##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One)
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from  
to

Commission file number 1-6026

|                                                      
|------------------------------------------------------
|The Midland Company                                   
|(Exact name of registrant as specified in its charter)

|                                              |  |                                     
|--------------------------------------------- |  | ------------------------------------
|Ohio                                          |  | 31-0742526                          
|(State or other jurisdiction of incorporation |  | (I.R.S. Employer Identification No.)
|or organization)                              |  |                                     

7000 Midland Boulevard, Amelia, Ohio 45102-2607
(Address of principal executive offices)
(Zip Code)

(513) 943-7100
(Registrants telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x . No o.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes x . No o.

The number of common shares outstanding as of July 18, 2003 was
17,619,158.





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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                        
|STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (Unaudited)                                  
|CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY                         
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)                                  
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                             
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES JUNE 30, 2003                
|SIGNATURE                                                                                    
|EX-15                                                                                        
|EX-31.1                                                                                      
|EX-31.2                                                                                      
|EX-32.1                                                                                      
|EX-32.2                                                                                      



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##### Table of Contents









PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
Amounts in 000s

|                                                          |                                                                                  |              |        |         |             |         |        |          |           |         | 
|--------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------ | ------ | ------- | ----------- | ------- | ------ | -------- | --------- | ------- | 
|                                                          |                                                                                  |              |        |         | (Unaudited) |         |        |          |           |        
|                                                          |                                                                                  |              |        |         | June 30,    |         |        | Dec. 31, |          
|ASSETS                                                    |                                                                                  | 2003         |        |         | 2002        |        
|                                                          |                                                                                  |              |        |         |             |        
|MARKETABLE SECURITIES AVAILABLE FOR SALE:                 |                                                                                  |              |        |         |             |         |        |         
|                                                          | Fixed income (cost, $581,043 at June 30, 2003 and
$572,768 at December 31, 2002) |              | $      | 616,091 |             |         | $      | 600,920  |          
|                                                          | Equity (cost, $87,636 at June 30, 2003 and $91,239
at December 31, 2002)         |              |        | 153,920 |             |         |        | 138,838  |          
|                                                          |                                                                                  |              |        |         |             |        
|                                                          |                                                                                  |              | Total  |         |             | 770,011 |        |          |           | 739,758 | 
|                                                          |                                                                                  |              |        |         |             |        
|CASH                                                      |                                                                                  |              | 12,314 |         |             |         | 5,975  |         
|                                                          |                                                                                  |              |        |         |             |        
|ACCOUNTS RECEIVABLE  NET                                 |                                                                                  |              | 97,359 |         |             |         | 91,633 |         
|                                                          |                                                                                  |              |        |         |             |        
|REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS |                                                                                  |              | 69,118 |         |             |         | 76,626 |         
|                                                          |                                                                                  |              |        |         |             |        
|PROPERTY, PLANT AND EQUIPMENT  NET                       |                                                                                  |              | 64,032 |         |             |         | 61,510 |         
|                                                          |                                                                                  |              |        |         |             |        
|DEFERRED INSURANCE POLICY ACQUISITION COSTS               |                                                                                  |              | 93,408 |         |             |         | 96,396 |         
|                                                          |                                                                                  |              |        |         |             |        
|OTHER ASSETS                                              |                                                                                  |              | 17,659 |         |             |         | 18,776 |         
|                                                          |                                                                                  |              |        |         |             |        
|                                                          |                                                                                  | TOTAL ASSETS |        | $       | 1,123,901   |         |        | $        | 1,090,674 |        
|                                                          |                                                                                  |              |        |         |             |        

See notes to condensed consolidated financial statements.





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##### Table of Contents



THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
Amounts in 000s

|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |   |          |         |           | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ----------- | --------- | - | -------- | ------- | --------- | 
|                                                                 |                                                                                                                                                                                            |                                            |         | (Unaudited) |           |   |          |         |          
|                                                                 |                                                                                                                                                                                            |                                            |         | June 30,    |           |   | Dec. 31, |        
|LIABILITIES & SHAREHOLDERS' EQUITY                               |                                                                                                                                                                                            | 2003                                       |         |             | 2002      |  
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|UNEARNED INSURANCE PREMIUMS                                      |                                                                                                                                                                                            | $                                          | 398,531 |             |           | $ | 406,311  |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|INSURANCE LOSS RESERVES                                          |                                                                                                                                                                                            |                                            | 181,333 |             |           |   | 164,717  |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|INSURANCE COMMISSIONS PAYABLE                                    |                                                                                                                                                                                            |                                            | 30,738  |             |           |   | 30,654   |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES |                                                                                                                                                                                            |                                            | 3,601   |             |           |   | 2,977    |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|LONG-TERM DEBT                                                   |                                                                                                                                                                                            |                                            | 46,413  |             |           |   | 47,163   |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|OTHER NOTES PAYABLE:                                             |                                                                                                                                                                                            |                                            |         |             |           |   |          |        
|                                                                 | Banks                                                                                                                                                                                      |                                            |         | 23,000      |           |   |          | 39,000  |          
|                                                                 | Commercial paper                                                                                                                                                                           |                                            |         | 4,434       |           |   |          | 4,238   |          
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|                                                                 |                                                                                                                                                                                            | Total                                      |         |             | 27,434    |   |          |         | 43,238    | 
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|DEFERRED FEDERAL INCOME TAX                                      |                                                                                                                                                                                            |                                            | 44,557  |             |           |   | 35,642   |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|OTHER PAYABLES AND ACCRUALS                                      |                                                                                                                                                                                            |                                            | 57,310  |             |           |   | 51,064   |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|COMMITMENTS AND CONTINGENCIES                                    |                                                                                                                                                                                            |                                            |        |             |           |   |         |        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|SHAREHOLDERS EQUITY:                                            |                                                                                                                                                                                            |                                            |         |             |           |   |          |        
|                                                                 | Common stock (issued and outstanding: 17,636 shares at
June 30, 2003 and 17,566 shares at December 31, 2002
after deducting treasury stock of 4,220 shares and
4,290 shares, respectively) |                                            |         | 911         |           |   |          | 911     |          
|                                                                 | Additional paid-in capital                                                                                                                                                                 |                                            |         | 23,071      |           |   |          | 22,516  |          
|                                                                 | Retained earnings                                                                                                                                                                          |                                            |         | 287,184     |           |   |          | 279,826 |          
|                                                                 | Accumulated other comprehensive income                                                                                                                                                     |                                            |         | 64,107      |           |   |          | 47,573  |          
|                                                                 | Treasury stock  at cost                                                                                                                                                                   |                                            |         | (41,120     | )         |   |          | (41,605 | )        
|                                                                 | Unvested restricted stock awards                                                                                                                                                           |                                            |         | (169        | )         |   |          | (313    | )        
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|                                                                 |                                                                                                                                                                                            | Total                                      |         |             | 333,984   |   |          |         | 308,908   | 
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  
|                                                                 |                                                                                                                                                                                            | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |         | $           | 1,123,901 |   |          | $       | 1,090,674 | 
|                                                                 |                                                                                                                                                                                            |                                            |         |             |           |  

See notes to condensed consolidated financial statements.





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##### Table of Contents






THE MIDLAND COMPANY AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002Amounts in 000s (except per share information)

|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |       |      |         |         | 
|----------------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ---------------------------------------------- | ----------------- | ---- | ----------------------- | ------- | ------ | ------------------------- | ------- | ------- | ----- | ----- | ------- | ------- | ----- | ---- | ------- | ------- | 
|                                                                                                |                                             |                                                     |                                                |                   |      | Six-Mos. Ended June 30, |         |        | Three-Mos. Ended June 30, |        
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |        
|                                                                                                |                                             |                                                     |                                                |                   |      | 2003                    |         |        | 2002                      |         |         | 2003  |       |         | 2002    |      
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |      
|REVENUES:                                                                                       |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |      
|                                                                                                | Insurance:                                  |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |       |     
|                                                                                                |                                             |                                                     | Premiums earned                                |                   | $    | 310,480                 |         |        | $                         | 277,377 |         |       | $     | 157,202 |         |       | $    | 140,907 |        
|                                                                                                |                                             |                                                     | Net investment income                          |                   |      | 16,439                  |         |        |                           | 17,408  |         |       |       | 8,044   |         |       |      | 8,702   |        
|                                                                                                |                                             |                                                     | Net realized investment gains (losses)         |                   |      | 1,050                   |         |        |                           | (1,361  | )       |       |       | 2,813   |         |       |      | (1,060  | )      
|                                                                                                |                                             |                                                     | Other insurance income                         |                   |      | 6,997                   |         |        |                           | 6,339   |         |       |       | 3,526   |         |       |      | 3,192   |        
|                                                                                                | Transportation                              |                                                     |                                                | 12,821            |      |                         |         | 11,411 |                           |         |         | 6,976 |       |         |         | 5,530 |     
|                                                                                                | Other                                       |                                                     |                                                | 143               |      |                         |         | 341    |                           |         |         | 81    |       |         |         | 189   |     
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|                                                                                                |                                             |                                                     |                                                | Total             |      |                         | 347,930 |        |                           |         | 311,515 |       |       |         | 178,642 |       |      |         | 157,460 | 
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|COSTS AND EXPENSES:                                                                             |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |      
|                                                                                                | Insurance:                                  |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |       |     
|                                                                                                |                                             |                                                     | Losses and loss adjustment expenses            |                   |      | 192,083                 |         |        |                           | 152,213 |         |       |       | 113,436 |         |       |      | 82,590  |        
|                                                                                                |                                             |                                                     | Commissions and other policy acquisition costs |                   |      | 88,723                  |         |        |                           | 82,345  |         |       |       | 40,918  |         |       |      | 40,423  |        
|                                                                                                |                                             |                                                     | Operating and administrative expenses          |                   |      | 41,182                  |         |        |                           | 42,372  |         |       |       | 19,519  |         |       |      | 20,030  |        
|                                                                                                | Transportation operating expenses           |                                                     |                                                | 12,417            |      |                         |         | 11,548 |                           |         |         | 6,612 |       |         |         | 5,317 |     
|                                                                                                | Interest expense                            |                                                     |                                                | 1,821             |      |                         |         | 1,853  |                           |         |         | 882   |       |         |         | 1,069 |     
|                                                                                                | Other operating and administrative expenses |                                                     |                                                | 541               |      |                         |         | 598    |                           |         |         | 216   |       |         |         | 362   |     
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|                                                                                                |                                             |                                                     |                                                | Total             |      |                         | 336,767 |        |                           |         | 290,929 |       |       |         | 181,583 |       |      |         | 149,791 | 
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|INCOME (LOSS) BEFORE FEDERAL INCOME TAX
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE |                                             |                                                     | 11,163                                         |                   |      |                         | 20,586  |        |                           |         | (2,941  | )     |       |         | 7,669   |      
|PROVISION (CREDIT) FOR FEDERAL INCOME TAX                                                       |                                             |                                                     | 2,131                                          |                   |      |                         | 5,364   |        |                           |         | (1,924  | )     |       |         | 1,767   |      
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE                        |                                             |                                                     | 9,032                                          |                   |      |                         | 15,222  |        |                           |         | (1,017  | )     |       |         | 5,902   |      
|CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE  NET                                       |                                             |                                                     |                                               |                   |      |                         | (1,463  | )      |                           |         |        |       |       |         |        |      
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|                                                                                                |                                             |                                                     |                                                | NET INCOME (LOSS) |      | $                       | 9,032   |        |                           | $       | 13,759  |       |       | $       | (1,017  | )     |      | $       | 5,902   | 
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|BASIC EARNINGS (LOSSES) PER SHARE
OF COMMON STOCK:                                              |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |      
|                                                                                                |                                             | Income before change in accounting principle        |                                                | $                 | 0.52 |                         |         | $      | 0.88                      |         |         | $     | (0.06 | )       |         | $     | 0.35 |        
|                                                                                                |                                             | Cumulative effect of change in accounting principle |                                                |                   |     |                         |         |        | (0.08                     | )       |         |       |      |         |         |       |     |        
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|                                                                                                |                                             |                                                     |                                                | Total             |      | $                       | 0.52    |        |                           | $       | 0.80    |       |       | $       | (0.06   | )     |      | $       | 0.35    | 
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|DILUTED EARNINGS (LOSSES) PER SHARE                                                             |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |      
|                                                                                                | OF COMMON STOCK:                            |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |         |       |     
|                                                                                                |                                             | Income before change in accounting principle        |                                                | $                 | 0.51 |                         |         | $      | 0.85                      |         |         | $     | (0.06 | )       |         | $     | 0.33 |        
|                                                                                                |                                             | Cumulative effect of change in accounting principle |                                                |                   |     |                         |         |        | (0.08                     | )       |         |       |      |         |         |       |     |        
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|                                                                                                |                                             |                                                     |                                                | Total             |      | $                       | 0.51    |        |                           | $       | 0.77    |       |       | $       | (0.06   | )     |      | $       | 0.33    | 
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        
|CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK                                               |                                             | $                                                   | 0.0950                                         |                   |      | $                       | 0.0875  |        |                           | $       | 0.04750 |       |       | $       | 0.04375 |      
|                                                                                                |                                             |                                                     |                                                |                   |      |                         |         |        |                           |         |         |       |       |         |        

See notes to condensed consolidated financial statements. All per share amounts are adjusted for the two-for-one stock
split effective July 17, 2002 (Note 2).





