THE MIDLAND COMPANY
Annual Report
on Form 10-K
to the
Securities and Exchange Commission
for the
Year Ended December 31, 1993
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1993
Commission File Number - 1-6026
THE MIDLAND COMPANY
Incorporated in Ohio
I.R.S. Employer Identification No. 31-0742526
537 E. Pete Rose Way
Cincinnati, Ohio 45202
Tel. (513) 721-3777
Securities registered pursuant to Section 12(b) of the Act:
Common stock - no par value. - American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all
other reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to the filing requirements for the past 90 days.
Yes X . No .
The aggregate market value of the voting common stock held by
nonaffiliates, which includes shares held by executive officers and directors,
of the registrant as of March 4, 1994 was $119,963,000.
Number of shares of common stock outstanding as of March 4, 1994-
2,999,081.
Documents Incorporated By Reference
Annual Report to Shareholders for the year ended December 31, 1993
is incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 18, 1994 is incorporated by
reference into Parts III and IV.
THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1993
PART I
ITEM 1. Business.
Incorporated by reference in pages 2 through 11 and 26 of the
Registrant's 1993 Annual Report to Shareholders. The number of
persons employed by the Registrant was approximately 980 at
December 31, 1993.
ITEM 2. Properties.
Incorporated by reference in pages 2 through 11 of the Registrant's
1993 Annual Report to Shareholders.
ITEM 3. Legal Proceedings.
None other than ordinary routine litigation incidental to the
business of the Company and its subsidiaries.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None during the fourth quarter.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Security
Holder Matters. Incorporated by reference to pages 25 and 26
(Note 13), and 28 and 29 of the Registrant's 1993 Annual Report
to Shareholders.
ITEM 6. Selected Financial Data.
Incorporated by reference to page 13 of the Registrant's 1993 Annual
Report to Shareholders.
ITEM 7. Management's Discussion And Analysis of Financial Condition And
Results of Operations.
Incorporated by reference to pages 14 and 15 of the Registrant's
1993 Annual Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 16 through 28 of the Registrant's
1993 Annual Report to Shareholders.
ITEM 9. Disagreements on Accounting and Financial Disclosures.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Incorporated by reference to the Registrant's Proxy Statement dated
March 18, 1994.
PART III (Continued)
Executive Officers Of The Company-
J. P. Hayden, Jr. - Age 64 - Chairman and Chief Executive
Officer
Michael J. Conaton - Age 60 - President and Chief Operating
Officer
John R. LaBar - Age 62 - Vice President and Secretary
Robert W. Hayden - Age 55 - Vice President
John I. Von Lehman - Age 41 - Vice President, Treasurer
and Chief Financial Officer
Thomas J. Rohs - Age 52 - Vice President
J. P. Hayden III - Age 41 - Vice President
John W. Hayden - Age 36 - Vice President
Robert N. Thornbladh - Age 41 - Vice President
Michael L. Flowers - Age 42 - Vice President, Assistant
Secretary and Chief
In-House Counsel
J. P. Hayden, Jr. and Robert W. Hayden are brothers. J. P. Hayden,
III and John W. Hayden are sons of J. P. Hayden, Jr.
During 1988, Michael J. Conaton was elected President and Chief
Operating Officer (formerly Executive Vice President and Chief Financial
Officer).
During 1988, John I. Von Lehman was elected Vice President and Chief
Financial Officer and retained the title of Treasurer (formerly Treasurer and
Chief Accounting Officer).
During 1990, Robert N. Thornbladh joined the Company as Vice
President. He was formerly employed by Nutmeg Industries.
During 1991, Michael L. Flowers (formerly Assistant Secretary) was
elected Vice President.
The officers listed above have served in the positions indicated for
the past five years (except as noted above).
ITEM 11. Executive Compensation.
Incorporated by reference to the Registrant's Proxy Statement dated
March 18, 1994.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 18, 1994.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 18, 1994.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
Incorporated by reference in Part II of this report:
PART IV (Continued)
Data pertaining to The Midland Company and Subsidiaries -
Report of Independent Public Accountants.
Consolidated Balance Sheets, December 31, 1993 and 1992.
Consolidated Statements of Income and Retained Earnings for
the Years Ended December 31, 1993, 1992 and 1991.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules.
Included in Part IV of this report:
Data pertaining to The Midland Company
and Subsidiaries - Page
Independent Auditors' Consent and Report
on Schedules 7
Schedule I - Marketable Securities - Other
Investments, December 31, 1993 8
Schedule V - Property, Plant and Equipment
for the Years Ended December 31, 1993,
1992 and 1991 9
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant and Equipment
for the Years Ended December 31, 1993, 1992
and 1991 10
Schedule VIII - Allowance for Losses for the
Years Ended December 31, 1993, 1992 and 1991 11
Schedule IX - Short-Term Borrowings for the Years
Ended December 31, 1993, 1992 and 1991 12
Schedule X - Supplementary Income Statement
Information for the Years Ended
December 31, 1993, 1992 and 1991 13
All other schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable,
and therefore have been omitted.
(a) 3. Exhibits.
3. Articles of Incorporation and By-Laws - Filed as
Exhibit 3 to the Registrant's 1980 Annual Report on
Form 10-K, and incorporated herein by reference.
10. A description of the Company's Stock Option Plan and
Profit Sharing Plan - Incorporated by reference to
the Registrant's Proxy Statement dated March 18, 1994.
11. Computation of Consolidated Net Income Per Share for the
years ended December 31, 1993, 1992 and 1991
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1993 Annual Report
to Shareholders
21. Subsidiaries of the Registrant
22. Registrant's Proxy Statement dated - Incorporated by
reference to the Registrant's Proxy Statement dated
March 18, 1994.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
THE MIDLAND COMPANY
Signature Title Date
S/ George R. Baker Director March 3, 1994
(George R. Baker)
S/ James H. Carey Director and Member March 3, 1994
(James H. Carey) of Audit Committee
S/ Michael J. Conaton President, Chief Operating March 3, 1994
(Michael J. Conaton) Officer and Director
S/ J. P. Hayden, Jr. Chairman, Chief Executive March 3, 1994
(J. P. Hayden, Jr.) Officer and Director
S/ J. P. Hayden, III Vice President and Director March 3, 1994
(J. P. Hayden, III)
S/ John W. Hayden Vice President and Director March 3, 1994
(John W. Hayden)
S/ Robert W. Hayden Vice President and Director March 3, 1994
(Robert W. Hayden)
S/ William J. Keating Director March 3, 1994
(William J. Keating)
S/ William McD. Kite Director March 3, 1994
(William McD. Kite)
S/ John R. LaBar Vice President, Secretary March 3, 1994
(John R. LaBar) and Director
S/ John M. O'Mara Director and Member March 3, 1994
(John M. O'Mara) of Audit Committee
S/ John R. Orther Director and Member March 3, 1994
(John R. Orther) of Audit Committee
S/ William F. Plettner Director March 3, 1994
(William F. Plettner)
S/ Glenn E. Schembechler Director and Member March 3, 1994
(Glenn E. Schembechler) of Audit Committee
S/ John I. Von Lehman Vice President, Treasurer, March 3, 1994
(John I. Von Lehman) Chief Financial Officer,
Chief Accounting Officer
and Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has dully caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE MIDLAND COMPANY
Signature Title Date
S/ J. P. Hayden, Jr. Chairman and Chief Executive March 3, 1994
(J. P. Hayden, Jr.) Officer
S/ John I. Von Lehman Vice President, Treasurer, March 3, 1994
(John I. Von Lehman) Chief Financial Officer and
Chief Accounting Officer
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
-----------------------------------------------------
To the Shareholders of The Midland Company:
We consent to the incorporation by reference in Registration Statement No.
33-48511 of The Midland Company on Form S-8 of our report dated February 10,
1994, incorporated by reference in this Annual Report on Form 10-K and our
report (appearing below) on the financial statement schedules of The Midland
Company for the year ended December 31, 1993.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedules of The
Midland Company and its subsidiaries, listed in Item 14. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
March 14, 1994
SCHEDULE I
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
DECEMBER 31, 1993
. . . . . . .December 31, 1993. . . . . . .
- --------------------------------------------------------------------------------
Column A Column C Column D Column E
- -------------------------------------------------------------------------------
Amount at
which shown
Market in the
Type of Investment Cost Value balance sheet
- --------------------------------------------------------------------------------
Bonds and notes:
United States Government
and government agencies
and authorities $ 69,482,000 $ 72,477,000 $ 72,477,000
States, municipalities
and political subdivisions 61,642,000 64,998,000 64,998,000
All other corporate 56,479,000 56,942,000 56,942,000
--------------------------------------------
Total bonds and notes 187,603,000 194,417,000 194,417,000
--------------------------------------------
Preferred stocks 294,000 419,000 419,000
--------------------------------------------
Common stocks:
Star Banc Corporation 2,073,000 9,457,000 9,457,000
All other common stocks 14,497,000 17,466,000 17,466,000
--------------------------------------------
Total common stocks 16,570,000 26,923,000 26,923,000
--------------------------------------------
Accrued investment income 2,855,000 2,855,000 2,855,000
--------------------------------------------
Total investments $207,322,000 $224,614,000 $224,614,000
============================================
NOTE: The individual issue disclosed above is the only individual
issue requiring separate disclosure.
