THE MIDLAND COMPANY
Annual Report
on Form 10-K
to the
Securities and Exchange Commission
for the
Year Ended December 31, 1995
<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, 1995
Commission File Number - 1-6026
THE MIDLAND COMPANY
Incorporated in Ohio
I.R.S. Employer Identification No. 31-0742526
7000 Midland Boulevard
Amelia, Ohio 45102-2607
Tel. (513) 943-7100
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 14, 1996 was $149,518,562.
Number of shares of common stock outstanding as of March 14, 1996 -
3,020,577.
Documents Incorporated by Reference
Annual Report to Shareholders for the year ended December 31, 1995 is
incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 15, 1996 is incorporated by
reference into Parts III and IV.
1
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THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1995
PART I
ITEM 1. Business.
Incorporated by reference to the inside front cover and pages 2 through
13 and 30 (Note 12) of the Registrant's 1995 Annual Report to
Shareholders. The number of persons employed by the Registrant was
approximately 875 at December 31, 1995.
ITEM 2. Properties.
Incorporated by reference to the inside front cover and pages 2
through 13 of the Registrant's 1995 Annual Report to Shareholders.
ITEM 3. Legal Proceedings.
A Grand Jury returned a nine count indictment against M/G Transport
Services, Inc. in February, 1995, alleging violations of certain
environmental laws. Seven former M/G employees were also indicted.
The indictments alleged that M/G employees had, over a period of
years, discharged or permitted the discharge, of bilge water, ash and
other refuse into the inland waterways. M/G faced fines of up to
$4.2 million.
The case, styled: United States of America vs. M/G Transport
Services, et al., went to trial in the United States District Court
for the District of Ohio beginning November 4, 1995. On December 22,
1995, the jury returned guilty verdicts against M/G on eight of the
nine counts. Three of M/G's former employees were also found guilty
on various counts.
M/G has challenged the verdicts and has preserved its rights of
appeal. If the verdicts are affirmed by the court, M/G could be
fined up to $3.7 million. Sentencing is not expected to occur before
the end of March, 1996.
Related civil litigation is still pending, the outcome of which
cannot be reasonably estimated at this time.
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 16, 30 (Note 13) and 32
of the Registrant's 1995 Annual Report to Shareholders.
ITEM 6. Selected Financial Data.
Incorporated by reference to page 17 of the Registrant's 1995 Annual
Report to Shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Incorporated by reference to pages 18 and 19 of the Registrant's 1995
Annual Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 16 and 20 through 32 of the
Registrant's 1995 Annual Report to Shareholders.
2
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PART II (Continued)
ITEM 9. Changes In and Disagreements with Accountants 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 15, 1996.
Executive Officers of the Company -
J. P. Hayden, Jr. - Age 66 - Chairman and Chief Executive Officer
Michael J. Conaton - Age 62 - President and Chief Operating Officer
John R. LaBar - Age 64 - Vice President and Secretary
Robert W. Hayden - Age 57 - Vice President
John I. Von Lehman - Age 43 - Vice President, Treasurer and
Chief Financial Officer
Thomas J. Rohs - Age 54 - Vice President
J. P. Hayden, III - Age 43 - Vice President
John W. Hayden - Age 38 - Vice President
Michael L. Flowers - Age 44 - 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 15, 1996.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 15, 1996.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 15, 1996.
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, 1995 and 1994.
Consolidated Statements of Income and Retained Earnings for
the Years Ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
3
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PART IV (Continued)
(a) 2. Financial Statement Schedules.
Included in Part IV of this report:
Data pertaining to The Midland Company and Subsidiaries - Page
Independent Auditors Consent and Report on Schedules. 7
Schedule I - Condensed Financial Information of
Registrant. 8-12
Schedule II - Allowance for Losses for the Years Ended
December 31, 1995, 1994 and 1993. 13
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(a) 3. Exhibits.
3. Articles of Incorporation and By-Laws - Filed as
Exhibit 3 to the Registrant's 1980 Annual Report on
Form 10-K, and incorporated herein by reference.
10. A description of the Company's Stock Option Plan and
Profit Sharing Plan - Incorporated by reference to the
Registrant's Proxy Statement dated March 15, 1996.
11. Computation of Consolidated Net Income Per Share for
the years ended December 31, 1995, 1994 and 1993. 14
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1995 Annual Report to
Shareholders.
21. Subsidiaries of the Registrant. 15
22. Registrant's Proxy Statement - Incorporated by reference
to the Registrant's Proxy Statement dated March 15, 1996.
23. Independent Auditors' Consent - Included in Consent and
Report on Schedules referred to under Item 14(a)2 above.
27. Financial Data Schedule.
(b) Report on Form 8-K - No such reports filed or required to be
filed in the fourth quarter of 1995.
4
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE MIDLAND COMPANY
Signature Title Date
S/ J. P. Hayden, Jr. Chairman, and March 7, 1996
(J. P. Hayden, Jr.) Chief Executive Officer
S/ John I. Von Lehman Vice President, Treasurer, March 7, 1996
(John I. Von Lehman) Chief Financial Officer and
Chief Accounting Officer
5
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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 7, 1996
(George R. Baker)
S/ James H. Carey Director and Member March 7, 1996
(James H. Carey) of Audit Committee
S/ Michael J. Conaton President, Chief Operating March 7, 1996
(Michael J. Conaton) Officer and Director
S/ J. P. Hayden, Jr. Chairman, Chief Executive March 7, 1996
(J. P. Hayden, Jr.) Officer and Director
S/ J. P. Hayden, III Vice President and Director March 7, 1996
(J. P. Hayden, III)
S/ John W. Hayden Vice President and Director March 7, 1996
(John W. Hayden)
S/ Robert W. Hayden Vice President and Director March 7, 1996
(Robert W. Hayden)
S/ William T. Hayden Director March 7, 1996
(William T. Hayden)
S/ William J. Keating Director March 7, 1996
(William J. Keating)
S/ William McD. Kite Director March 7, 1996
(William McD. Kite)
S/ John R. LaBar Vice President, Secretary March 7, 1996
(John R. LaBar) and Director
S/ John M. O'Mara Director and Member March 7, 1996
(John M. O'Mara) of Audit Committee
S/ John R. Orther Director and Member March 7, 1996
(John R. Orther) of Audit Committee
S/ William F. Plettner Director March 7, 1996
(William F. Plettner)
S/ Glenn E. Schembechler Director and Member March 7, 1996
(Glenn E. Schembechler) of Audit Committee
S/ John I. Von Lehman Vice President, Treasurer, March 7, 1996
(John I. Von Lehman) Chief Financial Officer,
Chief Accounting Officer
and Director
6
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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-
64821 on Form S-3 and No. 33-48511 on Form S-8 of The Midland Company of our
report dated February 15, 1996, incorporated by reference in this Annual Report
on Form 10-K, and our report (appearing below) on the financial statement
schedules of The Midland Company for the year ended December 31, 1995.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedules of The
Midland Company and its subsidiaries, listed in Item 14 (a)2. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Cincinnati, Ohio
March 22, 1996
7
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1995 and 1994
ASSETS 1995 1994
-----------------------------
Cash $ 240,000 $ 184,000
-----------------------------
Marketable Securities (at market value) 8,116,000 10,974,000
-----------------------------
Receivables - Net 7,230,000 4,118,000
-----------------------------
Property, Plant and Equipment (at cost) 54,958,000 47,363,000
Less Accumulated Depreciation 4,112,000 12,935,000
-----------------------------
Net 50,846,000 34,428,000
-----------------------------
Other Assets 1,075,000 31,000
-----------------------------
Investment in Subsidiaries (at equity) 169,978,000 169,093,000
-----------------------------
Total $ 237,485,000 $ 218,828,000
=============================
8
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1995 and 1994
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
-----------------------------
Notes Payable within One Year:
Banks (including current portion of
long-term debt) $ 31,767,000 $ 22,265,000
Commercial Paper 4,620,000 5,546,000
-----------------------------
Total 36,387,000 27,811,000
-----------------------------
Other Payables and Accruals 1,471,000 568,000
-----------------------------
Intercompany Payables 14,541,000 49,570,000
-----------------------------
Long-Term Debt 28,491,000 8,442,000
-----------------------------
Shareholders' Equity:
Common Stock - No Par (issued and outstanding:
3,020,000 shares at December 31, 1995 and
2,997,000 shares at December 31, 1994 after
deducting treasury stock of 623,000 shares
and 646,000 shares, respectively) 911,000 911,000
Additional Paid-In Capital 15,362,000 14,607,000
Retained Earnings 139,350,000 131,675,000
Net Unrealized Gain on Marketable Securities 19,716,000 2,754,000
Treasury Stock (at cost) (16,575,000) (16,648,000)
Unvested Restricted Stock Awards (2,169,000) (862,000)
-----------------------------
Total 156,595,000 132,437,000
-----------------------------
Total Liabilities and Shareholders' Equity $ 237,485,000 $ 218,828,000
=============================
9
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Condensed Statements of Income Information
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
-----------------------------------------
Revenues:
Dividends from Subsidiaries $ 35,117,000 $ - $ -
All Other Income, Primarily Charges
to Subsidiaries 9,434,000 8,001,000 7,018,000
-----------------------------------------
Total Revenues 44,551,000 8,001,000 7,018,000
-----------------------------------------
Expenses:
Interest Expense 5,248,000 3,442,000 2,739,000
Depreciation and Amortization 4,884,000 3,715,000 2,884,000
