-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WvE7T5u/PDGkk3qOZ245S9gExm/7HYqGhfBuJEROOspcmEh3jNhOeIwMVY+iwKXw ueLI8HOS6omOkrFKdRPebw== 0000018508-96-000011.txt : 19960814 0000018508-96-000011.hdr.sgml : 19960814 ACCESSION NUMBER: 0000018508-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREMOST CORP OF AMERICA CENTRAL INDEX KEY: 0000018508 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 381863522 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11687 FILM NUMBER: 96610425 BUSINESS ADDRESS: STREET 1: 5600 BEECH TREE LN CITY: GRAND RAPIDS STATE: MI ZIP: 49501 BUSINESS PHONE: 6169423000 MAIL ADDRESS: STREET 1: P O BOX 2450 CITY: GRAND RAPIDS STATE: MI ZIP: 49501 FORMER COMPANY: FORMER CONFORMED NAME: CENTENNIAL CORP DATE OF NAME CHANGE: 19790320 10-Q 1 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, 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 June 30, 1996 Common Stock, $1.00 par value 9,951,234 FOREMOST CORPORATION OF AMERICA INDEX Page No. Part I. Financial Information: Item 1. - Financial Statements: Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 1 Consolidated Statements of Income - Six Months Ended June 30, 1996 and 1995 2 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 3 Condensed Notes to Consolidated Financial Statements 4 Item 2. - Management's Discussion and Analysis 5-7 Part II. Other Information: Item 5. - Other Information 8 Item 6. - Exhibits and Reports on Form 8-K 8 Signatures 8 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FOREMOST CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1996 1995 ----------- ------------ (In thousands, except share data) Assets: Investments- Fixed maturities held to maturity .................. $ 7,089 $ 7,131 Securities available for sale: Fixed maturities .................................. 348,281 348,753 Equity securities ................................. 83,974 65,574 Mortgage loans and land contracts on real estate ... 12,586 12,527 Investment real estate ............................. 15,159 19,140 Short-term investments ............................. 36,485 39,955 --------- --------- Total investments ................................. 503,574 493,080 Cash ................................................ 3,167 4,975 Accrued investment income ........................... 5,776 5,875 Premiums receivable ................................. 75,804 70,629 Due from reinsurance companies ...................... 28,173 23,341 Other receivables ................................... 4,859 7,360 Prepaid policy acquisition costs .................... 72,697 72,560 Prepaid reinsurance premiums ........................ 54 62 Real estate and equipment ........................... 35,132 36,035 Other assets ........................................ 14,191 13,644 Net assets of discontinued operations ............... -- 18,806 --------- --------- Total assets ....................................... $ 743,427 $ 746,367 ========= ========= Liabilities: Unearned premium .................................... $ 254,365 $ 248,953 Insurance losses and loss adjustment expenses ....... 91,390 93,771 Accounts payable and accrued expenses ............... 35,864 35,728 Notes and other obligations payable ................. 96,264 99,247 Income taxes ........................................ 17,277 11,575 Other liabilities ................................... 12,617 12,896 --------- --------- Total liabilities .................................. 507,777 502,170 --------- --------- Shareholders' Equity: Common stock $1 par - shares authorized 35,000,000, issued 14,000,000 .................................. 14,000 14,000 Additional paid-in capital .......................... 137,608 139,344 Unrealized appreciation of securities available for sale, net of applicable taxes ........ 9,542 13,802 Retained earnings ................................... 187,757 183,944 Restricted stock - deferred compensation ............ (4) (5) --------- --------- Total .............................................. 348,903 351,085 Treasury stock at cost, 4,048,766 and 3,965,220 shares .............................. (113,253) (106,888) --------- --------- Total shareholders' equity ......................... 235,650 244,197 --------- --------- Total liabilities and shareholders' equity ......... $ 743,427 $ 746,367 ========= ========= See accompanying condensed notes to consolidated financial statements.
