-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WzpChqhzRzBKpznSlgOBf1RLZlvk4mFZLNUSWwF9DBqM86a4dcX0NPC/X8ATIimN 0gLNV/2jNwc+1g36ebfk1Q== 0000066025-97-000002.txt : 19970401 0000066025-97-000002.hdr.sgml : 19970401 ACCESSION NUMBER: 0000066025-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310742526 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06026 FILM NUMBER: 97568897 BUSINESS ADDRESS: STREET 1: 7000 MIDLAND BLVD STREET 2: P O BOX 125 CITY: AMELIA STATE: OH ZIP: 45102-2607 BUSINESS PHONE: 5139437100 MAIL ADDRESS: STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 10-K 1 THE MIDLAND COMPANY Annual Report on Form 10-K to the Securities and Exchange Commission for the Year Ended December 31, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1996 Commission File Number - 1-6026 THE MIDLAND COMPANY Incorporated in Ohio I.R.S. Employer Identification No. 31-0742526 7000 Midland Boulevard Amelia, Ohio 45102-2607 Tel. (513) 943-7100 Securities registered pursuant to Section 12(b) of the Act: Common stock - no par value. - American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all other reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes__X__ No_____ The aggregate market value of the voting common stock held by nonaffiliates, which includes shares held by executive officers and directors, of the registrant as of March 10, 1997 was $128,289,191. Number of shares of common stock outstanding as of March 10, 1997 - 3,110,041. Documents Incorporated by Reference Annual Report to Shareholders for the year ended December 31, 1996 is incorporated by reference into Parts I, II and IV. Registrant's Proxy Statement dated March 14, 1997 is incorporated by reference into Parts III and IV. 1 THE MIDLAND COMPANY FORM 10-K DECEMBER 31, 1996 PART I ITEM 1. Business. Incorporated by reference to the inside front cover and pages 2 through 11 and 25 (Note 13) of the Registrant's 1996 Annual Report to Shareholders. The number of persons employed by the Registrant was approximately 950 at December 31, 1996. ITEM 2. Properties. Incorporated by reference to the inside front cover and pages 2 through 11 of the Registrant's 1996 Annual Report to Shareholders. ITEM 3. Legal Proceedings. Various litigation and claims against the Company and its subsidiaries are in process and pending. Based upon a review of open matters with legal counsel, management believes that the outcome of such matters would not have a material effect upon the Company's consolidated financial position or results of operations. ITEM 4. Submission of Matters to a Vote of Security Holders. None during the fourth quarter. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters. Incorporated by reference to pages 12, 26 (Note 14) and the inside rear cover of the Registrant's 1996 Annual Report to Shareholders. The number of holders of the Company's common stock at December 31, 1996 was 706. The Company's common stock is registered on the American Stock Exchange (MLA). ITEM 6. Selected Financial Data. Incorporated by reference to page 13 of the Registrant's 1996 Annual Report to Shareholders. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Incorporated by reference to pages 14 and 15 of the Registrant's 1996 Annual Report to Shareholders. ITEM 8. Financial Statements and Supplementary Data. Incorporated by reference to pages 12 and 16 through 27 of the Registrant's 1996 Annual Report to Shareholders. ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures. None. 2 PART III ITEM 10. Directors and Executive Officers of the Registrant. Incorporated by reference to the Registrant's Proxy Statement dated March 14, 1997. Executive Officers of the Company - J. P. Hayden, Jr. - Age 67 - Chairman and Chief Executive Officer Michael J. Conaton - Age 63 - President and Chief Operating Officer J. P. Hayden, III - Age 44 - Senior Executive Vice President John W. Hayden - Age 39 - Senior Executive Vice President John R. LaBar - Age 65 - Vice President and Secretary Robert W. Hayden - Age 58 - Vice President John I. Von Lehman - Age 44 - Executive Vice President, Treasurer and Chief Financial Officer Thomas J. Rohs - Age 55 - Vice President J. P. Hayden, Jr. and Robert W. Hayden are brothers. J. P. Hayden, III and John W. Hayden are sons of J. P. Hayden, Jr. During 1996, J. P. Hayden, III and John W. Hayden (formerly Vice President) were elected Senior Executive Vice President. Also in 1996, John I. Von Lehman (formerly Vice President, Treasurer and Chief Financial Officer) was elected Executive Vice President. The officers listed above have served in the positions indicated for the past five years (except as noted above). ITEM 11. Executive Compensation. Incorporated by reference to the Registrant's Proxy Statement dated March 14, 1997. ITEM 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference to the Registrant's Proxy Statement dated March 14, 1997. ITEM 13. Certain Relationships and Related Transactions. Incorporated by reference to the Registrant's Proxy Statement dated March 14, 1997. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements. Incorporated by reference in Part II of this report: Data pertaining to The Midland Company and Subsidiaries - Report of Independent Public Accountants. Consolidated Balance Sheets, December 31, 1996 and 1995. Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. 3 PART IV (Continued) (a) 2. Financial Statement Schedules. Included in Part IV of this report: Data pertaining to The Midland Company and Subsidiaries - Page Independent Auditors' Consent and Report on Schedules. 7 Schedule I - Condensed Financial Information of Registrant. 8-12 Schedule II - Allowance for Losses for the Years Ended December 31, 1996, 1995 and 1994. 13 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) 3. Exhibits. 3. Articles of Incorporation and By-Laws - Filed as Exhibit 3 to the Registrant's 1980 Annual Report on Form 10-K, and incorporated herein by reference. 10. A description of the Company's Stock Option Plan and Profit Sharing Plan - Incorporated by reference to the Registrant's Proxy Statement dated March 14, 1997. 11. Computation of Consolidated Net Income Per Share for the years ended December 31, 1996, 1995 and 1994. 14 13. Annual Report to security holders - Incorporated by reference to the Registrant's 1996 Annual Report to Shareholders. 21. Subsidiaries of the Registrant. 15 22. Registrant's Proxy Statement - Incorporated by reference to the Registrant's Proxy Statement dated March 14, 1997. 23. Independent Auditors' Consent - Included in Consent and Report on Schedules referred to under Item 14(a)2 above. 27. Financial Data Schedule. (b) Reports on Form 8-K - No such reports filed or required to be filed in the fourth quarter of 1996. 4 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MIDLAND COMPANY Signature Title Date S/ J. P. Hayden, Jr. Chairman and March 6, 1997 (J. P. Hayden, Jr.) Chief Executive Officer S/ John I. Von Lehman Executive Vice President, March 6, 1997 (John I. Von Lehman) Treasurer, Chief Financial and Accounting Officer and Director 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. THE MIDLAND COMPANY Signature Title Date S/ George R. Baker Director March 6, 1997 (George R. Baker) S/ James H. Carey Director and Member March 6, 1997 (James H. Carey) of Audit Committee S/ Michael J. Conaton President, Chief Operating March 6, 1997 (Michael J. Conaton) Officer and Director S/ J. P. Hayden, Jr. Chairman, Chief Executive March 6, 1997 (J. P. Hayden, Jr.) Officer and Director S/ J. P. Hayden, III Senior Executive Vice March 6, 1997 (J. P. Hayden, III) President and Director S/ John W. Hayden Senior Executive Vice March 6, 1997 (John W. Hayden) President and Director S/ Robert W. Hayden Vice President and Director March 6, 1997 (Robert W. Hayden) S/ William T. Hayden Director March 6, 1997 (William T. Hayden) S/ William J. Keating Director March 6, 1997 (William J. Keating) S/ William McD. Kite Director March 6, 1997 (William McD. Kite) S/ John R. LaBar Vice President, Secretary March 6, 1997 (John R. LaBar) and Director S/ John M. O'Mara Director and Member March 6, 1997 (John M. O'Mara) of Audit Committee S/ John R. Orther Director and Member March 6, 1997 (John R. Orther) of Audit Committee S/ William F. Plettner Director March 6, 1997 (William F. Plettner) S/ Glenn E. Schembechler Director and Member March 6, 1997 (Glenn E. Schembechler) of Audit Committee S/ John I. Von Lehman Executive Vice President March 6, 1997 (John I. Von Lehman) Treasurer, Chief Financial and Accounting Officer and Director 6 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES To the Shareholders of The Midland Company: We consent to the incorporation by reference in Registration Statement No. 33- 64821 on Form S-3 and No. 33-48511 on Form S-8 of The Midland Company of our report dated February 13, 1997, incorporated by reference in this Annual Report on Form 10-K, and our report (appearing below) on the financial statement schedules of The Midland Company for the year ended December 31, 1996. Our audits of the consolidated financial statements referred to in our aforementioned report also included the financial statement schedules of The Midland Company and its subsidiaries, listed in Item 14(a)2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. S/Deloitte & Touche LLP Deloitte & Touche LLP Cincinnati, Ohio March 21, 1997 7 THE MIDLAND COMPANY (Parent Only) Schedule I - Condensed Financial Information of Registrant Condensed Balance Sheet Information December 31, 1996 and 1995 ASSETS 1996 1995 ----------------------------- Cash $ 267,000 $ 240,000 ----------------------------- Marketable Securities (at market value) 1,770,000 8,116,000 ----------------------------- Receivables - Net 6,801,000 7,230,000 ----------------------------- Intercompany Receivables 6,822,000 -- ----------------------------- Property, Plant and Equipment (at cost) 56,306,000 54,958,000 Less Accumulated Depreciation 5,893,000 4,112,000 ----------------------------- Net 50,413,000 50,846,000 ----------------------------- Other Assets 2,434,000 1,075,000 ----------------------------- Investment in Subsidiaries (at equity) 153,965,000 169,978,000 ----------------------------- Total $ 222,472,000 $ 237,485,000 ============================= 8 THE MIDLAND COMPANY (Parent Only) Schedule I - Condensed Financial Information of Registrant Condensed Balance Sheet Information December 31, 1996 and 1995 LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 ----------------------------- Notes Payable within One Year: Banks (including current portion of long-term debt) $ 28,824,000 $ 31,767,000 Commercial Paper 4,700,000 4,620,000 ----------------------------- Total 33,524,000 36,387,000 ----------------------------- Other Payables and Accruals 1,593,000 1,471,000 ----------------------------- Intercompany Payables -- 14,541,000 ----------------------------- Long-Term Debt 27,667,000 28,491,000 ----------------------------- Shareholders' Equity: Common Stock - No Par (issued and outstanding: 3,042,000 shares at December 31, 1996 and 3,020,000 shares at December 31, 1995 after deducting treasury stock of 601,000 shares and 623,000 shares, respectively) 911,000 911,000 Additional Paid-In Capital 14,846,000 15,362,000 Retained Earnings 138,423,000 139,350,000 Net Unrealized Gain on Marketable Securities 23,587,000 19,716,000 Treasury Stock (at cost) (16,621,000) (16,575,000) Unvested Restricted Stock Awards (1,458,000) (2,169,000) ----------------------------- Total 159,688,000 156,595,000 ----------------------------- Total Liabilities and Shareholders' Equity $ 222,472,000 $ 237,485,000 ============================= 9 THE MIDLAND COMPANY (Parent Only) Schedule I - Condensed Financial Information of Registrant Condensed Statements of Income Information For the Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 ----------------------------------------- Revenues: Dividends from Subsidiaries $ 20,500,000 $ 35,117,000 $ -- All Other Income, Primarily Charges to Subsidiaries 7,876,000 9,434,000 8,001,000 ----------------------------------------- Total Revenues 28,376,000 44,551,000 8,001,000 ----------------------------------------- Expenses: Interest Expense 5,101,000 5,248,000 3,442,000 Depreciation and Amortization 2,548,000 4,884,000 3,715,000 All Other Expenses 2,033,000 1,727,000 1,968,000 ----------------------------------------- Total Expenses 9,682,000 11,859,000 9,125,000 ----------------------------------------- Income (Loss) Before Federal Income Tax 18,694,000 32,692,000 (1,124,000) Provision (Credit) for Federal Income Tax (654,000) (902,000) (430,000) ----------------------------------------- Income (Loss) Before Change in Undistributed Income of Subsidiaries 19,348,000 33,594,000 (694,000) Change in Undistributed Income of Subsidiaries (18,280,000) (24,042,000) 10,113,000 ----------------------------------------- Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000 ========================================= 10 THE MIDLAND COMPANY (Parent Only) Schedule I - Condensed Financial Information of Registrant Condensed Statements of Cash Flows Information For the Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 ----------------------------------------- Cash Flows from Operating Activities: Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000 Adjustments to reconcile net income to net cash provided by operating activities: Decrease (increase) in undistributed income of subsidiaries 18,280,000 24,042,000 (10,113,000) Depreciation and amortization 2,548,000 4,884,000 3,715,000 Increase in other assets (1,359,000) (1,044,000) (3,000) Decrease (increase) in receivables 689,000 (3,995,000) (5,000) Increase (decrease) in other payables & accruals 90,000 871,000 (7,610,000) Other - net 28,000 166,000 71,000 ----------------------------------------- Net cash provided by (used in) operating activities 21,344,000 34,476,000 (4,526,000) ----------------------------------------- Cash Flows from Investing Activities: Acquisition of property, plant & equipment (1,516,000) (28,060,000) (12,083,000) Capital contributions to subsidiaries (2,999,000) (2,847,000) Sale of property, plant & equipment 66,000 599,000 349,000 Change in investments (excluding unrealized appreciation/depreciation) 7,690,000 5,379,000 (4,814,000) ----------------------------------------- Net cash provided by (used in) investing activities 6,240,000 (25,081,000) (19,395,000) ----------------------------------------- Cash Flows from Financing Activities: Net change in intercompany payables (21,363,000) (35,029,000) 34,662,000 Increase (decrease) in long-term debt (767,000) 20,551,000 (250,000) Increase (decrease) in short-term borrowings (2,920,000) 8,074,000 (8,756,000) Dividends paid (1,962,000) (1,844,000) (1,628,000) Purchase of treasury stock (1,699,000) (1,143,000) (118,000) Issuance of treasury stock 1,154,000 52,000 32,000 ----------------------------------------- Net cash provided by (used in) financing activities (27,557,000) (9,339,000) 23,942,000 ----------------------------------------- Net Increase (Decrease) in Cash 27,000 56,000 21,000 Cash at Beginning of Year 240,000 184,000 163,000 ----------------------------------------- Cash at End of Year $ 267,000 $ 240,000 $ 184,000 ========================================= 11 THE MIDLAND COMPANY (Parent Only) Schedule I - Condensed Financial Information of Registrant Notes to Condensed Financial Information For the Years Ended December 31, 1996 and 1995 The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes included in the Registrant's 1996 Annual Report to shareholders. Total debt of the Registrant (parent only) consists of the following: DECEMBER 31, --------------------------- 1996 1995 --------------------------- Short-Term Bank Borrowings $ 28,000,000 $ 31,000,000 Commercial Paper 4,700,000 4,620,000 Secured Mortgage Notes: 6.94% - Due December 20, 2005 20,304,000 20,800,000 5.82% - Due December 1, 2003 8,187,000 8,458,000 --------------------------- Total Debt $ 61,191,000 $ 64,878,000 =========================== See Note 6 to the consolidated financial statements included in the 1996 Annual Report to Shareholders for further information on the Company's outstanding debt at December 31, 1996. The amount of debt, other than debt eliminated in consolidation, that becomes due during each of the next five years is as follows: 1997 - $33,524,000; 1998 - $880,000; 1999 - $939,000; 2000 - $998,000; 2001 - $1,070,000. 12 SCHEDULE II THE MIDLAND COMPANY AND SUBSIDIARIES SCHEDULE II - ALLOWANCE FOR LOSSES FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ADDITIONS CHARGED BALANCE AT (CREDITED) TO BALANCE BEGINNING COSTS AND DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1996: Allowance For Losses $1,362,000 $ (75,000) $ (14,000)(1) $ 1,301,000 YEAR ENDED DECEMBER 31, 1995: Allowance For Losses $1,535,000 $ 468,000 $ 641,000 (1) $ 1,362,000 YEAR ENDED DECEMBER 31, 1994: Allowance For Losses $1,117,000 $ 576,000 $ 158,000 (1) $ 1,535,000 NOTES: (1) Accounts written off are net of recoveries. 13 EX-11 2 EXHIBIT (11) THE MIDLAND COMPANY AND SUBSIDIARIES EXHIBIT (11) - COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE FOR THE YEARS DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 ---------------------------------------- Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000 ======================================== Weighted average number of voting shares outstanding 3,021,000 3,028,000 2,998,000 ======================================== Primary: Adjusted weighted average shares outstanding - after consideration of the dillutive effect of stock options and stock awards 3,033,000 3,072,000 3,050,000 ======================================== Per share - after consideration of the dillutive effect of stock options and stock awards (net income divided by adjusted weighted average shares outstanding) $ 0.35 $ 3.11 $ 3.09 ======================================== Fully diluted: Adjusted weighted average shares outstanding - after consideration of the dillutive effect of stock options and stock awards 3,040,000 3,084,000 3,066,000 ======================================== Per share - after consideration of the dillutive effect of stock options and stock awards (net income divided by adjusted shares outstanding) $ 0.35 $ 3.10 $ 3.07 ======================================== 14 EX-13 3 1996 MIDLAND ANNUAL REPORT - INSIDE FRONT COVER THE MIDLAND COMPANY Midland was founded in 1938 as a consumer finance company by the late J. Page Hayden, Sr. and H. R. LaBar. Today, Midland has three primary subsidiaries - Insurance, Transportation and Sportswear. Midland is a publicly traded company on the American Stock Exchange (MLA). American Modern Insurance Group, Inc. American Modern Insurance Group, Inc. (AMIG) is a holding company licensed in all 50 states through its six property and casualty companies and two credit life companies. AMIG has traditionally specialized in writing physical damage insurance and related coverages on manufactured housing and recently has expanded to other areas of insurance including Lower Valued Homes, Dwelling Fire, Homeowners, Mortgage Fire, Collateral Protection, Watercraft, Long-Haul Truck, Commercial and Excess and Surplus Lines. M/G Transport Services, Inc. M/G Transport currently charters barges and brokers freight for the movement of commodities on the inland waterways. M/G owned a fleet of 253 dry cargo jumbo hopper barges at December 31, 1996. The barges are primarily used by the Company's brokerage operation. The Company continues to expand its fleet and will take delivery of additional barges in 1997. CS Crable Sportswear, Inc. CS Crable is a "value-added" manufacturer of high quality appliqued, embroidered and imprinted apparel specializing in the design and marketing of branded and licensed sportswear. CS Crable's designs feature major colleges and universities, professional leagues, lifestyle and specialty licensed and non-licensed programs. 1996 MIDLAND ANNUAL REPORT - PAGE 1 FINANCIAL HIGHLIGHTS THE MIDLAND COMPANY AND SUBSIDIARIES For the Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Revenues $ 370,492,000 $ 350,960,000 $ 315,411,000 Net Income 1,068,000 9,552,000 9,419,000 Shareholders' Equity 159,688,000 156,595,000 132,437,000 Earnings Per Common Share $ .35 $ 3.11 $ 3.09 Cash Dividends Per Common Share .66 .62 .58 Book Value Per Common Share 52.49 51.85 44.19 Common Shares Outstanding 3,042,000 3,020,000 2,997,000 TABLE OF CONTENTS PAGE ---------------------------------------------------------------- Financial Highlights 1 Chairman's Letter 2-3 American Modern Insurance Group, Inc. 4-7 M/G Transport Services, Inc. 8-9 CS Crable Sportswear, Inc. 10-11 Quarterly Data 12 Selected Consolidated Financial Data 13 Management's Discussion and Analysis 14-15 Balance Sheets 16-17 Income and Retained Earnings 18 Cash Flows 19 Notes to Financial Statements 20-26 Report of Independent Public Accountants and Management's Report 27 Officers and Directors 28 Officers of Subsidiary Companies and Other Information 29 1996 MIDLAND ANNUAL REPORT - PAGE 2 Chairman's Letter The Midland Company's net income for 1996 was $1,068,000, $.35 per share, on revenues of $370,492,000. Net income for 1995 was $9,522,000, $3.11 per share, on revenues of $350,960,000. Net income for the fourth quarter of 1996 was $6,052,000, $1.97 per share, on revenues of $100,160,000. This compares to net income of $2,622,000, $.85 per share, on revenues of $93,148,000 for the fourth quarter of 1995. Earnings from operations for the fourth quarter of 1996 were the best in the Company's history. It gives management a high level of satisfaction to note that earnings from operations for the fourth quarter of 1996 were the best the Company has experienced in any single quarter. As an indication of the Company's fundamental strength, your Board of Directors, at its March, 1996 meeting, approved an increase in the cash dividend paid to shareholders from 62 cents to 66 cents per common share on an annualized basis. This is the tenth consecutive year that Midland's dividend has increased. American Modern Insurance Group, Inc. (AMIG), Midland's insurance holding company, reported operating results that were below those of the previous year. These operating results were primarily the result of heavy weather-related losses during the first three quarters of 1996. Hurricanes Fran and Bertha, both of which occurred during the third quarter, reduced after-tax results by approximately $2.22 per share. AMIG believes that the prompt action by its personnel, including the establishment of temporary claims offices, allowed AMIG to make contact with most of its affected insureds in a very timely manner. These actions enhanced AMIG's ability to settle claims quickly and efficiently. Management is confident that AMIG's underwriting standards and pricing models are sound and working as planned. Weather patterns finally returned to more normal conditions during the last three months of 1996. As a result, AMIG's six property and casualty companies reported record quarterly pre-tax operating profits of approximately $9,300,000. THIS PAGE INCLUDES A PHOTOGRAPH OF J.P. HAYDEN, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND MICHAEL J. CONATON, PRESIDENT AND CHIEF OPERATING OFFICER. 1996 MIDLAND ANNUAL REPORT - PAGE 3 AMIG continued to experience growth in its traditional core insurance products as well as in each of its channels of distribution. AMIG's loan and tracking operation, Ameritrac, also continued to expand and contribute to AMIG's profitability in 1996. Direct and Assumed Written Premiums for AMIG's property and casualty subsidiary totaled $386,000,000 in 1996, up from $144,000,000 just five years ago. The market value of AMIG's investment portfolio grew from $358,939,000 at December 31, 1995 to $394,122,000 at December 31, 1996. This increase in the portfolio was accomplished in spite of the above mentioned weather-related losses. AMIG continued its long established investment policy of investing in high quality fixed income and equity securities. There were no bonds below investment grade nor any investments in real estate in the portfolio. Income from the portfolio, excluding capital gains, increased over 11% from the previous year. AMIG is pleased to note the addition of Mr. Kurt R. Schwamberger as President and Chief Operating Officer of American Modern Insurance Group, Inc. Mr. Schwamberger, who joined AMIG at mid-year, brings many years of experience within the insurance industry to the organization. M/G Transport Services, Inc., Midland's transportation subsidiary, reported operating profits for 1996 that were 25% higher than 1995. M/G's return on equity for 1996, excluding litigation costs, was over 20%. M/G's management was very pleased that the operating profits for the second half of 1996 were a record for a six month period. These results were accomplished on a lower equity base than in previous years as a result of the sale of approximately two-thirds of M/G's equipment in December, 1994. M/G continued its program to update its fleet with the delivery of 16 barges in the second quarter of 1996. As was previously reported to you, M/G has committed to the delivery of an additional 50 barges by the end of the first quarter of 1997, nine of which were received during the fourth quarter of 1996. M/G exchanged two towboats as the primary consideration for the 16 barges. M/G's last two towboats were used as partial consideration for the 9 barges that were received in December, 1996. CS Crable Sportswear, Inc., Midland's sportswear subsidiary, reported operating results that were greatly improved over the prior year. These results, however, are not where management believes they should be in order to contribute positively to the value and growth of The Midland Company. CS Crable's management continued its efforts in 1996 to improve profitability and position itself for future growth. These efforts included initiatives to reduce product