<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995 Commission File Number 0-6478
FOREMOST CORPORATION OF AMERICA
(Exact name of Registrant as specified in its charter)
Delaware 38-1863522
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5600 Beech Tree Lane, Caledonia, Michigan 49316
Mailing address: P.O. Box 2450, Grand Rapids, Michigan 49501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 942-3000
The registrant 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 and has been subject to such
filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report.
Class Outstanding at September 30, 1995
Common Stock, $1.00 par value 10,182,200
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FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 1
Consolidated Statements of Income -
Nine Months Ended September 30, 1995 and 1994 2
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 3
Condensed Notes to Consolidated Financial
Statements 4
Item 2. - Management's Discussion and Analysis 5-6
Part II. Other Information:
Item 6. - Exhibits and Reports on Form 8-K 7
Signatures 7
<PAGE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities held to maturity $ 8,040 $ 14,810
Securities available for sale:
Fixed maturities 383,520 351,241
Equity securities 55,903 46,611
Mortgage loans and land contracts 12,753 14,525
Investment real estate 20,301 19,284
Short-term investments 41,072 11,798
------- -------
Total Investments 521,589 458,269
Cash 1,601 4,195
Accrued investment income 7,821 6,567
Premiums receivable 75,551 69,806
Due from reinsurance companies 26,460 34,798
Other receivables 7,632 9,784
Prepaid policy acquisition costs 77,573 75,082
Prepaid reinsurance premiums 73 10,181
Real estate and equipment 36,753 38,377
Other assets 13,057 14,014
------- -------
Total Assets $768,110 $721,073
======= =======
LIABILITIES:
Unearned premium $268,268 $254,653
Insurance losses & loss adjustment expenses 97,073 95,496
Accounts payable and accrued expenses 39,753 36,977
Notes and other obligations payable 97,805 107,406
Income taxes 11,267 7,114
Other liabilities 12,856 12,802
------- -------
Total Liabilities 527,022 514,448
SHAREHOLDERS' EQUITY:
Common stock $1 par value - authorized
35,000,000, issued 14,000,000 14,000 14,000
Additional paid-in capital 139,344 139,380
Unrealized appreciation of securities
available for sale, net of applicable taxes 13,661 (3,365)
Retained earnings 174,172 149,670
Restricted stock - deferred compensation (5) (16)
------- -------
Total 341,172 299,669
Less treasury stock at cost, 3,817,980 and
3,634,004 shares (100,084) (93,044)
------- -------
Total Shareholders' Equity 241,088 206,625
------- -------
Total Liabilities & Shareholders' Equity $768,110 $721,073
======= =======
</TABLE>
See accompanying condensed notes to consolidated financial
statements.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
-------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
INCOME:
Earned premium:
Property and casualty $108,136 $103,058 $320,058 $305,992
Life 5,326 5,367 16,579 16,332
Net investment income 7,543 6,606 22,142 20,052
Realized gains (losses) 9 (293) (105) 444
Other 749 1,598 2,172 4,348
------- ------- ------- -------
Total income 121,763 116,336 360,846 347,168
------- ------- ------- -------
EXPENSES:
Insurance losses, death and
other benefits 61,931 65,354 195,134 203,079
Amortization of prepaid
policy acquisition costs 32,508 31,525 97,804 97,023
Operating and other 6,714 8,082 21,789 23,336
------- ------- ------- -------
Total expenses 101,153 104,961 314,727 323,438
------- ------- ------- -------
Income before taxes 20,610 11,375 46,119 23,730
Income tax provision (6,421) (2,568) (13,288) (4,971)
------- ------- ------- -------
Net income $ 14,189 $ 8,807 $ 32,831 $ 18,759
======= ======= ======= =======
PER SHARE OF COMMON STOCK:
Net income $ 1.39 $ 0.83 $ 3.20 $ 1.76
======= ======= ======= =======
Average shares outstanding 10,204 10,604 10,268 10,666
======= ======= ======= =======
Cash dividends per share $ 0.27 $ 0.27 $ 0.81 $ 0.81
======= ======= ======= =======
</TABLE>
See accompanying condensed notes to consolidated financial
statements.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1995 1994
--------- ---------
(In thousands)
<S> <C> <C>
Net cash from operating activities $ 64,812 $ 7,190
-------- --------
Investing Activities:
Purchases of securities and loans made (147,348) (66,092)