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##### Table of Contents






THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Unaudited)
Amounts in 000s

|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |         |  |      |        |        | 
|-------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------- |  | ------ | ------ | ----- | ------- | ---------- | ------- | -------- | - | ------ | ------------- |  | ----- | ----------- | ------- | ------ | ------ | - | ---- | ---------- | -------- | - | ------- | ------- | ---- | ------ | ------- |  | ---- | ------ | ------ | 
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       | Accumulated |         |        |        |   |      |            | Unvested |   |         |         |      |        |         |  |      |       
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         | Additional |         |          |   |        |               |  | Other |             |         |        |        |   |      | Restricted |          |   |         |         |      |        | Compre- | 
|                           |                                                                                |                                          |                                                                                                  |                            |  | Common |        |       | Paid-In |            |         | Retained |   |        | Comprehensive |  |       | Treasury    |         |        | Stock  |   |      |            |          |   |         | hensive |     
|                           |                                                                                |                                          |                                                                                                  |                            |  | Stock  |        |       | Capital |            |         | Earnings |   |        | Income        |  |       | Stock       |         |        | Awards |   |      | Total      |          |   | Income  |        
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |        
|BALANCE, DECEMBER 31, 2001 |                                                                                | $                                        | 911                                                                                              |                            |  | $      | 20,386 |       |         | $          | 264,057 |          |   | $      | 45,875        |  |       | $           | (38,698 | )      |        | $ | (655 | )          |          | $ | 291,876 |         |      |        |         | 
|                           | Comprehensive income:                                                          |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |         |  |     
|                           |                                                                                |                                          | Net income                                                                                       |                            |  |        |        |       |         |            |         |          |   | 13,759 |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      | 13,759 |         |  | $    | 13,759 |       
|                           |                                                                                |                                          | Increase in unrealized gain on
marketable securities, net of related
income tax effect of $899   |                            |  |        |        |       |         |            |         |          |   |        |               |  |       | 1,488       |         |        |        |   |      |            |          |   |         |         |      | 1,488  |         |  |      | 1,488  |       
|                           |                                                                                | Other, net of federal income tax of $211 |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  | (392  | )           |         |        |        |   |      |            |          |   |         |         | (392 | )      |         |  | (392 | )     
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |        
|                           |                                                                                |                                          |                                                                                                  | Total comprehensive income |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |         |  |      | $      | 14,855 | 
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |        
|                           | Purchase of treasury stock                                                     |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         | (3,414 | )      |   |      |            |          |   |         | (3,414  | )    |        |         |  |     
|                           | Issuance of treasury stock for options
exercised and employee savings plan     |                                          |                                                                                                  |                            |  |        |        | 211   |         |            |         |          |   |        |               |  |       |             |         | 443    |        |   |      |            |          |   |         | 654     |      |        |         |  |     
|                           | Cash dividends declared                                                        |                                          |                                                                                                  |                            |  |        |        |       |         |            |         | (1,535   | ) |        |               |  |       |             |         |        |        |   |      |            |          |   |         | (1,535  | )    |        |         |  |     
|                           | Federal income tax benefit related to the
exercise or granting of stock awards |                                          |                                                                                                  |                            |  |        |        | 1,518 |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         | 1,518   |      |        |         |  |     
|                           | Amortization and cancellation of
unvested restricted stock awards              |                                          |                                                                                                  |                            |  |        |        | (2    | )       |            |         |          |   |        |               |  |       |             |         | (5     | )      |   |      | 157        |          |   |         | 150     |      |        |         |  |     
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |        
|BALANCE, JUNE 30, 2002     |                                                                                | $                                        | 911                                                                                              |                            |  | $      | 22,113 |       |         | $          | 276,281 |          |   | $      | 46,971        |  |       | $           | (41,674 | )      |        | $ | (498 | )          |          | $ | 304,104 |         |      |        |         | 
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |         
|BALANCE, DECEMBER 31, 2002 |                                                                                | $                                        | 911                                                                                              |                            |  | $      | 22,516 |       |         | $          | 279,826 |          |   | $      | 47,573        |  |       | $           | (41,605 | )      |        | $ | (313 | )          |          | $ | 308,908 |         |      |        |         | 
|                           | Comprehensive income:                                                          |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |         |  |     
|                           |                                                                                |                                          | Net income                                                                                       |                            |  |        |        |       |         |            |         |          |   | 9,032  |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      | 9,032  |         |  | $    | 9,032  |       
|                           |                                                                                |                                          | Increase in unrealized gain on
marketable securities, net of related
income tax effect of $8,961 |                            |  |        |        |       |         |            |         |          |   |        |               |  |       | 16,620      |         |        |        |   |      |            |          |   |         |         |      | 16,620 |         |  |      | 16,620 |       
|                           |                                                                                | Other, net of federal income tax of $47  |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  | (86   | )           |         |        |        |   |      |            |          |   |         |         | (86  | )      |         |  | (86  | )     
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |        
|                           |                                                                                |                                          |                                                                                                  | Total comprehensive income |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |         |  |      | $      | 25,566 | 
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         |         |      |        |        
|                           | Purchase of treasury stock                                                     |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         | (445   | )      |   |      |            |          |   |         | (445    | )    |        |         |  |     
|                           | Issuance of treasury stock for options
exercised and employee savings plan     |                                          |                                                                                                  |                            |  |        |        | 434   |         |            |         |          |   |        |               |  |       |             |         | 932    |        |   |      |            |          |   |         | 1,366   |      |        |         |  |     
|                           | Cash dividends declared                                                        |                                          |                                                                                                  |                            |  |        |        |       |         |            |         | (1,674   | ) |        |               |  |       |             |         |        |        |   |      |            |          |   |         | (1,674  | )    |        |         |  |     
|                           | Federal income tax benefit related to the
exercise or granting of stock awards |                                          |                                                                                                  |                            |  |        |        | 123   |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |         | 123     |      |        |         |  |     
|                           | Amortization and cancellation of
unvested restricted stock awards              |                                          |                                                                                                  |                            |  |        |        | (2    | )       |            |         |          |   |        |               |  |       |             |         | (2     | )      |   |      | 144        |          |   |         | 140     |      |        |         |  |     
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |          |   |        
|BALANCE, JUNE 30, 2003     |                                                                                | $                                        | 911                                                                                              |                            |  | $      | 23,071 |       |         | $          | 287,184 |          |   | $      | 64,107        |  |       | $           | (41,120 | )      |        | $ | (169 | )          |          | $ | 333,984 |         |      |        |         | 
|                           |                                                                                |                                          |                                                                                                  |                            |  |        |        |       |         |            |         |          |   |        |               |  |       |             |         |        |        |   |      |            |         

See notes to condensed consolidated financial statements.





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THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX-MONTHS ENDED JUNE 30, 2003 AND 2002
Amount in 000s

|                                      |                                                                                   |                                                                                         |                                                     |          |        |         |        |          |         |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | ------ | ------- | ------ | -------- | ------- | ------- | -
|                                      |                                                                                   |                                                                                         |                                                     |          | 2003   |         |        | 2002     |        
|                                      |                                                                                   |                                                                                         |                                                     |          |        |         |        |          |        
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                   |                                                                                         |                                                     |          |        |         |        |         
|                                      | Net income                                                                        |                                                                                         | $                                                   | 9,032    |        |         | $      | 13,759   |        
|                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                                         |                                                     |          |        |         |        |          |        
|                                      |                                                                                   | Depreciation and amortization                                                           |                                                     |          | 4,351  |         |        |          | 4,147   |        
|                                      |                                                                                   | Cumulative effect of change in accounting for goodwill                                  |                                                     |          |       |         |        |          | 2,251   |        
|                                      |                                                                                   | Net realized investment losses (gains)                                                  |                                                     |          | (1,340 | )       |        |          | 1,639   |        
|                                      |                                                                                   | Increase in net accounts receivable                                                     |                                                     |          | (5,726 | )       |        |          | (16,652 | )      
|                                      |                                                                                   | Increase (decrease) in unearned insurance premiums                                      |                                                     |          | (7,780 | )       |        |          | 16,346  |        
|                                      |                                                                                   | Increase (decrease) in other accounts payable and accruals                              |                                                     |          | 6,166  |         |        |          | (10,119 | )      
|                                      |                                                                                   | Decrease (increase) in reinsurance recoverables and prepaid
reinsurance premiums        |                                                     |          | 7,508  |         |        |          | (4,521  | )      
|                                      |                                                                                   | Increase in insurance commissions payable                                               |                                                     |          | 84     |         |        |          | 3,685   |        
|                                      |                                                                                   | Increase (decrease) in insurance loss reserves                                          |                                                     |          | 16,616 |         |        |          | (2,165  | )      
|                                      |                                                                                   | Decrease in other assets                                                                |                                                     |          | 1,117  |         |        |          | 651     |        
|                                      |                                                                                   | Increase (decrease) in funds held under reinsurance
agreements and reinsurance payables |                                                     |          | 624    |         |        |          | (617    | )      
|                                      |                                                                                   | Decrease in deferred insurance policy acquisition costs                                 |                                                     |          | 2,988  |         |        |          | 29      |        
|                                      |                                                                                   | Other-net                                                                               |                                                     |          | 1,797  |         |        |          | (199    | )      
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|                                      |                                                                                   |                                                                                         | Net cash provided by operating activities           |          |        | 35,437  |        |          |         | 8,234   |  
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                   |                                                                                         |                                                     |          |        |         |        |         
|                                      | Purchase of marketable securities                                                 |                                                                                         |                                                     | (226,151 | )      |         |        | (162,692 | )      
|                                      | Sale of marketable securities                                                     |                                                                                         |                                                     | 148,832  |        |         |        | 105,158  |        
|                                      | Decrease in cash equivalent marketable securities                                 |                                                                                         |                                                     | 21,625   |        |         |        | 25,449   |        
|                                      | Maturity of marketable securities                                                 |                                                                                         |                                                     | 50,578   |        |         |        | 21,732   |        
|                                      | Acquisition of property, plant and equipment                                      |                                                                                         |                                                     | (6,911   | )      |         |        | (6,120   | )      
|                                      | Proceeds from sale of property, plant and equipment                               |                                                                                         |                                                     | 166      |        |         |        | 75       |        
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|                                      |                                                                                   |                                                                                         | Net cash used in investing activities               |          |        | (11,861 | )      |          |         | (16,398 | )
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                   |                                                                                         |                                                     |          |        |         |        |         
|                                      | Increase (decrease) in net short-term borrowings                                  |                                                                                         |                                                     | (15,804  | )      |         |        | 8,355    |        
|                                      | Purchase of treasury stock                                                        |                                                                                         |                                                     | (445     | )      |         |        | (3,414   | )      
|                                      | Dividends paid                                                                    |                                                                                         |                                                     | (1,604   | )      |         |        | (1,478   | )      
|                                      | Repayment of long-term debt                                                       |                                                                                         |                                                     | (750     | )      |         |        | (723     | )      
|                                      | Issuance of treasury stock                                                        |                                                                                         |                                                     | 1,366    |        |         |        | 654      |        
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|                                      |                                                                                   |                                                                                         | Net cash provided by (used in) financing activities |          |        | (17,237 | )      |          |         | 3,394   |  
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|NET INCREASE (DECREASE) IN CASH       |                                                                                   |                                                                                         | 6,339                                               |          |        |         | (4,770 | )       
|CASH AT BEGINNING OF PERIOD           |                                                                                   |                                                                                         | 5,975                                               |          |        |         | 11,286 |         
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|CASH AT END OF PERIOD                 |                                                                                   | $                                                                                       | 12,314                                              |          |        | $       | 6,516  |         
|                                      |                                                                                   |                                                                                         |                                                     |          |        |        
|INTEREST PAID                         |                                                                                   | $                                                                                       | 1,710                                               |          |        | $       | 1,853  |         
|INCOME TAXES PAID                     |                                                                                   | $                                                                                       | 1,500                                               |          |        | $       | 6,000  |         

See notes to the condensed consolidated financial statements.





