<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 March 31, 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 Exchange
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 as of March 31, 1997: 9,332,111 shares
<PAGE>
FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 1
Consolidated Statements of Income -
Three Months Ended March 31, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 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>
March 31, December 31,
1997 1996
--------- ---------
(In thousands, except share data)
<S> <C> <C>
Assets:
Investments-
Fixed maturities held to maturity ................. $ 2,305 $ 2,342
Securities available for sale:
Fixed maturities ................................. 333,059 339,860
Equity securities ................................ 91,677 93,485
Mortgage loans and land contracts on real estate .. 12,027 12,222
Investment real estate ............................ 14,725 15,169
Short-term investments ............................ 22,956 30,746
--------- ---------
Total investments ................................ 476,749 493,824
Cash ............................................... 1,501 5,141
Accrued investment income .......................... 6,297 5,565
Premiums receivable ................................ 70,326 68,076
Due from reinsurance companies ..................... 21,579 21,416
Other receivables .................................. 5,682 5,125
Prepaid policy acquisition costs ................... 73,398 70,231
Prepaid reinsurance premiums ....................... 431 1,056
Real estate and equipment .......................... 33,986 34,439
Other assets ....................................... 15,674 16,705
--------- ---------
Total assets ...................................... $ 705,623 $ 721,578
========= =========
Liabilities:
Unearned premium ................................... $ 243,794 $ 241,313
Insurance losses and loss adjustment expenses ...... 90,748 93,420
Accounts payable and accrued expenses .............. 28,114 34,053
Notes and other obligations payable ................ 101,413 94,851
Income taxes ....................................... 9,703 11,456
Other liabilities .................................. 14,787 15,063
--------- ---------
Total liabilities ................................. 488,559 490,156
--------- ---------
Shareholders' Equity:
Common stock $1 par - shares authorized 35,000,000,
issued 14,000,000 ................................. 14,000 14,000
Additional paid-in capital ......................... 138,999 138,852
Unrealized appreciation (depreciation) of securities
available for sale, net of applicable taxes ....... 13,208 16,423
Retained earnings .................................. 199,043 196,818
Restricted stock - deferred compensation ........... (4) (4)
--------- ---------
Total ............................................. 365,246 366,089
Treasury stock at cost, 4,667,889
and 4,437,676 shares ............................. (148,182) (134,667)
--------- ---------
Total shareholders' equity ........................ 217,064 231,422
--------- ---------
Total liabilities and shareholders' equity ........ $ 705,623 $ 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
March 31,
----------------------
1997 1996
--------- ---------
(In thousands except per share data)
<S> <C> <C>
Income:
Property and casualty premium earned ..... $ 106,578 $ 106,832
Net investment income .................... 6,279 6,889
Realized gains ........................... 1,539 766
Other .................................... 658 564
--------- ---------
Total income ........................... 115,054 115,051
--------- ---------
Expense:
Insurance losses and loss expenses ....... 71,704 80,222
Amortization of prepaid policy
acquisition costs ...................... 30,926 30,676
Operating and other ...................... 7,049 7,307
--------- ---------
Total expense .......................... 109,679 118,205
--------- ---------
Income (loss) before taxes ........... 5,375 (3,154)
Income tax credit (provision) .............. (566) 2,101
--------- ---------
Net income (loss)- continuing operations . 4,809 (1,053)
Net income - discontinued operations ....... -- 969
--------- ---------
Net income (loss) ........................ $ 4,809 $ (84)
========= =========
Per share of common stock:
Net income (loss)- continuing operations ... $ 0.51 $ (0.10)
Net income - discontinued operations ....... -- 0.09
--------- ---------
Net income (loss) ........................ $ 0.51 $ (0.01)
========= =========
Average shares outstanding ................. 9,478 10,045
========= =========
Cash dividends per share ................... $ 0.27 $ 0.27
========= =========
<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>
Three Months Ended
March 31,
--------------------
1997 1996
(In thousands) -------- --------
<S> <C> <C>
Operating Activities:
Net cash for operating activities .......... $ (7,047) $ (4,221)
-------- --------
Investing Activities:
Purchases of securities and loans made ...... (28,003) (43,504)
Purchases of real estate and equipment ...... (177) (29)
Sales of securities ......................... 21,583 14,568
Maturities of securities and receipts
from repayments of loans ................... 11,536 5,078
Sales of real estate and equipment .......... 642 3,679
Decrease (Increase) in short-term investments 7,790 29,797
-------- --------
Net cash from investing activities ......... 13,371 9,589
-------- --------
Financing Activities:
Net change in short-term debt ............... 7,000 (2,000)
Repayments of long-term debt ................ (572) (396)
Acquisition of treasury shares .............. (13,839) (4,174)
Dividends paid .............................. (2,584) (2,712)
Receipts from exercise of stock options ..... 31 1,365
-------- --------
Net cash for financing activities .......... (9,964) (7,917)
-------- --------
Cash decrease ...................... (3,640) (2,549)
Cash at beginning of year .................... 5,141 4,975
-------- --------
Cash at end of period .............. $ 1,501 $ 2,426
======== ========
<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 March 31, 1997, the Diluted Earnings Per Share
would have been $.50 per share for the three months ended March 31,
1997 and would have remained $(.01) per share for the same period
last year.