Purchases of real estate and equipment (169) (202)
Sales of securities 104,058 34,858
Maturities of securities and receipts
from repayments of loans 29,743 47,822
Increase in short-term investments (29,274) (2,738)
Sales of real estate and equipment 994 -
-------- --------
Net cash from (for) investing activities (41,996) 13,648
-------- --------
Financing Activities:
Net change in short-term debt (2,000) 5,000
Repayments of long-term debt (7,601) (7,451)
Dividends paid (8,330) (8,642)
Purchase of treasury stock (7,547) (8,713)
Exercise of stock options 68 -
-------- --------
Net cash for financing activities (25,410) (19,806)
-------- --------
Cash increase (decrease) (2,594) 1,032
Cash at beginning of year 4,195 5,220
-------- --------
Cash at end of period $ 1,601 $ 6,252
======== ========
</TABLE>
See accompanying condensed notes to consolidated financial
statements.
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<PAGE> 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The notes to the consolidated financial statements are
condensed and do not contain all information required by
generally accepted accounting principles to be included in a
full set of financial statements.
2. All information is unaudited; however, in the opinion of
management, all adjustments (consisting only of normal
recurring accruals) have been made which are necessary to
present fairly the results shown. All significant
intercompany balances and transactions have been eliminated
in consolidation. Intrim results are not necessarily
indicative of the results to be expected in any other period.
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<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FOREMOST CORPORATION OF AMERICA
OPERATING RESULTS AND FINANCIAL POSITION
Operating Results
The third quarter results produced a record operating
income per share for Foremost Corporation of America. Net
income for the third quarter of 1995 was $1.39 per share, with
no realized gains or losses per share, compared to $.83 per
share in 1994, including $.02 per share in realized losses. Net
income per share for the first nine months of 1995 was $3.20
compared to $1.76 per share in 1994. Realized losses of $.01 per
share for 1995 and realized gains of $.03 per share for 1994 are
included in the nine months net income figures. The third quarter
results reflect the Company's success in reducing its cost to
produce business, obtaining rate adequacy and practicing
disciplined underwriting.
The third quarter combined loss and expense ratio for the
property and casualty group was 87.2% compared with 94.5% for the
third quarter last year. The nine month combined ratio was 91.4%
compared to 98.2% in the prior year. Lower catastrophe losses and
reduced underwriting expenses attributed to the improvement in the
combined ratio. Catastrophe losses were 6.4 points lower in the
third quarter of 1995 compared to last year and 3.8 points lower
for the nine months of 1995 compared to 1994.
Mobile home written premium was up 1% for the third quarter
and 4.7% for the nine months over last year's results. The growth
in written premium continues to be negatively impacted by the
Company's catastrophe exposure management.
Written premium by product line is as follows:
<TABLE>
<CAPTION>
% %
3rd Quarter Inc Nine Months Inc
1995 1994 (Dec) 1995 1994 (Dec)
-------- -------- ----- -------- -------- -----
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mobile Home. $ 93,483 $ 92,600 1.0 $275,132 $262,658 4.7
RV.......... 11,798 11,980 (1.5) 41,348 41,645 (0.7)
------- ------- ---- ------- ------- ----
Subtotal.. 105,281 104,580 0.7 316,480 304,303 4.0
Automobile.. 2,930 2,935 (0.2) 9,064 10,922 (17.0)
Homeowners.. 1,765 1,370 28.8 5,453 4,430 23.1
Other....... 2,110 1,784 18.3 4,840 4,231 14.4
------- ------- ---- ------- ------- ----
Total $112,086 $110,669 1.3 $335,837 $323,886 3.7
======= ======= ==== ======= ======= ====
</TABLE>
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<PAGE> 9
The combined loss and expense ratio for the Company's life
insurance operation was 94.2% for the third quarter of 1995
compared to 93.8% for the third quarter last year. For the nine
months of 1995, the combined ratio was 94.5% compared to 94.1%
last year. Net written premium was $5.2 million for the third
quarter and $16.6 million for the nine months of 1995 compared to
$5.4 million and $16.3 million for 1994, respectively.