-1- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED) FOREMOST CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 1996 1995 1996 1995 --------- --------- --------- --------- (In thousands except per share data) Income: Property and casualty premium earned $ 106,624 $ 106,183 $ 213,455 $ 211,922 Net investment income .............. 6,540 6,909 13,429 13,540 Realized gains (losses) ............ 1,404 119 2,170 (4) Other .............................. 1,119 166 1,684 1,419 --------- --------- --------- --------- Total income ..................... 115,687 113,377 230,738 226,877 --------- --------- --------- --------- Expense: Insurance losses and loss expenses . 64,164 62,792 144,386 125,229 Amortization of prepaid policy acquisition costs ................ 30,575 30,930 61,251 62,573 Operating .......................... 5,393 4,144 10,628 9,807 Interest ........................... 2,070 2,841 4,142 5,317 --------- --------- --------- --------- Total expense .................... 102,202 100,707 220,407 202,926 --------- --------- --------- --------- Income before taxes ............ 13,485 12,670 10,331 23,951 Income tax provision ................. (3,604) (3,468) (1,503) (6,338) --------- --------- --------- --------- Net income - continuing operations . 9,881 9,202 8,828 17,613 Net income (loss) - discontinued operations ......................... (586) 472 383 1,029 --------- --------- --------- --------- Net income ......................... $ 9,295 $ 9,674 $ 9,211 $ 18,642 ========= ========= ========= ========= Per share of common stock: Net income - continuing operations .. $ 0.99 $ 0.90 $ 0.88 $ 1.71 Net income (loss) - discontinued operations ......................... (0.06) 0.04 0.04 0.10 --------- --------- --------- --------- Net income ........................ $ 0.93 $ 0.94 $ 0.92 $ 1.81 ========= ========= ========= ========= Average shares outstanding ........... 9,961 10,253 10,003 10,300 ========= ========= ========= ========= Cash dividends per share ............. $ 0.27 $ 0.27 $ 0.54 $ 0.54 ========= ========= ========= ========= See accompanying condensed notes to consolidated financial statements.
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED) FOREMOST CORPORATION OF AMERICA CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, --------------------- 1996 1995 (In thousands) --------- --------- Operating Activities: Net cash from operating activities ................ $ 9,801 $ 49,675 --------- --------- Investing Activities: Purchases of securities and loans made ............... (80,631) (122,275) Purchases of real estate and equipment ............... (51) (169) Sales of securities .................................. 40,900 94,675 Maturities of securities and receipts from repayments of loans ............................ 20,440 13,478 Sales of real estate and equipment ................... 3,930 960 Proceeds from sale of subsidiary ..................... 17,437 -- Decrease (increase) in short-term investments ........ 3,279 (20,877) --------- --------- Net cash from (for) investing activities ............ 5,304 (34,208) --------- --------- Financing Activities: Repayments of long-term debt ......................... (2,983) (2,054) Acquisition of treasury shares ....................... (10,698) (6,280) Dividends paid ....................................... (5,398) (5,572) Receipts from exercise of stock options .............. 2,166 -- --------- --------- Net cash for financing activities ................... (16,913) (13,906) --------- --------- Cash increase (decrease) .................... (1,808) 1,561 Cash at beginning of year ............................. 4,975 3,899 --------- --------- Cash at end of period ....................... $ 3,167 $ 5,460 ========= ========= See accompanying condensed notes to consolidated financial statements.
-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. Interim results are not necessarily indicative of the results to be expected in any other period. 3. On June 11, 1996, the Company completed the sale of its life insurance subsidiary, Foremost Life Insurance Company, to Woodmen Accident and Life Company for a final purchase price of $40,133,000. The net loss on the sale was $676,000 after taxes totaling $6,167,000. Accordingly, the Consolidated Financial Statements presented herein have been restated to reflect the Life Insurance Segment as discontinued operations for all periods presented. -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 second quarter underwriting results rebounded strongly from the first quarter of 1996. The combined loss and expense ratio was 92.8% for the second quarter of 1996 compared to 108.5% for the first quarter of 1996. Net income from continuing operations for the second quarter of 1996 was $.99 per share, including $.09 per share in realized gains, compared to $.90 per share, with $.01 per share in realized gains in the same period last year. The net operating income of $.90 per share in the second quarter of 1996 was slightly better than the record second quarter operating income of $.89 per share set in 1995. Net income from continuing operations for the first six months was $.88 per share compared to $1.71 per share in 1995. Realized gains of $.14 per share for 1996 are included in the six months net income figure, with no realized gains or losses in the same period last year. On June 11, 1996, the Company completed the sale of its life insurance subsidiary, Foremost Life Insurance Company, to Woodmen Accident and Life Company. The sale yielded net after-tax proceeds of $17.4 million and the Company incurred an after-tax loss of $676,000 as a result of the sale. The financial results of the life insurance segment and the sale are reflected in the financial statements as discontinued