SCHEDULE V
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
Land $ 488,000 $ 813,000 $ 45,000 $ 1,256,000
Buildings, improvements,
fixtures, etc. 27,516,000 17,028,000 3,378,000 41,166,000
Vessels and barges 122,193,000 14,394,000 1,988,000 134,599,000
River transportation
equipment under capital
leases 8,143,000 -- -- 8,143,000
Construction-in-progress 4,881,000 (4,881,000) -- --
----------------------------------------------------
TOTAL $163,221,000 $27,354,000 $5,411,000 $185,164,000
====================================================
YEAR ENDED DECEMBER 31, 1992:
Land $ 488,000 $ -- $ -- $ 488,000
Buildings, improvements,
fixtures, etc. 23,754,000 5,240,000 1,478,000 27,516,000
Vessels and barges 115,578,000 7,487,000 872,000 122,193,000
River transportation
equipment under capital
leases 8,143,000 -- -- 8,143,000
Construction-in-progress -- 4,881,000 -- 4,881,000
----------------------------------------------------
TOTAL $147,963,000 $17,608,000 $2,350,000 $163,221,000
====================================================
YEAR ENDED DECEMBER 31, 1991:
Land $ 488,000 $ -- $ -- $ 488,000
Buildings, improvements,
fixtures, etc. 22,119,000 2,676,000 1,041,000 23,754,000
Vessels and barges 105,389,000 10,285,000 96,000 115,578,000
River transportation
equipment under capital
leases 8,143,000 -- -- 8,143,000
----------------------------------------------------
TOTAL $136,139,000 $12,961,000 $1,137,000 $147,963,000
====================================================
SCHEDULE VI
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
Buildings, improvements,
fixtures, etc. $ 9,756,000 $ 3,699,000 $1,145,000 $12,310,000
Vessels and barges 54,574,000 5,778,000 1,763,000 58,589,000
River transportation
equipment under capital
leases 5,849,000 524,000 -- 6,373,000
----------------------------------------------------
TOTAL $70,179,000 $10,001,000 $2,908,000 $77,272,000
====================================================
YEAR ENDED DECEMBER 31, 1992:
Buildings, improvements,
fixtures, etc. $ 7,883,000 $ 2,839,000 $ 966,000 $ 9,756,000
Vessels and barges 49,356,000 5,787,000 569,000 54,574,000
River transportation
equipment under capital
leases 5,325,000 524,000 -- 5,849,000
----------------------------------------------------
TOTAL $ 62,564,000 $ 9,150,000 $1,535,000 $70,179,000
====================================================
YEAR ENDED DECEMBER 31, 1991:
Buildings, improvements,
fixtures, etc. $ 6,028,000 $ 2,417,000 $ 562,000 $ 7,883,000
Vessels and barges 44,129,000 5,301,000 74,000 49,356,000
River transportation
equipment under capital
leases 4,801,000 524,000 -- 5,325,000
----------------------------------------------------
TOTAL $ 54,958,000 $ 8,242,000 $ 636,000 $62,564,000
====================================================
SCHEDULE VIII
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE VIII - ALLOWANCE FOR LOSSES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
Allowance For Losses $1,192,000 $357,000 $432,000 (1) $1,117,000
YEAR ENDED DECEMBER 31, 1992:
Allowance For Losses $1,133,000 $297,000 $238,000 (1) $1,192,000
YEAR ENDED DECEMBER 31, 1991:
Allowance For Losses $ 943,000 $195,000 $ 5,000 (1) $1,133,000
NOTES: (1) Accounts written off are net of recoveries.
SCHEDULE IX
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
-- END OF PERIOD --- ------ DURING THE PERIOD ----------
WEIGHTED WEIGHTED
CATEGORY OF AVERAGE MAXIMUM AVERAGE AVERAGE
SHORT-TERM INTEREST AMOUNT AMOUNT INTEREST
BORROWINGS BALANCE RATE OUTSTANDING OUTSTANDING RATE
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
Bank Borrowings $22,000,000 3.5% $27,000,000 $13,583,000 3.5%
Commercial Paper 14,302,000 3.3% 15,129,000 11,096,000 3.7%
YEAR ENDED DECEMBER 31, 1992:
Bank Borrowings $27,000,000 4.1% $27,000,000 $ 2,669,000 3.8%
Commercial Paper 8,866,000 4.1% 10,208,000 9,135,000 4.7%
YEAR ENDED DECEMBER 31, 1991:
Bank Borrowings $12,000,000 5.2% $12,000,000 $ 323,000 7.7%
Commercial Paper 8,568,000 5.1% 9,686,000 8,097,000 6.5%
NOTE: The weighted average interest rate is computed by dividing actual
interest expense on borrowings by the average amount of such borrowings
during the year.
SCHEDULE X
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
CHARGED TO COSTS AND EXPENSES
1993 1992 1991
----------------------------------
Maintenance and repairs $4,972,000 $5,662,000 $3,015,000
==================================
Taxes, other than payroll and
income taxes:
Insurance premium taxes $5,971,000 $4,766,000 $3,995,000
Other 2,742,000 2,060,000 2,056,000
----------------------------------
Total $8,713,000 $6,826,000 $6,051,000
==================================
Exhibit (11)
THE MIDLAND COMPANY
AND SUBSIDIARIES
EXHIBIT (11) - COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
FOR THE YEARS DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
--------------------------------------------
Net Income $17,972,000 (a) $11,979,000 $9,231,000
============================================
Assuming no dilution:
Weighted average number of
shares outstanding 3,004,000 2,983,000 3,061,000
============================================
Per share (net income divided
by the weighted average number
of shares outstanding) $5.98 (a) $4.02 $3.02
============================================
Primary:
Adjusted shares outstanding -
after giving effect to
conversion of stock options
and stock awards 3,074,000 3,007,000 3,126,000
============================================
Per share - after giving effect
to conversion of stock options
and stock awards (net income
divided by adjusted shares
outstanding) $5.85 (a) $3.98 $2.95
============================================
Fully diluted:
Adjusted shares outstanding -
after giving effect to
conversion of stock options
and stock awards 3,078,000 3,079,000 3,151,000
============================================
Per share - after giving effect
to conversion of stock options
and stock awards (net income
divided by adjusted shares
outstanding) $5.84 (a) $3.87 $2.93
============================================
(a) Includes a credit of $4,867,000, $1.58 per common share (primary and fully
diluted), for the cumulative effect of a change in accounting from the adoption
of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, effective January 1, 1993.
MIDLAND ANNUAL REPORT PAGE 2
CHAIRMAN'S LETTER
Midland's income before cumulative effect of accounting change was
$13,105,000, $4.27 per share for 1993 and net income (after cumulative
effect of accounting change) was $17,972,000, $5.85 per share, on
revenues of $267,667,000. Net income for 1992 was $11,979,000, $3.98
per share, on revenues of $225,504,000. For the fourth quarter of 1993,
net income was $2,645,000, $.87 per share, on revenues of $70,848,000.
This compares to earnings for the fourth quarter of 1992 of $3,585,000,
$1.17 per share, on revenues of $62,533,000.
Midland's Board of Directors, at its March meeting, approved an
increase in the cash dividend paid to shareholders from 50 cents to 54
cents per common share on an annualized basis. This is the seventh
consecutive year that Midland's dividend has increased.
As detailed in Management's Discussion and Analysis on pages 14
and 15, the Company adopted two new accounting standards during 1993
that had a positive impact on the Company's financial statements. The
adoption of SFAS 109 resulted in a $4,867,000 reduction in the Company's
Federal Income Tax expense in 1993 and SFAS 115 resulted in the Company
increasing Shareholders' Equity by approximately $5,659,000.
The book value of Midland's stock was $44.39 per share as of
December 31, 1993 compared to $37.52 at December 31, 1992. As a result
of the Company's profitable operations along with the
accounting adjustments discussed on pages 14 and 15, Midland's
Shareholders' Equity increased approximately $21,527,000 during 1993, a
19% increase. The total assets of The Midland Company continued to grow
during 1993 as they reached a record level of $435,598,000.
American Modern Home Group (AMHG), the Company's insurance
subsidiary reported another record year. Net premiums written increased
26% from 1992 to 1993 while net underwriting income increased 39% over
the same period. This growth is a result of product diversification and
growth in existing lines of business. AMHG's combined ratio (the ratio
of losses and expenses to premiums earned) was 94% for 1993, a level
considered excellent by industry standards. This compares to the
estimated industry average of 109.2% and is lower than the 94.6%
reported by AMHG for 1992.
American Modern Home Group was able to produce these record
numbers even though we participated in heavy losses caused by the severe
storm that struck the eastern portion of the United States in March 1993
and the record flooding which occurred throughout the midwest in July
1993.
AMHG reached a settlement on California Proposition 103 during
September 1993. AMHG had reserved approximately $2,800,000 (net of
federal tax) more than the ultimate cost of settlement and, accordingly,
this amount was taken into income during the third quarter of 1993.
We are pleased that American Modern Home Group has once again
earned the preferred industry rating of A+ Superior by the A.M. Best
Company. This rating is indicative of the financial strength, sound
operating philosophies and conservative investment policies of your
Company. We have no investments in real estate. The fixed income
portfolio
MIDLAND ANNUAL REPORT PAGE 3
continues to have a weighted quality average of approximately AAA. The
market value of the investment portfolio exceeds the cost by
approximately $14,588,000. In addition, the portfolio generated over
$3,700,000 in realized capital gains during 1993, an increase of
approximately 150% over the prior year.
AMHG remains confident of its future. We continue to grow through
expansion in markets that we currently service and through additional
product offerings.
M/G Transport Services, Inc., the Company's inland waterways
transportation subsidiary, primarily hauls coal and aggregate on the
Ohio and Mississippi rivers and their tributaries. Operating income was
significantly improved over 1992 in spite of the adverse effect of the
depressed affreigtment rates and excess capacity that exists in the
market place. Utilization of the Company's fleet was 81% for 1993. M/G
Transport, while encouraged with the increase in operating profits from
1992 to 1993, will continue to look for a niche business that will allow
us to take advantage of existing assets and to contribute positively to
the profits of The Midland Company.
Sales for CS Crable Sportswear, Inc., the Company's sportswear
division, were comparable to 1992. CS Crable applies embroidery and
screen printing processes onto high quality sportswear garments
featuring designs of major colleges and universities, many of the
professional leagues, golf and life-style themes.
