THE MIDLAND COMPANY
Annual Report
on Form 10-K
to the
Securities and Exchange Commission
for the
Year Ended December 31, 1994
<PAGE>
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, 1994
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 such
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 10, 1995 was $146,195,088.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Number of shares of common stock outstanding as of March 10, 1995 -
3,045,731.
Documents Incorporated by Reference
Annual Report to Shareholders for the year ended December 31, 1994 is
incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 17, 1995 is incorporated by
reference into Parts III and IV.
<PAGE>
THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1994
PART I
ITEM 1. Business.
Incorporated by reference in pages 1 through 12 and 25 (Note 13) of the
Registrant's 1994 Annual Report to Shareholders. The number of persons
employed by the Registrant was approximately 750 at December 31, 1994.
ITEM 2. Properties.
Incorporated by reference in pages 1 through 12 of the Registrant's 1994
Annual Report to Shareholders.
ITEM 3. Legal Proceedings.
M/G Transport Services, Inc., a subsidiary of the Registrant, is a named
defendant in a criminal case commenced on February 16, 1995, in the
United States District Court for the Southern District of Ohio. The
case is styled: United States of America vs. M/G Transport Services,
et al. The case arises out of allegations that M/G's employees
discharged or permitted the discharge of bilge water, ash and other
refuse into the inland waterways over a period of years. Seven former
employees have also been indicted. The Government may seek fines
against the Company which could total $4.2 million if M/G Transport
Services, Inc. is convicted on all nine counts. M/G disputes the
allegations which give rise to the indictments, and intends to
vigorously defend itself.
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 26 (Note 14) and 29 of the
Registrant's 1994 Annual Report to Shareholders.
ITEM 6. Selected Financial Data.
Incorporated by reference to page 13 of the Registrant's 1994 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
of the Registrant's 1994 Annual Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 16 through 27 and page 29 of the
Registrant's 1994 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 17, 1995.
<PAGE>
PART III (Continued)
Executive Officers of the Company -
J. P. Hayden, Jr. - Age 65 - Chairman and Chief Executive Officer
Michael J. Conaton - Age 61 - President and Chief Operating Officer
John R. LaBar - Age 63 - Vice President and Secretary
Robert W. Hayden - Age 56 - Vice President
John I. Von Lehman - Age 42 - Vice President, Treasurer and
Chief Financial Officer
Thomas J. Rohs - Age 53 - Vice President
J. P. Hayden, III - Age 42 - Vice President
John W. Hayden - Age 37 - Vice President
Michael L. Flowers - Age 43 - 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 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 17, 1995.
ITEM 12.Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 17, 1995.
ITEM 13.Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 17, 1995.
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:
Data pertaining to The Midland Company and Subsidiaries -
Report of Independent Public Accountants.
Consolidated Balance Sheets, December 31, 1994 and 1993.
Consolidated Statements of Income and Retained Earnings for
the Years Ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992.
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 II - Allowance for Losses for the Years
Ended December 31, 1994, 1993 and 1992 8
<PAGE>
PART IV (Continued)
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 17, 1995.
11. Computation of Consolidated Net Income Per Share for the
years ended December 31, 1994, 1993 and 1992. 9
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1994 Annual Report to
Shareholders
21. Subsidiaries of the Registrant 10
22. Registrant's Proxy Statement dated - Incorporated by
reference to the Registrant's Proxy Statement dated
March 17, 1995.
23. Independent Auditors' Consent - Included in Consent and
Report on Schedules referred to under Item 14(a)2 above.
27. Financila Data Schedule.
(b) Reports on Form 8-K - Incorporated by reference to the
Registrant's Current Report on Form 8-K dated January 5, 1995.
<PAGE>
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 March 2, 1995
(J. P. Hayden, Jr.) Chief Executive Officer
S/ John I. Von Lehman Vice President, Treasurer, March 2, 1995
(John I. Von Lehman) Chief Financial Officer and
Chief Accounting Officer
<PAGE>
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 2, 1995
(George R. Baker)
S/ James H. Carey Director and Member March 2, 1995
(James H. Carey) of Audit Committee
S/ Michael J. Conaton President, Chief Operating March 2, 1995
(Michael J. Conaton) Officer and Director
S/ J. P. Hayden, Jr. Chairman, Chief Executive March 2, 1995
(J. P. Hayden, Jr.) Officer and Director
S/ J. P. Hayden, III Vice President and Director March 2, 1995
(J. P. Hayden, III)
S/ John W. Hayden Vice President and Director March 2, 1995
(John W. Hayden)
S/ Robert W. Hayden Vice President and Director March 2, 1995
(Robert W. Hayden)
S/ William T. Hayden Director March 2, 1995
(William T. Hayden)
S/ William J. Keating Director March 2, 1995
(William J. Keating)
S/ William McD. Kite Director March 2, 1995
(William McD. Kite)
S/ John R. LaBar Vice President, Secretary March 2, 1995
(John R. LaBar) and Director
S/ John M. O'Mara Director and Member March 2, 1995
(John M. O'Mara) of Audit Committee
S/ John R. Orther Director and Member March 2, 1995
(John R. Orther) of Audit Committee
S/ William F. Plettner Director March 2, 1995
(William F. Plettner)
S/ Glenn E. Schembechler Director and Member March 2, 1995
(Glenn E. Schembechler) of Audit Committee
S/ John I. Von Lehman Vice President, Treasurer, March 2, 1995
(John I. Von Lehman) Chief Financial Officer,
Chief Accounting Officer
and Director
<PAGE>
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 16,
1995, incorporated by reference in this Annual Report on Form 10-K, and our
report (appearing below) on the financial statement schedule of The Midland
Company for the year ended December 31, 1994.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of The
Midland Company and its subsidiaries, listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Cincinnati, Ohio
March 14, 1995
<PAGE>
SCHEDULE II
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE II - ALLOWANCE FOR LOSSES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994:
Allowance For Losses $ 1,117,000 $ 576,000 $ 158,000 (1) $ 1,535,000
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
NOTES: (1) Accounts written off are net of recoveries.
EXHIBIT (11)
THE MIDLAND COMPANY
AND SUBSIDIARIES
EXHIBIT (11) - COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
FOR THE YEARS DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
----------------------------------------------
Net Income $ 9,419,000 $ 17,972,000 (a) $ 11,979,000
==============================================
Weighted average number of
shares outstanding 2,997,000 3,004,000 2,983,000
==============================================
Primary:
Adjusted weighted average
shares outstanding - after
giving effect to conversion of
stock optionsand stock awards 3,050,000 3,074,000 3,007,000
==============================================
Per share - after giving effect
to conversion of stock options
and stock awards (net income
divided by adjusted weighted
average shares outstanding) $ 3.09 $ 5.85 (a) $ 3.98
==============================================
Fully diluted:
Adjusted weighted average
shares outstanding - after
giving effect to conversion of
stock options and stock awards 3,066,000 3,078,000 3,079,000
==============================================
Per share - after giving effect
to conversion of stock options
and stock awards (net income
divided by adjusted shares
outstanding) $ 3.07 $ 5.84 (a) $ 3.87
==============================================
(a) Includes a credit of $4,867,000, $1.58 per common share, 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.
1994 MIDLAND ANNUAL REPORT PAGE 1
FINANCIAL HIGHLIGHTS
THE MIDLAND COMPANY AND SUBSIDIARIES
--------------------------------------------------------------------------------
For the Years Ended December 31, 1994 1993 1992
--------------------------------------------------------------------------------
Revenues $ 315,915,000 $ 267,667,000 $ 225,504,000
Net Income 9,419,000 17,972,000(a) 11,979,000
Shareholders' Equity 132,437,000 133,110,000 111,583,000
Earnings Per Common Share $ 3.09 $ 5.85(a) $ 3.98
Cash Dividends Per Common Share .58 .54 .50
Book Value Per Common Share 44.19 44.39 37.52
Common Shares Outstanding 2,997,000 2,999,000 2,974,000
(a) Includes a credit of $4,867,000, $1.58 per common share, 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.
THE MIDLAND COMPANY
Midland was founded in 1938 as a consumer finance company by the late J. Page
Hayden, Sr. and H. R. LaBar. Today, Midland has three primary divisions -
Insurance, Transportation and Sportswear. Midland is a publicly traded
company on the American Stock Exchange.
AMERICAN MODERN INSURANCE GROUP, INC.