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THE MIDLAND COMPANY AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 2003

1.   BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of The
Midland Company and subsidiaries (Midland) have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete annual financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Financial information as of December 31, 2002 has been derived from the audited
consolidated financial statements of the Company. Revenue and operating
results for the six and three-month periods ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information, refer to the audited consolidated
financial statements and footnotes thereto for the year ended December 31, 2002
included in Midlands Annual Report on Form 10-K.

Certain reclassifications have been made to the 2002 amounts to conform to 2003
classifications.

2.   TWO-FOR-ONE STOCK SPLIT

On June 17, 2002, Midland announced a two-for-one stock split effective July
17, 2002 for holders of record on July 8, 2002. Accordingly, data related to
Midlands common stock (number of shares, average shares outstanding, earnings
per share and dividends per share) have been adjusted for the prior periods to
reflect the impact of this stock split.

3.   EARNINGS PER SHARE

Earnings per share (EPS) of common stock amounts are computed by dividing net
income by the weighted average number of shares outstanding during the period
for basic EPS, plus the dilutive share equivalents for stock options and
restricted stock awards for diluted EPS. Shares used for EPS calculations were
as follows (000s):

|                            |      |  |               |        |  |                 |  |        | 
|--------------------------- | ---- |  | ------------- | ------ |  | --------------- |  | ------ | 
|                            |      |  | For Basic EPS |        |  | For Diluted EPS | 
|                            |      |  |               |        |  |                 | 
|Six months ended June 30:   |      |  |               |        |  |                 |  |       
|                            | 2003 |  |               | 17,405 |  |                 |  | 17,883 | 
|                            |      |  |               |        |  |                
|                            | 2002 |  |               | 17,297 |  |                 |  | 17,894 | 
|                            |      |  |               |        |  |                
|Three months ended June 30: |      |  |               |        |  |                 |  |       
|                            | 2003 |  |               | 17,424 |  |                 |  | 17,424 | 
|                            |      |  |               |        |  |                
|                            | 2002 |  |               | 17,319 |  |                 |  | 17,899 | 
|                            |      |  |               |        |  |                

Potential diluted common shares of 460 were not included in computing diluted
per share amounts for the three months ended June 30, 2003 because the effects
were anti-dilutive.





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4.   INCOME TAXES

The federal income tax provisions for the three and six-month periods ended
June 30, 2003 and 2002 are different from amounts derived by applying the
statutory tax rates to income before federal income tax as follows (000s):

|                                                                                                                                         |                                                    |                                           |       |                         |       |   |                           |        |       |      |        |      |        |   |       |        |       | 
|---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | ----- | ----------------------- | ----- | - | ------------------------- | ------ | ----- | ---- | ------ | ---- | ------ | - | ----- | ------ | ----- | 
|                                                                                                                                         |                                                    |                                           |       | Six-Mos. Ended June 30, |       |   | Three-Mos. Ended June 30, |       
|                                                                                                                                         |                                                    |                                           |       |                         |       |   |                           |       
|                                                                                                                                         |                                                    |                                           |       | 2003                    |       |   | 2002                      |        |       | 2003 |        |      | 2002   |  
|                                                                                                                                         |                                                    |                                           |       |                         |       |   |                           |        |       |      |        |      |        |  
|Federal income tax at statutory rate (including
a tax credit of $787 in 2002 on the
cumulative effect of change in accounting
principle) |                                                    | $                                         | 3,907 |                         |       | $ | 6,417                     |        |       | $    | (1,030 | )    |        | $ | 2,683 |       
|Add (deduct) the tax effect of:                                                                                                          |                                                    |                                           |       |                         |       |   |                           |        |       |      |        |      |        |   |       |       
|                                                                                                                                         | Tax exempt interest and
excludable dividend income |                                           |       | (1,834                  | )     |   |                           | (2,011 | )     |      |        | (925 | )      |   |       | (1,001 | )    
|                                                                                                                                         | Other  net                                        |                                           |       | 58                      |       |   |                           | 171    |       |      |        | 31   |        |   |       | 85     |      
|                                                                                                                                         |                                                    |                                           |       |                         |       |   |                           |        |       |      |        |     
|                                                                                                                                         |                                                    | Provision (credit) for federal income tax |       | $                       | 2,131 |   |                           | $      | 4,577 |      |        | $    | (1,924 | ) |       | $      | 1,767 | 
|                                                                                                                                         |                                                    |                                           |       |                         |       |   |                           |        |       |      |        |     

5.   SEGMENT DISCLOSURES

Since Midlands annual report for 2002, there have been no changes in
reportable segments or the manner in which Midland determines reportable
segments or measures segment profit or loss. Summarized segment information
for the interim periods for 2003 and 2002 is as follows (000s):

|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |   |        |      |        |  
|-------------------- | ----------------------- | -------------------- |  | ------------------------------ | --------- |  | -------------------------------- | --------- | ------- | ------- | ------ | ------ | --------- | - | --------- | ------- | ------ | - | ------ | ---- | ------ | -
|                     |                         |                      |  | Six Months Ended June 30, 2003 |           |  | Three Months Ended June 30, 2003 |          
|                     |                         |                      |  |                                |           |  |                                  |          
|                     |                         |                      |  |                                |           |  |                                  | Revenues- |         |         |        |        |           |   | Revenues- |         |        |   |        |     
|                     |                         |                      |  | Total                          |           |  | External                         |           |         | Pre-Tax |        |        | External  |   |           | Pre-Tax |       
|                     |                         |                      |  | Assets                         |           |  | Customers                        |           |         | Income  |        |        | Customers |   |           | (Loss)  |       
|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |       
|Reportable Segments: |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |   |        |     
|                     | Insurance:              |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |   |        |      |       
|                     |                         | Manufactured housing |  |                                | n/a       |  |                                  | $         | 163,775 |         |        | $      | 14,621    |   |           | $       | 81,400 |   |        | $    | (971   | )
|                     |                         | Other                |  |                                | n/a       |  |                                  |           | 153,702 |         |        |        | (4,000    | ) |           |         | 79,328 |   |        |      | (5,266 | )
|                     |                         | Unallocated          |  | $                              | 1,069,572 |  |                                  |           |        |         |        |        | 1,402     |   |           |         |       |   |        |      | 3,479  |  
|                     | Transportation          |                      |  | 27,169                         |           |  |                                  | 12,821    |         |         |        | 316    |           |   |           | 6,976   |        |   |        | 315  |       
|                     | Corporate and all other |                      |  |                               |           |  |                                  |          |         |         |        | (1,176 | )         |   |           |        |        |   |        | (498 | )     
|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |  
|                     |                         |                      |  |                                |           |  |                                  |           |         | $       | 11,163 |        |           |   |           |         |        | $ | (2,941 | )   
|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |  

|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |   |       |      |       |  
|-------------------- | ----------------------- | -------------------- |  | ------------------------------ | --------- |  | -------------------------------- | --------- | ------- | ------- | ------ | ------ | --------- | - | --------- | ------- | ------ | - | ----- | ---- | ----- | -
|                     |                         |                      |  | Six Months Ended June 30, 2002 |           |  | Three Months Ended June 30, 2002 |          
|                     |                         |                      |  |                                |           |  |                                  |          
|                     |                         |                      |  |                                |           |  |                                  | Revenues- |         |         |        |        |           |   | Revenues- |         |        |   |       |     
|                     |                         |                      |  | Total                          |           |  | External                         |           |         | Pre-Tax |        |        | External  |   |           | Pre-Tax |       
|                     |                         |                      |  | Assets                         |           |  | Customers                        |           |         | Income  |        |        | Customers |   |           | Income  |       
|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |       
|Reportable Segments: |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |   |       |     
|                     | Insurance:              |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |   |       |      |      
|                     |                         | Manufactured housing |  |                                | n/a       |  |                                  | $         | 162,063 |         |        | $      | 13,868    |   |           | $       | 81,300 |   |       | $    | 4,082 |  
|                     |                         | Other                |  |                                | n/a       |  |                                  |           | 121,653 |         |        |        | 8,968     |   |           |         | 62,799 |   |       |      | 4,634 |  
|                     |                         | Unallocated          |  | $                              | 1,020,680 |  |                                  |           |        |         |        |        | (678      | ) |           |         |       |   |       |      | (495  | )
|                     | Transportation          |                      |  | 26,114                         |           |  |                                  | 11,411    |         |         |        | (211   | )         |   |           | 5,530   |        |   |       | 175  |      
|                     | Corporate and all other |                      |  |                               |           |  |                                  |          |         |         |        | (1,361 | )         |   |           |        |        |   |       | (727 | )    
|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |  
|                     |                         |                      |  |                                |           |  |                                  |           |         | $       | 20,586 |        |           |   |           |         |        | $ | 7,669 |     
|                     |                         |                      |  |                                |           |  |                                  |           |         |         |        |        |           |   |           |         |        |  

Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. Certain amounts are
not allocated to segments (n/a above) by the Company.





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6.   STOCK OPTIONS

Midland accounts for stock options under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, no compensation cost has been recognized
for the stock option plans. Had the Company accounted for stock based employee
compensation under the fair value method (SFAS 123), the Companys net income
and earnings per share for the three and six-months ended June 30, 2003 and
2002 would have been reduced to the pro forma amounts indicated below (amounts
in 000s, except per share data):

|                                                                                                                                    |                       |   |                           |      |  |                             |        |      |      |   |        |       |   |   |        |      | 
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------------- | ---- |  | --------------------------- | ------ | ---- | ---- | - | ------ | ----- | - | - | ------ | ---- | 
|                                                                                                                                    |                       |   | Six Months Ended June 30, |      |  | Three Months Ended June 30, |       
|                                                                                                                                    |                       |   |                           |      |  |                             |       
|                                                                                                                                    |                       |   | 2003                      |      |  | 2002                        |        |      | 2003 |   |        | 2002  |  
|                                                                                                                                    |                       |   |                           |      |  |                             |        |      |      |   |        |       |  
|Net Income (Loss) as Reported                                                                                                       |                       | $ | 9,032                     |      |  | $                           | 13,759 |      |      | $ | (1,017 | )     |   | $ | 5,902  |     
|Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects |                       |   | 507                       |      |  |                             | 400    |      |      |   | 199    |       |   |   | 150    |     
|                                                                                                                                    |                       |   |                           |      |  |                             |        |      |      |   |        |      
|Pro forma Net Income (Loss)                                                                                                         |                       | $ | 8,525                     |      |  | $                           | 13,359 |      |      | $ | (1,216 | )     |   | $ | 5,752  |     
|                                                                                                                                    |                       |   |                           |      |  |                             |        |      |      |   |        |      
|Basic Shares                                                                                                                        |                       |   | 17,405                    |      |  |                             | 17,297 |      |      |   | 17,424 |       |   |   | 17,319 |     
|Diluted Shares                                                                                                                      |                       |   | 17,883                    |      |  |                             | 17,894 |      |      |   | 17,424 |       |   |   | 17,899 |     
|Earnings per share:                                                                                                                 |                       |   |                           |      |  |                             |        |      |      |   |        |       |   |   |        |     
|                                                                                                                                    | Basic  as reported   |   | $                         | 0.52 |  |                             | $      | 0.80 |      |   | $      | (0.06 | ) |   | $      | 0.35 | 
|                                                                                                                                    | Basic  pro forma     |   |                           | 0.49 |  |                             |        | 0.77 |      |   |        | (0.07 | ) |   |        | 0.33 | 
|                                                                                                                                    | Diluted  as reported |   | $                         | 0.51 |  |                             | $      | 0.77 |      |   | $      | (0.06 | ) |   | $      | 0.33 | 
|                                                                                                                                    | Diluted  pro forma   |   |                           | 0.48 |  |                             |        | 0.75 |      |   |        | (0.07 | ) |   |        | 0.32 | 

Compensation expense in the pro-forma disclosure is not indicative of future
amounts as options vest over several years and additional grants are generally
made each year.