CS Crable recently signed an exclusive licensing agreement with
Pebble Beach to produce and market golf-related products under the name
of "Pebble Beach Sportswear by CS Crable." We feel this is a
significant new market area for us. CS Crable will continue to pursue
other licenses that management believes fit into the Company's plans for
the future.
As we previously announced, CS Crable's new 290,000 square foot
office, production and warehouse facility was completed and occupied on
May 30, 1993. This new facility has allowed Crable to consolidate all
of the functions of this division into one location.
The Midland Company was saddened by the death of William N.
Liggett in February 1993. Mr. Liggett served on Midland's Board of
Directors since 1970. Mr. Liggett's impact on The Midland Company will
be felt for many years to come. We will miss Bill Liggett, not only as
a business associate, but as a true friend.
The past year was an important and successful year for The Midland
Company. Without the support of all those associated with your Company,
the successes of 1993 would not have been possible. We continue to be
optimistic about the opportunities for the long term growth and
profitability of your Company.
Sincerely yours,
J. P. Hayden, Jr.
Chairman
February 10, 1994
MIDLAND ANNUAL REPORT PAGE 4
OPERATIONS REVIEW
RIVER TRANSPORTATION
M/G Transport Services, Inc. operates one of the larger inland waterways
fleets in the United States. The Company transports primarily coal and
aggregate on the Ohio and Mississippi rivers and the tributaries. Transport's
fleet consists of 612 open-hopper barges and 13 full-line towboats with 70,800
total horsepower.
SPORTSWEAR
CS Crable Sportswear, Inc. applies embroidery and screenprinting
processes onto high quality sportswear featuring designs of major colleges and
universities, the National Football League, golf and life-style themes. The
Company maintains its own salesforce for marketing its products throughout the
United States. Primary emphasis has been on major department stores, sporting
good stores and college bookstores.
INSURANCE
American Modern Home Group consists of six property and casualty
companies and two credit life companies. AMHG is licensed in all 50 states.
Traditionally, AMHG has specialized in writing physical damage insurance and
related coverage on manufactured housing, but has in recent years expanded its
operations to include Lower Valued Homes, Dwelling Fire, Homeowners, Mortgage
Fire, Collateral Protection, Watercraft, Long-Haul Truck and Excess and
Surplus Lines.
MIDLAND ANNUAL REPORT PAGE 5
INSURANCE
We are pleased to report that the American Modern Home Group,
which comprises The Midland Company's insurance operations, turned in a
record-setting performance in 1993. Net premiums written increased by
more than 26% for the year, and net underwriting income increased over
39%. The Group recorded a 94% combined ratio for the year, which
compares most favorably with an estimated industry result of 109.2%.
AMHG's combined ratio has been below 100% in six of the last seven
years, an outstanding performance record by any measure.
These results are especially noteworthy in that they were achieved
during one of the industry's worst years on record for insured
catastrophe losses. American Modern Home sustained nearly $4.8 million
in losses on an after-tax basis as a result of the "winter hurricane"
which struck the eastern half of the United States in March and, to a
lesser extent the record setting Midwest floods of July and August.
The Company attributes a large portion of its success to our
disciplined strategic planning. Dating back to its first formal
planning conference in the fall of 1984, American Modern Home has
maintained an unwavering commitment to the planning process. As the
organization continues along the growth curve, it places particular
emphasis on the value of spreading the plan as broadly as possible
throughout the organization. The sense of purpose and focus this lends
to the organization is, we believe, reflected in the Group's results.
The results discussed above also benefited from the Company's
settlement with the state of California of that state's Proposition 103
voter insurance referendum. AMHG had reserved approximately $2,800,000
(net of taxes) more than the ultimate cost of the settlement. This
amount was taken into income in September as negotiations with the state
were concluded.
Consisting of six property and casualty companies and two life
companies, the American Modern Home Group continues to position itself
for future growth. Significant resources have been allocated for the
aggressive expansion of its Financial Services, Commercial Lines and
Life Insurance operations. As a sign of its commitment to these areas,
the Company has added several key experienced industry professionals to
our staff.
THIS PAGE INCLUDES TWO BAR CHARTS WITH THE FOLLOWING DATA. THE FIRST CHART IS OF
NET WRITTEN PREMIUMS AND THE SECOND IS TOTAL ASSETS. BOTH ARE FOR 10 YEARS.
NET WRITTEN PRMIUMS TOTAL ASSETS
1984 $65,491 $105,049
1985 71,636 118,026
1986 80,979 127,695
1987 95,570 146,285
1988 94,182 159,703
1989 94,537 170,135
1990 107,896 171,734
1991 124,161 201,929
1992 144,642 231,360
1993 183,162 280,669
AMOUNTS IN THOUSANDS.
MIDLAND ANNUAL REPORT PAGE 6
Renewed emphasis on life insurance operations resulted in a change
of name to American Modern Life and the re-domestication of this
operation to Ohio. It is also worth noting that Midland created an
insurance holding company during the year, to be known as American
Modern Home Group, Inc. This vehicle provides the insurance operations
additional means to increase policyholder surplus and support future
premium growth.
American Modern Home has once again earned the preferred industry
rating of A+ Superior from the A. M. Best Company. We are deeply
committed to and very proud of this rating as it reflects the financial
strength and sound operating philosophies of the Company. Of perhaps
equal importance, however, is the Company's reputation for delivering
quality products supported by superior service. While it may sound
trendy to say that AMHG is focused on quality, we believe it to be true.
The Company's goal is Excellence, and the process it is pursuing to
achieve this goal is continuous improvement. The focus group session
pictured at left is but one example of the Company's efforts to get more
in touch with its customers' expectations. We view this commitment to
quality as an absolute prerequisite to the Company's future success.
AMHG's investment portfolio continues to be conservatively
invested in high quality securities. There are no real estate holdings
in the portfolio. The fixed income portfolio maintains a weighted
quality average of approximately AAA, and the market value of the
overall portfolio exceeds cost by approximately $14,588,000. In 1993,
the portfolio generated more than $3,700,000 in capital gains. We
believe the security of this portfolio is of paramount importance.
We would like to express our gratitude to the many business
partners who have contributed to our continued success. We have
committed ourselves to excellence and believe that we will be successful
in earning your continued support. We would also like to thank our
staff, for without their dedication, we would not be able to meet our
goal of excellence.
THIS PAGE INCLUDES A PHOTO OF A "FOCUS GROUP" CONSISTING OF 6 PEOPLE
GATHERED AROUND A CONFERENCE TABLE.
MIDLAND ANNUAL REPORT PAGE 7
PAGE 7 OF THE MIDLAND COMPANY ANNUAL REPORT IS PART OF THE INSURANCE
SECTION AND CONSISTS OF A PICTURE OF A MANUFACTURED HOME. THERE IS ALSO THE
FOLLOWING "AMHG HAS ONCE AGAIN EARNED THE PREFERRED INDUSTRY RATING OF
A+ SUPERIOR."
MIDLAND ANNUAL REPORT PAGE 8
M/G TRANSPORT SERVICES, INC.
M/G Transport Services, Inc., Midland's river transportation
division, operates one of the larger inland waterway fleets in the
United States. The Company transports coal, aggregate, petroleum coke
and miscellaneous dry bulk commodities on the nations inland waterways
system.
M/G Transport's operating income for 1993 was significantly
improved over 1992 in spite of the adverse effect of the depressed
affreigtment rates and excess capacity that continue to exist within the
industry. Because M/G Transport operates primarily in the Ohio River
Valley and the lower Mississippi, the severe flooding which affected the
midwest during July and August 1993 had a very minor impact on M/G's
operating income. M/G's pursuit of export traffic and the increased
demand from its utility customers caused the utilization of the
Company's fleet increased from 67% in 1992 to 81% for 1993. M/G's fleet
consists of 652 barges and 13 full-line boats. In addition, the Company
placed covers on approximately 80 barges which has allowed us to
diversify into the dry bulk commodity market place.
Despite these improved operating efficiencies, 1994 will be a very
challenging year for M/G Transport. The majority of our fleet will be
utilized through both long-term contracts and short-term "spot" moves.
It appears that market conditions will continue to be depressed and, as
a result, adversely affect M/G's operating profit for 1994. We will
continue to pursue new contracts and investigate new ways to improve
operating efficiencies. We believe that we will continue to grow and be
profitable in the future.
Management continues to explore the possibility of future
expansion through acquisition of similar or related businesses. We
would like to take this opportunity to thank everyone associated with
M/G Transport for their continued support.
THIS PAGE ALSO INCLUDES A PHOTO OF A NEW BARGE BEING LAUNCHED.
MIDLAND ANNUAL REPORT PAGE 9
PAGE 9 OF THE MIDLAND ANNUAL REPORT CONSISTS OF A PHOTO OF A MOTOR VESSEL WITH
A TOW OF BARGES WITH THE FOLLOWING CAPTION: "THE M/V POLO II PUSHES A COAL TOW
DOWN THE OHIO TO ONE OF M/G'S UTILITY CUSTOMERS."
MIDLAND ANNUAL REPORT PAGE 10
CS CRABLE SPORTSWEAR, INC.
CS Crable applies embroidery and screenprinting processes onto
high quality sportswear garments featuring designs of major colleges and
universities, many of the professional leagues, golf and life-style
themes. The CS Crable label has now come to be recognized as one of the
premier sportswear embroidery companies in the United States. In
addition, CS Crable's capabilities in screenprinting are also being
recognized as being among the best in the industry.
CS Crable recently signed an exclusive licensing agreement with
Pebble Beach to produce and market a complete line of apparel under the
name of "Pebble Beach Sportswear by CS Crable." Management is very
excited about this exclusive license as it allows us to expand into a
much broader category of business with our retail partners and to enter
the golf-related markets. This introductory Pebble Beach product line
has performed very well in focus groups as well as initial test markets.
