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, 1997
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
(Address of principal executive offices) (Zip Code)
Mailing address: P.O. Box 2450, Grand Rapids, Michigan 49501
Registrant's telephone number, including area code (616)942-3000
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 Exhange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
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.
Common Stock, $1.00 par value,
Outstanding at June 30, 1997: 9,233,695 shares
<PAGE>
FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 1
Consolidated Statements of Income -
Six Months Ended June 30, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(In thousands, except share data)
<S> <C> <C>
Assets:
Investments-
Fixed maturities held to maturity .................. $ 2,267 $ 2,342
Securities available for sale:
Fixed maturities .................................. 345,619 339,860
Equity securities ................................. 88,016 93,485
Mortgage loans and land contracts on real estate ... 11,956 12,222
Investment real estate ............................. 14,986 15,169
Short-term investments ............................. 24,773 30,746
--------- ---------
Total investments ................................. 487,617 493,824
Cash ................................................ 2,291 5,141
Accrued investment income ........................... 5,649 5,565
Premiums receivable ................................. 74,363 68,076
Due from reinsurance companies ...................... 22,188 21,416
Other receivables ................................... 2,262 5,125
Prepaid policy acquisition costs .................... 76,040 70,231
Prepaid reinsurance premiums ........................ 577 1,056
Real estate and equipment ........................... 33,738 34,439
Other assets ........................................ 15,295 16,705
--------- ---------
Total assets ....................................... $ 720,020 $ 721,578
========= =========
Liabilities:
Unearned premium .................................... $ 253,862 $ 241,313
Insurance losses and loss adjustment expenses ....... 87,395 93,420
Accounts payable and accrued expenses ............... 28,197 34,053
Notes and other obligations payable ................. 99,263 94,851
Income taxes ........................................ 12,597 11,456
Other liabilities ................................... 14,709 15,063
--------- ---------
Total liabilities .................................. 496,023 490,156
--------- ---------
Stockholders' Equity:
Common stock $1 par - shares authorized 35,000,000,
issued 14,000,000 .................................. 14,000 14,000
Additional paid-in capital .......................... 138,905 138,852
Unrealized appreciation of securities
available for sale, net of applicable taxes ........ 15,673 16,423
Retained earnings ................................... 210,100 196,818
Restricted stock - deferred compensation ............ (4) (4)
--------- ---------
Total .............................................. 378,674 366,089
Treasury stock at cost, 4,766,305
and 4,437,676 shares .............................. (154,677) (134,667)
--------- ---------
Total stockholders' equity ......................... 223,997 231,422
--------- ---------
Total liabilities and stockholders' equity ......... $ 720,020 $ 721,578
========= =========
<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,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Income:
Property and casualty premium earned . $106,958 $106,624 $213,536 $213,455
Net investment income ................ 6,324 6,540 12,603 13,429
Realized gains ....................... 5,411 1,404 6,950 2,170
Other ................................ 564 1,119 1,222 1,684
-------- -------- -------- --------
Total income ....................... 119,257 115,687 234,311 230,738
-------- -------- -------- --------
Expense:
Insurance losses and loss expenses ... 61,695 64,164 133,399 144,386
Amortization of prepaid policy
acquisition costs .................. 30,937 30,575 61,863 61,251
Operating ............................ 5,231 5,393 10,254 10,628
Interest ............................. 2,277 2,070 4,303 4,142
-------- -------- -------- --------
Total expense ...................... 100,140 102,202 209,819 220,407
-------- -------- -------- --------
Income before taxes .............. 19,117 13,485 24,492 10,331
Income tax provision ................... (5,657) (3,604) (6,223) (1,503)
-------- -------- -------- --------
Net income - continuing operations ... 13,460 9,881 18,269 8,828
Net income (loss)-discontinued
operations ........................... 90 (586) 90 383
-------- -------- -------- --------
Net income ........................... $ 13,550 $ 9,295 $ 18,359 $ 9,211
======== ======== ======== ========
Per share of common stock:
Net income - continuing operations .... $ 1.46 $ 0.99 $ 1.95 $ 0.88
Net income (loss)-discontinued
operation ........................... 0.01 (0.06) 0.01 0.04
-------- -------- -------- --------
Net income .......................... $ 1.47 $ 0.93 $ 1.96 $ 0.92
======== ======== ======== ========
Average shares outstanding ............. 9,246 9,961 9,361 10,003
======== ======== ======== ========
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,
-------------------
1997 1996
(In thousands) -------- ---------
<S> <C> <C>
Operating Activities:
Net cash from operating activities ....................... $ 3,067 $ 9,801
-------- --------
Investing Activities:
Purchases of securities and loans made .................... (61,207) (80,631)
Purchases of real estate and equipment .................... (729) (51)
Sales of securities ....................................... 46,470 40,900
Maturities of securities and receipts
from repayments of loans ................................. 20,096 20,440
Sales of real estate and equipment ........................ 642 3,930
Proceeds from sale of subsidiary .......................... -- 17,437
Decrease in short-term investments ........................ 5,973 3,279
-------- --------
Net cash from (for) investing activities ................. 11,245 5,304
-------- --------
Financing Activities:
Net change in short-term debt ............................. 5,500 (2,000)
Repayments of long-term debt .............................. (1,088) (983)
Acquisition of treasury shares ............................ (19,365) (10,698)
Dividends paid ............................................ (5,077) (5,398)
Receipts from exercise of stock options ................... 2,868 2,166
-------- --------
Net cash for financing activities ........................ (17,162) (16,913)
-------- --------
Cash increase (decrease) ......................... (2,850) (1,808)
Cash at beginning of year .................................. 5,141 4,975
-------- --------
Cash at end of period ............................ $ 2,291 $ 3,167
======== ========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
-3-
<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. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" effective for financial
statements for both interim and annual periods ending after December 15,
1997. The Company will adopt this statement in the fourth quarter of 1997.
Had the Company adopted this statement as of June 30, 1997, the Diluted
Earnings Per Share would have been $1.92 per share for the six months
ended June 30, 1997 and would have been $.90 per share for the same period
last year. Diluted Earnings Per Share for the second quarter of 1997 would
have been $1.44 compared to $.91 for the same period last year.
