THE MIDLAND COMPANY
Annual Report
on Form 10-K
to the
Securities and Exchange Commission
for the
Year Ended December 31, 1996
<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, 1996
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 10, 1997 was $128,289,191.
Number of shares of common stock outstanding as of March 10, 1997 -
3,110,041.
Documents Incorporated by Reference
Annual Report to Shareholders for the year ended December 31, 1996 is
incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 14, 1997 is incorporated by
reference into Parts III and IV.
1
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THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1996
PART I
ITEM 1. Business.
Incorporated by reference to the inside front cover and pages 2 through
11 and 25 (Note 13) of the Registrant's 1996 Annual Report to
Shareholders. The number of persons employed by the Registrant was
approximately 950 at December 31, 1996.
ITEM 2. Properties.
Incorporated by reference to the inside front cover and pages 2 through
11 of the Registrant's 1996 Annual Report to Shareholders.
ITEM 3. Legal Proceedings.
Various litigation and claims against the Company and its subsidiaries
are in process and pending. 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.
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 12, 26 (Note 14) and the inside
rear cover of the Registrant's 1996 Annual Report to Shareholders.
The number of holders of the Company's common stock at December 31,
1996 was 706. The Company's common stock is registered on the American
Stock Exchange (MLA).
ITEM 6. Selected Financial Data.
Incorporated by reference to page 13 of the Registrant's 1996 Annual
Report to Shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference to pages 14 and 15 of the Registrant's 1996
Annual Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 12 and 16 through 27 of the
Registrant's 1996 Annual Report to Shareholders.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
2
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PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Incorporated by reference to the Registrant's Proxy Statement dated
March 14, 1997.
Executive Officers of the Company -
J. P. Hayden, Jr. - Age 67 - Chairman and Chief Executive Officer
Michael J. Conaton - Age 63 - President and Chief Operating Officer
J. P. Hayden, III - Age 44 - Senior Executive Vice President
John W. Hayden - Age 39 - Senior Executive Vice President
John R. LaBar - Age 65 - Vice President and Secretary
Robert W. Hayden - Age 58 - Vice President
John I. Von Lehman - Age 44 - Executive Vice President, Treasurer
and Chief Financial Officer
Thomas J. Rohs - Age 55 - Vice President
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 1996, J. P. Hayden, III and John W. Hayden (formerly Vice
President) were elected Senior Executive Vice President. Also in 1996, John I.
Von Lehman (formerly Vice President, Treasurer and Chief Financial Officer) was
elected Executive 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 14, 1997.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 14, 1997.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 14, 1997.
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, 1996 and 1995.
Consolidated Statements of Income and Retained Earnings
for the Years Ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.
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, 1996, 1995 and 1994. 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 14, 1997.
11. Computation of Consolidated Net Income Per Share for
the years ended December 31, 1996, 1995 and 1994. 14
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1996 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 14, 1997.
23. Independent Auditors' Consent - Included in Consent and
Report on Schedules referred to under Item 14(a)2 above.
27. Financial Data Schedule.
(b) Reports on Form 8-K - No such reports filed or required to be
filed in the fourth quarter of 1996.
4
<PAGE>
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 6, 1997
(J. P. Hayden, Jr.) Chief Executive Officer
S/ John I. Von Lehman Executive Vice President, March 6, 1997
(John I. Von Lehman) Treasurer, Chief Financial
and Accounting Officer
and Director
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
THE MIDLAND COMPANY
Signature Title Date
S/ George R. Baker Director March 6, 1997
(George R. Baker)
S/ James H. Carey Director and Member March 6, 1997
(James H. Carey) of Audit Committee
S/ Michael J. Conaton President, Chief Operating March 6, 1997
(Michael J. Conaton) Officer and Director
S/ J. P. Hayden, Jr. Chairman, Chief Executive March 6, 1997
(J. P. Hayden, Jr.) Officer and Director
S/ J. P. Hayden, III Senior Executive Vice March 6, 1997
(J. P. Hayden, III) President and Director
S/ John W. Hayden Senior Executive Vice March 6, 1997
(John W. Hayden) President and Director
S/ Robert W. Hayden Vice President and Director March 6, 1997
(Robert W. Hayden)
S/ William T. Hayden Director March 6, 1997
(William T. Hayden)
S/ William J. Keating Director March 6, 1997
(William J. Keating)
S/ William McD. Kite Director March 6, 1997
(William McD. Kite)
S/ John R. LaBar Vice President, Secretary March 6, 1997
(John R. LaBar) and Director
S/ John M. O'Mara Director and Member March 6, 1997
(John M. O'Mara) of Audit Committee
S/ John R. Orther Director and Member March 6, 1997
(John R. Orther) of Audit Committee
S/ William F. Plettner Director March 6, 1997
(William F. Plettner)
S/ Glenn E. Schembechler Director and Member March 6, 1997
(Glenn E. Schembechler) of Audit Committee
S/ John I. Von Lehman Executive Vice President March 6, 1997
(John I. Von Lehman) Treasurer, Chief Financial
and 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 13, 1997, 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,
1996.
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 21, 1997
7
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1996 and 1995
ASSETS 1996 1995
-----------------------------
Cash $ 267,000 $ 240,000
-----------------------------
Marketable Securities (at market value) 1,770,000 8,116,000
-----------------------------
Receivables - Net 6,801,000 7,230,000
-----------------------------
Intercompany Receivables 6,822,000 --
-----------------------------
Property, Plant and Equipment (at cost) 56,306,000 54,958,000
Less Accumulated Depreciation 5,893,000 4,112,000
-----------------------------
Net 50,413,000 50,846,000
-----------------------------
Other Assets 2,434,000 1,075,000
-----------------------------
Investment in Subsidiaries (at equity) 153,965,000 169,978,000
-----------------------------
Total $ 222,472,000 $ 237,485,000
=============================
8
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THE MIDLAND COMPANY (Parent Only)
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
-----------------------------
Notes Payable within One Year:
Banks (including current portion of
long-term debt) $ 28,824,000 $ 31,767,000
Commercial Paper 4,700,000 4,620,000
-----------------------------
Total 33,524,000 36,387,000
-----------------------------
Other Payables and Accruals 1,593,000 1,471,000
-----------------------------
Intercompany Payables -- 14,541,000
-----------------------------
Long-Term Debt 27,667,000 28,491,000
-----------------------------
Shareholders' Equity:
Common Stock - No Par (issued and
outstanding:
3,042,000 shares at December 31, 1996
and 3,020,000 shares at December 31,
1995 after deducting treasury stock of
601,000 shares and 623,000 shares,
respectively) 911,000 911,000
Additional Paid-In Capital 14,846,000 15,362,000
Retained Earnings 138,423,000 139,350,000
Net Unrealized Gain on Marketable Securities 23,587,000 19,716,000
Treasury Stock (at cost) (16,621,000) (16,575,000)
Unvested Restricted Stock Awards (1,458,000) (2,169,000)
-----------------------------
Total 159,688,000 156,595,000
-----------------------------
Total Liabilities and Shareholders' Equity $ 222,472,000 $ 237,485,000
=============================
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, 1996, 1995 and 1994
1996 1995 1994
-----------------------------------------
Revenues:
Dividends from Subsidiaries $ 20,500,000 $ 35,117,000 $ --
All Other Income, Primarily Charges
to Subsidiaries 7,876,000 9,434,000 8,001,000
-----------------------------------------
Total Revenues 28,376,000 44,551,000 8,001,000
-----------------------------------------
Expenses:
Interest Expense 5,101,000 5,248,000 3,442,000
Depreciation and Amortization 2,548,000 4,884,000 3,715,000
All Other Expenses 2,033,000 1,727,000 1,968,000
-----------------------------------------
Total Expenses 9,682,000 11,859,000 9,125,000
-----------------------------------------
Income (Loss) Before Federal Income Tax 18,694,000 32,692,000 (1,124,000)
Provision (Credit) for Federal
Income Tax (654,000) (902,000) (430,000)
-----------------------------------------
Income (Loss) Before Change in
Undistributed Income of Subsidiaries 19,348,000 33,594,000 (694,000)
Change in Undistributed Income of
Subsidiaries (18,280,000) (24,042,000) 10,113,000
-----------------------------------------
Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000
=========================================
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, 1996, 1995 and 1994
1996 1995 1994
-----------------------------------------
Cash Flows from Operating Activities:
Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Decrease (increase) in
undistributed income of
subsidiaries 18,280,000 24,042,000 (10,113,000)
Depreciation and amortization 2,548,000 4,884,000 3,715,000
Increase in other assets (1,359,000) (1,044,000) (3,000)
Decrease (increase) in receivables 689,000 (3,995,000) (5,000)
Increase (decrease) in other
payables & accruals 90,000 871,000 (7,610,000)
Other - net 28,000 166,000 71,000
-----------------------------------------
Net cash provided by (used in)
operating activities 21,344,000 34,476,000 (4,526,000)
-----------------------------------------
Cash Flows from Investing Activities:
Acquisition of property, plant &
equipment (1,516,000) (28,060,000) (12,083,000)
Capital contributions to subsidiaries (2,999,000) (2,847,000)
Sale of property, plant & equipment 66,000 599,000 349,000
Change in investments (excluding
unrealized appreciation/depreciation) 7,690,000 5,379,000 (4,814,000)
-----------------------------------------
Net cash provided by (used in)
investing activities 6,240,000 (25,081,000) (19,395,000)
-----------------------------------------
Cash Flows from Financing Activities:
Net change in intercompany payables (21,363,000) (35,029,000) 34,662,000
Increase (decrease) in long-term debt (767,000) 20,551,000 (250,000)
Increase (decrease) in short-term
borrowings (2,920,000) 8,074,000 (8,756,000)
Dividends paid (1,962,000) (1,844,000) (1,628,000)
Purchase of treasury stock (1,699,000) (1,143,000) (118,000)
Issuance of treasury stock 1,154,000 52,000 32,000
-----------------------------------------
Net cash provided by (used in)
financing activities (27,557,000) (9,339,000) 23,942,000
-----------------------------------------
Net Increase (Decrease) in Cash 27,000 56,000 21,000
Cash at Beginning of Year 240,000 184,000 163,000
-----------------------------------------
Cash at End of Year $ 267,000 $ 240,000 $ 184,000
=========================================
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, 1996 and 1995
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes included in the
Registrant's 1996 Annual Report to shareholders.
