<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- - --------------------------------------------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------------------
Commission File Number 33-94670-01
-------------------------------------
FARMERS GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of
incorporation or organization)
95-0725935
(IRS Employer Identification No.)
4680 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90010
(Address of principal executive offices)(Zip Code)
(213) 932-3200
(Registrants telephone number, including area code)
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 / /
Registrant's Common Stock outstanding on March 31, 1996 was 1,000 shares.
<PAGE> 2
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<PAGE> 3
FARMERS GROUP, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1996
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. Financial Statements
Consolidated Balance Sheets - Assets
March 31, 1996 and December 31, 1995 4
Consolidated Balance Sheets - Liabilities and Stockholder's Equity
March 31, 1996 and December 31, 1995 5
Consolidated Statements of Income
Three Month Periods ended March 31, 1996 and March 31, 1995 6
Consolidated Statement of Stockholder's Equity
Three Month Period ended March 31, 1996 7
Consolidated Statement of Stockholder's Equity
Three Month Period ended March 31, 1995 8
Consolidated Statements of Cash Flows
Three Month Periods ended March 31, 1996 and March 31, 1995 9
Notes to Interim Financial Statements 10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
PART II. OTHER INFORMATION 23
SIGNATURES 24
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current assets, excluding life subsidiaries:
Cash and cash equivalents $ 874,057 $ 763,212
Marketable securities, at market value 79,191 94,138
Accrued interest 28,589 33,297
Accounts receivable, principally from affiliates 14,549 16,270
Notes receivable - affiliate 135,000 135,000
Deferred taxes 21,281 18,935
Prepaid expenses and other 9,753 12,551
------------- ------------
Total current assets 1,162,420 1,073,403
------------- ------------
Investments, excluding life subsidiaries:
Fixed maturities available for sale, at market value
(cost: $284,663 and $304,863) 287,981 311,594
Certificates in surplus of exchanges 484,380 484,380
Real estate, at cost (net of accumulated depreciation:
$15,095 and $14,843) 49,573 49,809
Joint ventures, at equity 12,257 12,459
------------- ------------
834,191 858,242
------------- ------------
Other assets, excluding life subsidiaries:
Notes receivable - affiliate 207,600 207,600
Goodwill (net of accumulated amortization: $435,319 and $420,308) 1,966,436 1,981,447
Attorney-in-fact contracts (net of accumulated amortization:
$309,763 and $299,082) 1,399,280 1,409,961
Other assets 316,734 314,423
------------- ------------
3,890,050 3,913,431
------------- ------------
Properties, plant and equipment, at cost: (net of accumulated
depreciation: $142,305 and $139,591) 343,256 340,438
------------- ------------
Investments of life subsidiaries:
Fixed maturities available for sale, at market value
(cost: $3,553,629 and $3,342,199) 3,616,994 3,506,572
Mortgage loans on real estate 144,928 148,852
Non-redeemable preferred stocks available for sale, at market
value (cost: $21,373 and $34,127) 20,932 36,305
Common stocks available for sale, at market value
(cost: $275,353 and $271,599) 334,552 333,661
Policy loans 171,116 165,265
Real estate, at cost (net of accumulated depreciation:
$16,734 and $16,240) 67,597 69,379
Joint ventures, at equity 9,202 13,267
------------- ------------
4,365,321 4,273,301
------------- ------------
Other assets of life subsidiaries:
Cash and cash equivalents 69,365 149,794
Accrued investment income 55,044 51,377
Deferred policy acquisition costs and value of life business
acquired 992,367 964,861
Notes receivable - affiliate 64,400 64,400
Other assets 237,226 226,603
Assets held in separate account 732,973 714,794
------------- ------------
2,151,375 2,171,829
------------- ------------
Total assets $ 12,746,613 $ 12,630,644
============= ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 5
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current liabilities, excluding life subsidiaries:
Notes and accounts payable:
Affiliates $ 1,381 $ 1,748
Other 224,584 228,797
Accrued liabilities:
Profit sharing 14,408 51,274
Income taxes 59,183 556
Other 43,948 24,821
------------ ------------
Total current liabilities 343,504 307,196
------------ ------------
Other liabilities, excluding life subsidiaries:
Real estate mortgages payable 333 333
Non-current deferred taxes 670,704 674,578
Other 112,021 109,432
------------ ------------
783,058 784,343
------------ ------------
Liabilities of life subsidiaries:
Policy liabilities:
Future policy benefits 3,280,726 3,213,562
Claims 32,798 32,192
Policyholder dividends 13,561 13,594
Other policyholder funds 72,067 73,568
Income taxes (including deferred taxes: $219,934 and $248,717) 240,067 249,349
Unearned investment income 2,154 2,221
Other liabilities 250,192 246,177
Liabilities related to separate account 732,973 714,794
------------ ------------
4,624,538 4,545,457
------------ ------------
Total liabilities 5,751,100 5,636,996
------------ ------------
Commitments and contingencies
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debentures 500,000 500,000
------------ ------------
Stockholder's Equity:
Common stock, $1 par value per share; authorized, issued
and outstanding: as of March 31, 1996 and
December 31, 1995--1,000 shares 1 1
Additional capital 5,212,618 5,212,618
Unrealized gains (net of deferred taxes of $37,688
and $67,545) 69,543 124,962
Retained earnings 1,213,351 1,156,067
------------ ------------
Total stockholder's equity 6,495,513 6,493,648
------------ ------------
Total liabilities and stockholder's equity $ 12,746,613 $ 12,630,644
============ ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 6
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three month period
