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UNITED STATES
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, 1997
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_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 16, 1998 was $251,911,000.
Number of shares of common stock outstanding as of March 16, 1998 -
3,100,446.
Documents Incorporated by Reference
Annual Report to Shareholders for the year ended December 31, 1997 is
incorporated by reference into Parts I, II and IV.
Registrant's Proxy Statement dated March 6, 1998 is incorporated by
reference into Parts III and IV.
1
THE MIDLAND COMPANY
FORM 10-K
DECEMBER 31, 1997
Certain statements contained in this report that are not historical facts
constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by
the safe harbors created by that Act. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to differ materially from those expressed or implied. Any
forward-looking statement speaks only as of the date made. The Midland
Company undertakes no obligation to update any forward-looking statements to
reflect events or circumstances arising after the date on which they are made.
Statements concerning expected financial performance, on-going business
strategies and possible future action which The Midland Company intends to
pursue to achieve strategic objectives constitute forward-looking information.
Implementation of these strategies and the achievement of such financial
performance are each subject to numerous conditions, uncertainties and risk
factors.
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.
2
PART I
ITEM 1. Business.
Incorporated by reference from the inside cover and pages 2 through 11 and 28
(Note 17) of the Registrant's 1997 Annual Report to Shareholders. The number
of persons employed by the Registrant was approximately 805 at December 31,
1997.
Property and Casualty Loss Reserves
The Company's consolidated financial statements include the estimated liability
(reserves) for unpaid losses and loss adjustment expenses (LAE) of its property
and casualty insurance subsidiaries. The liability is presented net of amounts
recoverable from salvage and subrogation and includes amounts recoverable from
reinsurance for which receivalbes are recognized.
The Company establishes reserves for losses that have been reported to the
Company and certain legal expenses on the "case basis" method. The Company
estimates claims incurred but not reported ("IBNR") and other adjustment
expenses using statistical procedures. The Company accrues salvage and
subrogation recoveries using the "case basis" method for large claims and
statistical procedures for smaller claims.
The Company's objective is to set reserves that are adequate; that is, the
amounts originally recorded as reserves should at least equal the amounts
ultimately expected to be required to settle losses. The Company's reserves
aggregate its best estimates of the total ultimate cost of claims that have been
incurred but have not yet been paid. The estimates are based on past claims
experience and reflect current claims trends as well as social, legal and
economic conditions, including inflation. The reserves are not discounted.
The Company reviews its loss and loss adjustment expense reserve development on
a regular basis to determine whether the reserving assumptions and methods are
appropriate. Reserves initially determined are compared to the amounts
ultimately paid. The Company regularly makes statistical estimates of the
projected amounts necessary to settle outstanding claims, compares these
estimates to the recorded reserves and adjusts the reserves as necessary. The
adjustments are reflected in current operations.
There are no material differences between the loss and LAE liability reported in
the accompanying consolidated financial statements in accordance with generally
accepted accounting principles ("GAAP") and that reported in the annual
statements filed with state insurance departments in accordance with statutory
accounting practices ("SAP").
The following table provides an analysis of changes in loss and LAE reserves for
1997, 1996 and 1995 (net of reinsurance amounts) for the Company. Based on the
information available during and at the end of each of the respective years,
operations were charged $5,230,000 in 1997 and $3,771,000 in 1996 as a result of
an increase in the estimated amounts needed to settle prior years' claims.
Operations were credited $7,347,000 in 1995 for such estimates. Such reserve
adjustments, which affected current operations during each of the years,
resulted from developed losses from prior years being different than were
anticipated when the liability for losses and loss adjustment expense were
originally estimated. These development trends have been considered in
establishing the current year liabilities.