costs and the re-engineering of numerous business practices. Unfortunately, a soft retail environment for licensed sports apparel and overall excess industry capacity slowed the progress in these areas. Management will remain focused on these ideas and continue its efforts to reduce inventory costs to more acceptable levels. It is management's intent to add new licensing opportunities that it believes will complement existing licensing agreements. It is with this in mind that Crable recently announced multi-year licensing agreements with the National Hockey League, Major League Soccer and the Southeastern Conference. These licensing agreements in addition to previously negotiated licenses with Major League Baseball, Pebble Beach and various colleges and universities should help improve Crable's market share in its "niche" market and increase Crable's important to its retail partners. On behalf of the senior management of The Midland Company, I would like to take this opportunity to personally thank all of our staff for their dedication and hard work, and further to acknowledge the continued contribution of our Board of Directors to your Company's overall success. In closing, to you, our shareholders, please accept our deep appreciation for your continued confidence in and support of The Midland Company. S/ J. P. Hayden, Jr. J. P. Hayden, Jr. Chairman February 13, 1997 1996 MIDLAND ANNUAL REPORT - PAGE 4 AMERICAN MODERN INSURANCE GROUP, INC. American Modern Insurance Group, Inc. (AMIG) is a holding company that provides specialty insurance products through its six property and casualty and two life companies which are licensed in all fifty states. While AMIG's 1996 operating results were not satisfactory, AMIG continues to outperform the industry. AMIG's property and casualty companies recorded a 104.3% combined ratio (the ratio of losses and expenses to premiums earned) for the year, which compares favorably with an estimated industry result of 106.1%. Like most others in the property and casualty industry, AMIG's operating results were negatively impacted by the major catastrophic occurrences and the severe weather patterns that occurred throughout the year. Weather-related catastrophe losses for AMIG reached record levels, increasing by 75% over 1995 levels. In both the first and second quarters of the year, a series of intense weather systems moved across much of the United States causing extensive property damage. The storms that occurred in both the Northeastern and Northwestern United States resulted in record-setting flooding and severely impacted AMIG's first-half 1996 underwriting results. These weather related losses were then compounded by Hurricanes Bertha and Fran, both of which occurred in the third quarter of the year. The year's worst weather event by far was Hurricane Fran, a force three hurricane which struck North Carolina on September 5. AMIG's net losses from Hurricane Fran were approximately $6 million on an after-tax basis. Weather patterns finally returned to more normal conditions during the last three months of 1996, resulting in a record pre-tax profit from operations in excess of $9 million for the last quarter. The many weather-related events during 1996 created a severe challenge for AMIG's claims staff. AMIG is proud of the timely manner in which its staff was able to settle claims from Hurricanes Bertha and Fran. Of the 1,600 claims received by THIS PAGE INCLUDES A PHOTOGRAPH OF JOHN W. HAYDEN, VICE CHAIRMAN; KURT R. SCHWAMBERGER, PRESIDENT AND CHIEF OPERATING OFFICER AND THOMAS J. ROHS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER. 1996 MIDLAND ANNUAL REPORT - PAGE 5 AMIG from Hurricane Bertha, approximately 93% were settled within 30 days. Within hours of Hurricane Fran's landfall, AMIG had established five remote claims offices in Conway, South Caroline, and Durham, Fayetteville, Greenville and Jacksonville, North Carolina, and had dispatched more than 65 staff adjusters to the areas damaged by the storm. Of the over 10,600 claims received by AMIG, approximately 87% were settled within 30 days. AMIG's claims staff can be proud of their performance and the efficient manner in which they handled the 21,700 catastrophe claims received throughout 1996. AMIG's customers should take comfort in the quality and protection provided by an AMIG policy. The bottom line results in 1996 are not an accurate measurement of AMIG's accomplishments over the past twelve months. AMIG continued to experience growth in its traditional physical damage insurance and related coverages for manufactured housing, with 1996 premiums increasing by 12.6% over 1995. AMIG is reviewing each manufactured housing program annually to ensure that its rate levels are adequate to produce targeted levels of profitability, assuming normal levels of catastrophe and weather-related losses. Watercraft products continued their strong growth with premium volume in this product category up 20.4% over 1995. An exciting new program development in this product area is AMIG's partnership with the Bombardier Corporation of Canada in a Point-of-Sale insurance program on Sea Doo jet skis. Premium in this program should strengthen AMIG's position as one of the leading Personal Watercraft insurers in the industry. AMIG's Financial Services Division continues to offer a diverse range of products to meet the insurance needs of financial institutions and their THIS PAGE INCLUDES TWO PHOTOGRAPHS: THE FIRST IS A SATELLITE PHOTOGRAPH WITH THE FOLLOWING CAPTION: "PICTURED BELOW IS A SATELLITE PHOTOGRAPH OF HURRICANES EDOUARD AND FRAN ALONG WITH TROPICAL STORM GUSTAV. HURRICANE FRAN STRUCK LAND ON SEPTEMBER 5, 1996. AMIG'S TOTAL COSTS FROM HURRICANE FRAN WERE APPROXIMATELY $6 MILLION ON AN AFTER-TAX BASIS." THE SECOND PHOTOGRAPH IS OF ROBERT P. CROWLEY, ASSISTANT VICE PRESIDENT; ROBERT W. LOCKMAN, CLAIMS MANAGER; JAMES P. ROMERILL, VICE PRESIDENT; JOAN E. BOARD, CLAIMS SYSTEMS MANAGER AND DAVID C. MCNUTT, ASSISTANT VICE PRESIDENT. 1996 MIDLAND ANNUAL REPORT - PAGE 6 customers. Ameritrac, AMIG's in-house loan and lease tracking system, has steadily grown its list of client financial institutions. During 1996, Ameritrac increased the number of loan and lease accounts serviced by more than 85%. Today, more than one million accounts are more efficiently handled by AMIG's Ameritrac programs. The results in AMIG's Commercial Lines Division did not meet expectations in 1996. Loss ratios were substantially higher in all facets of AMIG's Commercial Lines business, resulting primarily from the severe weather and the negative development on several large liability losses. However, during 1996, a thorough review of all Commercial Lines programs was undertaken. While this review resulted in the discontinuance of some programs, AMIG is more focused than ever before on having the Commercial Lines Division become a consistent long-term contributor to AMIG. AMIG's investment portfolio continues to be conservatively invested in high quality fixed income and equity securities. There are no investments in real estate or derivative products. The fixed income portfolio maintains a weighted average credit quality of approximately AA to AAA and the current average maturity of the fixed income portfolio is approximately 3.9 years. The value of the portfolio has continued to grow through the generation of significant cash flow from operations as well as investment income on the portfolio. In addition, the portfolio generated approximately $2.7 million in net pre-tax capital gains in 1996. AMIG thanks its many business partners who have contributed to its continued success. AMIG also extends its appreciation to all of its employees, whose dedication is the key to AMIG's success. THIS PAGE INCLUDES A PHOTOGRAPH OF ROBERT E. HILLIARD, SENIOR VICE PRESIDENT; CHARLES J. JENKINS, SENIOR VICE PRESIDENT; RONALD L. CRIPPIN, EXECUTIVE VICE PRESIDENT AND KENNETH G. BOBERG, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. THIS PAGE ALSO INCLUDES A FIVE YEAR BAR CHART WITH THE FOLLOWING DATA (AMOUNTS IN 000'S): AMIG NET WRITTEN PREMIUM 1992 $ 144,642 1993 182,884 1994 240,348 1995 291,808 1996 296,095 1996 MIDLAND ANNUAL REPORT - PAGE 7 American Modern Insurance Group, Inc. Investment Portfolio Total Return - -------------------------------------------------------------------------------- INCLUDES TWO FIVE YEAR TOTAL RETURN BAR CHARTS WITH THE FOLLOWING DATA: Bonds & Notes Pretax After Tax Equities -------------------------------------------- 1992 7.2% 5.4 7.1% 1993 8.9 6.4 7.8 1994 (0.8) 0.1 1.3 1995 13.4 9.2 31.3 1996 3.8 2.7 21.3 - -------------------------------------------------------------------------------- AMIG NET INVESTMENT INCOME FIVE YEAR BAR CHART WITH THE FOLLOWING DATA (IN 000'S) 1992 $11,326 1993 13,631 1994 12,999 1995 19,455 1996 21,737 MARKET VALUES FIVE YEAR STACKED BAR CHART WITH THE FOLLOWING DATA (IN 000'S) 1992 1993 1994 1995 1996 ------------------------------------------------- Governments $76,767 $73,834 $101,320 $155,648 $172,153 Municipals 54,629 66,215 64,112 94,548 71,492 Corporates 8,270 11,182 31,162 35,972 41,099 Cash Equivalents 28,442 43,838 43,782 31,941 50,509 Equities 22,584 23,538 26,738 40,830 63,445 - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 -------------------------------------- AVERAGE MATURITY OF BONDS AND NOTES (years) 4.1 3.4 4.1 4.7 3.9 - -------------------------------------------------------------------------------- 1996 MIDLAND ANNUAL REPORT - PAGE 8 M/G TRANSPORT SERVICES, INC. M/G Transport Services, Inc., Midland's transportation subsidiary, experienced strong operating results in 1996. Revenues increased 11% and pre- tax income increased 25% from 1995 to 1996. M/G operated a fleet of approximately 375 dry cargo jumbo hopper barges in 1996, of which 253 are owned by M/G Transport Services, Inc. In 1996, M/G completed its second year of operations primarily as a freight brokerage company. Despite an unusually high level of litigation costs incurred in connection with its operations sold in 1994, M/G achieved a very favorable level of profitability. M/G believes these expenses are now behind it and 1997's results are expected to grow commensurably. MGT Services, Inc., M/G's operating arm, provides transportation services to some of the largest industrial customers in the United States. MGT Services, Inc.'s gross revenues increased 17% in 1996 as compared to 1995, while the level of tonnage increased 8% over the same period. MGT transports petroleum coke, sugar, fertilizer, iron ores, grain and other commodities. While MGT services the entire inland river system, the gulf coastal area represents its primary geographic focus. It is MGT's intent to continue to concentrate its efforts in this area and to provide the best level of service possible to its customer base. In order to maintain this growth, M/G recognized the need to replace some of its older barges with new equipment and to increase the size of its owned fleet. In the second quarter of 1996, M/G purchased 16 new dry cargo open hopper barges at a cost of over $3,700,000. M/G Transport Services, Inc. exchanged two of its remaining towboats as primary consideration for these 16 barges. In addition, M/G Transport Services, Inc. committed in excess of $14,400,000 for the delivery of 50 barges by the end of the first quarter of 1997, of which 9 were received during THIS PAGE INCLUDES A PHOTOGRAPH OF J.P. HAYDEN, III, PRESIDENT AND CHIEF OPERATING OFFICER; JACK L. LORDO, VICE PRESIDENT AND RAYMOND R. LUDMANN, TREASURER. 