<PAGE>
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 June 30, 1996
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 June 30, 1996
Common Stock, $1.00 par value 9,951,234
<PAGE>
FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income -
Six Months Ended June 30, 1996 and 1995 2
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 3
Condensed Notes to Consolidated Financial
Statements 4
Item 2. - Management's Discussion and Analysis 5-7
Part II. Other Information:
Item 5. - Other Information 8
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(In thousands, except share data)
<S> <C> <C>
Assets:
Investments-
Fixed maturities held to maturity .................. $ 7,089 $ 7,131
Securities available for sale:
Fixed maturities .................................. 348,281 348,753
Equity securities ................................. 83,974 65,574
Mortgage loans and land contracts on real estate ... 12,586 12,527
Investment real estate ............................. 15,159 19,140
Short-term investments ............................. 36,485 39,955
--------- ---------
Total investments ................................. 503,574 493,080
Cash ................................................ 3,167 4,975
Accrued investment income ........................... 5,776 5,875
Premiums receivable ................................. 75,804 70,629
Due from reinsurance companies ...................... 28,173 23,341
Other receivables ................................... 4,859 7,360
Prepaid policy acquisition costs .................... 72,697 72,560
Prepaid reinsurance premiums ........................ 54 62
Real estate and equipment ........................... 35,132 36,035
Other assets ........................................ 14,191 13,644
Net assets of discontinued operations ............... -- 18,806
--------- ---------
Total assets ....................................... $ 743,427 $ 746,367
========= =========
Liabilities:
Unearned premium .................................... $ 254,365 $ 248,953
Insurance losses and loss adjustment expenses ....... 91,390 93,771
Accounts payable and accrued expenses ............... 35,864 35,728
Notes and other obligations payable ................. 96,264 99,247
Income taxes ........................................ 17,277 11,575
Other liabilities ................................... 12,617 12,896
--------- ---------
Total liabilities .................................. 507,777 502,170
--------- ---------
Shareholders' Equity:
Common stock $1 par - shares authorized 35,000,000,
issued 14,000,000 .................................. 14,000 14,000
Additional paid-in capital .......................... 137,608 139,344
Unrealized appreciation of securities
available for sale, net of applicable taxes ........ 9,542 13,802
Retained earnings ................................... 187,757 183,944
Restricted stock - deferred compensation ............ (4) (5)
--------- ---------
Total .............................................. 348,903 351,085
Treasury stock at cost, 4,048,766
and 3,965,220 shares .............................. (113,253) (106,888)
--------- ---------
Total shareholders' equity ......................... 235,650 244,197
--------- ---------
Total liabilities and shareholders' equity ......... $ 743,427 $ 746,367
========= =========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Income:
Property and casualty premium earned $ 106,624 $ 106,183 $ 213,455 $ 211,922
Net investment income .............. 6,540 6,909 13,429 13,540
Realized gains (losses) ............ 1,404 119 2,170 (4)
Other .............................. 1,119 166 1,684 1,419
--------- --------- --------- ---------
Total income ..................... 115,687 113,377 230,738 226,877
--------- --------- --------- ---------
Expense:
Insurance losses and loss expenses . 64,164 62,792 144,386 125,229
Amortization of prepaid policy
acquisition costs ................ 30,575 30,930 61,251 62,573
Operating .......................... 5,393 4,144 10,628 9,807
Interest ........................... 2,070 2,841 4,142 5,317
--------- --------- --------- ---------
Total expense .................... 102,202 100,707 220,407 202,926
--------- --------- --------- ---------
Income before taxes ............ 13,485 12,670 10,331 23,951
Income tax provision ................. (3,604) (3,468) (1,503) (6,338)
--------- --------- --------- ---------
Net income - continuing operations . 9,881 9,202 8,828 17,613
Net income (loss) - discontinued
operations ......................... (586) 472 383 1,029
--------- --------- --------- ---------
Net income ......................... $ 9,295 $ 9,674 $ 9,211 $ 18,642
========= ========= ========= =========
Per share of common stock:
Net income - continuing operations .. $ 0.99 $ 0.90 $ 0.88 $ 1.71
Net income (loss) - discontinued
operations ......................... (0.06) 0.04 0.04 0.10
--------- --------- --------- ---------
Net income ........................ $ 0.93 $ 0.94 $ 0.92 $ 1.81
========= ========= ========= =========
Average shares outstanding ........... 9,961 10,253 10,003 10,300
========= ========= ========= =========
Cash dividends per share ............. $ 0.27 $ 0.27 $ 0.54 $ 0.54
========= ========= ========= =========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
(In thousands) --------- ---------
<S> <C> <C>
Operating Activities:
Net cash from operating activities ................ $ 9,801 $ 49,675
--------- ---------
Investing Activities:
Purchases of securities and loans made ............... (80,631) (122,275)
Purchases of real estate and equipment ............... (51) (169)
Sales of securities .................................. 40,900 94,675
Maturities of securities and receipts
from repayments of loans ............................ 20,440 13,478
Sales of real estate and equipment ................... 3,930 960
Proceeds from sale of subsidiary ..................... 17,437 --
Decrease (increase) in short-term investments ........ 3,279 (20,877)
--------- ---------
Net cash from (for) investing activities ............ 5,304 (34,208)
--------- ---------
Financing Activities:
Repayments of long-term debt ......................... (2,983) (2,054)
Acquisition of treasury shares ....................... (10,698) (6,280)
Dividends paid ....................................... (5,398) (5,572)
Receipts from exercise of stock options .............. 2,166 --
--------- ---------
Net cash for financing activities ................... (16,913) (13,906)
--------- ---------
Cash increase (decrease) .................... (1,808) 1,561
Cash at beginning of year ............................. 4,975 3,899
--------- ---------
Cash at end of period ....................... $ 3,167 $ 5,460
========= =========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
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. Interim results
are not necessarily indicative of the results to be expected in any other
period.