3
(Amounts in 000's)
---------------------------------------
1997 1996 1995
---------------------------------------
Balance at January 1 $ 88,992 $ 61,497 $ 52,078
Less reinsurance recoverables 24,208 13,785 14,597
---------------------------------------
Net balance at January 1 64,784 47,712 37,481
---------------------------------------
Incurred related to:
Current year 163,035 166,554 141,887
Prior years 5,230 3,771 (7,347)
---------------------------------------
Total incurred 168,265 170,325 134,540
---------------------------------------
Paid related to:
Current year 113,841 121,782 105,269
Prior years 37,307 31,471 19,040
---------------------------------------
Total paid 151,148 153,253 124,309
---------------------------------------
Net balance at
December 31 81,901 64,784 47,712
Plus reinsurance recoverables 26,433 24,208 13,785
---------------------------------------
Balance at December 31 $108,334 $ 88,992 $ 61,497
---------------------------------------
Analysis of Loss and LAE Reserve Development
The next table presents the development of the estimated liability for the ten
years prior to 1997. The top line of the table illustrates the estimated
liability for unpaid losses and LAE recorded at the balance sheet date for each
of the indicated years. This liability represents the estimated amount of losses
and LAE for claims arising in all prior years that were unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Company.
The upper portion of the table shows the re-estimated amount of the previously
recorded liability based on experience as of the end of each succeeding year.
The estimate was increased or decreased as more information became known about
the frequency and severity of claims for individual years. Conditions and
trends that have affected development of the liability in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
The "Net Reserve Re-estimated" section of the table shows the cumulative
redundancy (deficiency) developed with respect to the previously recorded
liability for all years as of the end of 1997. For example, the Company's 1990
reserve of $16,570,000 has been re-estimated as of year-end 1997 to be
$13,589,000, indicating a redundancy of $2,981,000.
The lower section of the table shows the cumulative amount paid with respect to
the previously recorded liability as of the end of each succeeding year. For
example, as of December 31, 1997, the Company had paid $13,550,000 of the
currently estimated $13,589,000 of losses and LAE that have been incurred as of
the end of 1990; thus an estimated $39,000 of losses incurred as of the end of
1990 remain unpaid as of the current financial statement date.
The Company's reserve development has been unfavorable beginning in 1995 due to
the Company's expansion into certain areas of commercial lines insurance. These
developments have been considered in establishing the current year liabilities.
4
Analysis of Loss and Loss Adjustment Expense Development
(Amounts in 000's)
Year Ended
December 31 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------------------
Reserve for Unpaid
Losses, Net of
Reinsurance $12,553 $12,464 $15,732 $16,570 $19,089 $20,405 $27,744 $37,481 $47,712 $64,784 $ 81,901
Net Reserve Re-estimated
as of:
One Year Later 12,148 11,609 15,167 15,492 17,160 18,425 25,668 30,134 51,483 70,014
Two Years Later 12,456 11,534 15,043 14,859 15,699 18,451 22,686 32,074 53,467
Three Years Later 12,351 11,292 14,397 13,841 15,202 16,871 21,154 31,880
Four Years Later 12,374 11,024 13,773 13,929 14,497 16,616 20,966
Five Years Later 12,165 10,886 13,758 13,663 14,393 16,505
Six Years Later 12,172 10,926 13,754 13,598 14,373
Seven Years Later 12,211 10,962 13,722 13,589
Eight Years Later 12,235 10,948 13,741
Nine Years Later 12,235 10,967
Ten Years Later 12,235
Net Cumulative
Redundancy
(Deficiency) $ 318 $ 1,497 $ 1,991 $ 2,981 $ 4,716 $ 3,900 $ 6,778 $ 5,601 $(5,755) $(5,230)
==================================================================================================
Net Cumulative
Amount of
Reserve Paid
Through:
One Year Later $ 9,825 $ 8,659 $11,210 $11,117 $10,937 $11,730 $ 9,684 $19,040 $31,471 $37,307
Two Years Later 11,270 9,644 12,902 12,488 12,685 14,397 18,445 26,471 41,785
Three Years Later 11,644 10,461 13,355 12,965 13,588 15,923 19,930 29,237
Four Years Later 12,011 10,668 13,465 13,208 14,171 16,312 20,427
Five Years Later 12,067 10,739 13,595 13,471 14,307 16,381
Six Years Later 12,103 10,825 13,689 13,530 14,331