ended March 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Consolidated operating revenues $ 504,085 $ 460,045
=========== ===========
Management services to property and casualty
insurance companies; and other:
Operating revenues 306,585 290,387
----------- -----------
Salaries and employee benefits 87,236 88,082
Buildings and equipment expenses 13,691 14,559
Amortization of AIF contracts and goodwill 25,692 25,692
General and administrative expenses 50,711 47,023
----------- ----------
Total operating expenses 177,330 175,356
----------- ----------
Operating income 129,255 115,031
Net investment income 27,722 17,534
Dividends on preferred securities of subsidiary trusts (10,518) 0
----------- ----------
Income before provision for taxes 146,459 132,565
Provision for income taxes 59,450 53,742
----------- ----------
Management services income 87,009 78,823
----------- ----------
Life subsidiaries:
Premiums 42,526 38,063
Policy charges 58,720 53,361
Investment income, net of expenses 76,617 70,336
Net realized gains 19,637 7,898
----------- -----------
Total revenues 197,500 169,658
----------- -----------
Policy benefits 37,400 35,151
Increase in liability for future policy benefits 3,106 1,405
Interest credited to policyholders 40,789 36,395
Amortization of deferred policy acquisition costs and
value of life business acquired 27,792 26,405
Commissions 5,245 4,425
General and administrative expenses 15,050 14,820
----------- -----------
Total operating expenses 129,382 118,601
----------- -----------
Income before provision for taxes 68,118 51,057
Provision for income taxes 22,868 17,024
----------- -----------
Life subsidiaries income 45,250 34,033
----------- -----------
Consolidated net income $ 132,259 $ 112,856
=========== ===========
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 7
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
For the three month period ended March 31, 1996
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized Total
Common Additional Gains/(Losses) Retained Stockholder's
Stock Capital On Investments Earnings Equity
-------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 1 $ 5,212,618 $ 124,962 $1,156,067 $ 6,493,648
Net income 132,259 132,259
Change in net unrealized
gains/(losses) on
investments net
of tax of ($29,857) (55,419) (55,419)
Cash dividends paid (74,975) (74,975)
-------- ------------ ------------- ---------- ------------
Balance, March 31, 1996 $ 1 $ 5,212,618 $ 69,543 $1,213,351 $ 6,495,513
======== ============ ============= ========== ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 8
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
For the three month period ended March 31, 1995
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized Total
Common Additional Gains/(Losses) Retained Stockholder's
Stock Capital On Investments Earnings Equity
-------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 1 $ 5,212,618 $ (35,146) $ 970,537 $ 6,148,010
Net income 112,856 112,856
Change in net unrealized
gains/(losses) on
investments net
of tax of $15,348 28,492 28,492
Cash dividends paid (71,300) (71,300)
-------- ------------ ------------- ---------- ------------
Balance, March 31, 1995 $ 1 $ 5,212,618 $ (6,654) $1,012,093 $ 6,218,058
======== ============ ============= ========== ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 9
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three month period
ended March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Consolidated net income $ 132,259 $ 112,856
Non-cash and operating activities adjustments:
Depreciation and amortization 34,442 33,988
Amortization of deferred policy acquisition costs and
value of life business acquired 27,792 26,405
Policy acquisition costs deferred (31,638) (32,626)
Life insurance policy liabilities 66,236 75,877
Equity in earnings of joint ventures 378 88
Gain on sales of assets (20,558) (8,072)
Changes in assets and liabilities:
Current assets and liabilities 64,022 54,764
Non-current assets and liabilities (15,647) (53,200)
Other, net (2,483) (5,428)
---------- -----------
Net cash provided by operating activities 254,803 204,652
---------- -----------
Cash Flows from Investing Activities:
Purchases of investments available for sale (333,475) (229,095)
Purchases of investments held to maturity 0 (56,559)
Purchases of properties (11,812) (10,611)
Proceeds from sales and maturities of investments
available for sale 183,339 75,605
Proceeds from calls and maturities of investments
held to maturity 0 14,419
Proceeds from sales of properties 6,747 2,912
Mortgage loan collections 3,639 4,266
Other, net 2,559 (18,116)
---------- -----------
Net cash used in investing activities (149,003) (217,179)
---------- -----------
Cash Flows from Financing Activities:
Dividends paid to stockholder (74,975) (71,300)
Issuance cost of cumulative quarterly income
preferred securities (409) 0
---------- -----------
Net cash used in financing activities (75,384) (71,300)
---------- -----------
Increase/(decrease) in cash and cash equivalents 30,416 (83,827)
Cash and cash equivalents - at beginning of year 913,006 539,361
---------- -----------
Cash and cash equivalents - at end of period $ 943,422 $ 455,534
========== ===========
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 10
FARMERS GROUP, INC.
AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
A. Basis of presentation and summary of significant accounting policies
The accompanying consolidated balance sheet of Farmers Group, Inc. and
subsidiaries (the "Company") as of March 31, 1996 and the related
consolidated statements of income, stockholder's equity and cash flows for
the three-month periods ended March 31, 1996 and March 31, 1995, have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim periods and are unaudited; however, in management's
opinion, they include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of results for such interim
periods. These statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the
consolidated balance sheets of the Company as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1995.