In addition, we continued to expand on current licensing
agreements with Major League Baseball, the National Football League and
the National Hockey League. We will continue to pursue other licenses,
including professional licenses, that management believes fit into the
Company's plans for the future.
CS Crable's new 290,000 square foot office, production and
warehouse facility located on 89 acres just outside Cincinnati, was
completed and occupied on May 30, 1993. This new facility, pictured on
the opposite page, has allowed CS Crable to consolidate all of its
functions into one location as well as allow for anticipated growth of
this division.
Sales for CS Crable Sportswear, Inc., the Company's sportswear
division, were below management's expectations. The growth in sales did not
develop as projected. Sales of CS Crable's "upper-end" products did not
experience growth in the cautious economic climate that existed in 1993 and, as
a result, our profit margins were adversely effected.
Management believes that we have taken important steps to improve
operating margins in the future. Among these are the ability to improve
our sourcing of garments as a result of successfully completing a major
import program during 1993. We have increased manufacturing
efficiencies by relocating to our new facility.
The management of CS Crable Sportswear would like to thank our
entire staff for their hard work and dedication. In addition, we thank
all of our customers for their continued loyalty and we pledge to
maintain our philosophy of providing high standards of quality and
service.
THIS PAGE ALSO INCLUDES A PHOTO OF FIVE CS CRABLE GARMENTS.
MIDLAND ANNUAL REPORT PAGE 11
PAGE 11 OF THE MIDLAND ANNUAL REPORT IS PART OF THE CS CRABLE SPORTSWEAR
SECTION. PAGE 11 INCLUDES A PHOTO OF THE NEW CS CRABLE OFFICE, PRODUCTION AND
WAREHOUSE FACILITY ALONG WITH THE FOLLOWING "CS CRABLE SPORTSWEAR CONTINUES TO
EXPAND ITS PROFESSIONAL SPORTS AND OTHER LICENSES.
MIDLAND ANNUAL REPORT PAGE13
SELECTED CONSOLIDATED FINANCIAL DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31,
- ------------------------
1993 1992 1991 1990 1989
-------------------------------------------------------------------
Revenues $267,667,000 $225,504,000 $202,583,000 $179,856,000 $158,996,000
-------------------------------------------------------------------
Net Income $ 17,972,000(a) $ 11,979,000 $ 9,231,000 $ 9,989,000 $ 9,216,000
-------------------------------------------------------------------
Earnings Per
Common Share-
Primary $5.85(a) $3.98 $3.02 $3.12 $2.80
-------------------------------------------------------------------
Earnings Per
Commons Share-
Fully Diluted $5.84(a) $3.87 $2.93 $3.06 $2.75
-------------------------------------------------------------------
Marketable
Securities $224,614,000 $188,531,000 $163,145,000 $138,642,000 $139,205,000
-------------------------------------------------------------------
Property,
Plant and
Equipment
(net) $107,892,000 $ 93,042,000 $ 85,399,000 $ 81,181,000 $ 77,500,000
-------------------------------------------------------------------
Total Assets $435,598,000 $359,702,000 $318,101,000 $280,319,000 $275,462,000
-------------------------------------------------------------------
Unearned
Insurance
Premiums $109,652,000 $ 89,732,000 $ 76,963,000 $ 65,872,000 $ 59,114,000
-------------------------------------------------------------------
Insurance
Loss
Reserves $ 37,133,000 $ 23,993,000 $ 22,733,000 $ 19,542,000 $ 21,331,000
-------------------------------------------------------------------
Long-Term
Debt $ 56,522,000 $ 34,801,000 $ 31,730,000 $ 30,670,000 $ 34,963,000
-------------------------------------------------------------------
Shareholders'
Equity $133,110,000 $111,583,000 $101,724,000 $ 93,102,000 $ 90,599,000
-------------------------------------------------------------------
Book Value
Per Share $44.39 $37.52 $33.69 $30.20 $27.88
-------------------------------------------------------------------
Dividends Per
Common Share $.54 $.50 $.46 $.42 $.38
-------------------------------------------------------------------
Common Shares
Outstanding 2,999,000 2,974,000 3,019,000 3,082,000 3,250,000
-------------------------------------------------------------------
(a)Includes a credit of $4,867,000, $1.58 per common share, for the cumulative
effect of change in accounting from the adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, effective
January 1, 1993.
MIDLAND ANNUAL REPORT PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE MIDLAND COMPANY AND SUBSIDIARIES
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reportable Segments
The Company's operations are classified into four reportable business
segments: Insurance, River Transportation, Sportswear and Finance and Other.
A description of these segments and comments with regard to their operations are
included below. In addition, please refer to the Chairman's Letter and to the
other information on page 4 and pages 5 through 11 of the Annual Report. Such
information, including the Quarterly Data presented on page 28, should also be
considered a part of this analysis.
Midland's insurance division consists of six property and casualty
companies and two credit life companies operating as American Modern Home Group.
AMHG is licensed to write business in all 50 states plus the District of
Columbia. The majority of the Company's business is physical damage insurance
on manufactured homes, generally written for a term of 12 months with coverages
similar to conventional homeowners insurance policies. Other insurance products
include Lower Valued Homes, Dwelling Fire, Homeowners, Mortgage Fire, Collateral
Protection, Watercraft, Long-Haul Truck, Commercial and Excess and Surplus
Lines.
Midland's river transportation division, M/G Transport Services, Inc.,
primarily hauls coal, aggregate, petroleum coke and miscellaneous dry bulk
commodities on the Ohio and Mississippi rivers and their tributaries.
Commodities are hauled under both long-term contracts and "spot" moves.
M/G Transport Services, Inc. currently operates one of the larger fleets on the
inland waterways system.
Midland's sportswear division, CS Crable Sportswear, Inc., purchases
basic garments and imprints these garments using embroidery and screenprinting
processes. Products are marketed by both company and independent sales
representatives located strategically throughout the United States.
Midland's finance operations have not been significant in recent years,
however, the Company continues to maintain a loan receivable portfolio.
Results of Operations
American Modern Home Group achieved a record level of profitability in
1993. This record setting performance was accomplished after the Company
absorbed approximately $4.8 million in after-tax losses from the severe winter
storm which devastated the eastern half of the United States and, to a lesser
extent, the record setting Midwest floods which occurred in July 1993. The
operating performance of this division was enhanced by the settlement of
California Proposition 103 which increased after-tax profits by $2.8 million.
This division continues to produce excellent underwriting results as evidenced
by its combined ratio (the ratio of losses and expenses to premiums earned) of
94% and 94.6% in 1993 and 1992, respectively. These ratios are considered
excellentby industry standards.
The increase in insurance revenues in 1993 and 1992 is due to the growth
in the Company's new insurance products which have been introduced in recent
years. Insurance claims and policy acquisition costs also increased in 1993 and
1992 due to the overall growth in written premiums.
River transportation revenues and related operating expenses increased
in 1993 primarily due to the addition of a large one year contract with a
utility. This contract was not renewed for 1994. Revenues and related expenses
decreased in 1992 primarily due to lower revenues on the Company's aggregate
hauling business. This reduction in aggregate tonnage in 1992 (and somewhat in
1993) was due to competing product being shipped into the United States from
Mexico. The river transportation business continues to be affected by excess
capacity in the industry. As the Company has previously announced,
M/G Transport has
MIDLAND ANNUAL REPORT PAGE 15
become aware of an investigation by Federal authorities. We believe that this
investigation concerns the possible disposal of bilge water and other refuse on
various vessels on the Ohio River. M/G is cooperating fully with the
investigation, the outcome of which cannot presently be determined.
Sportswear revenues (and related expenses) experienced significant
growth from 1991 to 1992 due to geographic expansion of the Company's sales
force.
This rapid growth in revenues flattened in 1993 due inpart to a contraction in
the market for CS Crable's higher priced sportswear. Operating margins were
depressed in 1993 since management had increased its inventory and production
capacity in anticipation of continued growth in revenues. Management believes
that the Company can experience moderate growth in revenues in 1994 and the
Company has taken steps to improve its operating margin.
The revenues and expenses associated with the Company's finance and
other operations are not significant and have a relatively minor impact on the
Company's operating margins.
The Company adopted SFAS 109, "Accounting for Income Taxes," effective
January 1, 1993. The cumulative effect of adopting SFAS 109 was to increase
1993 income by $4,867,000 and to decrease the deferred federal income tax
liability.
Liquidity and Capital Resources
The Company and its finance subsidiary issue commercial paper, generally
below the bank prime borrowing rates, and have $37 million of credit lines
available under bank lines at costs not exceeding prime borrowing rates. There
was approximately $14.3 million of commercial paper, $11 million of the
previously mentioned bank lines and $11 million in other short-term bank
borrowings outstanding at December 31, 1993. The Company plans to service
existing debt with internally generated funds.
Change in Financial Condition
Marketable securities increased in 1993 and 1992 primarily as a result
of the net earnings and growth of the insurance subsidiaries and the unrealized
appreciation in the equity securities portfolio owned by those companies. Also,
in 1993, the Company adopted SFAS 115 which increased marketable securities by
$8,603,000, increased deferred federal income tax $2,944,000 and increased
shareholders' equity $5,659,000.
The increase in property, plant and equipment in 1993 is primarily
attributable to M/G Transport Services, Inc.'s acquisition of 60 barges for
approximately $12.5 million and approximately $7.8 million in additional
construction costs paid in 1993 for CS Crable Sportswear, Inc.'s new facility.
The 1992 increase was the result of M/G Transport Services, Inc.'s acquisition
of 38 barges for approximately $7 million, and approximately $4.9 million in
construction costs for the CS Crable facility.