American Modern Insurance Group, Inc. consists of six property and casualty
companies and two credit life companies. AMIG is licensed in all 50 states.
Traditionally, AMIG has specialized in writing physical damage insurance and
related coverages on manufactured housing, but in recent years has expanded
its operations to include Lower Valued Homes, Dwelling Fire, Homeowners,
Mortgage Fire, Collateral Protection, Watercraft, Long-Haul Truck, Commercial
and Excess and Surplus Lines.
M/G TRANSPORT SERVICES, INC.
M/G Transport Services, Inc. owned 279 barges and four towboats as of December
31, 1994. The Company currently charters barges and brokers freight for the
movement of commodities on the inland waterways. The Company's four towboats
are chartered to outside companies on a long-term basis. In December, 1994,
M/G Transport sold eight towboats and 314 barges in a transaction valued at
$46,761,000.
CS CRABLE SPORTSWEAR, INC.
CS Crable Sportswear, Inc. produces high-quality embroidered, appliqued and
imprinted sportswear featuring the mascots and logos of the nation's colleges
and universities, as well as those of Major League Baseball, the National
Football League, the National Hockey League, the International Hockey League,
NASCAR and a variety of other specialty licensed and non-licensed categories.
In January of 1995, the Company signed an exclusive licensing agreement with
ESPN2 for the purpose of developing an "Xtreme Sports" sportswear collection.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 2
CHAIRMAN'S LETTER
Earnings for the year 1994 were the fourth best in the history of The
Midland Company. This was quite an accomplishment after having begun the year
with the California earthquake, followed by successive months of unusually
adverse weather patterns. Midland's history of positive growth continued in
1994 with revenues and assets reaching record levels.
Net income for 1994 was $9,419,000, $3.09 per share, on revenues of
$315,915,000. Net income for 1993 before the cumulative effect of an
accounting change was $13,105,000, $4.27 per share, and net income after the
cumulative effect of an accounting change was $17,972,000, $5.85 per share, on
revenues of $267,667,000. For the fourth quarter of 1994, net income was
$5,244,000, $1.72 per share, on revenues of $86,472,000. This compares to the
fourth quarter of 1993 earnings of $2,645,000, $.87 per share, on revenues of
$70,848,000.
Midland's Board of Directors, at its March, 1994 meeting, approved an
increase in the cash dividend paid to shareholders from 54 cents to 58 cents
per common share. This is the eighth consecutive year that Midland has
increased its common dividend. At its December meeting, William T. Hayden, a
partner with the law firm of Cohen, Todd, Kite & Stanford, was appointed to
The Midland Company's Board of Directors. William T. Hayden is a valued
addition to your Board of Directors.
American Modern Insurance Group, Inc. (AMIG), the Company's insurance
subsidiary, concluded another successful year. Net written premiums increased
31% in 1994 as compared to 1993. The Company's continued positive growth is
the result of product diversification, increased penetration into existing
product lines and expansion into the commercial lines area of insurance. The
division produced an underwriting profit for the fifth consecutive year. This
was a remarkable accomplishment considering the numerous catastrophes which
plagued the entire property and casualty industry throughout most of 1994,
including the earthquake in California, severe winter and spring storms
throughout the southeastern United States, and the Georgia floods. The
Company's combined ratio (the ratio of losses and expenses to premiums earned)
was 98.5% in 1994.
In 1994, Midland formed a new corporation named American Modern
Insurance Group, Inc. This new corporate entity is an insurance holding
company which houses all of the operations of the Company's insurance
division. It is significant that in 1994 this new corporation was able to
procure an unsecured $40,000,000 long-term debt facility, $20,000,000 of
which was used to increase the capital and surplus of the property and
casualty insurance companies. This increase in capital and surplus provides a
solid financial base for the projected growth in written premiums for this
division in future years.
Once again, A.M. Best awarded American Modern Insurance Group the
insurance industry's preferred rating of A+ Superior. This rating reflects
the sound financial condition and strong earnings history of the American
Modern Insurance Group. The Company's investment portfolio is conservatively
invested in high-quality securities. There are no bonds in the portfolio
below investment grade and the portfolio does not include any investments in
real estate.
THIS PAGE INCLUDES A PHOTOGRAPH OF MICHAEL J. CONATON, PRESIDENT AND CHIEF
EXECUTIVE OFFICER AND J. P. HAYDEN, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 3
In December, 1994, Thomas J. Rohs was promoted to Chairman and Chief
Executive Officer of AMIG; John W. Hayden was promoted to President and Chief
Operating Officer of AMIG; and Kenneth G. Boberg was promoted to Executive
Vice President and Chief Financial Officer of AMIG. All of these individuals
have provided solid leadership to this division.
M/G Transport Services, Inc., our transportation division, underwent
significant change in 1994, selling approximately 67% of its river
transportation equipment along with its affreightment contracts. The
equipment sold included eight towboats, 314 barges and an exchange of 40 open
hopper barges for 40 steel roll top barges. The assets were sold for
$46,761,000, which resulted in a modest book gain.
M/G Transport retained four towboats and 279 barges. All of the
towboats and some of the barges are on long-term charter to other companies in
the industry. The remaining barges will be used by the division's freight
brokerage operation.
CS Crable Sportswear, Inc., the Company's sportswear division, applies
embroidery and screenprinting processes onto quality sportswear garments. A
significant accomplishment in 1994 was the 30% reduction in our inventory
levels. Net sales, excluding the inventory reduction program, were slightly
higher in 1994 than prior years. Significant strides were made in improving
our production, garment sourcing and creative art departments. In January,
1995, we signed an exclusive licensing agreement with ESPN2 which will support
our continued commitment to innovative designs and new products. We are
hopeful that this division's operating performance will improve in 1995 based
on the actions we have taken.
In July, 1994, Midland began construction of its new corporate
headquarters and training facility which will be situated on 193 acres in an
eastern suburb of the greater Cincinnati area. The cost of this facility is
estimated at $26,000,000 and is scheduled for completion in the fourth quarter
of 1995. This site will provide for your Company's expansion needs well into
the next century.
We thank our business associates and our employees for their dedicated
efforts on behalf of The Midland Company and its subsidiaries. We take this
opportunity to especially thank our former M/G Transport Services staff who
contributed greatly to the past success of the transportation division. In
closing, to you our shareholders, we continue to express our sincere
appreciation for your unwavering support of the Company.
Sincerely yours,
J. P. Hayden, Jr.
Chairman
February 9, 1995
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 4
AMERICAN MODERN INSURANCE
GROUP, INC.
Nineteen ninety-four was a very successful and eventful year for
your Insurance division. Among the highlights was the formation of
American Modern Insurance Group, Inc., a holding company consisting of
our six property and casualty companies and two life companies. AMIG is
licensed in all 50 states and continues to maintain the A.M. Best
industry rating of A+ Superior. Midland's property and casualty
insurance subsidiaries have maintained this rating for seventeen
consecutive years. This rating is very important as it is an indication
of the financial strength and sound operating philosophies of the
Company.
The property and casualty companies continued their strong growth
in 1994, as net premiums written increased by approximately 31% over
1993. The combined ratio for 1994 was 98.5%. We are extremely proud of
the operating results for 1994 in light of the major catastrophes and
the severe weather that occurred during the year. Among these events
were the California earthquake, the severe winter weather that struck
the southeastern United States during the first quarter of 1994 as well
as the weather related catastrophes in the southeastern and southwestern
United States in the months of April, June and July. Weather patterns
finally returned to more normal conditions during the last third of
1994. As we have previously stated, we believe that AMIG's current
level of rates is adequate to produce targeted levels of profitability
assuming normal levels of catastrophe and weather related losses.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 5
We have included on these pages pictures of employees from our
claims, insurance services and marketing departments. This is just a
small cross section of the many departments that are responsible for the
continued success of American Modern Insurance Group. We remain focused
on our company-wide commitment to excellence. An example of this
commitment can be found in the Company's claims department. In recent
years, we have increased the number of in-house adjusters to 120. This
increased in-house staff has allowed AMIG to settle 86% of all claims
made with our own staff. In addition, approximately 82% of all claims
are settled within 30 days of being reported, thus making us a rather
unique property and casualty company within the industry.