Total debt of the Registrant (parent only) consists of the following:
DECEMBER 31,
---------------------------
1996 1995
---------------------------
Short-Term Bank Borrowings $ 28,000,000 $ 31,000,000
Commercial Paper 4,700,000 4,620,000
Secured Mortgage Notes:
6.94% - Due December 20, 2005 20,304,000 20,800,000
5.82% - Due December 1, 2003 8,187,000 8,458,000
---------------------------
Total Debt $ 61,191,000 $ 64,878,000
===========================
See Note 6 to the consolidated financial statements included in the 1996 Annual
Report to Shareholders for further information on the Company's outstanding debt
at December 31, 1996.
The amount of debt, other than debt eliminated in consolidation, that becomes
due during each of the next five years is as follows: 1997 - $33,524,000;
1998 - $880,000; 1999 - $939,000; 2000 - $998,000; 2001 - $1,070,000.
12
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SCHEDULE II
THE MIDLAND COMPANY
AND SUBSIDIARIES
SCHEDULE II - ALLOWANCE FOR LOSSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996:
Allowance For Losses $1,362,000 $ (75,000) $ (14,000)(1) $ 1,301,000
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
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, 1996, 1995 AND 1994
1996 1995 1994
----------------------------------------
Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000
========================================
Weighted average number of voting
shares outstanding 3,021,000 3,028,000 2,998,000
========================================
Primary:
Adjusted weighted average shares
outstanding - after consideration of
the dillutive effect of stock options
and stock awards 3,033,000 3,072,000 3,050,000
========================================
Per share - after consideration of the
dillutive effect of stock options and
stock awards (net income divided by
adjusted weighted average shares
outstanding) $ 0.35 $ 3.11 $ 3.09
========================================
Fully diluted:
Adjusted weighted average shares
outstanding - after consideration of
the dillutive effect of stock options
and stock awards 3,040,000 3,084,000 3,066,000
========================================
Per share - after consideration of the
dillutive effect of stock options and
stock awards (net income divided by
adjusted shares outstanding) $ 0.35 $ 3.10 $ 3.07
========================================
14
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1996 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, Inc. (AMIG) is a holding company licensed in
all 50 states through its six property and casualty companies and two credit
life companies. 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 a fleet of 253 dry cargo
jumbo hopper barges at December 31, 1996. The barges are primarily used by
the Company's brokerage operation. The Company continues to expand its fleet
and will take delivery of additional barges in 1997.
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>
1996 MIDLAND ANNUAL REPORT - PAGE 1
FINANCIAL HIGHLIGHTS
THE MIDLAND COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues $ 370,492,000 $ 350,960,000 $ 315,411,000
Net Income 1,068,000 9,552,000 9,419,000
Shareholders' Equity 159,688,000 156,595,000 132,437,000
Earnings Per Common Share $ .35 $ 3.11 $ 3.09
Cash Dividends Per Common Share .66 .62 .58
Book Value Per Common Share 52.49 51.85 44.19
Common Shares Outstanding 3,042,000 3,020,000 2,997,000
TABLE OF CONTENTS PAGE
----------------------------------------------------------------
Financial Highlights 1
Chairman's Letter 2-3
American Modern Insurance Group, Inc. 4-7
M/G Transport Services, Inc. 8-9
CS Crable Sportswear, Inc. 10-11
Quarterly Data 12
Selected Consolidated Financial Data 13
Management's Discussion and Analysis 14-15
Balance Sheets 16-17
Income and Retained Earnings 18
Cash Flows 19
Notes to Financial Statements 20-26
Report of Independent Public
Accountants and Management's Report 27
Officers and Directors 28
Officers of Subsidiary Companies and Other Information 29
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 2
Chairman's Letter
The Midland Company's net income for 1996 was $1,068,000, $.35 per
share, on revenues of $370,492,000. Net income for 1995 was $9,522,000, $3.11
per share, on revenues of $350,960,000. Net income for the fourth quarter of
1996 was $6,052,000, $1.97 per share, on revenues of $100,160,000. This
compares to net income of $2,622,000, $.85 per share, on revenues of
$93,148,000 for the fourth quarter of 1995.
Earnings from operations for the fourth quarter of 1996 were the best in
the Company's history. It gives management a high level of satisfaction to
note that earnings from operations for the fourth quarter of 1996 were the
best the Company has experienced in any single quarter.
As an indication of the Company's fundamental strength, your Board of
Directors, at its March, 1996 meeting, approved an increase in the cash
dividend paid to shareholders from 62 cents to 66 cents per common share on an
annualized basis. This is the tenth consecutive year that Midland's dividend
has increased.
American Modern Insurance Group, Inc. (AMIG), Midland's insurance
holding company, reported operating results that were below those of the
previous year. These operating results were primarily the result of heavy
weather-related losses during the first three quarters of 1996. Hurricanes
Fran and Bertha, both of which occurred during the third quarter, reduced
after-tax results by approximately $2.22 per share. AMIG believes that the
prompt action by its personnel, including the establishment of temporary
claims offices, allowed AMIG to make contact with most of its affected
insureds in a very timely manner. These actions enhanced AMIG's ability to
settle claims quickly and efficiently.
Management is confident that AMIG's underwriting standards and pricing
models are sound and working as planned. Weather patterns finally returned to
more normal conditions during the last three months of 1996. As a result,
AMIG's six property and casualty companies reported record quarterly pre-tax
operating profits of approximately $9,300,000.
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>
1996 MIDLAND ANNUAL REPORT - PAGE 3
AMIG continued to experience growth in its traditional core insurance
products as well as in each of its channels of distribution. AMIG's loan and
tracking operation, Ameritrac, also continued to expand and contribute to
AMIG's profitability in 1996. Direct and Assumed Written Premiums for AMIG's
property and casualty subsidiary totaled $386,000,000 in 1996, up from
$144,000,000 just five years ago.
The market value of AMIG's investment portfolio grew from $358,939,000
at December 31, 1995 to $394,122,000 at December 31, 1996. This increase in
the portfolio was accomplished in spite of the above mentioned weather-related
losses. AMIG continued its long established investment policy of investing
in high quality fixed income and equity securities. There were no bonds below
investment grade nor any investments in real estate in the portfolio. Income
from the portfolio, excluding capital gains, increased over 11% from the
previous year.
AMIG is pleased to note the addition of Mr. Kurt R. Schwamberger as
President and Chief Operating Officer of American Modern Insurance Group, Inc.
Mr. Schwamberger, who joined AMIG at mid-year, brings many years of experience
within the insurance industry to the organization.
M/G Transport Services, Inc., Midland's transportation subsidiary,
reported operating profits for 1996 that were 25% higher than 1995. M/G's
return on equity for 1996, excluding litigation costs, was over 20%. M/G's
management was very pleased that the operating profits for the second half of
1996 were a record for a six month period. These results were accomplished on
a lower equity base than in previous years as a result of the sale of
approximately two-thirds of M/G's equipment in December, 1994.
M/G continued its program to update its fleet with the delivery of 16
barges in the second quarter of 1996. As was previously reported to you, M/G
has committed to the delivery of an additional 50 barges by the end of the
first quarter of 1997, nine of which were received during the fourth quarter
of 1996. M/G exchanged two towboats as the primary consideration for the 16
barges. M/G's last two towboats were used as partial consideration for the 9
barges that were received in December, 1996.
CS Crable Sportswear, Inc., Midland's sportswear subsidiary, reported
operating results that were greatly improved over the prior year. These
results, however, are not where management believes they should be in order to
contribute positively to the value and growth of The Midland Company.
CS Crable's management continued its efforts in 1996 to improve
profitability and position itself for future growth. These efforts included
initiatives to reduce product costs and the re-engineering of numerous
business practices. Unfortunately, a soft retail environment for licensed
sports apparel and overall excess industry capacity slowed the progress in
these areas. Management will remain focused on these ideas and continue its
efforts to reduce inventory costs to more acceptable levels.
It is management's intent to add new licensing opportunities that it
believes will complement existing licensing agreements. It is with this in
mind that Crable recently announced multi-year licensing agreements with the
National Hockey League, Major League Soccer and the Southeastern Conference.
These licensing agreements in addition to previously negotiated licenses with
Major League Baseball, Pebble Beach and various colleges and universities
should help improve Crable's market share in its "niche" market and increase
Crable's important to its retail partners.
On behalf of the senior management of The Midland Company, I would like
to take this opportunity to personally thank all of our staff for their
dedication and hard work, and further to acknowledge the continued
contribution of our Board of Directors to your Company's overall success. In
closing, to you, our shareholders, please accept our deep appreciation for
your continued confidence in and support of The Midland Company.
S/ J. P. Hayden, Jr.
J. P. Hayden, Jr.
Chairman
February 13, 1997
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 4
AMERICAN MODERN INSURANCE GROUP, INC.
