##### 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 March 31, 2004 OR [  ]
    
    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 
  Ohio
    
    31-0742526(State or other jurisdiction of incorporation
or organization)
    
    (I.R.S. Employer Identification No.)
 7000 Midland Boulevard, Amelia, Ohio 45102-2607 
 
 (513) 943-7100 
  N/A 
  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 þ. No o. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes þ. No o. The number of common shares outstanding as of May 3, 2004 was 18,743,312.




---



TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONCONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIESITEM 3. QUANTITATIVE AND QUALITATIVEITEM 4. CONTROLS AND PROCEDURESINDEPENDENT ACCOUNTANTS REPORTPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSIGNATUREEX-15EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
Amounts in 000s
 (Unaudited)March 31,
    
    Dec. 31,ASSETS
    
    2004
    
    2003MARKETABLE SECURITIES AVAILABLE FOR SALE:Fixed income (cost, $667,033 at March 31, 2004 and
$643,735 at December 31, 2003)
    
    $
    698,381
    
    
    $
    671,454Equity (cost, $93,721 at March 31, 2004 and
$87,998 at December 31, 2003)
    
    
    175,342
    
    
    
    174,868Total
    
    
    873,723
    
    
    
    846,322CASH
    
    
    4,663
    
    
    
    2,386ACCOUNTS RECEIVABLE - NET
    
    
    82,010
    
    
    
    81,297REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS
    
    
    75,398
    
    
    
    70,990PROPERTY, PLANT AND EQUIPMENT - NET
    
    
    70,839
    
    
    
    69,328DEFERRED INSURANCE POLICY ACQUISITION COSTS
    
    
    84,239
    
    
    
    87,873OTHER ASSETS
    
    
    21,161
    
    
    
    21,309TOTAL ASSETS
    
    $
    1,212,033
    
    
    $
    1,179,505
 See notes to condensed consolidated financial statements.




---



##### Table of Contents



THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
Amounts in 000s (Unaudited)March 31,
    
    Dec. 31,LIABILITIES &
SHAREHOLDERS EQUITY
    
    2004
    
    2003UNEARNED INSURANCE PREMIUMS
    
    $
    368,542
    
    
    $
    383,869INSURANCE LOSS RESERVES
    
    
    209,650
    
    
    
    204,833INSURANCE COMMISSIONS PAYABLE
    
    
    34,705
    
    
    
    30,522FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES
    
    
    8,884
    
    
    
    6,978LONG-TERM DEBT
    
    
    61,831
    
    
    
    62,217OTHER NOTES PAYABLE:Banks
    
    
    24,000
    
    
    
    30,000Commercial paper
    
    
    4,053
    
    
    
    3,625Total
    
    
    28,053
    
    
    
    33,625DEFERRED FEDERAL INCOME TAX
    
    
    46,856
    
    
    
    47,429OTHER PAYABLES AND ACCRUALS
    
    
    58,063
    
    
    
    53,974COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock (issued and outstanding: 18,737 shares at
March 31, 2004 and 17,643 shares at December 31, 2003
after deducting treasury stock of 4,269 shares and
4,213 shares, respectively)
    
    
    959
    
    
    
    911Additional paid-in capital
    
    
    49,912
    
    
    
    23,406Retained earnings
    
    
    315,640
    
    
    
    299,752Accumulated other comprehensive income
    
    
    72,391
    
    
    
    73,455Treasury stock - at cost
    
    
    (43,453
    )
    
    
    (41,442
    )Unvested restricted stock awards
    
    
    
    
    
    
    (24
    )Total
    
    
    395,449
    
    
    
    356,058TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,212,033
    
    
    $
    1,179,505
 See notes to condensed consolidated financial statements.




---



##### Table of Contents



THE MIDLAND COMPANY
AND SUBSIDIARIES 
 STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
Amounts in 000s except per share data
 2004
    
    2003REVENUES:Insurance:Premiums earned
    
    $
    163,639
    
    
    $
    153,278Net investment income
    
    
    8,543
    
    
    
    8,395Net realized investment gains (losses)
    
    
    4,706
    
    
    
    (1,763
    )Other insurance income
    
    
    4,245
    
    
    
    3,471Transportation
    
    
    9,300
    
    
    
    5,845Other
    
    
    188
    
    
    
    62Total
    
    
    190,621
    
    
    
    169,288COSTS AND EXPENSES:Insurance:Losses and loss adjustment expenses
    
    
    79,325
    
    
    
    78,647Commissions and other policy acquisition costs
    
    
    51,693
    
    
    
    47,805Operating and administrative expenses
    
    
    25,079
    
    
    
    21,988Transportation operating expenses
    
    
    9,064
    
    
    
    5,805Interest expense
    
    
    1,019
    
    
    
    939Total
    
    
    166,180
    
    
    
    155,184INCOME BEFORE FEDERAL INCOME TAX
    
    
    24,441
    
    
    
    14,104PROVISION FOR FEDERAL INCOME TAX
    
    
    7,593
    
    
    
    4,055NET INCOME
    
    $
    16,848
    
    
    $
    10,049BASIC EARNINGS PER SHARE OF COMMON STOCK
    
    $
    0.93
    
    
    $
    0.58DILUTED EARNINGS PER SHARE OF COMMON STOCK
    
    $
    0.90
    
    
    $
    0.56CASH DIVIDENDS PER SHARE OF COMMON STOCK - DECLARED
    
    $
    .05125
    
    
    $
    .0475
 See notes to condensed consolidated financial statements.