The increase in deferred insurance policy acquisition costs and unearned
insurance premiums in 1993 and 1992 is attributable to the growth in the
insurance companies' net written premiums which increased 26.6% in 1993 and
16.5% in 1992.
Notes payable-banks increased in 1992 due primarily to the cash
requirements associated with the previously discussed 1992 barge acquisitions as
well as the construction costs related to the sportswear division's new office,
production and warehouse facility.
Long-term debt increased in 1993 due to the financing requirements
associated with the Company's aforementioned 1993 acquisitions.
Impact of Inflation
Management does not consider the impact of changing prices to be
material in the analysis of the Company's overall operations.
MIDLAND ANNUAL REPORT PAGE 16
CONSOLIDATED BALANCE SHEETS
- ---------------------------
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1993 1992
- ------------------------------------ ------------------------------
ASSETS
- ------
Cash $ 3,935,000 $ 2,238,000
Marketable Securities 224,614,000 188,531,000
Receivables:
Accounts receivable 43,706,000 33,123,000
Finance receivables
(including amounts maturing
after on year) 5,512,000 3,285,000
------------------------------
Sub-Total 49,218,000 36,408,000
------------------------------
Less allowance for losses 1,117,000 1,192,000
------------------------------
Net 48,101,000 35,216,000
------------------------------
Inventory-Sportswear Division 15,968,000 13,129,000
Property, Plant and Equipment:
Original cost 185,164,000 163,221,000
Less accumulated depreciation
and amortization 77,272,000 70,179,000
------------------------------
Net 107,892,000 93,042,000
------------------------------
Deferred Insurance Policy
Acquisition Costs 33,402,000 25,909,000
Other Assets 1,686,000 1,637,000
------------------------------
Total Assets $435,598,000 $359,702,000
==============================
See notes to consolidated financial statements.
MIDLAND ANNUAL REPORT PAGE 17
THE MIDLAND COMPANY AND SUBSIDIARIES
- ------------------------------------
December 31, 1993 1992
- ------------------------------------------ ------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable Within One Year:
Banks $ 22,000,000 $ 27,000,000
Commercial Paper 14,302,000 8,866,000
------------------------------
Total 36,302,000 35,866,000
------------------------------
Accounts Payable-Trade 5,142,000 5,165,000
Other Payables and Accruals 37,513,000 36,462,000
Current Portion of Long-Term Debt 9,412,000 6,915,000
Unearned Insurance Premiums 109,652,000 89,732,000
Insurance Loss Reserves 37,133,000 23,993,000
Deferred Federal Income Tax 20,224,000 22,100,000
Long-Term Debt 47,110,000 27,886,000
Shareholders' Equity:
Common stock (issued and outstanding:
2,999,000 shares at December 31, 1993
and 2,974,000 shares at December 31,
1992 after deducting treasury stock of
644,000 shares and 668,000 shares,
respectively) 911,000 911,000
Additional paid-in capital 14,620,000 13,992,000
Retained earnings 123,995,000 107,646,000
Net unrealized gain on marketable
securities 11,308,000 5,836,000
Treasury stock (at cost) (16,564,000) (16,802,000)
Unvested restricted stock awards (1,160,000) --
------------------------------
Total 133,110,000 111,583,000
------------------------------
Total Liabilities and
Shareholders' Equity $435,598,000 $359,702,000
==============================
MIDLAND ANNUAL REPORT PAGE 18
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1993 1992 1991
- ----------------------------- ----------------------------------------------
Revenues:
Insurance $178,577,000 $144,774,000 $123,453,000
River transportation 53,252,000 47,186,000 56,685,000
Sportswear 34,702,000 32,620,000 21,298,000
Finance and other 1,136,000 924,000 1,147,000
----------------------------------------------
Total 267,667,000 225,504,000 202,583,000
----------------------------------------------
Costs and Expenses:
Insurance claims and policy
acquisition costs 132,871,000 106,449,000 93,677,000
Insurance operating and
administrative expenses 21,203,000 19,195,000 15,559,000
River transportation
operating expenses 49,511,000 45,292,000 53,672,000
Sportswear operating expenses 37,023,000 30,033,000 19,378,000
Interest expense 4,144,000 3,739,000 3,797,000
Other operating and
administrative expenses 4,662,000 4,791,000 4,177,000
----------------------------------------------
Total 249,414,000 209,499,000 190,260,000
----------------------------------------------
Income Before Federal Income
Tax and Cumulative Effect of
Accounting Change 18,253,000 16,005,000 12,323,000
Provision For Federal Income Tax 5,148,000 4,026,000 3,092,000
----------------------------------------------
Income Before Cumulative Effect
of Accounting Change 13,105,000 11,979,000 9,231,000
Cumulative Effect of Accounting
Change 4,867,000 -- --
----------------------------------------------
Net Income 17,972,000 11,979,000 9,231,000
Retained Earnings, Beginning
of Year 107,646,000 97,156,000 89,332,000
Cash Dividends Declared (1,623,000) (1,489,000) (1,407,000)
----------------------------------------------
Retained Earnings, End of Year $123,995,000 $107,646,000 $ 97,156,000
==============================================
Primary Earnings Per Share of Common Stock:
Income Before Cumulative
Effect of Accounting Change $4.27 $3.98 $3.02
Cumulative Effect of Accounting
Change 1.58 -- --
---------------------------------------
Net Income $5.85 $3.98 $3.02
---------------------------------------
Fully Diluted Earnings Per Share of Common Stock:
Income Before Cumulative
Effect of Accounting Change $4.26 $3.87 $2.93
Cumulative Effect of Accounting
Change 1.58 -- --
---------------------------------------
Net Income $5.84 $3.87 $2.93
---------------------------------------
Cash Dividends Per Share of
Common Stock $.54 $.50 $.46
---------------------------------------
See notes to consolidated financial statements.
MIDLAND ANNUAL REPORT PAGE 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1993 1992 1991
- ------------------------ ------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 17,972,000 $ 11,979,000 $ 9,231,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,291,000 9,150,000 8,242,000
Increase in unearned
insurance premiums 19,920,000 12,769,000 11,091,000
Increase in insurance loss
reserves 13,140,000 1,260,000 2,880,000
Decrease (increase) in net
accounts receivable (10,658,000) 862,000 (9,203,000)
Increase in deferred insurance
policy acquisition costs (7,493,000) (3,870,000) (3,613,000)
Provision (credit) for deferred
federal income tax (4,854,000) (218,000) (251,000)
Increase in inventory-
Sportswear Division (2,839,000) (7,423,000) (2,467,000)
Increase (decrease) in accounts
payable and accruals 995,000 (1,265,000) 10,586,000
Decrease (increase) in other assets (49,000) (248,000) 250,000
Other-net 229,000 (58,000) 194,000
------------------------------------------
Net cash provided by
operating activities 36,654,000 22,938,000 26,940,000
------------------------------------------
Cash Flows from Investing Activities:
Purchase of marketable securities (69,956,000) (47,624,000) (68,634,000)
Sale of marketable securities 52,694,000 27,390,000 48,796,000
Acquisition of property, plant
and equipment (27,354,000) (17,608,000) (12,961,000)
Increase in cash equivalent
marketable securities (15,332,000) (7,362,000) (5,101,000)
Maturity of marketable securities 4,323,000 4,544,000 10,526,000
Sale of property, plant and equipment 2,912,000 896,000 686,000
Net decrease (increase) in
finance receivables (2,227,000) 2,209,000 5,676,000
Acquisition of new business entities,
net of cash acquired -- -- (5,586,000)
------------------------------------------
Net cash used in
investing activities (54,940,000) (37,555,000) (26,598,000)
------------------------------------------
Cash Flows from Financing Activities:
Issuance of long-term debt 31,597,000 10,000,000 7,000,000
Repayment of long-term debt (9,061,000) (6,172,000) (5,236,000)
Dividends paid (1,590,000) (1,464,000) (1,383,000)
Payment of capitalized
lease obligations (815,000) (757,000) (704,000)
Purchase of treasury stock (799,000) (2,654,000) (2,264,000)
Increase in net short-term borrowings 436,000 15,298,000 1,524,000
Issuance of treasury stock 215,000 468,000 27,000
------------------------------------------
Net cash provided by (used in)
financing activities 19,983,000 14,719,000 (1,036,000)
------------------------------------------
Net Increase (Decrease) in Cash 1,697,000 102,000 (694,000)
Cash at Beginning of Year 2,238,000 2,136,000 2,830,000
------------------------------------------
Cash at End of Year $ 3,935,000 $ 2,238,000 $ 2,136,000
==========================================
Supplemental Disclosures:
The Company paid interest of $4,025,000, $3,568,000 and $3,665,000 and income
taxes of $5,215,000, $6,226,000 and $1,825,000 in 1993, 1992 and 1991,
respectively.
See notes to consolidated financial statements.
MIDLAND ANNUAL REPORT PAGE 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1993, 1992 and 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company and its subsidiaries conform to
generally accepted accounting principles and reflect practices appropriate to
the industries in which they operate. Those policies that affect the more
significant elements of the consolidated financial statements are summarized
below.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and all subsidiary companies. Material
intercompany balances and transactions have been eliminated.
Marketable Securities: Marketable securities are categorized as debt
securities (cash equivalents, debt instruments and preferred stocks having
scheduled redemption provisions) and equity securities (common stocks and
preferred stocks which do not have redemption provisions). The Company
adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective December 31,
1993 (also see Note 2). This statement requires securities to be classified as
trading, available-for-sale or held-to-maturity. Only those debt securities
classified as held-to-maturity are carried at amortized cost, while those debt
and equity securities classified as trading or available-for-sale are carried at
market value. At December 31, 1993, all debt and equity securities are
classified as available-for-sale and are carried at market value. Prior to
1993, debt securities were carried at amortized cost, equity securities held by
the insurance subsidiaries were carried at market value, and equity securities
held by the parent company were carried at the lower of cost or market value.