American Modern Insurance Group, Inc. (AMIG) is a holding company that
provides specialty insurance products through its six property and casualty
and two life companies which are licensed in all fifty states. While AMIG's
1996 operating results were not satisfactory, AMIG continues to outperform the
industry. AMIG's property and casualty companies recorded a 104.3% combined
ratio (the ratio of losses and expenses to premiums earned) for the year,
which compares favorably with an estimated industry result of 106.1%. Like
most others in the property and casualty industry, AMIG's operating results
were negatively impacted by the major catastrophic occurrences and the severe
weather patterns that occurred throughout the year. Weather-related
catastrophe losses for AMIG reached record levels, increasing by 75% over 1995
levels.
In both the first and second quarters of the year, a series of intense
weather systems moved across much of the United States causing extensive
property damage. The storms that occurred in both the Northeastern and
Northwestern United States resulted in record-setting flooding and severely
impacted AMIG's first-half 1996 underwriting results. These weather related
losses were then compounded by Hurricanes Bertha and Fran, both of which
occurred in the third quarter of the year. The year's worst weather event by
far was Hurricane Fran, a force three hurricane which struck North Carolina on
September 5. AMIG's net losses from Hurricane Fran were approximately $6
million on an after-tax basis. Weather patterns finally returned to more
normal conditions during the last three months of 1996, resulting in a record
pre-tax profit from operations in excess of $9 million for the last quarter.
The many weather-related events during 1996 created a severe challenge
for AMIG's claims staff. AMIG is proud of the timely manner in which its
staff was able to settle claims from Hurricanes Bertha and Fran. Of the 1,600
claims received by
THIS PAGE INCLUDES A PHOTOGRAPH OF JOHN W. HAYDEN, VICE CHAIRMAN; KURT R.
SCHWAMBERGER, PRESIDENT AND CHIEF OPERATING OFFICER AND THOMAS J. ROHS,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 5
AMIG from Hurricane Bertha, approximately 93% were settled within 30 days.
Within hours of Hurricane Fran's landfall, AMIG had established five remote
claims offices in Conway, South Caroline, and Durham, Fayetteville, Greenville
and Jacksonville, North Carolina, and had dispatched more than 65 staff
adjusters to the areas damaged by the storm. Of the over 10,600 claims
received by AMIG, approximately 87% were settled within 30 days. AMIG's
claims staff can be proud of their performance and the efficient manner in
which they handled the 21,700 catastrophe claims received throughout 1996.
AMIG's customers should take comfort in the quality and protection provided by
an AMIG policy.
The bottom line results in 1996 are not an accurate measurement of
AMIG's accomplishments over the past twelve months. AMIG continued to
experience growth in its traditional physical damage insurance and related
coverages for manufactured housing, with 1996 premiums increasing by 12.6%
over 1995. AMIG is reviewing each manufactured housing program annually to
ensure that its rate levels are adequate to produce targeted levels of
profitability, assuming normal levels of catastrophe and weather-related
losses. Watercraft products continued their strong growth with premium volume
in this product category up 20.4% over 1995. An exciting new program
development in this product area is AMIG's partnership with the Bombardier
Corporation of Canada in a Point-of-Sale insurance program on Sea Doo jet
skis. Premium in this program should strengthen AMIG's position as one of the
leading Personal Watercraft insurers in the industry.
AMIG's Financial Services Division continues to offer a diverse range of
products to meet the insurance needs of financial institutions and their
THIS PAGE INCLUDES TWO PHOTOGRAPHS: THE FIRST IS A SATELLITE PHOTOGRAPH WITH
THE FOLLOWING CAPTION: "PICTURED BELOW IS A SATELLITE PHOTOGRAPH OF HURRICANES
EDOUARD AND FRAN ALONG WITH TROPICAL STORM GUSTAV. HURRICANE FRAN STRUCK LAND
ON SEPTEMBER 5, 1996. AMIG'S TOTAL COSTS FROM HURRICANE FRAN WERE
APPROXIMATELY $6 MILLION ON AN AFTER-TAX BASIS." THE SECOND PHOTOGRAPH IS OF
ROBERT P. CROWLEY, ASSISTANT VICE PRESIDENT; ROBERT W. LOCKMAN, CLAIMS MANAGER;
JAMES P. ROMERILL, VICE PRESIDENT; JOAN E. BOARD, CLAIMS SYSTEMS MANAGER AND
DAVID C. MCNUTT, ASSISTANT VICE PRESIDENT.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 6
customers. Ameritrac, AMIG's in-house loan and lease tracking system, has
steadily grown its list of client financial institutions. During 1996,
Ameritrac increased the number of loan and lease accounts serviced by more
than 85%. Today, more than one million accounts are more efficiently handled
by AMIG's Ameritrac programs.
The results in AMIG's Commercial Lines Division did not meet
expectations in 1996. Loss ratios were substantially higher in all facets of
AMIG's Commercial Lines business, resulting primarily from the severe weather
and the negative development on several large liability losses. However,
during 1996, a thorough review of all Commercial Lines programs was
undertaken. While this review resulted in the discontinuance of some
programs, AMIG is more focused than ever before on having the Commercial Lines
Division become a consistent long-term contributor to AMIG.
AMIG's investment portfolio continues to be conservatively invested in
high quality fixed income and equity securities. There are no investments in
real estate or derivative products. The fixed income portfolio maintains a
weighted average credit quality of approximately AA to AAA and the current
average maturity of the fixed income portfolio is approximately 3.9 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 $2.7 million in
net pre-tax capital gains in 1996.
AMIG thanks its many business partners who have contributed to its
continued success. AMIG also extends its appreciation to all of its
employees, whose dedication is the key to AMIG's success.
THIS PAGE INCLUDES A PHOTOGRAPH OF ROBERT E. HILLIARD, SENIOR VICE PRESIDENT;
CHARLES J. JENKINS, SENIOR VICE PRESIDENT; RONALD L. CRIPPIN, EXECUTIVE VICE
PRESIDENT AND KENNETH G. BOBERG, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER.
THIS PAGE ALSO INCLUDES A FIVE YEAR BAR CHART WITH THE FOLLOWING DATA (AMOUNTS
IN 000'S):
AMIG NET WRITTEN PREMIUM
1992 $ 144,642
1993 182,884
1994 240,348
1995 291,808
1996 296,095
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 7
American Modern Insurance Group, Inc.
Investment Portfolio
Total Return
- --------------------------------------------------------------------------------
INCLUDES TWO FIVE YEAR TOTAL RETURN BAR CHARTS WITH THE FOLLOWING DATA:
Bonds & Notes
Pretax After Tax Equities
--------------------------------------------
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
1996 3.8 2.7 21.3
- --------------------------------------------------------------------------------
AMIG NET INVESTMENT INCOME
FIVE YEAR BAR CHART WITH THE FOLLOWING DATA (IN 000'S)
1992 $11,326
1993 13,631
1994 12,999
1995 19,455
1996 21,737
MARKET VALUES
FIVE YEAR STACKED BAR CHART WITH THE FOLLOWING DATA (IN 000'S)
1992 1993 1994 1995 1996
-------------------------------------------------
Governments $76,767 $73,834 $101,320 $155,648 $172,153
Municipals 54,629 66,215 64,112 94,548 71,492
Corporates 8,270 11,182 31,162 35,972 41,099
Cash Equivalents 28,442 43,838 43,782 31,941 50,509
Equities 22,584 23,538 26,738 40,830 63,445
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------------------------------------
AVERAGE MATURITY
OF BONDS AND NOTES (years) 4.1 3.4 4.1 4.7 3.9
- --------------------------------------------------------------------------------
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 8
M/G TRANSPORT SERVICES, INC.
M/G Transport Services, Inc., Midland's transportation subsidiary,
experienced strong operating results in 1996. Revenues increased 11% and pre-
tax income increased 25% from 1995 to 1996. M/G operated a fleet of
approximately 375 dry cargo jumbo hopper barges in 1996, of which 253 are
owned by M/G Transport Services, Inc.
In 1996, M/G completed its second year of operations primarily as a
freight brokerage company. Despite an unusually high level of litigation
costs incurred in connection with its operations sold in 1994, M/G achieved a
very favorable level of profitability. M/G believes these expenses are now
behind it and 1997's results are expected to grow commensurably.
MGT Services, Inc., M/G's operating arm, provides transportation
services to some of the largest industrial customers in the United States.
MGT Services, Inc.'s gross revenues increased 17% in 1996 as compared to 1995,
while the level of tonnage increased 8% over the same period. MGT transports
petroleum coke, sugar, fertilizer, iron ores, grain and other commodities.
While MGT services the entire inland river system, the gulf coastal area
represents its primary geographic focus. It is MGT's intent to continue to
concentrate its efforts in this area and to provide the best level of service
possible to its customer base.
In order to maintain this growth, M/G recognized the need to replace
some of its older barges with new equipment and to increase the size of its
owned fleet. In the second quarter of 1996, M/G purchased 16 new dry cargo
open hopper barges at a cost of over $3,700,000. M/G Transport Services, Inc.
exchanged two of its remaining towboats as primary consideration for these 16
barges. In addition, M/G Transport Services, Inc. committed in excess of
$14,400,000 for the delivery of 50 barges by the end of the first quarter of
1997, of which 9 were received during
THIS PAGE INCLUDES A PHOTOGRAPH OF J.P. HAYDEN, III, PRESIDENT AND CHIEF
OPERATING OFFICER; JACK L. LORDO, VICE PRESIDENT AND RAYMOND R. LUDMANN,
TREASURER.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 9
the fourth quarter of 1996. M/G Transport Services, Inc. exchanged its last
two towboats as partial consideration for these 50 barges.