Seven Years Later 12,152 10,915 13,704 13,550
Eight Years Later 12,232 10,930 13,703
Nine Years Later 12,235 10,929
Ten Years Later 12,235
Net Reserve - December 31 $20,405 $27,744 $37,481 $47,712 $64,784 $ 81,901
Reinsurance Recoverables 2,780 6,220 14,597 13,785 24,208 26,433
----------------------------------------------------------
Gross Reserve-December 31 $23,185 $33,964 $52,078 $61,497 $88,992 $108,334
==========================================================
Net Re-estimated Reserve $16,505 $20,966 $31,880 $53,467 $70,014
Re-estimated Reinsurance 2,249 4,700 12,416 15,448 26,160
-----------------------------------------------
Gross Re-estimated Reserve $18,754 $25,666 $44,296 $68,915 $96,174
===============================================
Gross Cumulative Redundancy (Deficiency) $ 4,431 $ 8,298 $ 7,782 $(7,418) $(7,182)
================================================
4
Reinsurance
The Company reinsures certain levels of risk with other insurance companies and
cedes varying portions of its written premiums to such reinsurers. In addition,
the Company pays a percentage of earned premiums to reinsurers in return for
coverage against catastrophic losses. To the Company's knowledge, none of its
reinsurers are experiencing financial difficulties. Furthermore, the Company
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. The composition of
its reinsurers has not changed significantly in recent years. The Company has
not experienced any uncollectible reinsurance amounts or coverage disputes with
its reinsurers in over ten years.
ITEM 2. Properties.
Incorporated by reference to the inside front cover and pages 2 through
11 of the Registrant's 1997 Annual Report to Shareholders.
ITEM 3. Legal Proceedings.
Reference is made to Item 3 of the December 31, 1995 Registrant's Form
10-K concerning criminal litigation against M/G Transport Services,
Inc., a subsidiary of the Registrant. Upon Motion, the Court dismissed
six of the remaining eight counts against M/G, four of the six
remaining counts against one former employee and all of the remaining
counts against two former employees. The United States has appealed.
On October 31, 1997, M/G was fined $250,000 and placed on two years'
probation on the two remaining counts. The Company does not expect any
additional fines unless the United States is successful in its appeal.
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, 28 (Note 18) and 32 of
the Registrant's 1997 Annual Report to Shareholders. The number of
holders of the Company's common stock at December 31, 1997 was
approximately 1,340. 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 1997 Annual
Report to Shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference to pages 14 through 16 of the Registrant's
1997 Annual Report to Shareholders.
ITEM 8. Financial Statements and Supplementary Data.
Incorporated by reference to pages 12 and 17 through 30 of the
Registrant's 1997 Annual Report to Shareholders.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
6
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Incorporated by reference to the Registrant's Proxy Statement dated
March 6, 1998.
Executive Officers of the Company -
J. P. Hayden, Jr. - Age 68 - Chairman and Chief Executive Officer
Michael J. Conaton - Age 64 - President and Chief Operating Officer
J. P. Hayden, III - Age 45 - Senior Executive Vice President
John W. Hayden - Age 40 - Senior Executive Vice President
John R. LaBar - Age 66 - Vice President and Secretary
Robert W. Hayden - Age 59 - Vice President
John I. Von Lehman - Age 45 - Executive Vice President and
Chief Financial Officer
W. Todd Gray - Age 30 - Treasurer
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.
The Board of Directors of The Midland Company voted at their regular
meeting on March 5, 1998 to elect the following new executive officers effective
with the Company's Annual Shareholders' Meeting on April 9, 1998. Mr. J. P.
Hayden, III was elected Chairman and Chief Operating Officer of The Midland
Company. Mr. John W. Hayden was elected President and Chief Executive Officer
of The Midland Company. Mr. J. P. Hayden, Jr. was elected Chairman of the
Executive Committee of the Board. Mr. Michael J. Conaton was elected Vice
Chairman of the Board.
During 1997, W. Todd Gray was elected Treasurer. Mr. Gray joined
Midland in 1994 and served as Internal Audit Manager and, more recently,
Assistant Treasurer. Prior to that he was with a national accounting firm.