7.   DERIVATIVE FINANCIAL INSTRUMENTS

Midland adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, on January 1,
2001, which established reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as either assets
or liabilities in the consolidated balance sheet and measurement of those
instruments at fair value. At June 30, 2003, Midlands investment portfolio
included approximately $45.3 million of convertible securities, some of which
contain embedded derivatives. The embedded conversion options are valued
separately, and the change in the market value on the embedded options is
reported in net realized investment gains (losses). For the three months
ending June 30, 2003, Midland recorded a pre-tax gain of $612,000 on these
securities and a pre-tax loss of $290,000 was recorded on these investments for
the six months ending June 30, 2003. For the three and six month periods ended
June 30, 2002, Midland recorded pre-tax gains on these securities of $724,000
and $278,000, respectively.

During March 2002, Midland entered into a series of interest rate swap
agreements to convert $30 million of its floating-rate debt to a fixed rate.
The swaps qualify as cash flow hedges and are deemed to be 100% effective and
thus the changes in the fair value of the swap agreements are recorded as a
separate component of shareholders equity and have no income statement impact.
At June 30, 2003 and 2002, the accumulated derivative loss recorded in Other
Comprehensive Income, net of deferred taxes, amounted to $86,000 and $392,000,
respectively. The swaps mature on December 1, 2005.





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8.   CHANGE IN ACCOUNTING PRINCIPLE

On January 1, 2002 Midland adopted SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 changed the accounting for goodwill from an amortization
method to the impairment approach. Upon the adoption of the statement, Midland
ceased amortizing goodwill, including goodwill recorded from past business
combinations. As a result of the impairment test, Midland recorded an
impairment charge of $1,463,000 (net of tax), or $0.08 per share (diluted), in
the quarter ended March 31, 2002. This charge is reported separately in
Midlands statement of operations as a Cumulative Effect of Change in
Accounting Principle. The fair value of that reporting unit was estimated
using the expected present value of future cash flows. There were no
additional impairment charges incurred in the three months ended June 30, 2002.
At June 30, 2003, Midlands remaining goodwill balance, all of which is
attributable to the Other Insurance segment, was $2,145,000.

9.   NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in
April 2003 and SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, in May 2003. The adoption of
SFAS Nos. 149 and 150 did not have a material impact on Midlands consolidated
financial position or results of operations.

On July 1, 2003, Midland adopted the provisions of FASB Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities. This interpretation
requires variable interest entities to be consolidated by the primary
beneficiary which represents the enterprise that will absorb the majority of
the variable interest entities expected losses if they occur, receive a
majority of the variable interest entities residual returns if they occur, or
both. Midland has a synthetic lease arrangement for certain transportation
equipment in which Midland will be deemed to be the primary beneficiary as the
registrant maintains the majority of the variable interests in this leased
asset. Upon the adoption of FIN 46, the company will consolidate this
operating lease asset and record a corresponding liability of approximately
$2,000,000. Midland is continuing to refine its analysis of this transaction
and the final adjustment to be recorded in the third quarter of 2003 may be
subject to change; however, such change, if any, is not expected to be
material.





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ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements made in this report are forward-looking and are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These statements include certain discussions relating to future
revenue, underwriting income, premium volume, investment income and other
investment results, business strategies, profitability, liquidity, capital
adequacy, anticipated capital expenditures and business relationships, as well
as any other statements concerning the year 2003 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, 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.

INTRODUCTION

The discussions of Results of Operations and Liquidity, Capital Resources
and Changes in Financial Condition address our three reportable segments,
which are manufactured housing insurance, all other insurance products and
services and transportation. A summary description of the operations of each
of these segments is included below.

Our specialty insurance operations are conducted through our wholly-owned
subsidiary, American Modern Insurance Group, Inc. (American Modern) which
controls six property and casualty insurance companies, two credit life
insurance companies, three licensed insurance agencies and three service
companies. American Modern is licensed, through its subsidiaries, to write
insurance premiums in all 50 states and the District of Columbia.
Approximately 50% of American Moderns property and casualty and credit life
gross written premium relates to physical damage insurance and related
coverages on manufactured homes, generally written for a term of 12 months with
many coverages similar to homeowners insurance policies. All other insurance
products and services include other specialty insurance products such as
site-built dwelling, motorcycle, watercraft, recreational vehicle, extended
service contract, mortgage fire, collateral protection, credit life, long-haul
truck physical damage, commercial, excess and surplus lines and also includes
the results of our fee producing subsidiaries.

M/G Transport Services, Inc. and MGT Services, Inc. (collectively M/G
Transport) operates a fleet of dry cargo barges for the movement of dry bulk
commodities such as petroleum coke, ores, barite, sugar and other dry cargoes
primarily on the lower Mississippi River and its tributaries.

OVERVIEW OF RECENT TRENDS

Motorcycle

In the second half of 2000, American Modern acquired the motorsport book
(motorcycle and, to a lesser extent, snowmobile and watercraft) from GuideOne
Insurance Company. As a result of this acquisition, motorcycle gross written
premium contributed significantly to American Moderns overall growth in 2001
and 2002 and this growth continued in 2003, although at a more modest rate.
Management believes that the underwriting results of the motorcycle product
have been less than expected, due partly to product positioning, inadequate
rate levels and higher than expected losses. As a result, rate increases of
20-25% are being sought in 2003 and more stringent underwriting is being
applied to the motorcycle product.





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In the second quarter of 2003, motorcycle gross written premium increased 0.6%
to $22.3 million from $22.1 million in the second quarter of 2002. Net earned
premium related to the motorcycle product increased 29.4% to $15.0 million in
the second quarter of 2003 from $11.6 million in the prior years second
quarter. The motorcycle loss ratio in the second quarter of 2003 was 86.7%
compared to 61.5% in the prior years second quarter.

On a year-to-date basis, motorcycle gross premium written increased 1.7% to
$37.3 million in the first six months of 2003 from $36.6 million in the first
half of 2002. Net earned premium increased 36.2% to $28.9 million in the first
half of 2003 from $21.2 million in the prior years first six months. The
motorcycle loss ratio in the first six months of 2003 was 73.4% compared to
54.2% in the first half of 2002.

Site-Built Dwelling

During the third quarter of 2002, American Modern de-emphasized its standard
homeowner programs in favor of its dwelling fire programs which have more
restrictive coverages. American Modern undertook a careful review of all of
its site-built dwelling programs with the intent of targeting those properties
that fell outside the parameters of the standard homeowners insurance market.
As a result of these actions, American Modern is achieving positive growth from
its dwelling fire programs while experiencing the intended decrease in
homeowner programs. More specifically, dwelling fire gross written premium
increased 77.0% to $15.8 million in the second quarter of 2003 from $8.9
million in the second quarter of 2002. On a year-to-date basis, the dwelling
fire product increased 82.3% to $30.0 million in the first six months of 2003
compared to $16.4 million in the prior years first half. Conversely, the
homeowner gross written premium decreased 57.9% to $4.5 million in the second
quarter of 2003 from $10.6 million in the second quarter of 2002. On a
year-to-date basis, homeowner gross written premium decreased 46.5% to $9.8
million from $18.2 million in the prior years first half.

Manufactured Housing Premium

Manufactured homes have historically represented approximately one out of every
five new single family housing starts in the United States. The industry
became over built during the period between 1997 and 1999 as credit became
readily available. New manufactured home sales were slower than historical
averages during 2002 and shipments in 2003 are expected to be approximately 10%
to 20% below 2002 levels. As a result, during the past several years American
Modern has experienced a decrease in its manufactured housing insurance premium
volume due to a decline in the premium generated through its point of sale
channel of distribution coupled with American Moderns decision to terminate
unprofitable business. American Modern was approved for rate increases in 2002
and is continuing to seek rate increases for this product in 2003. As a result
of these rate increases, the manufacturing housing gross written premium
increased 8.9% to $85.2 million in the second quarter of 2003 from $78.2
million in the second quarter of 2002. On a year-to-date basis, gross written
premium related to the manufacturing housing product increased 6.5% to $158.2
million in the first six months of 2003 from $148.6 million in the first half
of 2002.

Other Products

Other products include watercraft, snowmobile, recreational vehicle, physical
damage on long-haul trucks, extended service contracts, collateral protection,
mortgage fire and excess and surplus lines. The growth in American Moderns
other property and casualty specialty insurance products has also contributed
to American Moderns overall growth in recent years as well as in 2003. During
the second quarter of 2003, gross written premium from American Moderns other
property and casualty insurance products increased collectively 31.3% to $53.2
million in the second quarter of 2003 from $40.5 million during the prior
years second quarter. On a year-to-date basis, gross written premium from
other property and casualty insurance products collectively increased 28.3% to
$91.0 million in the first six months of 2003 from $70.9 million in the first
half of 2002. The watercraft and excess and surplus lines products are
primarily driving this growth. The gross written premium from these two
products collectively increased 106.2% to $18.6 million in the second quarter
of 2003 from $9.0 million in the second quarter of 2002. On a year-to-date
basis, the watercraft and excess and surplus lines products collectively
increased 111.6% to $27.3 million in the first six months of 2003 from $12.9
million in the first half of 2002.





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Rate Increases

Over the past 18 months, we have been approved for and are implementing
nationwide rate increases in our manufactured housing products. The majority
of these increases, which have averaged between nine and ten percent, were
approved as of December 31, 2002. We have also received approval for, and are
implementing rate increases in many of our other major product lines. In 2003,
American Modern is filing for single digit rate increases in its manufactured
housing products and for double digit increases in several of its other
products. As previously mentioned, rate increases of approximately 20% to 25%
related to the motorcycle product are being sought countrywide in 2003,
however, these rate increases are expected to have minimal impact on earned
premium in 2003.

Fire Loss Ratio

American Modern experienced higher than normal levels of losses caused by fire
in its manufactured housing and site-built lines during the second half of 2000
and continuing through most of 2001 and 2002. It is American Moderns
experience that the fire loss ratio increases during economic downturns. In
response to this trend, American Modern began aggressively pursuing rate
increases in its manufactured housing products and site-built programs in 2002
and is continuing to apply for rate increases in 2003. During the second
quarter of 2003, the manufactured housing and site-built fire loss ratios
decreased to normal levels.

Changing Mix of American Moderns Distribution Channels

Over the past 12-24 months, American Modern has experienced a significant
increase in the percentage of its gross written premium generated through its
agency channel driven by its growth in motorcycle and site-built dwelling
premium and also due to American Moderns successful conversion of agency books
of business to American Modern from other insurance companies. Also during
this time frame, American Moderns premium volume generated by its lender and
point of sale channels decreased as a result of the slowdown in new
manufactured housing sales and the decision to terminate certain unprofitable
books of business.

Shift Away from Chattel Financing

Manufactured housing sales have traditionally been financed as personal
property through a financing transaction referred to as chattel financing.
Several large chattel lenders over the past 12-24 months have ceased, or
substantially reduced, lending for manufactured housing. As a result,
manufactured housing sales have slowed and there has been a shift to more
traditional mortgage loan financing on manufactured homes. American Modern has
or had relationships with several of the chattel lenders who reduced their
lending or exited this market. This, coupled with American Moderns decision
to terminate certain unprofitable business in the lender channel, has resulted
in a decrease in the amount of premium volume American Modern has generated
through its lender channel.