In 1994, M/G Transport Services, Inc. implemented Phase I of its long-
range strategic plan which called for M/G to reposition itself within the
river transportation marketplace. The disposition of the last of M/G's
towboats, as referenced above, represents the completion of Phase I of that
plan. Phase II of this plan calls for M/G to identify and enter additional
niches within the transportation business. M/G will attempt to execute this
part of the plan through growth or acquisition as appropriate.
Some had speculated that M/G's re-engineering in 1994 represented
Midland's exit from the transportation business. Since that time, Management
has focused on its brokerage operations and has provided a solid return for
The Midland Company and its shareholders. The commitment to modernize M/G's
fleet and to grow within the river transportation marketplace should serve as
notice to M/G's customers that M/G continues to value its business
relationships with them. As M/G enters 1997, it is in a strong financial
position which should allow it to provide the highest level of service to its
customers. The river transportation business has provided solid growth and
profitability to The Midland Company's shareholders for many years.
Management is convinced that similar opportunities will be available well into
the future.
THIS PAGE INCLUDES TWO PHOTOGRAPHS: THE FIRST IS OF THOMAS C. TERRELL, III,
PRESIDENT, MGT SERVICES, INC. AND J. KEVIN JENNINGS, EXECUTIVE VICE PRESIDENT,
MGT SERVICES, INC. THE SECOND PHOTOGRAPH IS OF JAMES R. JARVIS, VICE PRESIDENT,
MGT SERVICES, INC. AND ROBBIE M. UVANNI, VICE PRESIDENT, MGT SERVICES, INC.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 10
CS CRABLE SPORTSWEAR, INC.
CS Crable Sportswear, Inc., a wholly-owned subsidiary of The Midland
Company, is a "value-added" manufacturer of licensed and branded sportswear.
CS Crable continued its efforts in 1996 to improve profitability and position
itself for future growth. A soft retail environment for licensed sports
apparel in general and excess industry capacity impeded CS Crable's planned
progress during 1996.
CS Crable Sportswear is highly regarded as a best valued, premium
sportswear manufacturer and is renowned as an industry leader in product
innovation. CS Crable produces high quality, appliqued, embroidered and
imprinted sportswear for leading department stores, specialty shops and
sporting goods stores. Licensed apparel in 1996 focused on Major League
Baseball, colleges and universities and the Pebble Beach collection.
A commitment in 1996 to product diversification and brand development
resulted in the launch of a non-licensed branded program, Crable Classics.
Crable Classics is positioned to capitalize on the rapid growth of branded
products and lifestyle graphics.
CS Crable executed a purchasing strategy to support the anticipated
retail demand, but year-end inventory grew when projected retail business did
not materialize in the second half. Although 1996 core business sales were
even with the prior year, earnings improved $6 million, reflecting improved
performance from operations. Business initiatives aimed at reducing product
costs and the re-engineering of numerous business practices has improved
efficiencies and reduced selling expenses.
The licensed apparel industry's growth has slowed somewhat due in part
to over-licensing, market saturation and consumer indifference due to
professional sports image. Industry consolidation continues at all levels.
CS Crable continues to position itself to survive this market "shakeout" by
implementing a niche marketing and product differentiation strategy while
pursuing controlled growth through new licenses. An ongoing effort to contain
costs and reduce inventory levels is also an integral part of CS Crable's
strategy.
CS Crable's commitment to adding new licenses to complement existing
programs was highlighted by the recent announcement of multi-year licensing
agreements with the National Hockey
THIS PAGE INCLUDES A PHOTOGRAPH OF GARY R. MASSA, VICE PRESIDENT; THOMAS R.
HAYDEN, VICE PRESIDENT; RICHARD K. QUEEN, PRESIDENT AND CHIEF OPERATING
OFFICER; KEITH E. COTTRELL, VICE PRESIDENT AND TIMOTHY A. HERZOG, VICE
PRESIDENT.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 11
League (NHL), Major League Soccer (MLS) and the Southeastern Conference (SEC).
In conjunction with previously negotiated licenses with Major League Baseball
(MLB), Pebble Beach and numerous colleges and universities, an impressive
array of sports licensing products is now available from CS Crable. These
additions to CS Crable's sports licensing portfolio validate CS Crable's
importance to its retail partners who give preference to brands with extensive
licensing programs.
An ongoing emphasis has been placed on developing unique products and
brands which facilitate diversification of CS Crable's customer and consumer
base and expand CS Crable's distribution. CS TEC, a new brand targeted toward
the younger licensed product consumer, has been developed for introduction in
the Fall of 1997. CS TEC is an innovative team collection for college, Major
League Baseball and the National Hockey League. Team Engineered Clothing
(TEC) is a concept program that reflects a deviation from the traditional
licensed product offering and addresses licensors' stated market deficiencies.
The brand reflects the current product designs in the young men's market and
adds the extra benefit of sports licenses. Early reaction from retailers has
been positive.
CS Crable Sportswear recognizes and appreciates the loyalty and
dedication of its employees and their significant contributions to its ongoing
improvement and success. Their commitment to excellence and a shared vision of
future growth and success will help the attainment of CS Crable's long-term
goals. CS Crable would also like to express its appreciation for the support
of its licensors, suppliers and retailers and their commitment to establishing
mutually beneficial business partnerships. The loyalty of CS Crable's retail
partners attests to the ongoing commitment of CS Crable Sportswear to
providing premium sports apparel.
THIS PAGE INCLUDES FOUR PHOTOGRAPHS OF VARIOUS CS CRABLE SPORTSWEAR PRODUCT.
THE FIRST TWO PICTURES HAVE THE FOLLOWING CAPTION: "CS CRABLE RECENTLY
ANNOUNCED MULTI-YEAR LICENSING AGREEMENTS WITH THE NATIONAL HOCKEY LEAGUE,
MAJOR LEAGUE SOCCER AND THE SOUTHEASTERN CONFERENCE. THESE AGREEMENTS WILL
COMPLEMENT EXISTING AGREEMENTS WITH MAJOR LEAGUE BASEBALL, PEBBLE BEACH AND
NUMEROUS COLLEGES AND UNIVERSITIES."
THE REMAINING TWO PHOTOGRAPHS HAVE THE FOLLOWING CAPTIONS: "(PICTURED ABOVE)
CS TEC, A NEW BRAND TARGETED TOWARDS YOUNGER CONSUMERS, IS AN INNOVATIVE TEAM
COLLECTION FOR COLLEGES, MAJOR LEAGUE BASEBALL AND THE NATIONL HOCKEY LEAGUE."
"(PICTURED BELOW) EXAMPLES OF VARIOUS CS CRABLE PRODUCTS.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 12
1996 FINANCIAL REVIEW
TABLE OF CONTENTS PAGE
-------------------------------------------------------------------------
Quarterly Data 12
Selected Consolidated Financial Data 13
Management's Discussion and Analysis 14-15
Balance Sheets 16-17
Income and Retained Earnings 18
Cash Flows 19
Notes to Financial Statements 20-26
Report of Independent Public Accountants and Management's Report 27
Officers and Directors 28
Officers of Subsidiary Companies and Other Information 29
QUARTERLY DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------------------------------------------------------
1996
Revenues $86,062,000 $86,870,000 $97,400,000 $100,160,000
Net income (loss) (5,244,000) 654,000 (394,000) 6,052,000
Earnings (loss) per
common share (1.70) .21 (.13) 1.97
Dividends per
common share .165 .165 .165 .165
Price range of
common stock (AMEX) 46-50 1/2 38-50 3/8 36 1/2-45 5/8 33 3/4-39 1/4
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
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
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 13
SELECTED CONSOLIDATED FINANCIAL DATA
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended
December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Revenues $370,492,000 $350,960,000 $315,411,000 $267,164,000 $225,063,000
===================================================================
Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000 $ 17,972,000(a) $ 11,979,000
===================================================================
Earnings Per
Common Share $.35 $3.11 $3.09 $5.85(a) $3.98
===================================================================
Marketable
Securities $400,462,000 $367,054,000 $278,088,000 $224,614,000 $188,531,000
===================================================================
Property,
Plant and
Equipment
(net) $ 81,675,000 $ 85,849,000 $ 66,042,000 $107,892,000 $ 93,042,000
===================================================================
Total Assets $659,539,000 $604,703,000 $482,546,000 $450,222,000 $359,702,000
===================================================================
Unearned
Insurance
Premiums $208,417,000 $190,948,000 $158,316,000 $118,802,000 $ 89,732,000
===================================================================
Insurance
Loss
Reserves $ 95,830,000 $ 68,347,000 $ 57,715,000 $ 42,607,000 $ 23,993,000
===================================================================
Long-Term
Debt $ 62,470,000 $ 65,456,000 $ 47,091,000 $ 56,522,000 $ 34,801,000
===================================================================
Shareholders'
Equity $159,688,000 $156,595,000 $132,437,000 $133,110,000 $111,583,000
===================================================================
Book Value Per
Common Share $52.49 $51.85 $44.19 $44.39 $37.52
===================================================================
Cash Dividends
Per Common
Share $.66 $.62 $.58 $.54 $.50
===================================================================
Common Shares
Outstanding 3,042,000 3,020,000 2,997,000 2,999,000 2,974,000
===================================================================
(a) Includes a credit of $4,867,000, $1.58 per common share, for the cumulative
effect of a change in accounting from the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", effective
January 1, 1993.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE MIDLAND COMPANY AND SUBSIDIARIES
Reportable Segments
The Company's operations are classified into four reportable business
segments: Insurance, Transportation, Sportswear and 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 11 of the Annual Report. Such information, including the Quarterly Data
presented on page 12, 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 AMIG'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 (AMIG), the Company's insurance
subsidiary, concluded 1996 on a profitable basis even though its operations were
severely impacted by numerous adverse occurrences throughout most of 1996. The
first half of 1996 was plagued by severe winter storms and record-setting
flooding in the Northeastern and Northwestern United States. During the third
quarter of 1996, Hurricanes Fran and Bertha struck the United States causing
heavy catastrophic losses. The losses to AMIG from Hurricane Fran alone were
$6 million on an after-tax basis. Also, in 1996, AMIG expensed approximately
$3.4 million (pre-tax) in litigation costs related to the settlement of a class
action lawsuit in Alabama and Mississippi. These unusual items contributed to a
higher-than-normal combined ratio (ratio of losses and expenses to premiums
earned) for the property and casualty insurance companies of 104.3% in 1996 as
compared to only 97.2% in 1995. Although AMIG's 1996 combined ratio is not up
to its standards, it was better than the industry average of 106.1%. In spite
of this adversity, AMIG was profitable in 1996 and its pre-tax profit of $9
million during the fourth quarter of 1996 was a record quarter for AMIG. Both
written and earned premiums also increased in 1996 to record levels.