1996 MIDLAND ANNUAL REPORT - PAGE 9 the fourth quarter of 1996. M/G Transport Services, Inc. exchanged its last two towboats as partial consideration for these 50 barges. In 1994, M/G Transport Services, Inc. implemented Phase I of its long- range strategic plan which called for M/G to reposition itself within the river transportation marketplace. The disposition of the last of M/G's towboats, as referenced above, represents the completion of Phase I of that plan. Phase II of this plan calls for M/G to identify and enter additional niches within the transportation business. M/G will attempt to execute this part of the plan through growth or acquisition as appropriate. Some had speculated that M/G's re-engineering in 1994 represented Midland's exit from the transportation business. Since that time, Management has focused on its brokerage operations and has provided a solid return for The Midland Company and its shareholders. The commitment to modernize M/G's fleet and to grow within the river transportation marketplace should serve as notice to M/G's customers that M/G continues to value its business relationships with them. As M/G enters 1997, it is in a strong financial position which should allow it to provide the highest level of service to its customers. The river transportation business has provided solid growth and profitability to The Midland Company's shareholders for many years. Management is convinced that similar opportunities will be available well into the future. THIS PAGE INCLUDES TWO PHOTOGRAPHS: THE FIRST IS OF THOMAS C. TERRELL, III, PRESIDENT, MGT SERVICES, INC. AND J. KEVIN JENNINGS, EXECUTIVE VICE PRESIDENT, MGT SERVICES, INC. THE SECOND PHOTOGRAPH IS OF JAMES R. JARVIS, VICE PRESIDENT, MGT SERVICES, INC. AND ROBBIE M. UVANNI, VICE PRESIDENT, MGT SERVICES, INC. 1996 MIDLAND ANNUAL REPORT - PAGE 10 CS CRABLE SPORTSWEAR, INC. CS Crable Sportswear, Inc., a wholly-owned subsidiary of The Midland Company, is a "value-added" manufacturer of licensed and branded sportswear. CS Crable continued its efforts in 1996 to improve profitability and position itself for future growth. A soft retail environment for licensed sports apparel in general and excess industry capacity impeded CS Crable's planned progress during 1996. CS Crable Sportswear is highly regarded as a best valued, premium sportswear manufacturer and is renowned as an industry leader in product innovation. CS Crable produces high quality, appliqued, embroidered and imprinted sportswear for leading department stores, specialty shops and sporting goods stores. Licensed apparel in 1996 focused on Major League Baseball, colleges and universities and the Pebble Beach collection. A commitment in 1996 to product diversification and brand development resulted in the launch of a non-licensed branded program, Crable Classics. Crable Classics is positioned to capitalize on the rapid growth of branded products and lifestyle graphics. CS Crable executed a purchasing strategy to support the anticipated retail demand, but year-end inventory grew when projected retail business did not materialize in the second half. Although 1996 core business sales were even with the prior year, earnings improved $6 million, reflecting improved performance from operations. Business initiatives aimed at reducing product costs and the re-engineering of numerous business practices has improved efficiencies and reduced selling expenses. The licensed apparel industry's growth has slowed somewhat due in part to over-licensing, market saturation and consumer indifference due to professional sports image. Industry consolidation continues at all levels. CS Crable continues to position itself to survive this market "shakeout" by implementing a niche marketing and product differentiation strategy while pursuing controlled growth through new licenses. An ongoing effort to contain costs and reduce inventory levels is also an integral part of CS Crable's strategy. CS Crable's commitment to adding new licenses to complement existing programs was highlighted by the recent announcement of multi-year licensing agreements with the National Hockey THIS PAGE INCLUDES A PHOTOGRAPH OF GARY R. MASSA, VICE PRESIDENT; THOMAS R. HAYDEN, VICE PRESIDENT; RICHARD K. QUEEN, PRESIDENT AND CHIEF OPERATING OFFICER; KEITH E. COTTRELL, VICE PRESIDENT AND TIMOTHY A. HERZOG, VICE PRESIDENT. 1996 MIDLAND ANNUAL REPORT - PAGE 11 League (NHL), Major League Soccer (MLS) and the Southeastern Conference (SEC). In conjunction with previously negotiated licenses with Major League Baseball (MLB), Pebble Beach and numerous colleges and universities, an impressive array of sports licensing products is now available from CS Crable. These additions to CS Crable's sports licensing portfolio validate CS Crable's importance to its retail partners who give preference to brands with extensive licensing programs. An ongoing emphasis has been placed on developing unique products and brands which facilitate diversification of CS Crable's customer and consumer base and expand CS Crable's distribution. CS TEC, a new brand targeted toward the younger licensed product consumer, has been developed for introduction in the Fall of 1997. CS TEC is an innovative team collection for college, Major League Baseball and the National Hockey League. Team Engineered Clothing (TEC) is a concept program that reflects a deviation from the traditional licensed product offering and addresses licensors' stated market deficiencies. The brand reflects the current product designs in the young men's market and adds the extra benefit of sports licenses. Early reaction from retailers has been positive. CS Crable Sportswear recognizes and appreciates the loyalty and dedication of its employees and their significant contributions to its ongoing improvement and success. Their commitment to excellence and a shared vision of future growth and success will help the attainment of CS Crable's long-term goals. CS Crable would also like to express its appreciation for the support of its licensors, suppliers and retailers and their commitment to establishing mutually beneficial business partnerships. The loyalty of CS Crable's retail partners attests to the ongoing commitment of CS Crable Sportswear to providing premium sports apparel. THIS PAGE INCLUDES FOUR PHOTOGRAPHS OF VARIOUS CS CRABLE SPORTSWEAR PRODUCT. THE FIRST TWO PICTURES HAVE THE FOLLOWING CAPTION: "CS CRABLE RECENTLY ANNOUNCED MULTI-YEAR LICENSING AGREEMENTS WITH THE NATIONAL HOCKEY LEAGUE, MAJOR LEAGUE SOCCER AND THE SOUTHEASTERN CONFERENCE. THESE AGREEMENTS WILL COMPLEMENT EXISTING AGREEMENTS WITH MAJOR LEAGUE BASEBALL, PEBBLE BEACH AND NUMEROUS COLLEGES AND UNIVERSITIES." THE REMAINING TWO PHOTOGRAPHS HAVE THE FOLLOWING CAPTIONS: "(PICTURED ABOVE) CS TEC, A NEW BRAND TARGETED TOWARDS YOUNGER CONSUMERS, IS AN INNOVATIVE TEAM COLLECTION FOR COLLEGES, MAJOR LEAGUE BASEBALL AND THE NATIONL HOCKEY LEAGUE." "(PICTURED BELOW) EXAMPLES OF VARIOUS CS CRABLE PRODUCTS. 1996 MIDLAND ANNUAL REPORT - PAGE 12 1996 FINANCIAL REVIEW TABLE OF CONTENTS PAGE ------------------------------------------------------------------------- Quarterly Data 12 Selected Consolidated Financial Data 13 Management's Discussion and Analysis 14-15 Balance Sheets 16-17 Income and Retained Earnings 18 Cash Flows 19 Notes to Financial Statements 20-26 Report of Independent Public Accountants and Management's Report 27 Officers and Directors 28 Officers of Subsidiary Companies and Other Information 29 QUARTERLY DATA THE MIDLAND COMPANY AND SUBSIDIARIES First Quarter Second Quarter Third Quarter Fourth Quarter -------------------------------------------------------------- 1996 Revenues $86,062,000 $86,870,000 $97,400,000 $100,160,000 Net income (loss) (5,244,000) 654,000 (394,000) 6,052,000 Earnings (loss) per common share (1.70) .21 (.13) 1.97 Dividends per common share .165 .165 .165 .165 Price range of common stock (AMEX) 46-50 1/2 38-50 3/8 36 1/2-45 5/8 33 3/4-39 1/4 1995 Revenues $75,939,000 $87,847,000 $94,026,000 $93,148,000 Net income 3,811,000 967,000 2,152,000 2,622,000 Earnings per common share 1.24 .31 .71 .85 Dividends per common share .155 .155 .155 .155 Price range of common stock (AMEX) 43-51 43 3/4-48 1/4 43 3/4-47 1/4 47-50 1/8 1996 MIDLAND ANNUAL REPORT - PAGE 13 SELECTED CONSOLIDATED FINANCIAL DATA THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------- Revenues $370,492,000 $350,960,000 $315,411,000 $267,164,000 $225,063,000 =================================================================== Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000 $ 17,972,000(a) $ 11,979,000 =================================================================== Earnings Per Common Share $.35 $3.11 $3.09 $5.85(a) $3.98 =================================================================== Marketable Securities $400,462,000 $367,054,000 $278,088,000 $224,614,000 $188,531,000 =================================================================== Property, Plant and Equipment (net) $ 81,675,000 $ 85,849,000 $ 66,042,000 $107,892,000 $ 93,042,000 =================================================================== Total Assets $659,539,000 $604,703,000 $482,546,000 $450,222,000 $359,702,000 =================================================================== Unearned Insurance Premiums $208,417,000 $190,948,000 $158,316,000 $118,802,000 $ 89,732,000 =================================================================== Insurance Loss Reserves $ 95,830,000 $ 68,347,000 $ 57,715,000 $ 42,607,000 $ 23,993,000 =================================================================== Long-Term Debt $ 62,470,000 $ 65,456,000 $ 47,091,000 $ 56,522,000 $ 34,801,000 =================================================================== Shareholders' Equity $159,688,000 $156,595,000 $132,437,000 $133,110,000 $111,583,000 =================================================================== Book Value Per Common Share $52.49 $51.85 $44.19 $44.39 $37.52 =================================================================== Cash Dividends Per Common Share $.66 $.62 $.58 $.54 $.50 =================================================================== Common Shares Outstanding 3,042,000 3,020,000 2,997,000 2,999,000 2,974,000 =================================================================== (a) Includes a credit of $4,867,000, $1.58 per common share, for the cumulative effect of a change in accounting from the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", effective January 1, 1993. 1996 MIDLAND ANNUAL REPORT - PAGE 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE MIDLAND COMPANY AND SUBSIDIARIES Reportable Segments The Company's operations are classified into four reportable business segments: Insurance, Transportation, Sportswear and Other. A description of these segments and comments with regard to their operations are included below. In addition, please refer to the information on the inside front cover as well as the text in the Chairman's Letter and the other information on pages 4 through 11 of the Annual Report. Such information, including the Quarterly Data presented on page 12, should also be considered a part of this analysis. Midland's insurance division consists primarily of six property and casualty companies and two credit life companies operating as American Modern Insurance Group (AMIG). AMIG is licensed to write business in all 50 states plus the District of Columbia. The majority of AMIG's business is physical damage insurance on manufactured homes, generally written for a term of 12 months with coverages similar to conventional homeowners insurance policies. Other insurance products include Lower Valued Homes, Dwelling Fire, Homeowners, Mortgage Fire, Collateral Protection, Watercraft, Long-Haul Truck, Commercial and Excess and Surplus Lines. M/G Transport Services, Inc., Midland's transportation division, operates primarily as a freight broker. This division arranges for the movement of dry bulk commodities such as petroleum coke, iron ores, logs, fertilizers, sugar and aggregates on the lower Mississippi River and its tributaries. In 1994 and prior years, M/G Transport Services, Inc. was a traditional river transportation company involved in the affreightment of dry bulk commodities on the Ohio and Mississippi rivers and their tributaries. Midland's sportswear division, CS Crable Sportswear, Inc., is a value-added manufacturer of high-quality appliqued, embroidered and imprinted apparel specializing in the design and marketing of branded and licensed sportswear. CS Crable's products are marketed by Company and independent sales representatives located throughout the United States. The other segment consists primarily of financing activities that are considered immaterial. Results of Operations American Modern Insurance Group (AMIG), the Company's insurance subsidiary, concluded 1996 on a profitable basis even though its operations were severely impacted by numerous adverse occurrences throughout most of 1996. The first half of 1996 was plagued by severe winter storms and record-setting flooding in the Northeastern and Northwestern United States. During the third quarter of 1996, Hurricanes Fran and Bertha struck the United States causing heavy catastrophic losses. The losses to AMIG from Hurricane Fran alone were $6 million on an after-tax basis. Also, in 1996, AMIG expensed approximately $3.4 million (pre-tax) in litigation costs related to the settlement of a class action lawsuit in Alabama and Mississippi. These unusual items contributed to a higher-than-normal combined ratio (ratio of losses and expenses to premiums earned) for the property and casualty insurance companies of 104.3% in 1996 as compared to only 97.2% in 1995. Although AMIG's 1996 combined ratio is not up to its standards, it was better than the industry average of 106.1%. In spite of this adversity, AMIG was profitable in 1996 and its pre-tax profit of $9 million during the fourth quarter of 1996 was a record quarter for AMIG. Both written and earned premiums also increased in 1996 to record levels. The increases in insurance revenues in 1996 and 1995 were due to the overall growth of all of AMIG's existing insurance products as well as expansion into other areas of insurance. The increases in insurance losses and loss adjustment expenses in 1996 were due primarily to the abnormally high weather-related and catastrophic losses sustained during the year and adverse development with respect to prior year's commercial lines losses. The 