---



##### Table of Contents



THE MIDLAND COMPANY AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (Unaudited)
Amounts in 000s
 Accumulated
    
    
    
    
    
    UnvestedAdditional
    
    
    
    
    
    Other Com-
    
    
    
    
    
    Restricted
    
    
    
    
    
    Compre-Common
    
    Paid-In
    
    Retained
    
    prehensive
    
    Treasury
    
    Stock
    
    
    
    
    
    hensiveStock
    
    Capital
    
    Earnings
    
    Income
    
    Stock
    
    Awards
    
    Total
    
    IncomeBALANCE, DECEMBER 31, 2002
    
    $
    911
    
    
    $
    22,516
    
    
    $
    279,826
    
    
    $
    47,573
    
    
    $
    (41,605
    )
    
    $
    (313
    )
    
    $
    308,908Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    10,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,049
    
    
    $
    10,049Decrease in unrealized gain on
marketable securities, net of related
income tax effect of $1,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,343
    )
    
    
    
    
    
    
    
    
    
    
    (2,343
    )
    
    
    (2,343
    )Other, net of federal income tax of $10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,687Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (380
    )
    
    
    
    
    
    
    (380
    )Issuance of treasury stock for options
exercised and employee savings plan
    
    
    
    
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    632
    
    
    
    
    
    
    
    954Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (836
    )Amortization and cancellation of
unvested restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    71BALANCE, MARCH 31, 2003
    
    $
    911
    
    
    $
    22,838
    
    
    $
    289,039
    
    
    $
    45,211
    
    
    $
    (41,353
    )
    
    $
    (242
    )
    
    $
    316,404BALANCE, DECEMBER 31, 2003
    
    $
    911
    
    
    $
    23,406
    
    
    $
    299,752
    
    
    $
    73,455
    
    
    $
    (41,442
    )
    
    $
    (24
    )
    
    $
    356,058Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    16,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,848
    
    
    $
    16,848Decrease in unrealized gain on
marketable securities, net of related
income tax effect of $567
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,054
    )
    
    
    
    
    
    
    
    
    
    
    (1,054
    )
    
    
    (1,054
    )Other, net of federal income tax of $5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (10
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,784Public stock offering
    
    
    48
    
    
    
    25,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,070Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,452
    )
    
    
    
    
    
    
    (2,452
    )Issuance of treasury stock for options
exercised and employee savings plan
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    441
    
    
    
    
    
    
    
    953Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (960
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (960
    )Federal income tax benefit related to the
exercise or granting of stock awards
    
    
    
    
    
    
    972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    972Amortization and cancellation of
unvested restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24BALANCE, MARCH 31, 2004
    
    $
    959
    
    
    $
    49,912
    
    
    $
    315,640
    
    
    $
    72,391
    
    
    $
    (43,453
    )
    
    $
    
    
    
    $
    395,449
 See notes to condensed consolidated financial statements.




---



##### Table of Contents



THE MIDLAND COMPANY AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE-MONTHS ENDED MARCH 31, 2004 AND 2003
Amount in 000s
 2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    16,848
    
    
    $
    10,049Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,803
    
    
    
    2,144Net realized investment losses (gains)
    
    
    (4,538
    )
    
    
    862Decrease in unearned insurance premiums
    
    
    (15,327
    )
    
    
    (19,621
    )Decrease in deferred insurance policy acquisition costs
    
    
    3,634
    
    
    
    5,454Decrease (increase) in reinsurance recoverables and prepaid
reinsurance premiums
    
    
    (4,408
    )
    
    
    4,368Decrease (increase) in net accounts receivable
    
    
    (713
    )
    
    
    4,272Increase (decrease) in insurance loss reserves
    
    
    4,817
    
    
    
    (3,312
    )Increase in funds held under reinsurance
agreements and reinsurance payables
    
    
    1,906
    
    
    
    1,126Increase (decrease) in other accounts payable and accruals
    
    
    5,870
    
    
    
    (565
    )Decrease in other assets
    
    
    148
    
    
    
    542Increase (decrease) in insurance commissions payable
    
    
    4,183
    
    
    
    (407
    )Other-net
    
    
    542
    
    
    
    1,333Net cash provided by operating activities
    
    
    15,765
    
    
    
    6,245CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of marketable securities
    
    
    (144,984
    )
    
    
    (142,072
    )Sale of marketable securities
    
    
    89,616
    
    
    
    79,286Decrease in cash equivalent marketable securities
    
    
    14,308
    
    
    
    46,707Maturity of marketable securities
    
    
    15,895
    
    
    
    27,045Acquisition of property, plant and equipment
    
    
    (4,390
    )
    
    
    (1,079
    )Proceeds from sale of property, plant and equipment
    
    
    239
    
    
    
    39Net cash provided by (used in) investing activities
    
    
    (29,316
    )
    
    
    9,926CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from common stock issuance
    
    
    25,070
    
    
    
    Decrease in net short-term borrowings
    
    
    (5,572
    )
    
    
    (13,998
    )Issuance of treasury stock
    
    
    953
    
    
    
    954Dividends paid
    
    
    (1,785
    )
    
    
    (767
    )Purchase of treasury stock
    
    
    (2,452
    )
    
    
    (380
    )Repayment of long-term debt
    
    
    (386
    )
    
    
    (376
    )Net cash provided by (used in) financing activities
    
    
    15,828
    
    
    
    (14,567
    )NET INCREASE IN CASH
    
    
    2,277
    
    
    
    1,604CASH AT BEGINNING OF PERIOD
    
    
    2,386
    
    
    
    5,975CASH AT END OF PERIOD
    
    $
    4,663
    
    
    $
    7,579INTEREST PAID
    
    $
    878
    
    
    $
    897INCOME TAXES PAID
    
    $
    1,500
    
    
    $
    
 See notes to the condensed consolidated financial statements.