All Other Expenses 1,727,000 1,968,000 1,430,000
-----------------------------------------
Total Expenses 11,859,000 9,125,000 7,053,000
-----------------------------------------
Income (Loss) Before Federal Income Tax,
Cumulative Effect of Accounting Change
and Change in Undistributed Income
of Subsidiaries 32,692,000 (1,124,000) (35,000)
Provision (Credit) for Federal
Income Tax (902,000) (430,000) 214,000
-----------------------------------------
Income (Loss) Before Cumulative Effect
of Accounting Change and Change in
Undistributed Income of Subsidiaries 33,594,000 (694,000) (249,000)
Cumulative Effect of Change in
Accounting for Income Taxes - - 3,358,000
-----------------------------------------
Income (Loss) Before Change in
Undistributed Income of Subsidiaries 33,594,000 (694,000) 3,109,000
Less - Distributed Income of
Subsidiaries (35,117,000) - -
Plus - Undistributed Income of
Subsidiaries 11,075,000 10,113,000 14,863,000
-----------------------------------------
Net Income $ 9,552,000 $ 9,419,000 $ 17,972,000
=========================================
10
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows Information
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
-----------------------------------------
Cash Flows from Operating Activities:
Net Income $ 9,552,000 $ 9,419,000 $ 17,972,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Undistributed income of
subsidiaries (11,075,000) (10,113,000) (14,863,000)
Dividends received from subsidiaries 35,117,000 - -
Depreciation and amortization 4,884,000 3,715,000 2,884,000
Increase in receivables (3,995,000) (5,000) (2,951,000)
Increase in other assets (1,044,000) (3,000) (8,000)
Increase (decrease) in other
payables & accruals 871,000 (7,610,000) (1,749,000)
Other - net 166,000 71,000 2,128,000
-----------------------------------------
Net cash provided by (used in)
operating activities 34,476,000 (4,526,000) 3,413,000
-----------------------------------------
Cash Flows from Investing Activities:
Acquisition of property, plant
& equipment (28,060,000) (12,083,000) (11,085,000)
Capital contributions to subsidiaries (2,999,000) (2,847,000) -
Sale of property, plant & equipment 599,000 349,000 -
Change in investments (excluding
unrealized appreciation/depreciation) 5,379,000 (4,814,000) (232,000)
-----------------------------------------
Net cash provided by (used in)
investing activities (25,081,000) (19,395,000) (11,317,000)
-----------------------------------------
Cash Flows from Financing Activities:
Net change in intercompany payables (35,029,000) 34,662,000 622,000
Increase (decrease) in long-term debt 20,551,000 (250,000) 8,957,000
Increase (decrease) in short-term
borrowings 8,074,000 (8,756,000) 436,000
Dividends paid (1,844,000) (1,628,000) (1,590,000)
Purchase of treasury stock (1,143,000) (118,000) (799,000)
Issuance of treasury stock 52,000 32,000 215,000
-----------------------------------------
Net cash provided by (used in)
financing activities (9,339,000) 23,942,000 7,841,000
-----------------------------------------
Net Increase (Decrease) in Cash 56,000 21,000 (63,000)
Cash at Beginning of Year 184,000 163,000 226,000
-----------------------------------------
Cash at End of Year $ 240,000 $ 184,000 $ 163,000
=========================================
11
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Notes to Condensed Financial Information
For the Years Ended December 31, 1995 and 1994
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes included in the
Registrant's 1995 Annual Report to shareholders.
Total debt of the Registrant (parent only) consists of the following:
DECEMBER 31,
------------------------------
1995 1994
------------------------------
Short-Term Bank Borrowings $ 31,000,000 $ 22,000,000
Commercial Paper 4,620,000 5,546,000
Secured Mortgage Notes:
6.94% - Due December 20, 2005 20,800,000 -
5.82% - Due December 1, 2003 8,458,000 8,707,000
------------------------------
Total Debt $ 64,878,000 $ 36,253,000
==============================
See Note 6 to the consolidated financial statements included in the 1995 Annual
Report to Shareholders for further information on the Company's outstanding debt
at December 31, 1995.
The amount of debt, other than debt eliminated in consolidation, that becomes
due during each of the next five years is as follows: 1996 - $36,387,000;
1997 - $824,000; 1998 - $880,000; 1999 - $939,000; 2000 - $998,000.
12
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SCHEDULE II
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE II - ALLOWANCE FOR LOSSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
-------------------------------------------------
YEAR ENDED DECEMBER 31, 1995:
Allowance For Losses $ 1,535,000 $ 468,000 $ 641,000(1) $ 1,362,000
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
NOTES: (1) Accounts written off are net of recoveries.
13
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EXHIBIT (11)
THE MIDLAND COMPANY
AND SUBSIDIARIES
EXHIBIT (11) - COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
FOR THE YEARS DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
-----------------------------------------
Net Income $ 9,552,000 $ 9,419,000 $ 17,972,000(a)
=========================================
Weighted average number of
voting shares outstanding 3,028,000 2,998,000 3,004,000
=========================================
Primary:
Adjusted weighted average shares
outstanding - after giving effect to
conversion of stock options and
stock awards 3,072,000 3,050,000 3,074,000
=========================================
Per share - after giving effect to
conversion of stock options and
stock awards (net income divided by
adjusted weighted average shares
outstanding) $ 3.11 $ 3.09 $ 5.85(a)
=========================================
Fully diluted:
Adjusted weighted average shares
outstanding - after giving effect
to conversion of stock options
and stock awards 3,084,000 3,066,000 3,078,000
=========================================
Per share - after giving effect to
conversion of stock options and
stock awards (net income divided
by adjusted shares outstanding) $ 3.10 $ 3.07 $ 5.84(a)
=========================================
(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.
14
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1995 MIDLAND ANNUAL REPORT - INSIDE FRONT COVER
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 subsidiaries -
Insurance, Transportation and Sportswear. Midland is a publicly traded company
on the American Stock Exchange (MLA).
American Modern Insurance Group, Inc.
American Modern Insurance Group (AMIG) consists of six property and casualty
companies and two credit life companies. Licensed in all 50 states, AMIG has
traditionally specialized in writing physical damage insurance and related
coverages on manufactured housing and recently has expanded to other areas of
insurance including 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 currently charters barges and brokers freight for the movement of
commodities on the inland waterways. M/G owned 259 barges and four towboats at
December 31, 1995. The barges are used in the brokerage operation and the
towboats are chartered to outside companies.
CS Crable Sportswear, Inc.
CS Crable is a "value-added" manufacturer of high quality appliqued, embroidered
and imprinted apparel specializing in the design and marketing of branded and
licensed sportswear. CS Crable's designs feature major colleges and
universities, professional leagues, lifestyle and specialty licensed and
non-licensed programs.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 2
Chairman's Letter
The Midland Company's net income for 1995 was $9,552,000, $3.11 per
share, on revenues of $350,960,000. Net income for 1994 was $9,419,000, $3.09
per share, on revenues of $315,411,000. For the fourth quarter of 1995, net
income was $2,622,000, $.85 per share, on revenues of $93,148,000, as compared
to net income of $5,244,000, $1.72 per share, on revenues of $85,968,000 for the
fourth quarter of 1994.
Your Company, while faced with many difficult issues during 1995, ended
the year well positioned for the future. Each of Midland's three major
subsidiaries absorbed unusual expenses during 1995 that should not continue at
the same level in 1996. These situations are discussed in more detail in the
following pages of this year's annual report.
We are pleased to report that Midland's Board of Directors, at its
March 1995 meeting, approved an increase in the cash dividends to shareholders
from 58 cents to 62 cents per common share. This marks the ninth consecutive
year that Midland's dividend has increased. At its December meeting, the Board
approved a dividend reinvestment plan available to all shareholders beginning
with dividends payable in the first quarter of 1996.
The book value of Midland's stock was $51.85 per share as of
December 31, 1995, compared to $44.19 at December 31, 1994. This represents an
increase of 17 percent. Profitable operating results, along with an almost
$17,000,000 increase in the unrealized gain on marketable securities, added over
$24,000,000 to Midland's shareholders' equity. The Company also attained record
levels of assets and revenues during 1995.
American Modern Insurance Group, Inc. (AMIG), the Company's insurance
subsidiary, concluded the most successful year in the Company's history. Net
premiums written increased 21% in 1995 as compared to 1994 with underwriting
profits of the insurance operating subsidiaries increasing over 140% during the
same period. AMIG's growth was a result of increased penetration in all of our
major product lines as well as from expansion into other areas of insurance.
AMIG's combined ratio (the ratio of losses and expenses to premiums
earned) was 97.2% in 1995, considered excellent by industry standards. This is
the sixth
THIS PAGE INCLUDES A PHOTOGRAPH OF J.P. HAYDEN, JR., CHAIRMAN AND CHIEF
EXECUTIVE OFFICER AND MICHAEL J. CONATON, PRESIDENT AND CHIEF OPERATING OFFICER.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 3
consecutive year that AMIG's combined ratio has been less than 100%. These
results for 1995 were exceptionally strong given the fact that during 1995 the
insurance industry encountered the largest amount of catastrophic losses ever
reported for a fourth quarter period. Further, the year as a whole ranks as the
third worst in history for natural disasters.