OVERVIEW OF PROPERTY AND CASUALTY UNDERWRITING RESULTS

For the second quarter, American Moderns property and casualty combined ratio
(losses and expenses as a percent of earned premium) was 111.2 percent,
compared with 100.8 percent a year
ago. Catastrophe losses during the second quarter of 2003 had a 12.7 point
impact on the combined ratio, compared with a 5.9 point catastrophe impact a
year ago.

Our second quarter results were lower due to three primary reasons: weather
related catastrophes, an up-tick in commercial liability losses and above
normal losses in our motorcycle line.

Storms and tornadoes in April and May pushed weather-related catastrophe losses
to $19.5 million (pre-tax) compared to a second quarter historical average of
approximately $10 million (pre-tax).

American Modern experienced a higher level of losses related to its previously
exited commercial liability programs during the second quarter. These losses
impacted our second quarter results by approximately 15 cents per share (after
tax) and added approximately 2.9 percentage points to the quarterly property
and casualty combined ratio. This is the first quarter since we made the
decision to exit these product lines that we have experienced unfavorable
results of any magnitude. As a result, we did strengthen the reserves
associated with this line during the second quarter.





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Results from the motorcycle book also impacted profitability as the company
continues to work to attain rate adequacy in that line. The loss ratio for
this line of business was 10 to 12 percentage points above our full year
targeted loss ratio through the first six months. This variance from target
had the effect of adding approximately 2.0 percentage points to the quarterly
property and casualty combined ratio. American Modern is seeking rate
increases and is also modifying the motorcycle product to enhance profitability
in that relatively new line. The rate increases are just now beginning to take
effect and are the first meaningful increases the company has been able to
attain in two years due to the timing of our entry into the market and the
conversion of the business to our system. Management believes that the
beneficial impact on earnings from our rate actions will be fully realized over
the next 12 to 24 months.

Reclassification of Policy Service Fees

American Modern charges a service fee to those policyholders who elect to pay
their insurance premium in installments. Historically, American Modern treated
these fees as a recovery of processing costs and accounted for the fees as an
offset to the related operating expense. American Modern has reclassified these
fees as revenues for reporting purposes. This change has no impact on net
income, however, the change will add 1.3 percentage points to the year-to-date
and quarterly combined ratio of the property and casualty operations. On a
pre-tax basis, these fees amounted to $2.0 million and $1.7 million in the
second quarter of 2003 and 2002, respectively, and $3.9 million and $3.2
million in the first six months of 2003 and 2002, respectively. All prior
period data have been reclassified to conform to the current method of
presenting these policy service fees.

RESULTS OF OPERATIONS

Insurance

Overview of Premium Volume

The following chart shows American Moderns gross written premium, net written
premium and net earned premium by business segment for the three and six-month
periods ended June 30, 2003 and 2002 ($000):

|                                  |                                              |         |      |                                  |         |   |                                  |         |       |        |         |      |         |         |      |         |         |   |        |      |       |   |      |      |       | 
|--------------------------------- | -------------------------------------------- | ------- | ---- | -------------------------------- | ------- | - | -------------------------------- | ------- | ----- | ------ | ------- | ---- | ------- | ------- | ---- | ------- | ------- | - | ------ | ---- | ----- | - | ---- | ---- | ----- | 
|                                  |                                              |         |      | Three Months Ended June 30, 2003 |         |   | Three Months Ended June 30, 2002 |        
|                                  |                                              |         |      |                                  |         |   |                                  |        
|                                  |                                              |         |      | Gross                            |         |   | Net                              |         |       | Net    |         |      | Gross   |         |      | Net     |         |   | Net    |     
|                                  |                                              |         |      | Written                          |         |   | Written                          |         |       | Earned |         |      | Written |         |      | Written |         |   | Earned |     
|Business Segment                  |                                              | Premium |      |                                  | Premium |   |                                  | Premium |       |        | Premium |      |         | Premium |      |         | Premium |  
|                                  |                                              |         |      |                                  |         |   |                                  |         |       |        |         |      |         |         |      |         |         |  
|Manufactured Housing              |                                              | $       | 85.2 |                                  |         | $ | 79.8                             |         |       | $      | 81.4    |      |         | $       | 78.2 |         |         | $ | 75.0   |      |       | $ | 81.3 |     
|All Other Insurance and Services: |                                              |         |      |                                  |         |   |                                  |         |       |        |         |      |         |         |      |         |         |   |        |      |       |   |      |     
|                                  | Other Property & Casualty
Specialty Products |         |      | 95.7                             |         |   |                                  | 90.8    |       |        |         | 72.6 |         |         |      | 82.2    |         |   |        | 79.0 |       |   |      | 56.8 |      
|                                  | Life Operations                              |         |      | 2.8                              |         |   |                                  | 1.7     |       |        |         | 3.2  |         |         |      | 15.0    |         |   |        | 2.9  |       |   |      | 2.9  |      
|                                  |                                              |         |      |                                  |         |   |                                  |         |       |        |         |      |         |         |      |         |         |  
|                                  |                                              | Total   |      | $                                | 183.7   |   |                                  | $       | 172.3 |        |         | $    | 157.2   |         |      | $       | 175.4   |   |        | $    | 156.9 |   |      | $    | 141.0 | 
|                                  |                                              |         |      |                                  |         |   |                                  |         |       |        |         |      |         |         |      |         |         |  

|                                  |                                              |         |       |                                |         |   |                                |         |       |        |         |       |         |         |       |         |         |   |        |       |       |   |       |       |       | 
|--------------------------------- | -------------------------------------------- | ------- | ----- | ------------------------------ | ------- | - | ------------------------------ | ------- | ----- | ------ | ------- | ----- | ------- | ------- | ----- | ------- | ------- | - | ------ | ----- | ----- | - | ----- | ----- | ----- | 
|                                  |                                              |         |       | Six Months Ended June 30, 2003 |         |   | Six Months Ended June 30, 2002 |        
|                                  |                                              |         |       |                                |         |   |                                |        
|                                  |                                              |         |       | Gross                          |         |   | Net                            |         |       | Net    |         |       | Gross   |         |       | Net     |         |   | Net    |      
|                                  |                                              |         |       | Written                        |         |   | Written                        |         |       | Earned |         |       | Written |         |       | Written |         |   | Earned |      
|Business Segment                  |                                              | Premium |       |                                | Premium |   |                                | Premium |       |        | Premium |       |         | Premium |       |         | Premium |  
|                                  |                                              |         |       |                                |         |   |                                |         |       |        |         |       |         |         |       |         |         |  
|Manufactured Housing              |                                              | $       | 158.2 |                                |         | $ | 149.5                          |         |       | $      | 163.8   |       |         | $       | 148.6 |         |         | $ | 141.6  |       |       | $ | 162.1 |      
|All Other Insurance and Services: |                                              |         |       |                                |         |   |                                |         |       |        |         |       |         |         |       |         |         |   |        |       |       |   |       |      
|                                  | Other Property & Casualty
Specialty Products |         |       | 168.0                          |         |   |                                | 158.3   |       |        |         | 140.3 |         |         |       | 142.2   |         |   |        | 135.9 |       |   |       | 109.7 |      
|                                  | Life Operations                              |         |       | 5.5                            |         |   |                                | 3.0     |       |        |         | 6.4   |         |         |       | 29.4    |         |   |        | 5.8   |       |   |       | 5.6   |      
|                                  |                                              |         |       |                                |         |   |                                |         |       |        |         |       |         |         |       |         |         |  
|                                  |                                              | Total   |       | $                              | 331.7   |   |                                | $       | 310.8 |        |         | $     | 310.5   |         |       | $       | 320.2   |   |        | $     | 283.3 |   |       | $     | 277.4 | 
|                                  |                                              |         |       |                                |         |   |                                |         |       |        |         |       |         |         |       |         |         |  

Manufactured Housing

Although the manufactured housing industry continues to be depressed, American
Moderns gross written premium related to this product increased 8.9% and 6.5%
in the second quarter and first half, respectively, of 2003 compared to the
comparable periods in 2002. These increases are the result of rate increases
approved in 2002 which were partially offset by a decline in in-force policies.
The rate increases averaged nine to ten percent on the manufactured housing
product





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##### Table of Contents



Manufactured housing losses increased in the second quarter and first half of
2003 as compared to the same periods in 2002 due primarily to higher than
normal catastrophe losses in the second quarter of 2003. These unusually heavy
losses were the result of the severe storms which ravaged the United States
during the second quarter of 2003. Even with significantly higher catastrophe
losses in 2003, the manufactured housing combined ratio for the first six
months of 2003 is favorable at 97.1% which is comparable to the 2002 combined
ratio.

Losses and loss adjustment expenses are discussed further for the total
insurance segment. Several other items, such as investment income, are
allocated to product lines, but are more meaningfully discussed in total and
have been included in the sections that follow.

All Other Insurance

Gross written premiums in American Moderns other specialty property and
casualty products (non-manufactured housing products) collectively increased
16.4% in the second quarter of 2003 compared to the prior years second
quarter. On a year-to-date basis, American Moderns other specialty property
and casualty products collectively increased 18.1% compared to the first six
months of 2002. The primary drivers of this growth in the second quarter and
first half of 2003 were the watercraft and excess and surplus lines products.

The decrease in the credit life gross written premium is due to industry
regulatory actions which mandate a monthly pay product on real estate secured
loans rather than a single premium. This change affects gross written premium
which decreased 81.5% and 81.2% during the second quarter and first half of
2003, respectively. The change is expected to have little impact on net earned
premium. During the second quarter and first half of 2003, credit life net
earned premium actually increased 12.6% and 15.2%, respectively. A large
percentage of our credit life business is ultimately ceded back to an insurance
affiliate of the producing agent.

Other insurance income increased $0.3 million and $0.7 million in the second
quarter and first half, respectively, of 2003 compared to the comparable
periods in 2002. These increases were due to the increases in fee income
related to property and casualty installment premium payments.

Insurance Investment Income and Realized Capital Gains

American Moderns net investment income decreased $0.7 million to $8.0 million
in the second quarter of 2003 from $8.7 million in the second quarter of 2002.
On a year-to-date basis, net investment income decreased $1.0 million to $16.4
million in the first six months of 2003 from $17.4 million in the first half of
2002. These decreases are due to lower reinvestment rates relative to American
Moderns fixed income portfolio. The annualized pre-tax investment yield, on a
cost basis, of American Moderns fixed income portfolio was 5.7% in the first
six months of 2003 compared to 6.5% during the first half of 2002.

Our realized investment gains and losses are comprised of three items; embedded
derivatives, other-than-temporary impairments and capital gains and losses from
the sale of securities.

After-tax income from embedded derivatives which are included (on a pre-tax
basis) in net realized capital gains (losses) amounted to $0.4 million, $0.02
per share (diluted), during the second quarter of 2003 compared to $0.5
million, $0.03 per share (diluted), in the prior years second quarter. On
year-to-date basis, after-tax income from embedded derivatives was a loss of
$(0.2) million, $(0.01) per share (diluted), during the first six months of
2003 compared to income of $0.2 million, $0.01 per share (diluted) during the
comparable period in 2002.

Also included in net realized capital (losses) in the first six months of 2003
were after-tax losses of $(1.2) million, $(0.07) per share (diluted), resulting
from the write-down (other-than-temporary impairment) of several lower rated
securities in American Moderns investment portfolio. There were no impairment
losses in either the second quarter of 2003 or 2002 nor the first half of 2002.

Excluding the impact of derivative and impairment losses, American Moderns
after-tax net realized capital gains increased to $1.4 million, $0.08 per share
(diluted), in the second quarter of 2003 from a loss of $(1.2) million, $(0.06)
per share (diluted), in the second quarter of 2002. On a year-to-date basis,
after-tax realized capital gains increased to $2.1 million, $0.12 per share
(diluted), from a loss of $(1.1) million, $(0.06) per share (diluted), in the
first half of 2002.