---



##### Table of Contents



THE MIDLAND COMPANY AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2004
 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, 2003 has been derived from the audited
consolidated financial statements of the Company. Revenue and operating
results for the three-month period ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. For further information, refer to the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 2003 included
in Midlands Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current
period presentation. 2. 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
performance based stock awards for diluted EPS. Shares used for EPS
calculations were as follows (000s): For Basic EPS
    
    For Diluted EPSThree months ended March 31:2004
    
    
    18,154
    
    
    
    18,6442003
    
    
    17,387
    
    
    
    17,829
 3. INCOME TAXES The federal income tax provisions for the three-month periods ended March 31,
2004 and 2003 are different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (000s): 2004
    
    2003Federal income tax at statutory rate
    
    $
    8,554
    
    
    $
    4,937Tax effect of:Tax exempt interest and
excludable dividend income
    
    
    (1,022
    )
    
    
    (909
    )Other - net
    
    
    61
    
    
    
    27Provision for federal income tax
    
    $
    7,593
    
    
    $
    4,055
 4. SEGMENT DISCLOSURES Since the Companys annual report for 2003, 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 2004 and 2003 is as follows (000s):




---



##### Table of Contents



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued) 4. SEGMENT DISCLOSURES (contd) Three Months Ended March 31, 2004
    
    Three Months Ended March 31, 2003Revenues-
    
    Pre-Tax
    
    
    
    
    
    Revenues-
    
    Pre-TaxTotal
    
    External
    
    Income
    
    Total
    
    External
    
    IncomeAssets
    
    Customers
    
    (Loss)
    
    Assets
    
    Customers
    
    (Loss)Reportable Segments:Insurance:Manufactured housing
    
    
    n/a
    
    
    $
    79,909
    
    
    $
    12,336
    
    
    
    n/a
    
    
    $
    82,375
    
    
    $
    15,592Other
    
    
    n/a
    
    
    
    87,975
    
    
    
    8,571
    
    
    
    n/a
    
    
    
    74,374
    
    
    
    1,266Unallocated
    
    $
    1,142,237
    
    
    
    
    
    
    
    3,770
    
    
    $
    1,007,248
    
    
    
    
    
    
    
    (2,077
    )Transportation
    
    
    31,931
    
    
    
    9,300
    
    
    
    119
    
    
    
    22,737
    
    
    
    5,845
    
    
    
    1Corporate and all other
    
    
    85,692
    
    
    
    
    
    
    
    (355
    )
    
    
    58,352
    
    
    
    
    
    
    
    (678
    )Intersegment Eliminations
    
    
    (47,827
    )
    
    
    
    
    
    
    
    
    
    
    (28,482
    )
    
    
    
    
    
    
    Total
    
    $
    1,212,033
    
    
    $
    177,184
    
    
    $
    24,441
    
    
    $
    1,059,855
    
    
    $
    162,594
    
    
    $
    14,104
 Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. For pre-tax income
reported above, insurance investment income is allocated to Manufactured
Housing and Other while realized gains and losses are included in Unallocated.
Certain amounts are not allocated to segments (n/a above) by the Company. 5. 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 months ended March 31, 2004 and 2003 would
have been reduced to the pro forma amounts indicated below (amounts in 000s,
except per share data): For the Three Months Ended March 312004
    
    2003Net Income as Reported
    
    $
    16,848
    
    
    $
    10,049Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects
    
    
    360
    
    
    
    308Pro forma Net Income
    
    $
    16,488
    
    
    $
    9,741Basic Shares
    
    
    18,154
    
    
    
    17,387Diluted Shares
    
    
    18,644
    
    
    
    17,829Earnings per share:Basic - as reported
    
    $
    0.93
    
    
    $
    0.58Basic - pro forma
    
    
    0.91
    
    
    
    0.56Diluted - as reported
    
    $
    0.90
    
    
    $
    0.56Diluted - pro forma
    
    
    0.88
    
    
    
    0.55
 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.




---



##### Table of Contents



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued) 6. 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 March 31, 2004, Midlands investment portfolio
included approximately $51.0 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-month
periods ended March 31, 2004 and 2003, Midland recorded pre-tax gains (losses)
on these securities of $168,000 and $(901,000), 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 March 31, 2004 and 2003, the accumulated derivative losses recorded in Other
Comprehensive Income, net of deferred taxes, amounted to $942,000 and
$1,283,000, respectively. The swaps mature on December 1, 2005. 7. DEFINED BENEFIT PENSION PLANS Midland has a funded qualified defined benefit pension plan and an unfunded
non-qualified defined benefit pension plan. The measurement date for Midlands
defined benefit retirement plans is December 31. The components of net periodic
pension cost related to both plans for the three-month periods ended March 31,
2004 and 2003 are (000s): For the Three Months Ended March 312004
    
    2003Service cost
    
    $
    218
    
    
    $
    189Interest cost
    
    
    396
    
    
    
    364Expected return on assets
    
    
    (398
    )
    
    
    (394
    )Amortization of transition asset
    
    
    (18
    )
    
    
    (24
    )Amortization of prior service cost
    
    
    8
    
    
    
    8Amortization of net loss
    
    
    27
    
    
    
    13Net periodic benefit cost
    
    $
    233
    
    
    $
    156
 The Company prepaid its required cash contribution of $0.6 million for the 2004
plan year in December 2003 and anticipates no further cash contributions until
2005. 8. RELATED PARTY TRANSACTIONS The Company has a commercial paper program under which qualified purchasers may
invest in the short-term unsecured notes of Midland. Many of the investors in
this program are executive officers and directors of the Company. Total
commercial paper debt outstanding at March 31, 2004 was $4.1 million, $3.3
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 1.0% as of March 31, 2004, a rate that is
considered to be competitive with the market rates offered for similar
instruments.




---



##### Table of Contents



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued) 9. NEW ACCOUNTING STANDARDS In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132 (Revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits  an amendment of FASB statements No. 87, 88 and 106.
The revised statement (SFAS No. 132(R)) requires additional disclosures about
the assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. In 2004,
SFAS No. 132(R) requires interim-period disclosure of components of net pension
and other postretirement benefit cost. Midland adopted this standard and all
of its required disclosures.