3. On June 11, 1996, the Company completed the sale of its life insurance
subsidiary, Foremost Life Insurance Company, to Woodmen Accident and Life
Company for a final purchase price of $40,133,000. The net loss on the sale was
$676,000 after taxes totaling $6,167,000. Accordingly, the Consolidated
Financial Statements presented herein have been restated to reflect the Life
Insurance Segment as discontinued operations for all periods presented.
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FOREMOST CORPORATION OF AMERICA
OPERATING RESULTS AND FINANCIAL POSITION
Results of Operations
Foremost Corporation of America's second quarter underwriting results
rebounded strongly from the first quarter of 1996. The combined loss and expense
ratio was 92.8% for the second quarter of 1996 compared to 108.5% for the first
quarter of 1996.
Net income from continuing operations for the second quarter of 1996
was $.99 per share, including $.09 per share in realized gains, compared to $.90
per share, with $.01 per share in realized gains in the same period last year.
The net operating income of $.90 per share in the second quarter of 1996 was
slightly better than the record second quarter operating income of $.89 per
share set in 1995. Net income from continuing operations for the first six
months was $.88 per share compared to $1.71 per share in 1995. Realized gains of
$.14 per share for 1996 are included in the six months net income figure, with
no realized gains or losses in the same period last year.
On June 11, 1996, the Company completed the sale of its life insurance
subsidiary, Foremost Life Insurance Company, to Woodmen Accident and Life
Company. The sale yielded net after-tax proceeds of $17.4 million and the
Company incurred an after-tax loss of $676,000 as a result of the sale. The
financial results of the life insurance segment and the sale are reflected in
the financial statements as discontinued operations.
The combined loss and expense ratio for the property and casualty group
was 92.8% for the second quarter compared to 93% for the same period last year.
The six months combined ratio was 100.7% compared with 93.5% in the prior year.
The increase in the first six months of 1996 was largely due to the catastrophe
losses in the first quarter, which impacted the six months combined ratio by 5.1
points higher than the previous period.
Written premium from the core products, mobile home and recreational
vehicle, was flat for the quarter and down 1.5% for the first six months when
compared to last year as a result of the Company's catastrophe exposure
management program, which has been eliminating policies in coastal counties from
Maine to Texas. The non-renewal of policyholders, begun last year to reduce the
Company's coastal exposure to loss as a result of hurricanes, was substantially
completed on June 30, 1996. The Company expects moderate growth in written
premium during the second half of the year.
-5-
<PAGE>
During the second quarter of 1996, the Company signed a long-term
agreement with a subsidiary of First USA, Inc. to offer primarily private
passenger automobile and homeowners insurance directly to customers of First
USA.