Interim results are not necessarily indicative of results for the full
year. All material inter-company transactions have been eliminated.
Certain amounts applicable to prior years have been reclassified to conform
with the 1996 presentation.
The preparation of the Company's financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
In December 1988, BATUS Inc. ("BATUS"), a subsidiary of B.A.T
Industries p.l.c. ("B.A.T"), acquired 100% ownership of the Company for
$5,212,619,000 in cash, including related expenses, through its wholly
owned subsidiary BATUS Financial Services. Immediately thereafter, BATUS
Financial Services was merged into Farmers Group, Inc.. The acquisition was
accounted for as a purchase and, accordingly, the acquired assets and
liabilities were recorded in the Company's consolidated balance sheets
based on their estimated fair values at December 31, 1988. In January 1990,
ownership of the Company was ultimately transferred to South Western
Nominees Limited, a subsidiary of B.A.T.
The Company is attorney-in-fact for three inter-insurance exchanges:
Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance
Exchange (collectively the "Exchanges"), which operate in the property and
casualty insurance industry. As attorney-in-fact, Farmers Group, Inc., or
its subsidiaries, as applicable, manages the affairs of the Exchanges,
their respective subsidiaries and Farmers Texas County Mutual Insurance
Company (collectively the "P&C Group") and receives compensation based on a
percentage of earned premiums.
<PAGE> 11
The Company's life insurance operations are conducted by three wholly
owned subsidiaries, Farmers New World Life Insurance Company, The Ohio
State Life Insurance Company and Investors Guaranty Life Insurance Company
(the "Life Subsidiaries"). They market a broad line of individual life
insurance products, including universal life, term life and whole life
insurance, and annuity products, predominately flexible premium deferred
annuities.
In 1996, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This Statement, effective for fiscal years
beginning after December 15, 1995, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The adoption of this statement did not have a material impact on the
Company's consolidated financial statements.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". This Statement, effective for fiscal years beginning after
December 15, 1995, establishes accounting and disclosure requirements using
a fair value based method of accounting for stock-based employee
compensation plans. Under SFAS No. 123, the Company may either adopt the
new fair value based accounting method or continue to apply the intrinsic
value based method and provide pro forma disclosures of net income and
earnings per share as if the accounting provisions of SFAS No. 123 had been
adopted. The Company adopted only the disclosure requirements of SFAS No.
123; therefore, the adoption of this statement had no effect on its
consolidated financial statements.
B. Material contingencies
The Company is a party to numerous lawsuits arising from its normal
business activities. These actions are in various stages of discovery and
development, and some seek punitive as well as compensatory damages. In the
opinion of management, the Company has not engaged in any conduct which
should warrant the award of any material punitive or compensatory damages.
The Company intends to vigorously defend its position in each case, and
management believes that, while it is not possible to predict the outcome
of such matters with absolute certainty, ultimate disposition of these
proceedings should not have a material adverse effect on the Company's
consolidated results of operations or financial position.
C. Investments
The Company follows the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". This statement
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. The Company classifies its investments in the balance sheet in
two categories as follows: (a) fixed maturity securities for which the
Company has the positive intent and ability to hold to maturity are
classified as held to maturity securities and reported at amortized cost;
and (b) debt and equity securities not classified as held to maturity are
classified as available for sale and reported at fair value, with
unrealized gains and losses, net of taxes, excluded from earnings and
reported as a
<PAGE> 12
component of stockholder's equity. Trading securities are
defined by SFAS No. 115 as debt and equity securities bought and held
principally for the purpose of selling in the near term. As of
March 31, 1996 and December 31, 1995, the Company had no
securities designated as trading securities under SFAS No. 115.
In compliance with a Securities and Exchange Commission ("SEC") staff
announcement, the Company has recorded certain entries to the DAC asset and
Value of Life Business Acquired in connection with SFAS No. 115. The SEC
requires that companies record entries to those assets and liabilities
that would have been adjusted had the unrealized investment gains or
losses from securities classified as available for sale actually
been realized, with corresponding credits or charges reported directly to
stockholder's equity.
As of March 31, 1996, the Company has classified all investments in
equity and debt securities as available for sale under SFAS No. 115.
On November 15, 1995, the FASB issued a special report, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities", in which they discussed a "fresh start"
transition provision that allowed reporting entities to reassess their
securities holdings that were classified pursuant to the provisions in SFAS
No. 115. As a result of this "fresh start", the Company decided to
reclassify all of its debt securities originally classified as held to
maturity under SFAS No. 115 to available for sale as of December 31, 1995.