Investment income for AMIG also reached record levels in 1995,
increasing 58 percent over 1994. AMIG's investment portfolio grew to
$358,939,000 at December 31, 1995, an increase of 34 percent from the prior year
end. AMIG's investment portfolio remains conservatively invested in equity and
high quality fixed income securities. The portfolio contains no bonds below
investment grade or any investments in real estate. AMIG realized pre-tax
capital gains of approximately $2,375,000 in 1995 and $2,190,000 in 1994.
M/G Transport Services, Inc., Midland's transportation subsidiary,
successfully concluded its first full year operating primarily as a freight
broker after the sale of approximately two-thirds of its equipment in December
of 1994. Operating results for 1995, after absorbing unusually high litigation
costs, were comparable to the full year of 1994.
The river transportation industry experienced a noticeable improvement
in both freight rates and demand for equipment during 1995. M/G's freight
brokerage operation benefited from this trend in 1995 and we foresee continued
strength into 1996. Management has committed to the purchase of 70 open-hopper
barges with delivery scheduled for 20 barges in 1996 and 50 barges in 1997. In
January 1996, M/G exchanged two of its four towboats as the primary
consideration for the 20 barges scheduled for delivery in 1996.
CS Crable Sportswear, Inc., your Company's sportswear subsidiary,
dramatically revamped its overall operations during 1995. At mid-year 1995,
Management was fortunate to obtain the services of Mr. Richard K. Queen as
President and Chief Operating Officer.
Under his direction, CS Crable has revamped its product line, changed
its sourcing procedures, employed new designs and fabrics and expanded its sales
force and overall geographic coverage within the U.S. At the same time, Mr.
Queen has reduced CS Crable's overall staff and the Company's inventory to the
lowest level in over four years while placing CS Crable on a path to increase
gross sales.
It is Management's belief that CS Crable's 1996 results will reflect
strong overall operating improvements. By year end, CS Crable should be well
positioned to compete aggressively in its chosen niche areas of the sportswear
industry.
The Midland Company, in October 1995, moved into its new corporate
headquarters and training center. Constructed on a campus-like setting in an
eastern suburb of Cincinnati, Ohio, these facilities will allow the Company to
grow and prosper well into the next century.
As we enter 1996, Management is confident that The Midland Company is
well positioned for continued growth in revenues and profits. Our reputation
for quality and service should help contribute to this growth.
We know that a company cannot be any better than the collective talents
of its people and the support it receives from them. With that in mind, we
would like to take this opportunity to thank all of our associates for their
continued support and loyalty to the Company. At the same time, we wish to
extend our sincere thanks and appreciation to all those lending institutions who
have participated in our growth and, most particularly, to thank you, our loyal
shareholders, for your confidence in us.
Sincerely yours,
S/J. P. Hayden, Jr.
J. P. Hayden, Jr.
Chairman
February 15, 1996
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 4
AMERICAN MODERN INSURANCE GROUP, INC.
We are pleased to report that 1995 was a record setting year for
American Modern Insurance Group, Inc. (AMIG), a holding company licensed in all
50 states through its six property and casualty and two life companies.
The operating profits and revenues of the property and casualty
companies reached all-time highs in 1995. Net premiums written increased by
approximately 21% over 1994 with net underwriting income increasing over 130%.
Even with the severe weather that occurred during the year, especially the
spring hail storms in Texas and the incredible Atlantic hurricane season, the
year-end loss ratio was 52%. This excellent result helped produce an overall
combined ratio (the ratio of losses and expenses to premiums earned) of 97.2%.
American Modern Insurance Group has produced a combined ratio of less than 100%
for six consecutive years.
AMIG's premium growth was spread across all of our major product lines.
We continued to experience growth in our traditional physical damage insurance
and related coverages for manufactured housing, most particularly in insurance
generated through the manufactured homes dealer network. Our value added
software programs and instructional courses designed to assist dealers in the
writing of their finance and insurance packages have made us a preferred
business partner in this channel of distribution. We also experienced growth in
our other personal lines insurance products such as Site Built Dwellings and
Watercraft. The Watercraft products continued their strong growth in 1995, with
premiums increasing over 50% for the third consecutive year. This continued
growth, which includes Personal Watercraft insurance, has positioned us as one
of the leading insurance carriers in the industry. The Financial Services
Division continues to expand and add to our product diversification. Several
new product initiatives began to
THIS PAGE INCLUDES A FIVE YEAR COMBINED RATIO BAR CHART WITH THE FOLLOWING DATA:
1991 96.9%
1992 94.6%
1993 93.9%
1994 98.5%
1995 97.2%
THIS PAGE ALSO INCLUDES THE FOLLOWING TEXT: American Modern Insurance Group
achieved record levels of profitablity, net premiums written and total assets
in 1995.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 5
emerge in 1995, most notably the division's new Retail Services and Emerging
Markets groups. These groups are developing a variety of credit related
coverages and non-traditional insurance products with historically high margins
and limited catastrophe exposure.
Continued emphasis on our life insurance operations resulted in net
premiums written increasing by approximately 44% over 1994. Significant effort
has been devoted to gaining admission into additional states and we expect
continued growth in this area over the years ahead.
Ameritrac, American Modern Insurance Group's loan and lease tracking
service, monitors portfolios for financial and leasing institutions and places
physical damage coverage on site built homes, manufactured homes, automobiles
and other loan collateral on which the borrower has not provided proof of
insurance. Ameritrac has expanded its services to include both escrow and tax
payment tracking for clients with a mortgage portfolio, a direct mail service
and a service for converting an agent's manufactured home portfolio to AMIG from
its current carrier.
The Commercial Lines Division, consisting primarily of mobile home park
and dealer insurance and a variety of program business, continues to mature
according to plan. Our plans remain ambitious for continued growth in the
commercial lines area.
The American Modern Insurance Group places a strong emphasis on the
management of exposure due to hurricanes and earthquakes. We are working with
an outside consulting firm on the refinement of a sophisticated system to track
the Company's exposure to natural
THIS PAGE INCLUDES A PHOTOGRAPH OF JOHN W. HAYDEN, PRESIDENT AND CHIEF OPERATING
OFFICER OF AMERICAN MODERN INSURANCE GROUP AND THOMAS J. ROHS, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER OF AMERICAN MODERN INSURANCE GROUP.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 6
catastrophes. The premium increases we have achieved in 1995 have not come at
the expense of the Company's continuing commitment to its risk management
discipline.
Our Company's Claims Department remains committed to providing
policyholders superior service. In 1995, we increased the number of staff
adjusters by 38% over 1994. This expansion helps us move ever closer to our
customers and handle claims in a more timely and efficient manner. In fact,
during the year, approximately 86% of all claims were settled within 30 days of
being reported.
Certainly one of the highlights and most exciting events of 1995 was the
relocation to our new corporate headquarters located in Amelia, Ohio. A variety
of work flow enhancements have been made in several of our key operating areas.
Our employees have been invigorated by the relocation to the new facility and
are more committed than ever to delivering quality products and superior service
to our customers.
As always, we remain focused on our company-wide commitment to
excellence. An example of this commitment can be found in the Company's
emphasis on employee training and development. In addition to our new corporate
headquarters, we are fortunate to have a new training facility in which to
further the education and development of our employees. A manager of education
and development has been hired to help identify, prioritize and coordinate these
organizational needs. The training and development units within our personal
lines operation and claims department continue to be key areas responsible for
the success of the American Modern Insurance Group.
Our Company's ultimate commitment to excellence during 1995 was the
participation by all AMIG employees in an extensive three-day Excellence
Training Program. During these three days, all employees were trained in ways
to improve interpersonal communication skills,
THIS PAGE INCLUDES TWO FIVE YEAR BAR CHARTS WITH THE FOLLOWING DATA (AMOUNTS IN
000'S):
AMIG NET WRITTEN PREMIUMS AMIG NET INVESTMENT INCOME
1991 $124,156 $10,559
1992 144,642 11,326
1993 182,884 13,631
1994 240,348 12.999
1995 291,808 19,455
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 7
enhance problem solving ability and apply the quality improvement process. As
we move into the future, all new employees will have the benefit of
participating in this program. We view this commitment to excellence as vital
to the Company's ongoing success.
Once again we have made strides in increasing our customer awareness.
With the addition of a director of marketing research, we are administering
focus groups and customer satisfaction surveys in an effort to get more in touch
with our customers' expectations and desires. We are using the results of this
research to offer products and services that meet and exceed the needs of our
valued customers.
Advances in automation and technology have led, and will continue to
lead, to service improvements as well. A few of the enhancements being
implemented include upgrades within the commercial lines system, further
automation of the claims adjustment process and the electronic imaging of
documents. We firmly believe that investment in technology will provide us
with a long-term competitive advantage.
The American Modern Insurance Group's investment portfolio continues to
be conservatively invested in high quality fixed income and
THIS PAGE INCLUDES A PHOTOGRAPH OF ROBERT E. HILLIARD, SENIOR VICE PRESIDENT OF
AMERICAN MODERN INSURANCE GROUP AND RONALD L. CRIPPEN, SENIOR VICE PRESIDENT OF
AMERICAN MODERN INSURANCE GROUP.
