UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File No. 1-11941
FARM FAMILY HOLDINGS, INC.
A Delaware Corporation IRS No. 14-1789227
344 Route 9W, Glenmont, New York 12077-2910
Registrant's telephone number: (518) 431-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the issuer's common stock as of August 13,
1997 is 5,253,813.
<PAGE>
FARM FAMILY HOLDINGS, INC. & SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements of Farm Family Holdings, Inc. &
Subsidiaries (unaudited)
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
Consolidated Statements of Income Three months ended June
30, 1997 and 1996 and the six months ended June 30, 1997
and 1996
Consolidated Statements of Cash Flow Six months ended June
30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<CAPTION>
(Unaudited)
June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------
Assets
Investments:
<S> <C> <C>
Fixed Maturities
Available for sale, at fair value
(Amortized cost: $230,123 in 1997 and $214,226 in 1996 ) $234,654 $219,188
Held to maturity, at amortized cost
(Fair value: $9,431 in 1997 and $9,973 in 1996) 9,197 9,782
Equity securities
Available for sale, at fair value
(Cost: $3,260 in 1997 and $2,546 in 1996) 3,874 7,908
Mortgage loans 1,704 1,745
Other invested assets 697 748
Short-term investments 5,454 5,333
- ---------------------------------------------------------------------------------------------------------------
Total investments 255,580 244,704
- ---------------------------------------------------------------------------------------------------------------
Cash 5,422 4,110
Insurance receivables:
Reinsurance receivables 11,603 10,743
Premiums receivable, net 30,190 22,663
Deferred acquisition costs 11,874 10,682
Accrued investment income 5,252 4,861
Deferred income tax asset, net 3,840 1,520
Prepaid reinsurance premiums 2,361 1,944
Receivable from affiliates, net 15,928 16,133
Other assets 2,564 2,052
- ---------------------------------------------------------------------------------------------------------------
Total Assets $344,614 $319,412
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES aND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses $146,239 $141,220
Unearned premium reserve 65,309 55,945
Reinsurance premiums payable 2,198 641
Accrued expenses and other liabilities 11,932 9,561
Debt 1,285 1,304
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 226,963 208,671
- ---------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock $.01 par value 1,000,000 shares authorized
and no shares issued and outstanding - -
Common stock $.01 par value 10,000,000 shares authorized
and 5,253,813 shares issued and outstanding 53 53
Additional Paid in Capital 98,140 98,140
Retained earnings 16,114 5,838
Net unrealized investment gains 3,344 6,710
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 117,651 110,741
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $344,614 $319,412
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
<CAPTION>
(Unaudited) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Premiums $35,761 $32,190 $70,734 $63,866
Net investment income 4,510 3,645 8,926 7,503
Realized investment gains, net 5,551 14 5,461 77
Other income 265 257 485 470
- -------------------------------------------------------------------------------------------------------------
Total revenues 46,087 36,106 85,606 71,916
- -------------------------------------------------------------------------------------------------------------
Losses and Expenses:
Losses and loss adjustment expenses 25,023 23,031 49,720 48,753
Underwriting expenses 10,107 9,180 20,197 17,967
Interest expense 26 54 52 108
Dividends to policyholders 74 86 112 113
- -------------------------------------------------------------------------------------------------------------
Total losses and expenses 35,230 32,351 70,081 66,941
- -------------------------------------------------------------------------------------------------------------
Income before federal income tax expense and extraordinary item 10,857 3,755 15,525 4,975
Federal income tax expense 3,637 1,222 5,249 1,619
- -------------------------------------------------------------------------------------------------------------
Income before extraordinary item 7,220 2,533 10,276 3,356
Extraordinary item - demutualization expenses - 896 - 1,417
- -------------------------------------------------------------------------------------------------------------
Net income $7,220 $1,637 $10,276 $1,939
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Net income per share $1.37 $0.55 $1.96 $0.65
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (1) 5,253,813 3,000,000 5,253,813 3,000,000
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
</TABLE>
(1) Gives effect in the three month and six month periods ended June 30, 1996
to the allocation of 3,000,000 shares to eligible policyholders on July 26,
1996 pursuant to Farm Family Casualty Insurance Company's conversion from a
mutual company to a stockholder owned company.