AMIG has experienced excellent growth in recent years. In fact,
the property and casualty companies' premiums written have grown at a
compounded rate of 13 percent over the past 15 years. This growth has
occurred in the Company's traditional manufactured housing and related
products as well as many additional insurance products such as Site-
Built Dwellings, Watercraft, Mortgage Fire, Collateral Protection, Long
Haul Truck Physical Damage and Commercial Lines. These lines are
depicted in the chart in this section.
We have devoted significant effort into the development of credit
life and related products. This business is generally written through
financial institutions and retail accounts. We expect continued growth
in this area over the years ahead.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 6
Ameritrac is the name of AMIG's loan tracking service whereby we
monitor loan portfolios for financial institutions and place physical
damage coverages on site built homes, manufactured homes, automobiles
and other loan collateral on which the borrower has not provided proof
of insurance. This operation has significantly contributed to the
overall growth of the Company.
Today, AMIG is perhaps the largest single writer of insurance that
is generated through the manufactured homes dealer network. We have
developed software programs and instructional courses to assist the
dealers in the writing of their finance and insurance packages.
AMIG has received considerable recognition for its development of
monitoring programs to protect the Company in the event of catastrophic
events. Through a joint effort with an outside consulting firm, we now
possess one of the most sophisticated systems available for tracking
exposure to hurricanes and earthquakes. As a result, we believe that
our catastrophe reinsurers look upon your Company as a progressive
leader in this regard.
The Company's investment portfolio consists of high quality fixed
income and equity securities and there are no investments in real estate
or derivative products. The fixed income portfolio has a weighted
average quality of approximately AAA and the current average maturity of
the fixed income portfolio is approximately five years. The value of the
portfolio has continued to grow through the generation of significant
cash flow from operations as well as investment income on the portfolio.
In addition, the portfolio generated approximately $2,200,000 in net
pre-tax capital gains in 1994.
We thank our many business associates who have contributed to our
continued growth and success. Our commitment to excellence will
continue and, as a result, we will enhance our current relationships as
well as create new ones. We would like to thank all of the employees of
American Modern Insurance Group, for without their commitment to
excellence and to the goals of the company, our success to date would
not have been possible.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 7
THIS PAGE INCLUDES THREE BAR CHARTS WITH THE FOLLOWING DATA. THE FIRST CHART IS
OF PROPERTY AND CASUALTY COMPANIES NET WRITTEN PREMIUMS (NET OF REINSURANCE)
(IN MILLIONS), THE SECOND CHART IS THE PROPERTY AND CASUALTY COMPANIES
COMBINED RATIO AND THE THIRD CHART IS THE MARKET VALUE OF AMIG'S INVESTMENT
(IN MILLIONS) PORTFOLIO. ALL THE CHARTS ARE FOR 5 YEARS.
NET WRITTEN COMBINED MARKET VALUE
PREMIUMS RATIO EQUITIES FIXED INCOME
1990 $107,558 97.5% $13,082 $123,473
1991 123,692 96.9 19,695 146,488
1992 144,108 94.6 22,584 168,408
1993 180,318 94.0 23,501 195,106
1994 235,821 98.5 26,738 240,376
ALSO INCLUDED ON THIS PAGE IS THE FOLLOWING CHART:
AMIG'S PRIMARY INSURANCE PRODUCTS
Mobile Home & related Products
Site Built Dwellings
Collateral Protection
Mortgage Fire
Long-Haul Truck Physical Damage
Watercraft
Commercial Lines, Park Programs & Other
Product Warranty
Credit Life and Accident and Health
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 8
M/G TRANSPORT SERVICES, INC.
M/G Transport Services, Inc., Midland's transportation division,
experienced a year of significant change. The Company sold 314 jumbo open
hopper barges and 8 towboats in December 1994 for $46,761,000. As part of this
sale, the purchaser assumed M/G's affreightment contracts. In addition, the
Company exchanged 40 open hopper barges for 40 steel roll top barges. This
sale, which represented approximately two-thirds of M/G's assets, resulted in a
modest book gain. The majority of the proceeds from the sale have been used to
reduce the Company's long-term debt and deferred tax liability.
As part of the agreement, the Company entered into a non-compete
agreement which prohibits the Company from operating towboats on the Ohio and
Mississippi river systems. The Company continues to own four towboats and 279
barges. The towboats are on long-term charter agreements with other companies
in the industry. The remaining barges will be utilized mainly by M/G's
brokerage operation, which is primarily involved in placing freight for various
commodities including coal, petroleum coke, grain, steel, wood chips, logs,
fertilizer, ores, etc. It is our desire to identify acquisition candidates
which are poised for growth and to build a solid, profitable future for M/G and
Midland's shareholders.
M/G Transport's operating profits in 1994 were much improved over the
previous years. These results would have been even better were it not for the
severe flooding conditions on the inland waterways system in January, 1994.
These profits were made possible by a stronger market for northbound freight.
Management firmly believes that the asset sale was in the best interest
of Midland's shareholders. We would be remiss, however, if we did not thank and
acknowledge all of the employees of M/G Transport who contributed to the
Company's past success. We are saddened by the fact that many of these
employees were negatively impacted by the sale of the Company's assets. This
was by far the most difficult part of the transaction and we wish all of those
individuals prosperity and success in the future.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 9
THIS PAGE INCLUDES THREE BAR CHARTS WITH THE FOLLOWING DATA. THE FIRST CHART IS
LIST FIXED ASSETS, THE SECOND CHART IS THE COMPANY'S LONG - TERM DEBT AND THE
THIRD CHART IS THE COMPANY'S REVENUES. ALL THE CHARTS ARE IN MILLIONS AND FOR
5 YEARS.
LONG-TERM REVENUES
FIXED ASSETS DEBT ON-GOING RELATED TO ASSETS SOLD
1990 $64,968 $30,600 $ 6,928 $52,848
1991 69,446 31,000 12,352 44,333
1992 70,370 34,900 14,134 33,052
1993 78,242 47,500 11,965 41,287
1994 28,761 18,400 19,673 33,522
ALSO INCLUDED ON THIS PAGE IS THE FOLLOWING CHART:
COMMODITIES TRANSPORTED
IN M/G TRANSPORT SERVICES, INC.'S BARGES
COVERED BARGES OPEN HOPPER BARGES
Grains Coal
Calcined Coke Petroleum Coke
Sugar Aggregates
Dry Fertilizers Logs and Wood Chips
Road Salt Various Ores
Steel Products
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 10
CS CRABLE SPORTSWEAR, INC.
CS Crable Sportswear, Inc., the Company's sportswear subsidiary, did
much to position itself for continued growth and a return to acceptable levels
of profitability during the course of this past year. Specializing in the
production of licensed apparel, CS Crable produces high-quality embroidered,
appliqued and imprinted sportswear featuring the mascots and logos of the
nation's colleges and universities, as well as those of Major League Baseball,
the National Football League, the National Hockey League, the International
Hockey League, NASCAR and a variety of other specialty licensed and non-licensed
categories.
The Company also maintains an exclusive licensing arrangement with
Pebble Beach for the development and production of a complete collection of
casual sportswear bearing the Pebble Beach name and the famed Lone Cypress Wave
logo. The collection is marketed under the "Pebble Beach Sportswear by CS
Crable" label.
The licensed apparel industry experienced phenomenal growth through the
middle and late eighties and into the early nineties. CS Crable rode that wave
of growth, as did a number of other licensed sportswear companies. That growth,
however, has slowed considerably during the course of the past two years causing
many in the industry to re-think their plans for the future. The result has
been a consolidation and critical integration within the industry, and a
centralization of power around the major professional licenses. CS Crable is
positioning itself to survive and prosper in this highly competitive environment
INCLUDED ON THIS PAGE ARE TWO PICTURES WITH THE FOLLOWING CAPTION: "ONE OF
CS CRABLE'S MANY ARTISTS ENTERING A DESIGN INTO THE COMPUTERIZED GRAPHICS SYSTEM
AND THE COMPUTERIZED DESIGN BEING PRODUCED ON ONE OF THE COMPANY'S EMBROIDERY
MACHINES"
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 11
as a specialty or niche player. The Company will continue to explore new
license categories which it believes will either complement existing licenses or
serve as a point of differentiation for long-term growth purposes. Toward this
end, the company signed in January of 1995 an exclusive licensing agreement with
ESPN2 for the purpose of developing an "Xtreme Sports" sportswear collection.