The increases in insurance revenues in 1996 and 1995 were due to the
overall growth of all of AMIG's existing insurance products as well as expansion
into other areas of insurance. The increases in insurance losses and loss
adjustment expenses in 1996 were due primarily to the abnormally high
weather-related and catastrophic losses sustained during the year and adverse
development with respect to prior year's commercial lines losses. The 1995
increases in insurance losses and loss adjustment expenses and commissions and
other policy acquisition costs were due to the growth in written premiums.
Insurance operating and administrative expenses increased in 1995 due primarily
to premium growth plus higher than normal litigation costs incurred in that
year.
M/G Transport Services, Inc., the Company's transportation subsidiary,
concluded a successful year in 1996. Revenues increased 11% and pre-tax income
increased 25% in 1996 as compared to 1995 levels. These favorable results were
achieved even though M/G expensed $1.8 million (pre-tax) more in litigation
costs in 1996 than in 1995 related to the operations sold in 1994 of the
transportation subsidiary. These litigation costs are now behind M/G and this
subsidiary is positioned for solid financial results in the future.
Transportation revenues and related expenses increased in 1996 as
compared to 1995 due to an increase in tonnage hauled. Transportation revenues
and related expenses decreased in 1995 compared to 1994 levels due to the sale
in December, 1994 of 67% of this subsidiary's transportation equipment as well
as its affreightment contracts.
CS Crable Sportswear, Inc., the Company's sportswear subsidiary,
improved upon its operating performance in 1996 in spite of a reduction in sales
as compared to 1995 revenue levels. This improved performance was achieved
through cost reduction initiatives and changes in CS Crable's business practices
which significantly reduced operating costs.
The decreases in 1996 and 1995 sportswear revenues as compared to prior
year revenues are reflective of a continued soft retail market combined with
excess production capacity which exists within the sportswear apparel industry.
Liquidity and Capital Resources
The Company issues commercial paper, generally below the bank prime
borrowing rates, and has $45 million of credit lines available under bank lines
at costs not exceeding prime borrowing rates. Outstanding
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 15
short-term borrowings at December 31, 1996 were comprised of $4.7 million of
commercial paper, $25 million of the previously mentioned bank lines and $3
million in other short-term bank borrowings. 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. However, consideration is being given to leasing the building
with the ultimate goal being the sale of the facility. The eventual proceeds
derived from the sale will be used to liquidate a portion of short-term debt.
M/G Transport Services, Inc. acquired 25 barges in 1996 and is committed
to the acquisition of 41 barges by the end of the first quarter of 1997. The
total cost of these 66 barges is $18.1 million. As consideration for these
purchases, M/G Transport exchanged four of its towboats in 1996 and will pay
$11.9 million in 1997 upon delivery of the barges. The remaining funds due
under this purchase agreement will be financed by internally-generated capital
and short-term bank borrowings.
Changes in Financial Condition
Marketable securities increased in 1996 and 1995 due to the cash flow
from operations, investment income from the investment portfolio and the
unrealized appreciation in the market value of the portfolio. The unrealized
appreciation in securities increased approximately $6 million and $26 million in
1996 and 1995, respectively.
The increases in 1996 and 1995 in accounts receivable, deferred
insurance policy acquisition costs and unearned insurance premiums are primarily
attributable to the continued growth of the Company's insurance subsidiaries.
The recoverables from reinsurers and prepaid reinsurance premiums
increased in 1996 due to the increased reinsurance activities of the Company's
insurance subsidiaries combined with losses paid in the later part of 1996 which
have not been recovered from AMIG's reinsurers as of December 31, 1996.
Sportswear inventories increased in 1996 due primarily to an
unanticipated decline in retail business in the second half of 1996. Sportswear
inventories decreased in 1995 as compared to 1994 levels due to special
close-out inventory programs implemented in those years.
Property, plant and equipment (at original cost) decreased in 1996 due
primarily to the exchange of towboats for barges by the Company's transportation
subsidiary. The increase in property, plant and equipment in 1995 was due
primarily to the cost of the Company's new headquarters facility.
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 and the remainder financed with short-term
borrowings.
Funds held under reinsurance agreements and reinsurance payables
increased in 1996 and 1995 due to increased reinsurance activities by the
Company's insurance subsidiaries and a new reinsurance agreement entered into in
1995 whereby funds related to ceded insurance are held in reserve rather than
being released to the reinsurers. Approximately $19.6 million and $16.4 million
was being held under this agreement at December 31, 1996 and 1995, respectively.
The increase in insurance loss reserves in 1996 and 1995 is due to the
growth of the Company's insurance subsidiaries and an increase in commercial
lines products which have a longer loss settlement period.
The 1995 increase in deferred federal income tax was due primarily to
the increase in deferred taxes on the unrealized gains in the Company's
investment portfolio.
Unvested restricted stock awards increased in 1995 due to the new stock
grant awarded to key management employees in that year.
Impact of Inflation
Management does not consider the impact of changing prices to be
material in the analysis of the Company's overall operations.
Private Securities Reform Act of 1995
Forward Looking Statement Disclosure
This Report contains Forward Looking Statements. For purposes of this
Report, a "Forward Looking Statement", within the meaning of the Securities
Reform Act of 1995, is any statement concerning the year 1997 and beyond. The
actions and performance of the Company and its subsidiaries could deviate
materially from what is contemplated by the forward looking statements contained
in this Report. Factors which might cause deviations from the forward looking
statements include, without limitations, the following: 1) changes in the laws
or regulations affecting the operations of the Company or any of its
subsidiaries; 2) changes in the business tactics or strategies of the Company or
any of its subsidiaries; 3) acquisition(s) of assets or of new or complementary
operations, or divestiture of any segment of the existing operations of the
Company or any of its subsidiaries; 4) changing market forces or litigation
which necessitate, in Management's judgment, changes in plans, strategy or
tactics of the Company or its subsidiaries; and 5) adverse weather conditions,
fluctuations in the investment markets, changes in the retail marketplace, or
fluctuations in interest rates, any one of which might materially affect the
operations of the Company and/or its subsidiaries.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 16
CONSOLIDATED BALANCE SHEETS
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash $ 3,617,000 $ 6,385,000
-------------- --------------
Marketable Securities:
Fixed Income (cost, $333,259,000 in 1996 and
$310,742,000 in 1995) 335,675,000 319,663,000
Equity (cost, $30,931,000 in 1996 and
$25,993,000 in 1995) 64,787,000 47,391,000
-------------- --------------
Total 400,462,000 367,054,000
-------------- --------------
Receivables:
Accounts receivable 59,250,000 55,872,000
Less allowance for losses 1,301,000 1,362,000
-------------- --------------
Net 57,949,000 54,510,000
-------------- --------------
Reinsurance Recoverables and Prepaid
Reinsurance Premiums 52,805,000 38,805,000
-------------- --------------
Inventory - Sportswear Division 13,329,000 6,954,000
-------------- --------------
Property, Plant and Equipment:
Original cost 124,672,000 131,616,000
Less accumulated depreciation and amortization 42,997,000 45,767,000
-------------- --------------
Net 81,675,000 85,849,000
-------------- --------------
Deferred Insurance Policy Acquisition Costs 45,342,000 43,146,000
-------------- --------------
Other Assets 4,360,000 2,000,000
-------------- --------------
Total Assets $ 659,539,000 $ 604,703,000
============== ==============
See notes to consolidated financial statements.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 17
THE MIDLAND COMPANY AND SUBSIDIARIES
December 31, 1996 1995
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable Within One Year:
Banks $ 28,000,000 $ 31,000,000
Commercial paper 4,700,000 4,620,000
-------------- --------------
Total 32,700,000 35,620,000
-------------- --------------
Insurance Commissions Payable 13,821,000 15,756,000
-------------- --------------
Other Payables and Accruals 42,819,000 37,119,000
-------------- --------------
Funds Held Under Reinsurance Agreements and
Reinsurance Payables 26,949,000 20,619,000
-------------- --------------
Unearned Insurance Premiums 208,417,000 190,948,000
-------------- --------------
Insurance Loss Reserves 95,830,000 68,347,000
-------------- --------------
Deferred Federal Income Tax 16,845,000 14,243,000
-------------- --------------
Long-Term Debt 62,470,000 65,456,000
-------------- --------------
Shareholders' Equity:
Common stock (issued and outstanding:
3,042,000 shares at December 31, 1996 and
3,020,000 shares at December 31, 1995
after deducting treasury stock of 601,000
shares and 623,000 shares, respectively) 911,000 911,000
Additional paid-in capital 14,846,000 15,362,000
Retained earnings 138,423,000 139,350,000
Net unrealized gain on marketable securities 23,587,000 19,716,000
Treasury stock (at cost) (16,621,000) (16,575,000)
Unvested restricted stock awards (1,458,000) (2,169,000)
-------------- --------------
Total 159,688,000 156,595,000
-------------- --------------
Total Liabilities and Shareholders' Equity $ 659,539,000 $ 604,703,000
============== ==============
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 18
