UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: August 7, 1998
FARM FAMILY HOLDINGS, INC.
A Delaware Corporation Commission File No. 1-11941 IRS No. 14-1789227
344 Route 9W, Glenmont, New York 12077-2910
Registrant's telephone number: (518) 431-5000
Item 5. Other Events
On August 6, 1998, Farm Family Holdings, Inc. issued a press release
announcing the results of its operations for the three months ended June 30,
1998 and that it will revise its accounting policy for its extended earnings
program.
Item 7. Financial Statements and Exhibits
The following exhibits are filed as part of this report:
Exhibit Index
Exhibit 99 - Press Release
Signatures
Pursuant to the requirements 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.
FARM FAMILY HOLDINGS, INC.
(Registrant)
August 7, 1998 /s/ Philip P. Weber
- ----------------------- ------------------------------------------------------
(Date) Philip P. Weber
President and CEO
Exhibit 99
For Release: Immediate
Contact: Timothy A. Walsh
Executive Vice President -
Finance & Treasurer
(518) 431-5410
Farm Family Holdings Announces Adoption of New Accounting Policy and
Preliminary Results for the Second Quarter Ended June 30, 1998
Glenmont, New York - August 6, 1998 - - Farm Family Holdings, Inc. (NYSE: FFH)
today announced the results of its operations for the three months ended June
30, 1998 and that it will revise its accounting policy for its extended earnings
program.
The Company's extended earnings program (the "Program") provides eligible agents
with monthly extended earnings payments for up to eight years after the
termination of their association with the Company. Since the establishment of
the Program in 1986, these payments have been funded entirely from the
commissions earned by successor agents who were assigned the right to service
the book of business formerly serviced by an eligible agent. In the event that
such commissions were insufficient to fund these extended earnings payments, the
Company would be responsible for such payments. In accordance with the
accounting policy followed by the Company since the inception of the Program,
the Company considered its obligation to be a contingent liability and disclosed
the nature and amount of such contingent liability in the notes to its
consolidated financial statements.
The Company plans to implement the guidance of Statement of Financial Accounting
Standards No. 112 ("FAS 112") to account for the Program. As a result, the
Company intends to restate certain previously issued financial statements to
record a liability for the Program. Although the Company has not yet finalized
the calculation of this liability, the impact of this restatement is currently
estimated to reduce the Company's book value per share as of June 30, 1998 by
approximately 3.9% or $1.02 to $24.93 from $25.95. The estimated impact of this
restatement on the Company's operating earnings for the following periods is
currently estimated as follows (amounts in thousands):
Per Share Amounts
As Previously As Restated As Previously As Restated
Period Reported (estimated) Reported (estimated)
------ -------- ----------- -------- -----------
Three Months Ended June 30, 1998 $2,738 $2,688 $0.52 $0.51
Six Months Ended June 30, 1998 $5,864 $5,764 $1.10 $1.09
Three Months Ended June 30, 1997 $3,612 $3,587 $0.69 $0.68
Six Months Ended June 30, 1997 $6,726 $6,676 $1.28 $1.27
Year Ended December 31, 1997 $14,990 $14,890 $2.84 $2.82
Year Ended December 31, 1996 $9,648 $9,448 $2.42 $2.37
Year Ended December 31, 1995 $9,004 $8,804 $3.00 $2.93
The Company is considering revising certain terms of its agent contract in 1998
which may result in the elimination of a portion of the FAS 112 liability noted
above. Assuming such modifications were made, the Company currently estimates
its book value per share could be reduced by approximately $0.59 as compared to
the Company's current estimate of $1.02 without the modifications. If the
modifications were made, the Company currently expects there may be no
additional charges to the Company's operating earnings for the Program
subsequent to the effective date of such modifications. Additionally, it is
possible that further measures taken by the Company could result in the
elimination of the entire FAS 112 liability or result in the recognition of a
gain which could negate the reduction in the Company's book value noted above.
At this time, however, there can be no assurances that the Company will be able
to eliminate all or any portion of its FAS 112 liability, recognize a gain to
offset the reduction in its book value as a result of recording its FAS 112
liability, or eliminate additional charges to the Company's operating earnings
for the Program.
Since the Company's calculation of the FAS 112 liability is not yet finalized,
the Company has not restated any previously issued financial statements, nor
made any provision for this potential restatement in the financial information
set forth below. The Company believes the calculation of its liability pursuant
to FAS 112 will be completed in the near future. At that time, the Company
intends to restate previously issued financial statements and issue a revised
earnings release for the second quarter of 1998.