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##### Table of Contents



Insurance Losses and Loss Adjustment Expenses (LAE)

American Moderns losses and loss adjustment expenses in the second quarter of
2003 increased 37.3% to $113.4 million from $82.6 million in the prior years
second quarter. This increase was due to significant increases in catastrophe
losses coupled with premium growth and increased losses from the motorcycle and
discontinued commercial lines products. Catastrophe losses on a pre-tax basis
increased $11.4 million in the second quarter of 2003 to $19.5 million from
$8.2 million in the second quarter of 2002. These losses were primarily from
the severe spring storms which occurred in the second quarter of 2003. Losses
from the motorcycle and discontinued commercial lines products increased $5.9
million and $2.0 million, respectively, in the second quarter of 2003 compared
to the comparable period in 2002. American Moderns property and casualty loss
ratio was 72.8% in the second quarter of 2003 compared to 58.7% in the second
quarter of 2002.

On a year-to-date basis, American Moderns losses and loss adjustment expenses
increased 26.2% from $152.2 million in 2002 to $192.1 million in 2003. This
increase was driven by premium growth plus significant increases in catastrophe
losses, motorcycle losses and losses associated with the commercial lines
product which American Modern exited in 2001. Catastrophe losses increased
$12.3 million from $11.4 million in the first half of 2002 to $23.7 million in
the current period. These catastrophe losses added 7.8 percentage points to
the loss ratio compared to 4.2 percentage points in the year ago period.
Motorcycle losses increased $9.7 million in the first six months of 2003
compared to the first half of 2002.

Insurance Commissions, Other Policy Acquisition Costs and Operating and
Administrative Expenses

American Moderns commissions and other policy acquisition costs and operating
and administrative expenses were comparable in the second quarter of 2003
compared to the second quarter of 2002. Increased costs due to premium growth
were offset by decreases in contingent commission expense and other operating
and administrative expenses.

On a year-to-date basis, commissions and other policy acquisition costs and
operating and administrative expenses increased 4.2% to $129.9 million in the
first half of 2003 from $124.7 million in the comparable year ago period. This
increase was due to the increase in net earned premium offset by a decrease in
the rate of commissions, and, in legal, incentive and system development costs.

TRANSPORT

M/G Transport, Midlands transportation subsidiary, reported revenues for the
second quarter of 2003 of $7.0 million compared to $5.5 million in the second
quarter of 2002. Pre-tax income increased to $0.3 million in the second
quarter of 2003 from $0.2 million in the prior years second quarter.

M/G Transports year-to-date revenues increased to $12.8 million in the first
half of 2003 from $11.4 million in the year ago first six months. Pre-tax
income improved to a profit of $0.3 million in the first half of 2003 compared
to a pre-tax loss of $(0.2) million in the prior years first half.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

Consolidated Operations

We have certain obligations and commitments to make future payments under
contracts. As of June 30, 2003, the aggregate obligations (excluding the $2.8
million of future commitments relating to barge acquisitions as discussed
below) on a consolidated basis were (amounts in 000s):

|                                               |       |   |        |        |  |        |                        |        |       |     |        |        |         |   |       |       | 
|---------------------------------------------- | ----- | - | ------ | ------ |  | ------ | ---------------------- | ------ | ----- | --- | ------ | ------ | ------- | - | ----- | ----- | 
|                                               |       |   |        |        |  |        | Payments Due by Period |       
|                                               |       |   |        |        |  |        |                        |       
|                                               |       |   |        |        |  |        | Less than              |        |       | 2-5 |        |        | After 5 |  
|                                               |       |   | Total  |        |  | 1 Year |                        |        | Years |     |        | Years  |        
|                                               |       |   |        |        |  |        |                        |        |       |     |        |        |        
|Long-term debt                                 |       | $ | 46,413 |        |  | $      | 1,186                  |        |       | $   | 45,227 |        |         | $ |      |      
|Other notes payable                            |       |   | 27,434 |        |  |        | 27,434                 |        |       |     |       |        |         |   |      |      
|Annual commitments under
non-cancelable leases |       |   | 7,401  |        |  |        | 823                    |        |       |     | 3,269  |        |         |   | 3,309 |      
|                                               |       |   |        |        |  |        |                        |        |       |     |        |       
|                                               | Total |   | $      | 81,248 |  |        | $                      | 29,443 |       |     | $      | 48,496 |         |   | $     | 3,309 | 
|                                               |       |   |        |        |  |        |                        |        |       |     |        |       





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##### Table of Contents



Other than the annual commitments under non-cancelable leases noted above,
there are no other material off-balance sheet obligations or guarantees except
for the guarantee by a wholly owned subsidiary of the company on the residual
value of certain transportation equipment in connection with a synthetic lease.
The maximum exposure related to this guarantee is capped at $0.8 million.

On June 17, 2002, we announced a two-for-one stock split effective July 17,
2002. Accordingly, data related to our common stock has been adjusted to
reflect the impact of this stock split.

On January 25, 2001 our Board of Directors approved an increase in the number
of shares authorized under our share repurchase program from 1,000,000 shares
to 2,000,000 shares on a post split basis. Ten thousand shares were
repurchased in the open market under our share repurchase program during the
first six months of 2003 and a total of 586,000 shares remain authorized for
repurchase under terms of this authority. There were additional stock
repurchase transactions consummated in connection with our associate stock
incentive programs during the first six months of 2003. On April 25, 2002, our
Board of Directors approved a two-year extension to the share repurchase
program that will run through the date of the Boards second quarterly meeting
in 2004. The resolution does not require us to repurchase our shares, but
rather gives management discretion to make purchases based on market conditions
and our capital requirements.

We paid dividends to our shareholders of $1.6 million during the first six
months of 2003, and $1.5 million during the first six months of 2002.

We expect that cash and other liquid investments, coupled with future operating
cash flows and our short-term borrowing capacity, will be readily available to
meet our operating cash requirements for the next 12 months.

Holding Company Operations

Midland and American Modern are holding companies which rely primarily on
dividends and management fees from subsidiaries to assist in servicing debt,
paying operating expenses and paying dividends to the respective shareholders.
The payment of dividends to these holding companies from American Moderns
insurance subsidiaries is restricted by state regulatory agencies. Such
restrictions, however, have not had, and are not expected to have, a
significant impact on our, or American Moderns, liquidity or our and American
Moderns ability to meet our respective long or short-term operating, financing
or capital obligations.

Midland has a commercial paper program under which qualified purchasers may
invest in the short-term unsecured notes of Midland. As of June 30, 2003, we
had $4.4 million of commercial paper debt outstanding, $3.8 million of which
represented notes held either directly or indirectly by our executive officers
and directors. The effective annual yield paid to all participants in this
program was 1.2% as of June 30, 2003, a rate that is considered to be
competitive with the market rates offered for similar instruments. As of June
30, 2003, Midland also had $75.0 million of conventional short-term credit
lines available at costs not exceeding prime borrowing rates, of which $23.0
million was outstanding. These lines of credit contain minimal covenants and
are typically drawn and repaid over periods ranging from two weeks to three
months. Additional short-term borrowing lines are available at the discretion
of various lending institutions with comparable rates and terms. These
short-term borrowings decreased $16.0 million from
$39.0 million since December 31, 2002. Proceeds derived from the reduction in
marketable securities were used to reduce these short-term borrowings. We also
have a mortgage obligation related to the financing of our corporate
headquarters building. As of June 30, 2003, the outstanding balance of this
mortgage was $16.1 million. This mortgage obligation includes normal and
customary debt covenants for instruments of this type. Monthly principal and
interest payments are required until maturity in December 2005. The effective
interest rate on this obligation is 6.8%.

Insurance

American Modern generates cash inflows primarily from insurance premium,
investment income, proceeds from the sale of marketable securities and
maturities of debt security investments. The principal cash outflows for the
insurance operations relate to the payment of claims, commissions, premium
taxes, operating expenses, capital expenditures, income taxes, dividends and
inter-company borrowings to us and the purchase of marketable securities. In
each of the periods presented, funds generated from the insurance operating
activities were used primarily to purchase investment grade marketable
securities, accounting for the majority of the cash used in investing
activities.





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##### Table of Contents



The market value of Midlands consolidated investment portfolio (comprised
primarily of the investment holdings of American Modern) increased 4.1% from
$739.8 million at December 31, 2002, to $770.0 million at June 30, 2003. This increase
was due to positive cash flow from operations in the first half of 2003 plus a
$25.6 million increase in the unrealized appreciation in the market value of
securities held. The increase in the unrealized appreciation was due to a $6.9
million increase in unrealized appreciation related to the fixed income
portfolio plus a $18.7 million increase in the unrealized appreciation related
to the equity portfolio. Midlands largest equity holding, 2.5 million shares
of U.S. Bancorp, increased to $60.3 million as of June 30, 2003 from $52.2
million as of December 31, 2002.

Securities with unrealized gains and losses by category (equity and debt) and
by time frame are summarized in the chart below:

Unrealized Gain (Loss) as of June 30, 2003

|                                                                        |                                |              |        |             |        |   |         |         |         |           |     |     |     | 
|----------------------------------------------------------------------- | ------------------------------ | ------------ | ------ | ----------- | ------ | - | ------- | ------- | ------- | --------- | --- | --- | --- | 
|                                                                        |                                |              |        | Unrealized  |        |   | Fair    |         |         | # of      |    
|                                                                        |                                |              |        | Gain (Loss) |        |   | Value   |         |         | Positions |    
|                                                                        |                                |              |        |             |        |   |         |         |         |           |    
|Fixed Income Securities                                                 |                                |              |        |             |        |   |         |         |         |           |     |    
|Total Held In A Gain Position                                           |                                | $            | 36,127 |             |        | $ | 548,815 |         |         |           | 591 |    
|Held In A Loss Position For Less Than 6 Months                          |                                |              | (543   | )           |        |   | 56,024  |         |         |           | 44  |    
|Held In A Loss Position For More Than 6 Months
And Less Than 12 Months  |                                |              | (233   | )           |        |   | 2,169   |         |         |           | 5   |    
|Held In A Loss Position For More Than 12 Months
And Less Than 18 Months |                                |              | (212   | )           |        |   | 1,349   |         |         |           | 3   |    
|Held In A Loss Position For More Than 18 Months                         |                                |              | (91    | )           |        |   | 976     |         |         |           | 5   |    
|                                                                        |                                |              |        |             |        |   |         |         |        
|Fixed Income Total                                                      |                                | $            | 35,048 |             |        | $ | 609,333 |         |         |           | 648 |    
|                                                                        |                                |              |        |             |        |   |         |         |        
|Equity Securities                                                       |                                |              |        |             |        |   |         |         |         |           |     |    
|Total Held In A Gain Position                                           |                                | $            | 68,940 |             |        | $ | 131,428 |         |         |           | 158 |    
|Held In A Loss Position For Less Than 6 Months                          |                                |              | (137   | )           |        |   | 4,448   |         |         |           | 19  |    
|Held In A Loss Position For More Than 6 Months
And Less Than 12 Months  |                                |              | (858   | )           |        |   | 8,121   |         |         |           | 36  |    
|Held In A Loss Position For More Than 12 Months
And Less Than 18 Months |                                |              | (1,383 | )           |        |   | 7,155   |         |         |           | 26  |    
|Held In A Loss Position For More Than 18 Months                         |                                |              | (278   | )           |        |   | 2,047   |         |         |           | 5   |    
|                                                                        |                                |              |        |             |        |   |         |         |        
|                                                                        |                                | Equity Total |        | $           | 66,284 |   |         | $       | 153,199 |           |     |     | 244 | 
|                                                                        |                                |              |        |             |        |   |         |         |        
|                                                                        | Total Per Above                |              | $      | 101,332     |        |   | $       | 762,532 |         |           |     | 892 |    
|                                                                        | Accrued Interest and Dividends |              |        |             |        |   |         | 7,479   |         |           |     |     |    
|                                                                        |                                |              |        |             |        |   |         |         |         |          
|                                                                        | Total Per Balance Sheet        |              | $      | 101,332     |        |   | $       | 770,011 |         |           |     |     |    
|                                                                        |                                |              |        |             |        |   |         |         |         |          

Based on the above valuations and the application of our other-than-temporary
impairment policy criteria, which is more fully discussed in the Critical
Accounting Policies section below, we believe the declines in fair value are
temporary at June 30, 2003. However, the facts and circumstances related to
these securities may change in future periods, which would result in
other-than-temporary impairment in future periods.