During 1996, J. P. Hayden, III and John W. Hayden (formerly Vice
Presidents) were elected Senior Executive Vice Presidents. Also in 1996,
John I. Von Lehman (formerly Vice President, Treasurer and Chief Financial
Officer) was elected Executive Vice President and Chief Financial Officer.
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 6, 1998.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's Proxy Statement dated
March 6, 1998.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's Proxy Statement dated
March 6, 1998.
7
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, 1997 and 1996.
Consolidated Statements of Income for the Years
Ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules.
Included in Part IV of this report:
Data pertaining to The Midland Company and Subsidiaries - Page
Independent Auditors' Consent and Report on
Schedules. 12
Schedule I - Summary of Investments - Other Than
Investments in Related Parties - December 31, 1997 13
Schedule II - Condensed Financial Information of
Registrant 14-18
Schedule III - Supplementary Insurance Information
for the Years Ended December 31, 1997, 1996 and 1995 19
Schedule IV - Reinsurance for the Years Ended
December 31, 1997, 1996 and 1995 20
Schedule V - Valuation and Qualifying Accounts for the
Years Ended December 31, 1997, 1996 and 1995 21
Schedule VI - Supplemental Information Concerning Property-
Casualty Insurance Operations for the Years Ended
December 31, 1997, 1996 and 1995 22
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 Code of Regulations - Filed as
Exhibit 3 to the Registrant's 1980 Annual Report on Form
10-K, and incorporated herein by reference.
10.1 The Midland Company 1992 Employee Incentive Stock Plan
and The Midland Company Stock Option Plan for Non-Employee
Directors and The Midland Company 1972 Stock Options Plan-
Incorporated by reference to Registrant's Statement 33-48511
on Form S-8.
8
PART IV (Continued)
10.2 A description of the Company's Profit Sharing Plan, Salaried
Employees' Non-Qualified Savings Plan and the Supplemental
Retirement Plan - Incorporated by reference to the
Registrant's Proxy Statement dated March 6, 1998.
11. Computation of Consolidated Net Income Per Share for the
years ended December 31, 1997, 1996 and 1995. 23
13. Annual Report to security holders - Incorporated by
reference to the Registrant's 1997 Annual Report to
Shareholders.
21. Subsidiaries of the Registrant. 24
22. Published Report Regarding Matters Submitted to Vote of
Security Holders - Incorporated by Reference to the
Registrant's Proxy Statement dated March 6, 1998.
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 - A Form 8-K was filed on October 14, 1997
in connection with the September 29, 1997 sale of the Company's
Sportswear operation.
9
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 5, 1998
(J. P. Hayden, Jr.) Chief Executive Officer
S/ John I. Von Lehman Executive Vice President March 5, 1998
(John I. Von Lehman) and Chief Financial,
Accounting Officer
10
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 5, 1998
(George R. Baker)
S/ James E. Bushman Director and Member March 5, 1998
(James E. Bushman) of Audit Committee
S/ James H. Carey Director and Member March 5, 1998
(James H. Carey) of Audit Committee
S/ Michael J. Conaton President, Chief Operating March 5, 1998
(Michael J. Conaton) Officer and Director
S/ J. P. Hayden, Jr. Chairman, Chief Executive March 5, 1998
(J. P. Hayden, Jr.) Officer and Director
S/ J. P. Hayden, III Senior Executive Vice March 5, 1998
(J. P. Hayden, III) Presidnet and Director
S/ John W. Hayden Senior Executive Vice March 5, 1998
(John W. Hayden) President and Director
S/ Robert W. Hayden Vice President and Director March 5, 1998
(Robert W. Hayden)
S/ William T. Hayden Director March 5, 1998
(William T. Hayden)
S/ William J. Keating Director March 5, 1998
(William J. Keating)
S/ William McD. Kite Director March 5, 1998
(William McD. Kite)
S/ John R. LaBar Vice President, Secretary March 5, 1998
(John R. LaBar) and Director
S/ John M. O'Mara Director and Member March 5, 1998
(John M. O'Mara) of Audit Committee
S/ John R. Orther Director and Member March 5, 1998
(John R. Orther) of Audit Committee
S/ William F. Plettner Director March 5, 1998
(William F. Plettner)
S/ Glenn E. Schembechler Director and Member March 5, 1998
(Glenn E. Schembechler) of Audit Committee
S/ John I. Von Lehman Executive Vice President, March 5, 1998
(John I. Von Lehman) Chief Financial, Accounting
Officer and Director
11
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Shareholders of The Midland Company:
We consent to the incorporation by reference in Registration Statements No.
