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, 1998
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 March 31, 1998: 27,496,204 shares
<PAGE>
FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 3
Condensed Notes to Consolidated Financial
Statements 4-5
Item 2. - Management's Discussion and Analysis 6-7
Part II. Other Information:
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>
March 31, December 31,
1998 1997
----------- -----------
(In thousands, except share data)
<S> <C> <C>
Assets:
Investments-
Fixed maturities held to maturity .................. $ 1,511 $ 1,974
Securities available for sale:
Fixed maturities .................................. 379,263 376,868
Equity securities ................................. 88,238 83,677
Mortgage loans and land contracts on real estate ... 12,273 12,350
Investment real estate ............................. 12,496 11,920
Short-term investments ............................. 15,054 26,656
----------- -----------
Total investments ................................. 508,835 513,445
Cash ................................................ 1,292 2,409
Accrued investment income ........................... 6,392 6,293
Premiums receivable ................................. 71,826 71,541
Due from reinsurance companies ...................... 22,203 20,645
Other receivables ................................... 2,304 2,568
Prepaid policy acquisition costs .................... 75,317 74,179
Prepaid reinsurance premiums ........................ 422 979
Real estate and equipment ........................... 42,176 38,341
Other assets ........................................ 14,978 14,380
----------- -----------
Total assets ....................................... $ 745,745 $ 744,780
=========== ===========
Liabilities:
Unearned premium .................................... $ 246,905 $ 246,429
Insurance losses and loss adjustment expenses ....... 86,648 82,722
Accounts payable and accrued expenses ............... 26,530 33,022
Notes and other obligations payable ................. 91,716 92,201
Income taxes ........................................ 20,308 20,853
Other liabilities ................................... 14,388 14,102
----------- -----------
Total liabilities .................................. 486,495 489,329
----------- -----------
Shareholders' Equity:
Common stock $1 par - shares authorized 35,000,000,
issued 32,467,248 .................................. 32,467 32,467
Additional paid-in capital .......................... 117,251 120,536
Unrealized appreciation (depreciation) of securities
available for sale, net of applicable taxes ........ 21,315 20,894
Retained earnings ................................... 246,704 237,621
Restricted stock - deferred compensation ............ (4) (4)
----------- -----------
Total .............................................. 417,733 411,514
Treasury stock at cost, 4,971,044
and 4,766,376 shares .............................. (158,483) (156,063)
----------- -----------
Total shareholders' equity ......................... 259,250 255,451
----------- -----------
Total liabilities and shareholders' equity ......... $ 745,745 $ 744,780
=========== ===========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
-1-
<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,
-----------------------
1998 1997
---------- ----------
(In thousands except per share data)
<S> <C> <C>
Income:
Property and casualty premium earned ..... $ 108,307 $ 106,578
Net investment income .................... 6,340 6,279
Realized gains ........................... 1,617 1,539
Other .................................... 726 658
--------- ---------
Total income ........................... 116,990 115,054
--------- ---------
Expense:
Insurance losses and loss expenses ....... 62,562 71,704
Amortization of prepaid policy
acquisition costs ...................... 32,209 30,926
Operating and other ...................... 6,939 7,049
--------- ---------
Total expense .......................... 101,710 109,679
--------- ---------
Income before taxes .................. 15,280 5,375
Income tax credit .......................... (3,719) (566)
--------- ---------
Net income ............................... $ 11,561 $ 4,809
========= =========
Earnings per share of common stock:
Net income ............................... $ 0.42 $ 0.17
========= =========
Average shares outstanding ................. 27,591 28,434
========= =========
Earnings per share of common stock - diluted
Net income ............................... $ 0.41 $ 0.16
========= =========
Average shares outstanding ................. 28,215 29,149
========= =========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
-2-
<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,
----------------------
1998 1997
(In thousands) ---------- ----------
<S> <C> <C>
Operating Activities:
Net cash from (for) operating activities . $ 6,441 $ (7,016)
---------- ----------
Investing Activities:
Purchases of securities and loans made ...... (35,253) (28,003)
Purchases of real estate and equipment ...... (4,920) (177)
Sales of securities ......................... 21,946 21,583
Maturities of securities and receipts
from repayments of loans ................... 8,928 11,536
Sales of real estate and equipment .......... 181 642
Decrease (Increase) in short-term investments 11,602 7,790
---------- ---------
Net cash from investing activities ......... 2,484 13,371
---------- ---------
Financing Activities:
Net change in short-term debt ............... -- 7,000
Repayments of long-term debt ................ (484) (572)
Acquisition of treasury shares .............. (5,679) (13,839)
Dividends paid .............................. (2,477) (2,584)
Exercise of stock options: Receipts ......... 940 --
Exercise of stock options: Repurchases ...... (2,342) --
---------- ---------
Net cash from financing activities ......... (10,042) (9,995)
---------- ---------
Cash decrease ...................... (1,117) (3,640)
Cash at beginning of year .................... 2,409 5,141
--------- ---------
Cash at end of period .............. $ 1,292 $ 1,501
========= =========
<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. During the first quarter of 1998, Foremost Corporation of America
adopted Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income", which requires that all components of
comprehensive income and total comprehensive income be reported on one
of the following: a statement of income and comprehensive income, a
statement of comprehensive income or a statement of stockholder's
equity. Comprehensive income is comprised of net income and all
changes to stockholder's equity, except those due to investments by
owners (changes in paid in capital) and distributions to owners
(dividends). For interim reporting purposes, SFAS 130 requires
disclosure of total comprehensive income.
