-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OEIBSXk+5EK+XeFRmwE/YYLFrVVzwpXPRgjOcdb+5H2e3rrkaFlKz4esIDjQyMCX DUZzWnRM7XUI/NZTFrBo5w== 0000066025-94-000006.txt : 19940330 0000066025-94-000006.hdr.sgml : 19940330 ACCESSION NUMBER: 0000066025-94-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: 6199 IRS NUMBER: 310742526 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06026 FILM NUMBER: 94518502 BUSINESS ADDRESS: STREET 1: 537 E PETE ROSE WAY CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137213777 MAIL ADDRESS: ZIP: ----- 10-K 1 MIDLAND CO - 10K 1993 THE MIDLAND COMPANY Annual Report on Form 10-K to the Securities and Exchange Commission for the Year Ended December 31, 1993 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number - 1-6026 THE MIDLAND COMPANY Incorporated in Ohio I.R.S. Employer Identification No. 31-0742526 537 E. Pete Rose Way Cincinnati, Ohio 45202 Tel. (513) 721-3777 Securities registered pursuant to Section 12(b) of the Act: Common stock - no par value. - American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all other reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for the past 90 days. Yes X . No . The aggregate market value of the voting common stock held by nonaffiliates, which includes shares held by executive officers and directors, of the registrant as of March 4, 1994 was $119,963,000. Number of shares of common stock outstanding as of March 4, 1994- 2,999,081. Documents Incorporated By Reference Annual Report to Shareholders for the year ended December 31, 1993 is incorporated by reference into Parts I, II and IV. Registrant's Proxy Statement dated March 18, 1994 is incorporated by reference into Parts III and IV. THE MIDLAND COMPANY FORM 10-K DECEMBER 31, 1993 PART I ITEM 1. Business. Incorporated by reference in pages 2 through 11 and 26 of the Registrant's 1993 Annual Report to Shareholders. The number of persons employed by the Registrant was approximately 980 at December 31, 1993. ITEM 2. Properties. Incorporated by reference in pages 2 through 11 of the Registrant's 1993 Annual Report to Shareholders. ITEM 3. Legal Proceedings. None other than ordinary routine litigation incidental to the business of the Company and its subsidiaries. ITEM 4. Submission of Matters to a Vote of Security Holders. None during the fourth quarter. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters. Incorporated by reference to pages 25 and 26 (Note 13), and 28 and 29 of the Registrant's 1993 Annual Report to Shareholders. ITEM 6. Selected Financial Data. Incorporated by reference to page 13 of the Registrant's 1993 Annual Report to Shareholders. ITEM 7. Management's Discussion And Analysis of Financial Condition And Results of Operations. Incorporated by reference to pages 14 and 15 of the Registrant's 1993 Annual Report to Shareholders. ITEM 8. Financial Statements and Supplementary Data. Incorporated by reference to pages 16 through 28 of the Registrant's 1993 Annual Report to Shareholders. ITEM 9. Disagreements on Accounting and Financial Disclosures. None. PART III ITEM 10. Directors and Executive Officers of the Registrant. Incorporated by reference to the Registrant's Proxy Statement dated March 18, 1994. PART III (Continued) Executive Officers Of The Company- J. P. Hayden, Jr. - Age 64 - Chairman and Chief Executive Officer Michael J. Conaton - Age 60 - President and Chief Operating Officer John R. LaBar - Age 62 - Vice President and Secretary Robert W. Hayden - Age 55 - Vice President John I. Von Lehman - Age 41 - Vice President, Treasurer and Chief Financial Officer Thomas J. Rohs - Age 52 - Vice President J. P. Hayden III - Age 41 - Vice President John W. Hayden - Age 36 - Vice President Robert N. Thornbladh - Age 41 - Vice President Michael L. Flowers - Age 42 - Vice President, Assistant Secretary and Chief In-House Counsel J. P. Hayden, Jr. and Robert W. Hayden are brothers. J. P. Hayden, III and John W. Hayden are sons of J. P. Hayden, Jr. During 1988, Michael J. Conaton was elected President and Chief Operating Officer (formerly Executive Vice President and Chief Financial Officer). During 1988, John I. Von Lehman was elected Vice President and Chief Financial Officer and retained the title of Treasurer (formerly Treasurer and Chief Accounting Officer). During 1990, Robert N. Thornbladh joined the Company as Vice President. He was formerly employed by Nutmeg Industries. During 1991, Michael L. Flowers (formerly Assistant Secretary) was elected Vice President. The officers listed above have served in the positions indicated for the past five years (except as noted above). ITEM 11. Executive Compensation. Incorporated by reference to the Registrant's Proxy Statement dated March 18, 1994. ITEM 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference to the Registrant's Proxy Statement dated March 18, 1994. ITEM 13. Certain Relationships and Related Transactions. Incorporated by reference to the Registrant's Proxy Statement dated March 18, 1994. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements. Incorporated by reference in Part II of this report: PART IV (Continued) Data pertaining to The Midland Company and Subsidiaries - Report of Independent Public Accountants. Consolidated Balance Sheets, December 31, 1993 and 1992. Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1993, 1992 and 1991. Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991. Notes to Consolidated Financial Statements. (a) 2. Financial Statement Schedules. Included in Part IV of this report: Data pertaining to The Midland Company and Subsidiaries - Page Independent Auditors' Consent and Report on Schedules 7 Schedule I - Marketable Securities - Other Investments, December 31, 1993 8 Schedule V - Property, Plant and Equipment for the Years Ended December 31, 1993, 1992 and 1991 9 Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment for the Years Ended December 31, 1993, 1992 and 1991 10 Schedule VIII - Allowance for Losses for the Years Ended December 31, 1993, 1992 and 1991 11 Schedule IX - Short-Term Borrowings for the Years Ended December 31, 1993, 1992 and 1991 12 Schedule X - Supplementary Income Statement Information for the Years Ended December 31, 1993, 1992 and 1991 13 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) 3. Exhibits. 3. Articles of Incorporation and By-Laws - Filed as Exhibit 3 to the Registrant's 1980 Annual Report on Form 10-K, and incorporated herein by reference. 10. A description of the Company's Stock Option Plan and Profit Sharing Plan - Incorporated by reference to the Registrant's Proxy Statement dated March 18, 1994. 11. Computation of Consolidated Net Income Per Share for the years ended December 31, 1993, 1992 and 1991 13. Annual Report to security holders - Incorporated by reference to the Registrant's 1993 Annual Report to Shareholders 21. Subsidiaries of the Registrant 22. Registrant's Proxy Statement dated - Incorporated by reference to the Registrant's Proxy Statement dated March 18, 1994. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. THE MIDLAND COMPANY Signature Title Date S/ George R. Baker Director March 3, 1994 (George R. Baker) S/ James H. Carey Director and Member March 3, 1994 (James H. Carey) of Audit Committee S/ Michael J. Conaton President, Chief Operating March 3, 1994 (Michael J. Conaton) Officer and Director S/ J. P. Hayden, Jr. Chairman, Chief Executive March 3, 1994 (J. P. Hayden, Jr.) Officer and Director S/ J. P. Hayden, III Vice President and Director March 3, 1994 (J. P. Hayden, III) S/ John W. Hayden Vice President and Director March 3, 1994 (John W. Hayden) S/ Robert W. Hayden Vice President and Director March 3, 1994 (Robert W. Hayden) S/ William J. Keating Director March 3, 1994 (William J. Keating) S/ William McD. Kite Director March 3, 1994 (William McD. Kite) S/ John R. LaBar Vice President, Secretary March 3, 1994 (John R. LaBar) and Director S/ John M. O'Mara Director and Member March 3, 1994 (John M. O'Mara) of Audit Committee S/ John R. Orther Director and Member March 3, 1994 (John R. Orther) of Audit Committee S/ William F. Plettner Director March 3, 1994 (William F. Plettner) S/ Glenn E. Schembechler Director and Member March 3, 1994 (Glenn E. Schembechler) of Audit Committee S/ John I. Von Lehman Vice President, Treasurer, March 3, 1994 (John I. Von Lehman) Chief Financial Officer, Chief Accounting Officer and Director SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dully caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MIDLAND COMPANY Signature Title Date S/ J. P. Hayden, Jr. Chairman and Chief Executive March 3, 1994 (J. P. Hayden, Jr.) Officer S/ John I. Von Lehman Vice President, Treasurer, March 3, 1994 (John I. Von Lehman) Chief Financial Officer and Chief Accounting Officer INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES ----------------------------------------------------- To the Shareholders of The Midland Company: We consent to the incorporation by reference in Registration Statement No. 33-48511 of The Midland Company on Form S-8 of our report dated February 10, 1994, incorporated by reference in this Annual Report on Form 10-K and our report (appearing below) on the financial statement schedules of The Midland Company for the year ended December 31, 1993. Our audits of the consolidated financial statements referred to in our aforementioned report also included the financial statement schedules of The Midland Company and its subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. March 14, 1994 SCHEDULE I THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS DECEMBER 31, 1993 . . . . . . .December 31, 1993. . . . . . . - -------------------------------------------------------------------------------- Column A Column C Column D Column E - ------------------------------------------------------------------------------- Amount at which shown Market in the Type of Investment Cost Value balance sheet - -------------------------------------------------------------------------------- Bonds and notes: United States Government and government agencies and authorities $ 69,482,000 $ 72,477,000 $ 72,477,000 States, municipalities and political subdivisions 61,642,000 64,998,000 64,998,000 All other corporate 56,479,000 56,942,000 56,942,000 -------------------------------------------- Total bonds and notes 187,603,000 194,417,000 194,417,000 -------------------------------------------- Preferred stocks 294,000 419,000 419,000 -------------------------------------------- Common stocks: Star Banc Corporation 2,073,000 9,457,000 9,457,000 All other common stocks 14,497,000 17,466,000 17,466,000 -------------------------------------------- Total common stocks 16,570,000 26,923,000 26,923,000 -------------------------------------------- Accrued investment income 2,855,000 2,855,000 2,855,000 -------------------------------------------- Total investments $207,322,000 $224,614,000 $224,614,000 ============================================ NOTE: The individual issue disclosed above is the only individual issue requiring separate disclosure. SCHEDULE V THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F BALANCE AT BALANCE BEGINNING ADDITIONS AT END CLASSIFICATION OF PERIOD AT COST RETIREMENTS OF PERIOD - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Land $ 488,000 $ 813,000 $ 45,000 $ 1,256,000 Buildings, improvements, fixtures, etc. 27,516,000 17,028,000 3,378,000 41,166,000 Vessels and barges 122,193,000 14,394,000 1,988,000 134,599,000 River transportation equipment under capital leases 8,143,000 -- -- 8,143,000 Construction-in-progress 4,881,000 (4,881,000) -- -- ---------------------------------------------------- TOTAL $163,221,000 $27,354,000 $5,411,000 $185,164,000 ==================================================== YEAR ENDED DECEMBER 31, 1992: Land $ 488,000 $ -- $ -- $ 488,000 Buildings, improvements, fixtures, etc. 23,754,000 5,240,000 1,478,000 27,516,000 Vessels and barges 115,578,000 7,487,000 872,000 122,193,000 River transportation equipment under capital leases 8,143,000 -- -- 8,143,000 Construction-in-progress -- 4,881,000 -- 4,881,000 ---------------------------------------------------- TOTAL $147,963,000 $17,608,000 $2,350,000 $163,221,000 ==================================================== YEAR ENDED DECEMBER 31, 1991: Land $ 488,000 $ -- $ -- $ 488,000 Buildings, improvements, fixtures, etc. 22,119,000 2,676,000 1,041,000 23,754,000 Vessels and barges 105,389,000 10,285,000 96,000 115,578,000 River transportation equipment under capital leases 8,143,000 -- -- 8,143,000 ---------------------------------------------------- TOTAL $136,139,000 $12,961,000 $1,137,000 $147,963,000 ==================================================== SCHEDULE VI THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS OF PERIOD - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Buildings, improvements, fixtures, etc. $ 9,756,000 $ 3,699,000 $1,145,000 $12,310,000 Vessels and barges 54,574,000 5,778,000 1,763,000 58,589,000 River transportation equipment under capital leases 5,849,000 524,000 -- 6,373,000 ---------------------------------------------------- TOTAL $70,179,000 $10,001,000 $2,908,000 $77,272,000 ==================================================== YEAR ENDED DECEMBER 31, 1992: Buildings, improvements, fixtures, etc. $ 7,883,000 $ 2,839,000 $ 966,000 $ 9,756,000 Vessels and barges 49,356,000 5,787,000 569,000 54,574,000 River transportation equipment under capital leases 5,325,000 524,000 -- 5,849,000 ---------------------------------------------------- TOTAL $ 62,564,000 $ 9,150,000 $1,535,000 $70,179,000 ==================================================== YEAR ENDED DECEMBER 31, 1991: Buildings, improvements, fixtures, etc. $ 6,028,000 $ 2,417,000 $ 562,000 $ 7,883,000 Vessels and barges 44,129,000 5,301,000 74,000 49,356,000 River transportation equipment under capital leases 4,801,000 524,000 -- 5,325,000 ---------------------------------------------------- TOTAL $ 54,958,000 $ 8,242,000 $ 636,000 $62,564,000 ==================================================== SCHEDULE VIII THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE VIII - ALLOWANCE FOR LOSSES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Allowance For Losses $1,192,000 $357,000 $432,000 (1) $1,117,000 YEAR ENDED DECEMBER 31, 1992: Allowance For Losses $1,133,000 $297,000 $238,000 (1) $1,192,000 YEAR ENDED DECEMBER 31, 1991: Allowance For Losses $ 943,000 $195,000 $ 5,000 (1) $1,133,000 NOTES: (1) Accounts written off are net of recoveries. SCHEDULE IX THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 -- END OF PERIOD --- ------ DURING THE PERIOD ---------- WEIGHTED WEIGHTED CATEGORY OF AVERAGE MAXIMUM AVERAGE AVERAGE SHORT-TERM INTEREST AMOUNT AMOUNT INTEREST BORROWINGS BALANCE RATE OUTSTANDING OUTSTANDING RATE - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Bank Borrowings $22,000,000 3.5% $27,000,000 $13,583,000 3.5% Commercial Paper 14,302,000 3.3% 15,129,000 11,096,000 3.7% YEAR ENDED DECEMBER 31, 1992: Bank Borrowings $27,000,000 4.1% $27,000,000 $ 2,669,000 3.8% Commercial Paper 8,866,000 4.1% 10,208,000 9,135,000 4.7% YEAR ENDED DECEMBER 31, 1991: Bank Borrowings $12,000,000 5.2% $12,000,000 $ 323,000 7.7% Commercial Paper 8,568,000 5.1% 9,686,000 8,097,000 6.5% NOTE: The weighted average interest rate is computed by dividing actual interest expense on borrowings by the average amount of such borrowings during the year. SCHEDULE X THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 CHARGED TO COSTS AND EXPENSES 1993 1992 1991 ---------------------------------- Maintenance and repairs $4,972,000 $5,662,000 $3,015,000 ================================== Taxes, other than payroll and income taxes: Insurance premium taxes $5,971,000 $4,766,000 $3,995,000 Other 2,742,000 2,060,000 2,056,000 ---------------------------------- Total $8,713,000 $6,826,000 $6,051,000 ================================== EX-11 2 COMPUTATION OF CONSOLIDED NET INCOME PER SHARE Exhibit (11) THE MIDLAND COMPANY AND SUBSIDIARIES EXHIBIT (11) - COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE FOR THE YEARS DECEMBER 31, 1993, 1992 AND 1991 1993 1992 1991 -------------------------------------------- Net Income $17,972,000 (a) $11,979,000 $9,231,000 ============================================ Assuming no dilution: Weighted average number of shares outstanding 3,004,000 2,983,000 3,061,000 ============================================ Per share (net income divided by the weighted average number of shares outstanding) $5.98 (a) $4.02 $3.02 ============================================ Primary: Adjusted shares outstanding - after giving effect to conversion of stock options and stock awards 3,074,000 3,007,000 3,126,000 ============================================ Per share - after giving effect to conversion of stock options and stock awards (net income divided by adjusted shares outstanding) $5.85 (a) $3.98 $2.95 ============================================ Fully diluted: Adjusted shares outstanding - after giving effect to conversion of stock options and stock awards 3,078,000 3,079,000 3,151,000 ============================================ Per share - after giving effect to conversion of stock options and stock awards (net income divided by adjusted shares outstanding) $5.84 (a) $3.87 $2.93 ============================================ (a) Includes a credit of $4,867,000, $1.58 per common share (primary and fully diluted), for the cumulative effect of a change in accounting from the adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. EX-13 3 ANNUAL REPORT TO SECURITY HOLDERS MIDLAND ANNUAL REPORT PAGE 2 CHAIRMAN'S LETTER Midland's income before cumulative effect of accounting change was $13,105,000, $4.27 per share for 1993 and net income (after cumulative effect of accounting change) was $17,972,000, $5.85 per share, on revenues of $267,667,000. Net income for 1992 was $11,979,000, $3.98 per share, on revenues of $225,504,000. For the fourth quarter of 1993, net income was $2,645,000, $.87 per share, on revenues of $70,848,000. This compares to earnings for the fourth quarter of 1992 of $3,585,000, $1.17 per share, on revenues of $62,533,000. Midland's Board of Directors, at its March meeting, approved an increase in the cash dividend paid to shareholders from 50 cents to 54 cents per common share on an annualized basis. This is the seventh consecutive year that Midland's dividend has increased. As detailed in Management's Discussion and Analysis on pages 14 and 15, the Company adopted two new accounting standards during 1993 that had a positive impact on the Company's financial statements. The adoption of SFAS 109 resulted in a $4,867,000 reduction in the Company's Federal Income Tax expense in 1993 and SFAS 115 resulted in the Company increasing Shareholders' Equity by approximately $5,659,000. The book value of Midland's stock was $44.39 per share as of December 31, 1993 compared to $37.52 at December 31, 1992. As a result of the Company's profitable operations along with the accounting adjustments discussed on pages 14 and 15, Midland's Shareholders' Equity increased approximately $21,527,000 during 1993, a 19% increase. The total assets of The Midland Company continued to grow during 1993 as they reached a record level of $435,598,000. American Modern Home Group (AMHG), the Company's insurance subsidiary reported another record year. Net premiums written increased 26% from 1992 to 1993 while net underwriting income increased 39% over the same period. This growth is a result of product diversification and growth in existing lines of business. AMHG's combined ratio (the ratio of losses and expenses to premiums earned) was 94% for 1993, a level considered excellent by industry standards. This compares to the estimated industry average of 109.2% and is lower than the 94.6% reported by AMHG for 1992. American Modern Home Group was able to produce these record numbers even though we participated in heavy losses caused by the severe storm that struck the eastern portion of the United States in March 1993 and the record flooding which occurred throughout the midwest in July 1993. AMHG reached a settlement on California Proposition 103 during September 1993. AMHG had reserved approximately $2,800,000 (net of federal tax) more than the ultimate cost of settlement and, accordingly, this amount was taken into income during the third quarter of 1993. We are pleased that American Modern Home Group has once again earned the preferred industry rating of A+ Superior by the A.M. Best Company. This rating is indicative of the financial strength, sound operating philosophies and conservative investment policies of your Company. We have no investments in real estate. The fixed income portfolio MIDLAND ANNUAL REPORT PAGE 3 continues to have a weighted quality average of approximately AAA. The market value of the investment portfolio exceeds the cost by approximately $14,588,000. In addition, the portfolio generated over $3,700,000 in realized capital gains during 1993, an increase of approximately 150% over the prior year. AMHG remains confident of its future. We continue to grow through expansion in markets that we currently service and through additional product offerings. M/G Transport Services, Inc., the Company's inland waterways transportation subsidiary, primarily hauls coal and aggregate on the Ohio and Mississippi rivers and their tributaries. Operating income was significantly improved over 1992 in spite of the adverse effect of the depressed affreigtment rates and excess capacity that exists in the market place. Utilization of the Company's fleet was 81% for 1993. M/G Transport, while encouraged with the increase in operating profits from 1992 to 1993, will continue to look for a niche business