33-64821 on Form S-3 and No. 33-48511 on Form S-8 of The Midland Company of
our report dated February 12, 1998, 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,
1997.
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 23, 1998
12
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule I - Summary of Investments -
Other than Investments in Related Parties
December 31, 1997
Column A Column B Column C Column D
- --------------------------------------------------------------------------------
Amount at
which shown
in the balance
Type of Investment Cost Value sheet
- --------------------------------------------------------------------------------
Fixed maturity securities,
available-for-sale:
Bonds:
United States Government and
government agencies and
authorities $195,066,000 $197,864,000 $197,864,000
States, municipalities and
political subdivisions 83,997,000 86,877,000 86,877,000
Mortgage-backed securities 7,902,000 7,948,000 7,948,000
Foreign governments 511,000 510,000 510,000
Public utilities 1,407,000 1,403,000 1,403,000
All other corporate bonds 67,150,000 68,436,000 68,436,000
-------------------------------------------
Total 356,033,000 363,038,000 363,038,000
-------------------------------------------
Equity securities, available-for-sale:
Common stocks:
Public utilities 1,149,000 1,452,000 1,452,000
Banks, trusts and insurance
companies 5,126,000 52,157,000 52,157,000
Industrial, miscellaneous
and all other 25,179,000 38,696,000 38,696,000
Nonredeemable preferred stocks 2,257,000 2,269,000 2,269,000
-------------------------------------------
Total 33,711,000 94,574,000 94,574,000
-------------------------------------------
Accrued interest and dividends 5,685,000 5,685,000 5,685,000
-------------------------------------------
Short-term investments 35,532,000 35,532,000 35,532,000
-------------------------------------------
Total investments $430,961,000 $498,829,000 $498,829,000
===========================================
13
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1997 and 1996
ASSETS 1997 1996
-----------------------------
Cash $ 236,000 $ 267,000
-----------------------------
Marketable Securities (at market value):
Fixed Income (cost, $2,427,000 in 1997
and $427,000 in 1996) 2,427,000 427,000
Equity (cost, $354,000 in 1997 and
$362,000 in 1996) 2,456,000 1,343,000
-----------------------------
Total 4,883,000 1,770,000
-----------------------------
Receivables - Net 7,010,000 6,801,000
-----------------------------
Intercompany Receivables -- 6,822,000
-----------------------------
Property, Plant and Equipment (at cost) 35,878,000 33,635,000
Less Accumulated Depreciation 3,552,000 2,090,000
-----------------------------
Net 32,326,000 31,545,000
-----------------------------
Investments in Real Estate 14,779,000 18,868,000
-----------------------------
Other Assets 3,720,000 2,434,000
-----------------------------
Investment in Subsidiaries (at equity) 197,206,000 153,965,000
-----------------------------
Total $ 260,160,000 $ 222,472,000
=============================
14
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheet Information
December 31, 1997 and 1996
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
-----------------------------
Notes Payable within One Year:
Banks (including current portion of
long-term debt) $ 25,425,000 $ 28,824,000
Commercial Paper 5,791,000 4,700,000
-----------------------------
Total 31,216,000 33,524,000
-----------------------------
Other Payables and Accruals 3,403,000 1,593,000
-----------------------------
Intercompany Payables 501,000 --
-----------------------------
Long-Term Debt 28,014,000 27,667,000
-----------------------------
Shareholders' Equity:
Common Stock - No Par (issued and outstanding:
3,111,000 shares at December 31, 1997 and
3,042,000 shares at December 31, 1996 after
deducting treasury stock of 532,000 shares
and 601,000 shares, respectively) 911,000 911,000
Additional Paid-In Capital 15,359,000 14,846,000
Retained Earnings 153,797,000 138,423,000
Net Unrealized Gain on Marketable Securities 44,123,000 23,587,000
Treasury Stock (at cost) (14,704,000) (16,621,000)
Unvested Restricted Stock Awards (2,460,000) (1,458,000)