ESPN2, or "The Deuce" as it is known, bills itself as the younger, wilder son of
ESPN. The network's 18 to 34 year old target audience is a perfect fit for this
CS Crable line, which can best be described as a lifestyle collection with an
attitude twist (see the feature box above for more information about this
exciting new development).
Management has undertaken several major initiatives during the course of
the past year in order to position the Company for future success. Among them,
a concerted effort to reduce on-site inventory levels has produced very positive
results. On average, inventory levels have been reduced by nearly 30%; most of
this reduction was accomplished without negatively impacting operating results.
The Company is now in a position to execute more aggressive purchasing
strategies as opportunities may dictate.
THIS PAGE FEATURES A "FEATURE BOX" THAT CONTAINS OF PICTURE OF VARIOUS CS CRABLE
GARMENTS WITH THE FOLLOWING VERBIAGE:
ESPN2 FEATURE BOX
Introducing...Johnny Xtreme
CS Crable Sportswear is pleased to announce the execution of an
exclusive licensing arrangement with ESPN2 for the purpose of developing an
"Xtreme Sports" Sportswear Collection. ESPN2, or "The Deuce" as it is more
commonly known, bills itself as the younger, wilder son of ESPN. The network's
18 to 34 year old target audience is a perfect fit for this exciting new line,
which the Company describes as a "lifestyle collection with an attitude twist".
CS Crable unveiled its first release of the line at the 1995 SGMA Super
Show in Atlanta, Georgia. Sixteen T-shirts comprise the first offering - eight
screen prints featuring extreme action graphics, and eight attitude verbiage
designs featuring Johnny Xtreme, the wildly expressive character CS Crable has
created to become the icon/spokesperson for the collection. The line
capitalizes on the popularity and energy of attitude apparel, as it relates to
the lifestyle of the exciting, on the edge, extreme sports featured on ESPN2
(snowboarding, skateboarding, in-line skating, rock climbing, mountain biking
and street luge to name just a few!).
The first release of the line will be available in stores on March 1,
1995. The Company will launch an aggressive, consumer-oriented advertising
campaign on ESPN, MTV, and, of course, ESPN2. Subsequent releases of the line
are planned for late spring, back-to-school and holiday season. Look for Johnny
at department stores and specialty stores in your area!
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 12
The Company has also focused on the reduction of overhead and
production-related expenses. Significant action has been taken during the
second half of the year, the full benefit of which will not be realized until
much later in the current year. Additional resources have been committed to the
creative side of the business in the areas of art, marketing and product
sourcing. Management believes the commitment of these resources is critical to
the successful execution of its future niche marketing strategies.
Net sales for 1994 were in line with Management's forecasts, ending the
year with approximately $31,484,000 in "normal" sales and $10,361,000 in sales
related to inventory reduction and close-out programs. Management's activities
in the current year are focused on improving margins to a level that will allow
the Company to operate profitably.
CS Crable Sportswear would like to take this opportunity to express its
appreciation to its employees, licensors, suppliers, retail partners, and most
importantly, its customers for their loyalty and support. It is their
commitment to, and insistence on, product quality that assures a bright future
ahead.
THIS PAGE ALSO FEATURES A PHOTOGRAPH OF VARIOUS CS CRABLE SPORTSWEAR GARMENTS
DISPLAYED IN THE COMPANY'S SHOWROOM.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 13
SELECTED CONSOLIDATED
FINANCIAL DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31,
1994 1993 1992 1991 1990
-------------------------------------------------------------------
Revenues $315,915,000 $267,667,000 $225,504,000 $202,583,000 $179,856,000
-------------------------------------------------------------------
Net Income $ 9,419,000 $ 17,972,000(a) $ 11,979,000 $ 9,231,000 $ 9,989,000
-------------------------------------------------------------------
Earnings Per
Common Share $3.09 $5.85(a) $3.98 $3.02 $3.12
-------------------------------------------------------------------
Marketable
Securities $278,088,000 $224,614,000 $188,531,000 $163,145,000 $138,642,000
-------------------------------------------------------------------
Property,
Plant and
Equipment
(net) $ 66,042,000 $107,892,000 $ 93,042,000 $ 85,399,000 $ 81,181,000
-------------------------------------------------------------------
Total Assets $482,546,000 $450,222,000 $359,702,000 $318,101,000 $280,319,000
-------------------------------------------------------------------
Unearned
Insurance
Premiums $158,316,000 $118,802,000 $ 89,732,000 $ 76,963,000 $ 65,872,000
-------------------------------------------------------------------
Insurance
Loss
Reserves $ 57,715,000 $ 42,607,000 $ 23,993,000 $ 22,733,000 $ 19,542,000
-------------------------------------------------------------------
Long-Term
Debt $ 47,091,000 $ 56,522,000 $ 34,801,000 $ 31,730,000 $ 30,670,000
-------------------------------------------------------------------
Shareholders'
Equity $132,437,000 $133,110,000 $111,583,000 $101,724,000 $ 93,102,000
-------------------------------------------------------------------
Book Value
Per Common
Share $44.19 $44.39 $37.52 $33.69 $30.20
-------------------------------------------------------------------
Cash
Dividends Per
Common Share $.58 $.54 $.50 $.46 $.42
-------------------------------------------------------------------
Common Shares
Outstanding 2,997,000 2,999,000 2,974,000 3,019,000 3,082,000
-------------------------------------------------------------------
(a) Includes a credit of $4,867,000, $1.58 per common share, 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.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE MIDLAND COMPANY AND SUBSIDIARIES
Reportable Segments
The Company's operations are classified into four reportable business
segments: Insurance, 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 text in the Chairman's
Letter and to the other information on page 1 and pages 4 through 12 of the
Annual Report. Such information, including the Quarterly Data presented on
page 29, should also be considered a part of this analysis.
Midland's insurance division consists primarily of six property and
casualty companies and two credit life companies operating as American Modern
Insurance Group (AMIG). AMIG 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.
Throughout most of 1994, Midland's transportation division,
M/G Transport Services, Inc., primarily hauled coal, aggregate, petroleum coke
and miscellaneous dry bulk commodities on the Ohio and Mississippi rivers and
their tributaries. The commodities were hauled under both long-term contracts
and "spot" moves. In December, 1994, M/G Transport Services, Inc. sold
approximately 67% of its river transportation assets as well as its
affreightment contracts. The assets retained by the Company are either out on
long-term charter to other companies within the river transportation industry
or will be used in the Company's remaining business activity which is a
freight brokerage operation involved in the placement of freight for various
types of commodities.
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 Insurance Group concluded another successful year in
1994. The year ended up being one of the division's most profitable years as
past trends of solid growth and sound underwriting results continued in 1994.
The profitability of this division during the first seven months of 1994 was
adversely affected by the losses from the California earthquake and abnormal
weather-related catastrophes during this period. A return to more normal
weather patterns in the remainder of 1994 produced more customary profits.
The results of this division in the fourth quarter of 1994 were among the best
in the division's history. The division's pattern of solid growth continued
in 1994 as net written premiums of the property and casualty companies
increased 31% as compared to 1993. The combined ratio (the ratio of losses
and expenses to premiums earned) increased from 94% in 1993 to 98.5% in 1994,
however, the ratios for both years are considered excellent by industry
standards.
The increase in insurance revenues in 1994 and 1993 is due to the growth
in the Company's established insurance products as well as the growth in new
products which have been introduced in recent years. Insurance claims and
policy acquisition costs increased in 1994 and 1993 due to the aforementioned
growth in written premiums. Part of the 1994 increase was due to the
increased ratio of losses in 1994 as compared to 1993.
Transportation revenues in 1994 were comparable to 1993 and
transportation expenses decreased in 1994 relative to 1993. This improved
operating performance in 1994 was basically attributed to a stronger market in
northbound freight movements. Transportation revenues and related operating
expenses increased in 1993 over 1992 levels due primarily to the addition of a
large one-year contract with a utility company which was not renewed in 1994.
M/G Transport Services, Inc. sold approximately 67% of its river
transportation equipment as well as its affreightment contracts in December,
1994. The equipment sold included eight towboats, 314 barges and an exchange
of 40 open hopper barges for 40 steel roll top barges. The assets were sold
at a modest gain and the $46,761,000 received from the sale was used to
liquidate long-term debt and pay federal income taxes which had previously
been deferred. The assets retained by M/G Transport Services, Inc. are either
on long-term charter to other companies within the river transportation
industry or will be devoted to the transportation division's freight brokerage
operation.