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues:
Insurance $ 303,175,000 $ 282,104,000 $ 219,462,000
Transportation 34,064,000 30,371,000 53,163,000
Sportswear 32,754,000 37,733,000 41,928,000
Other 499,000 752,000 858,000
-------------- -------------- --------------
Total 370,492,000 350,960,000 315,411,000
-------------- -------------- --------------
Costs and Expenses:
Insurance:
Losses and loss adjustment
expenses 172,426,000 136,211,000 113,096,000
Commisions and other policy
acquisition costs 81,533,000 80,520,000 64,557,000
Operating and administrative
expenses 41,355,000 39,475,000 26,103,000
Transportation operating expenses 31,163,000 28,033,000 47,820,000
Sportswear operating expenses 35,796,000 46,309,000 44,276,000
Interest expense 5,873,000 4,434,000 4,865,000
Other operating and administrative
expenses 3,115,000 3,462,000 2,807,000
-------------- -------------- --------------
Total 371,261,000 338,444,000 303,524,000
-------------- -------------- --------------
Income (Loss) Before Federal
Income Tax (769,000) 12,516,000 11,887,000
Provision (Credit) For Federal
Income Tax (1,837,000) 2,964,000 2,468,000
-------------- -------------- --------------
Net Income 1,068,000 9,552,000 9,419,000
Retained Earnings, Beginning of Year 139,350,000 131,675,000 123,995,000
Cash Dividends Declared (1,995,000) (1,877,000) (1,739,000)
-------------- -------------- --------------
Retained Earnings, End of Year $ 138,423,000 $ 139,350,000 $ 131,675,000
============== ============== ==============
Earnings Per share of Common Stock $.35 $3.11 $3.09
============== ============== ==============
Cash Dividends Per Share of
Common Stock $.66 $.62 $.58
============== ============== ==============
See notes to consolidated financial statements.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Cash Flows from Operating
Activities:
Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 8,863,000 8,960,000 10,609,000
Increase in insurance loss
reserves 27,483,000 10,632,000 15,108,000
Increase in unearned insurance
premiums 17,469,000 32,632,000 39,514,000
Increase in reinsurance
recoverables and prepaid
reinsurance premiums (14,000,000) (2,393,000) (16,232,000)
Decrease (increase) in
inventory - Sportswear
Division (6,375,000) 4,162,000 4,852,000
Increase (decrease) in funds
held under reinsurance
agreements and reinsurance
payables 6,330,000 17,662,000 (817,000)
Increase in accounts payable
and accruals 5,667,000 830,000 8,728,000
Increase in net receivables (3,439,000) (6,044,000) (1,344,000)
Decrease (increase) in
other assets (2,360,000) (1,267,000) 953,000
Increase in deferred insurance
policy acquisition costs (2,196,000) (5,493,000) (8,828,000)
Increase (decrease) in insurance
commissions payable (1,935,000) 2,282,000 2,010,000
Provision (credit) for deferred
federal income tax 519,000 (1,533,000) (9,066,000)
Other - net 972,000 (540,000) (908,000)
-------------- -------------- --------------
Net cash provided by
operating activities 38,066,000 69,442,000 53,998,000
-------------- -------------- --------------
Cash Flows from Investing Activities:
Purchase of marketable securities (138,486,000) (152,166,000) (122,895,000)
Sale of marketable securities 84,887,000 44,503,000 55,899,000
Maturity of marketable securities 42,041,000 27,791,000 8,372,000
Decrease (increase) in cash
equivalent marketable securities (17,445,000) 17,222,000 (8,166,000)
Acquisition of property, plant
and equipment (4,970,000) (29,204,000) (19,559,000)
Sale of property, plan and equipment 1,552,000 1,257,000 52,353,000
-------------- -------------- --------------
Net cash used in investing
activities (32,421,000) (90,597,000) (33,996,000)
-------------- -------------- --------------
Cash Flows from Financing Activities:
Increase (decrease) in net
short-term borrowings (2,920,000) 8,074,000 (8,756,000)
Repayment of long-term debt (2,647,000) (2,128,000) (28,552,000)
Dividends paid (1,962,000) (1,844,000) (1,628,000)
Purchase of treasury stock (1,699,000) (1,143,000) (118,000)
Issuance of treasury stock 1,154,000 52,000 32,000
Payment of capitalized lease
obligations (339,000) (307,000) (879,000)
Issuance of long-term debt -- 20,800,000 20,000,000
-------------- -------------- --------------
Net cash provided by (used
in) financing activities (8,413,000) 23,504,000 (19,901,000)
-------------- -------------- --------------
Net Increase (Decrease) in Cash (2,768,000) 2,349,000 101,000
Cash at Beginning of Year 6,385,000 4,036,000 3,935,000
-------------- -------------- --------------
Cash at End of Year $ 3,617,000 $ 6,385,000 $ 4,036,000
============== ============== ==============
Supplemental Disclosures:
The Company paid interest of $5,820,000, $4,998,000, and $5,109,000 and income
taxes of $930,000, $7,251,000, and $9,022,000 in 1996, 1995 and 1994,
respectively.
See notes to consolidated financial statements.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE MIDLAND COMPANY AND SUBSIDIARIES
Years Ended December 31, 1996, 1995 and 1994
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 classifies all
debt and equity securities as available-for-sale and carries such investments at
market value (see Note 2). Unrealized gains or losses on investments, net of
related income taxes, are included in shareholders' equity. Realized gains and
losses on sales of investments are recognized in income on a specific
identification basis.
Inventory--The sportswear division's inventory is valued at the lower of
cost (using the weighted average method of inventory valuation) or market.
Property and Depreciation--Property, plant and equipment 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--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
related properties.
The Company files a consolidated federal income tax return which
includes all subsidiaries.
Insurance Income--Premiums for physical damage and credit accident and
health insurance, net of premiums ceded to reinsurers, are recognized as income
on a pro-rata basis over the lives of the policies. Credit life premiums are
recognized as income over the lives of the policies using the sum-of-the-digits
method. The Company does not consider anticipated investment income in
determining premium deficiencies (if any) on short-term contracts. Policy
acquisition costs, primarily commission expenses and premium taxes, are
capitalized and expensed over the terms of the related policies on the same
basis as the related premiums are earned. Selling and administrative expenses
which are not primarily related to premiums written are expensed as incurred.
Insurance Loss Reserves--Unpaid insurance losses and loss adjustment
expenses include an amount determined from reports on individual cases and an
amount, based on past experience, for losses incurred but not reported. Such
liabilities are necessarily based on estimates and, while management believes
that the amounts are fairly stated, the ultimate liability may be in excess of
or less than the amounts provided. The methods of making such estimates and for
establishing the resulting liabilities are continually reviewed and any
adjustments resulting therefrom are included in earnings currently. Insurance
loss reserves also include an amount for claim drafts issued but not yet paid.
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.
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
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 21
short-term maturities of these instruments. The fair value of investments
(Note 2) is considered to be the market value which is based on quoted market
prices. The fair value of long-term debt (Note 6) 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. The Company accounts
for compensation expense related to such transactions using the "intrinsic
value" based method under the provisions of Accounting Principles Board Opinion
No. 25.
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 Unrealized
------------------ Market
1996 Cost Gains Losses Value
- ---------------------------------------------------------------------
Debt Securities:
Governments $169,020 $ 1,437 $ 974 $169,483
Municipals 68,675 1,807 98 70,384
Corporates 40,219 340 97 40,462
Cash
Equivalents 50,936 - - 50,936
--------------------------------------------
Total 328,850 3,584 1,169 331,265
Equity Securities 30,770 34,283 426 64,627
Accrued Interest
and Dividends 4,570 - - 4,570
--------------------------------------------
Total Marketable
Securities $364,190 $37,867 $1,595 $400,462
============================================
Thousands of Dollars
--------------------------------------------
Gross 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
============================================
Included in the determination of net income are the following (amounts
in 000's):
1996 1995 1994
-----------------------------------
Gross Realized Gains $ 5,024 $ 3,045 $ 3,252
Gross Realized Losses (2,335) (672) (1,062)
Other Investment Income 20,141 18,068 12,114
Investment Expenses (891) (639) (1,044)
-----------------------------------
Net Investment Income $21,939 $19,802 $13,260
===================================
The cost and approximate market value of debt securities held at
December 31, 1996 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 $ 88,559 $ 88,689
1-5 years 129,105 130,413
6-10 years 89,518 90,435
Over 10 years 21,668 21,728
-------------------------
Total $328,850 $331,265
=========================
3. RECEIVABLES
Accounts receivable at December 31, 1996 and 1995 are generally due
within one year and consist of the following (amounts in 000's):
1996 1995
------------------------
Insurance $45,273 $44,932
Transportation 4,102 3,646
Sportswear 4,575 4,609
Other 5,300 2,685
------------------------
Total $59,250 $55,872
========================
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1996 and 1995, property, plant and equipment stated at
original cost consist of the following (amounts in 000's):
1996 1995
-------------------------
Land $ 1,771 $ 1,771
Buildings, improvements,
fixtures, etc. 78,199 75,303
Vessels and barges 41,596 51,436
Transportation equipment
under capital leases 3,106 3,106
-------------------------
Total $124,672 $131,616
=========================
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 22
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 $4,867,000 in 1996, $3,470,000
in 1995 and $1,833,000 in 1994. Future rentals under non-cancelable operating
leases will be approximately $2,374,000 in 1997.