<PAGE>
<TABLE>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<CAPTION>
(Unaudited)
For the Six Months
Ended June 30,
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $10,276 $1,939
- -----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Realized investment (gains) losses (5,461) (77)
Amortization of bond discount 95 67
Deferred income taxes (507) (554)
Extraordinary item - demutualization expenses - 1,417
Changes in:
Reinsurance receivables (860) 2,727
Premiums receivable (7,527) (3,910)
Deferred acquisition costs (1,192) (534)
Accrued investment income (391) (123)
Prepaid reinsurance premiums (417) (265)
Receivable from affiliates 205 (2,076)
Other assets (512) (817)
Reserves for losses and loss adjustment expenses 5,019 344
Unearned premium reserve 9,364 5,299
Reinsurance premiums payable 1,557 (1,514)
Accrued expenses and other liabilities 2,371 2,270
- -----------------------------------------------------------------------------------------------------------------
Total adjustments 1,744 2,254
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities before extraordinary item 12,020 4,193
Extraordinary item - demutualization expenses - (1,417)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,020 2,776
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTiNG ACTIVITIES Proceeds from sales:
Fixed maturities available for sale 3,514 5,450
Other invested assets - 143
Equity securities 5,954 -
Investment collections:
Fixed maturities available for sale 7,334 6,505
Fixed maturities held to maturity 569 2,277
Mortgage loans 41 37
Investment purchases:
Fixed maturities available for sale (26,880) (17,241)
Fixed maturities held to maturity (1,038) -
Change in short-term investments, net (121) 786
Change in other invested assets (62) 219
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,689) (1,824)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Principal payments on debt (19) (21)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (19) (21)
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash 1,312 931
Cash, beginning of period 4,110 2,410
- -----------------------------------------------------------------------------------------------------------------
Cash, end of period $5,422 $3,341
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Farm Family Holdings, Inc. ("Farm Family Holdings") and its wholly owned
subsidiary, Farm Family Casualty Insurance Company ("Farm Family
Casualty"), (collectively referred to as the "Company"). Farm Family
Holdings was incorporated under Delaware law on February 12, 1996 for the
purpose of becoming the parent holding company of Farm Family Casualty
under a Plan of Reorganization and Conversion (the "Plan"). On July 26,
1996, Farm Family Holdings completed its initial public offering of
2,470,000 shares of its common stock. Concurrent with the consummation of
Farm Family Holdings' initial public offering, Farm Family Mutual Insurance
Company converted from a mutual property and casualty insurance company to
a stockholder owned property and casualty insurance company and became a
wholly owned subsidiary of Farm Family Holdings pursuant to the Plan. Also,
Farm Family Mutual Insurance Company was renamed Farm Family Casualty
Insurance Company. In addition to the 2,470,000 shares sold in the initial
public offering and the 315,826 shares sold in the underwriters'
over-allotment, Farm Family Holdings distributed 2,253,813 shares to
policyholders and surplus note holders, and sold 214,174 shares in a
subscription offering. As a result, Farm Family Holdings had 5,253,813
shares outstanding as of July 26, 1996.
The per share information presented on the accompanying consolidated
statements of income gives effect in the three month and six month periods
ended June 30, 1996 to the allocation of 3,000,000 shares of common stock
to eligible policyholders on July 26, 1996 pursuant to the Plan. The
financial information presented on the accompanying consolidated balance
sheets, consolidated statements of income, and consolidated statements of
cash flows for the three and six months ended June 30, 1996 is for Farm
Family Mutual Insurance Company and subsidiary.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. In the opinion
of management, these statements contain all adjustments including normal
recurring accruals, which are necessary for a fair presentation of the
consolidated financial position at June 30, 1997, and the consolidated
results of operations for the three month and six month periods ended June
30, 1997 and 1996. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's
operations for a full fiscal year.
2. Future Application of Accounting Standards
Statement of Financial Accounting Standards No. 128 - "Earnings Per Share"
is effective for financial statements issued for periods ending after
December 15, 1997. This statement simplifies the computation of earnings
per share (EPS) by replacing the "primary" EPS requirements with a "basic"
EPS computation based upon weighted-average shares outstanding. This new
standard requires a reconciliation of the numerator and denominator of the
diluted EPS computation.
Management believes that the impact of the adoption of this standard on per
share disclosures included in the consolidated financial statements will
not be material.
<PAGE>
3. Omnibus Securities Plan
At the Annual Meeting of Stockholders held on April 22, 1997, the Company
adopted the Omnibus Securities Plan (the "Plan") under which up to 500,000
shares of common stock are available for award. Stock options granted under
the Plan may be either incentive stock options ("ISOs") or non-qualified
stock options ("NQSOs"). For ISOs, the option price may be no less than the
fair market value on the date of grant. For NQSOs, the option price may be
no less than 85% of the fair market value on the date of grant. On April
22, 1997, 215,000 NQSOs were granted. These NQSOs may be exercised no
earlier than July 26, 1999 and no later than the tenth anniversary of the
date of the Company's 1997 Annual Meeting of Stockholders. These NQSOs vest
in equal amounts over a three year period. The following table summarizes
option information:
<TABLE>
<CAPTION>
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at beginning of period -
Granted 215,000 $22.56
Exercised -
Canceled -
---------------------
Outstanding at end of period 215,000
---------------------
Options exercisable at end of period -
Options available for future grant 285,000
</TABLE>
The Company plans to apply APB 25 and related interpretations in accounting
for its stock option plan, as permitted by Statement of Financial
Accounting Standards No. 123.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
General
The following discussion includes the operations of Farm Family Holdings, Inc.
("Farm Family Holdings") and its wholly owned subsidiary, Farm Family Casualty
Insurance Company ("Farm Family Casualty") (collectively referred to as the
"Company"). The operations of the Company are also closely related with those of
its affiliates, Farm Family Life Insurance Company ("Farm Family Life") and Farm
Family Life's wholly owned subsidiary, United Farm Family Insurance Company
("United Farm Family").
Farm Family Casualty is a specialized property and casualty insurer of farms,
other generally related businesses and residents of rural and suburban
communities primarily in the Northeastern United States. Farm Family Casualty
provides property and casualty insurance coverages to members of the state Farm
Bureau(R) organizations in New York, New Jersey, Delaware, West Virginia and all
of the New England states. Membership in a state Farm Bureau organization is a
prerequisite for voluntary insurance coverage (except for employees of the
Company and its affiliates).