The average duration of American Moderns debt security investment portfolio as
of June 30, 2003 was approximately 4.0 years which management believes provides
adequate asset/liability matching.





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##### Table of Contents



The amounts expended for the development costs capitalized in connection with
the development of modernLINK®, our proprietary information systems and web
enablement initiative, amounted to $1.2 million for the first six months of
2003. The initiative is being designed, developed and implemented in periodic
phases to ensure its cost effectiveness and functionality. The budget for this
project calls for future expenditures of $6.0 million to $7.0 million annually
over the next two to three years, with additional spending thereafter to expand
system compatibility and functionality. However, actual costs may be more or
less than what we estimate. The cost of the development and implementation is
expected to be funded out of operating cash flow. Significant changes to the
technology interface between American Modern and its distribution channel
participants and policyholders, while unlikely, could significantly disrupt or
alter its distribution channel relationships. If the new information systems
are ultimately deemed ineffective, it could result in an impairment charge to
our capitalized costs.

American Modern has a $60.0 million long-term credit facility available on a
revolving basis at various rates. As of June 30, 2003, there was $30.0 million
outstanding under these facilities.

During the first quarter of 2002, American Modern entered into an interest rate
swap agreement with a consortium of three banks. Under the terms of this
agreement, the floating interest rate related to $30.0 million outstanding
under American Moderns long-term credit facility has been effectively fixed at
5.6% until December 1, 2005, the maturity date. The fair value of this
agreement as of June 30, 2003 was $(2.1) million and is included in other
payables and accruals.

Accounts receivable is primarily comprised of premium due from both
policyholders and agents. In the case of receivables due directly from
policyholders, policies are cancelable in the event of non-payment and thus
offer minimal credit exposure. Approximately 76% of American Moderns accounts
receivables relate to premium due directly from policyholders as of June 30,
2003. In the case of receivables due from agents, American Modern has extended
payment terms that are customary and normal in the insurance industry.
Management monitors its credit exposure with its agents and related
concentrations on a regular basis. However, as collectibility of such
receivables is dependent upon the financial stability of the agent, American
Modern cannot assure collections in full. Where management believes
appropriate, American Modern has provided a reserve for such exposures. Since
December 31, 2002, American Moderns accounts receivable has increased $7.1
million to $86.8 million as of June 30, 2003 due to the continued growth in
insurance premiums written. American Moderns receivable balance from its
largest customer, GreenTree (formerly Conseco Agency, Inc.), decreased from
$11.1 million as of December 31, 2002 to $9.0 million as of June 30, 2003.
Conseco Agency filed for Chapter 11 bankruptcy on January 31, 2003, following
the Chapter 11 filing of its parent company on December 18, 2002. Conseco
Agency and the assets and certain liabilities including those to American
Modern of Conseco Finance Company were part of an auction that was completed in
March 2003. The final sale has now been consummated. GreenTree continued to
generate insurance premiums from policy renewals in the first half of 2003,
American Modern continues to do business as usual with respect to these
insurance premiums. The GreenTree receivable is current at June 30, 2003 and
we anticipate collecting this receivable in its entirety. If American Modern
were unable to collect the amounts due to it from GreenTree, our financial
condition and results would be negatively impacted.

Reinsurance recoverables and prepaid reinsurance premium decreased to $69.1
million at June 30, 2003 from $76.6 million at December 31, 2002. Of the $69.1
million, $3.5 million was currently due from reinsurers for claims paid and for
which a contractual obligation to collect from a reinsurer exists. This
decrease was primarily due to a $7.2 million decrease in ceded unearned
premium. This fluctuation was due to a $10.7 million decrease in ceded
unearned premium related to American Moderns life operations which resulted
from the transition to a monthly pay premium from a single pay premium and was
offset by a $3.5 million increase in ceded unearned premium related to American
Moderns property and casualty operations. As previously discussed, a large
percentage of the life business is ultimately ceded back to an insurance
affiliate of the producing agent.

The increase in insurance loss reserves since December 31, 2002 is attributable
to the heavy property and casualty losses incurred in the second quarter of
2003.

The $8.9 million increase in deferred federal income tax since December 31,
2002 is due to the increase in the unrealized gain on marketable securities.

Cash flow from the insurance operations is expected to remain sufficiently
positive to meet American Moderns future operating requirements and to provide
for reasonable dividends to Midland.





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##### Table of Contents



Transportation

M/G Transport generates its cash inflows primarily from affreightment revenue.
Its primary outflows of cash relate to the payment of barge charter costs, debt
service obligations, operating expenses, income taxes, dividends to Midland and
the acquisition of capital equipment. Like the insurance operations, cash flow
from the transportation subsidiaries is expected to remain sufficiently
positive to meet future operating requirements.

The transportation subsidiaries entered into a seven-year lease in 2000 and a
fifteen-year lease in 1999 for transportation equipment. Aggregate rental
payments under these two operating leases over the next twelve years will
approximate $7.3 million. M/G Transport has committed to acquire 30 new barges
in 2003. Nineteen of these barges were purchased in the second quarter of 2003
at a total cost of $4.7 million and were financed by internally generated funds
and intercompany advances. The remaining 11 barges are scheduled to be
acquired in the third quarter of 2003 at a cost of $2.8 million. Upon delivery
of all 30 barges, M/G Transport will finance the acquisition through a
combination of internally generated funds and external borrowings. As of June
30, 2003, the transportation subsidiaries had $0.4 million of collateralized
equipment obligations outstanding.

OTHER MATTERS

Comprehensive Income

The only differences between our net income and comprehensive income is the net
after-tax change in unrealized gains on marketable securities and the after-tax
change in the fair value of the interest rate swap agreement. For the three
and six-month periods ended June 30, 2003 and 2002, such changes increased or
(decreased), net of related income tax effects, by the following amounts
(amounts in 000s):

|                                       |       |      |                             |        |      |                           |       |      |  |   |        |        |  |   |       |       | 
|-------------------------------------- | ----- | ---- | --------------------------- | ------ | ---- | ------------------------- | ----- | ---- |  | - | ------ | ------ |  | - | ----- | ----- | 
|                                       |       |      | Three Months Ended June 30, |        |      | Six Months Ended June 30, |      
|                                       |       |      |                             |        |      |                           |      
|Changes in:                            |       | 2003 |                             |        | 2002 |                           |       | 2003 |  |   | 2002   |       
|                                       |       |      |                             |        |      |                           |       |      |  |   |        |       
|Net unrealized capital gains           |       | $    | 18,963                      |        |      | $                         | 1,098 |      |  | $ | 16,620 |        |  | $ | 1,488 |      
|Fair value of interest rate swap hedge |       |      | (67                         | )      |      |                           | (552  | )    |  |   | (86    | )      |  |   | (392  | )    
|                                       |       |      |                             |        |      |                           |       |      |  |   |        |        |  |   |      
|                                       | Total |      | $                           | 18,896 |      |                           | $     | 546  |  |   | $      | 16,534 |  |   | $     | 1,096 | 
|                                       |       |      |                             |        |      |                           |       |      |  |   |        |        |  |   |      

For the six months ended June 30, 2003 and 2002, net unrealized gains (net of
income tax effects) in equity securities increased (decreased) by $12.1 million
and $(0.4) million, respectively. For fixed income securities, the net
unrealized gains increased by $4.5 million and $1.9 million, respectively, for
the same time periods.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that affect the
reported amounts of assets, revenues and expenses and related disclosures of
contingent assets and liabilities. We regularly evaluate our critical
accounting policies, assumptions and estimates, including those related to
insurance revenue and expense recognition, loss reserves, reinsurance levels
and valuation and impairment of intangible assets such as goodwill. We base our estimates on
historical experience and on various assumptions that we believe to be
reasonable under the circumstances. This process forms the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following critical accounting policies require significant
judgments and estimates in the preparation of our consolidated financial
statements.





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##### Table of Contents



Insurance Revenue and Expense Recognition

Premium for physical damage and other property and casualty related coverages,
net of premium ceded to reinsurers, are recognized as income on a pro-rata
basis over the lives of the policies. Credit accident and health and credit
life premiums are recognized as income over the lives of the policies in
proportion to the amount of insurance protection provided. American Modern
generally does not consider anticipated investment income in determining
premium deficiencies (if any) on short-term contracts. Policy acquisition
costs, primarily commission expenses and premium taxes, are capitalized and
expensed over the terms of the related policies on the same basis as the
related premium are earned. Selling and administrative expenses that are not
primarily related to premium written are expensed as incurred.

Reserves for Insurance Losses

American Moderns reserve for insurance losses is based on past experience of
settling known claims as well as estimating those not yet reported. While
management believes the amounts are fairly stated, the ultimate liability, once
fully developed, may be more than or less than that provided. Management and
its actuaries, both internal and external, regularly review these liabilities
and adjustments are made as necessary in the current period. Management does
not foresee any significant change in the manner in which it records its
reserve for insurance losses.

Reinsurance Risks

By reinsuring certain levels and types of insurable risk with other insurance
companies, American Modern limits its exposure to losses to that portion of the
insurable risk it retains. However, if the reinsurer fails to honor its
obligations, American Modern could suffer additional losses as the reinsurance
contracts do not relieve American Modern of its obligations to policyholders.
American Modern regularly evaluates the financial condition of its reinsurers
to minimize its exposure to losses from reinsurer insolvencies. In addition,
American Modern may require reinsurers to establish trust funds and maintain
letters of credit to further minimize American Moderns exposure. We do not
believe there is any significant concentration of credit risk arising from any
single reinsurer. We expect that American Moderns reinsurers will satisfy
their obligations. As of June 30, 2003, American Modern was owed $3.5 million
from reinsurers for claims that have been paid and for which a contractual
obligation to collect from a reinsurer exists.

Other Than Temporary Impairment

American Modern invests in various securities including U.S. Government
securities, corporate debt securities, and corporate stocks. Investment
securities in general are exposed to various risks such as interest rate,
credit, and overall market volatility. Due to the level of risk associated
with these securities, it is reasonably possible that changes in the value of
investment securities will occur in the near term and that such changes could
be material.

In order to evaluate for other-than-temporary impairment, we conduct quarterly
comprehensive reviews of individual portfolio holdings that have a market value
less than their respective costs. As part of our review for
other-than-temporary impairment, we track the respective cost and market values
for all individual portfolio holdings with an unrealized loss. For securities
where the market value is less than 80% of cost, we
more closely monitor for signs of other-than- temporary impairment. We, with
the assistance of our external professional money managers, apply both
quantitative and qualitative criteria in our evaluation, including facts
specific to each individual investment such as, but not limited to, the length
of time the fair value has been below the cost, the extent of the decline, our
intent to sell or hold the security, the expectation for each individual
securitys performance, the credit worthiness and related liquidity of the
issuer and the issuers business sector.

The evaluation for other-than-temporary impairment requires a significant
amount of judgement. As such, there are a number of risks and uncertainties
inherent in the process of monitoring impairments and determining if a decline
is other-than-temporary. These risks and uncertainties include the risks that:

1. The economic outlook is worse than anticipated and has a greater adverse
impact on a particular issuer than anticipated.

2. Our assessment of a particular issuers ability to meet all of its
contractual obligations changes based on changes in the facts and circumstances
related to the issuer.





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##### Table of Contents



3. New information is obtained or facts and circumstances change that cause a
change in our ability or intent to hold a security to maturity or until it
recovers in value.

When a security is considered other-than-temporarily impaired, we monitor
trends or circumstances that may impact other material investments in our
portfolio. For example, we review any other securities that are held in the
portfolio from the same issuer and also consider any circumstances that may
impact other securities of issuers in the same industry. At June 30, 2003, we
had no significant concentration of unrealized losses in any one issuer,
industry or sector.