Operating Results
The following financial information does not include the impact of the Company's
adoption of the provisions of the guidance of FAS 112. The Company currently
estimates that operating earnings, net income and underwriting expenses for the
three month and six month periods ended June 30, 1998 and 1997 will be impacted
by the anticipated restatement of certain of the Company's previously issued
financial statements.
Operating earnings for the three months ended June 30, 1998 were $2,738,000
compared to $3,612,000 for the same period in 1997. On a diluted per share
basis, operating earnings were $0.52 for the three months ended June 30, 1998
and $0.69 for the same period in 1997. Operating earnings for the second quarter
of 1998 were adversely impacted by pretax losses from tornadoes and severe
thunder storms of approximately $2,000,000 or $0.25 per share. Excluding the
impact of these severe storm losses, operating earnings for the second quarter
of 1998 would have increased approximately 12.9% to $4,077,000 or $0.77 per
share as compared to operating earnings of $3,612,000 or $0.69 per share for the
same quarter in 1997.
Operating earnings for the six months ended June 30, 1998 were $5,864,000
compared to $6,726,000 for the same period in 1997. On a diluted per share
basis, operating earnings for the six months ended June 30, 1998 were $1.10
compared to $1.28 for the same period in 1997. Operating earnings exclude the
impact of realized investment gains (losses), extraordinary items, nonrecurring
charges, and the related taxes thereon.
Philip P. Weber, President & CEO of Farm Family Holdings, Inc. said, "Although
the impact of the first quarter ice storms and catastrophe losses from tornadoes
and severe thunder storms in the second quarter negatively impacted our
operating results, we did an outstanding job assisting in the recovery of our
insureds in the affected areas. We remain committed to the agribusiness, rural,
and suburban communities we serve and continue to enhance our penetration into
these markets."
Premiums
Premium revenue increased $9,168,000 or 25.6% to $44,929,000 for the three
months ended June 30, 1998 compared to $35,761,000 for the same period in 1997.
For the six months ended June 30, 1998, premium revenue increased 24.0% to
$87,744,000 compared to $70,734,000 for the same period in 1997. The increase in
premium revenue for the six months ended June 30, 1998 was primarily
attributable to an increase of $11,390,000 in premium revenue from direct
writings, a $2,890,000 increase in premiums from the Company's voluntary assumed
reinsurance business, and a reduction of $4,292,000 in premiums ceded to the
Company's affiliate, United Farm Family Insurance Company ("United Farm
Family"). These increases were partially offset by an increase of $1,095,000 in
premiums ceded to the Company's reinsurers. Effective December 31, 1997, the
Company's reinsurance agreements with United Farm Family which reinsured the
Company's incurred losses greater than $100,000 up to $300,000 were terminated.
As a result, the Company's retention per loss, net of reinsurance, increased
from $100,000 in 1997 to $300,000 in 1998.
Net written premiums increased $5,645,000 or 13.1% to $48,598,000 for the three
months ended June 30, 1998 compared to $42,953,000 for the same period in 1997.
For the six months ended June 30, 1998, net written premiums increased 20.4% to
$95,954,000 compared to $79,681,000 for the same period in 1997. The increase in
net written premiums for the six months ended June 30, 1998 was primarily
attributable to an increase of $11,528,000 or 14.3% in direct writings
(excluding assigned risk automobile business premiums received by the Company)
and to a lesser extent, a reduction in premiums ceded to the Company's
reinsurers and an increase in the Company's written voluntary assumed
reinsurance business. Direct writings for the three months ended June 30, 1998
increased primarily as a result of an increase in writings of all of the
Company's primary products. Geographically, the increase in the direct writings
from New Jersey accounted for $5,302,000 ($4,004,000 of which represents
increased personal auto business) of the increase in the Company's direct
writings during the six months ended June 30, 1998 compared to the same period
in 1997.
Mr. Weber said, "We have continued to increase writings of all of our primary
products: personal and commercial automobile, the Special Farm Package,
businessowners, and homeowners products. The increase in our direct writings
during the second quarter of 1998 came from New Jersey, New York, Massachusetts,
Connecticut, West Virginia, Delaware, Vermont, Rhode Island, and New Hampshire.
The Company and the New Jersey Farm Bureau are working together to better
control the growth of our New Jersey personal auto business. Additionally, we
continue to evaluate strategic alternatives for the Company regarding the
recently enacted legislation related to personal automobile business written in
the state of New Jersey."