M/G Transport Services, Inc. is the subject of a criminal prosecution
and related civil litigation concerning the alledged disposal of bilge water and
other refuse from vessels on the inland waterways. M/G Transport is
litigating these issues and the outcome cannot be reasonably estimated at this
time.
Sportswear revenues and related expenses increased in 1994 as compared
to 1993 due primarily to the success of special close-out sales programs
instituted in 1994. These sales represented approximately 25% of CS Crable's
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 15
total net sales. Profit margins were adversely affected by this program.
Sportswear revenues in 1993 were only slightly higher than 1992 due to a
contraction in the market for CS Crable's higher-priced sportswear.
Management has undertaken several initiatives in 1994 which should
favorably impact the sportswear division's operating performance in 1995.
Inventory levels have been reduced by approximately 30% and significant cost-
cutting measures have been implemented in an effort to reduce overhead and
production-related expenses.
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.
Liquidity and Capital Resources
The Company and its finance subsidiary issue commercial paper, generally
below the bank prime borrowing rates, and have $38 million of credit lines
available under bank lines at costs not exceeding prime borrowing rates.
There was approximately $5.5 million of commercial paper, $17 million of the
previously mentioned bank line and $5 million in other short-term bank
borrowings outstanding at December 31, 1994. The Company plans to service
existing debt with internally generated funds.
The Company's new corporate headquarters is currently under construction
and is scheduled for completion in the fourth quarter of 1995. The cost of
this facility is currently estimated at approximately $26 million and will be
financed through conventional long-term debt financing arrangements upon
completion. The Company's present corporate headquarter facility is listed
for sale. The proceeds derived from the sale of this facility may be used to
partially offset any such new debt.
Change in Financial Condition
Marketable securities increased in 1994 and 1993 due to the cash flow
from operations and investment income received from the insurance division's
investment portfolio. Also impacting the 1993 increase in marketable
securities was the increase in unrealized appreciation in the equity
securities owned by the insurance companies plus the Company's adoption of
SFAS 115 at December 31, 1993, which increased marketable securities by
$8,603,000, increased deferred federal income tax by $2,944,000 and increased
shareholders' equity by $5,659,000.
The increases in 1994 and 1993 in accounts receivable, deferred
insurance policy acquisition costs, unearned insurance premiums and insurance
loss reserves are primarily attributable to the sustained growth of the
Company's insurance companies.
Sportswear inventories decreased in 1994 due to the special close-out
inventory program implemented in 1994 which resulted in a 30% reduction in
inventory levels as compared to 1993 inventory levels.
Property, plant and equipment decreased in 1994 due to the
transportation division's sale of approximately 67% of its river transportation
equipment. The increase in property, plant and equipment in 1993 was due to
M/G Transport Services, Inc.'s acquisition of 60 barges for approximately $12.5
million and approximately $7.8 million in construction costs associated with
CS Crable Sportswear, Inc.'s new office, warehouse and production facility.
The decrease in 1994 in the Company's current portion of long-term debt
is directly related to the aforementioned transportation division's sale in 1994
of 67% of its river transportation equipment. Approximately $21 million of
the proceeds from this sale was used to prepay long-term debt loans on the
assets sold which significantly reduced the Company's current debt repayment
requirements in 1995 and beyond. American Modern Insurance Group, Inc.
procured a $40 million unsecured long-term debt facility in 1994, $20 million
of which was in use at December 31, 1994. This facility was obtained to
increase the capital and surplus of the property and casualty companies.
Long-term debt increased in 1993 due to the financing requirements associated
with the Company's 1993 acquisition of fixed assets.
The 1994 decrease in deferred federal income tax was primarily due to
the Company's payment of $8.5 million in previously deferred federal income
taxes which became due as a result of the sale of its river transportation
equipment. Also impacting the decrease in deferred federal income tax in 1994
was the decrease in the unrealized appreciation in marketable securities which
decreased in 1994 due to rising interest rates which adversely affected market
values of fixed income securities.
The Company's net unrealized gain on marketable securities decreased in
1994 due to the previously mentioned rise in interest rates which decreased
market values of the Company's fixed income investments.
Impact of Inflation
Management does not consider the impact of changing prices to be
material in the analysis of the Company's overall operations.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 16
CONSOLIDATED BALANCE SHEETS
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1994 1993
---------------------------
ASSETS
Cash $ 4,036,000 $ 3,935,000
---------------------------
Marketable Securities 278,088,000 224,614,000
---------------------------
Receivables:
Accounts receivable 82,293,000 62,907,000
Finance receivables (including amounts
maturing after one year) 4,120,000 5,512,000
---------------------------
Sub-Total 86,413,000 68,419,000
Less allowance for losses 1,535,000 1,117,000
---------------------------
Net 84,878,000 67,302,000
---------------------------
Inventory - Sportswear Division 11,116,000 15,968,000
---------------------------
Property, Plant and Equipment:
Original cost 109,729,000 185,164,000
Less accumulated depreciation and amortization 43,687,000 77,272,000
---------------------------
Net 66,042,000 107,892,000
---------------------------
Deferred Insurance Policy Acquisition Costs 37,653,000 28,825,000
---------------------------
Other Assets 733,000 1,686,000
---------------------------
Total Assets $482,546,000 $450,222,000
===========================
See notes to consolidated financial statements.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 17
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1994 1993
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable Within One Year:
Banks $ 22,000,000 $ 22,000,000
Commercial Paper 5,546,000 14,302,000
---------------------------
Total 27,546,000 36,302,000
---------------------------
Accounts Payable - Trade 6,232,000 5,142,000
---------------------------
Other Payables and Accruals 46,455,000 37,513,000
---------------------------
Current Portion of Long-Term Debt 2,451,000 9,412,000
---------------------------
Unearned Insurance Premiums 158,316,000 118,802,000
---------------------------
Insurance Loss Reserves 57,715,000 42,607,000
---------------------------
Deferred Federal Income Tax 6,754,000 20,224,000
---------------------------
Long-Term Debt 44,640,000 47,110,000
---------------------------
Shareholders' Equity:
Common stock (issued and outstanding:
2,997,000 shares at December 31, 1994 and
2,999,000 shares at December 31, 1993 after
deducting treasury stock of 646,000 shares
and 644,000 shares, respectively) 911,000 911,000
Additional paid-in capital 14,607,000 14,620,000
Retained earnings 131,675,000 123,995,000
Net unrealized gain on marketable securities 2,754,000 11,308,000
Treasury stock (at cost) (16,648,000) (16,564,000)
Unvested restricted stock awards (862,000) (1,160,000)
---------------------------
Total 132,437,000 133,110,000
---------------------------
Total Liabilities and Shareholders' Equity $482,546,000 $450,222,000
===========================
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 18
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1994 1993 1992
--------------------------------------
Revenues:
Insurance $219,654,000 $178,577,000 $144,774,000
Transportation 53,163,000 53,252,000 47,186,000
Sportswear 41,928,000 34,702,000 32,620,000
Finance and other 1,170,000 1,136,000 924,000
--------------------------------------
Total 315,915,000 267,667,000 225,504,000
--------------------------------------
Costs and Expenses:
Insurance claims and policy
acquisition costs 175,868,000 132,871,000 106,449,000
Insurance operating and
administrative expenses 26,562,000 21,203,000 19,195,000
Transportation operating expenses 47,339,000 49,511,000 45,292,000
Sportswear operating expenses 43,917,000 37,023,000 30,033,000
Interest expense 4,865,000 4,144,000 3,739,000
Other operating and
administrative expenses 5,477,000 4,662,000 4,791,000
--------------------------------------
Total 304,028,000 249,414,000 209,499,000
--------------------------------------
Income Before Federal Income Tax and
Cumulative Effect of Accounting Change 11,887,000 18,253,000 16,005,000
Provision For Federal Income Tax 2,468,000 5,148,000 4,026,000
--------------------------------------
Income Before Cumulative Effect
of Accounting Change 9,419,000 13,105,000 11,979,000
Cumulative Effect of Accounting Change -- 4,867,000 --
--------------------------------------
Net Income 9,419,000 17,972,000 11,979,000
Retained Earnings, Beginning of Year 123,995,000 107,646,000 97,156,000
Cash Dividends Declared (1,739,000) (1,623,000) (1,489,000)
--------------------------------------
Retained Earnings, End of Year $131,675,000 $123,995,000 $107,646,000