The sources of investment income on securities owned by the Company
(excluding the Life Subsidiaries) for the periods ended March 31 are:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
(Amounts in thousands)
<S> <C> <C>
Related parties:
Interest income $ 14,935 $ 9,769
---------- ----------
Total related parties 14,935 9,769
---------- ----------
Non-related parties:
Interest income - fixed income securities 11,357 6,016
Dividend income 1,275 1,290
Interest income - short-term instruments 2,667 3,404
Realized investment gains, net 809 244
Investment expenses (4,125) (4,125)
Other 804 936
---------- ----------
Total non-related parties 12,787 7,765
---------- ----------
Total investment income by component $ 27,722 $ 17,534
========== ==========
</TABLE>
<PAGE> 13
The sources of investment income on securities owned by the Life
Subsidiaries for the periods ended March 31 are:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Fixed income securities $ 59,544 $ 56,604
Equity securities 6,930 6,579
Mortgage loans 3,821 4,555
B.A.T Capital Corporation notes 1,627 1,451
Owned real estate 2,560 2,629
Policy loans 2,903 2,580
Short-term instruments 1,587 650
Other 1,220 (616)
Investment expenses (3,575) (4,096)
----------- -----------
Total investment income by component $ 76,617 $ 70,336
=========== ===========
</TABLE>
Realized gains and losses on sales, redemptions and writedowns of
investments owned by the Company (excluding the Life Subsidiaries) are
determined based on either the cost of the individual securities or the
amortized cost of real estate. Net realized investment gains or losses
for the periods ended March 31 are:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Bonds $ 393 $ 2
Redeemable preferred stocks 21 11
Non-redeemable preferred stocks 0 0
Common stocks 0 0
Investment real estate 395 231
----------- -----------
Net realized investment gains $ 809 $ 244
=========== ===========
</TABLE>
Realized gains and losses on sales, redemptions and writedowns of
investments owned by the Life Subsidiaries are determined based on
either the cost of the individual securities or the amortized cost of
real estate. Net realized investment gains or losses for the periods
ended March 31 are:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Bonds $ 231 $ 1,249
Redeemable preferred stocks (6) (2)
Non-redeemable preferred stocks 391 244
Common stocks 20,188 6,710
Investment real estate (469) (274)
Other (698) (29)
----------- -----------
Net realized investment gains $ 19,637 $ 7,898
=========== ===========
</TABLE>
<PAGE> 14
Gross unrealized gains or losses of the Life Subsidiaries
pertaining to non-redeemable preferred stocks and common stocks stated
at quoted market values as of March 31, 1996 and December 31, 1995 are:
<TABLE>
<CAPTION>
Gains Losses Net
1996 ----------- ----------- ----------
- - ---- (Amounts in thousands)
<S> <C> <C> <C>
Non-redeemable preferred stocks $ 2,450 $ (2,891) $ (441)
Common stocks 75,878 (16,679) 59,199
---------- ----------- ----------
$ 78,328 $ (19,570) 58,758
========== ===========
Less deferred federal income taxes 20,565
----------
$ 38,193
==========
1995
- - ----
Non-redeemable preferred stocks $ 4,138 $ (1,960) $ 2,178
Common stocks 81,243 (19,181) 62,062
---------- ----------- ----------
$ 85,381 $ (21,141) 64,240
========== ===========
Less deferred federal income taxes 22,484
----------
$ 41,756
==========
</TABLE>
The amortized cost, gross unrealized gains and losses, and
estimated market values of investments in debt securities, including
bonds and redeemable preferred stocks, owned by the Company (excluding
the Life Subsidiaries) are as follows:
<TABLE>
<CAPTION>
As of March 31, 1996
-------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Debt Securities Available for Sale,
including Marketable Securities
U.S.Treasury securities and obligations of
U.S. government corporations and agencies $ 55 $ 3 $ 0 $ 58
Obligations of states and political
subdivisions 269,956 3,215 (215) 272,956
Corporate securities 20,020 0 (14) 20,006
Other debt securities 73,823 1,139 (810) 74,152
--------- ---------- ---------- ---------
Total $ 363,854 $ 4,357 $ (1,039) $ 367,172
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995
-------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Debt Securities Available for Sale,
including Marketable Securities
U.S.Treasury securities and obligations of
U.S. government corporations and agencies $ 55 $ 5 $ 0 $ 60
Obligations of states and political
subdivisions 304,652 4,439 (27) 309,064
Corporate securities 20,020 0 (20) 20,000
Other debt securities 74,274 2,760 (426) 76,608
--------- ---------- ---------- ---------
Total $ 399,001 $ 7,204 $ (473) $ 405,732
========= ========== ========== =========
<PAGE> 15
The amortized cost, gross unrealized gains and losses, and
estimated market values of investments in debt securities, including
bonds and redeemable preferred stocks, owned by the Life Subsidiaries
are as follows:
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1996
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Debt Securities Available for Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 302,324 $ 9,683 $ (3,252) $ 308,755
Obligations of states and political
subdivisions 314,354 8,939 (3,991) 319,302
Debt securities issued by foreign governments 77,241 4,321 (2,164) 79,398
Corporate securities 905,729 37,594 (10,431) 932,892
Mortgage-backed securities 1,710,006 41,478 (23,867) 1,727,617
Other debt securities 243,975 7,256 (2,201) 249,030
---------- ---------- ---------- ----------
Total $3,553,629 $ 109,271 $ (45,906) $3,616,994
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Debt Securities Available for Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 302,556 $ 19,083 $ (185) $ 321,454
Obligations of states and political
subdivisions 311,482 16,066 (737) 326,811
Debt securities issued by foreign governments 75,708 4,641 (2,778) 77,571
Corporate securities 849,734 57,467 (5,076) 902,125
Mortgage-backed securities 1,558,198 70,134 (5,826) 1,622,506
Other debt securities 244,521 14,018 (2,434) 256,105
---------- ---------- ---------- ----------
Total $3,342,199 $ 181,409 $ (17,036) $3,506,572
========== ========== ========== ==========
</TABLE>
Proceeds received by the Company from sales and maturities of
securities available for sale were $183,339,000 and $75,605,000 as of
March 31, 1996 and March 31, 1995, respectively. Gross gains of
$23,844,000 and $8,718,000 and gross losses of $2,626,000 and $504,000
were realized on sales and writedowns as of March 31, 1996 and March 31,
1995, respectively.