Combined Ratio
Farm Family Casualty Insurance Company's statutory combined ratio was 99.0% for
the three months ended June 30, 1998 compared to 94.9% for the same period in
1997. The statutory combined ratio for the six months ended June 30, 1998 was
99.8% compared to 96.5% for the same period in 1997. Loss and loss adjustment
expenses were 75.4% of premium revenue for the six months ended June 30, 1998
compared to 70.3% for the same period in 1997. The increase in the loss and loss
adjustment expense ratio was primarily attributable to an increase in weather
related losses incurred during the six months ended June 30, 1998 as compared to
the same period in 1997. Storm and weather related losses incurred on the
Company's direct written business in the northeast were $6,780,000 for the six
months ended June 30, 1998 compared to $3,219,000 for the same period in 1997.
In addition, during the six months ended June 30, 1998, the Company incurred
losses of approximately $500,000 as a result of severe weather which impacted
certain midwestern risks which the Company reinsures.
Investment Income
Net investment income for the second quarter of 1998 increased 5.3% to
$4,751,000 compared to $4,510,000 for the same period in 1997. For the six
months ended June 30, 1998, net investment income was $9,518,000 compared to
$8,926,000 for the same period in 1997. The increase in net investment income is
primarily attributable to an increase in invested assets resulting from the
investment of available operating cash flow.
Net Income
Net income for the second quarter of 1998 was $2,878,000 compared to $7,220,000
for the same period in 1997. On a diluted per share basis, net income for the
second quarter of 1998 was $0.54 compared to $1.37 for the same period in 1997.
Net income for the second quarter of 1997 included a net realized investment
gain of $5,551,000 primarily attributable to the sale of an equity investment.
Net income for the six months ended June 30, 1998 was $6,086,000 compared to
$10,276,000 for the same period in 1997. On a diluted per share basis, net
income for the six months ended June 30, 1998 was $1.15 compared to $1.96. Net
income for the six months ended June 30, 1997 included a net realized investment
gain of $5,461,000 and net income for the six months ended June 30, 1998
included the impact of abnormally high weather related losses.
Mr. Weber said, "We remain focused on providing outstanding service to our
customers and creating value for our shareholders."
Acquisition of Farm Family Life Insurance Company
On February 26, 1998, the Company's Board of Directors approved the exercise of
the Company's option to acquire Farm Family Life Insurance Company ("Farm Family
Life") pursuant to the terms of an Amended and Restated Option Purchase
Agreement (the "Amended and Restated Option Purchase Agreement") among the
Company and the shareholders of the Farm Family Life.
The Company will pay an exercise price of $37.5 million to acquire Farm Family
Life consisting of $31.5 million of the Company's common stock and $6 million
stated value of the Company's 6-1/8% voting preferred stock, less certain
expenses to be paid by Farm Family Life in connection with the acquisition on
behalf of the shareholders of Farm Family Life. The proposed acquisition is
subject to certain closing conditions, including the approval of the Company's
stockholders. At this time, the Company expects to close the acquisition of Farm
Family Life during the fourth quarter of 1998.
Farm Family Holdings is the parent of Farm Family Casualty Insurance Company, a
specialized, regional property and casualty insurer of farms, agricultural
related businesses and residents and businesses of rural and suburban
communities.
- ----------------------------------
Safe Harbor Statement under The Private Securities Litigation Reform Act of
1995: This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 that are based on
management's current knowledge, expectations, estimates, beliefs and
assumptions. The forward-looking statements in this press release include, but
are not limited to, statements with respect to the Company's adoption of the
guidance provided in FAS 112, proposed modifications to the Company's agent
contract and further actions to be taken by the Company which may result in the
potential elimination of some or all of its liability pursuant to FAS 112, and
estimates of the potential impact of the restatement of the Company's financial
statements on the book value per share and operating earnings per share of the
Company, statements with respect to the Company's potential acquisition of Farm
Family Life, statements of the plans and objectives of the Company or its
management, statements of future economic performance and assumptions underlying
statements regarding the Company or its business. Readers are hereby cautioned
that certain events or circumstances could cause actual results to differ
materially from those estimated, projected, or predicted. The forward-looking
statements in this press release are not guarantees of future performance and
are subject to a number of important risks and uncertainties, many of which are
outside the Company's control, that could cause actual results to differ
materially. These risks and uncertainties include, but are not limited to, the
finalization of the Company's calculation of its liability pursuant to FAS 112,
the proposed modifications to the Company's agent contract and further actions
being considered by the Company which may result in the potential elimination of
some or all of the Company's liability pursuant to FAS 112, and the resulting
impact thereof on the book value per share and operating earnings per share of
the Company, the results of operations of the Company and Farm Family Life,
fluctuations in the market value of shares of the Company's common stock, the
satisfaction of the closing conditions set forth in the Amended and Restated
Option Purchase Agreement, exposure to catastrophic loss, geographic
concentration of loss exposure, general economic conditions and conditions
specific to the property and casualty insurance industry, including its cyclical
nature, regulatory changes and conditions, rating agency policies and practices,
competitive factors, claims development and the impact thereof on loss reserves
and the Company's reserving policy, the adequacy of the Company's reinsurance
programs, developments in the securities markets and the impact thereof on the
Company's investment portfolio and other risks listed from time to time in the
Company's Securities and Exchange Commission filings, including the Form 10-K
filed for the fiscal year ended December 31, 1997 and the Prospectus dated July
22, 1996. Accordingly, there can be no assurance that actual results will
conform to the forward-looking statements in this press release.