======================================
Earnings Per share of Common Stock:
Income Before Cumulative Effect
of Accounting Change $3.09 $4.27 $3.98
Cumulative Effect of Accounting Change -- 1.58 --
--------------------------------------
Net Income $3.09 $5.85 $3.98
======================================
Cash Dividends Per Share of Common Stock $.58 $.54 $.50
======================================
See notes to consolidated financial statements.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1994 1993 1992
--------------------------------------
Cash Flows from Operating Activities:
Net Income $ 9,419,000 $ 17,972,000 $ 11,979,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,609,000 10,291,000 9,150,000
Increase in unearned
insurance premiums 39,514,000 19,920,000 12,769,000
Decrease (increase) in net
accounts receivable (18,968,000) (10,658,000) 862,000
Increase in insurance loss reserves 15,108,000 13,140,000 1,260,000
Increase (decrease) in accounts
payable and accruals 9,921,000 995,000 (1,265,000)
Provision (credit) for deferred
federal income tax (9,066,000) (4,854,000) (218,000)
Increase in deferred insurance
policy acquisition costs (8,828,000) (7,493,000) (3,870,000)
Decrease (increase) in inventory -
Sportswear Division 4,852,000 (2,839,000) (7,423,000)
Decrease (increase) in other assets 953,000 (49,000) (248,000)
Other - net (908,000) 229,000 (58,000)
--------------------------------------
Net cash provided by
operating activities 52,606,000 36,654,000 22,938,000
--------------------------------------
Cash Flows from Investing Activities:
Purchase of marketable securities (122,895,000) (69,956,000) (47,624,000)
Sale of marketable securities 55,899,000 52,694,000 27,390,000
Sale of property, plan and equipment 52,353,000 2,912,000 896,000
Acquisition of property, plant
and equipment (19,559,000) (27,354,000) (17,608,000)
Increase in cash equivalent
marketable securities (8,166,000) (15,332,000) (7,362,000)
Maturity of marketable securities 8,372,000 4,323,000 4,544,000
Net decrease (increase) in
finance receivables 1,392,000 (2,227,000) 2,209,000
--------------------------------------
Net cash used in
investing activities (32,604,000) (54,940,000) (37,555,000)
--------------------------------------
Cash Flows from Financing Activities:
Repayment of long-term debt (28,552,000) (9,061,000) (6,172,000)
Issuance of long-term debt 20,000,000 31,597,000 10,000,000
Increase (decrease) in net
short-term borrowings (8,756,000) 436,000 15,298,000
Dividends paid (1,628,000) (1,590,000) (1,464,000)
Payment of capitalized lease obligations (879,000) (815,000) (757,000)
Purchase of treasury stock (118,000) (799,000) (2,654,000)
Issuance of treasury stock 32,000 215,000 468,000
--------------------------------------
Net cash provided by (used in)
financing activities (19,901,000) 19,983,000 14,719,000
--------------------------------------
Net Increase in Cash 101,000 1,697,000 102,000
Cash at Beginning of Year 3,935,000 2,238,000 2,136,000
--------------------------------------
Cash at End of Year $ 4,036,000 $ 3,935,000 $ 2,238,000
======================================
Supplemental Disclosures:
The Company paid interest of $5,109,000, $4,025,000 and $3,568,000 and income
taxes of $9,022,000, $5,215,000 and $6,226,000 in 1994, 1993 and 1992,
respectively.
See notes to consolidated financial statements.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1994, 1993 and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company and its subsidiaries conform to
generally accepted accounting principles (GAAP) 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 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 (see
Note 14). With the adoption of SFAS No. 115, the Company classified all debt
and equity securities as available-for-sale and began to carry such investments
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. Unrealized gains or losses on investments,
net of income taxes associated therewith, are included in shareholders' equity.
Realized gains and losses on sales of investments are recognized in income on a
specific identification basis.
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 recorded at
cost. Depreciation and amortization are generally calculated using the
straight-line method over the estimated useful lives of the respective
properties. Certain properties purchased after 1986 are depreciated on an
accelerated basis.
Federal Income Tax--The Company adopted SFAS No. 109, "Accounting for
Income Taxes", effective January 1, 1993 (see Note 7). This statement requires
the use of the liability method rather than the deferral method in determining
the Company's deferred tax liability. Deferred federal income taxes are
recognized to 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. 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.
The Company files a consolidated federal income tax return which
includes all subsidiaries.
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
capitalized and 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 Loss Reserves--Unpaid insurance losses and loss adjustment
expenses 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 also include an amount for claim drafts issued but not yet paid.
Reinsurance Agreements--The Company cedes varying portions of its
written premiums to reinsurers and receives a commission on such premiums ceded.
Failure of reinsurers to honor their obligations could result in losses to the
Company, as reinsurance contracts do not relieve the Company from its
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 21
obligations to policyholders. 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.
Earnings per Share--Earnings per share of common stock calculations are
computed based on the weighted average number of shares outstanding during the
years. The effect of shares issuable under the Company's stock option and
award plans are comprehended in the earnings per share calculations.
Proposition 103--In 1993, the Company's insurance subsidiaries reached a
settlement with the state of California regarding California Proposition 103
(which proposed rate roll backs during certain earlier periods). As a result
of this settlement, approximately $2,800,000 (net of federal income tax) was
recognized as income in 1993 representing the amount reserved in excess of the
agreed upon refunds to certain Company policyholders.
Fair Value of Financial Instruments--The fair value of investments is
considered to be the market value which is based on quoted market prices. The
carrying value of short-term notes payable is considered to be the fair value
of such debt because of the short-term nature and related features of the debt.
The fair value of long-term debt is estimated using interest rates that are
currently available to the Company for issuance of debt with similar terms and
maturities.
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
1994 Cost Gains Losses Value
-------------------------------------------------------------------------------
Debt Securities:
Governments $ 103,152 $ 112 $ 3,778 $ 99,486
Municipals 63,891 605 1,545 62,951
Cash
Equivalents 50,717 - - 50,717
Corporates 31,120 110 632 30,598
-----------------------------------------------------
Total 248,880 827 5,955 243,752
Equity Securities 21,220 10,369 907 30,682
Accrued Interest
and Dividends 3,654 - - 3,654
-----------------------------------------------------
Total Marketable
Securities $ 273,754 $ 11,196 $ 6,862 $ 278,088
=====================================================
/----------------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
======================================================
Included in the determination of net income are the following (amounts
in 000's):
1994 1993 1992
----------------------------------
Gross Realized Gains $ 3,252 $ 4,196 $ 1,845
Gross Realized Losses (1,062) (461) (335)
Other Investment Income 12,114 11,050 10,960
Investment Expenses (1,044) (981) (861)
---------------------------------
Net Investment Income $ 13,260 $13,804 $11,609
=================================
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 22
The cost and approximate market value of debt securities held at
December 31, 1994, summarized 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
----------------------
Under 1 year $ 71,612 $ 71,506
1-5 years 104,946 102,266
6-10 years 40,526 39,246
Over 10 years 31,796 30,734
----------------------
$ 248,880 $243,752
======================
3. RECEIVABLES
Accounts receivable at December 31, 1994 and 1993 are generally due
within one year and consist of the following (amounts in 000's):
1994 1993
----------------------
Insurance $ 72,829 $ 51,543
River Transportation 5,725 6,905
Sportswear 3,739 4,459
----------------------
Total $ 82,293 $ 62,907
======================
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1994 and 1993, property, plant and equipment stated at
original cost consist of the following (amounts in 000's):
1994 1993
----------------------
Land $ 1,771 $ 1,256
Buildings, improvements,
fixtures, etc. 46,610 41,166
Vessels and barges 52,683 134,599
Transportation equipment
under capital leases 3,106 8,143
Construction-in-progress 5,559 -
----------------------
Total $ 109,729 $185,164
======================
The 1994 construction-in-progress balance pertains to the construction
costs related to the Company's new corporate headquarters which is expected to
be completed (at an estimated completion cost of approximately $26 million) and
occupied in the fourth quarter of 1995.
In December 1994, the Company sold a major portion of the assets related
to its river transportation division. The sales price of approximately
$46,761,000 approximated the net book value of the assets sold.