1995 increases in insurance losses and loss adjustment expenses and commissions and other policy acquisition costs were due to the growth in written premiums. Insurance operating and administrative expenses increased in 1995 due primarily to premium growth plus higher than normal litigation costs incurred in that year. M/G Transport Services, Inc., the Company's transportation subsidiary, concluded a successful year in 1996. Revenues increased 11% and pre-tax income increased 25% in 1996 as compared to 1995 levels. These favorable results were achieved even though M/G expensed $1.8 million (pre-tax) more in litigation costs in 1996 than in 1995 related to the operations sold in 1994 of the transportation subsidiary. These litigation costs are now behind M/G and this subsidiary is positioned for solid financial results in the future. Transportation revenues and related expenses increased in 1996 as compared to 1995 due to an increase in tonnage hauled. Transportation revenues and related expenses decreased in 1995 compared to 1994 levels due to the sale in December, 1994 of 67% of this subsidiary's transportation equipment as well as its affreightment contracts. CS Crable Sportswear, Inc., the Company's sportswear subsidiary, improved upon its operating performance in 1996 in spite of a reduction in sales as compared to 1995 revenue levels. This improved performance was achieved through cost reduction initiatives and changes in CS Crable's business practices which significantly reduced operating costs. The decreases in 1996 and 1995 sportswear revenues as compared to prior year revenues are reflective of a continued soft retail market combined with excess production capacity which exists within the sportswear apparel industry. Liquidity and Capital Resources The Company issues commercial paper, generally below the bank prime borrowing rates, and has $45 million of credit lines available under bank lines at costs not exceeding prime borrowing rates. Outstanding 1996 MIDLAND ANNUAL REPORT - PAGE 15 short-term borrowings at December 31, 1996 were comprised of $4.7 million of commercial paper, $25 million of the previously mentioned bank lines and $3 million in other short-term bank borrowings. The Company plans to service existing debt with internally generated funds. Although the payment of dividends to the parent Company from the Company's subsidiaries is restricted by state regulatory agencies and/or covenants contained in debt agreements, these restrictions have not had, and are not expected to have, a significant impact on the parent Company's liquidity or its ability to meet its obligations. The Company completed the construction of its new corporate headquarters and training facility in late 1995. The total cost of this facility approximated $29 million. The Company's previous headquarters facility is listed for sale. However, consideration is being given to leasing the building with the ultimate goal being the sale of the facility. The eventual proceeds derived from the sale will be used to liquidate a portion of short-term debt. M/G Transport Services, Inc. acquired 25 barges in 1996 and is committed to the acquisition of 41 barges by the end of the first quarter of 1997. The total cost of these 66 barges is $18.1 million. As consideration for these purchases, M/G Transport exchanged four of its towboats in 1996 and will pay $11.9 million in 1997 upon delivery of the barges. The remaining funds due under this purchase agreement will be financed by internally-generated capital and short-term bank borrowings. Changes in Financial Condition Marketable securities increased in 1996 and 1995 due to the cash flow from operations, investment income from the investment portfolio and the unrealized appreciation in the market value of the portfolio. The unrealized appreciation in securities increased approximately $6 million and $26 million in 1996 and 1995, respectively. The increases in 1996 and 1995 in accounts receivable, deferred insurance policy acquisition costs and unearned insurance premiums are primarily attributable to the continued growth of the Company's insurance subsidiaries. The recoverables from reinsurers and prepaid reinsurance premiums increased in 1996 due to the increased reinsurance activities of the Company's insurance subsidiaries combined with losses paid in the later part of 1996 which have not been recovered from AMIG's reinsurers as of December 31, 1996. Sportswear inventories increased in 1996 due primarily to an unanticipated decline in retail business in the second half of 1996. Sportswear inventories decreased in 1995 as compared to 1994 levels due to special close-out inventory programs implemented in those years. Property, plant and equipment (at original cost) decreased in 1996 due primarily to the exchange of towboats for barges by the Company's transportation subsidiary. The increase in property, plant and equipment in 1995 was due primarily to the cost of the Company's new headquarters facility. Short-term bank borrowings and long-term debt increased in 1995 due to the financing of the Company's new corporate headquarters facility. This facility cost approximately $29 million, with $20.8 million of this amount financed through long-term debt and the remainder financed with short-term borrowings. Funds held under reinsurance agreements and reinsurance payables increased in 1996 and 1995 due to increased reinsurance activities by the Company's insurance subsidiaries and a new reinsurance agreement entered into in 1995 whereby funds related to ceded insurance are held in reserve rather than being released to the reinsurers. Approximately $19.6 million and $16.4 million was being held under this agreement at December 31, 1996 and 1995, respectively. The increase in insurance loss reserves in 1996 and 1995 is due to the growth of the Company's insurance subsidiaries and an increase in commercial lines products which have a longer loss settlement period. The 1995 increase in deferred federal income tax was due primarily to the increase in deferred taxes on the unrealized gains in the Company's investment portfolio. Unvested restricted stock awards increased in 1995 due to the new stock grant awarded to key management employees in that year. Impact of Inflation Management does not consider the impact of changing prices to be material in the analysis of the Company's overall operations. Private Securities Reform Act of 1995 Forward Looking Statement Disclosure This Report contains Forward Looking Statements. For purposes of this Report, a "Forward Looking Statement", within the meaning of the Securities Reform Act of 1995, is any statement concerning the year 1997 and beyond. The actions and performance of the Company and its subsidiaries could deviate materially from what is contemplated by the forward looking statements contained in this Report. Factors which might cause deviations from the forward looking statements include, without limitations, the following: 1) changes in the laws or regulations affecting the operations of the Company or any of its subsidiaries; 2) changes in the business tactics or strategies of the Company or any of its subsidiaries; 3) acquisition(s) of assets or of new or complementary operations, or divestiture of any segment of the existing operations of the Company or any of its subsidiaries; 4) changing market forces or litigation which necessitate, in Management's judgment, changes in plans, strategy or tactics of the Company or its subsidiaries; and 5) adverse weather conditions, fluctuations in the investment markets, changes in the retail marketplace, or fluctuations in interest rates, any one of which might materially affect the operations of the Company and/or its subsidiaries. 1996 MIDLAND ANNUAL REPORT - PAGE 16 CONSOLIDATED BALANCE SHEETS THE MIDLAND COMPANY AND SUBSIDIARIES December 31, 1996 1995 - -------------------------------------------------------------------------------- ASSETS Cash $ 3,617,000 $ 6,385,000 -------------- -------------- Marketable Securities: Fixed Income (cost, $333,259,000 in 1996 and $310,742,000 in 1995) 335,675,000 319,663,000 Equity (cost, $30,931,000 in 1996 and $25,993,000 in 1995) 64,787,000 47,391,000 -------------- -------------- Total 400,462,000 367,054,000 -------------- -------------- Receivables: Accounts receivable 59,250,000 55,872,000 Less allowance for losses 1,301,000 1,362,000 -------------- -------------- Net 57,949,000 54,510,000 -------------- -------------- Reinsurance Recoverables and Prepaid Reinsurance Premiums 52,805,000 38,805,000 -------------- -------------- Inventory - Sportswear Division 13,329,000 6,954,000 -------------- -------------- Property, Plant and Equipment: Original cost 124,672,000 131,616,000 Less accumulated depreciation and amortization 42,997,000 45,767,000 -------------- -------------- Net 81,675,000 85,849,000 -------------- -------------- Deferred Insurance Policy Acquisition Costs 45,342,000 43,146,000 -------------- -------------- Other Assets 4,360,000 2,000,000 -------------- -------------- Total Assets $ 659,539,000 $ 604,703,000 ============== ============== See notes to consolidated financial statements. 1996 MIDLAND ANNUAL REPORT - PAGE 17 THE MIDLAND COMPANY AND SUBSIDIARIES December 31, 1996 1995 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Notes Payable Within One Year: Banks $ 28,000,000 $ 31,000,000 Commercial paper 4,700,000 4,620,000 -------------- -------------- Total 32,700,000 35,620,000 -------------- -------------- Insurance Commissions Payable 13,821,000 15,756,000 -------------- -------------- Other Payables and Accruals 42,819,000 37,119,000 -------------- -------------- Funds Held Under Reinsurance Agreements and Reinsurance Payables 26,949,000 20,619,000 -------------- -------------- Unearned Insurance Premiums 208,417,000 190,948,000 -------------- -------------- Insurance Loss Reserves 95,830,000 68,347,000 -------------- -------------- Deferred Federal Income Tax 16,845,000 14,243,000 -------------- -------------- Long-Term Debt 62,470,000 65,456,000 -------------- -------------- Shareholders' Equity: Common stock (issued and outstanding: 3,042,000 shares at December 31, 1996 and 3,020,000 shares at December 31, 1995 after deducting treasury stock of 601,000 shares and 623,000 shares, respectively) 911,000 911,000 Additional paid-in capital 14,846,000 15,362,000 Retained earnings 138,423,000 139,350,000 Net unrealized gain on marketable securities 23,587,000 19,716,000 Treasury stock (at cost) (16,621,000) (16,575,000) Unvested restricted stock awards (1,458,000) (2,169,000) -------------- -------------- Total 159,688,000 156,595,000 -------------- -------------- Total Liabilities and Shareholders' Equity $ 659,539,000 $ 604,703,000 ============== ============== 1996 MIDLAND ANNUAL REPORT - PAGE 18 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Revenues: Insurance $ 303,175,000 $ 282,104,000 $ 219,462,000 Transportation 34,064,000 30,371,000 53,163,000 Sportswear 32,754,000 37,733,000 41,928,000 Other 499,000 752,000 858,000 -------------- -------------- -------------- Total 370,492,000 350,960,000 315,411,000 -------------- -------------- -------------- Costs and Expenses: Insurance: Losses and loss adjustment expenses 172,426,000 136,211,000 113,096,000 Commisions and other policy acquisition costs 81,533,000 80,520,000 64,557,000 Operating and administrative expenses 41,355,000 39,475,000 26,103,000 Transportation operating expenses 31,163,000 28,033,000 47,820,000 Sportswear operating expenses 35,796,000 46,309,000 44,276,000 Interest expense 5,873,000 4,434,000 4,865,000 Other operating and administrative expenses 3,115,000 3,462,000 2,807,000 -------------- -------------- -------------- Total 371,261,000 338,444,000 303,524,000 -------------- -------------- -------------- Income (Loss) Before Federal Income Tax (769,000) 12,516,000 11,887,000 Provision (Credit) For Federal Income Tax (1,837,000) 2,964,000 2,468,000 -------------- -------------- -------------- Net Income 1,068,000 9,552,000 9,419,000 Retained Earnings, Beginning of Year 139,350,000 131,675,000 123,995,000 Cash Dividends Declared (1,995,000) (1,877,000) (1,739,000) -------------- -------------- -------------- Retained Earnings, End of Year $ 138,423,000 $ 139,350,000 $ 131,675,000 ============== ============== ============== Earnings Per share of Common Stock $.35 $3.11 $3.09 ============== ============== ============== Cash Dividends Per Share of Common Stock $.66 $.62 $.58 ============== ============== ============== See notes to consolidated financial statements. 