Written premium by major product line is as follows:
<TABLE>
<CAPTION>
2nd Quarter %
-------------------------- Increase
1996 1995 (Decrease)
------- ------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home ............ $ 93,362 $ 93,578 (0.2)
RV ..................... 15,179 14,979 1.3
------- ------- -----
Subtotal ............. 108,541 108,557 0.0
Automobile ............. 2,293 2,661 (13.8)
Homeowners ............. 1,948 1,966 (0.9)
Other .................. 1,375 1,233 11.5
------- ------- -----
Total ................ $114,157 $114,417 (0.2)
======= ======= =====
<CAPTION>
Six Months %
-------------------------- Increase
1996 1995 (Decrease)
------- ------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home ............ $178,384 $181,650 (1.8)
RV ..................... 29,573 29,550 0.1
------- ------- -----
Subtotal ............. 207,957 211,200 (1.5)
Automobile ............. 5,270 6,134 (14.1)
Homeowners ............. 3,432 3,688 (6.9)
Other .................. 2,769 2,729 1.5
------- ------- -----
Total ................ $219,428 $223,751 (1.9)
======= ======= =====
</TABLE>
After-tax investment income from continuing operations declined 3.9%
from the second quarter last year and was down 1.4% for the year. The decrease
was primarily due to the impact of catastrophe loss payments on the Company's
cash flow and investable asset base and the Company's continued effort to
increase its asset allocation to common stocks, which will sacrifice current
income for a higher potential total return.
-6-
<PAGE>
Financial Position
The principal sources of cash for the first six months of 1996 were
$64.6 million from sales and maturities of investments, $17.4 million from the
sale of the life insurance subsidiary, $9.8 million provided from operations,
$3.9 million from sales of real estate and $2.2 million in receipts from the
exercise of stock options. The Company used $80.6 million for the purchase of
securities, purchased $10.7 million of treasury stock, paid $5.4 million in
dividends to shareholders and repaid $3 million of debt. Interest paid in the
first six months of 1996 was $3.7 million compared to $4.8 million for the same
period last year. The Company had $39.7 million in cash and other liquid assets
at June 30, 1996.
The cost basis of total invested assets from continuing operations at
June 30, 1996 increased 4%, or $17 million compared to year end 1995 due
primarily to the proceeds received from the sale of the life insurance
subsidiary. Market values of securities available for sale decreased $4.2
million net of taxes in the first six months of 1996.
The Company continued to purchase its own common stock under a buy back
plan announced in February 1994 for up to 1 million shares and increased by
500,000 shares during the first quarter of 1996. During the first six months of
1996, the Company purchased 193,463 shares of its common stock outstanding at an
average price of $55.30 per share. Since the inception of this buy back plan,
the Company has purchased 893,070 shares at an average price of $40.74 per
share. The Company intends that the majority of the net proceeds from the sale
of the life insurance subsidiary will be utilized to repurchase the Company's
stock.
Book value per share was $23.68 per share at June 30, 1996 with
9,951,000 shares outstanding compared to $24.33 per share at December 31, 1995
with 10,035,000 shares outstanding.
-7-
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 11, 1996 the Company filed a Form 8-A Registration Statement
in connection with the application for listing its Common Stock, $1 par value,
on the New York Stock Exchange. The registration became effective at the opening
of business on April 17, 1996. The Company's Common Stock had previously been
listed on the NASDAQ National Market System.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(b) Reports on 8-K
On June 11, 1996 the Company filed a Form 8-K announcing it had
completed the sale of its life insurance subsidiary, Foremost Life Insurance
Company, to Woodmen Accident and Life Company. The announcement stated the
Company would receive net after-tax proceeds of approximately $17.5 million and
incur an after-tax loss of approximately $1.1 million.
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: August 12, 1996 Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: August 12, 1996 Kenneth C. Haines
------------------------------
Kenneth C. Haines
Its: Controller
-8-
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000018508
<NAME> Foremost Corporation of America
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 348,281
<DEBT-CARRYING-VALUE> 7,089
<DEBT-MARKET-VALUE> 7,109
<EQUITIES> 83,974
<MORTGAGE> 12,586
<REAL-ESTATE> 15,159
<TOTAL-INVEST> 503,574
<CASH> 3,167
<RECOVER-REINSURE> 28,173
<DEFERRED-ACQUISITION> 72,697
<TOTAL-ASSETS> 743,427
<POLICY-LOSSES> 91,390
<UNEARNED-PREMIUMS> 254,365
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 96,264
0
0
<COMMON> 14,000
<OTHER-SE> 221,650
<TOTAL-LIABILITY-AND-EQUITY> 743,427
213,455
<INVESTMENT-INCOME> 13,429
<INVESTMENT-GAINS> 2,170
<OTHER-INCOME> 1,684
<BENEFITS> 144,386
<UNDERWRITING-AMORTIZATION> 61,251
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 10,331
<INCOME-TAX> 1,503
<INCOME-CONTINUING> 8,828
<DISCONTINUED> 383
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,211
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
<RESERVE-OPEN> 93,771
<PROVISION-CURRENT> 135,681
<PROVISION-PRIOR> 230
<PAYMENTS-CURRENT> 98,462
<PAYMENTS-PRIOR> 38,889
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
