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