The Company's operating results are subject to significant fluctuations from
period to period depending upon, among other factors, the frequency and severity
of losses from weather related and other catastrophic events, the effect of
competition and regulation on the pricing of products, changes in interest
rates, general economic conditions, tax laws and the regulatory environment. As
a condition of its license to do business in various states, the Company is
required to participate in a variety of mandatory residual market mechanisms
(including mandatory pools) which provide certain insurance (most notably
automobile insurance) to consumers who are otherwise unable to obtain such
coverages from private insurers. In all such states, residual market premium
rates are subject to the approval of the state insurance department and have
generally been inadequate. The amount of future losses or assessments from
residual market mechanisms cannot be predicted with certainty and could have a
material adverse effect on the Company's results of operations.
For the six month periods ended June 30, 1997 and 1996, 36.5% and 38.4%,
respectively, of the Company's direct written premiums were derived from
policies written in New York and, for the same periods, 25.2% and 22.1%,
respectively, were derived from policies written in New Jersey. For these same
periods, no other state accounted for more than 10.0% of the Company's direct
written premiums. As a result, the Company's results of operations may be
significantly affected by weather conditions, catastrophic events and regulatory
developments in these two states and in the Northeastern United States
generally. In addition, the Company is currently investigating becoming licensed
as a direct writer in Pennsylvania and Maryland.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements made herein or elsewhere by or on behalf of the Company that
are not historical facts are intended to be forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Examples of forward-looking statements include, but are not
limited to: (i) projections of revenue, earnings, capital structure and other
financial items, (ii) statements of the plans and objectives of the Company or
its management, (iii) statements of future economic performance and (iv)
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. Such
risks and uncertainties include, but are not limited to, the following: 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 on the Company's investment portfolio and
other risks included in this Report on Form 10-Q and other risk factors listed
from time to time in the Company's Securities and Exchange Commission Filings.
In addition, forward-looking statements are based on management's knowledge and
judgment as of the date that such statements are made. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Results of Operations
The Three Months Ended June 30, 1997 Compared to the Three Months Ended June 30,
1996
Premiums
- --------
Premium revenue increased $3.6 million or 11.1%, during the three months ended
June 30, 1997 to $35.8 million from $32.2 million for the same period in 1996.
The increase in premium revenue in 1997 resulted from an increase of $4.1
million in earned premiums on additional business directly written by the
Company, offset by a decrease of $0.3 million in earned premiums assumed as well
as an increase of $0.2 million in earned premiums ceded to reinsurers and not
retained by the Company. The $4.1 million increase in earned premiums on
additional business directly written by the Company was primarily attributable
to an increase of $3.6 million, or 12.5%, in earned premiums from the Company's
primary products (personal and commercial automobile products other than
assigned risk automobile business, the Special Farm Package, businessowners
products, homeowners products, and Special Home Package) as well as an increase
of $0.2 million in earned premiums from assigned risk automobile business, an
increase of $0.1 million in earned premiums from workers' compensation business,
and an increase of $0.1 million in earned premiums from umbrella policies.
Net written premiums increased 18.8% to $43.0 million for the three months ended
June 30, 1997 compared to $36.1 million for the same period in 1996. The
increase in net written premiums is primarily attributable to the growth in
direct writings to customers and, to a lesser extent, an increase in the
Company's voluntary assumed reinsurance business. Geographically, the increase
in the Company's direct writings came from New Jersey, New York, Massachusetts,
Connecticut, Delaware, West Virginia, Vermont and Rhode Island. Direct writings
for the second quarter of 1997 increased primarily as a result of an increase in
writings of all of the Company's primary products and to a lesser extent as a
result of an increase in involuntary assigned risk automobile business in New
Jersey and our re-entry into the Massachusetts workers' compensation market.
During the three months ended June 30, 1997, the written premium from New Jersey
assigned risk automobile business totaled $0.9 million.
Net Investment Income
- ---------------------
Net investment income increased $0.9 million or 23.7% to $4.5 million for the
three months ended June 30, 1997 from $3.6 million for the same period in 1996.
The increase in net investment income was primarily the result of an increase in
average cash and invested assets (at amortized cost) of approximately $49.2
million, or 24.7% as of June 30, 1997 compared to June 30, 1996. The increase in
average cash and invested assets was primarily attributable to the net proceeds
of $31.0 million from the Company's initial public offering and subscription
offering received in July 1996 as well as available cash flow from operations.
The return realized on the Company's cash and investments was 7.3% for the three
months ended June 30, 1997 and 7.4% for the same period in 1996.
Losses and Loss Adjustment Expenses
- -----------------------------------
Losses and loss adjustment expenses increased $2.0 million, or 8.6%, to $25.0
million for the three months ended June 30, 1997 from $23.0 million for the same
period in 1996. Loss and loss adjustment expenses were 70.0% of premium revenue
for the three months ended June 30, 1997 compared to 71.5% of premium revenue
for the same period in 1996. The decrease in loss and loss adjustment expenses
as a percent of premium revenue was primarily attributable to the reduction in
weather related losses. Losses believed to be weather related aggregated $1.1
million in the three months ended June 30, 1997 compared to $1.8 million for the
same period in 1996.