Inventory-The sportswear division's inventory is valued at the lower of
cost (using the weighted average method of inventory valuation) or market.
Property and Depreciation: Property, plant and equipment is stated at
cost. Depreciation and amortization are generally calculated using the
straight-line method over the estimated useful lives of the properties. Certain
properties purchased after 1986 are depreciated on an accelerated basis.
Federal Income Tax: The Company files a consolidated federal income tax
return which includes all subsidiaries.
Investment tax credits previously allowed on property additions were
deferred in the year of tax benefit and are being amortized against future
operations over the estimated useful lives of the properties.
Insurance Income: Premiums for physical damage and credit accident and
health insurance, net of premiums ceded to reinsurers, are recognized as income
on a pro-rata basis over the lives of the policies. Credit life premiums are
recognized as income over the lives of the policies using the sum of the digits
method. The Company 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 expensed
over the terms of the related policies on the same basis as the related premiums
are earned. Selling and administrative expenses which are not primarily related
to premiums written are expensed as incurred.
Insurance Losses: Unpaid losses and loss expense include an amount
determined from reports on individual cases and an amount, based on past
experience, for losses incurred but not reported. Such liabilities are
necessarily based on estimates and, while management believes that the amounts
are fairly stated, the ultimate liability may be in excess of or less than the
amounts provided. The methods of making such estimates and for establishing the
resulting liabilities are continually reviewed and any adjustments resulting
therefrom are included in earnings currently. Insurance loss reserves include
an amount for claim drafts issued but not yet paid.
Reinsurance Agreements: The Company cedes varying portions of their
written premiums to reinsurers and receives a commission on such premiums ceded.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders and failure of reinsurers to honor their obligations could result
in losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies. In
addition, the Company pays a percentage of earned premiums to reinsurers in
return for coverage against catastrophic losses.
Allowance for Losses: Provisions for losses on receivables are made in
amounts deemed necessary to maintain adequate reserves to cover possible future
losses.
Statements of Cash Flows: For purposes of the statements of cash flows,
the Company defines cash as cash held in operating accounts at financial
institutions. The amounts reported in the statements of cash flows for the
purchase, sale or maturity of marketable securities do not include cash
equivalents.
MIDLAND ANNUAL REPORT PAGE 21
Futures Contracts: The Company enters into futures contracts to hedge its
exposure to price fluctuations on anticipated fuel requirements for the river
transportation business. Gains and losses on hedging contracts are deferred and
recognized in river transportation operating expenses as part of the fuel cost.
Open contracts at December 31, 1993 and 1992 had a contract value of
approximately $403,000 and $1,390,000, respectively. Risk arises from the
possible decline in the market value of the contracts.
Proposition 103: California Proposition 103 provided, among other
things, that rates for automobile and most other insurance policies issued or
renewed between November 8, 1988 and November 9, 1989 be rolled back to the
levels of November 8, 1987 and then be reduced by an additional 20%. In 1993,
the Company's insurance subsidiaries reached a favorable settlement with the
state of California regarding this issue. As a result of the settlement,
approximately $2,800,000 (net of federal income tax) was taken into income in
1993 which represented the amount reserved in excess of the agreed upon refunds
to our policyholders.
Reclassifications: Certain previously reported amounts in the
accompanying consolidated financial statements have been reclassified to conform
to the current year's classifications.
2. MARKETABLE SECURITIES
Thousands of Dollars
-----------------------------------------------------
Gross Gross
Unrealized Unrealized Market
1993 Cost Gains Losses Value
- --------------------------------------------------------------------------
Debt Securities:
Governments $ 69,482 $ 3,101 $106 $72,477
Municipals 61,642 3,475 119 64,998
Cash Equivalents 45,965 -- -- 45,965
Corporates 10,514 467 4 10,977
-----------------------------------------------------
Total 187,603 7,043 229 194,417
Equity Securities 16,864 11,117 639 27,342
Accrued Interest
and Dividends 2,855 -- -- 2,855
-----------------------------------------------------
Total Marketable
Securities $207,322 $18,160 $868 $224,614
=====================================================
Thousands of Dollars
-------------------------------------------------
Market Carrying
1992 Cost Value Value
- --------------------------------------------------------------------------
Debt Securities:
Governments $ 71,114 $ 75,200 $ 71,114
Municipals 51,478 53,514 51,478
Cash Equivalents 30,633 30,633 30,633
Corporates 7,774 8,101 7,774
-------------------------------------------------
Total 160,999 167,448 160,999
-------------------------------------------------
Equity Securities:
Parent Co. 2,097 4,033 2,097
Insurance Subs. 14,588 22,514 22,514
-------------------------------------------------
Total 16,685 26,547 24,611
-------------------------------------------------
Accrued Interest
and Dividends 2,921 2,921 2,921
-------------------------------------------------
Total Marketable
Securities $180,605 $196,916 $188,531
=================================================
Gross unrealized gains and losses on Marketable Securities as of
December 31, 1992 were (amounts in 000's):
Gains Losses
----------------------
Debt Securities:
Governments $4,238 $ 152
Municipals 2,079 43
Corporates 331 4
----------------------
Total $6,648 $ 199
======================
Equity Securities:
Parent Co. $ 1,941 $ 5
Insurance Subs. 8,354 428
-----------------------
Total $10,295 $ 433
=======================
The net unrealized gains and losses on marketable securities carried at
market value are included in a valuation allowance in Shareholders' Equity.
In 1992, this valuation allowance also included $916,000 of unrealized gains on
appreciated equity securities purchased by the parent company from an insurance
subsidiary. The valuation allowance is net of deferred federal income taxes of
$5,984,000 in 1993 and $3,006,000 in 1992. As a result of changes in this
valuation allowance, Shareholders' Equity increased $5,472,000, $1,556,000 and
$3,034,000 in 1993, 1992 and 1991, respectively. Included in the 1993 change
in valuation allowance was $5,659,000 which represented the effect of the change
in accounting for debt and equity securities (see note 1).
MIDLAND ANNUAL REPORT PAGE 22
Included in the determination of net income are net realized gains of
$3,735,000, $1,510,000 and $631,000 in 1993, 1992 and 1991, respectively. The
cost of securities sold is based on specific identification of the securities at
the time of sale.
The cost and approximate market value of debt securities at December 31,
1993, by contractual maturities, are shown below. Actual maturities may differ
from contractual maturities when there exists a right to call or prepay
obligations with or without call or prepayment penalties (amounts in 000's).
Market
Cost Value
------------------------
Debt Securities:
Under 1 year $ 52,204 $ 52,347
1-5 years 100,328 104,811
6-10 years 31,177 33,365
Over 10 years 3,894 3,894
------------------------
$187,603 $194,417
========================
3. RECEIVABLES
Accounts receivable at December 31, 1993 and 1992 are generally due
within one year and consist of the following (amounts in 000's):
1993 1992
-----------------------
Insurance $32,342 $19,517
River Transportation 6,905 8,130
Sportswear 4,459 5,476
-----------------------
Total $43,706 $33,123
=======================
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1993 and 1992, property, plant and equipment was
comprised of the following (amounts in 000's):
1993 1992
-------------------------
Land $ 1,256 $ 488
Buildings, improvements,
fixtures, etc. 41,166 27,516
Vessels and barges 134,599 122,193
River transportation equip-
ment under capital leases 8,143 8,143
Construction-in-progress -- 4,881
-------------------------
185,164 163,221
Less accumulated depreciation
and amortization 77,272 70,179
-------------------------
Total $ 107,892 $ 93,042
=========================
The 1992 construction-in-progress pertained to the construction costs
for CS Crable Sportswear's new office, production and warehouse facility which
was completed and occupied in 1993.
5. NOTES PAYABLE TO BANKS
At December 31, 1993 and 1992, the Company had conventional lines of
credit of $37,000,000 and $35,000,000 with commercial banks. The lines of
credit in use under these agreements at December 31, 1993 and 1992 were
$11,000,000 and $14,000,000, respectively. Borrowings under these lines of
credit constitute senior debt. Commitment fees are currently required by the
lending institutions regarding these credit agreements.
Additionally, at December 31, 1993 and 1992, the Company had other
short-term bank borrowings outstanding of $11,000,000 and $13,000,000,
respectively. These borrowings also constitute senior debt.
6. LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1992 was comprised of the
following issues (amounts in 000's):
1993 1992
--------------------
Equipment and Real Estate Obligations:
Mortgages:
9.70% September 30, 1996 $2,875 $3,375
9.55 September 30, 1996 2,875 3,375
9.45 September 30, 1994 2,875 3,375
9.45 April 1, 1998 -- 2,888
9.25 March 31, 1993 -- 2,100
7.22 January 1, 2002 4,125 4,625
7.04 March 31, 1998 1,700 2,100
6.45 July 1, 2000 3,610 --
6.35 December 31, 1998 8,800 --
5.82 October 31, 1998 6,197 --
5.74 November 30, 2003 8,956 --
* Due serially through 1998 7,735 4,625
** Due serially through 1996 4,237 4,987
--------------------
Capitalized lease obligations 2,537 3,351
Total equipment and real
estate obligations 56,522 34,801
Less current maturities 9,412 6,915
--------------------
Total $47,110 $27,886
====================
*Interest rate is 1% above LIBOR. ** Rates of interest are 1/4 point below the
prime lending rate.
Equipment and real estate obligations are collateralized by river
transportation equipment and real estate with a net book value of approximately
$61,000,000.