The Company has commitments for the acquisition of 41 barges in 1997 at
a cost of $11,875,000.
5. NOTES PAYABLE TO BANKS
At December 31, 1996 and 1995, the Company had conventional lines of
credit with commercial banks of $45,000,000. The lines of credit in use under
these agreements at December 31, 1996 and 1995 amounted to $25,000,000 and
$20,000,000, 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, 1996 and 1995, the Company had other
short-term bank borrowings outstanding of $3,000,000 and $11,000,000,
respectively. These borrowings also constitute senior debt.
The aforementioned notes payable, together with outstanding commercial
paper, had weighted average interest rates of 5.95% and 6.0% at December 31,
1996 and 1995, respectively.
6. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 is summarized as follows
(amounts in 000's):
1996 1995
--------------------
Equipment Obligations, Due Through -
6.45% July 1, 2000 $ 2,470 $ 2,850
6.35% December 31, 1998 6,160 7,040
5.82% October 31, 1998 4,337 4,957
Mortgage Notes, Due Through -
6.94% December 20, 2005 20,304 20,800
5.82% December 1, 2003 8,187 8,458
Unsecured Notes,
Payments Beginning 2000 -
* 6.4875 November 1, 2003 20,000 20,000
Capitalized Lease Obligations 1,012 1,351
--------------------
Total obligations 62,470 65,456
Less current maturities 3,079 2,986
--------------------
Total $59,391 $62,470
====================
* Rate in effect on December 31, 1996. The interest rate on this $40,000,000
credit facility is adjusted quarterly to the LIBOR rate plus 1%.
Equipment and real estate obligations are collateralized by
transportation equipment and real estate with a net book value of approximately
$52,000,000.
The aggregate amount of repayment requirements on long-term debt and
capitalized leases for the five years subsequent to 1996 are (amounts in 000's):
1997 - $3,079; 1998 - $10,671; 1999 - $1,542; 2000 - $7,328; 2001 - $6,070.
At December 31, 1996 and 1995, the carrying value and the approximate
fair value of the Company's long-term debt were as follows (amounts in 000's):
1996 1995
--------------------
Carrying Value $62,470 $65,456
====================
Fair Value $61,790 $64,767
====================
7. FEDERAL INCOME TAX
The provision for federal income tax is summarized as follows (amounts
in 000's):
1996 1995 1994
-----------------------------------
Current provision (credit) $(2,356) $ 4,497 $11,534
Deferred provision (credit) 519 (1,533) (9,066)
-----------------------------------
Total $(1,837) $ 2,964 $ 2,468
===================================
The federal income tax provision for the years ended December 31, 1996,
1995 and 1994 is different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (amounts in 000's):
1996 1995 1994
-----------------------------------
Federal income tax (credit)
at statutory rate $ (269) $ 4,381 $ 4,160
Tax effect of:
Tax exempt interest and
excludable dividend
income (1,574) (1,392) (1,247)
Business meals and
entertainment expenses 151 144 140
Investment tax credits (169) (175) (488)
Other--net 24 6 (97)
-----------------------------------
Provision (credit) for
federal income tax $(1,837) $ 2,964 $2,468
===================================
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 23
Significant components of the Company's net deferred federal income tax
liability are summarized as follows (amounts in 000's):
1996 1995
--------------------
Deferred Tax Liabilities:
Deferred insurance policy
acquisition costs $14,970 $14,266
Unrealized gain on
marketable securities 12,685 10,602
Accelerated depreciation 6,808 5,879
Investment tax credits 955 1,124
Other 1,005 642
--------------------
Sub-total 36,423 32,513
--------------------
Deferred Tax Assets:
Unearned insurance premiums 12,187 11,187
Pension expense 3,022 2,318
Insurance loss reserves 2,009 1,618
Other 2,360 3,147
--------------------
Sub-total 19,578 18,270
--------------------
Deferred federal income tax $16,845 $14,243
====================
8. REINSURANCE
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
------------------------------------------
1996
Written $357,207 $28,747 $(96,810) $289,144
Earned 346,919 21,284 (92,674) 275,529
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
9. INSURANCE LOSS RESERVES
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):
1996 1995 1994
------------------------------------
Balance at January 1 $ 61,497 $ 52,078 $ 33,964
Less reinsurance
recoverables 13,785 14,597 6,220
------------------------------------
Net Balance at January 1 47,712 37,481 27,744
------------------------------------
Incurred related to:
Current year 166,554 141,887 114,511
Prior years 3,771 (7,347) (2,076)
------------------------------------
Total incurred 170,325 134,540 112,435
------------------------------------
Paid related to:
Current year 121,782 105,269 93,014
Prior years 31,471 19,040 9,684
------------------------------------
Total paid 153,253 124,309 102,698
------------------------------------
Net balance at
December 31 64,784 47,712 37,481
Plus reinsurance
recoverables 24,208 13,785 14,597
------------------------------------
Balance at December 31 $ 88,992 $ 61,497 $ 52,078
====================================
The amounts of recoveries pertaining to reinsurance contracts that were
deducted from losses incurred during 1996, 1995 and 1994 were approximately
$71,133,000, $47,152,000 and $20,231,000, respectively.
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 24
10. BENEFIT PLANS
The Company has qualified 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.
The following table sets forth the plans' funded status (amounts
in 000's):
1996 1995
---------------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$13,949 in 1996 and
$13,876 in 1995 $14,773 $14,467
=====================
Projected benefit obligation for
service rendered to date $20,849 $19,882
Plan assets at fair value, primarily
U.S. bonds and listed stocks 19,774 17,822
---------------------
Plan assets less than projected
benefit obligation (1,075) (2,060)
Unrecognized net assets at
January 1, 1987 being
recognized over 18 years (1,278) (1,443)
Unrecognized prior service cost 529 563
Unrecognized net loss (gain) (2,162) (42)
---------------------
Pension liability included in
Other Payables and Accruals $(3,986) $(2,982)
=====================
Net pension cost included the following (amounts in 000's):
1996 1995 1994
-----------------------------------
Service cost--benefits
earned during the year $ 1,037 $ 843 $ 725
Interest cost on projected
benefit obligation 1,469 1,381 1,216
Actual return on plan
assets--(gain) (2,691) (3,144) 315
Net amortization and
deferral 1,289 1,836 (1,619)
-----------------------------------
Net periodic pension
plan cost $ 1,104 $ 916 $ 637
===================================
Total pension cost was $1,956,000 in 1996, $1,365,000 in 1995 and
$896,000 in 1994. Included in the above amounts is a supplemental pension plan
expense of $852,000 in 1996, $449,000 in 1995 and $259,000 in 1994. These
amounts represent expenses accrued for supplemental pension benefits in excess
of Internal Revenue Code Section 415 limitations.
The supplemental pension plan is unfunded. The Company has recognized a
liability of $2,800,000 related to this plan and the plan has an accumulated
benefit obligation of $3,900,000 and a projected benefit obligation of
$7,200,000 at December 31, 1996.
The discount rates used in determining the plans' actuarial present
value of the projected benefit obligation were 7-1/2% in 1996, 7-1/4% in 1995
and 8% in 1994. The rates of increase in future compensation levels used in
determining the actuarial present value of the plans' projected benefit
obligation were 5 1/2% in 1996 and 1995, and 6% in 1994. The expected long-term
rate of return on assets was 8% in all three years.
11. STOCK OPTION AND AWARD PLANS
Under the Company's stock option plans, all of the outstanding stock
options at December 31, 1996 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. A summary of stock option transactions follows:
1996 1995 1994
---------------------------------------------------------------
Avg. Avg. Avg.
(000's) Option (000's) Option (000's) Option
Shares Price Shares Price Shares Price
---------------------------------------------------------------
Outstanding,
beginning
of year 219 $25.76 216 $24.69 218 $24.67
Exercised (67) 17.72 (2) 21.16 (2) 20.81
Expired - - (4) 26.94 - -
Granted - - 9 50.75 - -
---------------------------------------------------------------
Outstanding,
end of year 152 $29.31 219 $25.76 216 $24.69
===============================================================
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 25
Information regarding such outstanding options at December 31, 1996
follows:
Weighted Average Outstanding Weighted
Remaining Life Options Average Price
- -------------------------------------------------------
One year 6,400 $19.81
Three years 127,300 26.80
Seven years 18,000 50.44
-----------------------------
Total 151,700 $29.31
=============================
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 27,000 shares remain outstanding at
December 31, 1996. In 1995, 49,000 shares were awarded under the program and
47,000 shares remain outstanding at December 31, 1996. The value of the awards
is being amortized as compensation expense over a five year vesting period.
The difference in net income computed using APB Opinion No. 25 for
options and Financial Accounting Standards No. 123 is not significant.
12. CONTINGENCIES
Various litigation and claims against the Company and its subsidiaries
are in process and pending. 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.
13. INDUSTRY SEGMENTS
Listed below is financial information required to be reported for each
industry segment. Interest expense includes intercompany interest not
eliminated for purposes of segment reporting.