1996 MIDLAND ANNUAL REPORT - PAGE 19 CONSOLIDATED STATEMENTS OF CASH FLOWS THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income $ 1,068,000 $ 9,552,000 $ 9,419,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,863,000 8,960,000 10,609,000 Increase in insurance loss reserves 27,483,000 10,632,000 15,108,000 Increase in unearned insurance premiums 17,469,000 32,632,000 39,514,000 Increase in reinsurance recoverables and prepaid reinsurance premiums (14,000,000) (2,393,000) (16,232,000) Decrease (increase) in inventory - Sportswear Division (6,375,000) 4,162,000 4,852,000 Increase (decrease) in funds held under reinsurance agreements and reinsurance payables 6,330,000 17,662,000 (817,000) Increase in accounts payable and accruals 5,667,000 830,000 8,728,000 Increase in net receivables (3,439,000) (6,044,000) (1,344,000) Decrease (increase) in other assets (2,360,000) (1,267,000) 953,000 Increase in deferred insurance policy acquisition costs (2,196,000) (5,493,000) (8,828,000) Increase (decrease) in insurance commissions payable (1,935,000) 2,282,000 2,010,000 Provision (credit) for deferred federal income tax 519,000 (1,533,000) (9,066,000) Other - net 972,000 (540,000) (908,000) -------------- -------------- -------------- Net cash provided by operating activities 38,066,000 69,442,000 53,998,000 -------------- -------------- -------------- Cash Flows from Investing Activities: Purchase of marketable securities (138,486,000) (152,166,000) (122,895,000) Sale of marketable securities 84,887,000 44,503,000 55,899,000 Maturity of marketable securities 42,041,000 27,791,000 8,372,000 Decrease (increase) in cash equivalent marketable securities (17,445,000) 17,222,000 (8,166,000) Acquisition of property, plant and equipment (4,970,000) (29,204,000) (19,559,000) Sale of property, plan and equipment 1,552,000 1,257,000 52,353,000 -------------- -------------- -------------- Net cash used in investing activities (32,421,000) (90,597,000) (33,996,000) -------------- -------------- -------------- Cash Flows from Financing Activities: Increase (decrease) in net short-term borrowings (2,920,000) 8,074,000 (8,756,000) Repayment of long-term debt (2,647,000) (2,128,000) (28,552,000) Dividends paid (1,962,000) (1,844,000) (1,628,000) Purchase of treasury stock (1,699,000) (1,143,000) (118,000) Issuance of treasury stock 1,154,000 52,000 32,000 Payment of capitalized lease obligations (339,000) (307,000) (879,000) Issuance of long-term debt -- 20,800,000 20,000,000 -------------- -------------- -------------- Net cash provided by (used in) financing activities (8,413,000) 23,504,000 (19,901,000) -------------- -------------- -------------- Net Increase (Decrease) in Cash (2,768,000) 2,349,000 101,000 Cash at Beginning of Year 6,385,000 4,036,000 3,935,000 -------------- -------------- -------------- Cash at End of Year $ 3,617,000 $ 6,385,000 $ 4,036,000 ============== ============== ============== Supplemental Disclosures: The Company paid interest of $5,820,000, $4,998,000, and $5,109,000 and income taxes of $930,000, $7,251,000, and $9,022,000 in 1996, 1995 and 1994, respectively. See notes to consolidated financial statements. 1996 MIDLAND ANNUAL REPORT - PAGE 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE MIDLAND COMPANY AND SUBSIDIARIES Years Ended December 31, 1996, 1995 and 1994 1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company operates in four business segments: Insurance, Transportation, Sportswear and Other, with the most significant business activities being in insurance. The Company writes insurance business throughout the nation with larger concentrations in the Southern and Southeastern states. Such business consists primarily of physical damage insurance on manufactured homes featuring coverages similar to conventional homeowners insurance policies. The accounting policies of the Company and its subsidiaries conform to generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with generally accepted accounting principles requires management to use numerous estimates and assumptions. The accompanying consolidated financial statements include estimates for items such as insurance loss reserves, income taxes and various other liability accounts. Actual results could differ from those estimates. Policies that affect the more significant elements of the consolidated financial statements are summarized below. Principles of Consolidation--The consolidated financial statements include the accounts of the Company and all subsidiary companies. Material intercompany balances and transactions have been eliminated. Marketable Securities--Marketable securities are categorized as debt securities (cash equivalents, debt instruments and preferred stocks having scheduled redemption provisions) and equity securities (common and preferred stocks which do not have redemption provisions). The Company classifies all debt and equity securities as available-for-sale and carries such investments at market value (see Note 2). Unrealized gains or losses on investments, net of related income taxes, are included in shareholders' equity. Realized gains and losses on sales of investments are recognized in income on a specific identification basis. Inventory--The sportswear division's inventory is valued at the lower of cost (using the weighted average method of inventory valuation) or market. Property and Depreciation--Property, plant and equipment are recorded at cost. Depreciation and amortization are generally calculated using accelerated methods over the estimated useful lives of the respective properties (buildings and equipment - 15 to 35 years, furniture and equipment - 5 to 7 years, and vessels and barges - 20 to 30 years). Federal Income Tax--Deferred federal income taxes are recognized to reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes. Investment tax credits previously allowed on property additions were deferred in the year of tax benefit and are being amortized against future operations over the estimated useful lives of the related properties. The Company files a consolidated federal income tax return which includes all subsidiaries. Insurance Income--Premiums for physical damage and credit accident and health insurance, net of premiums ceded to reinsurers, are recognized as income on a pro-rata basis over the lives of the policies. Credit life premiums are recognized as income over the lives of the policies using the sum-of-the-digits method. The Company does not consider anticipated investment income in determining premium deficiencies (if any) on short-term contracts. Policy acquisition costs, primarily commission expenses and premium taxes, are capitalized and expensed over the terms of the related policies on the same basis as the related premiums are earned. Selling and administrative expenses which are not primarily related to premiums written are expensed as incurred. Insurance Loss Reserves--Unpaid insurance losses and loss adjustment expenses include an amount determined from reports on individual cases and an amount, based on past experience, for losses incurred but not reported. Such liabilities are necessarily based on estimates and, while management believes that the amounts are fairly stated, the ultimate liability may be in excess of or less than the amounts provided. The methods of making such estimates and for establishing the resulting liabilities are continually reviewed and any adjustments resulting therefrom are included in earnings currently. Insurance loss reserves also include an amount for claim drafts issued but not yet paid. Allowance for Losses--Provisions for losses on receivables are made in amounts deemed necessary to maintain adequate reserves to cover possible future losses. Statements of Cash Flows--For purposes of the statements of cash flows, the Company defines cash as cash held in operating accounts at financial institutions. The amounts reported in the statements of cash flows for the purchase, sale or maturity of marketable securities do not include cash equivalents. Earnings per Share--Earnings per share of common stock calculations are computed based on the weighted average number of shares outstanding during the years. The effect of shares issuable under the Company's stock option and award plans are comprehended in the earnings per share calculations. Fair Value of Financial Instruments--The book values of cash, receivables, short-term notes payable, trade accounts payable and any financial instruments included in other assets and accrued liabilities approximate their fair values principally because of the 1996 MIDLAND ANNUAL REPORT - PAGE 21 short-term maturities of these instruments. The fair value of investments (Note 2) is considered to be the market value which is based on quoted market prices. The fair value of long-term debt (Note 6) is estimated using interest rates that are currently available to the Company for issuance of debt with similar terms and maturities. Stock Option and Award Plans--The Company has various plans which provide for granting options and common stock to certain employees and independent directors of the Company and its subsidiaries. The Company accounts for compensation expense related to such transactions using the "intrinsic value" based method under the provisions of Accounting Principles Board Opinion No. 25. Reclassifications--Certain previously reported amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year's classifications. 2. MARKETABLE SECURITIES Thousands of Dollars -------------------------------------------- Gross Unrealized ------------------ Market 1996 Cost Gains Losses Value - --------------------------------------------------------------------- Debt Securities: Governments $169,020 $ 1,437 $ 974 $169,483 Municipals 68,675 1,807 98 70,384 Corporates 40,219 340 97 40,462 Cash Equivalents 50,936 - - 50,936 -------------------------------------------- Total 328,850 3,584 1,169 331,265 Equity Securities 30,770 34,283 426 64,627 Accrued Interest and Dividends 4,570 - - 4,570 -------------------------------------------- Total Marketable Securities $364,190 $37,867 $1,595 $400,462 ============================================ Thousands of Dollars -------------------------------------------- Gross Unrealized ------------------ Market 1995 Cost Gains Losses Value - --------------------------------------------------------------------- Debt Securities: Governments $147,454 $ 5,575 $ 87 $152,942 Municipals 90,152 2,871 119 92,904 Corporates 34,665 708 26 35,347 Cash Equivalents 33,495 - - 33,495 -------------------------------------------- Total 305,766 9,154 232 314,688 Equity Securities 25,880 22,031 634 47,277 Accrued Interest and Dividends 5,089 - - 5,089 -------------------------------------------- Total Marketable Securities $336,735 $31,185 $866 $367,054 ============================================ Included in the determination of net income are the following (amounts in 000's): 1996 1995 1994 ----------------------------------- Gross Realized Gains $ 5,024 $ 3,045 $ 3,252 Gross Realized Losses (2,335) (672) (1,062) Other Investment Income 20,141 18,068 12,114 Investment Expenses (891) (639) (1,044) ----------------------------------- Net Investment Income $21,939 $19,802 $13,260 =================================== The cost and approximate market value of debt securities held at December 31, 1996 summarized by contractual maturities, are shown below. Actual maturities may differ from contractual maturities when there exists a right to call or prepay obligations with or without call or prepayment penalties (amounts in 000's). Market Cost Value ------------------------- Under 1 year $ 88,559 $ 88,689 1-5 years 129,105 130,413 6-10 years 89,518 90,435 Over 10 years 21,668 21,728 ------------------------- Total $328,850 $331,265 ========================= 3. RECEIVABLES Accounts receivable at December 31, 1996 and 1995 are generally due within one year and consist of the following (amounts in 000's): 1996 1995 ------------------------ Insurance $45,273 $44,932 Transportation 4,102 3,646 Sportswear 4,575 4,609 Other 5,300 2,685 ------------------------ Total $59,250 $55,872 ======================== 4. PROPERTY, PLANT AND EQUIPMENT At December 31, 1996 and 1995, property, plant and equipment stated at original cost consist of the following (amounts in 000's): 1996 1995 ------------------------- Land $ 1,771 $ 1,771 Buildings, improvements, fixtures, etc. 78,199 75,303 Vessels and barges 41,596 51,436 Transportation equipment under capital leases 3,106 3,106 ------------------------- Total $124,672 $131,616 ========================= 1996 MIDLAND ANNUAL REPORT - PAGE 22 In December 1994, the Company sold a major portion of the assets related to its river transportation division. The sales price of $46,761,000 approximated the net book value of the assets sold. Total rent expense related to the rental of equipment included in the accompanying consolidated statements of income is $4,867,000 in 1996, $3,470,000 in 1995 and $1,833,000 in 1994. Future rentals under non-cancelable operating leases will be approximately $2,374,000 in 1997. The Company has commitments for the acquisition of 41 barges in 1997 at a cost of $11,875,000. 