THIS PAGE ALSO INCLUDES THE FOLLOWING TEXT: AMIG's combined ratio for 1995 was
less than 100 percent for the sixth consecutive year, demonstrating a commitment
to sound underwriting policies.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 8
equity securities. There are no investments in real estate or derivative
products. The fixed income portfolio maintains a weighted average quality of
approximately AA to AAA and the current average maturity of the fixed income
portfolio is approximately 4.7 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 $2,375,000 in net pre-tax capital gains in 1995.
We would like to thank our many business partners and acknowledge the
impact of their contributions to the Company's success. We are committed to
excellence and believe we will be successful in earning your continued support.
We would also like to thank all of the employees of American Modern Insurance
Group, for without their dedication to excellence our continued success would
not be possible.
THIS PAGE INCLUDES A PHOTOGRAPH OF KENNETH G. BOBERG, EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER OF AMERICAN MODERN INSURANCE GROUP AND CHARLES J.
JENKINS, SENIOR VICE PRESIDENT OF AMERICAN MODERN ISURANCE GROUP.
THIS PAGE ALSO INCLUDES THE FOLLOWING TEXT: AMIG's ultimate commitment to
excellence during 1995 was the participation by all employees in an extensive
three-day Excellence Training Program.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 9
American Modern Insurance Group, Inc.
Investment Portfolio
THIS PAGE INCLUDES TWO FIVE YEAR TOTAL RETURN BAR CHARTS WITH THE FOLLOWING
DATA:
Bonds & Notes
Pretax After Tax Equities
---------------------------------------------------
1991 13.1% 9.1% 31.5%
1992 7.2 5.4 7.1
1993 8.9 6.4 7.8
1994 (0.8) 0.1 1.3
1995 13.4 9.2 31.3
1995 1994 1993 1992 1991
---------------------------------------------------
MARKET VALUES (000's)
Bonds and Notes:
Governments $152,942 $ 99,486 $ 72,477 $ 75,200 $ 76,333
Municipals 92,904 62,951 64,998 53,514 36,047
Corporate 35,347 30,598 10,977 8,101 10,788
Cash Equivalents 31,941 43,782 43,838 28,442 20,800
---------------------------------------------------
Total 313,134 236,817 192,290 165,257 143,968
Equity Securities 40,716 26,643 23,462 22,514 19,628
Accrued Interest and
Dividends 5,089 3,654 2,855 2,921 2,587
---------------------------------------------------
Total $358,939 $267,114 $218,607 $190,692 $166,183
===================================================
AVERAGE MATURITY
OF BONDS AND NOTES (years) 4.7 4.1 3.4 4.1 4.0
===================================================
The average quality rating of the portfolio was AA to AAA for all the years
presented.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 10
M/G TRANSPORT SERVICES, INC.
M/G Transport Services, Inc., Midland's transportation division,
operates a fleet of 259 barges. M/G, at December 31, 1995, also owned four
towboats that were operated by other companies in the industry through long-term
charter agreements. The barges are utilized mainly by M/G's brokerage operation
for the placement of freight in the movement of dry bulk commodities such as
petroleum coke, iron ores, logs, fertilizers, sugar, aggregates, etc.
M/G Transport's financial performance in 1995 marked a rebound from
previous years when depressed freight rates negatively affected profits.
Increased demand for barge capacity in the industry has positively affected
freight rates. M/G's 1995 gross revenues from the retained brokerage operations
increased 55% in 1995 compared to 1994. The related gross tonnage moved
increased 55% over this same period. As previously reported, M/G sold
approximately two-thirds of its assets in December of 1994.
The restructuring actions taken by M/G Transport in 1994 have enabled us
to achieve the results reported in 1995. The management team continues to
believe that M/G's operations should continue to provide excellent returns. We
are confident that we have the plans and
THIS PAGE INCLUDES A PHOTOGRAPH OF THOMAS C. TERRELL III, PRSIDENT MGT SERVICES,
INC. AND J. KEVIN JENNINGS, EXECUTIVE VICE PRESIDENT, MGT SERVICES, INC.
THIS PAGE ALSO INCLUDES THE FOLLOWING TEXT: M/G Transport achieved a very
favorable level of profitability in its first full year operating primarily as a
freight broker.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 11
personnel in place to accomplish such results.
In light of this optimism, M/G Transport has committed to purchase 20
open-hopper barges valued at $5,700,000 slated for delivery in the summer of
1996. In January, 1996, M/G exchanged two of its towboats as the primary
consideration for the purchase of these barges. In addition, M/G has
committed to the delivery of an additional 50 open-hopper barges, valued at
$14,000,000, scheduled for delivery in the summery of 1997. We believe these
equipment acquisitions are necessary to upgrade and modernize our fleet so as to
further position ourselves for growth and development in the river
transportation industry.
Over the long term, Management feels M/G Transport is well positioned to
build its earnings power as the market returns to normal conditions. Management
also continues to explore the possibility of further expansion through the
acquisition of similar or other business interests that would add solid growth
and financial stability to M/G Transport Services, Inc.
We would like to thank all of the M/G Transport staff for their
determination and dedication throughout the year. M/G Transport's future
success will be directly attributable to the efforts and hard work of the entire
staff.
THIS PAGE INCLUDES A PHOTOGRAPH OF JACK L. LORDO, VICE PRESIDENT M/G TRANSPORT
SERVICES, INC., J. P. HAYDEN III, PRESIDENT AND CHIEF OPERATING OFFICER M/G
TRANSPORT SERVICES, INC. AND RAYMOND R. LUDMANN, TREASURER M/G TRANSPORT
SERVICES, INC.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 12
CS CRABLE SPORTSWEAR, INC.
CS Crable Sportswear, Inc., Midland's wholly-owned sportswear
subsidiary, is a "value-added" manufacturer of high-quality appliqued,
embroidered and imprinted apparel that specializes in the design and marketing
of branded and licensed sportswear. The Company is recognized as an innovator
in garment and graphic designs.
The CS Crable brand is well regarded for the high-quality and value of
its sportswear. Emphasis has been placed on designs featuring major colleges
and universities, professional leagues, lifestyle and specialty licensed and
non-licensed programs. CS Crable markets its products with Company and
independent sales representatives located throughout the United States.
The Company has responded well to a very volatile market in 1995
characterized by a soft retail environment and substantial competitive activity
and has completed the year well positioned for future growth and profitability.
CS Crable achieved a substantial reduction (37%) in total inventory and ended
the year with its lowest inventory position in four years. Inventory
liquidation over the past two years has reduced inventories over 55%, providing
a sound financial basis for renewed growth.
Management has undertaken several major business initiatives in 1995 to
strengthen the management team and bolster our ability to be a major competitor
in the market. We are pleased that Mr. Richard K. Queen has joined the Company
as President and Chief Operating Officer. Mr. Queen brings many years of
executive management experience in the apparel industry to CS Crable.
THIS PAGE FEATURES A PHOTOGRAPH OF VARIOUS CS CRABLE SPORTSWEAR GARMENTS
DISPLAYED IN THE COMPANY'S SHOWROOM.
THIS PAGE ALSO INCLUDES THE FOLLOWING TEXT: CS Crable's management initiatives
and reduced inventory levels have positioned the Company for improved operating
performance in 1996.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 13
With his leadership, CS Crable Sportswear is positioning itself to return to
strong profitability in a very dynamic and competitive marketplace.
The development of a new business planning process, as well as a review
and reengineering of our business practices and policies, including the
implementation of a new state-of-the-art information system, are well underway.
A profitability analysis and review of all major business programs has prompted
the discontinuation of several non-performing licenses and a repositioning of
some other programs. Major League Baseball and Pebble Beach remain as
substantial contributors to our business and are integral to our long-term
business direction. The Company is also committed to exploring new licenses to
complement existing lines and to expand and diversify into other channels of
distribution.
Continued emphasis will be placed on establishing unique products and
brands for each channel of distribution while positioning each CS Crable brand
as the highest quality, best value brand in its respective market. Management
is focused on product and channel diversification and brand development. Two
new programs, Crable Classics and Wolf Athletic, are in development for release
in the Fall of 1996, and are expected to provide significant growth in 1997.
Also, Johnny Xtreme, CS Crable's attitude brand, has been redeveloped for
introduction with "mass" retailers.
The Management of CS Crable Sportswear would like to extend its
appreciation to all our employees for their ongoing dedication and hard work.
The accomplishments of this past year would not have been possible without their
positive attitude and professionalism. In addition, we would like to take this
opportunity to express our gratitude to our many loyal suppliers, retailers and
licensors for their continued support and partnership. We remain dedicated to
providing our customers with the best valued, premium sportswear through the
highest standards in innovation, quality and service.
THIS PAGE INCLUDES A PHOTOGRAPH OF THOMAS R. HAYDEN, VICE PRESIDENT CS CRABLE
SPORTSWEAR, RICHARD K. QUEEN, PRESIDENT AND CHIEF OPERATING OFFICER CS CRABLE
SPORTSWEAR, GARY R. MASSA, VICE PRESIDENT CS CRABLE SPORTSWEAR AND KEITH E.