Thousands of Dollars
------------------------------------
1996 1995 1994
------------------------------------
Total segment revenues
Insurance $303,986 $283,141 $222,632
Transportation 34,910 31,385 53,190
Sportswear 32,754 37,733 41,928
Other 2,250 3,647 645
Intersegment revenues (3,408) (4,946) (2,984)
------------------------------------
Total $370,492 $350,960 $315,411
====================================
Operating profit
Insurance $ 8,649 $ 26,930 $ 16,630
Transportation 3,747 3,352 5,370
Sportswear (3,042) (8,577) (2,348)
Other (842) 191 84
Interest expense (5,873) (4,434) (4,865)
Intersegment interest
expense (3,408) (4,946) (2,984)
------------------------------------
Total $ (769) $ 12,516 $ 11,887
====================================
Acquisition of fixed assets
Insurance $ 2,440 $ -- $ --
Transportation 6,326 170 6,846
Sportswear 567 1,074 583
Corporate and other 1,603 27,960 12,130
------------------------------------
Total $ 10,936 $ 29,204 $ 19,559
====================================
Depreciation and amortization
Insurance $ 2,903 $ -- $ --
Transportation 2,488 3,004 5,773
Sportswear 924 1,065 1,078
Corporate and other 2,548 4,891 3,758
------------------------------------
Total $ 8,863 $ 8,960 $ 10,609
====================================
Identifiable assets
Insurance $551,498 $494,638 $379,287
Transportation 41,458 48,375 52,534
Sportswear 20,077 14,018 17,264
Corporate and other 78,407 76,983 53,087
Intersegment
receivables (31,901) (29,311) (19,626)
------------------------------------
Total $659,539 $604,703 $482,546
====================================
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 26
14. SHAREHOLDERS' EQUITY
The Midland Company has 5,000,000 shares of common stock authorized
without par value (stated value of $.25 a share), including 720,000 shares at
December 31, 1996 reserved for future 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, $10,700,000 of its $14,700,000 of
shareholder's equity was not available for distribution to the Company at
December 31, 1996.
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 1997 without
regulatory approval is approximately $15,000,000; such subsidiaries paid actual
cash dividends of $4,375,000 in 1996, $1,060,000 in 1995 and $4,000,000 in
1994.
Net income as determined in accordance with statutory accounting
practices for the Company's insurance subsidiaries was $5,396,000, $13,367,000
and $3,616,000 for 1996, 1995 and 1994, respectively. Shareholders' equity on
the same basis was $131,913,000 and $120,398,000 at December 31, 1996 and 1995.
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,
1994 $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
Net income 1,068 1,068
Purchase of
treasury stock,
net 111 (1,810) (1,699)
Cash dividends
declared (1,995) (1,995)
Exercise of
stock options (620) 1,774 1,154
Changes in
unrealized gain
on investments,
net of tax 3,871 3,871
Amortization and
cancellation of
unvested
restricted
stock awards (7) (10) 711 694
------------------------------------------------------------------
Balance,
December 31,
1996 $911 $14,846 $138,423 $23,587 $(16,621) $(1,458) $159,688
==================================================================
<PAGE>
1996 MIDLAND ANNUAL REPORT - PAGE 27
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
S/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 13, 1997
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>
1996 MIDLAND ANNUAL REPORT - PAGE 28
OFFICERS AND DIRECTORS
THE MIDLAND COMPANY AND SUBSIDIARIES
BOARD OF DIRECTORS OFFICERS
George R. Baker u J. P. Hayden, Jr.
Corporate Director/Advisor Chairman and Chief Executive Officer
James H. Carey u n Michael J. Conaton
Corporate Director/Advisor President and Chief Operating Officer
Michael J. Conaton J. P. Hayden, III
President and Chief Operating Officer Senior Executive Vice President
J. P. Hayden, Jr. John W. Hayden
Chairman and Chief Executive Officer Senior Executive Vice President
J. P. Hayden, III John R. LaBar
Senior Executive Vice President Vice President and Secretary
John W. Hayden Robert W. Hayden
Senior Executive Vice President Vice President
Robert W. Hayden John I. Von Lehman
Vice President Executive Vice President, Treasurer
and Chief Financial Officer
William T. Hayden
Attorney Thomas J. Rohs
Vice President
William J. Keating u
Formerly Chairman, Chief Executive Charles J. Jenkins
Officer and Publisher-Cincinnati Vice President-Management
Enquirer and Formerly Chairman of Information Systems
the Board-Associated Press
Michael L. Flowers
William McD. Kite Assistant Secretary
Member and Chief In-House Counsel
Cohen, Todd, Kite & Stanford, LLC
Paul T. Brizzolara
John R. LaBar Assistant Vice president and
Vice President and Secretary Assistant Secretary
John M. O'Mara n Ronald L. Gramke
Corporate Director/Financial Consultant Assistant Treasurer
John R. Orther n Edward J. Heskamp
Certified Public Accountant Assistant Treasurer
William F. Plettner W. Todd Gray
Formerly Vice Chairman and Assistant Treasurer
President of the Company
Mary Ann C. Pettit
Glenn E. Schembechler n Assistant Secretary
Professor Emeritus
University of Michigan Geraldine M. Stigall
Assistant Secretary
John I. Von Lehman
Executive Vice President, Treasurer n Member of Audit Committee
and Chief Financial Officer u Member of Compensation Committee
<PAGE>
1996 MIDLAND ANNUAL REPORT - INSIDE REAR COVER
SUBSIDIARY OFFICERS
THE MIDLAND COMPANY
AMERICAN MODERN INSURANCE GROUP, INC.
Chairman and Chief Executive Officer
Thomas J. Rohs
Vice Chairman
John W. Hayden
President and Chief Operating Officer
Kurt R. Schwamberger
Executive Vice President and Chief Financial Officer
Kenneth G. Boberg
Executive Vice President
Ronald L. Crippin
Senior Vice President
Robert E. Hilliard
Charles J. Jenkins
Vice President and Treasurer
James P. Tierney
Vice President
Gregory P. Bauke
John F. Behringer
Michael R. Bowen
Floyd R. Carr
Gary A. Cobb
Donald E. Crawford
Richard V. Crouch
Douglas A. Detrick
Dennis L. Gassaway
Mark L. Gatto
Clifton L. Gentry
Daniel J. Gilene
Russell M. Griffin
Raymond R. Johnston
James M. Knighten
Julie K. Kroger
William J. Lagano
Gary D. Lund
Donald E. Lydick
Joseph W. Magnano
Gerald W. McGuire
Michael R. McMillian
Andre J. Pecqueur
James P. Romerill
Frederick C. Wagner
Stephen R. Wilson
Assistant Vice President
Eugene G. Burke
Terry G. Cogswell
Thomas D. Contreras
Robert P. Crowley
Helen S. Danford
Stephen J. Eilerman
Steven J. Eisenhauer
William G. Fawcett
Theodore H. Fischer
William T. Foster
Mark J. Grabowski
Laura H. Harris
Charles F. Hill
Robert H. Holst
Daniel J. LaBar
Christy A. LaGory
Jeffrey W. Martin
Frank J. May
Charles H. Mayfield
David C. McNutt
Douglas G. Merriman
Kevin M. Morreale
C. V. Vaughan
Sandra L. Wagner
Lee J. Workum
CS CRABLE SPORTSWEAR, INC.
Chairman and Chief Executive Officer
John W. Hayden
President and Chief Operating Officer
Richard K. Queen
Vice President
Keith E. Cottrell
Joseph A. Granski, Jr.
Thomas R. Hayden
Timothy A. Herzog
Gary R. Massa
M/G TRANSPORT SERVICES, INC.
President and Chief Operating Officer
J. P. Hayden, III
Vice President
Frank J. Gusich
Jack L. Lordo
Treasurer
Raymond R. Ludmann
Assistant Controller
Martin J. Novakov
MGT SERVICES, INC.
President
Thomas C. Terrell, III
Executive Vice President
J. Kevin Jennings
Vice President
James R. Jarvis
Robbie M. Uvanni
OTHER INFORMATION
TRANSFER AGENT AND REGISTRAR INDEPENDENT AUDITORS GENERAL AND TAX COUNSEL
Fifth Third Bank Deloitte & Touche LLP Cohen, Todd, Kite &
38 Fountain Square, 250 East Fifth Street Stanford, LLC
Mail Drop #1090F5 Cincinnati, Ohio 45202 525 Vine Building
Cincinnati, Ohio 45263 Cincinnati, Ohio 45202
SHAREHOLDERS' MEETING
The next meeting of the shareholders will be held at 10:00 a.m. on Thursday,
April 10, 1997 at the Company's offices, 7000 Midland Boulevard, Amelia, Ohio
45102.
DIVIDEND REINVESTMENT PLAN
The Plan 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 Fifth Third Bank
(1-800-837-2755).
FORM 10-K
A copy of the Company's 1996 Annual Report to the Securities and Exchange
Commission on Form 10-K may be obtained by writing to the Company - Attention:
Secretary.
<PAGE>
EXHIBIT (21)
THE MIDLAND COMPANY
AND SUBSIDIARIES
EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1996
The subsidiaries of the Registrant as of December 31, 1996, 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
CS Crable Sportswear, 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
SUBSIDIARY OF MIDWEST ENTERPRISES, INC.
Sunbelt General Agency, Inc. Alabama 100
The names of five 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,617,000
<SECURITIES> 400,462,000
<RECEIVABLES> 112,055,000
<ALLOWANCES> 1,301,000
<INVENTORY> 13,329,000
<CURRENT-ASSETS> 0
<PP&E> 124,672,000
<DEPRECIATION> 42,997,000
<TOTAL-ASSETS> 659,539,000
<CURRENT-LIABILITIES> 0
<BONDS> 62,470,000
<COMMON> 911,000
0
0
<OTHER-SE> 158,777,000
<TOTAL-LIABILITY-AND-EQUITY> 659,539,000
<SALES> 32,754,000
<TOTAL-REVENUES> 370,492,000
<CGS> 27,179,000
<TOTAL-COSTS> 362,348,000
<OTHER-EXPENSES> 3,115,000
<LOSS-PROVISION> (75,000)
<INTEREST-EXPENSE> 5,873,000
<INCOME-PRETAX> (769,000)
<INCOME-TAX> (1,837,000)
<INCOME-CONTINUING> 1,068,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,068,000
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