The change in the net unrealized gains or losses of the Company
(excluding the Life Subsidiaries) for the periods ended March 31, 1996
and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Fixed maturities $ (3,413) $ 10,152
Equity securities 0 0
</TABLE>
<PAGE> 16
The change in the net unrealized gains or losses of the Life Subsidiaries
for the periods ended March 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Fixed maturities $ (101,008) $ 345,802
Equity securities (5,482) 34,235
</TABLE>
D. Security Lending Arrangement
The Life Subsidiaries have security lending agreements with a financial
institution. The agreements in effect as of March 31, 1996 authorize the
institution to lend securities held in the Life Subsidiaries' portfolios to
a list of authorized borrowers. Concurrent with delivery of the
securities, the borrower provides the Life Subsidiaries with cash
collateral equal to at least 102% of the market value of domestic
securities and 105% of the market value of other securities subject to the
"loan".
The securities are marked-to-market on a daily basis and the collateral
is increased or decreased on the next business day. The collateral is
invested in highly liquid, fixed income assets with a maturity of less than
one year. As of March 31, 1996 and 1995, income earned from the security
lending arrangement was allocated 60% to the Life Subsidiaries and 40% to
the financial institution. Income earned by the Life Subsidiaries was
$96,000 and $39,000 through March 1996 and March 1995, respectively. The
collateral under these agreements as of March 31, 1996 and March 31, 1995
was $196,421,000 and $198,649,000, respectively, and was recorded in both
Other Assets and Other Liabilities of Life Subsidiaries.
E. Supplemental cash flow information
For financial statement purposes, the Company considers all investments
with original maturities of 90 days or less as cash equivalents. Following
is a reconciliation of the individual balance sheet cash and cash
equivalent totals to the consolidated cash flow total.
<TABLE>
<CAPTION>
Excluding
Life Life
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C>
Cash and cash equivalents --December 31, 1994 $ 415,064 $ 124,297 $ 539,361
Activity through March 1995 (83,827)
---------
Cash and cash equivalents -- March 31, 1995 401,248 54,286 $ 455,534
=========
Cash and cash equivalents --December 31, 1995 763,212 149,794 $ 913,006
Activity through March 1996 30,416
---------
Cash and cash equivalents -- March 31, 1996 874,057 69,365 $ 943,422
=========
</TABLE>
Cash payments for interest were $8,532,000 and $8,231,000, while cash
payments for income taxes were $13,647,000 and $18,740,000, for the three
month periods ended March 31, 1996 and March 31, 1995, respectively.
<PAGE> 17
F. Related parties
The Company received management fees from the Exchanges of $287,628,000
and $272,341,000 for the three months ended March 31, 1996 and March 31,
1995, respectively.
As of March 31, 1996, the Company had $407,000,000 in notes receivable
related to loans made to B.A.T Capital Corporation, a subsidiary of B.A.T
Industries. These notes are fixed rate medium-term notes with maturity
dates as follows: $135,000,000 in October 1996, $135,000,000 in October
1997, and $137,000,000 in October 1998. Interest on these notes is paid
semi-annually at coupon rates of 4.76%, 5.10% and 5.35%, respectively.
Income earned on these notes was $5,160,000 and $5,216,000 for the three
months ended March 31, 1996 and March 31, 1995, respectively.
As of March 31, 1996, the Company had revolving credit agreements with
certain financial institutions and had an aggregate borrowing facility of
$400,000,000. The proceeds of the facility were available to the Company
for general corporate purposes, including loans to the Exchanges. Facility
fees were payable on the aggregate borrowing facility in the amount of 10
basis points per annum and were reimbursable to the Company by the
Exchanges. In the case of a draw on the facility, interest for the
relevant borrowing period was payable periodically at an annual rate equal
to LIBOR, plus 20 basis points. As of March 31, 1996, the Company did not
have any outstanding borrowings under the revolving credit agreements.
Interest payments for facility fees were $178,000 for the three month
period ended March 31, 1996 and were reimbursed by the Exchanges. The
revolving credit agreements expire as follows: $100,000,000 in May 1996,
$200,000,000 in June 1996, and $100,000,000 in July 1996.
As of March 31, 1995, the Company had revolving credit agreements with
certain financial institutions and had an aggregate borrowing facility of
$260,000,000. The proceeds of the facility were available to the Company
for general corporate purposes, including loans to the Exchanges. Facility
fees were payable on the aggregate borrowing facility in the amount of 15
basis points per annum and were reimbursable to the Company by the
Exchanges. In the case of a draw on the facility, interest was payable
periodically at an annual rate equal to LIBOR, plus 12.5 to 15 basis
points, for the relevant period of borrowing. As of March 31, 1995, the
Company did not have any outstanding borrowings under the revolving credit
agreements. Interest payments for facility fees were $102,000 for the
three month period ended March 31, 1995 and were reimbursed by the
Exchanges.