Underwriting Expenses
- ---------------------
Underwriting expenses increased $0.9 million, or 10.1%, to $10.1 million for the
three months ended June 30, 1997 from $9.2 million for the same period in 1996.
For the three months ended June 30, 1997, underwriting expenses were 28.3% of
premium revenue compared to 28.5% for the same period in 1996. The decrease in
underwriting expenses as a percent of premium revenue was primarily attributable
to the implementation of the Company's expense management program and a greater
relative increase in premium revenue than in the Company's expenses.
Federal Income Tax Expense
- --------------------------
Federal income tax expense increased $2.4 million to $3.6 million in 1997 from
$1.2 million in 1996. Federal income tax expense was 33.5% of income before
federal income tax expense for the three months ended June 30, 1997 compared to
32.5% for the same period in 1996.
Realized Investment Gains
- -------------------------
Realized investment gains for the second quarter of 1997 of $5.6 million were
primarily the result of the sale of a common stock investment.
Net Income
- ----------
Net income increased $5.6 million to $7.2 million for the three months ended
June 30, 1997 from $1.6 million for the same period in 1996 primarily as a
result of the foregoing factors and the impact of $0.9 million of expenses in
the second quarter of 1996 related to the demutualization of Farm Family
Casualty which the Company has identified as an extraordinary item.
The Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30,
1996
Premiums
- --------
Premium revenue increased $6.8 million or 10.8%, during the six months ended
June 30, 1997 to $70.7 million from $63.9 million for the same period in 1996.
The increase in premium revenue in 1997 resulted from an increase of $7.4
million in earned premiums on additional business directly written by the
Company, and an increase of $0.9 million in earned premiums assumed which was
offset by an increase of $1.4 million in earned premiums ceded to reinsurers and
not retained by the Company. The $7.4 million increase in earned premiums on
additional business directly written by the Company was primarily attributable
to an increase of $7.1 million, or 12.3%, in earned premiums from the Company's
primary products (personal and commercial automobile products other than
assigned risk business, the Special Farm Package, businessowners products,
homeowners products, and Special Home Package), an increase of $0.2 million in
earned premium from workers' compensation business and an increase of $0.1
million of earned premium from umbrella policies. The number of policies in
force related to the Company's primary products increased by 10.0% to
approximately 120,000 as of June 30, 1997 from approximately 109,100 as of June
30, 1996 and the average premium earned for each such policy increased by 2.0%
during the six months ended June 30, 1997 compared to the same period in 1996.
Net written premiums increased 15.7% to $79.7 million for the six months ended
June 30, 1997 compared to $68.9 million for the same period in 1996. The
increase in net written premiums is primarily attributable to the growth in
direct writings to customers and, to a lesser extent, an increase in the
Company's voluntary assumed reinsurance business. Geographically, the increase
in the Company's direct writings come from New Jersey, New York, Massachusetts,
Connecticut, Delaware, West Virginia, and Rhode Island. In addition, direct
writings of all our primary products, particularly personal automobile,
increased during the first six months of 1997. During the six months ended June
30, 1997, the Company wrote approximately $0.9 million of assigned risk
automobile business in New Jersey.
Net Investment Income
- ---------------------
Net investment income increased $1.4 million or 19.0% to $8.9 million for the
six months ended June 30, 1997 from $7.5 million for the same period in 1996.
The increase in net investment income was primarily the result of an increase in
average cash and invested assets (at amortized cost) of approximately $49.2
million, or 24.7% as of June 30, 1997 compared to June 30, 1996. The increase in
average cash and invested assets was primarily attributable to the net proceeds
of $31.0 million from the Company's initial public offering and subscription
offering received in July 1996 as well as available cash flow from operations.
The return realized on the Company's cash and investments was 7.4% for the six
months ended June 30, 1997 and 7.6% for the same period in 1996.
Losses and Loss Adjustment Expenses
- -----------------------------------
Losses and loss adjustment expenses increased $1.0 million, or 2.0%, to $49.7
million for the six months ended June 30, 1997 from $48.7 million for the same
period in 1996. Loss and loss adjustment expenses were 70.3% of premium revenue
for the six months ended June 30, 1997 compared to 76.3% of premium revenue for
the same period in 1996. The decrease in loss and loss adjustment expenses as a
percent of premium revenue was primarily attributable to the reduction in
weather related losses. Losses believed to be weather related aggregated $3.2
million in the six months ended June 30, 1997 compared to $8.7 million for the
same period in 1996.
Underwriting Expenses
- ---------------------
Underwriting expenses increased $2.2 million, or 12.4%, to $20.2 million for the
six months ended June 30, 1997 from $18.0 million for the same period in 1996.
For the six months ended June 30, 1997, underwriting expenses were 28.6% of
premium revenue compared to 28.1% for the same period in 1996. The increase in
underwriting expenses as a percent of premium revenue was primarily attributable
to an increase in certain overhead expenses and improvements in the Company's
accrual process. The underwriting expense ratio of 28.6% for the six months
ended June 30, 1997 was less than the underwriting expense ratio of 29.2% for
the year ended December 31, 1996.