5. NOTES PAYABLE TO BANKS At December 31, 1996 and 1995, the Company had conventional lines of credit with commercial banks of $45,000,000. The lines of credit in use under these agreements at December 31, 1996 and 1995 amounted to $25,000,000 and $20,000,000, respectively. Borrowings under these lines of credit constitute senior debt. Commitment fees are currently required by the lending institutions to maintain these credit agreements. Additionally, at December 31, 1996 and 1995, the Company had other short-term bank borrowings outstanding of $3,000,000 and $11,000,000, respectively. These borrowings also constitute senior debt. The aforementioned notes payable, together with outstanding commercial paper, had weighted average interest rates of 5.95% and 6.0% at December 31, 1996 and 1995, respectively. 6. LONG-TERM DEBT Long-term debt at December 31, 1996 and 1995 is summarized as follows (amounts in 000's): 1996 1995 -------------------- Equipment Obligations, Due Through - 6.45% July 1, 2000 $ 2,470 $ 2,850 6.35% December 31, 1998 6,160 7,040 5.82% October 31, 1998 4,337 4,957 Mortgage Notes, Due Through - 6.94% December 20, 2005 20,304 20,800 5.82% December 1, 2003 8,187 8,458 Unsecured Notes, Payments Beginning 2000 - * 6.4875 November 1, 2003 20,000 20,000 Capitalized Lease Obligations 1,012 1,351 -------------------- Total obligations 62,470 65,456 Less current maturities 3,079 2,986 -------------------- Total $59,391 $62,470 ==================== * Rate in effect on December 31, 1996. The interest rate on this $40,000,000 credit facility is adjusted quarterly to the LIBOR rate plus 1%. Equipment and real estate obligations are collateralized by transportation equipment and real estate with a net book value of approximately $52,000,000. The aggregate amount of repayment requirements on long-term debt and capitalized leases for the five years subsequent to 1996 are (amounts in 000's): 1997 - $3,079; 1998 - $10,671; 1999 - $1,542; 2000 - $7,328; 2001 - $6,070. At December 31, 1996 and 1995, the carrying value and the approximate fair value of the Company's long-term debt were as follows (amounts in 000's): 1996 1995 -------------------- Carrying Value $62,470 $65,456 ==================== Fair Value $61,790 $64,767 ==================== 7. FEDERAL INCOME TAX The provision for federal income tax is summarized as follows (amounts in 000's): 1996 1995 1994 ----------------------------------- Current provision (credit) $(2,356) $ 4,497 $11,534 Deferred provision (credit) 519 (1,533) (9,066) ----------------------------------- Total $(1,837) $ 2,964 $ 2,468 =================================== The federal income tax provision for the years ended December 31, 1996, 1995 and 1994 is different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (amounts in 000's): 1996 1995 1994 ----------------------------------- Federal income tax (credit) at statutory rate $ (269) $ 4,381 $ 4,160 Tax effect of: Tax exempt interest and excludable dividend income (1,574) (1,392) (1,247) Business meals and entertainment expenses 151 144 140 Investment tax credits (169) (175) (488) Other--net 24 6 (97) ----------------------------------- Provision (credit) for federal income tax $(1,837) $ 2,964 $2,468 =================================== 1996 MIDLAND ANNUAL REPORT - PAGE 23 Significant components of the Company's net deferred federal income tax liability are summarized as follows (amounts in 000's): 1996 1995 -------------------- Deferred Tax Liabilities: Deferred insurance policy acquisition costs $14,970 $14,266 Unrealized gain on marketable securities 12,685 10,602 Accelerated depreciation 6,808 5,879 Investment tax credits 955 1,124 Other 1,005 642 -------------------- Sub-total 36,423 32,513 -------------------- Deferred Tax Assets: Unearned insurance premiums 12,187 11,187 Pension expense 3,022 2,318 Insurance loss reserves 2,009 1,618 Other 2,360 3,147 -------------------- Sub-total 19,578 18,270 -------------------- Deferred federal income tax $16,845 $14,243 ==================== 8. REINSURANCE The Company reinsures certain levels of risk with other insurance companies and cedes varying portions of its written premiums to such reinsurers. Failure of reinsurers to honor their obligations could result in losses to the Company as reinsurance contracts do not relieve the Company from its obligations to policyholders. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. In addition, the Company pays a percentage of earned premiums to reinsurers in return for coverage against catastrophic losses. The Company also assumes a limited amount of business on certain reinsurance contracts. Related premiums and loss reserves are recorded based on records supplied by the ceding companies. A reconciliation of direct to net premiums, on both a written and an earned basis for the property and casualty companies, is as follows: Thousands of Dollars ------------------------------------------ Direct Assumed Ceded Net ------------------------------------------ 1996 Written $357,207 $28,747 $(96,810) $289,144 Earned 346,919 21,284 (92,674) 275,529 1995 Written $348,187 $27,320 $(91,022) $284,485 Earned 301,388 18,046 (60,567) 258,867 1994 Written $263,250 $11,836 $(39,689) $235,397 Earned 235,299 7,711 (38,433) 204,577 9. INSURANCE LOSS RESERVES Activity in the liability for unpaid insurance losses and loss adjustment expenses (excluding claim checks issued but not yet paid) for the property and casualty companies is summarized as follows (amounts in 000's): 1996 1995 1994 ------------------------------------ Balance at January 1 $ 61,497 $ 52,078 $ 33,964 Less reinsurance recoverables 13,785 14,597 6,220 ------------------------------------ Net Balance at January 1 47,712 37,481 27,744 ------------------------------------ Incurred related to: Current year 166,554 141,887 114,511 Prior years 3,771 (7,347) (2,076) ------------------------------------ Total incurred 170,325 134,540 112,435 ------------------------------------ Paid related to: Current year 121,782 105,269 93,014 Prior years 31,471 19,040 9,684 ------------------------------------ Total paid 153,253 124,309 102,698 ------------------------------------ Net balance at December 31 64,784 47,712 37,481 Plus reinsurance recoverables 24,208 13,785 14,597 ------------------------------------ Balance at December 31 $ 88,992 $ 61,497 $ 52,078 ==================================== The amounts of recoveries pertaining to reinsurance contracts that were deducted from losses incurred during 1996, 1995 and 1994 were approximately $71,133,000, $47,152,000 and $20,231,000, respectively. 1996 MIDLAND ANNUAL REPORT - PAGE 24 10. BENEFIT PLANS The Company has qualified pension plans which provide for the payment of annual benefits to substantially all employees upon retirement. Such benefits are based on years of service and the employee's highest compensation during five consecutive years of employment. The Company's funding policy is to contribute annually an amount sufficient to satisfy ERISA funding standards. Contributions are intended to provide not only for benefits attributed to service to date but also for benefits expected to be earned in the future. The following table sets forth the plans' funded status (amounts in 000's): 1996 1995 --------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $13,949 in 1996 and $13,876 in 1995 $14,773 $14,467 ===================== Projected benefit obligation for service rendered to date $20,849 $19,882 Plan assets at fair value, primarily U.S. bonds and listed stocks 19,774 17,822 --------------------- Plan assets less than projected benefit obligation (1,075) (2,060) Unrecognized net assets at January 1, 1987 being recognized over 18 years (1,278) (1,443) Unrecognized prior service cost 529 563 Unrecognized net loss (gain) (2,162) (42) --------------------- Pension liability included in Other Payables and Accruals $(3,986) $(2,982) ===================== Net pension cost included the following (amounts in 000's): 1996 1995 1994 ----------------------------------- Service cost--benefits earned during the year $ 1,037 $ 843 $ 725 Interest cost on projected benefit obligation 1,469 1,381 1,216 Actual return on plan assets--(gain) (2,691) (3,144) 315 Net amortization and deferral 1,289 1,836 (1,619) ----------------------------------- Net periodic pension plan cost $ 1,104 $ 916 $ 637 =================================== Total pension cost was $1,956,000 in 1996, $1,365,000 in 1995 and $896,000 in 1994. Included in the above amounts is a supplemental pension plan expense of $852,000 in 1996, $449,000 in 1995 and $259,000 in 1994. These amounts represent expenses accrued for supplemental pension benefits in excess of Internal Revenue Code Section 415 limitations. The supplemental pension plan is unfunded. The Company has recognized a liability of $2,800,000 related to this plan and the plan has an accumulated benefit obligation of $3,900,000 and a projected benefit obligation of $7,200,000 at December 31, 1996. The discount rates used in determining the plans' actuarial present value of the projected benefit obligation were 7-1/2% in 1996, 7-1/4% in 1995 and 8% in 1994. The rates of increase in future compensation levels used in determining the actuarial present value of the plans' projected benefit obligation were 5 1/2% in 1996 and 1995, and 6% in 1994. The expected long-term rate of return on assets was 8% in all three years. 11. STOCK OPTION AND AWARD PLANS Under the Company's stock option plans, all of the outstanding stock options at December 31, 1996 were exercisable non-qualified options and had an exercise price of not less than 100% of the fair market value of the common stock on the date of grant. A summary of stock option transactions follows: 1996 1995 1994 --------------------------------------------------------------- Avg. Avg. Avg. (000's) Option (000's) Option (000's) Option Shares Price Shares Price Shares Price --------------------------------------------------------------- Outstanding, beginning of year 219 $25.76 216 $24.69 218 $24.67 Exercised (67) 17.72 (2) 21.16 (2) 20.81 Expired - - (4) 26.94 - - Granted - - 9 50.75 - - --------------------------------------------------------------- Outstanding, end of year 152 $29.31 219 $25.76 216 $24.69 =============================================================== 1996 MIDLAND ANNUAL REPORT - PAGE 25 Information regarding such outstanding options at December 31, 1996 follows: Weighted Average Outstanding Weighted Remaining Life Options Average Price - ------------------------------------------------------- One year 6,400 $19.81 Three years 127,300 26.80 Seven years 18,000 50.44 ----------------------------- Total 151,700 $29.31 ============================= The Company implemented a restricted stock award program during 1993. Under this program, grants of the Company's common stock will vest after an incentive period, conditioned upon the recipient's employment throughout the period. During the vesting period, shares issued are nontransferable, but the shares are entitled to all of the rights of outstanding shares. In 1993, 32,000 shares were awarded under this program and 27,000 shares remain outstanding at December 31, 1996. In 1995, 49,000 shares were awarded under the program and 47,000 shares remain outstanding at December 31, 1996. The value of the awards is being amortized as compensation expense over a five year vesting period. The difference in net income computed using APB Opinion No. 25 for options and Financial Accounting Standards No. 123 is not significant. 12. CONTINGENCIES Various litigation and claims against the Company and its subsidiaries are in process and pending. Based upon a review of open matters with legal counsel, management believes that the outcome of such matters would not have a material effect upon the Company's consolidated financial position or results of operations. 