Comprehensive income and its components consist of the following:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1998 1997
------- --------
(In thousands)
<S> <C> <C>
Net Income $11,561 $ 4,809
Other Comprehensive Income:
Unrealized Gain (Loss) on Securities
Available for Sale,
(Net of Tax of $227 and
($1,731)) $ 421 $(3,215)
-------- --------
Comprehensive Income $11,982 $ 1,594
======== ========
</TABLE>
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Earnings per share amounts are computed based on the weighted
average number of common shares outstanding during each quarter.
The reconciliation of basic to diluted earnings per share amounts
is as follows:
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1998
-------------------------------------
Net Outstanding Per-Share
Income Shares Amount
--------- ----------- ---------
(In thousands, except per
share amounts)
<S> <C> <C> <C>
Basic EPS $ 11,561 27,591 $ .42
O/S Stock Options 624
--------- ---------- ---------
Diluted EPS $ 11,561 28,215 $ .41
========= ========== =========
For The Three Months Ended
March 31, 1997
-------------------------------------
Net Outstanding Per-Share
Income Shares Amount
--------- ----------- ---------
(In thousands, except per
share amounts)
<S> <C> <C> <C>
Basic EPS $ 4,809 28,434 $ .17
O/S Stock Options 715
--------- ----------- ---------
Diluted EPS $ 4,809 29,149 $ .16
========= =========== =========
</TABLE>
-5-
<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 results for the first
quarter of 1998. This is the fourth consecutive record setting quarter. Net
income for the first quarter was $.42 per share, including $.04 per share in
realized gains, compared to $.17 per share in 1997,including $.04 per share in
realized gains. The per share results reflect adjustment for the three-for one
stock split of January 1998.
The combined loss and expense ratio for the property and casualty group
was 92.7% for the first quarter of 1998 compared to 100.8% for the same period
last year. The improvement in the combined ratio can be attributed to a decline
in catastrophe losses of $14.5 million, while the industry was experiencing a
16% increase in catastrophe related losses in the same period.
The Company's written premium decreased 0.2% for the first quarter of
1998 compared to the same period in 1997. What is not apparent are the three
positive trends in the mix of business written during the first quarter of 1998.
First, by taking out the effect of our on-going catastrophe management programs
of not accepting new business in Florida and in certain portions of California,
our mobile home written premium, in the non-restricted areas, increased by 2.4%
over the first quarter of 1997. Second, our direct response automobile written
premium almost tripled over the results for the first quarter of 1997. The
Company wrote $1.4 million in direct response automobile premium in the first
quarter of 1998 compared with $0.5 million in the same quarter of 1997. Our
agency-produced automobile business continues to decline as planned, as
we implement our direct response automobile strategy. Third, our dwelling fire
insurance, called BASICS, continues its strong growth with a 17.4% increase in
written premium over the same period last year.
Written premium by major product line is as follows:
<TABLE>
<CAPTION>
%
1st Quarter Increase
1998 1997 (Decrease)
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Mobile Home $ 87,804 $ 86,696 1.3
RV 13,399 14,125 (5.1)
Automobile 4,126 4,381 (5.8)
BASICS 1,899 1,618 17.4
Homeowners 563 910 (38.1)
Other 1,213 1,529 (20.7)
-------- -------- ---------
Total $109,004 $109,259 (0.2)
======== ======== ========
</TABLE>
After-tax investment income increased 2.8% from the first quarter last
year. The primary reason for the increase is the growth in the investable asset
base resulting from the excellent underwriting results over the 12 month period.
-6-
<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 1998 were
$42.7 million from sales and maturities of investments and $6.4 million
from operations. The Company used $40.2 million for the purchase of securities,
purchased $8.0 million of treasury stock, paid $2.5 million in dividends to
shareholders and repaid $.5 million of long-term debt. Also, during the first
quarter of 1998, the Company received $.9 million from the exercise of 98,700
shares of stock options by employees. The Company had $16.3 million in cash
and other liquid assets at March 31, 1998.
Total invested assets on a cost basis decreased 1.1%, or $5.3 million
during the first quarter of 1998 compared to year end 1997. Market values of
securities available for sale increased $.4 million net of tax in the first
quarter of 1998.
The Company uses its stock repurchase program to manage its capital
base and leverage ratios. The number of shares repurchased in the first quarter
was 341,258. Since the inception of this repurchase plan in February 1994, the
Company has purchased 2,103,496 shares.
-7-
<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, 1998.
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 8, 1998 s/Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: May 8, 1998 s/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> 3-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 379,263
<DEBT-CARRYING-VALUE> 1,511
<DEBT-MARKET-VALUE> 0
<EQUITIES> 88,238
<MORTGAGE> 12,273
<REAL-ESTATE> 12,496
<TOTAL-INVEST> 508,835
<CASH> 1,292
<RECOVER-REINSURE> 22,203
<DEFERRED-ACQUISITION> 75,317
<TOTAL-ASSETS> 745,745
<POLICY-LOSSES> 86,648
<UNEARNED-PREMIUMS> 246,905
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 91,716
0
0
<COMMON> 32,467
<OTHER-SE> 226,783
<TOTAL-LIABILITY-AND-EQUITY> 745,745
108,307
<INVESTMENT-INCOME> 6,340
<INVESTMENT-GAINS> 1,617
<OTHER-INCOME> 726
<BENEFITS> 62,562
<UNDERWRITING-AMORTIZATION> 32,209
<UNDERWRITING-OTHER> 6,939
<INCOME-PRETAX> 15,280
<INCOME-TAX> (3,719)
<INCOME-CONTINUING> 11,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,561
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
<RESERVE-OPEN> 82,722
<PROVISION-CURRENT> 62,710
<PROVISION-PRIOR> (148)
<PAYMENTS-CURRENT> 37,128
<PAYMENTS-PRIOR> 21,531
<RESERVE-CLOSE> 86,648
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
