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, 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, $1.00 par value,
Outstanding at September 30, 1997: 9,233,668 shares
<PAGE>
FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Income -
Nine Months Ended September 30, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 3
Condensed Notes to Consolidated Financial
Statements 4
Item 2. - Management's Discussion and Analysis 5-6
Part II. Other Information:
Item 6. - Exhibits and Reports on Form 8-K 7
Signatures 7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(In thousands, except share data)
<S> <C> <C>
Assets:
Investments-
Fixed maturities held to maturity ..................$ 2,213 $ 2,342
Securities available for sale:
Fixed maturities .................................. 359,590 339,860
Equity securities ................................. 93,443 93,485
Mortgage loans and land contracts on real estate ... 11,883 12,222
Investment real estate ............................. 14,853 15,169
Short-term investments ............................. 24,876 30,746
------------ ------------
Total investments ................................. 506,858 493,824
Cash ................................................ 3,731 5,141
Accrued investment income ........................... 6,140 5,565
Premiums receivable ................................. 76,587 68,076
Due from reinsurance companies ...................... 22,309 21,416
Other receivables ................................... 2,203 5,125
Prepaid policy acquisition costs .................... 79,301 70,231
Prepaid reinsurance premiums ........................ 755 1,056
Real estate and equipment ........................... 33,721 34,439
Other assets ........................................ 14,411 16,705
------------ ------------
Total assets .......................................$ 746,016 $ 721,578
============ ============
Liabilities:
Unearned premium ....................................$ 260,470 $ 241,313
Insurance losses and loss adjustment expenses ....... 84,156 93,420
Accounts payable and accrued expenses ............... 31,123 34,053
Notes and other obligations payable ................. 95,098 94,851
Income taxes ........................................ 19,751 11,456
Other liabilities ................................... 13,955 15,063
------------ ------------
Total liabilities .................................. 504,553 490,156
------------ ------------
Stockholders' Equity:
Common stock $1 par - shares authorized 35,000,000,
issued 14,000,000 .................................. 14,000 14,000
Additional paid-in capital .......................... 138,989 138,852
Unrealized appreciation (depreciation) of securities
available for sale, net of applicable taxes ........ 21,792 16,423
Retained earnings ................................... 222,050 196,818
Restricted stock - deferred compensation ............ (4) (4)
------------ ------------
Total .............................................. 396,827 366,089
Treasury stock at cost 4,766,332,
and 4,437,676 shares .............................. (155,364) (134,667)
------------ ------------
Total stockholders' equity ......................... 241,463 231,422
------------ ------------
Total liabilities and stockholders' equity .........$ 746,016 $ 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 Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Income:
Property and casualty premium earned .$ 108,014 $ 107,430 $ 321,550 $ 320,885
Net investment income ................ 6,689 6,840 19,292 20,269
Realized gains ....................... 1,844 83 8,794 2,253
Other ................................ 609 705 1,831 2,388
--------- --------- --------- ---------
Total income ....................... 117,156 115,058 351,467 345,795
--------- --------- --------- ---------
Expense:
Insurance losses and loss expenses ... 58,229 67,337 191,628 211,723
Amortization of prepaid policy
acquisition costs .................. 31,221 29,978 93,084 91,229
Operating ............................ 5,106 5,314 15,360 15,942
Interest ............................. 2,004 2,031 6,307 6,172
--------- --------- --------- ---------
Total expense ...................... 96,560 104,660 306,379 325,066
--------- --------- --------- ---------
Income before taxes .............. 20,596 10,398 45,088 20,729
Income tax provision ................... (6,173) (2,516) (12,396) (4,019)
--------- --------- --------- ---------
Net income - continuing operations ... 14,423 7,882 32,692 16,710
Net income - discontinued operations ... 20 - 110 383
--------- --------- --------- ---------
Net income ...........................$ 14,443 $ 7,882 $ 32,802 $ 17,093
========= ========= ========= =========
Per share of common stock:
Net income - continuing operations ...$ 1.56 $ 0.80 $ 3.51 $ 1.68
Net income - discontinued operations . - - $ 0.01 $ 0.04
--------- --------- --------- ---------
Net income .........................$ 1.56 $ 0.80 $ 3.52 $ 1.72
========= ========= ========= =========
Average shares outstanding ............. 9,234 9,888 9,318 9,965
========= ========= ========= =========
Cash dividends per share ...............$ 0.27 $ 0.27 $ 0.81 $ 0.81
========= ========= ========= =========
<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>
Nine Months Ended
September 30,
------------------------
1997 1996
(In thousands) ----------- ------------
<S> <C> <C>
Operating Activities:
Net cash from operating activities ...............$ 18,370 $ 13,035
------------ ------------
Investing Activities:
Purchases of securities and loans made .............. (100,026) (106,868)
Purchases of real estate and equipment .............. (1,243) (262)
Sales of securities ................................. 61,757 29,483
Maturities of securities and receipts
from repayments of loans ........................... 35,417 69,236
Sales of real estate and equipment .................. 798 3,939
Net proceeds from sale of subsidiary ................ - 17,437
Increase in short-term investments .................. 5,870 10,003
------------ ------------
Net cash from investing activities ................. 2,573 22,968
------------ ------------
Financing Activities:
Repayments of long-term debt ........................ (1,753) (1,584)
Acquisition of treasury shares ...................... (19,367) (27,339)
Dividends paid ...................................... (7,570) (8,073)
Increase (Decrease) in short-term debt .............. 2,000 (2,000)
Receipts from exercise of stock options ............. 4,337 2,165
------------ ------------
Net cash for financing activities .................. (22,353) (36,831)
------------ ------------
Cash (decrease) ............................ (1,410) (828)
Cash at beginning of year ............................ 5,141 4,975
------------ ------------
Cash at end of year ........................$ 3,731 $ 4,147
============ ============
<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. 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
September 30, 1997, the Diluted Earnings Per Share would have been
$3.45 per share for the nine months ended September 30, 1997 and would
have been $1.68 for the same period last year. Diluted Earnings Per
Share for the third quarter of 1997 would have been $1.53 compared to
$.78 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 per
share for the third quarter of 1997. Net income from continuing operations for
the third quarter was $1.56, including $.13 per share in realized gains compared
to $.80 per share including $.01 per share in realized gains for the same period
last year. Net income from continuing operations for the first nine months was
$3.51 per share compared to $1.68 per share in 1996. Realized gains of $.61 per
share and $.15 per share are included in the first nine months results for 1997
and 1996, respectively.