Federal Income Tax Expense
- --------------------------
Federal income tax expense increased $3.6 million to $5.2 million in 1997 from
$1.6 million in 1996. Federal income tax expense was 33.8% of income before
federal income tax expense for the six months ended June 30, 1997 compared to
32.5% for the same period in 1996.
Realized Investment Gains
- -------------------------
Realized investment gains increased $5.4 million to $5.5 million for the six
months ended June 30, 1997 from $0.1 million for the same period in 1996. The
increase in realized investment gains was primarily attributable to the sale of
a common stock investment.
Net Income
- ----------
Net income increased $8.4 million to $10.3 million for the six months ended June
30, 1997 from $1.9 million for the same period in 1996 primarily as a result of
the foregoing factors and the impact of $1.4 million of expenses in the first
quarter of 1996 related to the demutualization of Farm Family Casualty which the
Company has identified as an extraordinary item.
Liquidity and Capital Resources
Net cash provided by operating activities was $12.0 million and $2.8 million
during the six month periods ended June 30, 1997 and 1996, respectively. The
increase in net cash provided by operating activities during the six months
ended June 30, 1997 was primarily attributable to the increase in net income and
a decrease in payments for losses and loss adjustment expenses.
Net cash used in investing activities was $10.7 million during the six months
ended June 30, 1997 compared to net cash used in investing activities of $1.8
million for the same period in 1996 primarily as a result of a decrease in sales
of short-term investments in the first six months of 1997.
The Company has in place unsecured lines of credit with two banks under which it
may borrow up to $12.0 million. At June 30, 1997, no amounts were outstanding on
these lines of credit. In addition, at June 30, 1997, Farm Family Casualty had
$1.3 million principal amount of surplus notes outstanding. The surplus notes
bear interest at the rate of eight percent per annum and have no maturity date.
The principal and interest on the surplus notes are repayable only with the
approval of the Superintendent of Insurance of New York State.
Future Application of Accounting Standards
Financial Accounting Standards No. 128 - "Earnings Per Share." This statement
which is effective for financial statements issued for periods ending after
December 15, 1997, simplifies the computation of earnings per share (EPS) by
replacing the "primary" EPS requirements with a "basic" EPS computation based
upon weighted-average shares outstanding. This new standard requires a
reconciliation of the numerator and denominator of the diluted EPS computation.
Management believes that the impact of the adoption of this standard on per
share disclosures included in the consolidated financial statements will not be
material.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
Farm Family Holdings' annual meeting of Stockholders was held on April
22, 1997. At the meeting, (i) eight persons were elected as directors of Farm
Family Holdings, (ii) the appointment of Coopers & Lybrand L.L.P. as Farm Family
Holdings' independent auditors for the year 1997 was ratified and (iii) the
adoption of Farm Family Holdings' Omnibus Securities Plan was approved. The
number of votes cast for, against or withheld, and the number of abstentions
with respect to each such matter is set forth below. In addition, there were
361,294 broker non-votes in connection with the approval of the adoption of the
Omnibus Securities Plan.
<TABLE>
For Against/Withheld Abstained
Election of Directors:
<S> <C> <C> <C>
Nominee
Robert L. Baker 3,743,173 23,730
James V. Crane 3,743,679 23,224
Clark W. Hinsdale, III 3,742,881 24,022
John W. Lincoln 3,743,396 23,507
Wayne A. Mann 3,743,465 23,438
Howard T. Sprow 3,735,157 31,746
Charles A. Wilfong 3,742,549 24,354
Tyler P. Young 3,743,370 23,533
Ratification of Auditors: 3,704,244 12,895 49,764
Approval of Omnibus Securities Plan: 2,435,699 879,270 90,640
</TABLE>
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
<TABLE>
EXHIBIT INDEX
FARM FAMILY HOLDINGS, INC. FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
Exhibit Number Document Description
<S> <C>
*2.1 Plan of Reorganization and Conversion dated February 14, 1996 as amended by
Amendment No. 1, dated April 23, 1996
*3.1 Certificate of Incorporation of Farm Family Holdings, Inc.
*3.2 Bylaws of Farm Family Holdings, Inc.
10.1 Option Purchase Agreement, dated February 14, 1996, among Farm Family
Holdings, Inc. and The Shareholders of Farm Family Life Insurance Company
Listed Therein (Incorporated by reference to Registration Statement No.
333-4446) as amended by Amendment No. 1 to Option Purchase Agreement, dated
as of April 22, 1997
**10.2 Amended and Restated Expense Sharing Agreement, made effective as of February
14, 1996, by and among Farm Family Mutual Insurance Company, Farm Family Life
Insurance Company and Farm Family Holdings, Inc.