Total rent expense related to the rental of facilities and equipment
included in the accompanying consolidated statements of income is $1,833,000 in
1994, $998,000 in 1993 and $2,970,000 in 1992. Future rentals under non-
cancelable operating leases will be approximately $2,053,000 in 1995.
5. NOTES PAYABLE TO BANKS
At December 31, 1994 and 1993, the Company had conventional lines of
credit with commercial banks of $38,000,000 and $37,000,000, respectively. The
lines of credit in use under these agreements at December 31, 1994 and 1993
amounted to $17,000,000 and $11,000,000, 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, 1994 and 1993, the Company had other
short-term bank borrowings outstanding of $5,000,000 and $11,000,000,
respectively. These borrowings also constitute senior debt.
The aforementioned notes payable, together with outstanding commercial
paper, had weighted average interest rates of 6.2% and 3.4% at December 31,
1994 and 1993, respectively.
6. LONG-TERM DEBT
In 1994, American Modern Insurance Group, Inc. (the Company's wholly
owned subsidiary) procured a $40,000,000 unsecured long-term debt facility,
$20,000,000 of which was in use at December 31, 1994. This instrument was
obtained to increase the capital and surplus of the property and casualty
insurance companies.
Long-term debt at December 31, 1994 and 1993 is summarized as follows
(amounts in 000's):
1994 1993
--------------------
Equipment Obligations-
Due serially through 2002,
weighted average rate of 6.19% $16,727 $18,607
Paid out in 1994 - 26,422
Mortgage Note-Due 2003, 5.82% 8,706 8,956
Unsecured Notes Payable Under
Long-Term Debt Facilities-
Amortizing 1997 to 2001,
LIBOR (6.5% at
December 31, 1994) plus 1% 20,000 -
Capitalized Lease Obligations
(transportation equipment) 1,658 2,537
---------------------
Total obligations 47,091 56,522
Less current maturities 2,451 9,412
---------------------
Total $44,640 $47,110
=====================
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 23
Equipment and real estate obligations are collateralized by
transportation equipment and real estate with a net book value of approximately
$28,000,000.
The aggregate amount of repayment requirements on long-term debt and
capitalized leases for the five years subsequent to 1994 are (amounts in
000's): 1995 - $2,451; 1996 - $2,499; 1997 - $2,552; 1998 - $10,105; 1999 -
$936.
At December 31, 1994 and 1993, the carrying value and the approximate
fair value of the Company's long-term debt was as follows (amounts in 000's):
1994 1993
-------------------
Carrying Value $47,091 $56,522
===================
Fair Value $45,600 $57,000
===================
7. FEDERAL INCOME TAX
The provision for federal income tax is summarized as follows (amounts
in 000's):
1994 1993 1992
----------------------------
Current provision $11,534 $5,137 $4,244
Deferred provision (9,066) 11 (218)
----------------------------
Total $ 2,468 $5,148 $4,026
============================
The federal income tax provision for the years ended December 31, 1994,
1993 and 1992 is different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (amounts in 000's):
1994 1993 1992
-----------------------------
Federal income tax at
statutory rate $ 4,160 $ 6,389 $ 5,442
Tax effect of:
Tax exempt interest and
excludable dividend
income (1,247) (1,134) (943)
Increase in statutory rate
on deferred taxes - 357 -
Investment tax credits (488) (289) (288)
Other--net 43 (175) (185)
------------------------------
Provision for federal
income tax $ 2,468 $ 5,148 $ 4,026
==============================
Significant components of the Company's net deferred federal income tax
liability are summarized as follows (amounts in 000's):
1994 1993
----------------------
Deferred Tax Liabilities:
Deferred insurance policy
acquisition costs $12,665 $ 9,660
Accelerated depreciation 5,965 14,339
Unrealized gain on
marketable securities 1,580 5,984
Investment tax credits 1,299 1,787
Other 285 446
----------------------
Sub-total 21,794 32,216
----------------------
Deferred Tax Assets:
Unearned insurance premiums 9,373 7,194
Pension expense 1,902 1,324
Insurance losses 1,260 1,055
Other 2,505 2,419
----------------------
Sub-total 15,040 11,992
----------------------
Deferred federal income tax $ 6,754 $20,224
======================
The cumulative effect of adopting SFAS No. 109 on the Company's 1993
financial statements was to increase income and to decrease the deferred
federal income tax liability by $4,867,000.
8. REINSURANCE ACTIVITY
Premiums assumed on certain reinsurance contracts are recorded based on
records supplied by the ceding companies. 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
------------------------------------------------
1994
Written $263,250 $11,836 $(39,689) $235,397
Earned 235,299 7,711 (38,433) 204,577
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
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 24
9. BENEFIT PLANS
The Company has pension plans which provide for the payment of annual
benefits to substantially all employees upon retirement. Such 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 $896,000 in 1994, $642,000 in 1993 and $518,000 in
1992. Included in the above amounts is a supplemental pension expense of
$259,000 in 1994, $138,000 in 1993 and $119,000 in 1992. 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):
1994 1993
-------------------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$14,534 in 1994 and
$11,687 in 1993 $15,115 $12,190
=========================
Projected benefit obligation for
service rendered to date $20,169 $16,120
Plan assets at fair value, primarily
U.S. bonds and listed stocks 14,583 15,537
-------------------------
Plan assets less than projected
benefit obligation (5,586) (583)
Unrecognized net assets at
January 1, 1987 being
recognized over 18 years (1,576) (1,738)
Unrecognized prior service cost 48 52
Unrecognized net loss (gain) 4,094 (134)
-------------------------
Pension liability included in
Other Payables and Accruals $(3,020) $(2,403)
=========================
Net pension cost included the following (amounts in 000's):
1994 1993 1992
------------------------------
Srvice cost--benefits
earned during the year $ 725 $ 541 $ 505
Interest cost on projected
benefit obligation 1,216 1,160 1,019
Actual return on plan
assets--(gain) 315 (1,705) (982)
Net amortization and
deferral (1,619) 508 (143)
------------------------------
Net periodic pension
plan cost $ 637 $ 504 $ 399
===============================
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
was 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 respectively 8% and 6%, in 1994 and 1992 and 7-1/4% and 5-1/2%,
in 1993. The expected long-term rate of return on assets was 8% in all three
years.
10. STOCK OPTION AND AWARD PLANS
The Company has various plans which provide for the granting of options
and 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, 1994 were non-qualified options, all were exercisable
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. Stock options not exercised
expire periodically through year 2003. A summary of stock option transactions
follows:
1994 1993 1992
---------------------------------------------------------
Avg. Avg. Avg.
(000's) Option (000's) Option (000's) Option
Shares Price Shares Price Shares Price
---------------------------------------------------------
Outstanding,
beginning
of year 218 $24.67 219 $23.52 243 $23.46
Exercised (2) 20.81 (9) 22.35 (21) 22.83
Expired - - (2) 38.56 (3) 23.13
Granted - - 10 50.13 - -
---------------------------------------------------------
Outstanding,
end of year 216 $24.69 218 $24.67 219 $23.52
=========================================================
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 under this program and 31,000 shares remain
outstanding at December 31, 1994. The value of the award is being amortized as
compensation expense over a five year vesting period.
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 25
11. INSURANCE LOSS RESERVES
Activity in the liability for unpaid insurance losses and loss
adjustment expenses (excluding claim drafts issued but not yet paid) for the
property and casualty companies is summarized as follows (amounts in 000's):
1994 1993 1992
----------------------------------
Balance at January 1 $ 33,964 $ 23,185 $ 22,744
Less reinsurance
recoverables 6,220 2,780 3,652
----------------------------------
Net Balance at January 1 27,744 20,405 19,092
----------------------------------
Incurred related to:
Current year 114,511 86,637 67,364
Prior years (2,076) (1,980) (1,929)
----------------------------------
Total incurred 112,435 84,657 65,435
Paid related to: ----------------------------------
Current year 93,014 65,588 53,185
Prior year 9,684 11,730 10,937
----------------------------------
Total paid 102,698 77,318 64,122
----------------------------------
Net Balance at December 31 37,481 27,744 20,405
Plus reinsurance
recoverables 14,597 6,220 2,780
----------------------------------
Balance at December 31 $ 52,078 $ 33,964 $ 23,185
==================================
The amounts of recoveries pertaining to reinsurance contracts that were
deducted from losses incurred during 1994, 1993 and 1992 were approximately
$20,231,000, $21,077,000, and $6,453,000, respectively.