that will allow us to take advantage of existing assets and to contribute positively to the profits of The Midland Company. Sales for CS Crable Sportswear, Inc., the Company's sportswear division, were comparable to 1992. CS Crable applies embroidery and screen printing processes onto high quality sportswear garments featuring designs of major colleges and universities, many of the professional leagues, golf and life-style themes. CS Crable recently signed an exclusive licensing agreement with Pebble Beach to produce and market golf-related products under the name of "Pebble Beach Sportswear by CS Crable." We feel this is a significant new market area for us. CS Crable will continue to pursue other licenses that management believes fit into the Company's plans for the future. As we previously announced, CS Crable's new 290,000 square foot office, production and warehouse facility was completed and occupied on May 30, 1993. This new facility has allowed Crable to consolidate all of the functions of this division into one location. The Midland Company was saddened by the death of William N. Liggett in February 1993. Mr. Liggett served on Midland's Board of Directors since 1970. Mr. Liggett's impact on The Midland Company will be felt for many years to come. We will miss Bill Liggett, not only as a business associate, but as a true friend. The past year was an important and successful year for The Midland Company. Without the support of all those associated with your Company, the successes of 1993 would not have been possible. We continue to be optimistic about the opportunities for the long term growth and profitability of your Company. Sincerely yours, J. P. Hayden, Jr. Chairman February 10, 1994 MIDLAND ANNUAL REPORT PAGE 4 OPERATIONS REVIEW RIVER TRANSPORTATION M/G Transport Services, Inc. operates one of the larger inland waterways fleets in the United States. The Company transports primarily coal and aggregate on the Ohio and Mississippi rivers and the tributaries. Transport's fleet consists of 612 open-hopper barges and 13 full-line towboats with 70,800 total horsepower. SPORTSWEAR CS Crable Sportswear, Inc. applies embroidery and screenprinting processes onto high quality sportswear featuring designs of major colleges and universities, the National Football League, golf and life-style themes. The Company maintains its own salesforce for marketing its products throughout the United States. Primary emphasis has been on major department stores, sporting good stores and college bookstores. INSURANCE American Modern Home Group consists of six property and casualty companies and two credit life companies. AMHG is licensed in all 50 states. Traditionally, AMHG has specialized in writing physical damage insurance and related coverage on manufactured housing, but has in recent years expanded its operations to include Lower Valued Homes, Dwelling Fire, Homeowners, Mortgage Fire, Collateral Protection, Watercraft, Long-Haul Truck and Excess and Surplus Lines. MIDLAND ANNUAL REPORT PAGE 5 INSURANCE We are pleased to report that the American Modern Home Group, which comprises The Midland Company's insurance operations, turned in a record-setting performance in 1993. Net premiums written increased by more than 26% for the year, and net underwriting income increased over 39%. The Group recorded a 94% combined ratio for the year, which compares most favorably with an estimated industry result of 109.2%. AMHG's combined ratio has been below 100% in six of the last seven years, an outstanding performance record by any measure. These results are especially noteworthy in that they were achieved during one of the industry's worst years on record for insured catastrophe losses. American Modern Home sustained nearly $4.8 million in losses on an after-tax basis as a result of the "winter hurricane" which struck the eastern half of the United States in March and, to a lesser extent the record setting Midwest floods of July and August. The Company attributes a large portion of its success to our disciplined strategic planning. Dating back to its first formal planning conference in the fall of 1984, American Modern Home has maintained an unwavering commitment to the planning process. As the organization continues along the growth curve, it places particular emphasis on the value of spreading the plan as broadly as possible throughout the organization. The sense of purpose and focus this lends to the organization is, we believe, reflected in the Group's results. The results discussed above also benefited from the Company's settlement with the state of California of that state's Proposition 103 voter insurance referendum. AMHG had reserved approximately $2,800,000 (net of taxes) more than the ultimate cost of the settlement. This amount was taken into income in September as negotiations with the state were concluded. Consisting of six property and casualty companies and two life companies, the American Modern Home Group continues to position itself for future growth. Significant resources have been allocated for the aggressive expansion of its Financial Services, Commercial Lines and Life Insurance operations. As a sign of its commitment to these areas, the Company has added several key experienced industry professionals to our staff. THIS PAGE INCLUDES TWO BAR CHARTS WITH THE FOLLOWING DATA. THE FIRST CHART IS OF NET WRITTEN PREMIUMS AND THE SECOND IS TOTAL ASSETS. BOTH ARE FOR 10 YEARS. NET WRITTEN PRMIUMS TOTAL ASSETS 1984 $65,491 $105,049 1985 71,636 118,026 1986 80,979 127,695 1987 95,570 146,285 1988 94,182 159,703 1989 94,537 170,135 1990 107,896 171,734 1991 124,161 201,929 1992 144,642 231,360 1993 183,162 280,669 AMOUNTS IN THOUSANDS. MIDLAND ANNUAL REPORT PAGE 6 Renewed emphasis on life insurance operations resulted in a change of name to American Modern Life and the re-domestication of this operation to Ohio. It is also worth noting that Midland created an insurance holding company during the year, to be known as American Modern Home Group, Inc. This vehicle provides the insurance operations additional means to increase policyholder surplus and support future premium growth. American Modern Home has once again earned the preferred industry rating of A+ Superior from the A. M. Best Company. We are deeply committed to and very proud of this rating as it reflects the financial strength and sound operating philosophies of the Company. Of perhaps equal importance, however, is the Company's reputation for delivering quality products supported by superior service. While it may sound trendy to say that AMHG is focused on quality, we believe it to be true. The Company's goal is Excellence, and the process it is pursuing to achieve this goal is continuous improvement. The focus group session pictured at left is but one example of the Company's efforts to get more in touch with its customers' expectations. We view this commitment to quality as an absolute prerequisite to the Company's future success. AMHG's investment portfolio continues to be conservatively invested in high quality securities. There are no real estate holdings in the portfolio. The fixed income portfolio maintains a weighted quality average of approximately AAA, and the market value of the overall portfolio exceeds cost by approximately $14,588,000. In 1993, the portfolio generated more than $3,700,000 in capital gains. We believe the security of this portfolio is of paramount importance. We would like to express our gratitude to the many business partners who have contributed to our continued success. We have committed ourselves to excellence and believe that we will be successful in earning your continued support. We would also like to thank our staff, for without their dedication, we would not be able to meet our goal of excellence. THIS PAGE INCLUDES A PHOTO OF A "FOCUS GROUP" CONSISTING OF 6 PEOPLE GATHERED AROUND A CONFERENCE TABLE. MIDLAND ANNUAL REPORT PAGE 7 PAGE 7 OF THE MIDLAND COMPANY ANNUAL REPORT IS PART OF THE INSURANCE SECTION AND CONSISTS OF A PICTURE OF A MANUFACTURED HOME. THERE IS ALSO THE FOLLOWING "AMHG HAS ONCE AGAIN EARNED THE PREFERRED INDUSTRY RATING OF A+ SUPERIOR." MIDLAND ANNUAL REPORT PAGE 8 M/G TRANSPORT SERVICES, INC. M/G Transport Services, Inc., Midland's river transportation division, operates one of the larger inland waterway fleets in the United States. The Company transports coal, aggregate, petroleum coke and miscellaneous dry bulk commodities on the nations inland waterways system. M/G Transport's operating income for 1993 was significantly improved over 1992 in spite of the adverse effect of the depressed affreigtment rates and excess capacity that continue to exist within the industry. Because M/G Transport operates primarily in the Ohio River Valley and the lower Mississippi, the severe flooding which affected the midwest during July and August 1993 had a very minor impact on M/G's operating income. M/G's pursuit of export traffic and the increased demand from its utility customers caused the utilization of the Company's fleet increased from 67% in 1992 to 81% for 1993. M/G's fleet consists of 652 barges and 13 full-line boats. In addition, the Company placed covers on approximately 80 barges which has allowed us to diversify into the dry bulk commodity market place. Despite these improved operating efficiencies, 1994 will be a very challenging year for M/G Transport. The majority of our fleet will be utilized through both long-term contracts and short-term "spot" moves. It appears that market conditions will continue to be depressed and, as a result, adversely affect M/G's operating profit for 1994. We will continue to pursue new contracts and investigate new ways to improve operating efficiencies. We believe that we will continue to grow and be profitable in the future. Management continues to explore the possibility of future expansion through acquisition of similar or related businesses. We would like to take this opportunity to thank everyone associated with M/G Transport for their continued support. THIS PAGE ALSO INCLUDES A PHOTO OF A NEW BARGE BEING LAUNCHED. MIDLAND ANNUAL REPORT PAGE 9 PAGE 9 OF THE MIDLAND ANNUAL REPORT CONSISTS OF A PHOTO OF A MOTOR VESSEL WITH A TOW OF BARGES WITH THE FOLLOWING CAPTION: "THE M/V POLO II PUSHES A COAL TOW DOWN THE OHIO TO ONE OF M/G'S UTILITY CUSTOMERS." MIDLAND ANNUAL REPORT PAGE 10 CS CRABLE SPORTSWEAR, INC. CS Crable applies embroidery and screenprinting processes onto high quality sportswear garments featuring designs of major colleges and universities, many of the professional leagues, golf and life-style themes. The CS Crable label has now come to be recognized as one of the premier sportswear embroidery companies in the United States. In addition, CS Crable's capabilities in screenprinting are also being recognized as being among the best in the industry. CS Crable recently signed an