---



##### Table of Contents



ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS 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, but are not limited to 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 2004 and
beyond. In some cases you can identify forward-looking statements by such
terms as may, will, could, would, expect, plan, intend,
anticipate, believe, estimate, project, predict, potential and
similar expressions or the negative versions of such expressions. 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 49% 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 property, 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) operate a fleet of dry cargo barges for the movement of dry bulk
commodities such as petroleum coke, ores, barite, sugar and other cargoes
primarily on the lower Mississippi River and its tributaries. EXECUTIVE OVERVIEW OF RECENT TRENDS AND OTHER DEVELOPMENTS Manufactured Housing Premium and Profitability Manufactured homes have historically represented approximately one out of every
five to six 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 shipments were slower than
historical averages during 2001, 2002 and 2003.
As a result, during 2001 and 2002, American Modern experienced a decrease in
its manufactured housing insurance premium volume due to a decline in the
premium generated through its point of sale and lender channels of distribution
coupled with American Moderns decision to terminate unprofitable business.
Beginning in




---



##### Table of Contents



2002 and 2003, American Modern benefited from rate increases and
the manufactured housing gross written increased in 2003 and also in the first quarter of 2004 where gross
written premium increased 10.5% to $80.6 million from $73.0 million in the year
ago first quarter. American Modern experienced higher than normal levels of losses caused by fire
in its manufactured housing and site-built lines during 2000, 2001 and 2002.
In response to this trend, American Modern began aggressively pursuing rate
increases in its manufactured housing products and site-built programs in 2002
and 2003. Beginning in the second quarter of 2003 and continuing throughout
the remainder of 2003, the manufactured housing and site-built fire loss ratios
have decreased to what we consider to be normal levels. However, during the
first quarter of 2004, American Modern experienced an up-tick in its
manufactured housing fire loss ratio which increased 5.4 percentage points over
the 2003 first quarter. The increase has been isolated to four southern states
and appears to be driven more by severity of the losses as compared to the
frequency of losses. Despite the up-tick in the manufactured housing fire loss
ratio during the first quarter the combined ratio relative to this line is, in
the Companys opinion, still favorable at 90.2% for the quarter. 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 several years 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. Site-Built Dwelling During 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 has achieved positive growth from its ongoing
site-built programs, which are primarily fire dwelling programs. More
specifically, gross written premium from American Moderns ongoing site-built
programs increased 9.3% to $21.2 million in the first quarter of 2004 from
$19.4 million in the comparable quarter in 2003. American Modern has also
experienced the intended decrease in de-emphasized programs, which are
primarily standard homeowners programs. Motorcycle In 2003, the motorcycle product line accounted for approximately 9% of American
Moderns property and casualty gross written premiums. The underwriting
results of the motorcycle product have been below acceptable levels, due partly
to product positioning, inadequate rate levels and higher than expected losses.
American Modern has committed to improving the performance of the motorcycle
product even if gross written premium volume declines. In 2003, rate increases
averaging 21% were approved and additional double-digit rate increases will be
sought in 2004. We expect these rate increases to have a 19% impact on
motorcycles net earned premium in 2004. We have also added expertise to our
staff and have refined our product offering to better match the needs of our
targeted market. Although we believe that these actions will significantly
benefit the motorcycle operating performance in 2004 and in future years, the
product is projected to remain unprofitable in 2004. The initiatives related to the motorcycle product referred to above are
beginning to produce results as the underwriting performance of the motorcycle
product improved in the first quarter of 2004 over the prior years first
quarter. Specifically, the motorcycle combined ratio improved from 107.0% in
the first quarter of 2003 to 84.6% in the first quarter of 2004. Generally,
motorcycle losses are typically lower in the first and fourth quarters and
higher in the second and third quarters in a given year due to increased use
during the middle of the year. As expected, motorcycle gross written premium
decreased 26.7% to $11.0 million in the current quarter from $15.0 million in
the year ago first quarter.




---



##### Table of Contents



Commercial Liability Run-Off In September 2001, American Modern exited the manufactured housing park and
dealer commercial liability business. We have no outstanding unearned premium
related to this business. During 2003, we experienced higher than expected
losses related to this line. During the first quarter of 2004, losses from the
previously exited commercial liability product line negatively impacted
earnings by four cents per share (diluted), an amount comparable to the same
period in 2003. 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
significantly to American Moderns overall growth in recent years as well as in
2004. During the first quarter of 2004, gross written premium from American
Moderns other property and casualty insurance products (excluding manufactured
housing) collectively increased 10.4% to $79.8 million from $72.3 million in
the prior years first quarter. The mortgage fire and the excess and surplus
lines products are primarily driving this growth. 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-month periods
ended March 31, 2004 and 2003 ($000s): Three Months Ended March 31, 2004Gross
    
    Net
    
    NetWritten
    
    Written
    
    EarnedBusiness Segment
    
    Premium
    
    Premium
    
    PremiumManufactured Housing
    
    $
    80.6
    
    
    $
    75.7
    
    
    $
    79.9All Other Insurance and Services:Other Property & Casualty Specialty Products
    
    
    79.8
    
    
    
    70.8
    
    
    
    79.9Life Operations
    
    
    5.6
    
    
    
    2.9
    
    
    
    3.9Total
    
    $
    166.0
    
    
    $
    149.4
    
    
    $
    163.7
 Three Months Ended March 31, 2003Gross
    
    Net
    
    NetWritten
    
    Written
    
    EarnedBusiness Segment
    
    Premium
    
    Premium
    
    PremiumManufactured Housing
    
    $
    73.0
    
    
    $
    69.7
    
    
    $
    82.4All Other Insurance and Services:Other Property & Casualty Specialty Products
    
    
    72.3
    
    
    
    67.5
    
    
    
    67.7Life Operations
    
    
    2.7
    
    
    
    1.3
    
    
    
    3.2Total
    
    $
    148.0
    
    
    $
    138.5
    
    
    $
    153.3
 Manufactured Housing Although the manufactured housing industry continues to be depressed, American
Moderns gross written premium related to this product increased 10.5% in the
first quarter of 2004 compared to the first quarter of 2003. This increase was
due primarily to rate increases approved in 2002 and 2003 as well as the
conversion of select agent business from our competitors. The manufactured
housing product continues to be profitable, although the combined ratio related
to this product increased to 90.2% in the first quarter of 2004, from 87.2% in
the prior years first quarter. The increase in the combined ratio can be
attributed to a 5.4 percentage point increase in the fire loss ratio which
increased from 18.2% in the first quarter of 2003 to 23.6% in the current first
quarter.




