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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): April 21, 1998
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ARM FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 33-67268 61-1244251
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
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515 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
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</TABLE>
Registrant's telephone number, including area code: (502) 582-7900
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ITEM 5. OTHER EVENTS.
On April 21, 1998, ARM Financial Group, Inc. (the "Company") announced
that its operating earnings for the first quarter of 1998 were $10.0 million, or
41 cents per share, compared to pro forma operating earnings of $7.0 million, or
29 cents per share, for the same period in 1997, an increase of 41% per share.
Operating earnings is defined as net income applicable to common shareholders
excluding, net of tax, realized investment gains and losses, non-recurring
charges and for 1997, income from defined benefit pension plan asset management
operations which were sold in November 1997. Pro forma operating earnings in
1997 include a pro forma adjustment to reflect investment income at an assumed
rate of 7.5% on the net proceeds of the Company's initial public offering of
Class A Convertible Common Stock assuming it occurred on January 1, 1997.
Total sales rose to $568.7 million for the first quarter of 1998
compared to $353.7 million for the first quarter of 1997. This represents a 61%
increase over the same period one year ago. Total retail sales increased by 16%
to $121.5 million due to new product introductions and expanded distribution
capabilities. Total institutional sales increased 80% to $447.2 million due to
increased sales of institutional funding agreements.
Net investment spread increased to $22.7 million for the first quarter
of 1998 from $18.4 million for the same period in 1997. Net income applicable to
common shareholders increased to $9.8 million, or 40 cents per share, from $6.4
million, or 37 cents per share. Net income in the first quarter of 1998 includes
a one-time $3.6 million charge as part of a retirement arrangement for John
Franco, the Company's former co-chairman and co-chief executive officer. This
charge consists of a $2.1 million non-cash item in connection with the vesting
of the unvested portion of Mr. Franco's stock options and a $1.5 million item
for the remaining compensation under his employment agreement. Net income in
1998 also includes realized investment gains, net of tax, of $3.4 million.
Net income in the first quarter of 1997 included a charge of $1.4 million as
part of the Company's consolidation of operating facilities and realized
investment gains, net of tax, of $1.5 million.
The following table sets forth selected historical information of the
Company and its subsidiaries for the three months ended March 31, 1998 and 1997.
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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(In thousands, except per share amounts and where noted)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<S> <C> <C>
Net investment spread $ 22,726 $ 18,375
Fee income 4,658 5,520
Other income and expenses (excluding non-recurring charges) (12,499) (14,257)
Non-recurring charges (3,570) (1,445)
Realized investment gains 5,165 2,231
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Income before federal income taxes 16,480 10,424
Federal income tax expense (5,499) (2,814)
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Net income 10,981 7,610
Dividends on preferred stock (1,188) (1,188)
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Net income applicable to common shareholders $ 9,793 $ 6,422
=====================
Operating earnings (pro forma in 1997 (1)) $ 10,006 $ 6,976
=====================
Per common and common equivalent share (diluted):
Net income $ 0.40 $ 0.37
=====================
Pro forma operating earnings $ 0.41 $ 0.29
=====================
SELECTED DATA
Sales (in millions):
Retail $ 121.5 $ 105.1
Institutional 447.2 248.6
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Total sales $ 568.7 $ 353.7
=====================
Total assets under management (in billions) (2) $ 7.5 $ 5.1
=====================
</TABLE>
(1) Operating earnings is defined as net income applicable to common
shareholders, excluding, net of tax, realized investment gains and losses,
non-recurring charges and for 1997, income from defined benefit pension
plan asset management operations which were sold, and for 1997, includes
the net pro forma effect on earnings assuming the Company's initial public
offering of common stock had occurred on January 1, 1997.
(2) Assets under management accepted both on and off the Company's balance
sheet.
In connection with its April 21, 1998 announcement of operating
earnings for the first quarter of 1998, the Company made available a quarterly
statistical supplement of the Company dated March 31, 1998.
ITEM 7(C). EXHIBITS FILED.
The following exhibits are filed as part of this report on Form 8-K:
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<CAPTION>
Number
Assigned in
Regulation S-K,
Item 601 Description of Exhibit
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<S> <C>
99.1 Quarterly statistical supplement of the Company dated March 31, 1998.
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SIGNATURE
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, thereto duly authorized.