exclusive licensing agreement with Pebble Beach to produce and market a complete line of apparel under the name of "Pebble Beach Sportswear by CS Crable." Management is very excited about this exclusive license as it allows us to expand into a much broader category of business with our retail partners and to enter the golf-related markets. This introductory Pebble Beach product line has performed very well in focus groups as well as initial test markets. In addition, we continued to expand on current licensing agreements with Major League Baseball, the National Football League and the National Hockey League. We will continue to pursue other licenses, including professional licenses, that management believes fit into the Company's plans for the future. CS Crable's new 290,000 square foot office, production and warehouse facility located on 89 acres just outside Cincinnati, was completed and occupied on May 30, 1993. This new facility, pictured on the opposite page, has allowed CS Crable to consolidate all of its functions into one location as well as allow for anticipated growth of this division. Sales for CS Crable Sportswear, Inc., the Company's sportswear division, were below management's expectations. The growth in sales did not develop as projected. Sales of CS Crable's "upper-end" products did not experience growth in the cautious economic climate that existed in 1993 and, as a result, our profit margins were adversely effected. Management believes that we have taken important steps to improve operating margins in the future. Among these are the ability to improve our sourcing of garments as a result of successfully completing a major import program during 1993. We have increased manufacturing efficiencies by relocating to our new facility. The management of CS Crable Sportswear would like to thank our entire staff for their hard work and dedication. In addition, we thank all of our customers for their continued loyalty and we pledge to maintain our philosophy of providing high standards of quality and service. THIS PAGE ALSO INCLUDES A PHOTO OF FIVE CS CRABLE GARMENTS. MIDLAND ANNUAL REPORT PAGE 11 PAGE 11 OF THE MIDLAND ANNUAL REPORT IS PART OF THE CS CRABLE SPORTSWEAR SECTION. PAGE 11 INCLUDES A PHOTO OF THE NEW CS CRABLE OFFICE, PRODUCTION AND WAREHOUSE FACILITY ALONG WITH THE FOLLOWING "CS CRABLE SPORTSWEAR CONTINUES TO EXPAND ITS PROFESSIONAL SPORTS AND OTHER LICENSES. MIDLAND ANNUAL REPORT PAGE13 SELECTED CONSOLIDATED FINANCIAL DATA THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, - ------------------------ 1993 1992 1991 1990 1989 ------------------------------------------------------------------- Revenues $267,667,000 $225,504,000 $202,583,000 $179,856,000 $158,996,000 ------------------------------------------------------------------- Net Income $ 17,972,000(a) $ 11,979,000 $ 9,231,000 $ 9,989,000 $ 9,216,000 ------------------------------------------------------------------- Earnings Per Common Share- Primary $5.85(a) $3.98 $3.02 $3.12 $2.80 ------------------------------------------------------------------- Earnings Per Commons Share- Fully Diluted $5.84(a) $3.87 $2.93 $3.06 $2.75 ------------------------------------------------------------------- Marketable Securities $224,614,000 $188,531,000 $163,145,000 $138,642,000 $139,205,000 ------------------------------------------------------------------- Property, Plant and Equipment (net) $107,892,000 $ 93,042,000 $ 85,399,000 $ 81,181,000 $ 77,500,000 ------------------------------------------------------------------- Total Assets $435,598,000 $359,702,000 $318,101,000 $280,319,000 $275,462,000 ------------------------------------------------------------------- Unearned Insurance Premiums $109,652,000 $ 89,732,000 $ 76,963,000 $ 65,872,000 $ 59,114,000 ------------------------------------------------------------------- Insurance Loss Reserves $ 37,133,000 $ 23,993,000 $ 22,733,000 $ 19,542,000 $ 21,331,000 ------------------------------------------------------------------- Long-Term Debt $ 56,522,000 $ 34,801,000 $ 31,730,000 $ 30,670,000 $ 34,963,000 ------------------------------------------------------------------- Shareholders' Equity $133,110,000 $111,583,000 $101,724,000 $ 93,102,000 $ 90,599,000 ------------------------------------------------------------------- Book Value Per Share $44.39 $37.52 $33.69 $30.20 $27.88 ------------------------------------------------------------------- Dividends Per Common Share $.54 $.50 $.46 $.42 $.38 ------------------------------------------------------------------- Common Shares Outstanding 2,999,000 2,974,000 3,019,000 3,082,000 3,250,000 ------------------------------------------------------------------- (a)Includes a credit of $4,867,000, $1.58 per common share, for the cumulative effect of change in accounting from the adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. MIDLAND ANNUAL REPORT PAGE 14 MANAGEMENT'S DISCUSSION AND ANALYSIS THE MIDLAND COMPANY AND SUBSIDIARIES OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reportable Segments The Company's operations are classified into four reportable business segments: Insurance, River Transportation, Sportswear and Finance and Other. A description of these segments and comments with regard to their operations are included below. In addition, please refer to the Chairman's Letter and to the other information on page 4 and pages 5 through 11 of the Annual Report. Such information, including the Quarterly Data presented on page 28, should also be considered a part of this analysis. Midland's insurance division consists of six property and casualty companies and two credit life companies operating as American Modern Home Group. AMHG is licensed to write business in all 50 states plus the District of Columbia. The majority of the Company's business is physical damage insurance on manufactured homes, generally written for a term of 12 months with coverages similar to conventional homeowners insurance policies. Other insurance products include Lower Valued Homes, Dwelling Fire, Homeowners, Mortgage Fire, Collateral Protection, Watercraft, Long-Haul Truck, Commercial and Excess and Surplus Lines. Midland's river transportation division, M/G Transport Services, Inc., primarily hauls coal, aggregate, petroleum coke and miscellaneous dry bulk commodities on the Ohio and Mississippi rivers and their tributaries. Commodities are hauled under both long-term contracts and "spot" moves. M/G Transport Services, Inc. currently operates one of the larger fleets on the inland waterways system. Midland's sportswear division, CS Crable Sportswear, Inc., purchases basic garments and imprints these garments using embroidery and screenprinting processes. Products are marketed by both company and independent sales representatives located strategically throughout the United States. Midland's finance operations have not been significant in recent years, however, the Company continues to maintain a loan receivable portfolio. Results of Operations American Modern Home Group achieved a record level of profitability in 1993. This record setting performance was accomplished after the Company absorbed approximately $4.8 million in after-tax losses from the severe winter storm which devastated the eastern half of the United States and, to a lesser extent, the record setting Midwest floods which occurred in July 1993. The operating performance of this division was enhanced by the settlement of California Proposition 103 which increased after-tax profits by $2.8 million. This division continues to produce excellent underwriting results as evidenced by its combined ratio (the ratio of losses and expenses to premiums earned) of 94% and 94.6% in 1993 and 1992, respectively. These ratios are considered excellentby industry standards. The increase in insurance revenues in 1993 and 1992 is due to the growth in the Company's new insurance products which have been introduced in recent years. Insurance claims and policy acquisition costs also increased in 1993 and 1992 due to the overall growth in written premiums. River transportation revenues and related operating expenses increased in 1993 primarily due to the addition of a large one year contract with a utility. This contract was not renewed for 1994. Revenues and related expenses decreased in 1992 primarily due to lower revenues on the Company's aggregate hauling business. This reduction in aggregate tonnage in 1992 (and somewhat in 1993) was due to competing product being shipped into the United States from Mexico. The river transportation business continues to be affected by excess capacity in the industry. As the Company has previously announced, M/G Transport has MIDLAND ANNUAL REPORT PAGE 15 become aware of an investigation by Federal authorities. We believe that this investigation concerns the possible disposal of bilge water and other refuse on various vessels on the Ohio River. M/G is cooperating fully with the investigation, the outcome of which cannot presently be determined. Sportswear revenues (and related expenses) experienced significant growth from 1991 to 1992 due to geographic expansion of the Company's sales force. This rapid growth in revenues flattened in 1993 due inpart to a contraction in the market for CS Crable's higher priced sportswear. Operating margins were depressed in 1993 since management had increased its inventory and production capacity in anticipation of continued growth in revenues. Management believes that the Company can experience moderate growth in revenues in 1994 and the Company has taken steps to improve its operating margin. The revenues and expenses associated with the Company's finance and other operations are not significant and have a relatively minor impact on the Company's operating margins. The Company adopted SFAS 109, "Accounting for Income Taxes," effective January 1, 1993. The cumulative effect of adopting SFAS 109 was to increase 1993 income by $4,867,000 and to decrease the deferred federal income tax liability. Liquidity and Capital Resources The Company and its finance subsidiary issue commercial paper, generally below the bank prime borrowing rates, and have $37 million of credit lines available under bank lines at costs not exceeding prime borrowing rates. There was approximately $14.3 million of commercial paper, $11 million of the previously mentioned bank lines and $11 million in other short-term bank borrowings outstanding at December 31, 1993. The Company plans to service existing debt with internally generated funds. Change in Financial Condition Marketable securities increased in 1993 and 1992 primarily as a result of the net earnings and growth of the insurance subsidiaries and the unrealized appreciation in the equity securities portfolio owned by those companies. Also, in 1993, the Company adopted SFAS 115 which increased marketable securities by $8,603,000, increased