---



##### Table of Contents



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
10.4% in 2004 over the comparable period in 2003. Driving this growth were the
site-built dwelling, mortgage fire and the excess and surplus lines products
which collectively increased $13.1 million or 50.0% over 2003 levels. American
Modern received rate increases on several of these product lines in 2002 and
2003 and will continue to seek rate increases in 2004. Gross written premium
related to the motorcycle product decreased 26.7% in the current quarter
compared to the prior years first quarter. A decrease in motorcycle gross
written premium was anticipated as we took aggressive rate actions and
tightened our underwriting criteria. Credit Life gross written premium increased $2.9 million in the first quarter
of 2004 over the comparable period in 2003. This increase is primarily due to
the significant decrease of $3.0 million in premium cancellations in the
current quarter as compared to the year ago first quarter. Cancellations were
heavy in 2003 due to the high level of refinancing activity which was taking
place at that time. Insurance Investment Income and Realized Capital Gains American Moderns net investment income increased to $8.5 million in the first
quarter of 2004 from $8.4 million in the prior years first quarter. This
increase is due to the increase in the size of the portfolio. Reinvestment
rates continue to be depressed due to the current low interest rate
environment. The annualized pre-tax investment yield, on a cost basis, of
American Moderns fixed income portfolio was 5.3% in the first quarter of 2004
compared to 5.8% in the comparable prior period. 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. The following chart shows the gain or loss from these
sources as well as their impact on our diluted earnings per share (amounts in
$000s): March 31, 2004
    
    March 31, 2003Pre-Tax
    
    After-Tax
    
    Earnings
    
    Pre-Tax
    
    After-Tax
    
    EarningsGain (Loss)
    
    Gain (Loss)
    
    Per Share
    
    Gain (Loss)
    
    Gain (Loss)
    
    Per ShareEmbedded derivatives
    
    $
    168
    
    
    $
    109
    
    
    $
    0.01
    
    
    $
    (901
    )
    
    $
    (586
    )
    
    $
    (0.03
    )Other-Than-Temporary
Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,898
    )
    
    
    (1,233
    )
    
    
    (0.07
    )Capital Gains
    
    
    4,538
    
    
    
    2,950
    
    
    
    0.15
    
    
    
    1,036
    
    
    
    673
    
    
    
    0.04Total Realized Investment
Gains (Losses)
    
    $
    4,706
    
    
    $
    3,059
    
    
    $
    0.16
    
    
    $
    (1,763
    )
    
    $
    (1,146
    )
    
    $
    (0.06
    )
 Embedded derivatives relate to the equity conversion features attributable to
the convertible preferred stocks and convertible debentures held in American
Moderns convertible security portfolio. American Moderns investment
portfolio does not currently include any other types of derivative investments. Insurance Losses and Loss Adjustment Expenses (LAE) American Moderns losses and loss adjustment expense in the first quarter of
2004 increased 0.9% to $79.3 million from $78.6 million in the prior years
first quarter; although American Moderns total net earned premium increased
6.8% in the same comparable periods. This modest increase in losses was
primarily due to a slight increase in non-catastrophe property and casualty
losses and a decrease in property and casualty catastrophe losses.
Non-catastrophe losses increased 2.7% in the first quarter 2004 compared to the
first quarter in 2003. This increase was primarily attributable to the
manufactured housing line and was offset by lower losses from the de-emphasized
homeowners programs and the motorcycle product. American Modern also had lower
catastrophe losses in the first quarter of 2004 compared to the first quarter
of 2003. Catastrophe losses accounted for 1.9 percentage points of the
property and casualty combined ratio for the first quarter of 2004 compared
with 2.8 percentage points in the prior years first quarter.




---



##### Table of Contents



Insurance Commissions and Other Policy Acquisition Costs American Moderns commissions and other policy acquisition costs for the first
quarter of 2004 increased 8.1% to $51.7 million from $47.8 million in the prior
years first quarter. This increase is primarily due to the growth in net
earned premium plus a significant increase in contingent commission expense as
a result of the improved underwriting results achieved in the current years
first quarter compared to the prior years first quarter. The increase in
contingent commission expense is attributable, in part, to American Moderns
pay-for-performance commission policy which reduces the up-front commission
paid but rewards underwriting performance with a higher contingent commission. Insurance Operating and Administrative Expenses American Moderns insurance operating and administrative expenses increased
14.1% to $25.1 million in the first quarter of 2004 from $22.0 million in the
year ago comparable quarter. This increase is commensurate with the increase
in revenues plus increases related to employee incentive plans and
depreciation. Overview of Property and Casualty Underwriting Results During the first quarter of 2004, American Moderns property and casualty
combined ratio (losses and expenses as a percent of earned premium) was 94.3%,
down from 96.2% in the prior years first quarter. This improvement was
basically due to improved underwriting results related to our motorcycle,
watercraft, snowmobile and recreational vehicle products in addition to a
modest decrease in catastrophe losses. Excluding catastrophe losses, American
Moderns property and casualty combined ratio is 92.4% in the current quarter
as compared to 93.4% in the year ago first quarter. M/G Transport M/G Transport, Midlands transportation subsidiary, reported revenues for the
first quarter of 2004 of $9.3 million compared to $5.8 million in the prior
years first quarter. Pre-tax operating profit was $0.1 million in the current
quarter as compared to a break-even situation in the prior years first
quarter. The increase in transportation revenues is primarily due to an
increase in tonnage hauled related to petroleum coke, coal and barite
commodities. The increase in transportation expenses is commensurate with the
increase in revenues plus additional costs due to a change in shipping patterns
experienced during the quarter. Outlook Given the results of the first quarter coupled with our current outlook, we
anticipate a property and casualty combined ratio, assuming normal weather, in
the range of 97 to 99 percent for the full year 2004, noting that weather
patterns and seasonal products such as motorcycle and watercraft tend to
increase the combined ratio during the second and third quarters. Management
also projects investment income to increase moderately given the larger base of
invested assets. This level of underwriting profit and investment income
should translate to net income in the range of $2.15 to $2.35 per share
(diluted), which would include the after-tax impact of $0.15 per share
(diluted) from realized investment gains. Finally, management also projects
near double-digit top-line growth.