-----------------------------
Total 197,026,000 159,688,000
-----------------------------
Total Liabilities and Shareholders' Equity $ 260,160,000 $ 222,472,000
=============================
15
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Income Information
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
-----------------------------------------
Revenues:
Dividends from Subsidiaries $ 8,900,000 $ 20,500,000 $ 35,117,000
All Other Income, Primarily Charges
to Subsidiaries 7,746,000 7,876,000 9,434,000
-----------------------------------------
Total Revenues 16,646,000 28,376,000 44,551,000
-----------------------------------------
Expenses:
Interest Expense 4,775,000 5,101,000 5,248,000
Depreciation, Amortization and
Impairment 6,195,000 2,548,000 4,884,000
All Other Expenses 833,000 2,033,000 1,727,000
-----------------------------------------
Total Expenses 11,803,000 9,682,000 11,859,000
-----------------------------------------
Income Before Federal Income Tax 4,843,000 18,694,000 32,692,000
Provision (Credit) for Federal
Income Tax (1,599,000) (654,000) (902,000)
-----------------------------------------
Income Before Change in Undistributed
Income of Subsidiaries 6,442,000 19,348,000 33,594,000
Change in Undistributed Income of
Subsidiaries:
From Continuing Operations 17,925,000 (15,605,000) (17,546,000)
From Discontinued Operations (6,817,000) (2,675,000) (6,496,000)
-----------------------------------------
Net Income $ 17,550,000 $ 1,068,000 $ 9,552,000
=========================================
16
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows Information
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
-----------------------------------------
Cash Flows from Operating Activities:
Net Income $ 17,550,000 $ 1,068,000 $ 9,552,000
Loss from discontinued operations 6,817,000 2,675,000 6,496,000
-----------------------------------------
Income from continuing operations 24,367,000 3,743,000 16,048,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Decrease (increase) in
undistributed income of
subsidiaries (17,925,000) 15,605,000 17,546,000
Depreciation, amortization and
impairment 6,195,000 2,548,000 4,884,000
Increase in other assets (1,286,000) (1,359,000) (1,044,000)
Decrease (increase) in receivables 134,000 689,000 (3,995,000)
Increase in other
payables & accruals 1,575,000 90,000 871,000
Other - net 36,000 28,000 166,000
-----------------------------------------
Net cash provided by
operating activities 13,096,000 21,344,000 34,476,000
-----------------------------------------
Cash Flows from Investing Activities:
Acquisition of property, plant &
equipment (2,617,000) (1,516,000) (28,060,000)
Capital contributions to subsidiaries (12,326,000) -- (2,999,000)
Sale of property, plant & equipment 535,000 66,000 599,000
Change in investments (excluding
unrealized appreciation/depreciation) (1,991,000) 7,690,000 5,379,000
-----------------------------------------
Net cash provided by (used in)
investing activities (16,399,000) 6,240,000 (25,081,000)
-----------------------------------------
Cash Flows from Financing Activities:
Net change in intercompany accounts 7,323,000 (21,363,000) (35,029,000)
Increase (decrease) in long-term debt 948,000 (767,000) 20,551,000
Increase (decrease) in short-term
borrowings (2,909,000) (2,920,000) 8,074,000
Dividends paid (2,677,000) (1,962,000) (1,844,000)
Net issuance (purchase) of
treasury stock 587,000 (545,000) (1,091,000)
-----------------------------------------
Net cash provided by (used in)
financing activities 3,272,000 (27,557,000) (9,339,000)
-----------------------------------------
Net Increase (Decrease) in Cash (31,000) 27,000 56,000
Cash at Beginning of Year 267,000 240,000 184,000
-----------------------------------------
Cash at End of Year $ 236,000 $ 267,000 $ 240,000
=========================================
17
THE MIDLAND COMPANY (Parent Only)
Schedule II - Condensed Financial Information of Registrant
Notes to Condensed Financial Information
For the Years Ended December 31, 1997 and 1996
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes included in the
Registrant's 1997 Annual Report to shareholders.