deferred federal income tax $2,944,000 and increased shareholders' equity $5,659,000. The increase in property, plant and equipment in 1993 is primarily attributable to M/G Transport Services, Inc.'s acquisition of 60 barges for approximately $12.5 million and approximately $7.8 million in additional construction costs paid in 1993 for CS Crable Sportswear, Inc.'s new facility. The 1992 increase was the result of M/G Transport Services, Inc.'s acquisition of 38 barges for approximately $7 million, and approximately $4.9 million in construction costs for the CS Crable facility. The increase in deferred insurance policy acquisition costs and unearned insurance premiums in 1993 and 1992 is attributable to the growth in the insurance companies' net written premiums which increased 26.6% in 1993 and 16.5% in 1992. Notes payable-banks increased in 1992 due primarily to the cash requirements associated with the previously discussed 1992 barge acquisitions as well as the construction costs related to the sportswear division's new office, production and warehouse facility. Long-term debt increased in 1993 due to the financing requirements associated with the Company's aforementioned 1993 acquisitions. Impact of Inflation Management does not consider the impact of changing prices to be material in the analysis of the Company's overall operations. MIDLAND ANNUAL REPORT PAGE 16 CONSOLIDATED BALANCE SHEETS - --------------------------- THE MIDLAND COMPANY AND SUBSIDIARIES December 31, 1993 1992 - ------------------------------------ ------------------------------ ASSETS - ------ Cash $ 3,935,000 $ 2,238,000 Marketable Securities 224,614,000 188,531,000 Receivables: Accounts receivable 43,706,000 33,123,000 Finance receivables (including amounts maturing after on year) 5,512,000 3,285,000 ------------------------------ Sub-Total 49,218,000 36,408,000 ------------------------------ Less allowance for losses 1,117,000 1,192,000 ------------------------------ Net 48,101,000 35,216,000 ------------------------------ Inventory-Sportswear Division 15,968,000 13,129,000 Property, Plant and Equipment: Original cost 185,164,000 163,221,000 Less accumulated depreciation and amortization 77,272,000 70,179,000 ------------------------------ Net 107,892,000 93,042,000 ------------------------------ Deferred Insurance Policy Acquisition Costs 33,402,000 25,909,000 Other Assets 1,686,000 1,637,000 ------------------------------ Total Assets $435,598,000 $359,702,000 ============================== See notes to consolidated financial statements. MIDLAND ANNUAL REPORT PAGE 17 THE MIDLAND COMPANY AND SUBSIDIARIES - ------------------------------------ December 31, 1993 1992 - ------------------------------------------ ------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Notes Payable Within One Year: Banks $ 22,000,000 $ 27,000,000 Commercial Paper 14,302,000 8,866,000 ------------------------------ Total 36,302,000 35,866,000 ------------------------------ Accounts Payable-Trade 5,142,000 5,165,000 Other Payables and Accruals 37,513,000 36,462,000 Current Portion of Long-Term Debt 9,412,000 6,915,000 Unearned Insurance Premiums 109,652,000 89,732,000 Insurance Loss Reserves 37,133,000 23,993,000 Deferred Federal Income Tax 20,224,000 22,100,000 Long-Term Debt 47,110,000 27,886,000 Shareholders' Equity: Common stock (issued and outstanding: 2,999,000 shares at December 31, 1993 and 2,974,000 shares at December 31, 1992 after deducting treasury stock of 644,000 shares and 668,000 shares, respectively) 911,000 911,000 Additional paid-in capital 14,620,000 13,992,000 Retained earnings 123,995,000 107,646,000 Net unrealized gain on marketable securities 11,308,000 5,836,000 Treasury stock (at cost) (16,564,000) (16,802,000) Unvested restricted stock awards (1,160,000) -- ------------------------------ Total 133,110,000 111,583,000 ------------------------------ Total Liabilities and Shareholders' Equity $435,598,000 $359,702,000 ============================== MIDLAND ANNUAL REPORT PAGE 18 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1993 1992 1991 - ----------------------------- ---------------------------------------------- Revenues: Insurance $178,577,000 $144,774,000 $123,453,000 River transportation 53,252,000 47,186,000 56,685,000 Sportswear 34,702,000 32,620,000 21,298,000 Finance and other 1,136,000 924,000 1,147,000 ---------------------------------------------- Total 267,667,000 225,504,000 202,583,000 ---------------------------------------------- Costs and Expenses: Insurance claims and policy acquisition costs 132,871,000 106,449,000 93,677,000 Insurance operating and administrative expenses 21,203,000 19,195,000 15,559,000 River transportation operating expenses 49,511,000 45,292,000 53,672,000 Sportswear operating expenses 37,023,000 30,033,000 19,378,000 Interest expense 4,144,000 3,739,000 3,797,000 Other operating and administrative expenses 4,662,000 4,791,000 4,177,000 ---------------------------------------------- Total 249,414,000 209,499,000 190,260,000 ---------------------------------------------- Income Before Federal Income Tax and Cumulative Effect of Accounting Change 18,253,000 16,005,000 12,323,000 Provision For Federal Income Tax 5,148,000 4,026,000 3,092,000 ---------------------------------------------- Income Before Cumulative Effect of Accounting Change 13,105,000 11,979,000 9,231,000 Cumulative Effect of Accounting Change 4,867,000 -- -- ---------------------------------------------- Net Income 17,972,000 11,979,000 9,231,000 Retained Earnings, Beginning of Year 107,646,000 97,156,000 89,332,000 Cash Dividends Declared (1,623,000) (1,489,000) (1,407,000) ---------------------------------------------- Retained Earnings, End of Year $123,995,000 $107,646,000 $ 97,156,000 ============================================== Primary Earnings Per Share of Common Stock: Income Before Cumulative Effect of Accounting Change $4.27 $3.98 $3.02 Cumulative Effect of Accounting Change 1.58 -- -- --------------------------------------- Net Income $5.85 $3.98 $3.02 --------------------------------------- Fully Diluted Earnings Per Share of Common Stock: Income Before Cumulative Effect of Accounting Change $4.26 $3.87 $2.93 Cumulative Effect of Accounting Change 1.58 -- -- --------------------------------------- Net Income $5.84 $3.87 $2.93 --------------------------------------- Cash Dividends Per Share of Common Stock $.54 $.50 $.46 --------------------------------------- See notes to consolidated financial statements. MIDLAND ANNUAL REPORT PAGE 19 CONSOLIDATED STATEMENTS OF CASH FLOWS THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1993 1992 1991 - ------------------------ ------------------------------------------ Cash Flows from Operating Activities: Net Income $ 17,972,000 $ 11,979,000 $ 9,231,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,291,000 9,150,000 8,242,000 Increase in unearned insurance premiums 19,920,000 12,769,000 11,091,000 Increase in insurance loss reserves 13,140,000 1,260,000 2,880,000 Decrease (increase) in net accounts receivable (10,658,000) 862,000 (9,203,000) Increase in deferred insurance policy acquisition costs (7,493,000) (3,870,000) (3,613,000) Provision (credit) for deferred federal income tax (4,854,000) (218,000) (251,000) Increase in inventory- Sportswear Division (2,839,000) (7,423,000) (2,467,000) Increase (decrease) in accounts payable and accruals 995,000 (1,265,000) 10,586,000 Decrease (increase) in other assets (49,000) (248,000) 250,000 Other-net 229,000 (58,000) 194,000 ------------------------------------------ Net cash provided by operating activities 36,654,000 22,938,000 26,940,000 ------------------------------------------ Cash Flows from Investing Activities: Purchase of marketable securities (69,956,000) (47,624,000) (68,634,000) Sale of marketable securities 52,694,000 27,390,000 48,796,000 Acquisition of property, plant and equipment (27,354,000) (17,608,000) (12,961,000) Increase in cash equivalent marketable securities (15,332,000) (7,362,000) (5,101,000) Maturity of marketable securities 4,323,000 4,544,000 10,526,000 Sale of property, plant and equipment 2,912,000 896,000 686,000 Net decrease (increase) in finance receivables (2,227,000) 2,209,000 5,676,000 Acquisition of new business entities, net of cash acquired -- -- (5,586,000) ------------------------------------------ Net cash used in investing activities (54,940,000) (37,555,000) (26,598,000) ------------------------------------------ Cash Flows from Financing Activities: Issuance of long-term debt 31,597,000 10,000,000 7,000,000 Repayment of long-term debt (9,061,000) (6,172,000) (5,236,000) Dividends paid (1,590,000) (1,464,000) (1,383,000) Payment of capitalized lease obligations (815,000) (757,000) (704,000) Purchase of treasury stock (799,000) (2,654,000) (2,264,000) Increase in net short-term borrowings 436,000 15,298,000 1,524,000 Issuance of treasury stock 215,000 468,000 27,000 ------------------------------------------ Net cash provided by (used in) financing activities 19,983,000 14,719,000 (1,036,000) ------------------------------------------ Net Increase (Decrease) in Cash 1,697,000 102,000 (694,000) Cash at Beginning of Year 2,238,000 2,136,000 2,830,000 ------------------------------------------ Cash at End of Year $ 3,935,000 $ 2,238,000 $ 2,136,000 ========================================== Supplemental Disclosures: The Company paid interest of $4,025,000, $3,568,000 and $3,665,000 and income taxes of $5,215,000, $6,226,000 and $1,825,000 in 1993, 1992 and 1991, respectively. See notes to consolidated financial statements. MIDLAND ANNUAL REPORT PAGE 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1993, 1992 and 1991 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Company and its subsidiaries conform to generally accepted accounting principles and reflect practices appropriate to the industries in which they operate. Those policies that affect the more significant elements of the consolidated financial statements are summarized below. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiary companies. Material intercompany balances and transactions have been eliminated. Marketable Securities: Marketable securities are categorized as debt securities (cash equivalents, debt instruments and preferred stocks having scheduled redemption provisions) and equity securities (common stocks and preferred stocks which do not have redemption provisions). The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective December 31, 1993 (also see Note 2). This statement requires securities to be classified as trading, available-for-sale or held-to-maturity. Only those debt securities classified as held-to-maturity are carried at amortized cost, while those debt and equity securities classified as trading or available-for-sale are carried at market value. At December 31, 1993, all debt and equity securities are classified as available-for-sale and are carried at market value. Prior to 1993, debt securities were carried at amortized cost, equity securities held by the insurance subsidiaries were carried at market value, and equity securities held by the parent company were carried at the lower of cost or market value. Inventory-The sportswear division's inventory is valued at the lower of cost (using the weighted average method of inventory valuation) or market. Property and Depreciation: Property, plant and equipment is stated at cost. Depreciation and amortization are generally calculated using the straight-line method over the estimated useful lives of the properties. Certain properties purchased after 1986 are depreciated on an accelerated basis. Federal Income Tax: The Company files a consolidated federal income tax return which includes all subsidiaries. Investment tax credits previously allowed on property additions were deferred in the year of tax benefit and are being amortized against future operations over the estimated useful lives of the properties. Insurance Income: Premiums for physical damage and credit accident and health insurance, net of premiums ceded to reinsurers, are recognized as income on a pro-rata basis over the lives of the policies. Credit life premiums are recognized as income over the lives of the policies using the sum of the digits method. The Company does not consider anticipated investment income in determining premium deficiencies (if any) on short-term contracts. Policy acquisition costs, primarily commission expenses and premium taxes, are expensed over the terms of the related policies on the same basis as the related premiums are earned. Selling and administrative expenses which are not primarily related to premiums written are expensed as incurred. Insurance Losses: Unpaid losses and loss expense include an amount determined from reports on individual cases and an amount, based on past experience, for losses incurred but not reported. Such liabilities are necessarily based on estimates and, while management believes that the amounts are fairly stated, the ultimate liability may be in excess of or less than the amounts provided. The methods of making such estimates and for establishing the resulting liabilities are continually reviewed and any adjustments resulting therefrom are included in earnings currently. Insurance loss reserves include an amount for claim drafts issued but not yet paid. Reinsurance Agreements: The Company cedes varying portions of their written premiums to reinsurers and receives a commission on such premiums ceded. Reinsurance contracts do not relieve the Company from its obligations to policyholders and failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. In addition, the Company pays a percentage of earned premiums to reinsurers in return for coverage against catastrophic losses. Allowance for Losses: Provisions for losses on receivables are made in amounts deemed necessary to maintain adequate reserves to cover possible future losses. Statements of Cash Flows: For purposes of the statements of cash flows, the Company defines cash as cash held in operating accounts at financial institutions. The amounts reported in the statements of cash flows for the purchase, sale or maturity of marketable securities do not include cash equivalents. MIDLAND ANNUAL REPORT PAGE 21 Futures Contracts: The Company enters into futures contracts to hedge its exposure to price fluctuations on anticipated fuel requirements for the river transportation business. Gains and losses on hedging contracts are deferred and recognized in river transportation operating expenses as part of the fuel cost. Open contracts at December 31, 1993 and 1992 had a contract value of approximately $403,000 and $1,390,000, respectively. Risk arises from the possible decline in the market value of the contracts. Proposition 103: California Proposition 103 provided, among other things, that rates for automobile and most other insurance policies issued or renewed between November 8, 1988 and November 9, 1989 be rolled back to the levels of November 8, 1987 and then be reduced by an additional 20%. In 1993, the Company's insurance subsidiaries reached a favorable settlement with the state of California regarding this issue. As a result of the settlement, approximately $2,800,000 (net of federal income tax) was taken into income in 1993 which represented the amount reserved in excess of the agreed upon refunds to our policyholders. Reclassifications: Certain previously reported amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year's classifications. 2. MARKETABLE SECURITIES Thousands of Dollars ----------------------------------------------------- Gross Gross Unrealized Unrealized Market 1993 Cost Gains Losses Value - -------------------------------------------------------------------------- Debt Securities: Governments $ 69,482 $ 3,101 $106 $72,477 Municipals 61,642 3,475 119 64,998 Cash Equivalents 45,965 -- -- 45,965 Corporates 10,514 467 4 10,977 ----------------------------------------------------- Total 187,603 7,043 229 194,417 Equity Securities 16,864 11,117 639 27,342 Accrued Interest and Dividends 2,855 -- -- 2,855 ----------------------------------------------------- Total Marketable Securities $207,322 $18,160 $868 $224,614 ===================================================== Thousands of Dollars ------------------------------------------------- Market Carrying 1992 Cost Value Value - -------------------------------------------------------------------------- Debt Securities: Governments $ 71,114 $ 75,200 $ 71,114 Municipals 51,478 53,514 51,478 Cash Equivalents 30,633 30,633 30,633 Corporates 7,774 8,101 7,774 ------------------------------------------------- Total 160,999 167,448 160,999 ------------------------------------------------- Equity Securities: Parent Co. 2,097 4,033 2,097 Insurance Subs. 14,588 22,514 22,514 ------------------------------------------------- Total 16,685 26,547 24,611 ------------------------------------------------- Accrued Interest and Dividends 2,921 2,921 2,921 ------------------------------------------------- Total Marketable Securities $180,605 $196,916 $188,531 ================================================= Gross unrealized gains and losses on Marketable Securities as of December 31, 1992 were (amounts in 000's): Gains Losses ---------------------- Debt Securities: Governments $4,238 $ 152 Municipals 2,079 43 Corporates 331 4 ---------------------- Total $6,648 $ 199 ====================== Equity Securities: Parent Co. $ 1,941 $ 5 Insurance Subs. 8,354 428 ----------------------- Total $10,295 $ 433 ======================= The net unrealized gains and losses on marketable securities carried at market value are included in a valuation allowance in Shareholders' Equity. In 1992, this valuation allowance also included $916,000 of unrealized gains on appreciated equity securities purchased by the parent company from an insurance subsidiary. The valuation allowance is net of deferred federal income taxes of $5,984,000 in 1993 and $3,006,000 in 1992. As a result of changes in this valuation allowance, Shareholders' Equity increased $5,472,000, $1,556,000 and $3,034,000 in 1993, 1992 and 1991, respectively. Included in the 1993 change in valuation allowance was $5,659,000 which represented the effect of the change in accounting for debt and equity securities (see note 1). MIDLAND ANNUAL REPORT PAGE 22 Included in the determination of net income are net realized gains of $3,735,000, $1,510,000 and $631,000 in 1993, 1992 and 1991, respectively. The cost of securities sold is based on specific identification of the securities at the time of sale. The cost and approximate market value of debt securities at December 31, 1993, by contractual maturities, are shown below. Actual maturities may differ from contractual maturities when there exists a right to call or prepay obligations with or without call or prepayment penalties (amounts in 000's). Market Cost Value ------------------------ Debt Securities: Under 1 year $ 52,204 $ 52,347 1-5 years 100,328 104,811 6-10 years 31,177 33,365 Over 10 years 3,894 3,894 ------------------------ $187,603 $194,417 ======================== 3. RECEIVABLES Accounts receivable at December 31, 1993 and 1992 are generally due within one year and consist of the following (amounts in 000's): 1993 1992 ----------------------- Insurance $32,342 $19,517 River Transportation 6,905 8,130 Sportswear 4,459 5,476 ----------------------- Total $43,706 $33,123 ======================= 4. PROPERTY, PLANT AND EQUIPMENT At December 31, 1993 and 1992, property, plant and equipment was comprised of the following (amounts in 000's): 1993 1992 ------------------------- Land $ 1,256 $ 488 Buildings, improvements, fixtures, etc. 41,166 27,516 Vessels and barges 134,599 122,193 River transportation equip- ment under capital leases 8,143 8,143 Construction-in-progress -- 4,881 ------------------------- 185,164 163,221 Less accumulated depreciation and amortization 77,272 70,179 ------------------------- Total $ 107,892 $ 93,042 ========================= The 1992 construction-in-progress pertained to the construction costs for CS Crable Sportswear's new office, production and warehouse facility which was completed and occupied in 1993. 5. NOTES PAYABLE TO BANKS At December 31, 1993 and 1992, the Company had conventional lines of credit of $37,000,000 and $35,000,000 with commercial banks. The lines of credit in use under these agreements at December 31, 1993 and 1992 were $11,000,000 and $14,000,000, respectively. Borrowings under these lines of credit constitute senior debt. Commitment fees are currently required by the lending institutions regarding these credit agreements. Additionally, at December 31, 1993 and 1992, the Company had other short-term bank borrowings outstanding of $11,000,000 and $13,000,000, respectively. These borrowings also constitute senior debt. 6. LONG-TERM DEBT Long-term debt at December 31, 1993 and 1992 was comprised of the following issues (amounts in 000's): 1993 1992 -------------------- Equipment and Real Estate Obligations: Mortgages: 9.70% September 30, 1996 $2,875 $3,375 9.55 September 30, 1996 2,875 3,375 9.45 September 30, 1994 2,875 3,375 9.45 April 1, 1998 -- 2,888 9.25 March 31, 1993 -- 2,100 7.22 January 1, 2002 4,125 4,625 7.04 March 31, 1998 1,700 2,100 6.45 July 1, 2000 3,610 -- 6.35 December 31, 1998 8,800 -- 5.82 October 31, 1998 6,197 -- 5.74 November 30, 2003 8,956 -- * Due serially through 1998 7,735 4,625 ** Due serially through 1996 4,237 4,987 -------------------- Capitalized lease obligations 2,537 3,351 Total equipment and real estate obligations 56,522 34,801 Less current maturities 9,412 6,915 -------------------- Total $47,110 $27,886 ==================== *Interest rate is 1% above LIBOR. ** Rates of interest are 1/4 point below the prime lending rate. Equipment and real estate obligations are collateralized by river transportation equipment and real estate with a net book value of approximately $61,000,000. The aggregate amount of repayment requirements on long-term debt for the five years subsequent to 1993 (excluding repayments of capitalized lease obligations-see note 12) are: 1994 $ 8,535,000 1997 $ 6,082,000 1995 6,575,000 1998 12,381,000 1996 9,528,000 MIDLAND ANNUAL REPORT PAGE 23 In 1992, the Company entered into an interest rate swap agreement to reduce the impact of changes in interest rates on some of its variable rate long-term obligations. The notional amount declines quarterly at a rate of $250,000 through November 3, 2002. Under terms of the agreement, the Company has agreed to exchange LIBOR-based interest payments for 6.29% fixed rate payments on a declining initial notional amount of $10,000,000. The market risk associated with the agreement is mitigated because decreased interest receipts under the agreement resulting from a decrease in LIBOR are effectively offset by decreased interest payments under the debt obligations. The fair value of the mortgages and capitalized lease obligations, estimated using interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities, exceeds the carrying value at December 31, 1993 and 1992 by approximately $496,000 and $730,000, respectively. 