The combined loss and expense ratio for the property and casualty group
was 87.8% for the third quarter of 1997 compared to 94.9% for the same period
last year. The nine months combined ratio was 93.3% compared to 98.7% in the
prior year. The improvement in the combined ratio can be attributable to lower
catastrophe losses.
The Company experienced moderate growth in written premium with an
increase of 3.0% for the quarter and a 3.1% increase for the first nine months
over last year. Mobile home written premium increased for the quarter and the
first nine months compared to last year, but the largest increases continue to
be in the automobile and homeowners products which has been rolled out into 18
states through the end of the third quarter.
Written premium by major product line is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, %
------------------------- Increase
1997 1996 (Decrease)
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home $ 95,982 $ 93,755 2.4
RV 11,760 10,950 7.4
Automobile 2,753 2,575 6.9
Homeowners 2,836 2,185 29.8
Other 1,358 1,888 (28.1)
-------- -------- ---------
Total $114,689 $111,353 3.0
======== ======== =========
<CAPTION>
Nine Months Ended
September 30, %
------------------------- Increase
1997 1996 (Decrease)
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home $278,386 $272,139 2.3
RV 40,411 40,523 0
Automobile 9,885 7,845 26.0
Homeowners 8,110 5,617 44.4
Other 4,338 4,657 (6.8)
-------- -------- ---------
Total $341,130 $330,781 3.1
======== ======== =========
</TABLE>
-5-
<PAGE>
After-tax investment income from continuing operations decreased 2% in
the third quarter to $5,375,000 compared to $5,487,000 for the previous year.
For the first nine months of 1997, after-tax investment income declined 3.3% to
$15,664,000 compared to $16,192,000 for the same period the previous year. The
primary reason 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 nine months of 1997 were
$103.8 million from sales and maturities of investments, $2.0 million from
additional borrowings of short-term debt, $18.4 million from operations and $4.3
million from the exercise of stock options. During the first nine months, the
Company used $101.3 million for the purchase of investments, purchased $19.4
million of treasury stock, paid $7.6 million in dividends to shareholders and
repaid $1.8 million of long-term debt. The Company had $28.6 million in cash and
other liquid assets at September 30, 1997.
Total invested assets on a cost basis increased .6%, or $3.0 million
during the first nine months of 1997 compared to year end 1996. Market values of
securities available for sale increased $5.4 million net of tax in the first
nine 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 third quarter of
1997, the Company purchased 36,371 shares of its common stock outstanding. Since
the inception of this buy back plan, the Company has purchased 1,723,985 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
quarter ended September 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: November 12, 1997 Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: November 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> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 359,590
<DEBT-CARRYING-VALUE> 2,213
<DEBT-MARKET-VALUE> 2,218
<EQUITIES> 93,443
<MORTGAGE> 11,883
<REAL-ESTATE> 14,853
<TOTAL-INVEST> 506,858
<CASH> 3,731
<RECOVER-REINSURE> 22,309
<DEFERRED-ACQUISITION> 79,301
<TOTAL-ASSETS> 746,016
<POLICY-LOSSES> 84,156
<UNEARNED-PREMIUMS> 260,470
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 95,098
0
0
<COMMON> 14,000
<OTHER-SE> 227,463
<TOTAL-LIABILITY-AND-EQUITY> 746,016
321,550
<INVESTMENT-INCOME> 19,292
<INVESTMENT-GAINS> 8,794
<OTHER-INCOME> 1,831
<BENEFITS> 191,628
<UNDERWRITING-AMORTIZATION> 93,084
<UNDERWRITING-OTHER> 21,667
<INCOME-PRETAX> 45,088
<INCOME-TAX> (12,396)
<INCOME-CONTINUING> 32,692
<DISCONTINUED> 110
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,802
<EPS-PRIMARY> 3.52
<EPS-DILUTED> 3.52
<RESERVE-OPEN> 92,976
<PROVISION-CURRENT> 187,578
<PROVISION-PRIOR> 4,050
<PAYMENTS-CURRENT> 145,468
<PAYMENTS-PRIOR> 54,980
<RESERVE-CLOSE> 84,156
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