ARM FINANCIAL GROUP, INC.
By: /s/ MARTIN H. RUBY
----------------------------------------------
Name: Martin H. Ruby
Title: Chairman of the Board of Directors and
Chief Executive Officer (Principal
Executive Officer)
Date: April 22, 1998
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Exhibit 99.1
ARM FINANCIAL GROUP, INC.
SUMMARY FINANCIAL INFORMATION
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Segment Summary
Retail spread products $ 10,517 $ 8,726
Institutional spread products 4,182 1,345
Retail variable products 1,601 878
Corporate and other (1,415) (1,892)
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Pretax operating earnings (before preferred
stock dividends) 14,885 9,057
Federal income taxes on operations (3,691) (2,033)
Preferred stock dividends (1,188) (1,188)
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Operating earnings (a) 10,006 5,836
Pro forma adjustment for earnings on IPO proceeds (b) -- 1,140
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Pro forma operating earnings 10,006 6,976
Realized investment gains, net of tax 3,357 1,450
Non-recurring charges (3,570) (1,445)
Income from defined benefit pension plan
asset management operations -- 581
Eliminate pro forma adjustment -- (1,140)
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Net income applicable to common shareholders $ 9,793 $ 6,422
========================
Pro forma weighted average shares outstanding 24,352 23,798
========================
Pro forma operating earnings per share $ 0.41 $ 0.29
========================
Dividend rate per share $ 0.02 $ 0.02
Operating payout ratio 4.87% 6.87%
RETURNS ANALYSIS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Beginning common equity (excluding SFAS No. 115) $ 237,245 $ 128,273
Issuance of common stock through the IPO (pro forma) -- 78,813
Other changes (dividends, exercise of stock options) (307) --
Net income applicable to common shareholders 9,793 6,422
------------------------
Ending common equity (excluding SFAS No. 115) $ 246,731 $ 213,508
========================
Return on average common equity (pro forma) (c) 16.5% 13.3%
Book value per share (excluding SFAS No. 115) (diluted) $ 10.10 $ 8.96
</TABLE>
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(a) Operating earnings is defined as net income applicable to common
shareholders, excluding, net of tax, realized investment gains and losses,
non-recurring charges and for 1997, income from defined benefit pension
plan asset management operations which were sold.
(b) The pro forma adjustment reflects investment income on the net proceeds of
the Company's June 1997 initial public offering ("IPO") of common stock
assuming it occurred on January 1, 1997.
(c) Annualized.
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ARM FINANCIAL GROUP, INC.
SUMMARY FINANCIAL INFORMATION (CONTINUED)
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
SALES (IN MILLIONS)
RETAIL:
Spread products $ 38.0 $ 68.8
Variable products 83.5 36.3
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Total retail 121.5 105.1
INSTITUTIONAL:
Spread products 447.2 248.6
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Total sales $ 568.7 $ 353.7
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<CAPTION>
March 31, December 31,
BALANCE SHEET DATA (IN THOUSANDS) 1998 1997
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<S> <C> <C>
Total cash and investments $4,935,049 $4,467,477
Assets held in separate accounts:
Spread products (guaranteed) 1,292,589 1,266,796
Variable products (nonguaranteed) 1,345,118 1,173,088
Total assets 7,858,736 7,138,424
Customer deposits (general and separate
accounts) 7,265,518 6,657,974
Long-term debt 38,000 38,000
Total liabilities 7,561,179 6,830,879
Shareholders' equity:
Carrying amount 297,557 307,545
Excluding the effects of SFAS No. 115 296,731 287,245
</TABLE>
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ARM FINANCIAL GROUP, INC.