---



##### Table of Contents



LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION Consolidated Operations Aggregate Contractual Obligations and Off Balance Sheet Arrangements We have certain obligations and commitments to make future payments under
contracts. As of March 31, 2004, the aggregate obligations on a consolidated
basis were as follows (amounts in $000s): Payments Due by PeriodLess than
    
    2-5
    
    After 5Total
    
    1 Year
    
    Years
    
    YearsLong-term debt
    
    $
    61,831
    
    
    $
    1,600
    
    
    $
    60,231
    
    
    $
    Other notes payable
    
    
    28,053
    
    
    
    28,053
    
    
    
    
    
    
    
    Annual commitments under
non-cancelable leases
    
    
    7,478
    
    
    
    1,134
    
    
    
    2,900
    
    
    
    3,444Purchase obligations
    
    
    7,358
    
    
    
    1,982
    
    
    
    5,376
    
    
    
    Future other obligations
    
    
    1,892
    
    
    
    1,704
    
    
    
    188
    
    
    
    Total
    
    $
    106,612
    
    
    $
    34,473
    
    
    $
    68,695
    
    
    $
    3,444
 The table above excludes contracts and agreements that are terminable at will
by the Company. Other Items 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. No shares were repurchased in the
open market under our share repurchase program during the first three months of
2004 and a total of 586,000 shares remain authorized for repurchase under terms
of this authority. On April 29, 2004, 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 2006. 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. The share repurchase program pertains exclusively to shares to be purchased on
the open market. This program specifically excludes shares repurchased in
connection with our stock incentive plans. The Company may periodically
repurchase stock awarded to associates in connection with our stock incentive
programs. Such repurchase transactions essentially accommodate associates
funding of the exercise price and any tax liabilities arising from the exercise
or receipt of equity based incentive awards. During the three months ended
March 31, 2004, the Company repurchased approximately $2.4 million of treasury
shares in connection with associate stock incentive programs. Due to the timing related to the dividend payment date, the dividend for the
fourth quarter of 2003, as well as the dividend for the first quarter of 2004,
were both paid during the first quarter of 2004. Therefore, dividends paid to
our shareholders amounted to $1.8 million in the first three months of 2004 and
$0.8 million during the prior years three-month period which represented only
one quarters dividend. 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.




---



##### Table of Contents



Midland has a commercial paper program under which qualified purchasers may
invest in the short-term unsecured notes of Midland. As of March 31, 2004,
Midland had $4.1 million of commercial paper debt outstanding, $3.3 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 1.0% as of March 31, 2004, a rate that is considered to be
competitive with the market rates offered for similar instruments. As of March
31, 2004, Midland also had $75.0 million of conventional short-term credit
lines available at costs not exceeding prime borrowing rates, of which $24.0
million was outstanding. These short-term borrowings decreased $6.0 million
from $30.0 million since December 31, 2003. Proceeds derived from the
reduction in marketable securities were used to reduce these short-term
borrowings. 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 lines are available at the discretion of various lending
institutions with comparable rates and terms. We also have a mortgage obligation related to the financing of our corporate
headquarters building. As of March 31, 2004, the outstanding balance of this
mortgage was $15.4 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%. On October 21, 2003 Midland filed a universal shelf registration statement
with the Securities and Exchange Commission. A shelf registration, or delayed
offering, of securities allows companies to register securities under the
Securities Act of 1933 for future sale, thereby avoiding potential
time-consuming delays inherent in the registration process. Under this
process, companies are permitted to register securities in advance of their
expected sale date and put them on the shelf for future use. This
registration statement will allow the company to offer from time to time up to
$150 million in various types of securities, including debt, preferred stock
and common stock. On February 5, 2004, Midland sold 1,150,000 shares of its
common stock authorized by this shelf registration. The net proceeds received
of $25.1 million were used to increase the capital base of its insurance
subsidiaries to provide for future growth and for other general corporate
purposes. On April 29, 2004, Midland, through a wholly owned trust, issued $12.0 million
of junior subordinated debt securities. This transaction was part of the
Companys participation in a pooled trust preferred offering. The proceeds
from this transaction will be used to increase the capital of the insurance
subsidiaries to fund future growth and for general corporate purposes. The
debt has a 30-year term and is callable after five years. The interest related
to the debt is variable in nature. The debt contains certain provisions which
are typical and customary for this type of security. 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. The market value of Midlands consolidated investment portfolio (comprised
primarily of the investment holdings of American Modern) increased 3.2% from
$846.3 million at December 31, 2003, to $873.7 million at March 31, 2004. This
increase was primarily due to the investment of $24.0 million in net proceeds
derived from the public stock offering and positive cash flow generated from
operations offset by a decrease of $1.6 million in unrealized appreciation in
the market value of securities held. The decrease in the unrealized
appreciation was due to a $3.6 million increase in unrealized appreciation
related to the fixed income portfolio offset by a $5.2 million decrease in the
unrealized appreciation related to the equity portfolio. Midlands largest
equity holding, 2.5 million shares of U.S. Bancorp, decreased to $68.0 million
as of March 31, 2004 from $73.3 million as of December 31, 2003.