COTTRELL, VICE PRESIDENT CS CRABLE SPORTSWEAR.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 16
QUARTERLY DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------------------------------------------------------
1995
Revenues $75,939,000 $87,847,000 $94,026,000 $93,148,000
Net Income 3,811,000 967,000 2,152,000 2,622,000
Earnings per
common share 1.24 .31 .71 .85
Cash dividends per
common share .155 .155 .155 .155
Price range of
common stock(AMEX) 43-51 43 3/4-48 1/4 43 3/4-47 1/4 47-50 1/8
1994
Revenues $69,316,000 $74,755,000 $85,372,000 $85,968,000
Net income (loss) 810,000 (549,000) 3,914,000 5,244,000
Earnings (loss) per
common share .26 (.17) 1.28 1.72
Cash 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
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.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 17
SELECTED CONSOLIDATED FINANCIAL DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31,
1995 1994 1993 1992 1991
--------------------------------------------------------------------
Revenues $350,960,000 $315,411,000 $267,164,000 $225,063,000 $202,232,000
====================================================================
Net Income $ 9,552,000 $ 9,419,000 $ 17,972,000(a) $ 11,979,000 $ 9,231,000
====================================================================
Earnings
Per Common
Share $3.11 $3.09 $5.85(a) $3.98 $3.02
====================================================================
Marketable
Securities $367,054,000 $278,088,000 $224,614,000 $188,531,000 $163,145,000
====================================================================
Property,
Plant and
Equipment
(net) $ 85,849,000 $ 66,042,000 $107,892,000 $ 93,042,000 $ 85,399,000
====================================================================
Total
Assets $604,703,000 $482,546,000 $450,222,000 $359,702,000 $318,101,000
====================================================================
Unearned
Insurance
Premiums $190,948,000 $158,316,000 $118,802,000 $ 89,732,000 $ 76,963,000
====================================================================
Insurance
Loss
Reserves $ 68,347,000 $ 57,715,000 $ 42,607,000 $ 23,993,000 $ 22,733,000
====================================================================
Long-Term
Debt $ 65,456,000 $ 47,091,000 $ 56,522,000 $ 34,801,000 $ 31,730,000
====================================================================
Shareholders'
Equity $156,595,000 $132,437,000 $133,110,000 $111,583,000 $101,724,000
====================================================================
Book Value
Per Common
Share $51.85 $44.19 $44.39 $37.52 $33.69
====================================================================
Cash Dividends
Per Common Share $.62 $.58 $.54 $.50 $.46
====================================================================
Common
Shares
Outstanding 3,020,000 2,997,000 2,999,000 2,974,000 3,019,000
====================================================================
(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>
1995 MIDLAND ANNUAL REPORT - PAGE 18
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 Other. A description of
these segments and comments with regard to their operations are included below.
In addition, please refer to the information on the inside front cover as well
as the text in the Chairman's Letter and the other information on pages 4
through 13 of the Annual Report. Such information, including the Quarterly Data
presented on page 16, 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.
M/G Transport Services, Inc., Midland's transportation division,
operates primarily as a freight broker. This division arranges for the
movement of dry bulk commodities such as petroleum coke, iron ores, logs,
fertilizers, sugar and aggregates on the lower Mississippi River and its
tributaries. In 1994 and prior years, M/G Transport Services, Inc. was a
traditional river transportation company involved in the affreightment of dry
bulk commodities on the Ohio and Mississippi rivers and their tributaries.
Midland's sportswear division, CS Crable Sportswear, Inc., is a
value-added manufacturer of high-quality appliqued, embroidered and imprinted
apparel specializing in the design and marketing of branded and licensed
sportswear. CS Crable's products are marketed by Company and independent sales
representatives located throughout the United States.
The other segment consists primarily of financing activities that are
considered immaterial.
Results of Operations
American Modern Insurance Group concluded another successful year in
1995. Record levels were achieved in the areas of profitability, net written
premiums and earned premiums. The profits produced by this division in 1995
were especially encouraging considering 1995 was the third worst year in history
for natural disasters within the insurance industry. The past trends of solid
growth and sound underwriting policies continued in 1995. Net earned premiums
increased 27% in 1995 as compared to the 25% increase in 1994. Direct written
premiums increased 32% in 1995 and 29% in 1994. As a result of increased
reinsurance activity, significantly more premiums were ceded to reinsurers in
1995 than prior years and, as a result, net written premiums increased by 21% in
1995 compared to a 31% increase in 1994. The division's combined ratio (ratio
of losses and expenses to premiums earned) was 97.2% in 1995 compared to 98.5%
in 1994. These results are considered excellent by industry standards.
The increase in insurance revenues in 1995 and 1994 was due to the
overall growth of all of our existing insurance products as well as expansion
into other areas of insurance. The increases in insurance losses and loss
adjustment expenses and commissions and other policy acquisition expenses in
1995 and 1994 are due to the aforementioned growth in earned premiums. Also
contributing to the 1994 increase in insurance losses and loss adjustment
expenses was a larger amount of catastrophe losses in 1994. The 1995 increase
in insurance operating and administrative expenses is due to premium growth plus
higher than normal litigation costs in 1995 compared to the prior year.
As reported previously, operating results for 1993 include in income
(principally insurance) a $4.3 million pre-tax California Proposition 103
settlement adjustment and $3.7 million of pre-tax net realized gains on sale of
investments (such pre-tax gains for 1995 and 1994 amounted to $2.4 million and
$2.2 million, respectively).
The transportation division successfully concluded its first full year
operating solely as a freight broker. This division's profit in 1995 was
comparable to 1994 and was achieved in spite of high litigation costs.
Transportation revenues and related expenses decreased in 1995 due to
the sale in December, 1994 of 67% of its equipment as well as its affreightment
contracts. Transportation revenues in 1994 were comparable to the prior year
while related expenses decreased in 1994 as compared to 1993 due to a stronger
market in northbound freight movements. Transportation revenues directly
related to freight brokerage operations actually increased in 1995 as compared
to 1994 due to an increased demand for barge capacity which positively impacted
affreightment rates.
Sportswear revenues and related expenses, as well as the overall
operating performance of the sportswear division, decreased in 1995 as compared
to 1994. These declines were reflective of a general downturn within the entire
sportswear industry which is affecting numerous companies within the industry.
Reacting to this condition, CS Crable's revamped management team established a
policy to sell as much excess inventory as possible and to increase its reserve
for inventory obsolescence. CS Crable's inventories are now lower than they
have been in the past four years.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 19
Liquidity and Capital Resources
The Company and its finance subsidiary issue commercial paper, generally
below the bank prime borrowing rates, and have $45 million of credit lines
available under bank lines at costs not exceeding prime borrowing rates.
Approximately $4.6 million of commercial paper, $20 million of the previously
mentioned bank lines and $11 million in other short-term bank borrowings were
outstanding at December 31, 1995. The Company plans to service existing debt
with internally generated funds.
Although the payment of dividends to the parent Company from the
Company's subsidiaries is restricted by state regulatory agencies and/or
covenants contained in debt agreements, these restrictions have not had, and are
not expected to have, a significant impact on the parent Company's liquidity or
its ability to meet its obligations.
The Company completed the construction of its new corporate headquarters
and training facility in late 1995. The total cost of this facility
approximated $29 million. The Company's previous headquarters facility is
listed for sale and the eventual proceeds derived from the sale will be used to
liquidate a portion of the short-term debt.
M/G Transport Services, Inc. has committed to the acquisition of 20
barges in 1996 for a total cost of $5.7 million. The primary consideration for
this purchase will be the exchange of two of M/G Transport's towboats valued at
$5 million. M/G Transport has also committed to the purchase of 50 barges in
1997 for a total cost of $14 million. It is currently anticipated that these
barges will be financed with conventional long-term debt.
Changes in Financial Condition
Marketable securities increased in 1995 and 1994 due to the cash flow
from operations and investment income received from the insurance division's
investment portfolio. Also contributing to the 1995 increase in marketable
securities was the approximate $26 million ($17 million net of deferred federal
income taxes) increase in the unrealized appreciation of these securities.
The increases in 1995 and 1994 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 37% in 1995 as compared to 1994 and
have decreased 55% in the last two years due to the special close-out inventory
program implemented in 1994 and carried into 1995.
Property, plant and equipment increased in 1995 due primarily to the
costs associated with the Company's new corporate headquarters facility. The
decrease in property, plant and equipment in 1994 was due to the transportation
division's sale of approximately 67% of its river transportation equipment.
Short-term bank borrowings and long-term debt increased in 1995 due to
the financing of the Company's new corporate headquarters facility. This
facility cost approximately $29 million with $20.8 million of this amount
financed through long-term debt financing and the remainder financed with
short-term borrowings. The 1994 decrease in the Company's current portion of
long-term debt was the result of the transportation division's sale of assets in
late 1994. Approximately $21 million of the proceeds from this sale was used to
prepay long-term debt loans which significantly reduced the Company's current
debt repayments for 1995 and beyond. Also in 1994, the Company's insurance
subsidiary obtained a $40 million unsecured long-term debt facility, $20 million
of which was in use at December 31, 1995 and 1994.