RETAIL SPREAD PRODUCTS EARNINGS
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(Dollars in thousands)
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
NET INVESTMENT SPREAD
Investment income $ 55,508 $ 51,959
Interest credited (40,360) (36,879)
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Net investment spread 15,148 15,080
OTHER INCOME AND EXPENSES
Surrender fees 836 569
Commissions (3,455) (4,281)
Operating expenses (2,564) (2,778)
Deferrals of policy acquisition costs
(commissions and operating expenses) 3,487 4,209
Amortization:
Deferred policy acquisition costs (943) (836)
Value of insurance in force (1,531) (2,241)
Other expenses, net (461) (996)
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Total other income and expenses (4,631) (6,354)
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Pretax operating earnings $ 10,517 $ 8,726
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CUSTOMER DEPOSITS
Beginning balance $ 2,820,518 2,620,004
Premiums and annuity considerations (a) 48,001 71,739
Surrenders (a) (60,758) (66,402)
Benefits (25,327) (21,904)
Policy charges (63) (31)
Interest credited 40,360 36,683
Other changes (primarily interfund transfers) (7,326) 5,683
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Ending balance $ 2,815,405 $ 2,645,772
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Increase (decrease) in customer deposits $ (5,113) $ 25,768
Average customer deposits $ 2,817,846 $ 2,632,888
SPREAD ANALYSIS
Investment income/Average customer deposits (b) 7.88% 7.89%
Interest credited/Average customer deposits (c) (5.81%) (5.68%)
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Calculated spread 2.07% 2.21%
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</TABLE>
(a) Include internal exchanges and rollovers.
(b) Annualized based on the number of months in the quarter.
(c) Annualized based on the remaining days of the year.
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ARM FINANCIAL GROUP, INC.
INSTITUTIONAL SPREAD PRODUCTS EARNINGS
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(Dollars in thousands )
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
NET INVESTMENT SPREAD
Investment income $ 46,966 $ 16,036
Interest credited (41,320) (14,098)
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Net investment spread 5,646 1,938
OTHER INCOME AND EXPENSES
Operating expenses (1,388) (500)
Other expenses, net (76) (93)
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Total other income and expenses (1,464) (593)
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Pretax operating insurance in force $ 4,182 $ 1,345
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CUSTOMER DEPOSITS
Beginning balance $ 2,542,350 $ 891,935
Premiums 447,246 248,560
Interest credited 41,320 14,098
Surrenders (5,000) --
Interest paid (36,288) (13,244)
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Ending balance $ 2,989,628 $ 1,141,349
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Increase in customer deposits $ 447,278 $ 249,414
Average customer deposits (daily) $ 2,804,178 $ 999,502
SPREAD ANALYSIS
Investment income/Average customer deposits (a) 6.70% 6.42%
Interest credited/Average customer deposits (b) (5.98%) (5.72%)
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Calculated spread 0.72% 0.70%
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</TABLE>
(a) Annualized based on the number of months in the quarter.
(b) Annualized based on the number of days in the quarter.
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ARM FINANCIAL GROUP, INC.
RETAIL VARIABLE PRODUCTS EARNINGS
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(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
VARIABLE ANNUITY FEES $ 4,426 $ 3,239
OTHER INCOME AND EXPENSES
Surrender fees 498 313
Commissions (5,089) (2,600)
Operating expenses (1,332) (689)
Deferrals of policy acquisition costs
(commissions and operating expenses) 5,712 2,838
Amortization of deferred policy acquisition costs (1,781) (1,339)
Other expenses, net (833) (884)
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Total other income and expenses (2,825) (2,361)
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Pretax operating earnings $ 1,601 $ 878
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CUSTOMER DEPOSITS
Beginning balance $ 1,129,064 $ 839,512
Premiums and annuity considerations (*) 72,044 37,619
Surrenders (21,549) (13,475)
Benefits (2,176) (2,467)
Policy charges (4,076) (2,972)
Investment performance 117,675 (1,831)
Other changes (primarily interfund transfers) 11,078 (128)
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Ending balance $ 1,302,060 $ 856,258
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Increase in customer deposits $ 172,996 $ 16,746
Average customer deposits $ 1,197,450 $ 847,885
</TABLE>
(*) Premiums and annuity considerations include internal exchanges and
rollovers.
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ARM FINANCIAL GROUP, INC.
CORPORATE AND OTHER EARNINGS
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(In thousands)
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
NET INVESTMENT SPREAD AND FEE INCOME
Earnings on insurance subsidiaries surplus and
holding company cash and investments $ 1,932 $ 1,585
Marketing partnership fee income 113 103
Broker-dealer fee income 119 155
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Total net investment spread and fee income 2,164 1,843
EXPENSES
Interest expense (617) (686)
Amortization:
Acquisition-related deferred charges (126) (126)
Goodwill (94) (122)
Commissions -- --
Operating expenses (3,519) (3,389)
Other income 777 578
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Total other income and expenses (3,579) (3,745)
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Pretax operating earnings (loss) $(1,415) $(1,902)
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