069 1,177 1,853 2,590
Other operating and administrative expenses 362 201 598 492
--------- --------- --------- ---------
Total $ 148,092 $ 135,756 $ 287,707 $ 262,122
--------- --------- --------- ---------
Income Before Federal Income Tax and Cumulative
Effect of Change in Accounting Principle 7,669 8,107 20,586 21,723
Provision for Federal Income Tax 1,767 2,040 5,364 5,964
--------- --------- --------- ---------
Income Before Cumulative Effect of Change
in Accounting Principle 5,902 6,067 15,222 15,759
Cumulative Effect of Change in Accounting Principle - - (1,463) -
--------- --------- --------- ---------
Net Income $ 5,902 $ 6,067 $ 13,759 $ 15,759
========= ========= ========= =========
Basic Earnings (Losses) per Common Share:
Operating Earnings $ 0.39 $ 0.26 $ 0.93 $ 0.78
Cumulative Effect of Change in Accounting Principle - - (0.08) -
Capital Gains (Losses) (0.04) 0.09 (0.05) 0.13
--------- --------- --------- ---------
Total $ 0.35 $ 0.35 $ 0.80 $ 0.91
========= ========= ========= =========
Diluted Earnings (Losses) per Common Share:
Operating Earnings $ 0.37 $ 0.25 $ 0.90 $ 0.75
Cumulative Effect of Change in Accounting Principle - - (0.08) -
Capital Gains (Losses) (0.04) 0.09 (0.05) 0.13
--------- --------- --------- ---------
Total $ 0.33 $ 0.34 $ 0.77 $ 0.88
========= ========= ========= =========
Dividends per Common Share $ 0.04375 $ 0.04 $ 0.0875 $ 0.08
========= ========= ========= =========
NOTE: Dollar amounts in thousands except per share data.
Basic earnings per common share have been computed by dividing net income
by 17,297 shares in 2002 and 17,345 shares in 2001.
Diluted earnings per common share have been computed by dividing net
income by 17,894 shares in 2002 and 18,006 shares in 2001. The
calculations comprehend outstanding stock options and restricted stock
awards.
All outstanding share and per share data are adjusted for the 2 for 1
stock split effective July 17, 2002.
Page 6 of 7
THE MIDLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30,
ASSETS 2002 2001
------ ---------- ----------
Cash and Marketable Securities $ 721,833 $ 669,605
Receivables - Net 179,076 146,373
Property, Plant and Equipment - Net 61,135 55,523
Deferred Insurance Policy Acquisition Costs 100,756 100,193
Other 17,962 22,684
---------- ----------
Total Assets $1,080,762 $ 994,378
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Unearned Insurance Premiums $ 420,201 $ 393,528
Insurance Loss Reserves 146,509 138,064
Long-Term Debt 47,896 39,326
Short-Term Borrowings 43,877 24,832
Deferred Federal Income Tax 32,491 30,551
Other Payables and Accruals 85,684 79,431
Shareholders' Equity 304,104 288,646
---------- ----------
Total Liabilities and Shareholders' Equity $1,080,762 $ 994,378
========== ==========
Market Value per Common Share $ 25.24 $ 22.25
========== ==========
Book Value per Common Share $ 17.34 $ 16.20
========== ==========
Common Shares Outstanding 17,540 17,816
========== ==========
NOTE: Amounts in thousands except per share data.
Common shares outstanding and per share data are adjusted for the 2
for 1 stock split effective July 17, 2002.
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