7. FEDERAL INCOME TAX The provision for federal income tax is summarized as follows (amounts in 000's): 1993 1992 1991 -------------------------------- Current provision $5,137 $4,244 $3,343 Deferred provision 11 (218) (251) -------------------------------- Total $5,148 $4,026 $3,092 ================================ The federal income tax provision for the years ended December 31, 1993, 1992 and 1991 is different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (amounts in 000's): 1993 1992 1991 -------------------------------- Federal income tax at statutory rate $6,389 $5,442 $4,190 Tax effect of: Tax exempt interest and excludable dividend income (1,134) (943) (700) Increase in statutory rate on deferred taxes 357 -- -- Investment tax credits (289) (288) (290) Net life insurance tax deductions (114) (78) (90) Other net (61) (107) (18) -------------------------------- Provision for federal income tax $5,148 $4,026 $3,092 ================================ The Company adopted SFAS No. 109, "Accounting for Income Taxes", effective January 1, 1993. This statement requires the use of the liability method rather than the deferral method in determining the Company's deferred tax liability. The cumulative effect of adopting SFAS No. 109 on the Company's financial statements was to increase 1993 income by $4,867,000 and to decrease the deferred federal income tax liability. Deferred federal income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes. Significant components of the Company's net deferred federal income tax liability as of December 31, 1993 are as follows (amounts in 000's): Deferred Tax Liabilities: Accelerated depreciation $ 14,339 Deferred insurance policy acquisition costs 11,255 Unrealized gain on marketable securities 5,984 Investment tax credits 1,787 Other 446 -------- Sub-total $ 33,811 -------- Deferred Tax Assets: Unearned insurance premiums $ 7,194 Deferred commission income 1,595 Pension expense 1,324 Insurance losses 1,055 Other 2,419 -------- Sub-total $ 13,587 -------- Deferred Federal Income Tax $ 20,224 ======== 8. REINSURANCE ACTIVITY The insurance subsidiaries primarily sell mobile home physical damage insurance. Varying portions of written premiums are ceded to reinsurer, and commissions are received on such premiums ceded. Premiums on certain reinsurance assumed are recorded based on records supplied by the ceding companies. Estimated amounts recoverable from reinsurers of approximately $6,220,000 are included in Accounts Receivable at December 31, 1993 and $2,780,000 was netted against Insurance Loss Reserves at December 31, 1992 in the accompanying consolidated balance sheets. MIDLAND ANNUAL REPORT PAGE 24 A reconciliation of direct to net premiums, on both a written and an earned basis for the property and casualty companies, is as follows: Thousands of Dollars Direct Assumed Ceded Net 1993 -------------------------------------------------- Written $203,577 $14,134 $(37,704) $180,007 Earned 180,759 14,624 (31,530) 163,853 1992 Written $162,749 $ 6,487 $(25,217) $144,019 Earned 146,978 6,822 (20,937) 132,863 1991 Written $137,380 $ 6,630 $(18,216) $125,794 Earned 127,687 5,636 (18,506) 114,817 The amounts of recoveries pertaining to reinsurance contracts that were deducted from losses incurred during 1993, 1992 and 1991 were approximately $21,077,000, $6,453,000 and $9,119,000, respectively. At December 31, 1993, reinsurance receivables with a carrying value of approximately $892,000 were associated with a single reinsurer. 9. BENEFIT PLANS The Company has pension plans which provide for the payment of annual benefits to substantially all employees upon retirement. The benefits are based on years of service and the employee's highest compensation during five consecutive years of employment. The Company's funding policy is to contribute annually an amount sufficient to satisfy ERISA funding standards. Contributions are intended to provide not only for benefits attributed to service to date but also for benefits expected to be earned in the future. Total pension cost was $642,000 in 1993, $518,000 in 1992 and $408,000 in 1991. Included in the above amounts is supplemental pension expense of $138,000 in 1993, $119,000 in 1992 and $88,000 in 1991. These amounts represent expenses accrued for supplemental pension benefits in excess of Internal Revenue Code Section 415 limitations. The following table sets forth the plans' funded status (amounts in 000's): 1993 1992 ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $11,687 in 1993 and $9,942 in 1992 $12,190 $10,294 ------- ------- Projected benefit obligation for service rendered to date $16,120 $13,881 Plan assets at fair value, primarily U.S. bonds and listed stocks 15,537 14,404 ------- ------- Plan assets in excess of (less than) projected benefit obligation (583) 523 Unrecognized net asset at January 1, 1987 being recognized over 18 years (1,738) (1,901) Unrecognized prior service cost 52 592 Unrecognized net (gain) (134) (1,157) ------- ------- Pension liability included in Other Payables and Accruals $(2,403) $(1,943) ======= ======= Net pension cost included the following (amounts in 000's): 1993 1992 1991 --------------------------- Service cost benefits earned during the year $ 541 $ 505 $ 477 Interest cost on projected benefit obligation 1,160 1,019 902 Actual return on plan assets (gain) (1,705) (982) (2,659) Net amortization and deferral 508 (143) 1,600 --------------------------- Net periodic pension plan cost $ 504 $ 399 $ 320 =========================== In 1992, the Company provided a special one-time early retirement program for those employees who met certain age and years of service criteria. The 1992 pension plan expense associated with this program was $677,000 which is in addition to the net periodic pension plan cost referred to previously. The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7-1/4% and 5-1/2%, respectively, in 1993 and 8% and 6%, respectively, in 1992 and 1991. The expected long-term rate of return on assets was 8% in all three years. MIDLAND ANNUAL REPORT PAGE 25 10. STOCK OPTION AND AWARD PLANS The Company has various stock option and award plans which provide for the granting of the Company's common stock to key employees and independent directors of the Company and its subsidiaries. Under the Company's stock option plans, all of the outstanding stock options at December 31, 1993 were non-qualified options and, generally, had an exercise price of not less than 100% of the fair market value of the common stock on the date of grant. At December 31, 1993, 209,000 shares were exercisable and 9,000 shares become exercisable in 1994. A summary of stock option transactions follows: 1993 1992 1991 ---------------------------------------------- Avg. Avg. Avg. (000's) Option (000's) Option (000's) Option Shares Price Shares Price Shares Price ---------------------------------------------- Outstanding, beginning of year 219 $23.52 243 $23.46 164 $20.86 Options exercised (9) 22.35 (21) 22.83 (3) 10.51 Options expired (2) 38.56 (3) 23.13 (12) 18.94 Options granted 10 50.13 -- -- 94 27.00 ---------------------------------------------- Outstanding, end of year 218 $24.67 219 $23.52 243 $23.46 ============================================== The Company implemented a restricted stock award program during 1993. Under this program, awards of the Company's common stock will vest over an incentive period, conditioned upon the recipient's employment throughout the period. During the vesting period, shares issued are nontransferable, but the shares are entitled to all of the rights of outstanding shares. In 1993, 32,000 shares were awarded and remain outstanding at December 31, 1993 under this program. 11. EARNINGS PER SHARE Earnings per share of common stock have been computed based on the weighted average number of shares outstanding during the years. The effect of shares issuable under the Company's stock option program has been comprehended in the earnings per share calculations. 12. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries lease office space and river transportation equipment under leases with terms of one to five years. Annual rentals under non-cancelable operating leases will be approximately $260,000 in 1994. Total rent expense included in the accompanying consolidated statements of income is $998,000 in 1993, $2,970,000 in 1992 and $6,171,000 in 1991. A significant portion of rent expense in 1991 was due to the rental of river transportation equipment. In addition, the Company has leases for certain river transportation equipment which are classified as capital leases. Future minimum lease payments due under these lease agreements are $1,082,000 in 1994, $459,000 each year from 1995 through 1998, and $230,000 in 1999. Imputed interest included in the minimum lease payments aggregates $613,000 through 1999. M/G Transport Services, Inc. has become aware of an investigation by federal authorities. The Company believes that this investigation concerns the possible disposal of bilge water and other refuse from various vessels on the Ohio River. M/G Transport is cooperating fully with the investigation, the outcome of which cannot presently be determined. 