The aggregate amount of repayment requirements on long-term debt for the
five years subsequent to 1993 (excluding repayments of capitalized lease
obligations-see note 12) are:
1994 $ 8,535,000 1997 $ 6,082,000
1995 6,575,000 1998 12,381,000
1996 9,528,000
MIDLAND ANNUAL REPORT PAGE 23
In 1992, the Company entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on some of its variable rate
long-term obligations. The notional amount declines quarterly at a rate of
$250,000 through November 3, 2002. Under terms of the agreement, the Company
has agreed to exchange LIBOR-based interest payments for 6.29% fixed rate
payments on a declining initial notional amount of $10,000,000. The market
risk associated with the agreement is mitigated because decreased interest
receipts under the agreement resulting from a decrease in LIBOR are effectively
offset by decreased interest payments under the debt obligations.
The fair value of the mortgages and capitalized lease obligations,
estimated using interest rates that are currently available to the Company for
issuance of debt with similar terms and remaining maturities, exceeds the
carrying value at December 31, 1993 and 1992 by approximately $496,000 and
$730,000, respectively.
7. FEDERAL INCOME TAX
The provision for federal income tax is summarized as follows (amounts
in 000's):
1993 1992 1991
--------------------------------
Current provision $5,137 $4,244 $3,343
Deferred provision 11 (218) (251)
--------------------------------
Total $5,148 $4,026 $3,092
================================
The federal income tax provision for the years ended December 31, 1993,
1992 and 1991 is different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (amounts in 000's):
1993 1992 1991
--------------------------------
Federal income tax at
statutory rate $6,389 $5,442 $4,190
Tax effect of:
Tax exempt interest
and excludable
dividend income (1,134) (943) (700)
Increase in statutory
rate on deferred taxes 357 -- --
Investment tax credits (289) (288) (290)
Net life insurance tax
deductions (114) (78) (90)
Other net (61) (107) (18)
--------------------------------
Provision for federal
income tax $5,148 $4,026 $3,092
================================
The Company adopted SFAS No. 109, "Accounting for Income Taxes",
effective January 1, 1993. This statement requires the use of the liability
method rather than the deferral method in determining the Company's deferred tax
liability. The cumulative effect of adopting SFAS No. 109 on the Company's
financial statements was to increase 1993 income by $4,867,000 and to decrease
the deferred federal income tax liability.
Deferred federal income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for federal income tax purposes.
Significant components of the Company's net deferred federal income tax
liability as of December 31, 1993 are as follows (amounts in 000's):
Deferred Tax Liabilities:
Accelerated depreciation $ 14,339
Deferred insurance policy
acquisition costs 11,255
Unrealized gain on marketable
securities 5,984
Investment tax credits 1,787
Other 446
--------
Sub-total $ 33,811
--------
Deferred Tax Assets:
Unearned insurance premiums $ 7,194
Deferred commission income 1,595
Pension expense 1,324
Insurance losses 1,055
Other 2,419
--------
Sub-total $ 13,587
--------
Deferred Federal Income Tax $ 20,224
========
8. REINSURANCE ACTIVITY
The insurance subsidiaries primarily sell mobile home physical damage
insurance. Varying portions of written premiums are ceded to reinsurer, and
commissions are received on such premiums ceded. Premiums on certain
reinsurance assumed are recorded based on records supplied by the ceding
companies. Estimated amounts recoverable from reinsurers of approximately
$6,220,000 are included in Accounts Receivable at December 31, 1993 and
$2,780,000 was netted against Insurance Loss Reserves at December 31, 1992 in
the accompanying consolidated balance sheets.
MIDLAND ANNUAL REPORT PAGE 24
A reconciliation of direct to net premiums, on both a written and an
earned basis for the property and casualty companies, is as follows:
Thousands of Dollars
Direct Assumed Ceded Net
1993 --------------------------------------------------
Written $203,577 $14,134 $(37,704) $180,007
Earned 180,759 14,624 (31,530) 163,853
1992
Written $162,749 $ 6,487 $(25,217) $144,019
Earned 146,978 6,822 (20,937) 132,863
1991
Written $137,380 $ 6,630 $(18,216) $125,794
Earned 127,687 5,636 (18,506) 114,817
The amounts of recoveries pertaining to reinsurance contracts that were
deducted from losses incurred during 1993, 1992 and 1991 were approximately
$21,077,000, $6,453,000 and $9,119,000, respectively. At December 31, 1993,
reinsurance receivables with a carrying value of approximately $892,000 were
associated with a single reinsurer.
9. BENEFIT PLANS
The Company has pension plans which provide for the payment of annual
benefits to substantially all employees upon retirement. The benefits are based
on years of service and the employee's highest compensation during five
consecutive years of employment. The Company's funding policy is to contribute
annually an amount sufficient to satisfy ERISA funding standards. Contributions
are intended to provide not only for benefits attributed to service to date but
also for benefits expected to be earned in the future.
Total pension cost was $642,000 in 1993, $518,000 in 1992 and $408,000 in
1991. Included in the above amounts is supplemental pension expense of $138,000
in 1993, $119,000 in 1992 and $88,000 in 1991. These amounts represent expenses
accrued for supplemental pension benefits in excess of Internal Revenue Code
Section 415 limitations.
The following table sets forth the plans' funded status (amounts
in 000's):
1993 1992
------- -------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$11,687 in 1993 and $9,942
in 1992 $12,190 $10,294
------- -------
Projected benefit obligation for
service rendered to date $16,120 $13,881
Plan assets at fair value, primarily
U.S. bonds and listed stocks 15,537 14,404
------- -------
Plan assets in excess of (less than)
projected benefit obligation (583) 523
Unrecognized net asset at January
1, 1987 being recognized over
18 years (1,738) (1,901)
Unrecognized prior service cost 52 592
Unrecognized net (gain) (134) (1,157)
------- -------
Pension liability included in
Other Payables and Accruals $(2,403) $(1,943)
======= =======
Net pension cost included the following (amounts in 000's):
1993 1992 1991
---------------------------
Service cost benefits
earned during the year $ 541 $ 505 $ 477
Interest cost on projected
benefit obligation 1,160 1,019 902
Actual return on plan
assets (gain) (1,705) (982) (2,659)
Net amortization and
deferral 508 (143) 1,600
---------------------------
Net periodic pension
plan cost $ 504 $ 399 $ 320
===========================
In 1992, the Company provided a special one-time early retirement
program for those employees who met certain age and years of service criteria.
The 1992 pension plan expense associated with this program was $677,000 which is
in addition to the net periodic pension plan cost referred to previously.
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 7-1/4% and 5-1/2%, respectively, in 1993 and 8% and 6%,
respectively, in 1992 and 1991. The expected long-term rate of return on assets
was 8% in all three years.
MIDLAND ANNUAL REPORT PAGE 25
10. STOCK OPTION AND AWARD PLANS
The Company has various stock option and award plans which provide for
the granting of the Company's common stock to key employees and independent
directors of the Company and its subsidiaries.
Under the Company's stock option plans, all of the outstanding stock
options at December 31, 1993 were non-qualified options and, generally, had an
exercise price of not less than 100% of the fair market value of the common
stock on the date of grant. At December 31, 1993, 209,000 shares were
exercisable and 9,000 shares become exercisable in 1994. A summary of stock
option transactions follows:
1993 1992 1991
----------------------------------------------
Avg. Avg. Avg.
(000's) Option (000's) Option (000's) Option
Shares Price Shares Price Shares Price
----------------------------------------------
Outstanding,
beginning
of year 219 $23.52 243 $23.46 164 $20.86
Options
exercised (9) 22.35 (21) 22.83 (3) 10.51
Options
expired (2) 38.56 (3) 23.13 (12) 18.94
Options
granted 10 50.13 -- -- 94 27.00
----------------------------------------------
Outstanding,
end of year 218 $24.67 219 $23.52 243 $23.46
==============================================
The Company implemented a restricted stock award program during 1993.
Under this program, awards of the Company's common stock will vest over an
incentive period, conditioned upon the recipient's employment throughout the
period. During the vesting period, shares issued are nontransferable, but the
shares are entitled to all of the rights of outstanding shares. In 1993,
32,000 shares were awarded and remain outstanding at December 31, 1993 under
this program.
11. EARNINGS PER SHARE
Earnings per share of common stock have been computed based on the
weighted average number of shares outstanding during the years. The effect of
shares issuable under the Company's stock option program has been comprehended
in the earnings per share calculations.
12. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office space and river
transportation equipment under leases with terms of one to five years. Annual
rentals under non-cancelable operating leases will be approximately $260,000
in 1994. Total rent expense included in the accompanying consolidated
statements of income is $998,000 in 1993, $2,970,000 in 1992 and $6,171,000 in
1991. A significant portion of rent expense in 1991 was due to the rental of
river transportation equipment.
In addition, the Company has leases for certain river transportation
equipment which are classified as capital leases. Future minimum lease payments
due under these lease agreements are $1,082,000 in 1994, $459,000 each year from
1995 through 1998, and $230,000 in 1999. Imputed interest included in the
minimum lease payments aggregates $613,000 through 1999.
M/G Transport Services, Inc. has become aware of an investigation by
federal authorities. The Company believes that this investigation concerns the
possible disposal of bilge water and other refuse from various vessels on the
Ohio River. M/G Transport is cooperating fully with the investigation, the
outcome of which cannot presently be determined.
13. SHAREHOLDERS' EQUITY
The Midland Company has 5,000,000 shares of common stock authorized
without par value (stated value of $.25 a share), including 778,000 shares
reserved for issuance under the Company's stock option plans. There were
2,999,000 and 2,974,000 shares outstanding at December 31, 1993 and 1992,
respectively. The Company has also authorized 500,000 shares of preferred stock
without par value, none of which have been issued.
The Company purchased 17,000, 65,000 and 66,000 shares of its stock, at
prices ranging from approximately $32 to $50 per share, and issued 9,000, 21,000
and 3,000 shares of its Treasury Stock in connection with the exercise of stock
options in 1993, 1992 and 1991, respectively. Additional Paid-In Capital was
charged $28,000, $38,000 and $33,000 in 1993, 1992 and 1991, respectively, for
the difference between the average carrying value of Treasury Stock and the
proceeds received from the exercise of stock options.