13. INDUSTRY SEGMENTS Listed below is financial information required to be reported for each industry segment. Interest expense includes intercompany interest not eliminated for purposes of segment reporting. Thousands of Dollars ------------------------------------ 1996 1995 1994 ------------------------------------ Total segment revenues Insurance $303,986 $283,141 $222,632 Transportation 34,910 31,385 53,190 Sportswear 32,754 37,733 41,928 Other 2,250 3,647 645 Intersegment revenues (3,408) (4,946) (2,984) ------------------------------------ Total $370,492 $350,960 $315,411 ==================================== Operating profit Insurance $ 8,649 $ 26,930 $ 16,630 Transportation 3,747 3,352 5,370 Sportswear (3,042) (8,577) (2,348) Other (842) 191 84 Interest expense (5,873) (4,434) (4,865) Intersegment interest expense (3,408) (4,946) (2,984) ------------------------------------ Total $ (769) $ 12,516 $ 11,887 ==================================== Acquisition of fixed assets Insurance $ 2,440 $ -- $ -- Transportation 6,326 170 6,846 Sportswear 567 1,074 583 Corporate and other 1,603 27,960 12,130 ------------------------------------ Total $ 10,936 $ 29,204 $ 19,559 ==================================== Depreciation and amortization Insurance $ 2,903 $ -- $ -- Transportation 2,488 3,004 5,773 Sportswear 924 1,065 1,078 Corporate and other 2,548 4,891 3,758 ------------------------------------ Total $ 8,863 $ 8,960 $ 10,609 ==================================== Identifiable assets Insurance $551,498 $494,638 $379,287 Transportation 41,458 48,375 52,534 Sportswear 20,077 14,018 17,264 Corporate and other 78,407 76,983 53,087 Intersegment receivables (31,901) (29,311) (19,626) ------------------------------------ Total $659,539 $604,703 $482,546 ==================================== 1996 MIDLAND ANNUAL REPORT - PAGE 26 14. SHAREHOLDERS' EQUITY The Midland Company has 5,000,000 shares of common stock authorized without par value (stated value of $.25 a share), including 720,000 shares at December 31, 1996 reserved for future issuance under the Company's stock option and award plans. The Company also has 500,000 shares of preferred stock authorized, without par value, none of which have been issued. Covenants included in the borrowing agreements of M/G Transport Services, Inc. limit its payment of dividends to The Midland Company. Under the most restrictive of such covenants, $10,700,000 of its $14,700,000 of shareholder's equity was not available for distribution to the Company at December 31, 1996. The insurance subsidiaries are subject to state regulations which limit by reference to statutory investment income and policyholders' surplus the dividends that can be paid to their parent company without prior regulatory approval. Dividend restrictions vary between the companies as determined by the laws of the domiciliary states. Under these restrictions, the maximum dividends that may be paid to the Company from its insurance subsidiaries in 1997 without regulatory approval is approximately $15,000,000; such subsidiaries paid actual cash dividends of $4,375,000 in 1996, $1,060,000 in 1995 and $4,000,000 in 1994. Net income as determined in accordance with statutory accounting practices for the Company's insurance subsidiaries was $5,396,000, $13,367,000 and $3,616,000 for 1996, 1995 and 1994, respectively. Shareholders' equity on the same basis was $131,913,000 and $120,398,000 at December 31, 1996 and 1995. Activity in the Shareholders' equity accounts is summarized as follows (amounts in 000's): Net Unrealized Unvested Additional Gain on Restricted Common Paid-In Retained Marketable Treasury Stock Stock Capital Earnings Securities Stock Awards Total ------------------------------------------------------------------ Balance, January 1, 1994 $911 $14,620 $123,995 $11,308 $(16,564) $(1,160) $133,110 Net income 9,419 9,419 Purchase of treasury stock (118) (118) Cash dividends declared (1,739) (1,739) Exercise of stock options (7) 39 32 Changes in unrealized gain on investments, net of tax (8,554) (8,554) Amortization and cancellation of unvested restricted stock awards (6) (5) 298 287 ------------------------------------------------------------------ Balance, December 31, 1994 911 14,607 131,675 2,754 (16,648) (862) 132,437 Net income 9,552 9,552 Purchase of treasury stock (1,143) (1,143) Cash dividends declared (1,877) (1,877) Exercise of stock options (12) 64 52 Changes in unrealized gain on investments, net of tax 16,962 16,962 Restricted stock awards 855 1,262 (2,117) -- Amortization and cancellation of unvested restricted stock awards (88) (110) 810 612 ------------------------------------------------------------------ Balance, December 31, 1995 911 15,362 139,350 19,716 (16,575) (2,169) 156,595 Net income 1,068 1,068 Purchase of treasury stock, net 111 (1,810) (1,699) Cash dividends declared (1,995) (1,995) Exercise of stock options (620) 1,774 1,154 Changes in unrealized gain on investments, net of tax 3,871 3,871 Amortization and cancellation of unvested restricted stock awards (7) (10) 711 694 ------------------------------------------------------------------ Balance, December 31, 1996 $911 $14,846 $138,423 $23,587 $(16,621) $(1,458) $159,688 ================================================================== 1996 MIDLAND ANNUAL REPORT - PAGE 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS THE MIDLAND COMPANY AND SUBSIDIARIES Deloitte & Touche LLP Cincinnati, Ohio To the Shareholders of The Midland Company: We have audited the accompanying consolidated balance sheets of The Midland Company and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income and retained earnings and of cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Midland Company and its subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. S/ Deloitte & Touche LLP Deloitte & Touche LLP February 13, 1997 MANAGEMENT'S REPORT The consolidated financial statements and accompanying notes of The Midland Company and its subsidiaries are the responsibility of the Company's management, and have been prepared in conformity with generally accepted accounting principles. They necessarily include amounts that are based on management's best estimates and judgments. Other financial information contained in this annual report is presented on a basis consistent with the financial statements. In order to maintain the integrity, objectivity and fairness of data in these financial statements, the Company has developed and maintains a comprehensive internal control structure which is supplemented by a program of internal audits. Management believes that the Company's internal control structure is adequate to provide reasonable, but not absolute, assurance that assets are safeguarded and the objectives of accuracy and fair presentation of financial data are met in all material respects. The financial statements have been audited by Deloitte & Touche LLP, Certified Public Accountants, in accordance with generally accepted auditing standards, including sufficient tests of the accounting records to enable them to express an informed opinion as to whether the financial statements, considered in their entirety, present fairly the Company's financial position and results of operations in conformity with generally accepted accounting principles. Deloitte & Touche LLP reviews the results of its audit both with management and with the Audit Committee. The Audit Committee, comprised entirely of outside Directors, meets periodically with management, internal auditors and independent auditors (separately and jointly) to assure that each is fulfilling its responsibilities. 1996 MIDLAND ANNUAL REPORT - PAGE 28 OFFICERS AND DIRECTORS THE MIDLAND COMPANY AND SUBSIDIARIES BOARD OF DIRECTORS OFFICERS George R. Baker u J. P. Hayden, Jr. Corporate Director/Advisor Chairman and Chief Executive Officer James H. Carey u n Michael J. Conaton Corporate Director/Advisor President and Chief Operating Officer Michael J. Conaton J. P. Hayden, III President and Chief Operating Officer Senior Executive Vice President J. P. Hayden, Jr. John W. Hayden Chairman and Chief Executive Officer Senior Executive Vice President J. P. Hayden, III John R. LaBar Senior Executive Vice President Vice President and Secretary John W. Hayden Robert W. Hayden Senior Executive Vice President Vice President Robert W. Hayden John I. Von Lehman Vice President Executive Vice President, Treasurer and Chief Financial Officer William T. Hayden Attorney Thomas J. Rohs Vice President William J. Keating u Formerly Chairman, Chief Executive Charles J. Jenkins Officer and Publisher-Cincinnati Vice President-Management Enquirer and Formerly Chairman of Information Systems the Board-Associated Press Michael L. Flowers William McD. Kite Assistant Secretary Member and Chief In-House Counsel Cohen, Todd, Kite & Stanford, LLC Paul T. Brizzolara John R. LaBar Assistant Vice president and Vice President and Secretary Assistant Secretary John M. O'Mara n Ronald L. Gramke Corporate Director/Financial Consultant Assistant Treasurer John R. Orther n Edward J. Heskamp Certified Public Accountant Assistant Treasurer William F. Plettner W. Todd Gray Formerly Vice Chairman and Assistant Treasurer President of the Company Mary Ann C. Pettit Glenn E. Schembechler n Assistant Secretary Professor Emeritus University of Michigan Geraldine M. Stigall Assistant Secretary John I. Von Lehman Executive Vice President, Treasurer n Member of Audit Committee and Chief Financial Officer u Member of Compensation Committee 1996 MIDLAND ANNUAL REPORT - INSIDE REAR COVER SUBSIDIARY OFFICERS THE MIDLAND COMPANY AMERICAN MODERN INSURANCE GROUP, INC. Chairman and Chief Executive Officer Thomas J. Rohs Vice Chairman John W. Hayden President and Chief Operating Officer Kurt R. Schwamberger Executive Vice President and Chief Financial Officer Kenneth G. Boberg Executive Vice President Ronald L. Crippin Senior Vice President Robert E. Hilliard Charles J. Jenkins Vice President and Treasurer James P. Tierney Vice President Gregory P. Bauke John F. Behringer Michael R. Bowen Floyd R. Carr Gary A. Cobb Donald E. Crawford Richard V. Crouch Douglas A. Detrick Dennis L. Gassaway Mark L. Gatto Clifton L. Gentry Daniel J. Gilene Russell M. Griffin Raymond R. Johnston James M. Knighten Julie K. Kroger William J. Lagano Gary D. Lund Donald E. Lydick Joseph W. Magnano Gerald W. McGuire Michael R. McMillian Andre J. Pecqueur James P. Romerill Frederick C. Wagner Stephen R. Wilson Assistant Vice President Eugene G. Burke Terry G. Cogswell Thomas D. Contreras Robert P. Crowley Helen S. Danford Stephen J. Eilerman Steven J. Eisenhauer William G. Fawcett Theodore H. Fischer William T. Foster Mark J. Grabowski Laura H. Harris Charles F. Hill Robert H. Holst Daniel J. LaBar Christy A. LaGory Jeffrey W. Martin Frank J. May Charles H. Mayfield David C. McNutt Douglas G. Merriman Kevin M. Morreale C. V. Vaughan Sandra L. Wagner Lee J. Workum CS CRABLE SPORTSWEAR, INC. Chairman and Chief Executive Officer John W. Hayden President and Chief Operating Officer Richard K. Queen Vice President Keith E. Cottrell Joseph A. Granski, Jr. Thomas R. Hayden Timothy A. Herzog Gary R. Massa M/G TRANSPORT SERVICES, INC. President and Chief Operating Officer J. P. Hayden, III Vice President Frank J. Gusich Jack L. Lordo Treasurer Raymond R. Ludmann Assistant Controller Martin J. Novakov MGT SERVICES, INC. President Thomas C. Terrell, III Executive Vice President J. Kevin Jennings Vice President James R. Jarvis Robbie M. Uvanni OTHER INFORMATION TRANSFER AGENT AND REGISTRAR INDEPENDENT AUDITORS GENERAL AND TAX COUNSEL Fifth Third Bank Deloitte & Touche LLP Cohen, Todd, Kite & 38 Fountain Square, 250 East Fifth Street Stanford, LLC Mail Drop #1090F5 Cincinnati, Ohio 45202 525 Vine Building Cincinnati, Ohio 45263 Cincinnati, Ohio 45202 SHAREHOLDERS' MEETING The next meeting of the shareholders will be held at 10:00 a.m. on Thursday, April 10, 1997 at the Company's offices, 7000 Midland Boulevard, Amelia, Ohio 45102. DIVIDEND REINVESTMENT PLAN The Plan provides for the acquisition of additional shares of the Company without brokerage fees through automatic dividend reinvestment. Enrollment forms and information about the Plan are available from Fifth Third Bank (1-800-837-2755). FORM 10-K A copy of the Company's 1996 Annual Report to the Securities and Exchange Commission on Form 10-K may be obtained by writing to the Company - Attention: Secretary. EX-21 4 EXHIBIT (21) THE MIDLAND COMPANY AND SUBSIDIARIES EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1996 The subsidiaries of the Registrant as of December 31, 1996, all of which are included in the consolidated financial statements, are as follows: Percentage State of of Voting Incorporation Stock Owned --------------- ------------ M/G Transport Services, Inc. Ohio 100 Midland-Guardian Co. Ohio 100 MGT Services, Inc. Ohio 100 CS Crable Sportswear, Inc. Ohio 100 SUBSIDIARIES OF MIDLAND-GUARDIAN CO. American Modern Insurance Group, Inc. Ohio 100 Marbury Agency, Inc. Ohio 100 SUBSIDIARIES OF AMERICAN MODERN INSURANCE GROUP, INC. American Modern Home Insurance Co. Ohio 100 American Family Home Insurance Co. Florida 100 Atlas Insurance Agency, Inc. Ohio 100 American Modern Life Insurance Company Ohio 100 Midwest Enterprises, Inc. Florida 100 Lloyds Modern Corporation Texas 100 American Modern Home Service Company Ohio 100 SUBSIDIARIES OF AMERICAN MODERN HOME INSURANCE CO. American Modern Lloyds Insurance Co. Texas 100 American Southern Home Insurance Co. Florida 100 American Western Home Insurance Co. Oklahoma 100 Guardian Underwriters Insurance Company, Inc. Pennsylvania 100 SUBSIDIARY OF AMERICAN WESTERN HOME INSURANCE CO. American Modern Life Insurance Company of Arizona, Inc. Arizona 100 SUBSIDIARY OF MIDWEST ENTERPRISES, INC. Sunbelt General Agency, Inc. Alabama 100 The names of five wholly-owned subsidiaries of The Midland Company are not shown above as such individual listing is not required. 15 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 DEC-31-1996 3,617,000 400,462,000 112,055,000 1,301,000 13,329,000 0 124,672,000 42,997,000 659,539,000 0 62,470,000 911,000 0 0 158,777,000 659,539,000 32,754,000 370,492,000 27,179,000 362,348,000 3,115,000 (75,000) 5,873,000 (769,000) (1,837,000) 1,068,000 0 0 0 1,068,000 .35 .35
-----END PRIVACY-ENHANCED MESSAGE-----