13. SHAREHOLDERS' EQUITY The Midland Company has 5,000,000 shares of common stock authorized without par value (stated value of $.25 a share), including 778,000 shares reserved for issuance under the Company's stock option plans. There were 2,999,000 and 2,974,000 shares outstanding at December 31, 1993 and 1992, respectively. The Company has also authorized 500,000 shares of preferred stock without par value, none of which have been issued. The Company purchased 17,000, 65,000 and 66,000 shares of its stock, at prices ranging from approximately $32 to $50 per share, and issued 9,000, 21,000 and 3,000 shares of its Treasury Stock in connection with the exercise of stock options in 1993, 1992 and 1991, respectively. Additional Paid-In Capital was charged $28,000, $38,000 and $33,000 in 1993, 1992 and 1991, respectively, for the difference between the average carrying value of Treasury Stock and the proceeds received from the exercise of stock options. In 1993, the Company issued its initial stock awards under its new restricted stock award plan. Unvested Restricted Stock Awards was initially charged $1,450,000 which represented the total value of the awards based on MIDLAND ANNUAL REPORT PAGE 26 market value of the Company's common stock on the date of grant. This initial value is being amortized as compensation expense over a five year vesting period and $290,000 was the amortized expense in 1993. In conjunction with these awards, Treasury Stock was credited $795,000 representing the average carrying value of the Company's Treasury Stock on the date of grant and Additional Paid-In Capital was credited $655,000 representing the difference between the average carrying value of Treasury Stock and the market value of the Company's common stock on the date of grant. Covenants included in the borrowing agreements of M/G Transport Services, Inc. limit its payment of dividends to The Midland Company. Under the most restrictive of such covenants, $18,000,000 of its net assets was not available for distribution to the Company at December 31, 1993. The insurance operations are subject to state regulations which limit by reference to statutory investment income and policyholders' surplus the dividends that can be paid to their parent company without prior regulatory approval. Dividend restrictions vary between the companies, as determined by the laws of the domiciliary states. Under these restrictions, dividends during 1994 in excess of $7,800,000 from American Modern Home Group would require regulatory approval. 14. INDUSTRY SEGMENTS The Company's operations are classified into four industry segments. Listed below is the financial information required to be reported for each segment. No single customer accounted for 10% or more of consolidated revenues during the last three years. Interest expense directly related to finance operations has been included in the determination of operating profit of the finance and other segment. Interest expense includes intercompany interest not eliminated for purposes of segment reporting. Thousands of Dollars 1993 1992 1991 ------------------------------ Total segment revenues Insurance $179,310 $145,476 $124,149 River transportation 53,255 47,247 56,821 Sportswear 34,702 32,620 21,298 Finance and other 5,681 4,295 3,962 Intersegment revenues (5,281) (4,134) (3,647) ------------------------------ Total $267,667 $225,504 $202,583 ============================== Operating profit Insurance $ 23,662 $ 18,526 $ 13,903 River transportation 3,232 1,236 2,429 Sportswear (2,663) 2,248 1,568 Finance and other 1,512 1,607 1,559 Interest expense (5,279) (5,145) (5,066) Unallocated corporate expenses (2,211) (2,467) (2,070) ------------------------------ Total $ 18,253 $ 16,005 $ 12,323 ============================== Acquisition of fixed assets Insurance $ -- $ -- $ -- River transportation 14,657 7,758 10,528 Sportswear 1,702 1,903 844 Finance and other 10,995 7,947 1,589 ------------------------------ Total $ 27,354 $ 17,608 $ 12,961 ============================== Depreciation and amortization Insurance $ -- $ -- $ -- River transportation 6,434 6,435 5,947 Sportswear 973 620 365 Finance and other 2,884 2,095 1,930 ------------------------------ Total $ 10,291 $ 9,150 $ 8,242 ============================== Identifiable assets Insurance $286,084 $231,360 $201,929 River transportation 87,654 79,697 79,056 Sportswear 23,932 21,390 12,592 Finance and other 59,163 46,932 35,370 Intersegment receivables (21,235) (19,677) (10,846) ------------------------------ Total $435,598 $359,702 $318,101 ============================== MIDLAND ANNUAL REPORT PAGE 27 Report Of Independent Public Accountants DELOITTE & TOUCHE Cincinnati, Ohio To the Shareholders of The Midland Company: We have audited the accompanying consolidated balance sheets of The Midland Company and its subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income and retained earnings and of cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Midland Company and its subsidiaries at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 7, respectively, to the consolidated financial statements, the Company changed its method of accounting for debt and equity securities to conform with Statement of Financial Accounting Standards (SFAS) No. 115 effective December 31, 1993 and its method of accounting for income taxes to conform with SFAS No. 109 effective January 1, 1993. February 10, 1994 Management's Report The consolidated financial statements and accompanying notes of The Midland Company and its subsidiaries are the responsibility of the Company's management, and have been prepared in conformity with generally accepted accounting principles. They necessarily include amounts that are based on management's best estimates and judgments. Other financial information contained in this annual report is presented on a basis consistent with the financial statements. In order to maintain the integrity, objectivity and fairness of data in these financial statements, the Company has developed and maintains a comprehensive internal control structure which is supplemented by a program of internal audits. Management believes that the Company's internal control structure is adequate to provide reasonable, but not absolute, assurance that assets are safeguarded and the objectives of accuracy and fair presentation of financial data are met in all material respects. The financial statements have been audited by Deloitte & Touche, Certified Public Accountants, in accordance with generally accepted auditing standards, including sufficient tests of the accounting records to enable them to express an informed opinion as to whether the financial statements, considered in their entirety, present fairly the Company's financial position and results of operations in conformity with generally accepted accounting principles. Deloitte & Touche reviews the results of its audit both with management and with the Audit Committee. The Audit Committee, comprised entirely of outside Directors, meets periodically with management, internal auditors and independent auditors (separately and jointly) to assure that each is fulfilling its responsibilities. John I. Von Lehman Vice President, Treasurer and Chief Financial Officer MIDLAND ANNUAL REPORT PAGE 28 QUARTERLY DATA THE MIDLAND COMPANY AND SUBSIDIARIES - ------------------------------------ 1993 1992 ----------------------------------- First Quarter Revenues $58,297,000 $54,772,000 Net income 6,175,000 (a) 4,127,000 Earnings per share - primary 2.00 (a) 1.37 Earnings per share - fully diluted 2.00 (a) 1.32 Dividends per share .135 .125 Price range of common stock (AMEX) 44-7/8 - 50-5/8 36-1/4 - 43-3/4 ----------------------------------- Second Quarter Revenues $62,806,000 $51,948,000 Net income 4,005,000 3,340,000 Earnings per share - primary 1.31 1.13 Earnings per share - fully diluted 1.31 1.08 Dividends per share .135 .125 Price range of common stock (AMEX) 39-3/4 - 48-1/8 41-45 ----------------------------------- Third Quarter Revenues $75,716,000 $56,251,000 Net income 5,147,000 927,000 Earnings per share - primary 1.67 .31 Earnings per share - fully diluted 1.67 .31 Dividends per share .135 .125 Price range of common stock (AMEX) 40-1/2 - 45-1/4 44-1/2 - 49-1/4 ----------------------------------- Fourth Quarter Revenues $70,848,000 $62,533,000 Net income 2,645,000 3,585,000 Earnings per share - primary .87 1.17 Earnings per share - fully diluted .86 1.16 Dividends per share .135 .125 Price range of common stock (AMEX) 41-3/8 - 47-1/2 42-7/8 - 45-1/4 ----------------------------------- (a) Includes a credit of $4,867,000, $1.58 per common share, for the cumulative effect of change in accounting from the adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. MIDLAND ANNUAL REPORT PAGE 29 OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES TRANSFER AGENT AND REGISTRAR Society National Bank 2073 E. Ninth St. Cleveland, Ohio 44115 INDEPENDENT AUDITORS Deloitte & Touche 250 East Fifth Street Cincinnati, Ohio 45202 GENERAL AND TAX COUNSEL Cohen, Todd, Kite & Stanford 525 Vine Building Cincinnati, Ohio 45202 SHAREHOLDERS' MEETING The next meeting of the shareholders will be held at 10:00 A.M. on Thursday, April 14, 1994, at the Company's offices, 537 E. Pete Rose Way, Cincinnati, Ohio 45202. COMMON STOCK The number of holders of common stock at December 31, 1993 was 742. The Company's common stock is registered on the American Stock Exchange. FORM 10-K A copy of the Company's 1993 Annual Report to the Securities and Exchange Commission on Form 10-K may be obtained by writing to the Company -- Attention: Secretary. EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT (21) THE MIDLAND COMPANY AND SUBSIDIARIES EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1993 The subsidiaries of the Registrant as of December 31, 1993, all of which are included in the consolidated financial statements, are as follows: Percentage of State of Voting Incor- Stock poration Owned -------- ---------- American Modern Life Insurance Company of Arizona Arizona 100 M/G Transport Services, Inc. Ohio 100 Midland-Guardian Co. Ohio 100 MGT Services, Inc. Ohio 100 Inland Marine Brokerage Company Ohio 100 M/G Securities, Inc. Ohio 100 CS Crable Sportswear, Inc Ohio 100 MGT River Services, Inc. Ohio 100 SUBSIDIARIES OF MIDLAND-GUARDIAN CO. American Modern Home Group, Inc. Ohio 100 American Modern Home Insurance Co. Ohio 100 American Family Home Insurance Co. Florida 100 Atlas Insurance Agency, Inc. Ohio 100 American Modern Life Insurance Company Ohio 100 Marbury Agency, Inc. Ohio 100 Midwest Enterprises, Inc. Florida 100 Lloyds Modern Corporation Texas 100 American Modern Home Service Company Ohio 100 SUBSIDIARIES OF AMERICAN MODERN HOME INSURANCE CO. American Modern Lloyds Insurance Co. Texas 100 American Southern Home Insurance Co. Florida 100 American Western Home Insurance Co. Oklahoma 100 Guardian Underwriters Insurance Company Pennsylvania 100 The names of two wholly-owned subsidiaries of The Midland Company are not shown above as such individual listing is not required. -----END PRIVACY-ENHANCED MESSAGE-----