-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 reported record operating income for
the second quarter of 1997. Net income from continuing operations for the second
quarter was $1.46, including $.38 per share in realized gains compared to $.99
per share including $.09 per share in realized gains for the same period last
year. Net income from continuing operations for the first six months was $1.95
per share compared to $.88 per share in 1996. Realized gains of $.48 per share
and $.14 per share are included in the first six months results for 1997 and
1996, respectively.
The combined loss and expense ratio for the property and casualty group
was 91.3% for the second quarter of 1997 compared to 92.8% for the same period
last year. The six months combined ratio was 96% compared to 100.7% in the prior
year. The improvement in the combined ratio can be attributed to lower
catastrophe losses.
The Company experienced moderate growth in written premium with an
increase of 2.6% for the quarter and a 3.2% increase for the first six months
over last year. The Company's auto and homeowners insurance program with First
USA has been rolled out into eight states through the end of June. The results
are very encouraging as we continue to enter more states in the coming months.
Written premium by major product line is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30, %
------------------------- Increase
1997 1996 (Decrease)
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home .......... $ 95,708 $ 93,362 2.5
RV ................... 14,526 15,179 (4.3)
Automobile ........... 2,751 2,293 20.0
Homeowners ........... 2,746 1,948 41.0
Other ................ 1,451 1,375 5.5
-------- -------- --------
Total .............. $117,182 $114,157 2.6
======== ======== ========
<CAPTION>
Six Months Ended
June 30, %
------------------------- Increase
1997 1996 (Decrease)
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home .......... $182,404 $178,384 2.3
RV ................... 28,651 29,573 (3.1)
Automobile ........... 7,132 5,270 35.3
Homeowners ........... 5,274 3,432 53.7
Other ................ 2,980 2,769 7.6
-------- -------- --------
Total .............. $226,441 $219,428 3.2
======== ======== ========
</TABLE>
-5-
<PAGE>
After-tax investment income from continuing operations declined 1.9% in
the second quarter to $5,155,000 compared to $5,256,000 for the previous year.
For the first six months of 1997, after-tax investment income declined 3.9% to
$10,289,000 compared to $10,705,000 for the same period the previous year. The
primary reasons for the decrease is the negative impact of the common stock buy
backs and the first quarter catastrophe loss payments on the Company's cash
flow and investable asset base.
Financial Position
The principal sources of cash for the first six months of 1997 were
$73.2 million from sales and maturities of investments, $5.5 million from
additional borrowings of short-term debt, $3.1 million from operations and $2.9
million from the exercise of stock options. During the first six months, the
Company used $61.7 million for the purchase of investments, purchased $19.4
million of treasury stock, paid $5.1 million in dividends to shareholders and
repaid $1.1 million of long-term debt. The Company had $27.1 million in cash and
other liquid assets at June 30, 1997.
Total invested assets on a cost basis decreased 1.5%, or $6.8 million
during the first six months of 1997 compared to year end 1996. Market values of
securities available for sale decreased $.7 million net of tax in the first six
months of 1997.
The Company continued to purchase its common stock under a previously
announced buy back plan for up to 2 million shares. During the second quarter of
1997, the Company has purchased 168,071 shares of its common stock outstanding.
Since the inception of this buy back plan, the Company has purchased 1,687,614
shares.
-6-
<PAGE>
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 six
months ended June 30, 1997.
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, 1997 Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: August 12, 1997 Kenneth C. Haines
------------------------------
Kenneth C. Haines
Its: Controller
-7-
<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-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 345,619
<DEBT-CARRYING-VALUE> 2,267
<DEBT-MARKET-VALUE> 2,272
<EQUITIES> 88,016
<MORTGAGE> 11,956
<REAL-ESTATE> 14,986
<TOTAL-INVEST> 487,617
<CASH> 2,291
<RECOVER-REINSURE> 22,188
<DEFERRED-ACQUISITION> 76,040
<TOTAL-ASSETS> 720,020
<POLICY-LOSSES> 87,395
<UNEARNED-PREMIUMS> 253,862
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 99,263
0
0
<COMMON> 14,000
<OTHER-SE> 209,997
<TOTAL-LIABILITY-AND-EQUITY> 720,020
213,536
<INVESTMENT-INCOME> 12,603
<INVESTMENT-GAINS> 6,950
<OTHER-INCOME> 1,222
<BENEFITS> 133,399
<UNDERWRITING-AMORTIZATION> 61,863
<UNDERWRITING-OTHER> 14,557
<INCOME-PRETAX> 24,492
<INCOME-TAX> (6,223)
<INCOME-CONTINUING> 18,269
<DISCONTINUED> 90
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,359
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.96
<RESERVE-OPEN> 93,519
<PROVISION-CURRENT> 129,595
<PROVISION-PRIOR> 3,803
<PAYMENTS-CURRENT> 90,925
<PAYMENTS-PRIOR> 48,597
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</TABLE>