The increase in other payables and accruals in 1995 is primarily related
to a new reinsurance agreement entered into by our insurance division whereby
funds related to ceded insurance are held in reserve rather than being released
to the reinsurer. Approximately $16 million was held under this agreement at
December 31, 1995.
The 1995 increase in deferred federal income tax is due primarily to the
increase in deferred taxes on the unrealized gains in the Company's marketable
securities. The decrease in deferred federal income tax in 1994 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 in 1994. 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 1995 increase in unvested restricted stock awards was due to the
new grant awarded to employees in 1995.
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>
1995 MIDLAND ANNUAL REPORT - PAGE 20
CONSOLIDATED BALANCE SHEETS
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1995 1994
------------------------------
ASSETS
Cash $ 6,385,000 $ 4,036,000
------------------------------
Marketable Securities 367,054,000 278,088,000
------------------------------
Receivables:
Accounts receivable 94,677,000 86,413,000
Less allowance for losses 1,362,000 1,535,000
------------------------------
Net 93,315,000 84,878,000
------------------------------
Inventory - Sportswear Division 6,954,000 11,116,000
------------------------------
Property, Plant and Equipment:
Original cost 131,616,000 109,729,000
Less accumulated depreciation and amortization 45,767,000 43,687,000
------------------------------
Net 85,849,000 66,042,000
------------------------------
Deferred Insurance Policy Acquisition Costs 43,146,000 37,653,000
------------------------------
Other Assets 2,000,000 733,000
------------------------------
Total Assets $604,703,000 $482,546,000
==============================
See notes to consolidated financial statements.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 21
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1995 1994
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable Within One Year:
Banks $ 31,000,000 $ 22,000,000
Commercial paper 4,620,000 5,546,000
------------------------------
Total 35,620,000 27,546,000
------------------------------
Accounts Payable - Trade 5,449,000 6,232,000
------------------------------
Other Payables and Accruals 68,045,000 46,455,000
------------------------------
Current Portion of Long-Term Debt 2,986,000 2,451,000
------------------------------
Unearned Insurance Premiums 190,948,000 158,316,000
------------------------------
Insurance Loss Reserves 68,347,000 57,715,000
------------------------------
Deferred Federal Income Tax 14,243,000 6,754,000
------------------------------
Long-Term Debt 62,470,000 44,640,000
------------------------------
Shareholders' Equity:
Common stock (issued and outstanding:
3,020,000 shares at December 31, 1995
and 2,997,000 shares at December 31, 1994
after deducting treasury stock of 623,000
shares and 646,000 shares, respectively) 911,000 911,000
Additional paid-in capital 15,362,000 14,607,000
Retained earnings 139,350,000 131,675,000
Net unrealized gain on marketable securities 19,716,000 2,754,000
Treasury stock (at cost) (16,575,000) (16,648,000)
Unvested restricted stock awards (2,169,000) (862,000)
------------------------------
Total 156,595,000 132,437,000
------------------------------
Total Liabilities and Shareholders' Equity $604,703,000 $482,546,000
==============================
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 22
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1995 1994 1993
------------------------------------------
Revenues:
Insurance $282,104,000 $219,462,000 $178,404,000
Transportation 30,371,000 53,163,000 53,252,000
Sportswear 37,733,000 41,928,000 34,702,000
Other 752,000 858,000 806,000
------------------------------------------
Total 350,960,000 315,411,000 267,164,000
------------------------------------------
Costs and Expenses:
Insurance:
Losses and loss adjustment
expenses 136,211,000 113,096,000 84,787,000
Commisions and other policy
acquisition costs 80,520,000 64,557,000 49,545,000
Operating and administrative
expenses 39,475,000 26,103,000 20,919,000
Transportation operating expenses 28,033,000 47,820,000 50,023,000
Sportswear operating expenses 46,309,000 44,276,000 37,364,000
Interest expense 4,434,000 4,865,000 4,144,000
Other operating and administrative
expenses 3,462,000 2,807,000 2,129,000
------------------------------------------
Total 338,444,000 303,524,000 248,911,000
------------------------------------------
Income Before Federal Income Tax and
Cumulative Effect of Accounting
Change 12,516,000 11,887,000 18,253,000
Provision For Federal Income Tax 2,964,000 2,468,000 5,148,000
------------------------------------------
Income Before Cumulative Effect of
Accounting Change 9,552,000 9,419,000 13,105,000
Cumulative Effect of Accounting Change -- -- 4,867,000
------------------------------------------
Net Income 9,552,000 9,419,000 17,972,000
------------------------------------------
Retained Earnings, Beginning of Year 131,675,000 123,995,000 107,646,000
Cash Dividends Declared (1,877,000) (1,739,000) (1,623,000)
------------------------------------------
Retained Earnings, End of Year $139,350,000 $131,675,000 $123,995,000
==========================================
Earnings Per share of Common Stock:
Income Before Cumulative Effect
of Accounting $3.11 $3.09 $4.27
Cumulative Effect of Accounting Change -- -- 1.58
------------------------------------------
Net Income $3.11 $3.09 $5.85
==========================================
Cash Dividends Per Share of Common Stock $.62 $.58 $.54
==========================================
See notes to consolidated financial statements.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1995 1994 1993
-----------------------------------------
Cash Flows from Operating Activities:
Net Income $ 9,552,000 $ 9,419,000 $ 17,972,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 8,960,000 10,609,000 10,291,000
Increase in unearned insurance
premiums 32,632,000 39,514,000 19,920,000
Increase in accounts payable and
accruals 20,774,000 9,921,000 995,000
Increase in insurance loss
reserves 10,632,000 15,108,000 13,140,000
Increase in net accounts
receivable (9,872,000) (18,968,000) (10,658,000)
Increase in deferred insurance
policy acquisition costs (5,493,000) (8,828,000) (7,493,000)
Decrease (increase) in inventory -
Sportswear Division 4,162,000 4,852,000 (2,839,000)
Provision (credit) for deferred
federal income tax (1,533,000) (9,066,000) (4,854,000)
Decrease (increase) in other
assets (1,267,000) 953,000 (49,000)
Other - net (540,000) (908,000) 229,000
-----------------------------------------
Net cash provided by operating
activities 68,007,000 52,606,000 36,654,000
-----------------------------------------
Cash Flows from Investing Activities:
Purchase of marketable securities (152,166,000)(122,895,000) (69,956,000)
Sale of marketable securities 44,503,000 55,899,000 52,694,000
Acquisition of property, plant and
equipment (29,204,000) (19,559,000) (27,354,000)
Maturity of marketable securities 27,791,000 8,372,000 4,323,000
Decrease (increase) in cash equivalent
marketable securities 17,222,000 (8,166,000) (15,332,000)
Net decrease (increase) in finance
receivables 1,435,000 1,392,000 (2,227,000)
Sale of property, plan and equipment 1,257,000 52,353,000 2,912,000
-----------------------------------------
Net cash used in investing
activities (89,162,000) (32,604,000) (54,940,000)
-----------------------------------------
Cash Flows from Financing Activities:
Issuance of long-term debt 20,800,000 20,000,000 31,597,000
Increase (decrease) in net short-term
borrowings 8,074,000 (8,756,000) 436,000
Repayment of long-term debt (2,128,000) (28,552,000) (9,061,000)
Dividends paid (1,844,000) (1,628,000) (1,590,000)
Purchase of treasury stock (1,143,000) (118,000) (799,000)
Payment of capitalized lease
obligations (307,000) (879,000) (815,000)
Issuance of treasury stock 52,000 32,000 215,000
-----------------------------------------
Net cash provided by (used in)
financing activities 23,504,000 (19,901,000) 19,983,000
-----------------------------------------
Net Increase in Cash 2,349,000 101,000 1,697,000
Cash at Beginning of Year 4,036,000 3,935,000 2,238,000
-----------------------------------------
Cash at End of Year $ 6,385,000 $ 4,036,000 $ 3,935,000
=========================================
Supplemental Disclosures:
The Company paid interest of $4,998,000, $5,109,000, and $4,025,000 and income
taxes of $7,251,000, $9,022,000, and $5,215,000 in 1995, 1994, and 1993,
respectively.
See notes to consolidated financial statements.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1995, 1994 and 1993
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company operates in four business segments: Insurance,
Transportation, Sportswear and Other, with the most significant business
activities being in insurance. The Company writes insurance business throughout
the nation with larger concentrations in the Southern and Southeastern states.
Such business consists primarily of physical damage insurance on manufactured
homes featuring coverages similar to conventional homeowners insurance policies.
The accounting policies of the Company and its subsidiaries conform to
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to use numerous estimates and assumptions. The accompanying
consolidated financial statements include estimates for items such as insurance
loss reserves, income taxes and various other liability accounts. Actual results
could differ from those estimates. 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. 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 (see Note 2). 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. Prior to 1993, debt securities were carried at amortized
cost, equity securities held by the insurance subsidiaries were carried at
market value, and equity securities held by the parent company were carried at
the lower of cost or market value.
Inventory--The sportswear division's inventory is valued at the lower of
cost (using the weighted average method of inventory valuation) or market.
Property and Depreciation--Property, plant and equipment are recorded
at cost. Depreciation and amortization are generally calculated using
accelerated methods over the estimated useful lives of the respective properties
(buildings and equipment - 15 to 35 years, furniture and equipment - 5 to 7
years, and vessels and barges - 20 to 30 years).
