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, 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 March 31, 1996
Common Stock, $1.00 par value 10,030,894
FOREMOST CORPORATION OF AMERICA
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. - Financial Statements:
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1995 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 3
Condensed Notes to Consolidated Financial
Statements 4
Item 2. - Management's Discussion and Analysis 5-6
Part II. Other Information:
Item 5. - Other Information 7
Item 6. - Exhibits and Reports on Form 8-K 7
Signatures 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
----------- -----------
(In thousands, except share data) Assets:
Investments-
Fixed maturities held to maturity .................. $ 7,481 $ 7,511
Securities available for sale:
Fixed maturities .................................. 379,770 372,210
Equity securities ................................. 79,518 66,084
Mortgage loans and land contracts on real estate ... 12,487 12,550
Investment real estate ............................. 15,453 19,140
Short-term investments ............................. 14,808 42,666
--------- ---------
Total investments ................................. 509,517 520,161
Cash ................................................ 2,132 5,184
Accrued investment income ........................... 7,355 6,246
Premiums receivable ................................. 74,152 72,387
Due from reinsurance companies ...................... 23,707 23,342
Other receivables ................................... 4,829 7,381
Prepaid policy acquisition costs .................... 73,829 74,052
Prepaid reinsurance premiums ........................ 54 62
Real estate and equipment ........................... 35,597 36,035
Other assets ........................................ 14,314 13,644
--------- ---------
Total assets ....................................... $ 745,486 $ 758,494
========= =========
Liabilities:
Unearned premium .................................... $ 249,671 $ 251,630
Insurance losses and loss adjustment expenses ....... 98,914 97,504
Accounts payable and accrued expenses ............... 38,135 39,269
Notes and other obligations payable ................. 96,851 99,247
Income taxes ........................................ 9,755 13,017
Other liabilities ................................... 15,619 13,630
--------- ---------
Total liabilities .................................. 508,945 514,297
--------- ---------
Shareholders' Equity:
Common stock $1 par - shares authorized 35,000,000,
issued 14,000,000 .................................. 14,000 14,000
Additional paid-in capital .......................... 138,496 139,344
Unrealized appreciation of securities available
for sale, net of applicable taxes .................. 11,325 13,802
Retained earnings ................................... 181,148 183,944
Restricted stock - deferred compensation ............ (5) (5)
--------- ---------
Total .............................................. 344,964 351,085
Treasury stock at cost, 3,969,106
and 3,965,220 shares .............................. (108,423) (106,888)
--------- ---------
Total shareholders' equity ......................... 236,541 244,197
--------- ---------
Total liabilities and shareholders' equity ......... $ 745,486 $ 758,494
========= =========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
-1-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
-------------------------
1996 1995
---------- ----------
(In thousands except per share data)
Income:
Property and casualty premium earned ........... $ 106,832 $ 105,739
Life premium earned ............................ 5,280 5,746
Net investment income .......................... 7,344 7,173
Realized gains (losses) ........................ 769 (123)
Other .......................................... 566 1,256
--------- ---------
Total income ................................. 120,791 119,791
--------- ---------
Expense:
Insurance losses, death and other benefits ..... 83,589 66,547
Amortization of prepaid policy
acquisition costs ............................ 31,965 33,034
Operating and other ............................ 7,291 8,084
--------- ---------
Total expense ................................ 122,845 107,665
--------- ---------
Income before taxes ........................ (2,054) 12,126
Income tax credit (provision) .................... 1,970 (3,158)
--------- ---------
Net income (loss) .............................. $ (84) $ 8,968
========= =========
Per share of common stock:
Net income ..................................... $ (0.01) $ 0.87
========= =========
Average shares outstanding ....................... 10,045 10,349
========= =========
Cash dividends per share ......................... $ 0.27 $ 0.27
========= =========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
FOREMOST CORPORATION OF AMERICA
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
------------------------
1996 1995
---------- ----------
(In thousands)
Operating Activities:
Net cash from (for) operating activities ....... $ (4,914) $ 33,107
-------- --------
Investing Activities:
Purchases of securities and loans made ............ (43,504) (31,192)
Purchases of real estate and equipment ............ (29) (62)
Sales of securities ............................... 14,569 17,896
Maturities of securities and receipts
from repayments of loans ......................... 7,213 6,720
Sales of real estate and equipment ................ 3,679 --
Decrease (Increase) in short-term investments ..... 27,851 (22,053)
-------- --------
Net cash from (for) investing activities ......... 9,779 (28,691)
-------- --------
Financing Activities:
Net change in short-term debt ..................... (2,000) 500
Repayments of long-term debt ...................... (396) (521)
Acquisition of treasury shares .................... (4,174) (2,195)
Dividends paid .................................... (2,712) (2,801)
Receipts from exercise of stock options ........... 1,365 --
-------- --------
Net cash for financing activities ................ (7,917) (5,017)
-------- --------
Cash decrease ............................ (3,052) (601)
Cash at beginning of year .......................... 5,184 4,195
-------- --------
Cash at end of period .................... $ 2,132 $ 3,594
======== ========
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
-3-
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. Intrim results are not necessarily
indicative of the results to be expected in any other period.