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<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 first quarter results for 1997 were
again impacted by high catastrophe losses for the second year in a row. Despite
these losses, the Company recorded solid earnings for the first quarter with net
income of $.51 per share compared to a net loss of $.01 per share for the same
period last year. Realized gains of $.11 per share and $.05 per share are
included in the first quarter results for 1997 and 1996, respectively.
The combined loss and expense ratio for the property and casualty group
was 100.8% for the first quarter of 1997 compared to 108.5% for the same period
last year. Included in the combined loss and expense ratios for the first
quarters were 24.2 points of catastrophe losses in 1997 and 26.7 points in 1996.
The improvement in the combined ratio can be attributable to lower reinsurance
costs and an improved non-catastrophe loss ratio. Severe storms along the west
coast and in the midwest accounted for the losses in 1997.
The Company experienced moderate growth in written premium for the quarter
of 3.8% over last year. Mobile home written premium had a slight increase for
the quarter compared to last year, with the largest increases coming from the
automobile and homeowners products as the First USA program begins to show some
results.
Written premium by major product line is as follows:
<TABLE>
<CAPTION>
1st Quarter %
------------------------- Increase
1997 1996 (Decrease)
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home $ 86,696 $ 85,022 2.0
RV 14,125 14,394 (1.9)
Automobile 4,381 2,977 47.2
Homeowners 2,528 1,484 70.4
Other 1,529 1,394 9.7
-------- -------- --------
Total $109,259 $105,271 3.8
======== ======== ========
</TABLE>
After-tax investment income from continuing operations declined 5.8% in
the first quarter to $5,134,000 compared to $5,449,000 for the previous year.
The primary reason for the decrease is the negative impact of catastrophe loss
payments and common stock buy backs on the Company's cash flow and investable
asset base. Also impacting after-tax investment income was the Company's
continued effort to increase its asset allocation to common stocks, which will
sacrifice current income for a higher potential total return.
-5-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Financial Position
The principal sources of cash for the first three months of 1997 were
$40.8 million from sales and maturities of investments and $7 million from
additional borrowings of short-term debt. The Company used $7 million for
operations due primarily to the catastrophe losses paid during the quarter. Also
during the first quarter, the Company used $28.2 million for the purchase of
securities, purchased $13.8 million of treasury stock, paid $2.6 million in
dividends to shareholders and repaid $.6 million of long-term debt. The Company
had $24.5 million in cash and other liquid assets at March 31, 1997.
Total invested assets on a cost basis decreased 2.7%, or $12.6 million
during the first quarter of 1997 compared to year end 1996. Market values of
securities available for sale decreased $3.2 million net of tax in the first
quarter 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 first quarter of
1997, the Company has purchased 237,563 shares of its common stock outstanding
at an average price of $58.25 per share. Since the inception of this buy back
plan, the Company has purchased 1,519,543 shares at an average price of $47.15
per share.
-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
quarter ended March 31, 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: May 12, 1997 s/Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: May 12, 1997 s/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> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 333,059
<DEBT-CARRYING-VALUE> 2,305
<DEBT-MARKET-VALUE> 2,298
<EQUITIES> 91,677
<MORTGAGE> 12,027
<REAL-ESTATE> 14,725
<TOTAL-INVEST> 476,749
<CASH> 1,501
<RECOVER-REINSURE> 21,579
<DEFERRED-ACQUISITION> 73,398
<TOTAL-ASSETS> 705,623
<POLICY-LOSSES> 90,748
<UNEARNED-PREMIUMS> 243,794
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 101,413
0
0
<COMMON> 14,000
<OTHER-SE> 203,064
<TOTAL-LIABILITY-AND-EQUITY> 705,623
106,578
<INVESTMENT-INCOME> 6,279
<INVESTMENT-GAINS> 1,539
<OTHER-INCOME> 658
<BENEFITS> 71,704
<UNDERWRITING-AMORTIZATION> 30,926
<UNDERWRITING-OTHER> 7,049
<INCOME-PRETAX> 5,375
<INCOME-TAX> (566)
<INCOME-CONTINUING> 4,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,809
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<RESERVE-OPEN> 93,420
<PROVISION-CURRENT> 68,779
<PROVISION-PRIOR> 2,924
<PAYMENTS-CURRENT> 37,207
<PAYMENTS-PRIOR> 37,354
<RESERVE-CLOSE> 90,748
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