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
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 25
resulting therefrom are included in earnings currently. Insurance loss reserves
also include an amount for claim drafts issued but not yet paid.
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 book values of cash,
receivables, short-term notes payable, trade accounts payable and any financial
instruments included in other assets and accrued liabilities approximate their
fair values principally because of the short-term maturities of these
instruments. The fair value of investments is considered to be the market value
which is based on quoted market prices. 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.
Stock Option and Award Plans--The Company has various plans which
provide for granting options and common stock to certain employees and
independent directors of the Company and its subsidiaries. Currently, the
Company accounts for compensation expense related to such transactions using the
"intrinsic value" based method. The Financial Accounting Standards Board has
issued SFAS No. 123, "Accounting for Stock Based Compensation", that defines a
"fair value" based method of accounting for stock-based compensation, but
permits compensation expense to continue to be measured using the "intrinsic
value" based method. The Company has yet to decide whether it will adopt the
new "fair value" based method. However, adoption of such method will not affect
the amounts reported in the accompanying consolidated financial statements.
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
1995 Cost Gains Losses Value
Debt Securities: ------------------------------------------------
Governments $147,454 $ 5,575 $ 87 $152,942
Municipals 90,152 2,871 119 92,904
Corporates 34,665 708 26 35,347
Cash Equivalents 33,495 - - 33,495
------------------------------------------------
Total 305,766 9,154 232 314,688
Equity Securities 25,880 22,031 634 47,277
Accrued Interest
and Dividends 5,089 - - 5,089
------------------------------------------------
Total Marketable
Securities $336,735 $31,185 $ 866 $367,054
================================================
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
================================================
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 26
Included in the determination of net income are the following (amounts
in 000's):
1995 1994 1993
----------------------------------------
Gross Realized Gains $ 3,045 $ 3,252 $ 4,196
Gross Realized Losses (672) (1,062) (461)
Other Investment Income 18,068 12,114 11,050
Investment Expenses (639) (1,044) (981)
----------------------------------------
Net Investment Income $19,802 $13,260 $13,804
========================================
The cost and approximate market value of debt securities held at
December 31, 1995, 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 $ 60,795 $ 60,896
1-5 years 112,417 115,468
6-10 years 81,935 86,327
Over 10 years 50,619 51,997
-------------------------
$305,766 $314,688
=========================
3. RECEIVABLES
Accounts receivable at December 31, 1995 and 1994 are generally due
within one year and consist of the following (amounts in 000's):
1995 1994
-------------------------
Insurance $83,737 $72,829
Transportation 3,646 5,725
Sportswear 4,609 3,739
Other 2,685 4,120
-------------------------
Total $94,677 $86,413
=========================
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1995 and 1994, property, plant and equipment stated at
original cost consist of the following (amounts in 000's):
1995 1994
-------------------------
Land $ 1,771 $ 1,771
Buildings, improvements,
fixtures, etc. 75,303 46,610
Vessels and barges 51,436 52,683
Transportation equipment
under capital leases 3,106 3,106
Construction-in-progress - 5,559
-------------------------
Total $131,616 $109,729
=========================
The 1994 construction-in-progress balance pertains to the construction
costs related to the Company's new corporate headquarters which the Company
moved into late in 1995.
In December 1994, the Company sold a major portion of the assets related
to its river transportation division. The sales price of $46,761,000
approximated the net book value of the assets sold.
Total rent expense related to the rental of equipment included in the
accompanying consolidated statements of income is $3,470,000 in 1995, $1,833,000
in 1994 and $998,000 in 1993. Future rentals under non-cancelable operating
leases will be approximately $2,304,000 in 1996.
The Company has commitments for the acquisition of 20 barges in 1996 at
a cost of $5,700,000 and 50 barges in 1997 at a cost of $14,000,000.
5. NOTES PAYABLE TO BANKS
At December 31, 1995 and 1994, the Company had conventional lines of
credit with commercial banks of $45,000,000 and $38,000,000, respectively. The
lines of credit in use under these agreements at December 31, 1995 and 1994
amounted to $20,000,000 and $17,000,000, respectively. Borrowings under these
lines of credit constitute senior debt. Commitment fees are currently required
by the lending institutions to maintain these credit agreements.
Additionally, at December 31, 1995 and 1994, the Company had other
short-term bank borrowings outstanding of $11,000,000 and $5,000,000,
respectively. These borrowings also constitute senior debt.
The aforementioned notes payable, together with outstanding commercial
paper, had weighted average interest rates of 6.0% and 6.2% at December 31,
1995 and 1994, respectively.
6. LONG-TERM DEBT
In December, 1995, The Midland Company obtained $20,800,000 in long-term
debt financing on its new corporate headquarters facility.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 27
Long-term debt at December 31, 1995 and 1994 is summarized as follows (amounts
in 000's):
1995 1994
-------------------------
Equipment Obligations -
Due serially through 2002,
weighted average rate of
6.19% $14,847 $16,727
Mortgage Notes -
Due serially through 2005,
weighted average rate of
6.62% 29,258 8,706
Unsecured Notes Payable Under
$40,000,000 Long-Term Debt
Facilities--
Amortizing 1999 to 2002,
LIBOR plus 1% (6.9375%
at December 31, 1995) 20,000 20,000
Capitalized Lease Obligations
(transportation equipment) 1,351 1,658
-------------------------
Total obligations 65,456 47,091
Less current maturities 2,986 2,451
-------------------------
Total $62,470 $44,640
=========================
Equipment and real estate obligations are collateralized by
transportation equipment and real estate with a net book value of approximately
$56,000,000.
The aggregate amount of repayment requirements on long-term debt and
capitalized leases for the five years subsequent to 1995 are (amounts in 000's):
1996 - $2,986; 1997 - $3,079; 1998 - $10,671; 1999 - $6,542; 2000 - $7,328.
At December 31, 1995 and 1994, the carrying value and the approximate
fair value of the Company's long-term debt was as follows (amounts in 000's):
1995 1994
-------------------------
Carrying Value $65,456 $47,091
=========================
Fair Value $64,767 $45,600
=========================
7. FEDERAL INCOME TAX
The provision for federal income tax is summarized as follows (amounts
in 000's):
1995 1994 1993
----------------------------------------
Current provision $4,497 $11,534 $5,137
Deferred provision (credit) (1,533) (9,066) 11
----------------------------------------
Total $2,964 $2,468 $5,148
========================================
The federal income tax provision for the years ended December 31, 1995,
1994 and 1993 is different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (amounts in 000's):
1995 1994 1993
----------------------------------------
Federal income tax at
statutory rate $4,381 $4,160 $6,389
Tax effect of:
Tax exempt interest and
excludable dividend
income (1,392) (1,247) (1,134)
Investment tax credits (175) (488) (289)
Increase in statutory rate
on deferred taxes -- -- 357
Other--net 150 43 (175)
Provision for federal ----------------------------------------
income tax $2,964 $2,468 $5,148
========================================
Significant components of the Company's net deferred federal income tax
liability are summarized as follows (amounts in 000's):
1995 1994
-------------------------
Deferred Tax Liabilities:
Deferred insurance policy
acquisition costs $14,266 $12,665
Accelerated depreciation 5,879 5,965
Unrealized gain on
marketable securities 10,602 1,580
Investment tax credits 1,124 1,299
Other 642 285
-------------------------
Sub-total 32,513 21,794
-------------------------
Deferred Tax Assets:
Unearned insurance premiums 11,187 9,373
Pension expense 2,318 1,902
Insurance loss reserves 1,618 1,260
Other 3,147 2,505
-------------------------
Sub-total 18,270 15,040
-------------------------
Deferred federal income tax $14,243 $ 6,754
=========================
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.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 28
8. REINSURANCE AND INSURANCE LOSS RESERVES
The Company reinsures certain levels of risk with other insurance
companies and cedes varying portions of its written premiums to such
reinsurers. Failure of reinsurers to honor their obligations could result in
losses to the Company as reinsurance contracts do not relieve the Company from
its 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. The Company also
assumes a limited amount of business on certain reinsurance contracts. Related
premiums and loss reserves 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
---------------------------------------------------------
1995
Written $348,187 $27,320 $(91,022) $284,485
Earned 301,388 18,046 (60,567) 258,867
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
Activity in the liability for unpaid insurance losses and loss
adjustment expenses (excluding claim checks issued but not yet paid) for the
property and casualty companies is summarized as follows (amounts in 000's):
1995 1994 1993
-----------------------------------------
Balance at January 1 $ 52,078 $ 33,964 $23,185
Less reinsurance
recoverables 14,597 6,220 2,780
-----------------------------------------
Net Balance at January 1 37,481 27,744 20,405
-----------------------------------------
Incurred related to:
Current year 141,887 114,511 86,637
Prior years (7,347) (2,076) (1,980)
-----------------------------------------
Total incurred 134,540 112,435 84,657
-----------------------------------------
Paid related to:
Current year 105,269 93,014 65,588
Prior year 19,040 9,684 11,730
-----------------------------------------
Total paid 124,309 102,698 77,318
-----------------------------------------
Net Balance at
December 31 47,712 37,481 27,744
Plus reinsurance
recoverables 13,785 14,597 6,220
-----------------------------------------
Balance at December 31 $ 61,497 $ 52,078 $33,964
=========================================
The amounts of recoveries pertaining to reinsurance contracts that were
deducted from losses incurred during 1995, 1994 and 1993 were approximately
$47,152,000, $20,231,000 and $21,077,000, respectively.