*10.3 Indenture of Lease, made the 1st day of January 1988,
between Farm Family Life Insurance Company and Farm Family
Mutual Insurance Company as amended by the Amendment to
Lease, effective January 1, 1994
10.4 Underlying Multi-Line Per Risk Reinsurance Contract, effective January 1,
1995, issued to Farm Family Mutual Insurance Company by The Subscription
Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached
Thereto, as amended by Addendum No. 1, effective January 1, 1996
(Incorporated by reference to Registration Statement No. 333-4446), Addendum
No. 2, effective January 1, 1996, Addendum No. 3, effective July 26, 1996
(Incorporated by reference to Farm Family Holdings, Inc. Form 10-K), Addendum
No. 4, effective January 1, 1997 (Incorporated by reference to Farm Family
Holdings, Inc. Form 10-Q for the quarter ended March 31, 1997)
10.5 Umbrella Quota Share Reinsurance Contract, effective January 1, 1995, issued
to Farm Family Mutual Insurance Company and United Farm Family Insurance
Company, as amended by Addendum No. 1, effective January 1, 1995
(Incorporated by reference to Registration Statement No. 333-4446), and
Addendum No. 2 effective July 26, 1996 (Incorporated by reference to Farm
Family Holdings, Inc. Form 10-K), Addendum No. 3, effective January 1, 1997
(Incorporated by reference to Farm Family Holdings, Inc. Form 10-Q for the
quarter ended March 31, 1997)
10.6 Excess Catastrophe Reinsurance Contract effective January 1, 1996, issued to
Farm Family Mutual Insurance Company (Incorporated by reference to
Registration Statement No. 333-4446), as amended by Addendum No. 1, Effective
July 26, 1996 (Incorporated by reference to Farm Family Holdings, Inc. Form
10-Q for the quarter ended March 31, 1997)
*10.7 Assumption Agreement, commencing January 1, 1995, between Farm Family Mutual
Insurance Company and United Farm Family Insurance Company
*10.8 Service Agreement, made effective as of July 25, 1988 by and between Farm
Family Mutual Insurance Company and United Farm Family Insurance Company
10.9 Form of Membership List Purchase Agreement between Farm Family Mutual
Insurance Company and each of the Farm Bureaus (Incorporated by reference to
Registration Statement No. 333-4446) as amended by Amendment No. 1 to
Membership List Purchase Agreements effective July 26, 1996 (Incorporated by
reference to Farm Family Holdings, Inc. Form 10-Q for the quarter ended March
31, 1997)
*10.10 Farm Family Mutual Insurance Company 8% Subordinated Surplus Certificate, as
amended by Certificate of Amendment No. 1 and Trust Indenture, dated as of
December 29, 1976 relating to the 8% Subordinated Surplus Certificates
*10.11 Farm Family Mutual Insurance Company 5% Debenture, as amended by Certificate
of Amendment, effective January 1, 1969, Certificate of Amendment No. 2,
effective January 1, 1979, Certificate of Amendment No. 3 and Supplemental
Trust Indenture, dated as of August 25, 1955 Amending Trust Indenture, dates
as of May 16, 1955 Relating to The 5% Debentures, as amended by Certificate
of Amendment, dated as of August 25, 1955, Certificate of Amendment No. 2,
dated as of August 25, 1955, Certificate of Amendment No. 3 dated as of
August 25, 1955
*10.12 Farm Family Mutual Insurance Company Officer Severance Pay Plan, adopted
effective August 1, 1994
*10.13 Farm Family Mutual Insurance Company Supplemental Employee Retirement Plan,
adopted as of January 1, 1994
**10.14 Farm Family Holdings, Inc. Directors' Deferred Compensation Plan, effective
January 1, 1997
**10.15 Farm Family Holdings, Inc. Officers' Deferred Compensation Plan, effective
January 1, 1997
**10.16 Farm Family Holdings, Inc. Annual Incentive Plan effective January 1, 1997
**10.17 Farm Family Supplemental Savings and Profit Sharing Plan effective January 1,
1997
**10.18 Tax Payment Allocation Agreement effective January 1, 1996 by and between
Farm Family Holdings, Inc. and Farm Family Casualty Insurance Company
***10.19 Excess Catastrophe Reinsurance Contract issued to Farm Family Casualty
Insurance Company effective January 1, 1997
10.20 Farm Family Holdings, Inc. Omnibus Securities Plan, as amended by Amendment
No. 1 dated February 13, 1997 (Incorporated by reference to the Proxy
Statement of Farm Family Holdings, Inc. dated March 7, 1997)
11 Computation of Earnings per Share
*Incorporated by reference to Registration Statement No. 333-4446
**Incorporated by reference to Farm Family Holdings, Inc. Form 10-K for the year
ended December 31, 1996 ***Incorporated by reference to Farm Family Holdings,
Inc. Form 10-Q for the quarter ended March 31, 1997
</TABLE>
<PAGE>
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 13, 1997 By:/s/ Philip P. Weber
- ------------------------ -------------------------------------------
(Date) Philip P. Weber, President & Chief Executive Officer
(Principal Executive Officer)
August 13, 1997 By: /s/ Timothy A. Walsh
- ----------------------- -------------------------------------------
(Date) Timothy A. Walsh, Executive Vice President
- Finance & Treasurer
(Principal Financial & Accounting Officer)
<PAGE>
Exhibit 11. Statement re computation of per share earnings
<TABLE>
FARM FAMILY HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands, except per share data)
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net income available to common shareholders $7,220 $1,637 $10,276 $1,939
Weighted average shares outstanding 5,254 3,000 5,254 3,000
-------------------------------------------------------
Net income per share $1.37 $0.55 $1.96 $0.65
-------------------------------------------------------
</TABLE>
(1) Gives effect to the allocation of 3,000,000 shares to eligible
policyholders on July 26, 1996 pursuant to Farm Family Casualty's
conversion from a mutual company to a stockholder owned
company.