After-tax investment income for the third quarter of 1995
increased 8.7% from the third quarter last year and increased
7.8% for the first nine months of 1995 compared to the same
period in 1994.
In early October, Hurricane Opal struck the Florida Panhandle
and swept through Alabama, Georgia and Tennessee. The Company
anticipates approximately $9 million in losses from this hurricane,
or $5.9 million after tax, and will impact fourth quarter results
by approximately $.57 per share. Actual fourth quarter results
will change should further catastrophes strike during the remainder
of the period. In the fourth quarter of 1994, total catastrophe
losses were $13.7 million, or $8.9 million after tax, resulting
in an impact of $.85 per share.
Financial Position
The principal sources of cash for the first nine months of
1995 were $105.1 million from the sales of securities and real
estate, $64.8 million provided from operations, and $29.7
million from maturities of securities and loan repayments.
During the first nine months of 1995 the Company used $176.8
million for the purchase of securities and real estate, repaid
$9.6 million of debt, paid $8.3 million in dividends to
shareholders, and purchased $7.5 million of treasury stock. The
Company had $42.7 million in cash and other liquid assets at
September 30, 1995.
Total invested assets valued on a cost basis increased 9%,
or $41.7 million during the first nine months of 1995 compared
to year end 1994. Market values of securities available for
sale increased $14.1 million net of tax in the first nine months
of 1995.
Total bank borrowings were $94.9 million at September 30,
1995 of which $2 million was current. Interest paid by the
Company was $6.6 million for the the first nine months of 1995
compared to $6.3 million for the same period last year.
Since the February 1994 announcement of the Company's plan
to buy back a portion of its outstanding common stock, 552,367
shares have been purchased at an average price of $34.17 per
share. During the third quarter of 1995, 32,028 of these shares
were purchased at an average price of $39.50 per share.
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<PAGE>
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(b) Reports on 8-K - There were no reports filed on Form 8-K
for the quarter ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FOREMOST CORPORATION OF AMERICA
(Registrant)
Date: November 3, 1995 Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: November 3, 1995 Kenneth C. Haines
------------------------------
Kenneth C. Haines
Its: Controller
-7-
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000018508
<NAME> FOREMOST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 383,520
<DEBT-CARRYING-VALUE> 8,040
<DEBT-MARKET-VALUE> 8,137
<EQUITIES> 55,903
<MORTGAGE> 12,753
<REAL-ESTATE> 20,301
<TOTAL-INVEST> 521,589
<CASH> 1,601
<RECOVER-REINSURE> 26,460
<DEFERRED-ACQUISITION> 77,573
<TOTAL-ASSETS> 768,110
<POLICY-LOSSES> 97,073
<UNEARNED-PREMIUMS> 268,268
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 97,805
<COMMON> 14,000
0
0
<OTHER-SE> 227,088
<TOTAL-LIABILITY-AND-EQUITY> 768,110
336,637
<INVESTMENT-INCOME> 22,142
<INVESTMENT-GAINS> (105)
<OTHER-INCOME> 2,172
<BENEFITS> 195,134
<UNDERWRITING-AMORTIZATION> 97,804
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 46,119
<INCOME-TAX> 13,288
<INCOME-CONTINUING> 32,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,831
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.20
<RESERVE-OPEN> 95,496
<PROVISION-CURRENT> 182,740
<PROVISION-PRIOR> (74)
<PAYMENTS-CURRENT> 132,851
<PAYMENTS-PRIOR> 46,838
<RESERVE-CLOSE> 97,073
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