---



##### Table of Contents



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 March 31, 2004 Unrealized
    
    Fair
    
    # ofGain (Loss)
    
    Value
    
    PositionsFixed Income SecuritiesTotal Held In A Gain Position
    
    $
    32,224
    
    
    $
    619,692
    
    
    
    729Held In A Loss Position For Less Than 3 Months
    
    
    (496
    )
    
    
    55,110
    
    
    
    48Held In A Loss Position For More Than 3 Months
And Less Than 9 Months
    
    
    (68
    )
    
    
    5,246
    
    
    
    8Held In A Loss Position For More Than 9 Months
And Less Than 18 Months
    
    
    (143
    )
    
    
    9,956
    
    
    
    11Held In A Loss Position For More Than 18 Months
    
    
    (169
    )
    
    
    1,117
    
    
    
    3Fixed Income Total
    
    $
    31,348
    
    
    $
    691,121
    
    
    
    799Equity SecuritiesTotal Held In A Gain Position
    
    $
    82,746
    
    
    $
    161,115
    
    
    
    203Held In A Loss Position For Less Than 3 Months
    
    
    (289
    )
    
    
    7,761
    
    
    
    25Held In A Loss Position For More Than 3 Months
And Less Than 9 Months
    
    
    (140
    )
    
    
    2,037
    
    
    
    6Held In A Loss Position For More Than 9 Months
And Less Than 18 Months
    
    
    (48
    )
    
    
    305
    
    
    
    2Held In A Loss Position For More Than 18 Months
    
    
    (648
    )
    
    
    3,432
    
    
    
    9Equity Total
    
    $
    81,621
    
    
    $
    174,650
    
    
    
    245Total Per Above
    
    $
    112,969
    
    
    $
    865,771
    
    
    
    1,044Accrued Interest and Dividends
    
    
    
    
    
    
    7,952Total Per Balance Sheet
    
    $
    112,969
    
    
    $
    873,723
 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 March 31, 2004. However, the facts and circumstances related to
these securities may change in future periods, which could result in
other-than-temporary impairments in future periods. The average duration of American Moderns debt security investment portfolio as
of March 31, 2004 was 4.1 years which management believes provides adequate
asset/liability matching. 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 $1.9 million for the first three months of
2004 and a total of $14.8 million from inception in 2000. The initiative is
being designed, developed and implemented in periodic phases to ensure its cost
effectiveness and functionality. This project may involve future cash
expenditures of $5.0 million to $8.0 million annually over the next two to
three years, with additional spending thereafter to expand system compatibility
and functionality. A portion of such expenditures will be capitalized and
amortized over the useful life. 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




---



##### Table of Contents



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 $72.0 million long-term credit facility available on a
revolving basis at various rates. As of March 31, 2004, there was $36.0
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 March 31, 2004 was $(1.4) 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 69% of American Moderns accounts
receivables relate to premium due directly from policyholders as of March 31,
2004. In the case of receivables due from agents, American Modern has offered
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, 2003, American Moderns accounts receivable has increased $3.3
million to $75.9 million at March 31, 2004 due primarily to an increase of $6.5
million in receivables related to marketable securities sold at the end of the
quarter offset by a $3.7 million decrease in property and casualty receivables
related to written premium volume. The decrease of $3.6 million in deferred policy acquisition costs is primarily
due to net earned premium outpacing net written premium during the first
quarter coupled with the impact of the Pay for Performance program. This
program reduces the front-end commission and shifts the bulk of the agents
compensation to a back-end loaded profit sharing arrangement. The $15.3 million decrease in unearned insurance premiums was also due to the
net earned premium outpacing net written premium during the first quarter in
addition to the reduction of unearned premium related to the life operations
resulting from the transition to a monthly pay premium. The $4.2 million increase in insurance commissions payable is due to the net
increase of $3.6 million in property and casualty contingent commissions
payable as a result of the strong underwriting profitability of the property
and casualty operations in the first quarter of 2004. 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. 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. As of March 31, 2004, the transportation
subsidiaries had $10.4 million of collateralized equipment obligations
outstanding. Like the insurance operations, cash flow from the transportation
subsidiaries is expected to remain sufficiently positive to meet future
operating requirements.




---



##### Table of Contents



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-month periods ended March 31, 2004 and 2003, such changes increased or
(decreased), net of related income tax effects, by the following (amounts in
$000s): Three Months EndedMarch 31,2004
    
    2003Changes in net unrealized capital gains:Equity securities
    
    $
    (3,413
    )
    
    $
    (2,655
    )Fixed income securities
    
    
    2,359
    
    
    
    312Changes in fair value of interest
rate swap hedge
    
    
    (10
    )
    
    
    (19
    )Total
    
    $
    (1,064
    )
    
    $
    (2,362
    )
 Changes in net unrealized gains on marketable securities result from both
market conditions and realized gains recognized in a reporting period. Changes
in the fair value of the interest rate swap agreement are predicated on the
current interest rate environment relative to the fixed rate of the swap
agreement. 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 assets. 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. 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 premiums are earned. Selling and administrative expenses that are not
primarily related to premium written are expensed as incurred.




---



##### Table of Contents



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 March 31, 2004, American Modern was owed $7.2 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 carrying 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. 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 March 31, 2004, we
had no significant concentration of unrealized losses in any one issuer,
industry or sector.




---



##### Table of Contents



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 make 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 managers 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 indicated
their intent to sell a security in the near term and there is an unrealized
loss, we record an other-than-temporary impairment at the balance sheet date,
if such date is prior to the sale of the security. At March 31, 2004, we had
no securities with an unrealized loss for which a decision was made to sell in
the near term. 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.




---



##### Table of Contents



Asset Impairment Midland regularly evaluates the carrying value of its assets for potential
impairment. These assets include property, plant and equipment, intangible
assets such as goodwill, deferred tax assets and deferred acquisition costs.
Generally, potential impairment is determined based on a comparison of fair
value to the carrying value. The determination of fair value can be highly
subjective, specifically for assets that are not actively traded or when market
based prices are not available. The initial valuation, subsequent impairment
tests and determining the impairment amount, if any, may require the use of
significant management estimates. New Accounting Standards In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits  an amendment of
FASB statements No. 87, 88 and 106. The revised statement
(SFAS No. 132(R)) requires additional disclosures about the assets, obligations, cash flows, and
net periodic benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. In 2004, SFAS No. 132(R) requires interim-period
disclosure of components of net pension and other postretirement benefit cost.
Midland adopted this standard and all of its required disclosures. 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.