Total debt of the Registrant (parent only) consists of the following:
DECEMBER 31,
---------------------------
1997 1996
---------------------------
Short-Term Bank Borrowings $ 24,000,000 $ 28,000,000
Commercial Paper 5,791,000 4,700,000
Mortgage Notes:
7.20% - Due January 1, 2001 1,773,000 --
6.92% - Due December 20, 2005 19,768,000 20,304,000
5.82% - Due December 1, 2003 7,898,000 8,187,000
---------------------------
Total Debt $ 59,230,000 $ 61,191,000
===========================
See Note 9 to the consolidated financial statements included in the 1997 Annual
Report to Shareholders for further information on the Company's outstanding debt
at December 31, 1997.
The amount of debt that becomes due during each of the next five years is as
follows: 1998 - $1,425,000; 1999 - $1,524,000; 2000 - $1,639,000;
2001 - $1,070,000; 2002 - $1,142,000.
18
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule III - Supplementary Insurance Information
For the Years Ended December 31, 1997, 1996 and 1995
(Amounts in 000's)
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Future
Policy Other Benefits, Amortization
Deferred Benefits, Policy Claims, of Deferred
Policy Losses, Claims and Net Losses and Policy Other
Acquisition Claims and Unearned Benefits Premium Investment Settlement Acquisition Operating Premiums
Cost Loss Expenses Premiums Payable Revenue Income(1) Expenses Costs Expenses Written
------------------------------------------------------------------------------------------------------------------------
1997
Property &
Casualty $52,198 $116,898 $222,530 $305,198 $20,018 $168,265 $78,762 $45,003 $342,308
Life & A&H 3,392 3,236 17,810 5,961 1,195 2,898 2,418 515 2,738(2)
Other 119 3,600(3)
------------------------------------------------------------------------------------------------------------------------
Total $55,590 $120,134 $240,340 $ - $311,159 $21,332 $171,165 $81,180 $49,118 $345,046
========================================================================================================================
1996
Property &
Casualty $42,308 $ 92,940 $190,071 $275,529 $17,161 $170,325 $79,100 $37,624 $289,144
Life & A&H 3,034 2,890 18,346 5,085 1,045 2,101 2,433 485 2,178(2)
Other 63 3,246(3)
------------------------------------------------------------------------------------------------------------------------
Total $45,342 $ 95,830 $208,417 $ - $280,614 $18,269 $172,426 $81,533 $41,355 $291,322
========================================================================================================================
1995
Property &
Casualty $40,352 $ 66,394 $176,499 $258,867 $15,103 $134,540 $78,487 $38,356 $284,485
Life & A&H 2,794 1,953 14,449 4,139 949 1,671 2,033 401 2,763(2)
Other 55 718(3)
------------------------------------------------------------------------------------------------------------------------
Total $43,146 $ 68,347 $190,948 $ - $263,006 $16,107 $136,211 $80,520 $39,475 $287,248
========================================================================================================================
Notes to Schedule III:
(1) Investment income amounts for the above insurance segments represent investment income on the actual investment securities in
each such segment. Investment expenses, which are deducted from investment income, and other operating expenses, include both
expenses incurred directly in the insurance segments and expenses allocated to and among the insurance segments based on
historical usage factors.
(2) Amounts represent accident and health insurance written premiums only.
(3) Expenses relate to Parent and Agency Operations with related revenues of $3,219, $1,602 and $618 in 1997, 1996 and 1995,
respectively, which are not depicted in the above schedule.