<PAGE> 18
G. Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Junior Subordinated Debentures
In 1995, Farmers Group Capital and Farmers Group Capital II (the
"Subsidiary Trusts"), consolidated wholly owned subsidiaries of Farmers
Group, Inc., issued $410 million of 8.45% Cumulative Quarterly Income
Preferred Securities ("QUIPS"), Series A and $90 million of 8.25% QUIPS,
Series B, respectively. In connection with the Subsidiary Trusts' issuance
of the QUIPS and the related purchase by Farmers Group, Inc. of all of the
Subsidiary Trusts' Common Securities ("Common Securities"), Farmers Group,
Inc. issued to Farmers Group Capital $422,680,399 principal amount of its
8.45% Junior Subordinated Debentures, Series A due on December 31, 2025,
(the "Junior Subordinated Debentures, Series A") and issued to Farmers Group
Capital II $92,783,505 principal amount of its 8.25% Junior Subordinated
Debentures, Series B due on December 31, 2025 (the "Junior Subordinated
Debentures, Series B" and, together with the Junior Subordinated Debentures,
Series A, the "Junior Subordinated Debentures"). The sole assets of Farmers
Group Capital are the Junior Subordinated Debentures, Series A. The sole
assets of Farmers Group Capital II are the Junior Subordianted Debentures,
Series B. In addition, these arrangements are governed by various agreements
between Farmers Group, Inc. and the Subsidiary Trusts (the Guarantee
Agreements, the Trust Agreements, the Expense Agreements, the Indentures and
the Junior Subordinated Debentures) which considered together constitute a
full and unconditional guarantee by Farmers Group, Inc. of the Subsidiary
Trusts' obligations under the Preferred Securities.
Under certain circumstances, the Junior Subordinated Debentures may
be distributed to holders of the QUIPS and holders of the Common Securities
in liquidation of the Subsidiary Trusts. The QUIPS are subject to
mandatory redemption upon repayment of the Junior Subordinated Debentures
at maturity, or upon their earlier redemption, at a redemption price of
$25 per Preferred Security, plus accrued and unpaid distributions thereon
to the date fixed for redemption. Farmers Group, Inc. will have the option
at any time on or after September 27, 2000 to redeem, in whole or part,
the Junior Subordinated Debentures.
As of March 31, 1996, a total of 20,000,000 shares of QUIPS were
outstanding.
H. Certificates in surplus of exchanges
The Company, as attorney-in-fact for the Exchanges, made surplus
contributions to the Exchanges totaling $250,000,000 and $200,000,000 in
1995 and 1986, respectively. In return, the Company received certificates
of contribution for those amounts which currently bear interest annually at
8.95% for the 1995 certificate and 9.25% for the 1986 certificate. The
Company has, from time to time, made other surplus contributions to the
Exchanges totaling $34,380,000, receiving certificates of contribution
which bear interest at various rates.
Conditions governing repayment of these amounts are outlined in the
certificates. Generally, repayment may be made only when the surplus
balance of the appropriate Exchange reaches a certain specified level, and
then only after approval is granted by the Exchange Board of Governors and
the California Insurance Commissioner.
<PAGE> 19
I. Subsequent events
Beginning April 26, 1996, the Company entered into revolving credit
agreements with certain financial institutions to establish an aggregate
borrowing facility of $500,000,000. This facility is intended to replace
the existing $400,000,000 aggregate borrowing facility which will expire in
its entirety in July 1996 (see Note F). The proceeds of the facility are
available to the Company for general corporate purposes, including loans to
the Exchanges. Facility fees are payable on the aggregate borrowing
facility in the amount of 9 basis points per annum and are reimbursable to
the Company by the Exchanges. In the case of a draw on the facility,
interest for the relevant borrowing period is payable periodically at a
rate which is defined by the credit agreements. The revolving credit
agreements expire on April 26, 2001.
<PAGE> 20
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company is engaged in the management of property and casualty
insurance companies and the underwriting of life insurance and annuity
products. The Company does not own any property and casualty insurers, but
rather serves as the manager of the P&C Group. The Company receives a
management fee based on the gross premiums earned by the P&C Group.
Revenues and expenses relating to both of these principal business
activities are reflected in the Company's Consolidated Financial Statements
prepared in accordance with GAAP, which differs from SAP, which the Life
Subsidiaries are required to use for regulatory reporting purposes.
The Company underwrites life insurance and annuity products through its
three life insurance subsidiaries. Revenues attributable to traditional
life insurance products, such as whole life or term insurance contracts,
are classified as premiums as they become due. Future benefits are
associated with such premiums (through increases in liabilities for future
policy benefits), and prior period capitalized costs are amortized (through
amortization of DAC) so that profits are generally recognized over the same
period as revenue income. Revenues attributable to universal life products
consist of policy charges for the cost of insurance, policy administration
charges, surrender charges, and investment income on assets allocated to
support policyholder account balances on deposit. Revenues for deferred
annuity products consist of surrender charges and investment income
on assets allocated to support policyholder account balances. Expenses on
universal life and annuity policies include interest credited to
policyholders on policy balances as well as benefit claims incurred in
excess of policy account balances.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Management Services to Property and Casualty Insurance Companies; and
Other
Operating Revenues. Operating revenues increased from $290.4 million
for the three months ended March 31, 1995 to $306.6 million for the three
months ended March 31, 1996, an increase of $16.2 million, or 5.6%.