12. CONTINGENCIES
M/G Transport Services, Inc. is the subject of a criminal prosecution
and related civil litigation concerning the alleged disposal of bilge water and
other refuse from vessels on the inland waterways. M/G Transport is litigating
these issues and the outcome cannot be reasonably estimated at this time.
13. 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
1994 1993 1992
--------------------------------
Total segment revenues
Insurance $220,382 $179,310 $145,476
Transportation 53,190 53,255 47,247
Sportswear 41,928 34,702 32,620
Finance and other 6,035 5,681 4,295
Intersegment revenues (5,620) (5,281) (4,134)
--------------------------------
Total $315,915 $267,667 $225,504
================================
Operating profit
Insurance $ 16,032 $ 23,662 $ 18,526
Transportation 5,370 3,232 1,236
Sportswear (2,348) (2,663) 2,248
Finance and other 1,568 1,512 1,607
Interest expense (5,952) (5,279) (5,145)
Unallocated corporate
expenses (2,783) (2,211) (2,467)
--------------------------------
Total $ 11,887 $ 18,253 $ 16,005
================================
Acquisition of fixed assets
Insurance $ - $ - $ -
Transportation 6,846 14,657 7,758
Sportswear 583 1,702 1,903
Finance, corporate
and other 12,130 10,995 7,947
--------------------------------
Total $ 19,559 $ 27,354 $ 17,608
================================
Depreciation and amortization
Insurance $ - $ - $ -
Transportation 5,773 6,434 6,435
Sportswear 1,078 973 620
Finance, corporate
and other 3,758 2,884 2,095
--------------------------------
Total $ 10,609 $ 10,291 $ 9,150
================================
Identifiable assets
Insurance $377,109 $300,708 $231,360
Transportation 52,534 87,654 79,697
Sportswear 17,264 23,932 21,390
Finance, corporate
and other 53,769 59,163 46,932
Intersegment receivables (18,130) (21,235) (19,677)
--------------------------------
Total $482,546 $450,222 $359,702
================================
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 26
14. 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 and award plans. The
Company has also authorized 500,000 shares of preferred stock, without par
value, none of which have been issued.
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, $10,000,000 of its net assets was not
available for distribution to the Company at December 31, 1994.
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 the maximum
dividends that may be paid to the Company from its insurance subsidiaries in
1995 without regulatory approval is approximately $8,000,000; such subsidiaries
paid actual cash dividends of $4,000,000 in 1994 and $3,000,000 in both 1993
and 1992.
Net income as determined in accordance with statutory accounting
practices for the Company's insurance subsidiaries was $3,616,000, $10,337,000
and $10,299,000 for 1994, 1993 and 1992, respectively. Shareholders' equity on
the same basis was $96,863,000 and $78,236,000 at December 31, 1994 and 1993.
The 1994 statutory basis shareholders' equity includes $20 million of paid-in
capital funded with long-term debt referred to in Note 6.
Activity in the Shareholders' equity accounts is summarized as follows
(amounts in 000's):
Net
Unrealized Unvested
Additional Gain on Restricted
Common Paid-In Retained Marketable Treasury Stock
Stock Capital Earnings Securities Stock Award Total
--------------------------------------------------------------------
Balance,
January 1,
1992 $911 $14,030 $ 97,156 $ 4,280 $(14,653) $101,724
Net Income 11,979 11,979
Purchase of
treasury stock (2,654) (2,654)
Cash dividends
declared (1,489) (1,489)
Exercise of
stock options (38) 505 467
Changes in
unrealized gain
on investments,
net of tax 1,556 1,556
---------------------------------------------------------------------
Balance,
December
31, 1992 911 13,992 107,646 5,836 (16,802) 111,583
Net income 17,972 17,972
Purchase
of treasury
stock (799) (799)
Cash dividends
declared (1,623) (1,623)
Exercise of
stock options (28) 243 215
Changes in
unrealized gain
on investments,
net of tax (187) (187)
Restricted stock
awards 656 794 $(1,450) -
Amortization of
unvested
restricted stock
awards 290 290
Effect of change
in accounting
for marketable
securities 5,659 5,659
---------------------------------------------------------------------
Balance,
December 31,
1993 911 14,620 123,995 11,308 (16,564) (1,160) 133,110
Net income 9,419 9,419
Purchase of
treasury
stock (118) (118)
Cash
dividends
declared (1,739) (1,739)
Exercise of
stock options (7) 39 32
Changes in
unrealized gain
on investments,
net of tax (8,554) (8,554)
Amortization
and
cancellation
of unvested
restricted
stock awards (6) (5) 298 287
---------------------------------------------------------------------
Balance,
December 31,
1994 $911 $14,607 $131,675 $2,754 $(16,648) $(862) $132,437
=====================================================================
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993 and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in note 1 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.
s/Deloitte & Touche
February 16, 1995
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 LLP,
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 LLP 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.
s/John I. Von Lehman
Vice President, Treasurer and
Chief Financial Officer
<PAGE>
1994 MIDLAND ANNUAL REPORT PAGE 29
QUARTERLY DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------- ----------- ----------- ----------- -----------
1994
----
Revenues $ 69,442,000 $ 74,883,000 $ 85,118,000 $ 86,472,000
Net income (loss) 810,000 (549,000) 3,914,000 5,244,000
Earnings (loss) per
common share .26 (.17) 1.28 1.72
Dividends per
common share .145 .145 .145 .145
Price range of common
stock (AMEX) 38 - 45 1/8 34 3/4 - 39 34 1/4 - 38 38 - 43 3/4
1993
----
Revenues $ 58,297,000 $ 62,806,000 $ 75,716,000 $ 70,848,000
Net income 6,175,000(a) 4,005,000 5,147,000 2,645,000
Earnings per
common share 2.00(a) 1.31 1.67 .87
Dividends per
common share .135 .135 .135 .135
Price range of common
stock (AMEX) 44 7/8-50 5/8 39 3/4-48 1/8 40 1/2-45 1/4 41 3/8-47 1/2
(a) Includes a credit of $4,867,000, $1.58 per common share, 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.
OTHER INFORMATION
TRANSFER AGENT AND REGISTRAR INDEPENDENT AUDITORS
Society National Bank Deloitte & Touche LLP
P.O. Box 6477 250 East Fifth Street
Cleveland, Ohio 44101 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 13, 1995 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, 1994 was 736. The
Company's common stock is registered on the American Stock Exchange.
FORM 10-K
A copy of the Company's 1994 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, 1994
The subsidiaries of the Registrant as of December 31, 1994, all of which
are included in the consolidated financial statements, are as follows:
Percentage
State of of Voting
Incorporation Stock Owned
------------- -----------
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 Insurance Group, Inc. Ohio 100
Marbury Agency, Inc. Ohio 100
SUBSIDIARIES OF AMERICAN MODERN INSURANCE GROUP, INC.
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
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, Inc. Pennsylvania 100
SUBSIDIARY OF AMERICAN WESTERN HOME INSURANCE CO.
American Modern Life Insurance Company of
Arizona, Inc. Arizona 100
The names of two wholly-owned subsidiaries of The Midland Company are not
shown above as such individual listing is not required.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 4,036,000
<SECURITIES> 278,088,000
<RECEIVABLES> 86,413,000
<ALLOWANCES> 1,535,000
<INVENTORY> 11,116,000
<CURRENT-ASSETS> 0
<PP&E> 109,729,000
<DEPRECIATION> 43,687,000
<TOTAL-ASSETS> 482,546,000
<CURRENT-LIABILITIES> 0
<BONDS> 44,640,000
<COMMON> 911,000
0
0
<OTHER-SE> 131,526,000
<TOTAL-LIABILITY-AND-EQUITY> 482,546,000
<SALES> 41,855,000
<TOTAL-REVENUES> 315,915,000
<CGS> 31,870,000
<TOTAL-COSTS> 293,110,000
<OTHER-EXPENSES> 5,477,000
<LOSS-PROVISION> 576,000
<INTEREST-EXPENSE> 4,865,000
<INCOME-PRETAX> 11,887,000
<INCOME-TAX> 2,468,000
<INCOME-CONTINUING> 9,419,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,419,000
<EPS-PRIMARY> 3.09
<EPS-DILUTED> 3.07
</TABLE>