Reports on Form 8-K
A report on Form 8-K was filed on April 28, 1997 reporting a press
release issued announcing the Company's operating results for the quarter ended
March 31, 1997.
A report on Form 8-K was filed on May 28, 1997 reporting a press release
issued announcing the A.M. Best rating of the company's subsidiary was upgraded
to A (Excellent).
No financial statements were filed with either Form 8-K.
EXHIBIT 10.1 [LLG&M DRAFT - 2/28/97]
AMENDMENT NO. 1 TO OPTION PURCHASE AGREEMENT
This AMENDMENT NO. 1 TO OPTION PURCHASE AGREEMENT, dated as of
April 22, 1997 (this "Amendment"), by and among FARM FAMILY HOLDINGS, INC. a
Delaware Corporation (the "Optionee"), and THE SHAREHOLDERS OF FARM FAMILY LIFE
INSURANCE COMPANY set forth on the signature pages hereof (individually, a
"Shareholder" and collectively, the "Shareholders").
WHEREAS, the Optionee and the Shareholders have previously
entered into the Option Purchase Agreement, dated as of February 14, 1996 (the
"Option Purchase Agreement"); and
WHEREAS, the Optionee and the Shareholders desire to amend the
Option Purchase Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Optionee and the
Shareholders hereby agree that the Option Purchase Agreement shall be, and
hereby is, amended and modified as follows:
1. Section 1(a) of the Option Purchase Agreement is amended by
deleting the definition of the term "Exercise Date" and
inserting in its place a new definition, which reads as
follows:
""Exercise Date" means the date as of which the
Fair Market Value per Share is determined pursuant
to Section 3."
2. Section 3 of the Option Purchase Agreement is amended by
deleting the existing Section 3 and inserting in its place a
new Section 3, which reads as follows:
"Section 3. Fair Market Value per Share. (a) If the
Optionee proposes to exercise the Options, the
Optionee shall so notify the Shareholders in writing
and instruct an investment banking firm of national
reputation, selected by the Optionee and reasonably
acceptable to the Shareholders (the "Optionee
Appraiser"), to determine the fair market value of
each Share as of the date of such notice (the "Fair
Market Value per Share") in accordance with the
Valuation Procedures (the "Optionee Valuation"). If,
following receipt of the Optionee Valuation, the
Optionee continues to propose to exercise the
Options, the Optionee shall so notify the
Shareholders in writing and
-1-
<PAGE>
supply the Shareholders with the Optionee Valuation.
The Shareholders and their authorized representatives
shall review the Optionee Valuation and, within 30
days after the date of such receipt, the Shareholders
shall notify the Optionee in writing of their
agreement or disagreement with the Optionee
Valuation. In the event the Shareholders agree with
the Optionee Valuation, the Optionee Valuation shall
be the Fair Market Value per Share for purposes of
this Agreement. In the event the Shareholders
disagree with the Optionee Valuation, the
Shareholders and the Optionee shall use their
reasonable efforts to resolve such disagreement
within 15 days after the date the Optionee has
received notice of such disagreement. If the
Shareholders and the Optionee are able to resolve
such disagreement within such 15-day period, the
valuation so agreed shall be the Fair Market Value
per Share for purposes of this Agreement.
(b) In the event the Shareholders
and the Optionee are unable to resolve such
disagreement within such 15-day period and the
Optionee continues to propose to exercise the
Options, the Shareholders shall promptly thereafter
select an investment banking firm of national
standing and reasonably acceptable to the Optionee
(the "Shareholder Appraiser") for purposes of
determining the Fair Market Value per Share in
accordance with the Valuation Procedures (the
"Shareholder Valuation"). The Shareholders shall
deliver the Shareholder Valuation to the Optionee
within the 30-day period next following such 15-day
period. If the Shareholder Valuation is within 5%
(plus or minus) of the Optionee Valuation (the
"Target Range"), then the Fair Market Value per Share
for purposes of this Agreement shall equal the
average of the Optionee Valuation and the Shareholder
Valuation. If the Shareholder Valuation is not within
the Target Range, then the Optionee and the
Shareholders shall use their reasonable efforts to
resolve such disagreement within 15 days after the
Optionee's receipt of the Shareholder Valuation. If
the Shareholders and the Optionee are able to agree
on a Shareholder Valuation within the Target Range
(the "Revised Shareholder Valuation"), then the Fair
Market Value per Share for purposes of this Agreement
shall equal the average of the Optionee Valuation and
the Revised Shareholder Valuation.
-2-
<PAGE>
(c) In the event the Shareholders
and the Optionee are unable to resolve such
disagreement within such 15-day period and the
Optionee continues to propose to exercise the
Options, the Optionee and the Shareholders shall
promptly thereafter jointly select an investment
banking firm of national standing and the firm so
selected (the "Third Appraiser") shall be directed by
the Optionee and the Shareholders to determine the
Fair Market Value per Share in accordance with the
Valuation Procedures (the "Third Valuation"). The
Third Appraiser shall deliver the Third Valuation to
the Optionee and the Shareholders within the 30-day
period following its selection. The Fair Market Value
per Share for purposes of this Agreement shall be the
middle valuation of the Third Valuation, the Optionee
Valuation and the Shareholder Valuation.