operations. The combined loss and expense ratio for the property and casualty group was 92.8% for the second quarter compared to 93% for the same period last year. The six months combined ratio was 100.7% compared with 93.5% in the prior year. The increase in the first six months of 1996 was largely due to the catastrophe losses in the first quarter, which impacted the six months combined ratio by 5.1 points higher than the previous period. Written premium from the core products, mobile home and recreational vehicle, was flat for the quarter and down 1.5% for the first six months when compared to last year as a result of the Company's catastrophe exposure management program, which has been eliminating policies in coastal counties from Maine to Texas. The non-renewal of policyholders, begun last year to reduce the Company's coastal exposure to loss as a result of hurricanes, was substantially completed on June 30, 1996. The Company expects moderate growth in written premium during the second half of the year. -5- During the second quarter of 1996, the Company signed a long-term agreement with a subsidiary of First USA, Inc. to offer primarily private passenger automobile and homeowners insurance directly to customers of First USA. Written premium by major product line is as follows:
2nd Quarter % -------------------------- Increase 1996 1995 (Decrease) ------- ------- ---------- (In thousands) Mobile Home ............ $ 93,362 $ 93,578 (0.2) RV ..................... 15,179 14,979 1.3 ------- ------- ----- Subtotal ............. 108,541 108,557 0.0 Automobile ............. 2,293 2,661 (13.8) Homeowners ............. 1,948 1,966 (0.9) Other .................. 1,375 1,233 11.5 ------- ------- ----- Total ................ $114,157 $114,417 (0.2) ======= ======= ===== Six Months % -------------------------- Increase 1996 1995 (Decrease) ------- ------- ---------- (In thousands) Mobile Home ............ $178,384 $181,650 (1.8) RV ..................... 29,573 29,550 0.1 ------- ------- ----- Subtotal ............. 207,957 211,200 (1.5) Automobile ............. 5,270 6,134 (14.1) Homeowners ............. 3,432 3,688 (6.9) Other .................. 2,769 2,729 1.5 ------- ------- ----- Total ................ $219,428 $223,751 (1.9) ======= ======= =====
After-tax investment income from continuing operations declined 3.9% from the second quarter last year and was down 1.4% for the year. The decrease was primarily due to the impact of catastrophe loss payments on the Company's cash flow and investable asset base and the Company's continued effort to increase its asset allocation to common stocks, which will sacrifice current income for a higher potential total return. -6- Financial Position The principal sources of cash for the first six months of 1996 were $64.6 million from sales and maturities of investments, $17.4 million from the sale of the life insurance subsidiary, $9.8 million provided from operations, $3.9 million from sales of real estate and $2.2 million in receipts from the exercise of stock options. The Company used $80.6 million for the purchase of securities, purchased $10.7 million of treasury stock, paid $5.4 million in dividends to shareholders and repaid $3 million of debt. Interest paid in the first six months of 1996 was $3.7 million compared to $4.8 million for the same period last year. The Company had $39.7 million in cash and other liquid assets at June 30, 1996. The cost basis of total invested assets from continuing operations at June 30, 1996 increased 4%, or $17 million compared to year end 1995 due primarily to the proceeds received from the sale of the life insurance subsidiary. Market values of securities available for sale decreased $4.2 million net of taxes in the first six months of 1996. The Company continued to purchase its own common stock under a buy back plan announced in February 1994 for up to 1 million shares and increased by 500,000 shares during the first quarter of 1996. During the first six months of 1996, the Company purchased 193,463 shares of its common stock outstanding at an average price of $55.30 per share. Since the inception of this buy back plan, the Company has purchased 893,070 shares at an average price of $40.74 per share. The Company intends that the majority of the net proceeds from the sale of the life insurance subsidiary will be utilized to repurchase the Company's stock. Book value per share was $23.68 per share at June 30, 1996 with 9,951,000 shares outstanding compared to $24.33 per share at December 31, 1995 with 10,035,000 shares outstanding. -7- PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On April 11, 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 (b) Reports on 8-K On June 11, 1996 the Company filed a Form 8-K announcing it had completed the sale of its life insurance subsidiary, Foremost Life Insurance Company, to Woodmen Accident and Life Company. The announcement stated the Company would receive net after-tax proceeds of approximately $17.5 million and incur an after-tax loss of approximately $1.1 million. 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, 1996 Paul D. Yared ------------------------------ Paul D. Yared Its: Senior Vice President, Secretary and General Counsel Date: August 12, 1996 Kenneth C. Haines ------------------------------ Kenneth C. Haines Its: Controller -8- EX-27 2 SEC FINANCIAL DATA SCHEDULE
7 0000018508 Foremost Corporation of America 1,000 US Dollars 6-Mos Dec-31-1996 Jan-01-1996 Jun-30-1996 1 348,281 7,089 7,109 83,974 12,586 15,159 503,574 3,167 28,173 72,697 743,427 91,390 254,365 0 0 96,264 0 0 14,000 221,650 743,427 213,455 13,429 2,170 1,684 144,386 61,251 0 10,331 1,503 8,828 383 0 0 9,211 0.92 0.92 93,771 135,681 230 98,462 38,889 0 0
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