In 1993, the Company issued its initial stock awards under its new
restricted stock award plan. Unvested Restricted Stock Awards was initially
charged $1,450,000 which represented the total value of the awards based on
MIDLAND ANNUAL REPORT PAGE 26
market value of the Company's common stock on the date of grant. This initial
value is being amortized as compensation expense over a five year vesting period
and $290,000 was the amortized expense in 1993. In conjunction with these
awards, Treasury Stock was credited $795,000 representing the average carrying
value of the Company's Treasury Stock on the date of grant and Additional
Paid-In Capital was credited $655,000 representing the difference between the
average carrying value of Treasury Stock and the market value of the Company's
common stock on the date of grant.
Covenants included in the borrowing agreements of M/G Transport Services,
Inc. limit its payment of dividends to The Midland Company. Under the most
restrictive of such covenants, $18,000,000 of its net assets was not available
for distribution to the Company at December 31, 1993.
The insurance operations are subject to state regulations which limit by
reference to statutory investment income and policyholders' surplus the
dividends that can be paid to their parent company without prior regulatory
approval. Dividend restrictions vary between the companies, as determined by
the laws of the domiciliary states. Under these restrictions, dividends during
1994 in excess of $7,800,000 from American Modern Home Group would require
regulatory approval.
14. INDUSTRY SEGMENTS
The Company's operations are classified into four industry segments.
Listed below is the financial information required to be reported for each
segment. No single customer accounted for 10% or more of consolidated revenues
during the last three years. Interest expense directly related to finance
operations has been included in the determination of operating profit of the
finance and other segment. Interest expense includes intercompany interest not
eliminated for purposes of segment reporting.
Thousands of Dollars
1993 1992 1991
------------------------------
Total segment revenues
Insurance $179,310 $145,476 $124,149
River transportation 53,255 47,247 56,821
Sportswear 34,702 32,620 21,298
Finance and other 5,681 4,295 3,962
Intersegment
revenues (5,281) (4,134) (3,647)
------------------------------
Total $267,667 $225,504 $202,583
==============================
Operating profit
Insurance $ 23,662 $ 18,526 $ 13,903
River transportation 3,232 1,236 2,429
Sportswear (2,663) 2,248 1,568
Finance and other 1,512 1,607 1,559
Interest expense (5,279) (5,145) (5,066)
Unallocated corporate
expenses (2,211) (2,467) (2,070)
------------------------------
Total $ 18,253 $ 16,005 $ 12,323
==============================
Acquisition of fixed assets
Insurance $ -- $ -- $ --
River transportation 14,657 7,758 10,528
Sportswear 1,702 1,903 844
Finance and other 10,995 7,947 1,589
------------------------------
Total $ 27,354 $ 17,608 $ 12,961
==============================
Depreciation and amortization
Insurance $ -- $ -- $ --
River transportation 6,434 6,435 5,947
Sportswear 973 620 365
Finance and other 2,884 2,095 1,930
------------------------------
Total $ 10,291 $ 9,150 $ 8,242
==============================
Identifiable assets
Insurance $286,084 $231,360 $201,929
River transportation 87,654 79,697 79,056
Sportswear 23,932 21,390 12,592
Finance and other 59,163 46,932 35,370
Intersegment receivables (21,235) (19,677) (10,846)
------------------------------
Total $435,598 $359,702 $318,101
==============================
MIDLAND ANNUAL REPORT PAGE 27
Report Of Independent Public Accountants
DELOITTE &
TOUCHE
Cincinnati, Ohio
To the Shareholders of The Midland Company:
We have audited the accompanying consolidated balance sheets of The
Midland Company and its subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income and retained earnings and of cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of The Midland Company and its
subsidiaries at December 31, 1993 and 1992 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 7, respectively, to the consolidated
financial statements, the Company changed its method of accounting for debt and
equity securities to conform with Statement of Financial Accounting Standards
(SFAS) No. 115 effective December 31, 1993 and its method of accounting for
income taxes to conform with SFAS No. 109 effective January 1, 1993.
February 10, 1994
Management's Report
The consolidated financial statements and accompanying notes of The
Midland Company and its subsidiaries are the responsibility of the Company's
management, and have been prepared in conformity with generally accepted
accounting principles. They necessarily include amounts that are based on
management's best estimates and judgments. Other financial information
contained in this annual report is presented on a basis consistent with the
financial statements.
In order to maintain the integrity, objectivity and fairness of data
in these financial statements, the Company has developed and maintains a
comprehensive internal control structure which is supplemented by a program of
internal audits. Management believes that the Company's internal control
structure is adequate to provide reasonable, but not absolute, assurance that
assets are safeguarded and the objectives of accuracy and fair presentation of
financial data are met in all material respects.
The financial statements have been audited by Deloitte & Touche,
Certified Public Accountants, in accordance with generally accepted auditing
standards, including sufficient tests of the accounting records to enable them
to express an informed opinion as to whether the financial statements,
considered in their entirety, present fairly the Company's financial position
and results of operations in conformity with generally accepted accounting
principles. Deloitte & Touche reviews the results of its audit both with
management and with the Audit Committee.
The Audit Committee, comprised entirely of outside Directors, meets
periodically with management, internal auditors and independent auditors
(separately and jointly) to assure that each is fulfilling its responsibilities.
John I. Von Lehman
Vice President, Treasurer and
Chief Financial Officer
MIDLAND ANNUAL REPORT PAGE 28
QUARTERLY DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
- ------------------------------------
1993 1992
-----------------------------------
First Quarter
Revenues $58,297,000 $54,772,000
Net income 6,175,000 (a) 4,127,000
Earnings per share - primary 2.00 (a) 1.37
Earnings per share - fully diluted 2.00 (a) 1.32
Dividends per share .135 .125
Price range of common stock (AMEX) 44-7/8 - 50-5/8 36-1/4 - 43-3/4
-----------------------------------
Second Quarter
Revenues $62,806,000 $51,948,000
Net income 4,005,000 3,340,000
Earnings per share - primary 1.31 1.13
Earnings per share - fully diluted 1.31 1.08
Dividends per share .135 .125
Price range of common stock (AMEX) 39-3/4 - 48-1/8 41-45
-----------------------------------
Third Quarter
Revenues $75,716,000 $56,251,000
Net income 5,147,000 927,000
Earnings per share - primary 1.67 .31
Earnings per share - fully diluted 1.67 .31
Dividends per share .135 .125
Price range of common stock (AMEX) 40-1/2 - 45-1/4 44-1/2 - 49-1/4
-----------------------------------
Fourth Quarter
Revenues $70,848,000 $62,533,000
Net income 2,645,000 3,585,000
Earnings per share - primary .87 1.17
Earnings per share - fully diluted .86 1.16
Dividends per share .135 .125
Price range of common stock (AMEX) 41-3/8 - 47-1/2 42-7/8 - 45-1/4
-----------------------------------
(a) Includes a credit of $4,867,000, $1.58 per common share, for the cumulative
effect of change in accounting from the adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, effective January 1,
1993.
MIDLAND ANNUAL REPORT PAGE 29
OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
TRANSFER AGENT AND REGISTRAR
Society National Bank
2073 E. Ninth St.
Cleveland, Ohio 44115
INDEPENDENT AUDITORS
Deloitte & Touche
250 East Fifth Street
Cincinnati, Ohio 45202
GENERAL AND TAX COUNSEL
Cohen, Todd, Kite & Stanford
525 Vine Building
Cincinnati, Ohio 45202
SHAREHOLDERS' MEETING
The next meeting of the shareholders will be held at 10:00 A.M. on Thursday,
April 14, 1994, at the Company's offices, 537 E. Pete Rose Way, Cincinnati,
Ohio 45202.
COMMON STOCK
The number of holders of common stock at December 31, 1993 was 742. The
Company's common stock is registered on the American Stock Exchange.
FORM 10-K
A copy of the Company's 1993 Annual Report to the Securities and Exchange
Commission on Form 10-K may be obtained by writing to the Company --
Attention: Secretary.
EXHIBIT (21)
THE MIDLAND COMPANY
AND SUBSIDIARIES
EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1993
The subsidiaries of the Registrant as of December 31, 1993, all of
which are included in the consolidated financial statements, are as follows:
Percentage
of
State of Voting
Incor- Stock
poration Owned
-------- ----------
American Modern Life Insurance Company of Arizona Arizona 100
M/G Transport Services, Inc. Ohio 100
Midland-Guardian Co. Ohio 100
MGT Services, Inc. Ohio 100
Inland Marine Brokerage Company Ohio 100
M/G Securities, Inc. Ohio 100
CS Crable Sportswear, Inc Ohio 100
MGT River Services, Inc. Ohio 100
SUBSIDIARIES OF MIDLAND-GUARDIAN CO.
American Modern Home Group, Inc. Ohio 100
American Modern Home Insurance Co. Ohio 100
American Family Home Insurance Co. Florida 100
Atlas Insurance Agency, Inc. Ohio 100
American Modern Life Insurance Company Ohio 100
Marbury Agency, Inc. Ohio 100
Midwest Enterprises, Inc. Florida 100
Lloyds Modern Corporation Texas 100
American Modern Home Service Company Ohio 100
SUBSIDIARIES OF AMERICAN MODERN HOME INSURANCE CO.
American Modern Lloyds Insurance Co. Texas 100
American Southern Home Insurance Co. Florida 100
American Western Home Insurance Co. Oklahoma 100
Guardian Underwriters Insurance Company Pennsylvania 100
The names of two wholly-owned subsidiaries of The Midland Company are not
shown above as such individual listing is not required.