(d) The fees and expenses of the
Optionee Appraiser shall be paid by the Optionee. The
fees and expenses of the Shareholder Appraiser shall
be paid by the Shareholders on a pro rata basis based
on the number of Shares owned by each of them. The
fees and expenses of the Third Appraiser shall be
paid 50% by the Optionee and 50% by the Shareholders
on a pro rata basis based on the number of shares
owned by each of them."
3. Section 4(a) of the Option Purchase Agreement is amended by
deleting the existing Section 4(a) and inserting in its place
a new Section 4(a), which reads as follows:
"Within 45 days after any determination of the Fair
Market Value per Share pursuant to Section 3, the
Optionee may exercise the Options in whole but not in
part by sending a written notice (the "Exercise
Notice") to the Shareholders specifying its election
to exercise the Options on the basis of such Fair
Market Price per Share. The closing (the "Closing")
of the transactions contemplated hereby shall take
place on the date that is five Business Days after
the satisfaction or waiver of the conditions set
forth in Section 7 at the offices of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., at 10:00 A.M., New York
time. The "Closing Date" shall be the date the
Closing occurs."
4. Section 11(b)(ii) of the Option Purchase Agreement is
amended by adding thereto a proviso at the end thereof,
which reads as follows:
-3-
<PAGE>
", provided, that a Shareholder shall be permitted to
transfer the Shares owned by such Shareholder to an
Affiliate of such Shareholder if the holders of a
majority of the Shares consent in writing to such
transfer and, at or prior to the time of such
transfer, such Affiliate shall execute a counterpart
of this Agreement and such other documents as are
necessary to confirm such Affiliate's agreement to
become a party to, and to be bound by all terms and
conditions, of this Agreement".
This Amendment may be executed in two or more counterparts,
each of which shall be considered one in the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
FARM FAMILY HOLDINGS, INC.
By /s/ Philip P. Weber
----------------------
Name: Philip P. Weber
Title: President & Chief
Executive Officer
CONNECTICUT FARM BUREAU SERVICE
COMPANY
By /s/ Norma R. O'Leary
-------------------
Name: Norma R. O'Leary
Title: President
DELAWARE FARM BUREAU SERVICE
COMPANY, INC.
By /s/ Joseph E. Calhoun
------------------------
Name: Joseph E. Calhoun
Title: President
-4-
<PAGE>
MAINE FARM BUREAU SERVICE COMPANY
By /s/ Sandra A. George
-----------------------
Name: Sandra A. George
Title: President
MASSACHUSETTS FARM BUREAU SERVICE
COMPANY, INC.
By /s/ Arthur D. Keown, Jr.
---------------------------
Name: Arthur D. Keown, Jr.
Title: President
NEW HAMPSHIRE FARM BUREAU
FEDERATION
By /s/ Gordon H. Gowen
----------------------
Name: Gordon H. Gowen
Title: President
NEW JERSEY FARM BUREAU SERVICE
COMPANY
By /s/ John I. Rigolizzo, Jr.
-----------------------------
Name: John I. Rigolizzo
Title: Vice President
NEW YORK FARM BUREAU SERVICE
COMPANY, INC.
By /s/ John W. Lincoln
----------------------
Name: John W. Lincoln
Title: President
RHODE ISLAND ASSOCIATION OF
FARMERS SERVICE CO.
By /s/ William M. Stamp, Jr.
----------------------------
Name: William M. Stamp, Jr.
Title: President
-5-
<PAGE>
VERMONT FARM BUREAU, INC.
By /s/ Clark W. Hinsdale III
----------------------------
Name: Clark W. Hinsdale III
Title: President
WEST VIRGINIA FARM BUREAU, INC.
By /s/ Fred G. Butler, Sr.
--------------------------
Name: Fred G. Butler, Sr.
Title: President
-6-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0001013564
<NAME> Farm Family Holdings, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<PERIOD-END> Jun-30-1997
<FISCAL-YEAR-END> Dec-31-1997
<DEBT-HELD-FOR-SALE> 234,654
<DEBT-CARRYING-VALUE> 9,197
<DEBT-MARKET-VALUE> 9,431
<EQUITIES> 3,874
<MORTGAGE> 1,704
<REAL-ESTATE> 0
<TOTAL-INVEST> 255,580
<CASH> 5,422
<RECOVER-REINSURE> 11,603
<DEFERRED-ACQUISITION> 30,190
<TOTAL-ASSETS> 344,614
<POLICY-LOSSES> 146,239
<UNEARNED-PREMIUMS> 65,309
<POLICY-OTHER> 11,932
<POLICY-HOLDER-FUNDS> 117,651
<NOTES-PAYABLE> 1,285
0
0
<COMMON> 53
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 344,614
70,734
<INVESTMENT-INCOME> 8,926
<INVESTMENT-GAINS> 5,461
<OTHER-INCOME> 486
<BENEFITS> 49,720
<UNDERWRITING-AMORTIZATION> 20,197
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 15,525
<INCOME-TAX> 5,249
<INCOME-CONTINUING> 10,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,276
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.96
<RESERVE-OPEN> 114,383
<PROVISION-CURRENT> 51,053
<PROVISION-PRIOR> (1,334)
<PAYMENTS-CURRENT> 15,974
<PAYMENTS-PRIOR> 28,108
<RESERVE-CLOSE> 120,020
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