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 $1,365,000 in 1995, $896,000 in 1994 and $642,000
in 1993. Included in the above amounts is a supplemental pension expense of
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 29
$449,000 in 1995, $259,000 in 1994 and $138,000 in 1993. 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):
1995 1994
-------------------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$13,876 in 1995 and
$14,534 in 1994 $14,467 $15,115
=========================
Projected benefit obligation for
service rendered to date $19,882 $20,169
Plan assets at fair value, primarily
U.S. bonds and listed stocks 17,822 14,583
-------------------------
Plan assets less than projected
benefit obligation (2,060) (5,586)
Unrecognized net assets at
January 1, 1987 being
recognized over 18 years (1,443) (1,576)
Unrecognized prior service cost 563 48
Unrecognized net loss (gain) (42) 4,094
-------------------------
Pension liability included in
Other Payables and Accruals $(2,982) $(3,020)
=========================
Net pension cost included the following (amounts in 000's):
1995 1994 1993
-----------------------------------------
Service cost--benefits
earned during the year $ 843 $ 725 $ 541
Interest cost on projected
benefit obligation 1,381 1,216 1,160
Actual return on plan
assets--(gain) (3,144) 315 (1,705)
Net amortization and
deferral 1,836 (1,619) 508
-----------------------------------------
Net periodic pension
plan cost $ 916 $ 637 $ 504
=========================================
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 7-1/4% and 5-1/2% in 1995 and 1993, respectively, and 8% and 6%
in 1994. The expected long-term rate of return on assets was 8% in all three
years.
10. STOCK OPTION AND AWARD PLANS
Under the Company's stock option plans, all of the outstanding stock
options at December 31, 1995 were exercisable non-qualified options and 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 expire periodically through year
2005. A summary of stock option transactions follows:
1995 1994 1993
-------------------------------------------------------
Avg. Avg. Avg.
(000's) Option (000's) Option (000's) Option
Shares Price Shares Price Shares Price
-------------------------------------------------------
Outstanding,
beginning
of year 216 $24.69 218 $24.67 219 $23.52
Exercised (2) 21.16 (2) 20.81 (9) 22.35
Expired (4) 26.94 -- -- (2) 38.56
Granted 9 50.75 -- -- 10 50.13
-------------------------------------------------------
Outstanding,
end of year 219 $25.76 216 $24.69 218 $24.67
=======================================================
The Company implemented a restricted stock award program during 1993.
Under this program, grants of the Company's common stock will vest after 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 28,000 shares remain outstanding at
December 31, 1995 and, in 1995, 49,000 shares were awarded under the program and
48,000 shares remain outstanding at December 31, 1995. The value of the awards
is being amortized as compensation expense over a five year vesting period.
11. CONTINGENCIES
Various litigation and claims against the Company and its subsidiaries
are in process and pending. Significant sums are sought in these matters, the
outcome of which cannot be reasonably estimated. Based upon a review of open
matters with legal counsel, management believes that the outcome of such matters
would not have a material effect upon the Company's consolidated financial
position or results of operations.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 30
12. INDUSTRY SEGMENTS
Listed below is financial information required to be reported for each
industry segment. No single customer accounted for 10% or more of consolidated
revenues during the last three years. Interest expense includes intercompany
interest not eliminated for purposes of segment reporting.
Thousands of Dollars
------------------------------------------------
1995 1994 1993
Total segment revenues ------------------------------------------------
Insurance $283,141 $222,632 $181,035
Transportation 31,385 53,190 53,255
Sportswear 37,733 41,928 34,702
Other 3,649 3,320 3,544
Intersegment revenues (4,948) (5,659) (5,372)
------------------------------------------------
Total $350,960 $315,411 $267,164
================================================
Operating profit
Insurance $ 26,930 $ 16,630 $ 23,921
Transportation 3,352 5,370 3,232
Sportswear (8,577) (2,348) (2,663)
Other 1,563 970 1,253
Interest expense (7,324) (5,952) (5,279)
Unallocated corporate
expenses (3,428) (2,783) (2,211)
------------------------------------------------
Total $ 12,516 $ 11,887 $ 18,253
================================================
Acquisition of fixed assets
Insurance $ -- $ -- $ --
Transportation 170 6,846 14,657
Sportswear 1,074 583 1,702
Corporate and other 27,960 12,130 10,995
------------------------------------------------
Total $ 29,204 $ 19,559 $ 27,354
================================================
Depreciation and amortization
Insurance $ -- $ -- $ --
Transportation 3,004 5,773 6,434
Sportswear 1,065 1,078 973
Corporate and other 4,891 3,758 2,884
------------------------------------------------
Total $ 8,960 $ 10,609 $ 10,291
================================================
Identifiable assets
Insurance $494,638 $379,287 $301,366
Transportation 48,375 52,534 87,654
Sportswear 14,018 17,264 23,932
Corporate and other 76,983 53,087 58,612
Intersegment
receivables (29,311) (19,626) (21,342)
------------------------------------------------
Total $604,703 $482,546 $450,222
================================================
13. SHAREHOLDERS' EQUITY
The Midland Company has 5,000,000 shares of common stock authorized
without par value (stated value of $.25 a share), including 720,000 shares
reserved for issuance under the Company's stock option and award plans. The
Company also has 500,000 shares of preferred stock authorized, 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, $10,300,000 of its $34,200,000 net assets
was not available for distribution to the Company at December 31, 1995.
The insurance subsidiaries 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 1996 without
regulatory approval is approximately $15,300,000; such subsidiaries paid actual
cash dividends of $1,060,000 in 1995, $4,000,000 in 1994 and $3,000,000 in 1993.
Net income as determined in accordance with statutory accounting
practices for the Company's insurance subsidiaries was $13,367,000, $3,616,000
and $10,337,000 for 1995, 1994 and 1993, respectively. Shareholders' equity on
the same basis was $120,398,000 and $96,863,000 at December 31, 1995 and 1994.
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 31
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 Awards Total
------------------------------------------------------------------
Balance,
January 1,
1993 $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
Net income 9,552 9,552
Purchase of
treasury stock (1,143) (1,143)
Cash dividends
declared (1,877) (1,877)
Exercise of
stock options (12) 64 52
Changes in
unrealized gain
on investments,
net of tax 16,962 16,962
Restricted
stock awards 855 1,262 (2,117) --
Amortization and
cancellation of
unvested
restricted
stock awards (88) (110) 810 612
------------------------------------------------------------------
Balance,
December 31,
1995 $911 $15,362 $139,350 $19,716 $(16,575) $(2,169) $156,595
==================================================================
<PAGE>
1995 MIDLAND ANNUAL REPORT - PAGE 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
THE MIDLAND COMPANY AND SUBSIDIARIES
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1995 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 LLP
February 15, 1996
OTHER INFORMATION
TRANSFER AGENT AND REGISTRAR
Society National Bank
P.O. Box 6477
Cleveland, Ohio 44101
INDEPENDENT AUDITORS
Deloitte & Touche LLP
250 East Fifth Street
Cincinnati, Ohio 45202
GENERAL AND TAX COUNSEL
Cohen, Todd, Kite & Stanford
525 Vine Building
Cincinnati, Ohio 45202
SHAREHOLDERS' MEETING
The next meeting of the shareholders will be held at 10:00 A.M. on Thursday,
April 11, 1996 at the Company's offices, 7000 Midland Boulevard, Amelia,
Ohio 45102.
COMMON STOCK
The number of holders of common stock at December 31, 1995 was 730. The
Company's common stock is registered on the American Stock Exchange (MLA).
DIVIDEND REINVESTMENT PLAN
The Plan, effective with dividends paid in January, 1996, provides for the
acquisition of additional shares of the Company without brokerage fees through
automatic dividend reinvestment. Enrollment forms and information about the
Plan are available from Society National Bank (1-800-542-7792).
FORM 10-K
A copy of the Company's 1995 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, 1995
The subsidiaries of the Registrant as of December 31, 1995, 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.
15
<PAGE>
<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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,385,000
<SECURITIES> 367,054,000
<RECEIVABLES> 94,677,000
<ALLOWANCES> 1,362,000
<INVENTORY> 6,954,000
<CURRENT-ASSETS> 0
<PP&E> 131,616,000
<DEPRECIATION> 45,767,000
<TOTAL-ASSETS> 604,703,000
<CURRENT-LIABILITIES> 0
<BONDS> 62,470,000
<COMMON> 911,000
0
0
<OTHER-SE> 155,684,000
<TOTAL-LIABILITY-AND-EQUITY> 604,703,000
<SALES> 37,732,000
<TOTAL-REVENUES> 350,960,000
<CGS> 35,215,000
<TOTAL-COSTS> 330,080,000
<OTHER-EXPENSES> 3,462,000
<LOSS-PROVISION> 468,000
<INTEREST-EXPENSE> 4,434,000
<INCOME-PRETAX> 12,516,000
<INCOME-TAX> 2,964,000
<INCOME-CONTINUING> 9,552,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,552,000
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 3.10
</TABLE>