---



##### Table of Contents



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 4.1 year duration of American Moderns fixed
income portfolio as of March 31, 2004, management estimates that a 100 basis
point increase in interest rates would decrease the market value of its $720.5
million fixed income portfolio by 4.1%, or $29.5 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 March 31, 2004, American Modern had $162.9 million in
equity holdings, including $55.8 million of U.S. Bancorp common stock. As of
March 31, 2004, the remainder of American Moderns portfolio of equity
securities (excluding U.S. Bancorp) 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%. American Moderns and Midlands
combined equity holding of U.S. Bancorp common stock totaled $68.0 million at
March 31, 2004. A 10% decrease in the market value of U.S. Bancorps common
stock would decrease the consolidated fair value of our equity holdings by
approximately $6.8 million. 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-15(e) 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 are
effective. The Company maintains a system of internal control over financial reporting.
There have been no changes in the Companys internal control over financial
reporting that occurred during the Companys first fiscal quarter that has
materially affected, or is reasonably likely to materially effect, the
Companys internal control over financial reporting.




---



##### Table of Contents



INDEPENDENT ACCOUNTANTS REPORT The Midland Company: We have reviewed the accompanying condensed consolidated balance sheet of The
Midland Company and subsidiaries the Company as of March 31, 2004, and the
related condensed consolidated statements of income, changes in shareholders
equity and cash flows for the three-month periods ended March 31, 2004 and
2003. 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 inquiries 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, 2003, 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 24, 2004, 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, 2003 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 May 3, 2004




---



##### Table of Contents



PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
MARCH 31, 2004 
  Item 1.
    
    Legal ProceedingsNone 
  Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity SecuritiesDuring the quarter ended March 31, 2004, the Company did not purchase any of its equity securities pursuant to a
publicly announced plan or program. However, during the first fiscal quarter, the Company acquired 97,553 shares in
private transactions from employees in connection with its stock incentive plans. Such transactions essentially
accommodate employees funding requirements of the exercise price and tax liabilities arising from the exercise or
receipt of equity-based incentive awards. Additionally, pursuant to the Companys Salaried Employees 401(k) Savings
Plan, the Company acquired 3,076 shares from the Plan during the first fiscal quarter of 2004. 
  Item 3.
    
    Defaults Upon Senior SecuritiesNone 
  Item 4.
    
    Submission of Matters to a Vote of Security HoldersAt the Companys 2003 Annual Meeting of Shareholders held on April 8, 2004, 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 2007 Annual
Meeting and until their successors are chosen and qualified: Votes
    
    
    
    
    
    BrokerName
    
    Votes For
    
    Withheld
    
    Abstentions
    
    Non-VotesJ. P. Hayden, Jr.
    
    
    14,762,355
    
    
    
    3,028,033
    
    
    
    0
    
    
    
    0William T. Hayden
    
    
    14,770,538
    
    
    
    3,019,850
    
    
    
    0
    
    
    
    0John M. OMara
    
    
    16,997,399
    
    
    
    792,989
    
    
    
    0
    
    
    
    0Glenn E. Schembechler
    
    
    17,141,138
    
    
    
    649,250
    
    
    
    0
    
    
    
    0Francis Marie Thrailkill
    
    
    17,180,688
    
    
    
    609,700
    
    
    
    0
    
    
    
    0John I. Von Lehman
    
    
    14,797,558
    
    
    
    2,992,830
    
    
    
    0
    
    
    
    0
  b)
    
    A proposal by the Board of Directors to adopt The Midland
Company Executive Annual Incentive Plan and approval of
performance conditions applicable to certain awards under the
incentive plan. The shareholders cast 14,741,347 votes in favor
of this proposal and 148,188 votes against it. There were 60,058
abstentions and no broker non-votes.c)
    
    A proposal by the Board of Directors for the adoption of
an amendment to The Midland Company 2002 Employee Incentive Stock
Plan and approval of performance conditions applicable to certain
awards under the 2002 plan as well as performance conditions under
the 1992 Associate Stock Incentive Plan. The shareholders cast
13,791,584 votes in favor of this proposal and 1,105,272 votes
against it. There were 52,738 abstentions and no broker
non-votes.d)
    
    A proposal by the Board of Directors to approve The
Midland Company Agent Stock Acquisition Program. The shareholders
cast 14,503,549 votes in favor of the proposal and 388,238 votes
against it. There were 57,807 abstentions and no broker
non-votes.e)
    
    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, 2004, was
approved by the Shareholders. The Shareholders cast 17,656,527
votes in favor of this proposal and 83,980 votes against it.
There were 49,880 abstentions and no broker non-votes.




---



##### Table of Contents



PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
(Continued) 
  Item 5.
    
    Other InformationNone 
  Item 6.
    
    Exhibits and Reports on Form 8-K  a)
    
    Exhibit 15 - Letter re: Unaudited Interim Financial
InformationExhibit 31.1 - Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934Exhibit 31.2 - Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934Exhibit 32.1 - Certification of Chief Executive Officer Pursuant to
18 U.S.C. § 1350Exhibit 32.2 - Certification of Chief Financial Officer Pursuant to
18 U.S.C. § 1350b)
    
    Reports on Form 8-K  The Company filed a Current Report
on Form 8-K on February 6, 2004 referencing an underwriting
agreement with McDonald Investments Inc. pertaining to the public
sale of 1,150,000 shares of the Companys common stock registered
pursuant to a shelf registration statement previously filed with
the Securities and Exchange Commission.The Company filed a Current Report on Form 8-K on February 18, 2004
in connection with slides presented to several institutional
investment portfolio managers in accordance with Regulation FD. 
 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 COMPANYDate May 5, 2004
    
    s/John I. Von LehmanJohn I. Von Lehman, Executive Vice President,
Chief Financial Officer and Secretary