For fixed income and equity securities, we consider the following factors,
among others, to determine if a security is other-than-temporarily impaired:



| |  | the extent and duration to which market value is less than cost                                                                                                                                                                             
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | historical operating performance                                                                                                                                                                                                            
| 
| |  | issuer news releases, including those disclosing that the issuer has committed an event of
default (missed payment beyond grace period, bankruptcy filing, loss of principle customer
or supplier, debt downgrade, disposal of segment, etc.
| 
| |  | near term prospects for improvement of the issuer and/or its industry to include relevant
industry conditions and trends                                                                                                                    
| 
| |  | industry research and communications with industry specialists                                                                                                                                                                              
| 
| |  | third party research reports                                                                                                                                                                                                                
| 
| |  | credit rating reports                                                                                                                                                                                                                       
| 
| |  | financial models and expectations                                                                                                                                                                                                           
| 
| |  | discussions with issuers management by investment manager                                                                                                                                                                                  
| 
| |  | our ability and intent to hold the investment for a period of time sufficient to allow for
any anticipated recovery                                                                                                                         
| 
| |  | time to conversion with respect to a mandatory convertible security                                                                                                                                                                         

For fixed income securities, we also consider the following factors:



| |  | whether the unrealized loss is credit-driven or is a result of changes in market interest
rates
|- |  | -----------------------------------------------------------------------------------------------
| 
| |  | the recoverability of principle and interest                                                   
| 
| |  | the issuers ability to continue to obligated payments to security holders                     

The investment portfolio is comprised of various asset classes which are
independently managed by external professional portfolio managers under the
oversight and guidelines established by our investment committee. We evaluate
the performance of the portfolio managers relative to benchmarks we believe
appropriate given the asset class. Investment managers will manage the
portfolio under these guidelines to maximize the return on their investment
class. As part of their investment strategy, the investment managers will buy
and sell securities based on changes in the availability of, and the yield on,
alternative investments. Investment managers may also buy and sell investments
to diversify risk, attain a specific characteristic such as duration or credit
quality, rebalance or reposition the portfolio or for a variety of other
reasons.

It is our intent, and thus the intent of our investment managers, to hold
securities that have an unrealized gain or loss. For the securities with an
unrealized loss, which in our judgement we believe to be temporary, it is our
intent to hold the security for a period of time that will allow the security
to recover in value. However, if the investment managers believe returns would
be enhanced by reallocating the capital from the security, the manager may sell
the security and reallocate the capital, in which case the unrealized gain or
loss will be recognized as a realized gain or loss. As part of our
comprehensive quarterly review for other than temporary impairment, the
investment managers identify any securities in which they have the intent to
sell in the near term. In the case where investment managers have the intent
to sell a security in the near term and there is an unrealized loss, we record
an other than temporary impairment prior to the sale of the security. At June
30, 2003, we had no securities with an unrealized loss for which there is an
intent to sell in the near term.





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Stock Options

Midland accounts for compensation expense under the intrinsic value based
method under the provisions of Accounting Principles Board Opinion 25. As
such, no compensation cost has been recognized for the stock option plans.

Defined Benefit Pension Plans

Midland maintains defined benefit pension plans for a limited number of active
participants. The defined benefit pension plans are not open to employees
hired after March 31, 2000. The pension expense is calculated based upon a
number of actuarial assumptions, including an expected long-term rate of return
and a discount rate. In determining our expected long-term rate of return and
our discount rate, we evaluate input from our actuaries, asset allocations and
long-term bond yields. If other assumptions were used, the amount recorded as
pension expense would be different from our current estimate.

Intangible Assets (Goodwill)

As required by SFAS No. 142, we ceased amortizing goodwill effective January 1,
2002. Based on the impairment test required by SFAS No. 142 in the quarter
ended March 31, 2002, a non-recurring charge of $1.5 million after-tax was
taken against income and is reported as cumulative effect of change in
accounting principle in the income statement. Prior to January 1, 2002,
goodwill was amortized on a straight-line basis over a 10-year period. As of
June 30, 2003, our remaining goodwill balance was $2.1 million and is included
in other assets.

Special Purpose Vehicles or Off Balance Sheet Business Arrangements

We do not utilize any special purpose financing vehicles or have any
undisclosed off-balance sheet arrangements. Similarly, we hold no fair value
contracts for which a lack of marketplace quotations would necessitate the use
of fair value techniques.

New Accounting Standards

The Financial Accounting Standards Board (FASB) issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in
April 2003 and SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, in May 2003. The adoption of
SFAS Nos. 149 and 150 did not have a material impact on Midlands consolidated
financial position or results of operations.

On July 1, 2003, Midland adopted the provisions of FASB Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities. This interpretation
requires variable interest entities to be consolidated by the primary
beneficiary which represents the enterprise that will absorb the majority of
the variable interest entities expected losses if they occur, receive a
majority of the variable interest entities residual returns if they occur, or
both. Midland has identified a synthetic lease arrangement for certain
transportation equipment in which Midland will be deemed to be the primary
beneficiary as the registrant maintains the majority of the variable interests
in this leased asset. Upon the adoption of FIN 46, the company will
consolidate this operating lease asset and record a corresponding liability of
approximately $2,000,000. Midland is continuing
to refine its analysis of this transaction and the final adjustment to be
recorded in the third quarter of 2003 may be subject to change; however, such
change, if any is not expected to be material.

Impact of Inflation

We do not consider the impact of the change in prices due to inflation to be
material in the analysis of our overall operations.





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ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Market risk is the risk that we will incur investment losses due to adverse
changes in market rates and prices. Our market risk exposures are substantially
related to American Moderns investment portfolio and changes in interest rates
and equity prices. Each risk is defined in more detail as follows.

Interest rate risk is the risk that American Modern will incur economic losses
due to adverse changes in interest rates. The risk arises from many of
American Moderns investment activities, as American Modern invests substantial
funds in interest-sensitive assets. American Modern manages the interest rate
risk inherent in its investment assets relative to the interest rate risk
inherent in its liabilities. One of the measures American Modern uses to
quantify this exposure is duration. By definition, duration is a measure of
the sensitivity of the fair value of a fixed income portfolio to changes in
interest rates. Based upon the 4.0 year duration of American Moderns fixed
income portfolio as of June 30, 2003, management estimates that a 100 basis
point increase in interest rates would decrease the market value of its $636.7
million debt security portfolio by 4.0%, or $25.5 million.

Equity price risk is the risk that American Modern will incur economic losses
due to adverse changes in a particular stock or stock index. American Moderns
equity exposure consists primarily of declines in the value of its equity
security holdings. As of June 30, 2003, American Modern had $150.8 million in
equity holdings, including $57.2 million of U.S. Bancorp common stock. A 10%
decrease in the market value of U.S. Bancorps common stock would decrease the
fair value of its equity portfolio by approximately $5.7 million. As of June
30, 2003, the remainder of American Moderns portfolio of equity securities had
a beta coefficient (a measure of stock price volatility) of 1.08. This means
that, in general, if the S&P 500 Index decreases by 10%, management estimates
that the fair value of the remaining equity portfolio will decrease by 10.8%.

The active management of market risk is integral to American Moderns
operations. American Modern has investment guidelines that define the overall
framework for managing market and other investment risks, including the
accountabilities and controls over these activities.




ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the Evaluation Date), we
carried out an evaluation, under the supervision and with the participation of
our management, including our President and Chief Executive Officer and our
Executive Vice President and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon this evaluation, our President and Chief Executive
Officer and our Executive Vice President and Chief Financial Officer concluded
that, as of the Evaluation Date, our disclosure controls and procedures were
adequate to ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules
and forms.

Additionally, our President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer determined, as of the evaluation date,
that there were no
significant changes in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the date of their
evaluation.





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INDEPENDENT ACCOUNTANTS REPORT

The Midland Company:

We have reviewed the accompanying condensed consolidated balance sheet of The
Midland Company and subsidiaries as of June 30, 2003, and the related condensed
consolidated statements of operations for the three-months and six-months
periods ended June 30, 2003 and 2002 and of changes in shareholders equity and
cash flows for the six-month periods ended June 30, 2003 and 2002. These
financial statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of The
Midland Company and subsidiaries as of December 31, 2002, and the related
consolidated statements of income, changes in shareholders equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 6, 2003, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2002 is
fairly stated, in all material respects, in relation to the consolidated
financial statements from which it has been derived.

Deloitte & Touche LLP
Cincinnati, Ohio

July 17, 2003





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PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
JUNE 30, 2003

|        |  |                                                                                                                |  |                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. |  | Legal Proceedings                                                                                             
|        |  | None                                                                                                          
|       
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                     
|        |  | None                                                                                                          
|       
|Item 3. |  | Defaults Upon Senior Securities                                                                               
|        |  | None                                                                                                          
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                           
|       
|        |  | At the Companys 2002 Annual Meeting of Shareholders held on April
10, 2003, the following actions were taken:
|       
|        |  | a)                                                                                                             |  | The following persons were elected as members of the Board of Directors to serve until the year of the 2006
Annual Meeting and until their successors are chosen and qualified:

|                        |  |           |            |  |          |       |           |             |  |  |           |  |        |  |   | 
|----------------------- |  | --------- | ---------- |  | -------- | ----- | --------- | ----------- |  |  | --------- |  | ------ |  | - | 
|                        |  |           |            |  |          | Votes |           |             |  |  |           |  | Broker | 
|Name                    |  | Votes For |            |  | Withheld |       |           | Abstentions |  |  | Non-Votes | 
|                        |  |           |            |  |          |       |           |             |  |  |           | 
|Michael J. Conaton      |  |           | 16,354,551 |  |          |       | 208,523   |             |  |  | 0         |  |        |  | 0 | 
|Jerry A. Grundhofer     |  |           | 16,468,802 |  |          |       | 94,272    |             |  |  | 0         |  |        |  | 0 | 
|Joseph P. Hayden III    |  |           | 15,606,692 |  |          |       | 956,382   |             |  |  | 0         |  |        |  | 0 | 
|William J. Keating, Jr. |  |           | 15,065,170 |  |          |       | 1,497,904 |             |  |  | 0         |  |        |  | 0 | 
|John R. LaBar           |  |           | 16,354,351 |  |          |       | 208,732   |             |  |  | 0         |  |        |  | 0 | 
|Richard M. Norman       |  |           | 16,468,802 |  |          |       | 94,272    |             |  |  | 0         |  |        |  | 0 | 

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | b)                               |  | A proposal by the Board of Directors to ratify the
appointment of the firm of Deloitte & Touche LLP, as Midlands
independent auditors to conduct the annual audit of the financial
statements of Midland for the year ending December 31, 2003, was
approved by the Shareholders. The Shareholders cast 16,517,272
votes in favor of this proposal and 37,291 votes against it.
There were 8,511 abstentions and no broker non-votes.
|       
|Item 5. |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Other Information               
|        | On February 5, 2003, the company provided notice to company executive
officers and directors regarding a blackout period for the Midland
common stock under the Midland-Guardian Co. Salaried Employees 401(k)
Savings Plan. The blackout period was imposed in order to change the
outside administration and record keeping company for the plan and
began on February 21, 2003 and ended on the scheduled termination date
of April 3, 2003. Questions regarding the blackout period may be
directed to John Von Lehman, 7000 Midland Boulevard, Amelia, Ohio
45102, telephone number (513) 943-7100.
|       
|Item 6. |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Exhibits and Reports on Form 8-K
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | a)                               |  | Exhibit 15  Letter re: Unaudited Interim Financial
Information                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  |  | Exhibit 31.1  Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  |  | Exhibit 31.2  Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  |  | Exhibit 32.1  Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  |  | Exhibit 32.2  Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                     





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| |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | b) |  | Reports on Form 8-K  The company filed a Current Report
on Form 8-K on April 9, 2003 pursuant to Item 7 and Item 12,
relating to a management presentation dated April 9, 2003 and a
company press release dated April 8, 2003. This filing was
amended on April 23, 2003 to include an additional explanation of
non-GAAP financial measures relating to the statutory combined
ratio. The company also filed a Current Report on Form 8-K on
April 18, 2003 related to the earnings release for the quarter
ended March 31, 2003. The company filed a Current Report on Form
8-K on May 23, 2003 relating to a press release announcing the
companys estimate of losses from recent storms.




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                                                    
|------------------ |  | -----------------------------------------------------------------------------------
|                   |  | THE MIDLAND COMPANY                                                                
|Date July 17, 2003 |  | s/John I. Von Lehman                                                               
|                   |  | John I. Von Lehman, Executive Vice President,
Chief Financial Officer and Secretary