-4-
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 1996 were
negatively impacted by catastrophe losses caused by severe winter storms along
the east and west coasts. The effect of these catastrophe losses resulted in the
Company's combined loss and expense ratio being 13.9 points higher in the first
quarter of 1996 compared to the first quarter last year.
The Company had a net loss for the first quarter of $.01 per share,
compared to net earnings of $.87 per share for the same period last year.
Realized gains of $.05 per share and a realized loss of $.01 per share are
included in the first quarter results for 1996 and 1995, respectively.
The combined loss and expense ratio for the property and casualty group
was 108.5% for the first quarter compared to 94% for the same period last year.
Written premium from the Company's core products, mobile home and
recreational vehicle, was down 3.1% for the quarter compared to last year. The
decrease is the result of the Company's catastrophe exposure management program
that is eliminating policies in coastal counties from Maine to Texas. The
non-renewal of policyholders, which began last year to reduce the Company's
coastal exposure to loss as a result of hurricanes, will be completed by
June 30, 1996.
Written premium by major product line is as follows:
1st Quarter %
------------------------- Increase
1996 1995 (Decrease)
-------- -------- ----------
(In thousands)
Mobile Home .......... $ 85,022 $ 88,071 (3.5)
RV ................... 14,394 14,571 (1.2)
-------- -------- ---------
Subtotal ........... 99,416 102,642 (3.1)
Automobile ........... 2,977 3,474 (14.3)
Homeowners ........... 1,484 1,722 (13.8)
Other ................ 1,394 1,496 (6.8)
-------- -------- ---------
Total .............. $105,271 $109,334 (3.7)
======== ======== =========
-5-
After-tax investment income declined slightly in the first quarter to
$5,749,000 compared to $5,755,000 for the previous year. The primary reason for
the decrease was the negative impact of catastrophe loss payments 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.
Financial Position
The principal sources of cash for the first three months of 1996 were
$49.6 million from sales and maturities of investments, $3.7 million from sales
of real estate and $1.4 million in receipts from the exercise of stock options.
The Company used $4.9 million for operations due primarily to the catastrophe
losses paid during the quarter. Also during the first quarter, the Company used
$43.5 million for the purchase of securities, purchased $4.2 million of treasury
stock, paid $2.7 million in dividends to shareholders and repaid $2.4 million of
debt. The Company had $16.9 million in cash and other liquid assets at March 31,
1996.
Total invested assets on a cost basis decreased 1%, or $6.8 million
during the first quarter of 1996 compared to year-end 1995. Market values of
securities available for sale decreased $2.7 million net of tax in the first
quarter of 1996.
The Company's common stock buy back plan, announced in February 1994
for up to 1 million shares, was increased by 500,000 shares during the first
quarter of 1996. During the period from January 1, 1996 through April 18, 1996,
the Company has purchased 136,031 shares of its common stock outstanding at an
average price of $55.99 per share. Since the inception of this buy back plan,
the Company has purchased 835,638 shares at an average price of $39.86 per
share.
On January 31, 1996, The Company announced that it had signed a letter
of intent to sell its subsidiary Foremost Life Insurance Company to Woodman
Accident and Life Company of Lincoln, Nebraska. Both companies continue to work
toward the completion of that sale and it is anticipated that it will close
before the end of the second quarter.
-6-
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 3, 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
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on 8-K
On January 31, 1996 the Company filed a Form 8-K announcing it had
signed a letter of intent to sell its subsidiary Foremost Life Insurance
Company. The sale is subject to certain conditions, including the negotiation
and execution of a definitive purchase agreement, completion of the due
diligence review, and regulatory approvals and authorizations. The Company would
yield approximately $17 million in cash and incur an after-tax loss of
approximately $1.3 million from the sale.
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, 1996 Paul D. Yared
------------------------------
Paul D. Yared
Its: Senior Vice President,
Secretary and General
Counsel
Date: May 8, 1996 Kenneth C. Haines
------------------------------
Kenneth C. Haines
Its: Controller
-7-