Operating revenues primarily consist of management fees paid to the Company
as a percentage of gross premiums earned by the P&C Group. Such premiums
increased from $2,211.2 million in the first quarter of 1995 to $2,318.9
million in the first quarter of 1996 due primarily to continued growth in
the number of policies-in-force and premium rate increases.
Total Operating Expenses. Total operating expenses as a percentage of
operating revenues decreased from 60.4% for the three months ended March
31, 1995 to 57.8% for the three months ended March 31, 1996, a decrease of
2.6%. Although total operating expenses increased by 1.1%, this increase
was less than the 3.8% increase in policies-in-force. In particular, the
Company continued to control its labor costs, reducing salaries and
benefits from 30.3% of operating revenues for the three months ended March
31, 1995 to 28.5% of operating revenues for the three months ended March
31, 1996.
<PAGE> 21
Salaries and Employee Benefits. Salaries and employee benefits
decreased from $88.1 million for the three months ended March 31, 1995 to
$87.2 million for the three months ended March 31, 1996, a decrease of $0.9
million, or 1.0%, primarily due to a reduction in employee complement.
Buildings and Equipment Expenses. Buildings and equipment expenses
decreased from $14.6 million for the three months ended March 31, 1995 to
$13.7 million for the three months ended March 31, 1996, a decrease of $0.9
million, or 6.2%. This decrease is attributable to a decrease in computer
mainframe related expenses.
Amortization of Attorney-In-Fact Contracts and Goodwill. Purchase
accounting entries related to the acquisition of the Company by B.A.T
Industries p.l.c. in December 1988 include goodwill (capitalized at $2.4
billion) and the value of the attorney-in-fact contracts of the P&C Group
(capitalized at $1.7 billion). Amortization of these two items, which is
being taken on a straight-line basis over forty years, reduced pretax
income by approximately $25.7 million in each of the three month periods
ended March 31, 1996 and 1995.
General and Administrative Expenses. General and administrative
expenses increased from $47.0 million for the three months ended March 31,
1995 to $50.7 million for the three months ended March 31, 1996, an
increase of $3.7 million, or 7.9%. This increase is attributable to the
amortization of new information technology systems software and to
increased levels of business activity.
Net Investment Income. Net investment income increased from $17.5
million for the three months ended March 31, 1995 to $27.7 million for the
three months ended March 31, 1996 due to a larger invested asset base in
1996.
Dividends on Preferred Securities of Subsidiary Trusts. As a result of
the $500.0 million of Cumulative Quarterly Income Preferred Securities
(QUIPS) issued in 1995, dividend expense for the three months ended March
31, 1996 was $10.5 million.
Provision for Income Taxes. Provision for income taxes increased from
$53.7 million for the three months ended March 31, 1995 to $59.5 million
for the three months ended March 31, 1996, an increase of $5.8 million, or
10.8%. This increase is primarily attributable to the increase in pretax
operating income between years.
Management Services Income. As a result of the foregoing, management
services income increased from $78.8 million for the three months ended
March 31, 1995 to $87.0 million for the three months ended March 31, 1996,
an increase of $8.2 million, or 10.4%.
<PAGE> 22
Life Subsidiaries
Total Revenues. Total revenues increased from $169.7 million for the
three months ended March 31, 1995 to $197.5 million for the three months
ended March 31, 1996, an increase of $27.8 million, or 16.4%. Premiums
increased $4.5 million in the three months ended March 31, 1996, or 11.8%,
over the three months ended March 31, 1995. This increase is due to
growth in renewal and first year business, as well as premiums generated
from annuities entering the payment ("AIP") phase. The increase in renewal
premiums is attributable to a 5.5% growth in traditional life insurance
in-force resulting from improved persistency and an increase in average
policy size. The higher first year premiums are due primarily to growth in
Premier Whole Life and Mortgage Protection Plan products. Policy charges
increased $5.3 million for the three months ended March 31, 1996, or 9.9%,
over the three months ended March 31, 1995, reflecting continued growth in
universal life-type insurance in-force. Net investment income increased
$6.3 million in the three months ended March 31, 1996, or 9.0%, over the
three months ended March 31, 1995 due largely to higher bond interest
income resulting primarily from a higher invested asset base. Net realized
gains increased by $11.7 million, from $7.9 million in the three months
ended March 31, 1995 to $19.6 million in the three months ended March 31,
1996, due primarily to gains realized on common stock as a result of
favorable market conditions.
Total Operating Expenses. Total operating expenses increased from
$118.6 million for the three months ended March 31, 1995 to $129.4 million
for the three months ended March 31, 1996, an increase of $10.8 million, or
9.1%.
Policyholders' Benefits. Policyholders' benefits expense increased from
$73.0 million for the three months ended March 31, 1995 to $81.3 million
for the three months ended March 31, 1996, an increase of $8.3 million, or
11.4%. Policy benefits, which consist primarily of death and surrender
benefits on life products, increased $2.3 million over March 31, 1995 due
largely to an increase in death claims resulting from an increase in the
volume of insurance in-force and higher death claims per insurance in-force
Increase in liability for future benefits expense increased from $1.4
million in the three months ended March 31, 1995 to $3.1 million for
the three months ended March 31, 1996. This increase is primarily
attributable to increases in AIP and Premier Whole Life product premiums in
the three months ended March 31, 1996. Interest credited to policyholders,
which represents the amount credited under universal life-type contracts
and deferred annuities for policyholder funds on deposit, increased from
$36.4 million in the three months ended March 31, 1995 to $40.8 million for
the three months ended March 31, 1996, or 12.1%, reflecting a 9.9% growth
in universal life-type insurance in-force and an 11.4% increase in annuity
funds on deposit.