***More***
FARM FAMILY HOLDINGS, INC.
Condensed Consolidated Statements of Income
($ in thousands except per share data)
Three Six Months
Months Ended Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
----- ---- ---- ----
Revenues:
Premiums $44,929 $35,761 $87,744 $70,734
Net investment income 4,751 4,510 9,518 8,926
Realized investment gains, net 216 5,551 342 5,461
Other income 264 265 483 485
------------- ------------ ------------ ------------
Total Revenues 50,160 46,087 98,087 85,606
------------- ------------ ------------ ------------
Losses and Expenses:
Losses and loss adjustment expenses 33,988 25,023 66,127 49,720
Underwriting expenses (2) 11,868 10,107 23,081 20,197
Interest expense - 26 25 52
Dividends to policyholders 5 74 55 112
------------- ------------ ------------ ------------
Total Losses and Expenses 45,861 35,230 89,288 70,081
------------- ------------ ------------ ------------
Income before federal income tax expense (2) 4,299 10,857 8,799 15,525
Federal income tax expense (2) 1,421 3,637 2,713 5,249
------------- ------------ ------------ ------------
Net Income (2) $2,878 $7,220 $6,086 $10,276
------------- ------------ ------------ ------------
Operating Income (1) (2) $2,738 $3,612 $5,864 $6,726
------------- ------------ ------------ ------------
Per Share Data
Net income per share-Diluted (2) $0.54 $1.37 $1.15 $1.96
------------- ------------ ------------ ------------
Operating income per share-Diluted (1) (2) $0.52 $0.69 $1.10 $1.28
------------- ------------ ------------ ------------
Weighted average shares outstanding-Diluted 5,313,386 5,253,813 5,307,442 5,253,813
------------- ------------ ------------ ------------
(1) Operating earnings exclude the impact of realized investment gains
(losses), extraordinary items, nonrecurring charges, and the related taxes
thereon.
(2) The Company currently estimates that underwriting expenses, income before
federal income tax expense, federal income tax expense, net income,
operating income, net income per share, and operating income per share will
be impacted by the anticipated restatement of certain of the Company's
previously issued financial statements.
***More***
FARM FAMILY HOLDINGS, INC.
Condensed Consolidated Balance Sheets
($ in thousands except per share data)
06/30/98 12/31/97
-------- --------
Assets:
Investments $292,495 $280,431
Cash 5,523 5,841
Insurance receivables 50,985 40,484
Deferred acquisition costs 13,437 12,613
Accrued investment income 5,351 5,408
Other assets 23,480 23,501
------------ -------------
Total Assets $391,271 $368,278
------------ -------------
Liabilities:
Reserves for losses and loss adjustment expenses $168,411 $156,622
Unearned premium reserve 72,650 66,069
Debt - 1,268
Other liabilities (1) 13,857 14,392
------------ -------------
Total Liabilities (1) 254,918 238,351
------------ -------------
Stockholders' equity (1) 136,353 129,927
------------ -------------
Total Liabilities and Stockholders' Equity (1) $391,271 $368,278
------------ -------------
Book Value Per Share (1) $25.95 $24.73
------------ -------------
Book Value Per Share (excluding SFAS 115 adjustment) (1) $24.48 $23.32
------------ -------------
Shares Outstanding 5,253,813 5,253,813
------------ -------------
(1) The Company currently estimates that other liabilities, total
liabilities, stockholders' equity, total liabilities and stockholders'
equity, and book value per share will be impacted by the anticipated
restatement of certain of the Company's previously issued financial
statements.
***End***