19
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
For the Years Ended December 31, 1997, 1996 and 1995
Column A Column B Column C Column D Column E Column F
Ceded to Assumed Percentage of
Gross Other from Other Net Amount Assumed
Amount Companies Companies Amount to Net
--------------------------------------------------------------------
1997
Life Insurance in Force $371,298,000 $170,668,000 $200,630,000 0.0%
====================================================================
Insurance Premiums and
Other Considerations:
Life Insurance $ 5,724,000 $ 2,310,000 $ 120,000 $ 3,534,000 3.4%
Health Insurance 4,394,000 2,061,000 94,000 2,427,000 3.9%
Property & Liability Insurance 375,610,000 98,406,000 27,994,000 305,198,000 9.2%
--------------------------------------------------------------------
Total Premiums $385,728,000 $102,777,000 $28,208,000 $311,159,000 9.1%
====================================================================
1996
Life Insurance in Force $327,473,000 $163,604,000 $ 5,730,000 $169,599,000 3.4%
====================================================================
Insurance Premiums and
Other Considerations:
Life Insurance $ 4,703,000 $ 2,140,000 $ 481,000 $ 3,044,000 15.8%
Health Insurance 3,450,000 1,932,000 523,000 2,041,000 25.6%
Property & Liability Insurance 346,919,000 92,674,000 21,284,000 275,529,000 7.7%
--------------------------------------------------------------------
Total Premiums $355,072,000 $ 96,746,000 $22,288,000 $280,614,000 7.9%
====================================================================
1995
Life Insurance in Force $231,956,000 $122,038,000 $18,127,000 $128,045,000 14.2%
====================================================================
Insurance Premiums and
Other Considerations:
Life Insurance $ 3,232,000 $ 1,475,000 $ 779,000 $ 2,536,000 30.7%
Health Insurance 2,185,000 1,410,000 828,000 1,603,000 51.7%
Property & Liability Insurance 301,388,000 60,567,000 18,046,000 258,867,000 7.0%
--------------------------------------------------------------------
Total Premiums $306,805,000 $ 63,452,000 $19,653,000 $263,006,000 7.5%
====================================================================
20
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule V - Valuation and Qualifying Accounts
for the Years Ended December 31, 1997, 1996 and 1995
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (ADDITIONS) OF PERIOD
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997:
Allowance For Losses $ 799,000 $ 184,000 $ 230,000 (1) $ 753,000
YEAR ENDED DECEMBER 31, 1996:
Allowance For Losses $ 863,000 $ (50,000) $ 14,000 (1) $ 799,000
YEAR ENDED DECEMBER 31, 1995:
Allowance For Losses $ 1,014,000 $ 443,000 $ 594,000 (1) $ 863,000
NOTES:
(1) Accounts written off are net of recoveries.
(2) 1996 and 1995 amounts have been changed from amounts previously reported.
Amounts related to the disposal in 1997 of one of the Company's business
segments have been excluded.
21
THE MIDLAND COMPANY AND SUBSIDIARIES
Schedule VI - Supplemental Information Concerning Property-Casualty Insurance Operations
For the Years Ended December 31, 1997, 1996 and 1995
(Amounts in 000's)
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Claims and
Claim
Reserves Adjustment
for Unpaid Expenses Amortization
Deferred Claims Discount, Incurred of Deferred Paid Claims
Affiliation Policy and Claim if any, Net Related to Policy and Claim
with Acquisition Adjustment Deducted in Unearned Earned Investment Current Prior Acquisition Adjustment Premiums
Registrant Costs Expenses Column C Premiums Premiums Income Year Years Costs Expenses Written
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated
Property-
Casualty
Subsidiaries
1997 $52,198 $116,898 $ - $222,530 $305,198 $20,018 $163,035 $ 5,230 $78,762 $151,148 $342,308
===================================================================================================================
1996 $42,308 $ 92,940 $ - $190,071 $275,529 $17,161 $166,554 $ 3,771 $79,100 $153,253 $289,144
===================================================================================================================
1995 $40,352 $ 66,394 $ - $176,499 $258,867 $15,103 $141,887 $(7,347) $78,487 $124,309 $284,485
===================================================================================================================
22