Amortization of DAC and Value of Life Business Acquired. Amortization
expense increased from $26.4 million for the three months ended March 31,
1995 to $27.8 million for the three months ended March 31, 1996, or 5.3%.
This increase reflects the continued growth in universal life-type and
traditional business for the three months ended March 31, 1996
Commissions. Commissions increased from $4.4 million in the three
months ended March 31, 1995 to $5.2 million for the three months ended
March 31, 1996, reflecting increased renewal premiums from universal life
products.
<PAGE> 23
General and Administrative Expenses. General and administrative
expenses increased from $14.8 million for the three months ended March 31,
1995 to $15.1 million for the three months ended March 31, 1996, or 2.0%.
This increase results mainly from higher salaries and benefits expense in
1996.
Provision for Income Taxes. Provision for income taxes increased from
$17.0 million for the three months ended March 31, 1995 to $22.9 million
for the three months ended March 31, 1996, an increase of $5.9 million.
This increase is attributable to the increase in pretax operating income.
Life Subsidiaries Income. As a result of the foregoing, Life
Subsidiaries income increased from $34.1 million for the three months ended
March 31, 1995 to $45.3 million for the three months ended March 31, 1996,
an increase of $11.2 million, or 32.8%.
Consolidated Net Income
Consolidated net income of the Company increased from $112.9 million
for the three months ended March 31, 1995 to $132.3 million for the three
months ended March 31,1996, an increase of $19.4 million, or 17.2%.
Liquidity and Capital Resources
As of March 31, 1996 and March 31, 1995, the Company held cash and cash
equivalents of $943.4 million and $455.5 million, respectively. In
addition, as of March 31, 1996, the Company had available revolving credit
facilities enabling it to borrow up to $400.0 million in the event such a
need should arise.
Net cash provided by operating activities increased from $204.7 million
for the three months ended March 31, 1995 to $254.8 million for the three
months ended March 31, 1996, an increase of $50.1 million, or 24.5%.
Contributing to this increase was a $19.4 million increase in consolidated
net income. In addition, net cash provided by changes in assets and
liabilities increased $46.8 million primarily due to the fact that accrued
income taxes increased $22.4 million and accrued investment income
decreased $10.4 million. These increases in cash provided by operations
were offset in part by a $12.5 million increase in realized gains on sales
of assets.
Net cash used in investing activities decreased from $217.2 million for
the three months ended March 31, 1995 to $149.0 million for the three
months ended March 31, 1996, a decrease of $68.2 million, or 31.4%. This
decrease was due to a $93.3 million increase in security investment
proceeds offset in part by a $47.8 million increase in security investment
purchases. Security proceeds increased between periods to take advantage
of capital gains resulting from favorable market conditions during the
three months ended March 31, 1996.
Net cash used in financing activities increased from $71.3 million for
the three months ended March 31, 1995 to $75.4 million for the three months
ended March 31, 1996, an increase of $4.1 million, or 5.8%, due to an
increase in dividends paid to the Company's stockholder.
<PAGE> 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to numerous lawsuits arising from its normal
business activities. These actions are in various stages of discovery and
development, and some seek punitive as well as compensatory damages. In
the opinion of management, the Company has not engaged in any conduct which
should warrant the award of any material punitive or compensatory damages.
The Company intends to vigorously defend its position in each case, and
management believes that, while it is not possible to predict the outcome
of such matters with absolute certainty, ultimate disposition of these
proceedings should not have a material adverse effect on the Company's
consolidated results of operations or financial position. In addition, the
Company is, from time to time, involved as a party to various governmental
and administrative proceedings.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K. None.
<PAGE> 25
FARMERS GROUP, INC.
AND SUBSIDIARIES
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.
Farmers Group, Inc.
(Registrant)
May 13, 1996 /s/ Leo Denlea, Jr
------------------------------------------
Date Leo E. Denlea, Jr
Chairman of the Board
and Chief Executive Officer
May 13, 1996 /s/ Anthony L.R. Clark
------------------------------------------
Date Anthony L.R. Clark
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Farmers Group, Inc. and subsidiaries as of
March 31, 1996 and the related consolidated statements of income,
stockholder's equity and cash flows for the three-month period ended
March 31,1996 (unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 943,422
<SECURITIES> 79,191
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,286,829
<PP&E> 485,561
<DEPRECIATION> 142,305
<TOTAL-ASSETS> 12,746,613
<CURRENT-LIABILITIES> 345,658
<BONDS> 0
500,000
0
<COMMON> 1
<OTHER-SE> 6,495,512
<TOTAL-LIABILITY-AND-EQUITY> 12,746,613
<SALES> 0
<TOTAL-REVENUES> 504,085
<CGS> 0
<TOTAL-COSTS> 278,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,518
<INCOME-PRETAX> 214,577
<INCOME-TAX> 82,318
<INCOME-CONTINUING> 132,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,259
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
